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 Ended June 30, 1999
AMDOCS LIMITED
Tower Hill House Le Bordage GY1 3QT
St. Peter Port, Island of Guernsey, Channel Islands
--------------
Amdocs, Inc.
1390 Timberlake Manor Parkway, Chesterfield, Missouri 63017
(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, 1999
INDEX
PART I FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations (Unaudited)
Consolidated Statement of Changes in Shareholders'
Equity (Deficit) (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
Item 5. Other Information
Item 6. Exhibits and Reports on Form 6-K
SIGNATURES
EXHIBIT INDEX
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ITEM 1. FINANCIAL INFORMATION
AMDOCS LIMITED
CONSOLIDATED BALANCE SHEETS
(in U.S. dollars, unless otherwise stated)
(in thousands, except per share data)
As of
------------------------------------
June 30, September 30,
1999 1998
--------------- ---------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $71,078 $25,389
Accounts receivable, including unbilled of $2,478 and $10,331, 144,326 79,723
respectively
Accounts receivable from related parties, including unbilled of $0 and
$537, respectively 9,775 10,235
Deferred income taxes 16,894 14,534
Prepaid expenses and other current assets 20,613 11,991
-------------- ----------------
Total current assets 262,686 141,872
Equipment, vehicles and leasehold improvements, net 70,704 46,404
Deferred income taxes 5,614 7,773
Intellectual property rights 21,397 23,362
Other noncurrent assets 26,381 20,555
-------------- ----------------
$386,782 $239,966
============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses $64,446 $47,599
Accrued personnel costs 34,607 29,948
Short-term financing arrangements 26,561 91,565
Deferred revenue 92,744 29,241
Short-term portion of capital lease obligations 4,459 2,952
Forward exchange contracts 1,488 2,926
Income taxes payable and deferred income taxes 23,077 21,919
-------------- ----------------
Total current liabilities 247,382 226,150
Long-term forward exchange contracts 507 2,222
Long-term portion of capital lease obligations 12,649 9,215
Other noncurrent liabilities 29,972 24,268
Shareholders' equity (deficit):
Preferred Shares - Authorized 25,000 shares;
pound sterling 0.01 par value; 0 issued and outstanding - -
Ordinary Shares - Authorized 550,000 shares;
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pound sterling 0.01 par value; 198,800 and 196,800 outstanding, respectively 3,181 3,149
Additional paid-in capital 489,073 447,503
Unrealized gain (loss) on derivative instruments 2,558 (1,495)
Unearned compensation (5,145) (8,947)
Accumulated deficit (393,395) (462,099)
-------------- ----------------
Total shareholders' equity (deficit) 96,272 (21,889)
============== ================
$386,782 $239,966
============== ================
The accompanying notes are an integral part of these financial statements.
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AMDOCS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in U.S. dollars, unless otherwise stated)
(in thousands, except per share data)
Three months ended Nine months ended
June 30, June 30,
------------------------------------ ----------------------------------
1999 1998 1999 1998
---------------- ---------------- -------------- ---------------
Revenue:
License (*) $ 19,639 $ 11,322 $ 51,987 $ 29,741
Service (*) 145,245 95,175 392,152 257,322
---------------- ---------------- -------------- ---------------
164,884 106,497 444,139 287,063
Operating expenses:
Cost of license 1,367 2,654 4,060 8,521
Cost of service (*) 94,456 60,518 254,651 165,268
Research and development 11,005 7,172 28,524 18,127
Selling, general and administrative (*) 20,274 13,332 53,336 36,356
---------------- ---------------- -------------- ---------------
127,102 83,676 340,571 228,272
---------------- ---------------- -------------- ---------------
Operating income 37,782 22,821 103,568 58,791
Other expense (income), net:
Interest expense, net (*) 834 9,212 3,736 23,013
Other, net 633 723 1,684 (1,241)
---------------- ---------------- -------------- ---------------
1,467 9,935 5,420 21,772
---------------- ---------------- -------------- ---------------
Income before income taxes 36,315 12,886 98,148 37,019
Income taxes 10,894 6,443 29,444 18,510
---------------- ---------------- -------------- ---------------
Net income $ 25,421 $ 6,443 $ 68,704 $ 18,509
================ ================ ============== ===============
Basic earnings per share $ 0.13 $ 0.04 $ 0.35 $ 0.13
================ ================ ============== ===============
Diluted earnings per share $ 0.13 $ 0.04 $ 0.34 $ 0.13
================ ================ ============== ===============
(*) Includes the following income (expense) resulting from transactions with
related parties for the three and nine months ended June 30, 1999 and 1998,
respectively: license revenue - $140, $2,290, $418 and $2,290; service
revenue - $22,473, $19,638, $68,422 and $62,680; cost of service - $(987),
$(771), $(2,044) and $(2,036); selling, general and administrative -
$(196), $(115), $(428) and $(304); interest expense - $(0), $(1,102), $(0)
and $(4,150).
The accompanying notes are an integral part of these financial statements.
