<PAGE> 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 December 31, 1998
AMDOCS LIMITED
Tower Hill House Le Bordage GY1 3QT
St. Peter Port, Island of Guernsey, Channel Islands
Amdocs, Inc.
1610 Des Peres Road, St. Louis, Missouri 63131
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.)
FORM 20 F X FORM 40 F
(Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to rule 12g3-2(b) under the Securities Exchange Act of
1934.)
YES NO X
<PAGE> 2
AMDOCS LIMITED
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
FOR THE QUARTER ENDED DECEMBER 31, 1998
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations (Unaudited)
Consolidated Statements of Cash Flows (Unaudited)
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
<PAGE> 3
ITEM 1. FINANCIAL INFORMATION
AMDOCS LIMITED
CONSOLIDATED BALANCE SHEETS
(U.S. dollars, unless otherwise stated)
(in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, 1998 September 30, 1998
----------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,129 $ 25,389
Accounts receivable, including unbilled of $14,030 and $10,331,
respectively 109,063 79,723
Accounts receivable from related parties, including unbilled of $0 and
$537, respectively 19,530 10,235
Deferred income taxes 16,026 14,534
Prepaid expenses and other current assets 14,600 11,991
------------ -----------
Total current assets 177,348 141,872
Equipment, vehicles and leasehold improvements, net 54,305 46,404
Deferred income taxes 7,224 7,773
Intellectual property rights 22,707 23,362
Other noncurrent assets 20,926 20,555
------------ -----------
$ 282,510 $ 239,966
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 54,136 $ 47,599
Accrued personnel costs 32,454 29,948
Short-term financing arrangements 75,708 91,565
Unearned revenue 52,121 29,241
Short-term portion of capital lease obligations 3,597 2,952
Forward exchange contracts 5,782 2,926
Income taxes payable and deferred income taxes 23,253 21,919
------------ -----------
Total current liabilities 247,051 226,150
Long-term forward exchange contracts 2,094 2,222
Long-term portion of capital lease obligations 11,217 9,215
Other noncurrent liabilities 24,733 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; 196,800
shares outstanding 3,149 3,149
Additional paid-in capital 447,745 447,503
Unrealized loss on derivative instruments (3,626) (1,495)
Unearned compensation (7,896) (8,947)
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
Accumulated deficit (441,957) (462,099)
----------- -----------
Total shareholders' deficit (2,585) (21,889)
=========== ===========
$ 282,510 $ 239,966
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
AMDOCS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(U.S. dollars, unless otherwise stated)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended December 31
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenue:
License* $ 15,040 $ 8,721
Service* 116,385 77,837
----------- -----------
131,425 86,558
----------- -----------
Operating expenses:
Cost of license 1,323 3,212
Cost of service* 75,915 50,133
Research and development 8,379 5,321
Selling, general and administrative* 15,647 11,047
----------- -----------
101,264 69,713
----------- -----------
Operating income 30,161 16,845
----------- -----------
Interest expense, net* 1,315 2,323
Other expense (income), net 72 (1,325)
----------- -----------
1,387 998
----------- -----------
Income before income taxes 28,774 15,847
Income taxes 8,632 7,886
=========== ===========
Net income $ 20,142 $ 7,961
=========== ===========
Basic earnings per share $ 0.10 $ 0.06
=========== ===========
Diluted earnings per share $ 0.10 $ 0.06
=========== ===========
</TABLE>
* Includes the following income (expense) resulting from transactions with
related parties for the three months ended December 31, 1998 and 1997,
respectively: License revenue - $100 and $210; service revenue - $21,398
and $23,241; cost of service - $500 and $709; selling, general and
administrative - $112 and $106; interest expense - $0 and $51.
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
AMDOCS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(U.S. dollars, unless otherwise stated)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended December 31
-------------------------------
1998 1997
----------- ----------
<S> <C> <C>
Cash Flow from Operating Activities
Net income $ 20,142 $ 7,961
Reconciliation of net income to net cash provided by
operating activities:
Depreciation 3,842 2,308
Amortization 2,678 3,892
Loss on sale of equipment 179 60
Deferred income taxes 1,438 (967)
Net changes in operating assets and liabilities:
Accounts receivable (38,635) (13,074)
Prepaid expenses and other current assets (2,673) (2,308)
Other noncurrent assets (1,038) (1,172)
Accounts payable and accrued expenses 9,043 5,342
Forward exchange contracts 2,728 -
Unearned revenue 22,880 6,536
Income taxes payable (132) 4,563
Other noncurrent liabilities 465 1,416
Unrealized loss on derivative instruments (3,046) -
----------- ----------
(10,408) 1,303
----------- ----------
Net cash provided by operating activities 17,871 14,557
----------- ----------
Cash Flow from Investing Activities
Proceeds from sale of equipment, vehicles, and leasehold
improvements 463 350
Payments for purchase of equipment, vehicles, and
leasehold improvements (8,893) (2,332)
----------
-----------
Net cash used in investing activities (8,430) (1,982)
----------- ----------
Cash Flow from Financing Activities
Payments under short-term finance arrangements (95,650) (27,483)
Borrowings under short-term finance arrangements 79,793 122,925
Net proceeds from issuance of long-term debt - 220,606
Principal payments under capital lease obligations (844) (606)
Cash held in escrow - (315,000)
----------- ----------
Net cash (used in) provided by financing activities (16,701) 442
----------- ----------
Net (decrease) increase in cash and cash equivalents (7,260) 13,017
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C>
Cash and cash equivalents at beginning of period 25,389 53,732
=========== ==========
Cash and cash equivalents at end of period $ 18,129 $ 66,749
=========== ==========
Supplementary Cash Flow Information
Interest and income taxes paid
Cash paid for:
Income taxes, net of refunds $ 7,368 $ 4,445
Interest 1,435 207
</TABLE>
Noncash Investing and Financing Activities
Capital lease obligations of $3,491 and $793 were incurred during the three
months ended December 31, 1998 and 1997, respectively, when the Company entered
into lease agreements for vehicles.
