<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
------------------------------------
Date of Report: April 14, 1999
Carreker-Antinori, Inc.
----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-24201 75-1622836
-------------- ------------------------ -----------------------
(State of (Commission File Number) (IRS Employer
Incorporation) Identification No.)
14001 N. Dallas Parkway, TX 75240
---------------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
(972) 458-1981
---------------------------
(Registrant's telephone number, including area code)
[N/A]
----------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
CARREKER-ANTINORI, INC.
FORM 8-K/A
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
On January 29, 1999, Carreker-Antinori, Inc. (the "Company") acquired Genisys
Operation, Inc., a Texas corporation ("Genisys"), pursuant to a merger
transaction that also included the shareholders of Genisys, Kevin J. Taylor,
Ronald W. Kreykes, Thomas R. Flannery, Robert A. Walsh and Patrick M.
Rogal-Davis (the "Genisys Acquisition"). Genisys provides track and trace
software and maintenance solutions to financial institutions.
(a) Financial Statements of Business Acquired.
The required financial statements are set forth in exhibit 99.1
attached hereto.
(b) Pro Forma Financial Information
The required financial statements are set forth in exhibit 99.1
attached hereto.
(c) Exhibits
<TABLE>
<CAPTION>
Number Exhibit Description
------ -------------------
<S> <C>
23.1 Consent of Independent Auditors
99.1 Consolidated Financial Statements of Carreker-Antinori, Inc.
as of January 31, 1999 and 1998 and for the three fiscal
years ended January 31, 1999.
</TABLE>
<PAGE>
SIGNATURE
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.
CARREKER-ANTINORI, INC.
By: /s/ John D. Carreker, Jr. Date: April 14, 1999
-------------------------
John D. Carreker, Jr.
Chairman of the Board and
Chief Executive Officer
By: /s/ Terry L. Gage Date: April 14, 1999
-------------------------
Terry L. Gage
Executive Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-63517) pertaining to the Amended and Restated
Carreker-Antinori, Inc. 1994 Long Term Incentive Plan and the
Carreker-Antinori, Inc. Director Stock Option Plan of our report dated April
12, 1999, with respect to the consolidated financial statements of
Carreker-Antinori, Inc. included in the Current Report on Form 8-K/A filed
with the Securities and Exchange Commission on April 14, 1999.
Ernst & Young LLP
Dallas, Texas
April 12, 1999
<PAGE>
Exhibit 99.1
CARREKER-ANTINORI, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors...................... 2
Consolidated Balance Sheets as of January 31, 1999 and 1998............ 3
Consolidated Statements of Operations for the years ended
January 31, 1999, 1998 and 1997....................................... 4
Consolidated Statements of Stockholders' Equity for the years ended
January 31, 1999, 1998 and 1997....................................... 5
Consolidated Statements of Cash Flows for the years ended
January 31, 1999, 1998 and 1997....................................... 6
Notes to Consolidated Financial Statements............................. 7
</TABLE>
1
<PAGE>
Exhibit 99.1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Carreker-Antinori, Inc.
We have audited the accompanying consolidated balance sheets of
Carreker-Antinori, Inc. (the Company), as of January 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended January 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Carreker-Antinori, Inc., at January 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
January 31, 1999, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
April 12, 1999
2
<PAGE>
CARREKER-ANTINORI, INC.
CONSOLIDATED BALANCE SHEET
(In thousands)
ASSETS
<TABLE>
<CAPTION>
January 31,
1999 1998
---------- ----------
<S> <C> <C>
Current assets
Cash and cash equivalents................................................................. $ 20,701 $ 2,485
Short term investments.................................................................... 12,849 50
Accounts receivable, net of allowance of $569 and $468 at
January 31, 1999 and 1998, respectively.................................................. 26,618 11,907
Receivable from Electronic Check Clearing House Organization.............................. 343 566
Receivable from Payment Solutions Network, Inc., net of allowance
of $565 and $100 at January 31, 1999 and 1998, respectively.............................. 545 797
Receivable from Infiteq, LLC. net of allowance of $138 at January 31, 1999................ 98 --
Income taxes receivable................................................................... -- 199
Prepaid expenses and other assets......................................................... 681 680
Deferred income taxes..................................................................... 736 546
---------- ----------
Total current assets........................................................................ 62,571 17,230
Furniture, equipment, and leasehold improvements, net of accumulated
depreciation of $2,894 and $1,617 at January 31, 1999 and 1998, respectively............... 2,673 1,664
Software costs capitalized, net of accumulated amortization of $3,753
and $3,300 at January 31, 1999 and 1998, respectively...................................... 3,279 2,263
Deferred income taxes....................................................................... 178 --
Other assets................................................................................ 35 329
---------- ----------
Total assets................................................................................ $ 68,736 $ 21,486
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................................... $ 2,045 $ 2,043
Accrued compensation and benefits......................................................... 700 1,879
Other accrued expenses.................................................................... 961 899
Income taxes payable...................................................................... 1,400 --
Deferred revenue.......................................................................... 5,348 4,880
---------- ----------
Total current liabilities................................................................... 10,454 9,701
Deferred income taxes....................................................................... 1,151 982
Commitments (Note 8)
Common stock subject to put................................................................. -- 2,000
Stockholders' equity:
Preferred Stock, $.01 par value: 2,000 shares authorized;
no shares issued and outstanding......................................................... -- --
Common Stock, $.01 par value:
100,000 shares authorized; 18,354 and 13,247 shares issued at
January 31, 1999 and 1998, respectively.................................................. 184 132
Additional paid-in capital................................................................ 44,563 2,155
Retained earnings......................................................................... 12,952 7,780
Less treasury stock, at cost:
367 common shares as of January 31, 1998.................................................. -- (510)
Deferred compensation..................................................................... (568) (754)
---------- ----------
Total stockholders' equity.................................................................. 57,131 8,803
---------- ----------
Total liabilities and stockholders' equity.................................................. $ 68,736 $ 21,486
---------- ----------
---------- ----------
</TABLE>
3
<PAGE>
CARREKER-ANTINORI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended January 31,
---------------------------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues:
Consulting and management service fees....................... $ 26,328 $ 21,314 $ 14,407
Software license fees........................................ 16,327 11,223 6,957
Software maintenance......................................... 5,031 4,274 3,185
Software implementation fees................................. 6,557 4,094 3,249