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AMDOCS LIMITED
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY (DEFICIT) (UNAUDITED)
(in thousands)
Unrealized
Additional income
Ordinary Shares Paid-in (loss) on
Capital derivative
instruments
-----------------------
Shares Amount
--------- ---------- ----------- ------------
Balance at September 30, 196,800 $ 3,149 $ 447,503 $ (1,495)
1998
Net income - - - -
Issuance of Ordinary 2,000 32 41,352 -
Shares, net
Unrealized income on
derivative instruments, net - - - 4,053
of $1,737 tax
Stock options granted, net
of forfeitures - - 218 -
Amortization of unearned
compensation
- - - -
========= ========== =========== ============
Balance at June 30, 1999 198,800 $ 3,181 $ 489,073 $ 2,558
(unaudited)
========= ========== =========== ============
Total
Unearned Accumulated Shareholders'
Compensation Deficit Equity
(Deficit)
------------- ------------ -------------
Balance at September 30, $ (8,947) $ (462,099) $ (21,889)
1998
Net income - 68,704 68,704
Issuance of Ordinary - - 41,384
Shares, net
Unrealized income on
derivative instruments, net - - 4,053
of $1,737 tax
Stock options granted, net
of forfeitures (163) - 55
Amortization of unearned
compensation
3,965 - 3,965
============= ============ =============
Balance at June 30, 1999 $ (5,145) $ (393,395) $ 96,272
(unaudited)
============= ============ =============
The accompanying notes are an integral part of these financial statements.
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AMDOCS LIMITED
CONSOLIDATED STATEMENT OF CASH FLOW STATEMENT (UNAUDITED)
(in U.S. dollars, unless otherwise stated)
(in thousands)
Nine months ended June 30,
1999 1998
-------------------- -------------------
Cash flow from Operating Activities
Net Income $68,704 $18,509
Reconciliation of net income to net cash provided by
Operating activities:
Depreciation 13,763 8,659
Amortization 8,211 12,916
Loss on sale of equipment 518 99
Deferred income taxes 1,368 (1,750)
Net changes in operating assets and liabilities:
Accounts receivable (64,143) (19,656)
Prepaid expenses and other current assets (8,848) (594)
Other noncurrent assets (6,827) (2,834)
Accounts payable and accrued expenses 20,357 17,241
Forward exchange contracts (3,153) -
Deferred revenue 63,503 16,072
Income taxes payable (2,146) (1,464)
Other noncurrent liabilities 5,704 4,170
Unrealized loss on derivative instruments 5,789 -
-------------------- -------------------
10,236 12,935
-------------------- -------------------
Net cash provided by operating activities 102,800 51,368
-------------------- -------------------
Cash flow from Investing Activities
Proceeds from sale of equipment, vehicles and leasehold
improvements 1,212 721
Payments for purchase of equipment, vehicles, leasehold
improvements and other (32,913) (18,232)
-------------------- -------------------
Net cash used in investing activities (31,701) (17,511)
-------------------- -------------------
Cash flow from Financing Activities
Net proceeds from issuance of Ordinary Shares 42,535 332,223
Dividends paid - (478,684)
Payments under short-term financing arrangements (293,012) (208,449)
Borrowings under short-term financing arrangements 228,008 223,921
Payments under long-term financing arrangements - (267,763)
Net proceeds from issuance of long-term debt - 357,877
Payments on notes payable to related parties - (3,268)
Principal payments under capital lease obligations (2,941) (1,753)
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-------------------- -------------------
Net cash used in financing activities (25,410) (45,896)
-------------------- -------------------
Net increase (decrease) in cash and cash equivalents 45,689 (12,039)
Cash and cash equivalents at beginning of period 25,389 53,732
-------------------- -------------------
Cash and cash equivalents at end of period $71,078 $41,693
==================== ===================
Supplementary cash flow information Cash paid for:
Income taxes, net of refunds $26,710 $21,857
Interest 4,582 20,891
Noncash investing and financing activities
Capital lease obligations of $7,881 and $2,106 were incurred during the
nine months ended June 30, 1999 and 1998, respectively, when the Company entered
into lease agreements for the purchase of fixed assets.
As of June 30, 1999 and 1998, the Company incurred stock issuance costs of
$1,150 and $1,586 respectively, which had not been paid as of that date.
The accompanying notes are an integral part of these financial statements.
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AMDOCS LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars unless otherwise stated)
(in thousands, except per share data)
1. Basis of Presentation
Amdocs Limited ("Amdocs" or the "Company") is a leading provider of
product-driven information system solutions to the telecommunications
industry. The Company and its subsidiaries operate in one business segment,
providing computer systems integration and related services for the
telecommunications industry. The Company designs, develops, markets and
supports computer software products and related services to
telecommunications companies throughout the world.
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 flows in conformity with
generally accepted accounting principles. These statements should be read
in conjunction with the Company's consolidated financial statements for the
year ended September 30, 1998 set forth in the Company's Annual Report on
Form 20-F filed with the Securities and Exchange Commission.
2. Adoption of New Accounting Standards
Effective October 1, 1998, the Company adopted the provisions of Statement
of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed for or Obtained for Internal-Use". The SOP requires the
capitalization of certain costs incurred after the date of adoption in
connection with developing or obtaining software for internal use. In
accordance with the SOP, the Company capitalized approximately $1,700 of
internally developed software costs in the nine-month period ended June 30,
1999.
3. Comprehensive Income
Effective October 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(Statement 130), which established standards for the reporting and display
of comprehensive income and its components. Comprehensive income represents
the change in shareholders' equity during a period from transactions and
other events and circumstances from nonowner sources. It includes all
changes in equity except those resulting from investments by owners and
distributions to owners.