Hardware sales and other fees................................ 774 1,876 2,737
----------------- ----------------- -----------------
Total revenues........................................... 55,017 42,781 30,535
----------------- ----------------- -----------------
Costs of revenues:
Consulting and management service fees....................... 16,150 12,394 8,794
Software license fees........................................ 1,216 1,412 1,307
Software maintenance......................................... 2,387 1,923 1,780
Software implementation fees................................. 3,862 4,156 1,808
Hardware sales and other fees................................ 560 1,556 1,960
----------------- ----------------- -----------------
Total cost of revenues................................... 24,175 21,441 15,649
----------------- ----------------- -----------------
Gross profit................................................... 30,842 21,340 14,886
----------------- ----------------- -----------------
Operating costs and expenses:
Selling, general, and administrative......................... 18,444 12,777 9,296
Research and development..................................... 4,763 3,610 1,318
Merger related costs......................................... 485 -- 1,423
----------------- ----------------- -----------------
Total operating costs and expenses....................... 23,692 16,387 12,037
Income from operations......................................... 7,150 4,953 2,849
Other income (expense):
Interest income, net......................................... 925 79 125
Other income (expense)....................................... -- -- (500)
----------------- ----------------- -----------------
Total other income (expense)............................. 925 79 (375)
----------------- ----------------- -----------------
Income before provision for income taxes....................... 8,075 5,032 2,474
Provision for income taxes (Note 4)............................ 2,903 2,027 1,114
----------------- ----------------- -----------------
Net income..................................................... $ 5,172 $ 3,005 $ 1,360
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Basic earnings per share....................................... $ .32 $ .24 $ .11
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Diluted earnings per share..................................... $ .30 $ .21 $ .10
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Shares used in computing basic earnings per share.............. 16,224 12,717 12,154
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Shares used in computing diluted earnings per share............ 17,504 14,484 13,118
----------------- ----------------- -----------------
----------------- ----------------- -----------------
</TABLE>
See accompanying notes.
4
<PAGE>
CARREKER-ANTINORI, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional
-------------------------- Paid-In Retained
Shares Amount Capital Earnings
----------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Balance at January 31, 1996..................... 12,762 $ 128 $ 1,802 $ 4,266
Compensation earned under employee
stock option plan............................. -- -- -- --
Purchase of treasury stock...................... -- -- -- --
Sale of treasury stock.......................... -- -- 1,378 --
Sale of stock................................... 224 2 86 --
Common shares subject to put (Note 5)........... -- -- (2,000) --
Issuance of shares of common stock upon
exercise of stock options..................... 24 -- 15 --
Distributions to Antinori Software
shareholders.................................. -- -- -- (1,030)
Merger with Antinori Software................... -- -- (76) 76
Net income...................................... -- -- -- 1,360
Pro forma tax adjustment (Note 4)............... -- -- -- 103
----------- ------------ ------------- -------------
Balance at January 31, 1997..................... 13,010 130 1,205 4,775
Restricted stock grant.......................... 85 1 753 --
Sale of treasury stock.......................... -- -- 39 --
Purchase of treasury stock...................... -- -- -- --
Adjustment of shares issued to Antinori
Software shareholders......................... (198) (2) 2 --
Issuance of shares of common stock upon
exercise of stock options..................... 350 3 156 --
Net income...................................... -- -- -- 3,005
----------- ------------ ------------- -------------
Balance at January 31, 1998..................... 13,247 132 2,155 7,780
Adjustment of shares issued to Antinori
Software shareholders......................... (141) (1) 1 --
Common shares subject to put (Note 5)........... -- -- 2,000 --
Director option grant........................... -- -- 100 --
Sale of stock................................... 3,650 37 35,800 --
Compensation earned under employee/
director stock option plans................... -- -- -- --
Purchase of treasury stock...................... -- -- -- --
Tax benefit from stock option exercise.......... -- -- 1,407 --
Issuance of shares of common stock
upon exercise of stock options................ 1,598 16 3,100 --
Net income...................................... -- -- -- 5,172
----------- ------------ ------------- -------------
Balance at January 31, 1999................ 18,354 $ 184 $ 44,563 $ 12,952
----------- ------------ ------------- -------------
----------- ------------ ------------- -------------
<CAPTION>
Treasury Stock Total
Deferred ------------------------ Stockholders'
Compensation Shares Amount Equity
------------------- ---------- ------------ ------------------
<S> <C> <C> <C> <C>
Balance at January 31, 1996..................... $ (589) 6 $ (7) $ 5,600
Compensation earned under employee
stock option plan............................. 589 -- -- 589
Purchase of treasury stock...................... -- 1,431 (2,004) (2,004)
Sale of treasury stock.......................... -- (1,050) 1,472 2,850
Sale of stock................................... -- -- -- 88
Common shares subject to put (Note 5)........... -- -- -- (2,000)
Issuance of shares of common stock upon
exercise of stock options..................... -- -- -- 15
Distributions to Antinori Software
shareholders.................................. -- -- -- (1,030)
Merger with Antinori Software................... -- -- -- --
Net income...................................... -- -- -- 1,360
Pro forma tax adjustment (Note 4)............... -- -- -- 103
------------------- ---------- ------------ ------------------
Balance at January 31, 1997..................... -- 387 (539) 5,571
Restricted stock grant.......................... (754) -- -- --
Sale of treasury stock.......................... -- (23) 33 72
Purchase of treasury stock...................... -- 3 (4) (4)
Adjustment of shares issued to Antinori
Software shareholders......................... -- -- -- --
Issuance of shares of common stock upon
exercise of stock options..................... -- -- -- 159
Net income...................................... -- -- -- 3,005
------------------- ---------- ------------ ------------------
Balance at January 31, 1998..................... (754) 367 (510) 8,803
Adjustment of shares issued to Antinori
Software shareholders......................... -- -- -- --
Common shares subject to put (Note 5)........... -- -- -- 2,000
Director option grant........................... (100) -- -- --
Sale of stock................................... -- -- -- 35,837
Compensation earned under employee/
director stock option plan.................... 286 -- -- 286
Purchase of treasury stock...................... -- 11 (15) (15)
Tax benefit from stock option exercise.......... -- -- -- 1,407
Issuance of shares of common stock
upon exercise of stock options................ -- (378) 525 3,641
Net income...................................... -- -- -- 5,172
------------------- ---------- ------------ ------------------
Balance at January 31, 1999................ $ (568) -- $ -- $ 57,131
------------------- ---------- ------------ ------------------
------------------- ---------- ------------ ------------------
</TABLE>
See accompanying notes.