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The following table sets forth the reconciliation from net income to
comprehensive income for the following periods:
Three months ended Nine months ended
June 30, June 30,
----------------------------------- ----------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
Net income $ 25,421 $ 6,443 $ 68,704 $ 18,509
Change in unrealized income
on derivative instruments,
net of tax 2,333 - 4,053 -
=============== =============== =============== ===============
Comprehensive income $ 27,754 $ 6,443 $ 72,757 $ 18,509
=============== =============== =============== ===============
4. Income Taxes
The provision for income taxes for the following periods consists of the
following:
Three months ended Nine months ended
June 30, June 30,
----------------------------------- ----------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
Current $ 14,325 $ 5,403 $ 28,076 $ 20,260
Deferred (3,431) (1,040) 1,368 (1,750)
=============== =============== =============== ===============
$ 10,894 $ 6,443 $ 29,444 $ 18,510
=============== =============== =============== ===============
The effective income tax rate varied from the statutory Guernsey tax rate
as follows for the following periods:
Three months ended Nine months ended
June 30, June 30,
----------------------------------- ----------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
Statutory Guernsey tax rate 20% 20% 20% 20%
Guernsey tax-exempt status (20) (20) (20) (20)
Foreign taxes 30 50 (*) 30 50 (*)
=============== =============== =============== ===============
Effective income tax rate 30% 50% 30% 50%
=============== =============== =============== ===============
(*) In fiscal 1998, the Company incurred tax expense on the income
of its operations in various countries and sustained a loss in
a tax jurisdiction in which the Company is tax-exempt, which
resulted in no tax benefit to offset the expense incurred. As
a result, the Company's effective income tax rate in fiscal
1998 was significantly greater than the estimated fiscal 1999
effective tax rate.
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5. Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share:
Three months ended Nine months ended
June 30, June 30,
--------------------------- ----------------------------
1999 1998 1999 1998
------------ ----------- ------------ ------------
Numerator:
Net income $ 25,421 $ 6,443 $ 68,704 $ 18,509
============ =========== ============ ============
Denominator:
Denominator for basic earnings per share -
weighted average shares 197,322 181,174 196,976 145,630
Effect of dilutive stock options granted 2,988 1,522 2,673 821
------------ ----------- ------------ ------------
Denominator for dilutive earnings per share -
adjusted average shares and assumed
conversions 200,310 182,696 199,649 146,451
============ =========== ============ ============
Basic earnings per share $0.13 $0.04 $0.35 $0.13
============ =========== ============ ============
Diluted earnings per share $0.13 $0.04 $0.34 $0.13
============ =========== ============ ============
6. Capital transaction
On June 7, 1999 the Company and certain shareholders of the Company
completed a public offering by which the Company sold 2,000 Ordinary Shares
and the certain shareholders of the Company sold 18,426 Ordinary Shares,
including an exercise of an over-allotment of 426 Ordinary Shares that was
completed in July 1999, at an offering price of $22.44 per share. The total
net proceeds to the Company, after deduction of issuance costs, amounted to
$41,384.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
INTRODUCTION
In Management's Discussion and Analysis we explain the general
financial condition and the results of operations for Amdocs and its
subsidiaries including:
- what factors affect our business,
- what our revenue and costs were in the nine months and three months ended
June 30, 1999 and 1998,
- why those revenue and costs were different from period to period,
- the sources of our revenue,
- how all of this affects our overall financial condition,
- what our expenditures were in the nine months and three months ended June
30, 1999 and 1998, and
- the sources of our cash to pay for future capital expenditures.
As you read Management's Discussion and Analysis, it may be helpful to
refer to Amdocs' financial statements. In Management's Discussion and Analysis,
we analyze and explain the nine months to nine months and three months to three
months changes in the specific line items in the consolidated statements of
operations. Our analysis contains certain forward looking statements that
involve risk and uncertainties. Our actual results could differ materially from
the results reflected in these forward looking statements as they are subject to
a variety of risk factors. We disclaim any obligation to update our forward
looking statements.
OVERVIEW
We are a leading provider of customized software products and services
to the telecommunications industry, primarily Customer Care and Billing Systems
("CC&B Systems") for wireline, wireless and multiple-service or convergent
network operators and service providers. We also supply Directory Sales and
Publishing Systems ("Directory Systems") to publishers of both traditional
printed yellow page and white page directories and Internet directories. Our
products are mission-critical for a customer's operations. Due to the complexity
of the process and the expertise required for system support, we also provide
extensive customization, implementation, integration, ongoing support, system
enhancement and maintenance, including an outsourcing offering.
We derive our revenue principally from:
- the initial sale of our products and related services, including license
fees and customization,implementation and integration services, and
- recurring revenue from ongoing maintenance, support, outsourcing and
related services provided to our customers and, to a lesser degree, from
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incremental license fees resulting from increases in a customer's
subscribers.
License revenue is recognized concurrently as work is performed, using
percentage of completion accounting. Service revenue that involves significant
ongoing obligations, including fees for customization, implementation and
support services, is also recognized as work is performed, under the percentage
of completion method. Revenue from ongoing support and outsourcing services is
recognized as work is performed. Revenue from third party hardware and software
sales is recognized upon delivery. Maintenance revenue is recognized ratably
over the term of the maintenance agreement. As a result of our percentage of
completion accounting policy, our quarterly operating results may be
significantly affected by the size and timing of customer projects and our
progress in completing such projects.