5
<PAGE>
CARREKER-ANTINORI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended January 31,
------------------------------------------------------
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Operating Activities:
Net income....................................................... $ 5,172 $ 3,005 $ 1,360
Pro forma tax adjustment (Note 4)................................ -- -- 103
---------------- ---------------- ----------------
5,172 3,005 1,463
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of capitalized software........................... 453 745 606
Depreciation and amortization of property and equipment........ 1,277 639 350
Loss on Payment Solutions Network, Inc. Investment............ -- -- 500
Compensation earned under employee stock option plan........... 286 -- 589
Deferred income taxes.......................................... (199) 651 (635)
Provision for doubtful accounts................................ 708 832 514
Changes in operating assets and liabilities....................
Accounts receivable.......................................... (15,073) (4,108) (4,461)
Prepaid expenses, deposits, and other assets................. 324 32 (539)
Accounts payable and accrued expenses........................ (1,115) 825 1,909
Income taxes payable/receivable.............................. 1,599 (54) (424)
Deferred revenue............................................. 468 (752) 2,720
---------------- ---------------- ----------------
Net cash (used in) provided by operating activities................ (6,100) 1,815 2,592
Investing activities:
Investment in Payment Solution Network, Inc...................... -- -- (500)
Purchase of short term investments............................... (12,799) (50) --
Purchases of property and equipment.............................. (2,286) (1,383) (687)
Computer software costs capitalized.............................. (1,469) (2,019) (710)
---------------- ---------------- ----------------
Net cash used in investing activities.............................. (16,554) (3,452) (1,897)
Financing Activities
Purchase of treasure stock....................................... (15) (4) (2,004)
Sales of treasury stock.......................................... -- 72 2,850
Proceeds from stock options exercised............................ 3,641 159 15
Tax benefit from stock option exercise........................... 1,407 -- --
Distribution to stockholders..................................... -- -- (1,030)
Proceeds from sale of stock...................................... 35,837 -- 88
---------------- ---------------- ----------------
Net cash provided by (used in) financing activities................ 40,870 227 (81)
---------------- ---------------- ----------------
Net increase (decrease) in cash and cash equivalents............... 18,216 (1,410) 614
Cash and cash equivalents at beginning of year..................... 2,485 3,895 3,281
---------------- ---------------- ----------------
Cash and cash equivalents at end of year........................... $ 20,701 $ 2,485 $ 3,895
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Supplemental disclosures of cash flow information:
Cash paid for interest........................................... $ 45 $ 26 $ 4
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Cash paid for income taxes....................................... $ 126 $ 1,611 $ 1,885
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
See accompanying notes
6
<PAGE>
CARREKER-ANTINORI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Carreker-Antinori, Inc. ("the Company") is a leading provider of
revenue enhancement, payment systems, and emerging solutions to the banking
industry. The Company's solutions include comprehensive service offerings
coupled with a broad array of state-of-the-art, proprietary software products
which have been designed to address the unique requirements of the banking
industry. These solutions improve the competitiveness of a bank's financial
performance and operations, including yield management, liquidity management,
consolidations, best practices, risk management, float management, payment
electronification, track and trace, and enterprise information technology. As
described in Note 7, the Company also provides consulting and administrative
services to certain organizations.
On January 29, 1999 Genisys Group, Inc. ("Genisys"), a Texas
Corporation, was merged with the Company in a transaction accounted for as a
pooling of interests (Note 3). The accompanying consolidated financial
statements of the Company include the accounts of Genisys.
Revenues of $5,934,000 to a major customer accounted for 11% of total
revenues in the year ended January 31, 1999. Revenues of $11,956,000 to two
major customers accounted for 28% of total revenues in the year ended January
31, 1998. Revenues of $4,669,000 to a major customer accounted for 15% of total
revenues in the year ended January 31, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PROCEDURES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents. Cash and cash
equivalents consist primarily of demand deposit accounts and shares in a demand
money market account comprised of domestic and foreign commercial paper,
certificates of deposit and U.S. government obligations.
SHORT TERM INVESTMENTS
The Company considers investments with maturities of greater than three
months when purchased to be short term investments based on the freely
tradable nature of the investments, and managements expection that they will
not be held for greater than one year. Short term investments consist
primarily of tax exempt municipal bonds. Management determines the
appropriate classification of debt securities at the time of purchase and
reevaluates such designation as of each balance sheet date. All debt
securities have been determined by management to be available for sale.
Available for sale securities are stated at amortized cost, which
approximates fair value. Fair value of debt securities is determined based
upon current market value price quotes by security. As of January 31, 1999,
approximately $4,124,000 of short term investments mature in less than one
year, and $8,725,000 mature from one to two years.
ACCOUNTS RECEIVABLE
A significant portion of the Company's business consists of providing
consulting services and licensing software to major domestic banks, which gives
rise to a concentration of credit risk in receivables. The Company performs
on-going credit evaluations of its customers' financial condition and generally
requires
7
<PAGE>
CARREKER-ANTINORI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING PROCEDURES (CONTINUED)
no collateral. The Company maintains an allowance for losses based upon the
expected collectibility of all accounts receivable. Writeoffs of receivables
during the three years ended January 31, 1999, 1998 and 1997 were $64,000,
$368,000 and $546,000, respectively.
Accounts receivable include unbilled amounts that represent receivables
for work performed for which billings upon mutual agreement have not been
presented to the customers. Such receivables are generally billed and
collected within one year of completion of the service. Accounts receivable
include $10,134,000, and $4,202,000 of unbilled receivables at January 31,
1999 and 1998, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the respective
assets, generally from three to five years. Leasehold improvements are amortized
using the straight-line method over the shorter of the terms of the related
leases or the respective useful lives of the assets. The components of property
and equipment are as follows (in thousands):
<TABLE>
<CAPTION>
January 31,
--------------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
Furniture............................. $ 2,321 $ 1,596
Equipment............................. 2,921 1,546
Leasehold Improvements................ 325 139
Less: Accumulated Depreciation........ (2,894) (1,617)
----------------- -----------------
$ 2,673 $ 1,664
----------------- -----------------
----------------- -----------------
</TABLE>
SOFTWARE COSTS CAPITALIZED
The Company capitalizes software development costs incurred in developing
a product once technological feasibility of the product has been determined.
Software development costs capitalized also include amounts paid for purchased
software on products that have reached technological feasibility. Technological
feasibility of the product is determined after completion of a detailed program
design and a determination has been made that any uncertainties related to
high-risk development issues have been resolved. If the process of developing
the product does not include a detail program design, technological feasibility
is determined only after completion of a working model which has been beta
tested. All software development costs capitalized are amortized using an amount
determined as the greater of: (i) the ratio that current gross revenues for a
capitalized software project bears to the total of current and future gross
revenues for that project or (ii) the straight-line method over the remaining
economic life of the product (generally three to five years). The Company
recorded amortization relating to software development costs capitalized of
$453,000, $745,000, and $606,000 in the years ended January 31, 1999, 1998 and
1997, respectively.
REVENUE RECOGNITION
Revenue for consulting services performed under fixed-price contracts
which are generally in duration in excess of six months is recognized on a
percentage-of-completion method. Revenue from these contracts is recognized in
the proportion that costs incurred bear to total estimated costs at completion.
Anticipated losses on fixed-price contracts are recognized when estimable.
Revenue generated from consulting services and under management services
contracts is recognized as services are performed. Revenue generated from
value-priced consulting services is recognized at the completion of all services
and the actual fee to be paid has been agreed to by the customer even though
billings for such services may be delayed by mutual agreement for periods
generally not to exceed twelve months.
Software license revenues for periods subsequent to January 31, 1998, are
recognized in accordance with the American Institute of Certified Public
Accountants' Statement of Position (SOP) 97-2, "Software Revenue Recognition."
Under SOP 97-2, software license revenues are recognized upon execution of a
contract and delivery of software, provided that the license fee is fixed and
determinable, no significant production, modification or customization of the
software is required, and collection is considered probable by management. For
periods prior to January 31, 1998, software license revenues were recognized in
accordance with SOP 91-1, "Software Revenue Recognition." Under SOP 91-1,
software license revenues were recognized upon execution of a contract and
shipment of the software and after any customer cancellation right had expired,
provided that no significant vendor obligations remained outstanding, amounts
were due within one year, and collection was considered probable by management.
The application of SOP 97-2 did not have a material impact on the Company's
consolidated financial statements for the year ended January 31, 1999.
8
<PAGE>
CARREKER-ANTINORI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Maintenance contract revenue is recognized ratably over the term of the
related contract. Revenue from computer hardware sales is recognized upon
shipment.
In connection with software license agreements entered into with certain
banks and purchase agreements with vendors under which the Company acquired
software technology used in products sold to its customers, the Company is
required to pay royalties on sales of the software. Approximately $746,000,
$816,000 and $724,000 of royalty expense was recorded under these agreements in
the years ended January 31, 1999, 1998 and 1997, respectively.
DEFERRED REVENUE
Deferred revenue represents amounts billed to customers under terms
specified in consulting, software licensing, and maintenance contracts for which
completion of contractual terms or delivery of the software has not occurred.
RESEARCH AND PRODUCT DEVELOPMENT COSTS
Research and product development costs, which are not subject to Statement
of Financial Accounting Standards (SFAS) 86, "Accounting for the Cost of
Computer Software to be Sold, Leased, or Otherwise Marketed," are expensed as
incurred and relate mainly to the development of new products and the ongoing
maintenance of existing products. Research and development expenses incurred by
the Company are reported net of funding obtained under research and development
arrangements.
EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average number of
shares of common stock outstanding during each period. Diluted earnings per
share is computed using the weighted average number of shares of common stock
outstanding during each period and common equivalent shares consisting of stock
options (using the treasury stock method).
INCOME TAXES
The Company accounts for income taxes under the liability method whereby
deferred income tax assets and liabilities result from temporary differences.
Temporary differences are differences between tax
9
<PAGE>
CARREKER-ANTINORI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING PROCEDURES (CONTINUED)
bases of assets and liabilities and their reported amounts in the financial
statements that will result in taxable or deductible amounts in future years.
STOCK-BASED COMPENSATION
Compensation expense on stock options issued to employees is measured in
accordance with Accounting Principles Board Opinion 25, "Accounting for Stock
Issued to Employees" (APB 25).
COMPREHENSIVE INCOME
In 1997, the FASB issued Statement No. 130, REPORTING COMPREHENSIVE
INCOME. Statement 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements, and was effective for the Company beginning Februrary 1,
1998. For all periods presented, the Company had no components of comprehensive
income other than net income.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the financial statements. Actual
results could differ from these estimates.
SEGMENT REPORTING
Effective February 1, 1998, the Company adopted the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related Information"
(Statement 131). Statement 131 superseded FASB Statement No. 14, "Financial
Reporting for Segments of a Business Enterprise". Statement 131 establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments in
interim financial reports. Statement 131 also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. The adoption of Statement 131 did not affect results of operations
or financial position, but did affect the disclosure of segment information
(Note 10).
3. BUSINESS COMBINATIONS
On January 31, 1997, the Company acquired all the outstanding common
shares of Antinori Software, Inc, ("ASI") from the shareholders of ASI in
exchange for 3,962,528 shares of the Company's common stock. Effective with the
merger, the combined entity changed its legal name to Carreker-Antinori, Inc.