Since 1992, we have invested substantial resources to develop our
information technology and to expand our range of products. As a result of
significant information technology expenditures, we were able to offer a full
range of integrated applications for our 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.
License and service fees from the sale of CC&B Systems amounted to
$325.4 million and $125.8 million in the nine and three months ended June 30,
1999 respectively, representing 73.3% and 76.3%, respectively, of our revenue
for such periods.
We believe that the demand for CC&B Systems will continue to increase
as the size and complexity of the telecommunications industry increases and that
CC&B Systems will account for a larger share of our 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 us worldwide. We believe that we are a leading
provider of Directory Systems in most of the markets we serve.
License and service fee revenue from the sale of Directory Systems
totaled $118.8 million and $39.1 million in the nine and three months ended
June 30, 1999, respectively, accounting for 26.7% and 23.7%, respectively, of
our revenue for such periods.
We believe that the demand for Directory Systems will be favorably
impacted by a broader introduction of electronic directories. However, we
anticipate that the relative contribution of license and service fees for
Directory Systems to total revenue will decrease over time. We have also
recently introduced a number of new products for Internet and electronic
commerce applications. We anticipate that over the next several years products
developed or to be developed for such applications will make a modest but
increasing contribution to revenue.
Our research and development activities involve the development of new
software modules and product offerings in response to an identified market
demand, usually in conjunction with a customer project. We also expend
additional amounts on applied research and software development activities to
keep abreast of new technologies in the telecommunications market. In the
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next several years, we intend to continue to make significant investments in our
research and development activities.
On June 7, 1999 we sold 2 million Ordinary Shares in a public offering
at a price of $22.44 per share. The total net proceeds to Amdocs, after
deduction of issuance costs, amounted to $41.4 million. At the same time,
certain of our shareholders sold 18,426,000 Ordinary Shares, including an
exercise of an over-allotment of 426,000 Ordinary Shares.
RESULTS OF OPERATIONS
The following table sets forth, for the nine months and for the three
months ended June 30, 1999 and 1998, certain items in our consolidated
statements of operations reflected as a percentage of total revenue:
Three months Nine months
Ended Ended
June 30, June 30,
-------------------- -----------------
1999 1998 1999 1998
-------- -------- -------- ------
Revenue:
License.............................. 11.9% 10.6% 11.7% 10.4%
Service.............................. 88.1 89.4 88.3 89.6
------- ------- ------- -------
100.0 100.0 100.0 100.0
------- ------- ------- -------
Operating expenses:
Cost of license...................... 0.8 2.5 0.9 3.0
Cost of service...................... 57.3 56.8 57.4 57.6
Research and development............. 6.7 6.7 6.4 6.3
Selling, general and administrative.. 12.3 12.6 12.0 12.6
------- ------- ------- -------
77.1 78.6 76.7 79.5
------- ------- ------- -------
Operating income....................... 22.9 21.4 23.3 20.5
Other expense, net..................... 0.9 9.4 1.2 7.7
------- ------- ------- -------
Income before income taxes............. 22.0 12.0 22.1 12.8
Income taxes........................... 6.6 6.0 6.6 6.4
------- ------- ------- -------
Net income............................. 15.4% 6.0% 15.5% 6.4%
======= ======= ======= =======
NINE MONTHS ENDED JUNE 30, 1999 and 1998
REVENUE. Revenue for the nine months ended June 30, 1999 was $444.1
million, an increase of $157.1 million, or 54.7%, compared to the nine months
ended June 30, 1998, primarily due to the continuance of the growth in the
demand for our CC&B Systems solutions. License revenue increased from $29.7
million in the nine months ended June 30, 1998 to $52.0 million in the nine
months ended June 30, 1999, an increase of 74.8%. Service revenue increased
52.4% by $134.8 million in the nine months ended June 30, 1999, from $257.3
million in the nine months ended June 30, 1998 to $392.2 million in the nine
months ended June 30, 1999. Total CC&B Systems revenue for the nine months ended
June 30, 1999 was $325.4 million, an increase of $153.4 million, or 89.2%,
compared to the nine months ended June 30, 1998. Revenue from Directory Systems
was $118.8 million for the nine months ended June 30, 1999, an increase of $3.7
million, or 3.2%, from the nine months ended June 30, 1998.
In the nine months ended June 30, 1999 and 1998, revenue from customers
in North America, Europe and the rest of the world accounted for 40%, 39% and
21% compared to 54%, 23% and 27%, respectively.
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COST OF LICENSE. Cost of license for the nine months ended June 30,
1999 was $4.1 million, a decrease of $4.5 million, or 52.4%, from cost of
license for the nine months ended June 30, 1998. Cost of license includes
amortization of purchased computer software and intellectual property rights.
COST OF SERVICE. Cost of service for the nine months ended June 30,
1999 was $254.7 million, an increase of $89.4 million, or 54.1%, compared to the
cost of service of $165.3 million for the nine months ended June 30, 1998. As a
percentage of revenue, cost of service remained stable at 57.4% in the nine
months ended June 30, 1999 compared to 57.6% in the nine months ended June 30,
1998. The cost of service is predominantly related to salary and employee
related expenses. The absolute increase in cost of service is consistent with
the increase in revenue for the nine months ended June 30, 1999, and reflects
increased employment levels required to support the continuing growth in
revenue.