The transaction was accounted for as a pooling of interests, and accordingly,
the accompanying consolidated financial statements have been restated to include
the financial position and results of operations of ASI for all periods
presented. On January 29, 1998, the Company and shareholders of ASI entered into
a settlement agreement under which the ASI shareholders agreed to return 338,800
shares of Common Stock to the Company. Certain ASI software products were
determined to require significantly more development effort than anticipated at
the time of the merger. The Company and the ASI shareholders agreed to a
settlement based upon the additional development costs incurred by the Company
to ready certain of the software products for sale to customers. The settlement
in shares was determined based upon the fair value of the Company's Common Stock
on the consummation date of the merger. At January 31, 1999, all settlement
shares of Common Stock had been returned to the Company and canceled.
During the year ended January 31, 1997, the Company recorded charges of
$834,220 in connection with the ASI merger. These charges consisted of
investment banking, legal, accounting and other fees. Included in these charges
are fees of $200,000 which were paid to a director of the Company for consulting
services performed in connection with the ASI merger.
10
<PAGE>
On January 29, 1999, the Company acquired all the outstanding common
shares of Genisys from the shareholders of Genisys in exchange for 1,240,000
shares of the Company's common stock. The transaction was accounted for as a
pooling of interests, and accordingly, the accompanying consolidated financial
statements have been restated to include the financial position and results of
operations of Genisys for all periods presented. Revenues and net income (loss)
of the Company and Genisys are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1999 1998 1997
------------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues:
Carreker-Antinori, Inc............ $ 52,361 $ 40,501 $ 29,072
Genisys Group, Inc................ 2,656 2,280 1,463
------------------- ----------------- -----------------
$ 55,017 $ 42,781 $ 30,535
------------------- ----------------- -----------------
------------------- ----------------- -----------------
Net income (loss):
Carreker-Antinori, Inc............ $ 5,108 $ 3,055 $ 1,376
Genisys Group, Inc................ 64 (50) (16)
------------------- ----------------- -----------------
$ 5,172 $ 3,005 $ 1,360
------------------- ----------------- -----------------
------------------- ----------------- -----------------
</TABLE>
During the year ended January 31, 1999, the Company recorded charges of
$485,000 in connection with the Genisys merger. These charges consisted of
legal, accounting and other fees.
11
<PAGE>
CARREKER-ANTINORI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROVISIONS FOR INCOME TAXES
Prior to the ASI merger, ASI had elected to be treated as an S corporation
for federal and state income tax purposes. As such, the taxable income of ASI
was reported to and subject to tax to its shareholders. The provision for income
taxes reported on the consolidated statement of operations for the year ended
January 31, 1997 provides approximate federal and state income taxes (by
applying statutory income tax rates) that would have been incurred if ASI had
been subject to tax as a C corporation. The pro forma adjustment to the tax
provision amounted to $103,000 in the year ended January 31, 1997.
The Company's provision for income taxes, including pro forma amounts for
the year ended January 31, 1997, consists of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended January 31,
---------------------------------------------------------
1999 1998 1997
----------------- ------------------ ------------------
<S> <C> <C> <C>
Federal :
Current.................................. $ 2,802 $ 1,237 $ 1,511
Deferred................................. (188) 615 (518)
----------------- ------------------ ------------------
2,614 1,852 993
State :
Current.................................. 300 139 167
Deferred................................. (11) 36 (46)
----------------- ------------------ ------------------
289 175 121
----------------- ------------------ ------------------
$ 2,903 $ 2,027 $ 1,114
----------------- ------------------ ------------------
----------------- ------------------ ------------------
</TABLE>
12
<PAGE>
CARREKER-ANTINORI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROVISIONS FOR INCOME TAXES (CONTINUED)
The provisions for income taxes differ from the amounts computed by
applying the statutory United States federal income tax rate to income before
provision for income taxes as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended January 31,
-------------------------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Income tax expense at statutory rate.......................... $ 2,744 $ 1,712 $ 841
State income taxes, net of U.S. federal benefit............... 195 92 76
Tax exempt interest income.................................... (273) -- --
Nondeductible expenses........................................ 172 67 197
Other, net.................................................... 65 156 --
----------------- ----------------- -----------------
Provision for income taxes.................................... $ 2,903 $ 2,027 $ 1,114
----------------- ----------------- -----------------
----------------- ----------------- -----------------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company's deferred
tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended January 31,
--------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Cash to accrual adjustment................................ $ 136 $ 181
Depreciation of furniture and equipment................... 178 (21)
Accruals not currently deductible......................... 152 63
Merger costs not currently deductible..................... -- 72
Allowance for doubtful accounts........................... 418 164
Other.................................................... 30 87
----------------- -----------------
Total deferred tax assets..................................... 914 546
Deferred tax liabilities :
Amortization of capitalized software..................... 1,151 965
Other.................................................... -- 17
----------------- -----------------
Total deferred tax liabilities................................ 1,151 982
----------------- -----------------
Net deferred tax liabilities.................................. $ (237) $ (436)
----------------- -----------------
----------------- -----------------
</TABLE>
5. COMMON STOCK
In June 1996, the Company repurchased 1,427,249 shares of Common Stock,
representing all the shares held by Pacific USA Holdings Corp., for a total cash
price of $2,000,000.
In October 1996, Science Applications International Corporation (SAIC)
purchased 774,967 shares of common stock for a cash purchase price of
$2,000,000. In connection with the stock purchase, the Company and SAIC entered
into a Shareholders Agreement (the Shareholders Agreement) under which SAIC was
granted: (i) the right to participate in any future offerings of common stock by
the Company so as to avoid dilution of SAIC's equity interest in the Company and
(ii) a put option which required, if exercised, the Company to purchase any or
all shares of common stock owned by SAIC under certain conditions, as defined in
the Shareholder Agreement. The Company classified the common stock subject to
the put outside of stockholders' equity on the consolidated balance sheet at
January 31, 1998. The put option terminated upon the Company's initial public
offering on May 20, 1998.