RESEARCH AND DEVELOPMENT. Research and development expense is primarily
comprised of compensation expense attributed to research and development
activities, usually in conjunction with customer contracts. In the nine months
ended June 30, 1999, research and development expense was $28.5 million, or 6.4%
of revenue, compared with $18.1 million, or 6.3% of revenue, in the nine months
ended June 30, 1998. The increase in research and development expense represents
ongoing expenditures primarily for CC&B Systems and also for Directory Systems.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expense is primarily comprised of compensation expense and
increased by 46.7% to $53.3 million, or 12.0% of revenue, in the nine months
ended June 30, 1999 from $36.4 million, or 12.6% of revenue, in the
corresponding period of fiscal 1998.
OPERATING INCOME. Operating income in the nine months ended June 30,
1999 was $103.6 million, as compared with $58.8 million in the nine months ended
June 30, 1998, an increase of 76.2%. %Operating income was 23.3% of revenue for
the nine months ended June 30, 1999 as compared to 20.5% for the nine months
ended June 30, 1998, primarily due to an increase in license revenue and a
decrease in cost of license.
OTHER EXPENSE, NET. Other expense, net consists primarily of interest
expense. Interest expense in 1998 related primarily to senior bank debt and
subordinated debt, which was substantially repaid from the proceeds of our
initial public offering completed in June 1998. In the nine months ended June
30, 1999, other expense, net was $5.4 million, a decrease of $16.4 million from
the nine months ended June 30, 1998. The decrease is primarily attributed to the
reduction in bank debt during 1999.
INCOME TAXES. Income taxes in the nine months ended June 30, 1999 were
$29.4 million on income before taxes of $98.1 million. In the nine months ended
June 30, 1998 income taxes were $18.5 million on income before taxes of $37.0
million. See discussion below - "Effective Tax Rate."
NET INCOME. Net income was $68.7 million in the nine months ended June
30, 1999 compared to $18.5 million for the nine months ended June 30, 1998. The
increase was primarily the result of an increase in operating income and a
decrease in interest expense and income taxes which also resulted in an increase
in basic earnings per share from $0.13 in the nine months ended June
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30, 1998 to $0.35 in the nine months ended June 30, 1999. Diluted earnings per
share increased from $0.13 in the nine months ended June 30, 1998 to $0.34 in
the nine months ended June 30, 1999
THREE MONTHS ENDED JUNE 30, 1999 and 1998
REVENUE. Revenue for the three months ended June 30, 1999 was $164.9
million, an increase of $58.4 million, or 54.8%, compared to the three months
ended June 30, 1998, primarily due to the continuance of the growth in the
demand for our to addition CC&B solutions.Systemscustomers License revenue
increased from $11.3 million in the three months ended June 30, 1998 to $19.6
million during the three months ended June 30, 1999, an increase of 73.5%, and
service revenue increased 52.6% by $50.1 million in the three months ended June
30, 1999. Total CC&B Systems revenue for the quarter ended June 30, 1999 was
$125.8 million, an increase of $54.8 million, or 77.3%, compared to the three
months ended June 30, 1998. Revenue from Directory Systems was $39.1 million for
the quarter ended June 30, 1999, an increase of $3.6 million, or 10.0%, from the
three month period ended June 30, 1998.
In the three months ended June 30, 1999 and 1998, revenue from
customers in North America, Europe and the rest of the world accounted for 32%,
44% and 24% compared to 49%, 29% and 22%, respectively.
COST OF LICENSE. Cost of license for the quarter ended June 30, 1999
was $1.4 million, a decrease of $1.3 million, or 48.5%, from cost of license for
the quarter ended June 30, 1998. Cost of license includes amortization of
purchased computer software and intellectual property rights.
COST OF SERVICE. Cost of service for three months ended June 30, 1999
was $94.5 million, an increase of $33.9 million, or 56.1%, from cost of service
of $60.5 million for the three months ended June 30, 1998. As a percentage of
revenue, cost of service increased to 57.3% in the quarter ended June 30, 1999
from 56.8% in the three months ended June 30, 1998. The increase in cost of
service is consistent with the increase in revenue for the quarter, and reflects
increased employment levels required to support the continuing growth in
revenue.
RESEARCH AND DEVELOPMENT. In the quarter ended June 30, 1999, research
and development expense was $11.0 million, or 6.7% of revenue, compared with
$7.2 million, or 6.7% of revenue, in the quarter ended June 30, 1998. The
increase in research and development expense represents ongoing expenditures
primarily for CC&B Systems and also for Directory Systems.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expense increased by 52.1% to $20.3 million, or 12.3% of revenue,
in the quarter ended June 30, 1999 from $13.3 million, or 12.6% of revenue, in
the corresponding period of fiscal 1998.
OPERATING INCOME. Operating income in the quarter ended June 30, 1999
was $37.8 million, as compared with $22.8 million in the three months ended June
30, 1998, an increase of 65.6%%. Operating income increased to 22.9% of revenue
for the three months ended June 30, 1999 as compared to 21.4% for the three
months ended June 30, 1998, primarily due to an increase in license revenue and
a decrease in cost of license.
17
OTHER EXPENSE, NET. In the quarter ended June 30, 1999, other expenses,
net was $1.5 million, a decrease of $8.5 million from the three month period
ended June 30, 1998. The decrease is primarily attributed to the reduction in
bank debt during 1999.