13
<PAGE>
CARREKER-ANTINORI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. BENEFIT PLANS
STOCK OPTION PLANS
Effective October 7, 1994, the Company adopted the 1994 Long Term
Incentive Plan (the Long Term Incentive Plan) under which officers and employees
may be granted awards in the form of incentive stock options, non-qualified
stock options and restricted shares. The exercise price per share for the Common
Stock issued pursuant to incentive stock options under the Long Term Incentive
Plan shall be no less than 100% of the fair market value on the date the option
is granted. The exercise price per share for non-qualified stock options under
the Long Term Incentive Plan may be determined by the Compensation Committee of
the Company's Board of Directors (the Committee), but may not be less than the
par value of the shares. Options granted under the Long Term Incentive Plan
become exercisable and vest as determined by the Committee. To date, options
granted under the Long Term Incentive Plan fully vest within four years
from the date of grant. The term of each option granted under the Long Term
Incentive Plan shall be as the Committee determines, but in no event shall any
option have a term of longer than ten years from the date of grant. Options may
be granted pursuant to the Long Term Incentive Plan up to October 7, 2004,
unless the Board of Directors terminates the Long Term Incentive Plan prior to
such date.
On January 31, 1998, the Committee issued 84,700 shares of restricted
stock with a fair market value of $8.90 per share to certain key employees
under the Company's Long Term Incentive Plan. Holders of restricted stock
retain all rights of a stockholder, except the shares cannot be sold until
they vest. Upon employee termination, all unvested shares are forfeited to
the Company. The restricted shares vest in full on January 31, 2001. At
January 31, 1999 and 1998, there was deferred compensation related to the
restricted shares totaling $502,698 and $754,000, respectively. The deferred
compensation will be charged to expense over the vesting period.
The Company has a Director Stock Option Plan (the Director Plan) under
which non-employee members of the Company's Board of Directors may be granted
options to purchase shares of the Company's Common Stock at prices determined by
the Committee. Options granted under the Director Plan expire ten years
from the date of grant or at such earlier date as determined by the Committee
and specified in the applicable stock option agreement. Each option granted
shall become exercisable immediately or in one or more installments as
determined by the Committee and as provided in the applicable stock option
agreement. All shares issued and options granted pursuant to the Director Plan
are subject to restriction agreements. During the year ended January 31, 1999,
options to purchase 17,790 shares of common stock were granted to Directors. The
exercise price was set at 50% of the fair market value on the grant date. As a
result, the Company recorded deferred compensation of $100,026 to be expensed
ratably over a one year vesting period. At January 31, 1999, there was deferred
compensation related to such Director options of $65,020.
As part of an employment contract, the President of ASI granted an option
to an officer of ASI in December 1995 to purchase 396,257 equivalent shares of
the Company's Common Stock at an exercise price of $.54 per share from the
President of ASI. The exercise price was set at 25% of the fair market value on
the grant date. As a result, the Company recorded deferred compensation of
$642,633 to be expensed ratably over the vesting period. The option initially
vested over a two year period from the date of grant but fully vested in the
event of a change in control as defined in the option agreement. The option
fully vested as a result of the Company's merger with ASI effective January 31,
1997. Therefore, all remaining deferred compensation recorded relating to this
stock option grant was expensed in the fourth quarter of 1997.
14
<PAGE>
CARREKER-ANTINORI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. BENEFIT PLANS (CONTINUED)
Stock option transactions under all plans for the years ended January 31,
1999, 1998 and 1997, are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1999 1998
-------------------------------- -----------------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Options Price Options Price
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding at beginning of year............... 4,230 $ 3.96 2,983 $ 1.45
Granted........................................... 1,378 6.91 1,932 6.96
Exercised......................................... (1,975) 1.87 (350) 0.45
Forfeited......................................... (60) 8.21 (335) 2.57
------- -----
Options outstanding at end of year..................... 3,573 6.19 4,230 3.96
------- -----
------- -----
Options exercisable at end of year..................... 1,221 1,557
Weighted average grant-date fair value of options
granted during the year........................... $ 5.26 $ 1.58
-------- --------
-------- --------
<CAPTION>
1997
---------------------------
Weighted
Average
Number of Exercise
Options Price
---------------------------
<S> <C> <C>
Options outstanding at beginning of year............... 1,942 $ 0.82
Granted........................................... 1,119 2.51
Exercised......................................... (24) 0.61
Forfeited......................................... (54) 1.11
-----
Options outstanding at end of year..................... 2,983 1.45
-----
-----
Options exercisable at end of year..................... 1,272
Weighted average grant-date fair value of options
granted during the year........................... $ 0.48
--------
--------
</TABLE>
Information related to options outstanding at January 31, 1999, is
summarized below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Weighted
Options Average Weighted Options Weighted
Outstanding at Remaining Average Exercisable at Average
January 31, Contractual Exercise January 31, 1999 Exercise
Range of Exercise Price 1999 Life Price Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.45 to $4.88 955 5.4 $ 1.94 883 $ 1.80
$5.81 to $7.20 1,275 9.7 6.15 60 7.14
$8.90 to $11.00 1,343 8.9 9.24 278 9.07
----- -----
3,573 8.2 $ 6.19 1,221 $ 3.72
----- -----
----- -----
</TABLE>
As of January 31, 1999, the Company has reserved for issuance under the
Long Term Incentive Plan 3,801,364 shares of Common Stock, of which 84,700
shares of restricted stock have been issued, 3,389,604 shares are subject to
currently outstanding options to employees, 165,789 shares are subject to
currently outstanding options to directors, and 161,271 shares are reserved
for future awards. As of January 31, 1999, the Company has reserved for
issuance under the Director Plan 100,000 shares of Common Stock, of which
17,790 shares are subject to currently outstanding options, and 82,210 shares
are reserved for future awards.
15
<PAGE>
CARREKER-ANTINORI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. BENEFIT PLANS (CONTINUED)
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee and director stock options because, as discussed
below, the alternative fair value accounting provided for under SFAS 123
requires the use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, no compensation expense is
recorded when the exercise price of the Company's employee stock options equals
the fair value of the underlying stock on the date of grant. Compensation equal
to the intrinsic value of employee stock options is recorded when the exercise
price of the stock options is less than the fair value of the underlying stock
on the date of grant. Any resulting compensation is amortized to expense over
the option's vesting period. During the years ended January 31, 1999 and 1997,
total compensation expense recorded relating to employee stock options was
$286,359 and $589,081, respectively. No compensation expense relating to
employee stock options was recorded during the year ended January 31, 1998.