INCOME TAXES. Income taxes in the quarter ended June 30, 1999 were
$10.9 million on income before taxes of $36.3 million. In the three months ended
June 30, 1998, income taxes were $6.4 million on income before taxes of $12.9
million. See discussion below - "Effective Tax Rate."
NET INCOME. Net income was $25.4 million in the three months ended June
30, 1999 compared to $6.4 million for the three months ended June 30, 1998. The
increase was primarily the result of an increase in operating income and a
decrease in interest expense and income taxes which also resulted in an increase
of basic and diluted earnings per share from $0.04 in the three months ended
June 30, 1998 to $0.13 in the three months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
FINANCING TRANSACTIONS
We have primarily financed our operations through cash generated from
operations, borrowings from banks and other lenders and two public offerings of
our Ordinary Shares. Cash and cash equivalents totaled $71.1 million at June 30,
1999 compared to $25.4 million at September 30, 1998. Net cash provided by
operating activities amounted to $102.8 million and $51.4 million for the nine
months ended June 30, 1999 and 1998, respectively. The increase in cash and
cash equivalents at June 30, 1999 is attributed to increased collections from
customers and the proceeds of the secondary offering, less the repayment of
bank debt.
We currently intend to retain our earnings to support the further
expansion of our business and to repay our outstanding loans. The terms of our
bank agreement effectively restrict our ability to pay cash dividends.
At June 30, 1999, we had short-term lines of credit totaling $152.0
million from various banks or bank groups, of which $26.6 million was
outstanding. As of that date, we had also utilized approximately $13.1 million
of our revolving credit facility to support outstanding letters of credit. At
June 30, 1999, we had positive working capital of $15.3 million as compared to
negative working capital of $84.3 million at September 30, 1998. The increase in
working capital is attributed to cash generated from operating activities and to
the proceeds of the secondary offering. We believe that current cash balances,
cash generated from operations and our current lines of credit will provide
sufficient resources to meet our needs in the near future.
At June 30, 1999, we had long-term obligations outstanding of $17.1
million in connection with leasing arrangements.
Currently, our capital expenditures are funded primarily by operating
cash flows and capital leasing arrangements. We do not anticipate any change to
this policy in the foreseeable future.
18
NET DEFERRED TAX ASSETS
Based on our assessment, it is more likely than not that all the net
deferred tax assets at June 30, 1999 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.
YEAR 2000 ISSUES
OUR STATE OF READINESS. We have identified the information technology,
or IT, and non-IT systems, software and products, which could be affected by
year 2000 issues, and have assessed the efforts required to remediate or replace
them. We have also identified versions of our products that will not be made
compliant and are assisting customers in upgrading or migrating to year 2000
compliant versions. By the end of 1999, it is our intention that all of the
major or key systems, software and products will be remediated or replaced.
We began evaluating year 2000 compliance issues in mid-1996. Since then
the following functions have been performed:
- a thorough examination and study of year 2000 compliance
status;
- adoption of a work plan;
- analysis of solution alternatives; and
- determination of our technical and business year 2000
policies.
In recent years, new systems have been developed as year 2000 compliant
and older generations of applications are being made year 2000 compliant in
cooperation with our customers (using Amdocs year 2000 methodology and tool
kit). None of these systems need mass data conversion, which is usually the most
sensitive portion of the year 2000 migration. Recognizing the importance of year
2000 support in the IT industry and to provide an additional level of assurance
to our customers, we have decided to conduct a thorough and systematic
verification process. This effort is based on the application of industry-wide
standards for year 2000 compliance. This verification process utilizes a
specialized tool kit developed by us including a powerful search utility. For
many customers we offer to conduct the verification process, since the ultimate
verification for year 2000 compliance should be executed in their own working
environment.
We anticipate completing the majority of the testing, implementation of
changes and necessary refinements by the fourth quarter of calendar year 1999
and to continue extensive testing through the end of calendar year 1999. We
expect that systems, software and products for which we have responsibility
currently are year 2000 compliant or will be compliant on a timely basis. We
are not aware of any year 2000 issues with our customers that cannot be
remedied.
We have contacted all of our customers, and several of our vendors and
other third parties with which we deal to identify potential year 2000 issues.
These communications are also used to clarify which year 2000 issues are our
responsibility and which are the responsibility of the third party. We do not
anticipate that our third party year 2000 issues will be different than those
encountered by other providers of information services, including our
competitors. At this time, we are not aware of any year 2000 issues or problems
relating to third parties with which we have a material relationship.
19
With respect to our internal IT systems (including IT-based office
facilities such as data and voice communications, building management and
security systems, human resources and recruitment systems, purchasing,
invoicing, finance and budget systems, general ledger and other administrative
systems), both third party software and in-house developments, we have adopted
standard industry practices, as published by the British Standards Institute,
and methodologies suggested by the Gartner Group (INSPCT), in preparing for the
year 2000 date change. Our year 2000 internal readiness program primarily
covers:
- taking inventory of hardware, software and embedded systems;
- assessing business risks associated with such systems;
- creating action plans to address known risks;
- executing and monitoring action plans; and
- contingency planning.