Information regarding pro forma net income is required by SFAS 123, and
has been determined as if the Company had accounted for its employee and
director stock options under the fair value method of SFAS 123. The fair value
of these options was estimated at the date of grant using a Black-Scholes option
pricing model assuming volatility of 1.045 in 1999, no volatility for 1998
and 1997, and the following assumptions for 1999, 1998 and 1997, respectively:
weighted-average risk free interest rate of 5.3%, 5.95% and 6.22%, no dividends,
and weighted average expected life of 4.51, 4.45 and 3.49 years.
The Black Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee and director stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information (in thousands, except per share amounts) is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Pro forma net income............................................. $ 3,710 $ 2,592 $ 1,208
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Basic pro forma earnings per share............................... $ .23 $ .20 $ .10
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Diluted pro forma earnings per share............................. $ .21 $ .20 $ .09
----------------- ----------------- -----------------
----------------- ----------------- -----------------
</TABLE>
The pro forma disclosures only include the effect of options granted
subsequent to January 31, 1995. Accordingly, the pro forma information does not
reflect the pro forma effect of all previous stock option grants of the Company,
and thus is not indicative of future amounts until SFAS 123 is applied to all
outstanding stock options.
16
<PAGE>
CARREKER-ANTINORI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. BENEFIT PLANS (CONTINUED)
PROFIT SHARING PLAN
The Company has adopted a profit sharing plan pursuant to Section 401(k)
of the Internal Revenue Code (the Code) whereby participants may contribute a
percentage of compensation not in excess of the maximum allowed under the Code.
The plan provides for a matching contribution by the Company. Effective January
1, 1998, employees of ASI became eligible to participate in the Company plan.
Employer matching contributions amounted to $616,183, $421,000 and $304,000, in
1999, 1998 and 1997, respectively. The Company may make additional contributions
at the discretion of the Board of Directors. No discretionary contribution was
made during 1999, 1998, or 1997. Prior to January 1, 1998, employees of ASI had
a separate profit sharing plan pursuant to Section 401(k) of the Code, whereby
participants could contribute a percentage of compensation not in excess of the
maximum allowed under the Code. Employer matching contributions are
discretionary and amounted to $260,000 and $187,000 under the ASI plan for the
years ended January 31, 1998 and 1997, respectively.
Through January 31, 1999, employees of Genisys had a separate profit
sharing plan pursuant to Section 401(k) of the Code, whereby participants could
contribute a percentage of compensation not in excess of the maximum allowed
under the Code. Employer matching and additional contributions are discretionary
and amounted to $105,488, $1,800 and $42,000, under the Genisys plan for the
years ended January 31, 1999, 1998 and 1997, respectively.
BONUS PLAN
The Company pays bonuses to key employees based on Company profitability,
the extent to which individuals meet agreed-upon objectives for the year, and
executive management's discretion. The Company recorded bonus expense of
approximately $513,000, $1,554,000 and $2,241,000 in 1999, 1998 and 1997,
respectively.
7. MANAGEMENT SERVICES
The Company serves as Executive Director of the Electronic Check Clearing
House Organization (ECCHO) and provides consulting and administrative services
to ECCHO, for which the Company recorded net revenues of $1,040,000, $994,000
and $866,000 for the years ended January 31, 1999, 1998 and 1997, respectively.
Receivables from ECCHO were $343,000, $566,000 and $477,000 at January 31, 1999,
1998 and 1997, respectively.
The Company owns an equity interest in Payment Solutions Network, Inc.
(PSN) for which the Company has no book basis. PSN's articles of incorporation
require PSN to repurchase the Company's equity interest for $1,250,000 at a rate
of $250,000 per year over a five-year period, with the final year's payment
contingent upon the amount of operating revenue of PSN in the fifth year. The
annual repurchase of these units is subject to PSN maintaining certain cash and
net worth levels. The proceeds from the first scheduled repurchase of $250,000
was received by the Company from PSN in January 1996 and included in other
income. The scheduled 1999, 1998 and 1997 repurchase of $250,000 was not
received due to cash and net worth levels of PSN falling below the amounts
stipulated in its articles of incorporation. Additional payments, if any, to be
received by the Company from PSN in subsequent years will be recognized as other
income when the realization of such amounts is probable.
17
<PAGE>
CARREKER-ANTINORI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. MANAGEMENT SERVICES (CONTINUED)
To assist PSN in maintaining its liquidity, the Company and another
stockholder of PSN each advanced PSN a total of $500,000 in two increments in
August and December of the fiscal year ended January 31, 1997. The Company
believes ultimate collection of these advances is doubtful based upon PSN's
historical and forecasted operating results. Therefore, the Company fully
reserved the $500,000 receivable and charged $500,000 to other expense in 1997.
The Company has an additional long-term note receivable from PSN with a
remaining balance of $31,000 and $64,000 as of January 31, 1999 and 1998,
respectively. Such note receivable is included in other assets in the
consolidated balance sheet.
The Company has a management services contract (the PSN Agreement) with
PSN to provide consulting, sales, and administrative support to PSN for a
five-year term beginning January 31, 1995. During the years ended January 31,
1999, 1998 and 1997, the Company recorded management service fees related to the
PSN Agreement of $1,216,000, $1,378,000 and $1,344,000, respectively. Net
receivables from PSN for management services (excluding the note receivable
discussed above) were, $545,000, $797,000 and $257,000, at January 31, 1999,
1998 and 1997, respectively. Subsequent to January 31, 1999, the Company
received payments from PSN for management services in the amount of $175,000.
The Company owns an equity interest (for which the Company has no book
basis) and serves as Managing Director of INFITEQ, LLC (INFITEQ), a
single-source provider of specialized outsourcing services to the banking
industry for transaction processing, information management, electronic commerce
and image technology. INFITEQ was incorporated on January 15, 1998. The Company
has a Management Services Agreement (the INFITEQ Agreement) with INFITEQ to
provide INFITEQ consulting, sales and administrative support through January
2008. The Company also is entitled to receive reimbursement of certain costs it
incurred for the benefit of INFITEQ. The Company provided consulting and
management services to INFITEQ, for which the Company recorded revenues of
$1,093,000 for the year ended January 31, 1999. Receivables from INFITEQ were
$98,000 at January 31, 1999.
The Company has not provided guarantees of debt or other obligations, has
not agreed to fund any losses, and is not otherwise contingently liable with
respect to ECCHO, PSN or INFITEQ.