Although we do not believe that we will incur any material cost or
experience material disruptions in our business associated with preparing our
internal systems for the year 2000, there can be no assurance that we will not
experience serious unanticipated negative consequences and/or material costs
caused by undetected errors or defects in the technology used in our internal
systems, which are composed of third party software, third party hardware that
contains embedded software and our own software products. We are in the process
of implementing action plans for the remediation of high-risk areas and we are
scheduled to implement remediation plans for medium to low risk areas during the
remainder of fiscal 1999. We expect our contingency plans to include, among
other things, manual "work-arounds" for software and hardware failure, as well
as substitution of systems, if necessary.
COSTS TO ADDRESS OUR YEAR 2000 ISSUES. A significant portion of our
year 2000 compliance efforts have occurred or are occurring in connection with
system upgrades or replacements that were otherwise planned (but perhaps
accelerated due to the year 2000 issue) or which have significant improvements
and benefits unrelated to year 2000 issues. The remainder of the costs that are
incremental and directly related to year 2000 issues are not expected to be
material to our financial position or results of operations.
At June 30, 1999, we have accrued approximately $1.0 million
representing the estimated remaining costs to modify previously sold customized
software products. We do not anticipate capitalizing any of these costs as they
relate to warranties related to products developed for customers.
OUR CONTINGENCY PLANS. Detailed contingency plans are being prepared
and will be refined as appropriate. Those plans will focus on matters which
appear to be our most likely year 2000 risks, such as possible additional
customer support efforts by us that would be necessary if customers or vendors
are not year 2000 compliant, or if a year 2000 issue should not be timely
detected in our own compliance efforts.
EUROPEAN MONETARY UNION CURRENCY
20
The European Monetary Union currency, or the euro, will be phased in
over the three-year period that commenced on January 1, 1999, when participating
European countries began using the euro currency for non-cash transactions. We
intend to offer software products that are capable of handling the euro currency
and converting from local currencies to the euro. There can be no assurance that
our software or software provided to our customers by other vendors will ensure
an errorless transition to the euro currency. At June 30, 1999, we have accrued
approximately $0.3 million representing estimated remaining costs to modify our
software products to accept the euro currency under existing agreements with
customers relating to previously sold products. We do not currently anticipate
recovering these expenditures from our customers, as they relate to warranty
agreements. There can be no assurance that such costs will not significantly
exceed such estimate, in which case such costs could have a material effect on
our results of operations and financial condition.
EFFECTIVE TAX RATE
Our overall effective tax rate has historically been approximately 30%
due to the various corporate income tax rates in the countries in which we
operate and the relative magnitude of our business in those countries. Our
consolidated effective tax rate for the nine months ended June 30, 1999 was 30%
compared to 50% in the prior period. The consolidated effective tax rate of 50%
for 1998 was due to significant interest expense in a tax jurisdiction in which
we are tax exempt, which resulted in no tax benefit to offset the tax expense
incurred in other jurisdictions.
CURRENCY FLUCTUATIONS
Approximately 80% of our revenue is in U.S. dollars or linked to the
U.S. dollar and therefore the U.S. dollar is our functional currency.
Approximately 60% of our operating expenses are paid in U.S. dollars or are
linked to U.S dollars. Other significant currencies in which we receive revenue
or pay expenses are Australian dollars, British pounds, Canadian dollars, the
euro and Israeli shekels. Historically, the effect of fluctuations in currency
exchange rates has had a minimal impact on our operations. As we expand our
operations outside of the United States, our exposure to fluctuations in
currency exchange rates could increase. In managing our foreign exchange risk,
we enter from time to time into various foreign exchange contracts. At June 30,
1999, we had hedged most of our significant exposures in currencies other than
the dollar.
21
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
CHANGES IN SECURITIES
On July 12, 1999, pursuant to an over-allotment option granted
by one of our shareholders, SBC International, Inc. ("SBC"), to the underwriters
involved with our secondary public offering, the underwriters elected to
exercise their over-allotment option with respect to 426,000 non-voting Ordinary
Shares held by SBC. Consistent with our Articles of Incorporation, as a result
of the transfer by SBC of these non-voting Ordinary Shares, the non-voting
Ordinary Shares converted automatically into voting Ordinary Shares.
Following the exercise by the underwriters of the
over-allotment option, SBC, the sole owner of non-voting Ordinary Shares, now
owns 24,292,434 non-voting Ordinary Shares and 14,500,000 voting Ordinary
Shares.
22
ITEM 6. EXHIBITS AND REPORTS ON FORM 6-K.
(a) Exhibits
EXHIBIT NO. DESCRIPTION
99.1 Amdocs Limited Press Release dated July 27, 1999.
(b) Reports on Form 6-K. No report on Form 6-K was filed by the Company during
this period.
23
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
Date: August 12, 1999 /s/ Thomas G. O'Brien
------------------------------------
Thomas G. O'Brien
Treasurer and Secretary
Authorized U.S. Representative
24
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
99.1 Amdocs Limited Press Release dated July 27, 1999.
1
EXHIBIT 99.1
99.1 PRESS RELEASE.
AMDOCS LIMITED REPORTS RECORD QUARTERLY RESULTS
Third quarter revenue increases by 54.8% and operating income by 65.6%
St. Louis, Missouri - July 27, 1999 - Amdocs Limited (NYSE: DOX) today reported
that for the third quarter ended June 30, 1999, revenue increased by 54.8% to
$164.9 million from $106.5 million in the third quarter last year.
Third quarter operating income grew 65.6%, to $37.8 million. Net income
increased to $25.4 million, compared to $6.4 million in the third quarter last
year. Diluted earnings per share for the quarter increased to $0.13 compared to
$0.04 in the third quarter of fiscal 1998.