8. LEASE COMMITMENTS
The Company leases office facilities and certain equipment under operating
leases for various periods. Leases that expire are generally expected to be
renewed or replaced by other leases. Subsequent to January 31, 1998 the Company
entered into a lease commitment for a term of 11 years for its corporate
headquarters in Dallas, Texas. Rental commitments for this lease are reflected
in the lease commitments schedule below. Rental expense under operating leases
for 1999, 1998 and 1997 was approximately $1,038,000, $620,000 and $546,000,
respectively. Future minimum base rents under terms of non-cancelable operating
leases are as follows:
<TABLE>
<CAPTION>
Year ending January 31:
<C> <C>
2000.................................................................$1,120
2001................................................................. 1,442
2002................................................................. 1,608
2003................................................................. 1,361
2004 and thereafter.................................................. 8,000
</TABLE>
18
<PAGE>
CARREKER-ANTINORI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Basic earnings per share:
Net income................................................. $ 5,172 $ 3,005 $ 1,360
Weighted average shares outstanding........................ 16,224 12,717 12,154
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Basic earnings per share................................... $ 0.32 $ 0.24 $ 0.11
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Diluted earnings per share:
Net income................................................. $ 5,172 $ 3,005 $ 1,360
Weighted average shares outstanding........................ 16,224 12,717 12,154
Assumed conversion of employee stock options............... 1,280 1,767 964
----------------- ----------------- -----------------
Shares used in diluted earnings per share calculation...... 17,504 14,484 13,118
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Diluted earnings per share................................. $ 0.30 $ 0.21 $ 0.10
----------------- ----------------- -----------------
----------------- ----------------- -----------------
</TABLE>
10. SEGMENTS
Effective with the year ended January 31, 1999, the Company adopted the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information (Statement 131)." Segment disclosures required by Statement 131 has
been reported for the year ended January 31, 1999. Segment information for the
years ended January 31, 1997 and 1998 has not been prepared and disclosed as it
is impractical to do so due to the merger with ASI which occurred in 1997 and
organizational changes which occurred in the Company's business effective
February 1, 1998 which impact segment reporting under Statement 131.
The Company has three reportable segments: revenue enhancement, payment
systems, and emerging solutions. The segments are unique due to the focus of the
products and services being offered. The Company evaluates performance and
allocates resources based on profit or loss from operations before income taxes,
not including gains and losses on the Company's investment portfolio. The
accounting policies of the reportable segments are the same as those described
in Note 2, Summary of Significant Accounting Policies.
Revenue enhancement consists primarily of yield management consulting, and
liquidity management consulting and software. Payment systems consists primarily
of consolidation consulting, best practices consulting and software, risk
management consulting and software, float management consulting and software,
payment electronification consulting and software, and track and trace software.
Emerging solutions consists primarily of enterprise information technology
consulting, and management services.
Due to the solution approach to delivering products and services from
multiple business segments, contracts are broken down by segment with few
transactions between reportable segments.
19
<PAGE>
10. SEGMENTS (CONTINUED)
Included in corporate and unallocated are costs related to selling and
marketing, unallocated corporate overhead expense, general software management,
and incentive bonuses. Business segment results include costs for research and
development as well as product royalty expense. Receivables, property and
equipment and other assets are not included in the measures reviewed by the
Company's chief operating decision-maker. Therefore, all Company assets have
been included in the corporate and unallocated category in the following
reportable segment disclosure. Segment information for the year ended January
31, 1999 was as follows:
<TABLE>
<CAPTION>
Revenue Payment Emerging Corporate and
Enhancement Systems Solutions Unallocated Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues
Consulting and management service fees. $ 11,734 $ 9,537 $ 5,057 -- $ 26,328
Software license fees................... 3,977 12,350 -- -- 16,327
Software maintenance fees............... 884 4,147 -- -- 5,031
Software implementation fees............ 1,655 4,902 -- -- 6,557
Hardware and other fees................. -- 774 -- -- 774
------------- -------------- --------------- -------------- -------------
Total revenues....................... $ 18,250 $ 31,710 $ 5,057 -- $ 55,017
------------- -------------- --------------- -------------- -------------
------------- -------------- --------------- -------------- -------------
Operating income (loss)..................... $ 10,272 $ 11,355 $ 1,391 $ (15,868) $ 7,150
Assets...................................... $ -- $ -- $ -- $ 68,736 $ 68,736
Depreciation and
Amortization................................ $ 121 $ 779 $ 34 $ 796 $ 1,730
Capital expenditures........................ $ -- $ -- $ -- $ 2,286 $ 2,286
</TABLE>
20
<PAGE>
SELECTED CONSOLIDATED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth certain unaudited quarterly data for the
last eight quarters ended January 31, 1999. The data has been derived from
the Company's unaudited consolidated financial statements that, in
management's opinion, include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such information
when read in conjunction with the Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Report.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------
Jan 31, Oct 31, Jul 31, Apr 31,
1999 1998 1998 1998
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Total revenues................................ $ 15,236 $ 14,549 $ 14,298 $ 10,934
Gross profit.................................. $ 8,813 $ 8,176 $ 8,187 $ 5,666
Income from operations........................ $ 1,783 $ 2,230 $ 2,520 $ 617
Net income.................................... $ 1,405 $ 1,670 $ 1,714 $ 383
Basic earnings per share...................... $ .08 $ .09 $ .10 $ .03
Diluted earnings per share.................... $ .07 $ .09 $ .10 $ .03
<CAPTION>
Three Months Ended
-------------------------------------------------------
Jan 31, Oct 31, Jul 31 Apr 31,
1998 1997 1997 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total revenues................................ $ 11,842 $ 11,515 $ 11,333 $ 8,091
Gross profit.................................. $ 6,645 $ 5,530 $ 5,580 $ 3,585
Income from operations........................ $ 1,266 $ 1,368 $ 2,046 $ 273
Net income.................................... $ 763 $ 803 $ 1,238 $ 201
Basic earnings per share...................... $ .06 $ .06 $ .10 $ .02
Diluted earnings per share.................... $ .05 $ .05 $ .09 $ .01
</TABLE>
21