Avi Naor, President and Chief Executive Officer of Amdocs Management Limited,
noted, "Our impressive performance for the third quarter and year to date
reflects Amdocs' unique position among its clients, the top tier in the telecom
industry. This market leadership has been demonstrated by major new business
wins for customer care, billing and order management solutions from wireline,
wireless and convergence customers. We are also encountering growing demand for
bundled services in the area of high-end, voice-data convergence in the emerging
data services segment."
Naor continued, "We completed a very successful secondary offering during the
quarter which we believe is an endorsement from investors of this leading market
position, strong growth and consistent business performance."
"Because of our long-term customer relationships, based on providing
comprehensive solutions with an unsurpassed track record in project delivery,
visibility continues to be high. We expect that Amdocs' results will continue to
reflect the company's business stability and our leading position in the market
as we enter the fourth quarter and approach the fiscal year 2000," Naor
concluded.
For the first nine months of fiscal 1999, Amdocs reported that revenue increased
54.7% to $444.1 million compared to $287.1 million in the same period in the
previous fiscal year. Operating income reached $103.6 million, up 76.2% from
$58.8 million in the first three quarters of fiscal 1998. Net income grew to
$68.7 million, or $0.34 per diluted share, as compared to $18.5 million, or
$0.13 per diluted share, for the same period last year.
Amdocs
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 4,000 information systems professionals
dedicated to the telecommunications industry, Amdocs has an installed base of
successful projects with more than 70 major telecommunications companies
throughout the world. For more information visit our Web site at www.amdocs.com
2
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.
Amdocs Limited
Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
Three months ended Nine months ended
June 30, June 30,
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Revenue:
License $ 19,639 $ 11,322 $ 51,987 $ 29,741
Service 145,245 95,175 392,152 257,322
--------- --------- --------- ---------
164,884 106,497 444,139 287,063
Operating expenses:
Cost of license 1,367 2,654 4,060 8,521
Cost of service 94,456 60,518 254,651 165,268
Research and
development 11,005 7,172 28,524 18,127
Selling, general and
administrative 20,274 13,332 53,336 36,356
--------- --------- --------- ---------
127,102 83,676 340,571 228,272
--------- --------- --------- ---------
Operating income 37,782 22,821 103,568 58,791
Other expense (income),
net:
Interest expense, net 834 9,212 3,736 23,013
Other, net 633 723 1,684 (1,241)
--------- --------- --------- ---------
1,467 9,935 5,420 21,772
--------- --------- --------- ---------
Income before income
taxes 36,315 12,886 98,148 37,019
Income taxes 10,894 6,443 29,444 18,510
--------- --------- --------- ---------
Net income $ 25,421 $ 6,443 $ 68,704 $ 18,509
========= ========= ========= =========
Basic earnings per
share $ 0.13 $ 0.04 $ 0.35 $ 0.13
========= ========= ========= =========
3
Diluted earnings per
share $ 0.13 $ 0.04 $ 0.34 $ 0.13
========= ========= ========= =========
Weighted Average number
of shares-Basic 197,322 181,174 196,976 145,630
========= ========= ========= =========
Weighted Average number
of shares-Diluted 200,310 182,696 199,649 146,451
========= ========= ========= =========
Amdocs Limited Consolidated Balance Sheets
(in thousands, except per share data)
June 30, September 30,
1999 1998
--------- ---------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 71,078 $ 25,389
Accounts receivable, including
unbilled of $2,478 and $10,331,
respectively 144,326 79,723
Accounts receivable from related
parties, including unbilled of $0
and $537, respectively 9,775 10,235
Deferred income taxes 16,894 14,534
Prepaid expenses and other current assets 20,613 11,991
--------- ---------
Total current assets 262,686 141,872
Equipment, vehicles and leasehold
improvements, net 70,704 46,404
Deferred income taxes 5,614 7,773
Intellectual property rights 22,397 23,362
Other noncurrent assets 25,381 20,555
========= =========
$ 386,782 $ 239,966
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses $ 64,446 $ 47,599
Accrued personnel costs 34,607 29,948
Short-term financing arrangements 26,561 91,565
Deferred revenue 92,744 29,241
Short-term portion of capital lease
obligations 4,459 2,952
4
Forward exchange contracts 1,488 2,926
Income taxes payable and deferred income
taxes 23,077 21,919
--------- ---------
Total current liabilities 247,382 226,150
Long-term forward exchange contracts 507 2,222
Long-term portion of capital lease obligations 12,649 9,215
Other noncurrent liabilities 29,972 24,268
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; 198,800 shares
issued and outstanding 3,181 3,149
Additional paid-in capital 489,073 447,503
Unrealized income (loss) on derivative
instruments 2,558 (1,495)
Unearned compensation (5,145) (8,947)
Accumulated deficit (393,395) (462,099)
--------- ---------
Total shareholders' equity (deficit) 96,272 (21,889)
========= =========
$ 386,782 $ 239,966
========= =========
Contacts:
Amdocs
Thomas G. O'Brien
Treasurer and Director of Investor Relations
Amdocs Limited
Tel: 314-957-8328
E-Mail: info@amdocs.com
Porter Novelli
Dan Ginsburg
Tel: 212-601-8020
E-Mail: dginsburg@porternovelli.com