The accompanying notes are an integral part of these financial statements.
<PAGE> 8
AMDOCS LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars, unless otherwise stated)
(in thousands, except per share data)
Note 1. Basis of Presentation
Amdocs Limited (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.
Note 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 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 $700 of
internally developed software costs in the three-month period ended
December 31, 1998.
Note 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.
<PAGE> 9
The following table sets forth the reconciliation from net income to
comprehensive income for the periods of:
<TABLE>
<CAPTION>
Three months ended December 31
------------------------------
1998 1997
------- ------
<S> <C> <C>
Net income $20,142 $7,961
Change in unrealized loss on
derivative instruments, net of tax (2,131) -
======= ======
Comprehensive Income $18,011 $7,961
======= ======
</TABLE>
Note 4. Income Taxes
The provision for income taxes for the periods of:
<TABLE>
<CAPTION>
Three months ended December 31
------------------------------
1998 1997
------ ------
<S> <C> <C>
Current $7,194 $8,853
Deferred 1,438 (967)
====== ======
$8,632 $7,886
====== ======
</TABLE>
The effective income tax rate varied from the statutory Guernsey tax rate
as follows for the periods of:
<TABLE>
<CAPTION>
Three months ended December 31
------------------------------
1998 1997
----- -----
<S> <C> <C>
Statutory Guernsey tax rate 20% 20%
Guernsey tax-exempt status (20) (20)
Foreign taxes 30 50*
===== =====
Effective income tax rate 30% 50%
===== =====
</TABLE>
* 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 is significantly greater than the estimated fiscal 1999 effective
tax rate.
Note 5. Stock Option Plan
In November 1998, options to purchase 20 Ordinary Shares were granted to
employees at an exercise price equal to the June 1998 grants ($1.92). In
connection with this grant the Company recorded unearned compensation
expense totaling $242 as a separate component of shareholders' equity for
the difference between the fair market value per share at the date of grant
and the exercise price of $1.92 per share. Additional paid-in capital was
increased by the same amount. The unearned compensation will be amortized
ratably over the vesting period of three years.
In November 1998, options to purchase 70 Ordinary Shares were granted to
employees at an exercise price of $13.69, which was equal to the
<PAGE> 10
fair market value per share at the date of grant, with vesting over four
years and a term of ten years.
Note 6. Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three months ended December 31
-------------------------------
1998 1997
-------- --------
<S> <C> <C>
Numerator:
Net income $ 20,142 $ 7,961
======== ========
Denominator:
Denominator for basic earnings per share - weighted
average shares 196,800 124,708
Effect of dilutive contingently issuable shares - 2,584
Effect of dilutive stock options granted 2,105 -
======== ========
Denominator for dilutive earnings per share - adjusted
average shares and assumed conversions 198,905 127,292
======== ========
Basic earnings per share $0.10 $0.06
======== ========
Diluted earnings per share $0.10 $0.06
======== ========
</TABLE>
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
This report contains certain forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from the results reflected in those forward-looking statements, as they are
subject to a variety of risk factors which are set forth in the Company's Annual
Report on Form 20-F on file with the Securities and Exchange Commission. THE
COMPANY DISCLAIMS ANY OBLIGATION TO UPDATE ITS FORWARD-LOOKING STATEMENTS.
OVERVIEW
The Company provides customized software products and services to the
telecommunications industry, primarily Customer Care and Billing Systems
("CC&B") for wireless, wireline and multiple-service or convergent network
operators and service providers. Amdocs also supplies Directory Sales and
Publishing Systems ("Directory Systems") to publishers of both traditional
printed yellow page and white page directories and electronic Internet
directories. The Company's products are mission-critical for a customer's
operations. Due to the complexity of the process and the expertise required for
system support, the Company also provides extensive customization,
implementation, ongoing support, system enhancement and maintenance services.
The Company derives its revenue principally from (i) the initial sale
of the Company's products and related services, including license fees and
customization and implementation services, and (ii) recurring revenue from
ongoing maintenance, support and related services provided to the Company's
customers and, to a lesser degree, from incremental license fees resulting from
increases in a customer's subscribers.
License revenue is recognized concurrently as 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 related to ongoing support 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 its percentage of completion accounting
policies, the Company's annual and quarterly operating results may be
significantly affected by the size, timing and changes in estimates of customer
projects and the Company's progress in completing such projects.
Since 1992, the Company has invested substantial resources to develop
its information technology and to expand its range of products. As a result of
significant information technology expenditures, the Company was able to offer a
full range of integrated applications for its CC&B Systems at the same time
factors such as increased demand for services, deregulation, privatization and
technological advancements began to transform the telecommunications industry.
License and service fees from the sale of CC&B Systems amounted to $90.4 million
and $46.8 million in first quarters 1999 and 1998 respectively, representing
68.8% and 54.1%, respectively, of the Company's revenue for such periods.
The Company believes that the demand for CC&B Systems will continue to
increase as the size and complexity of the
<PAGE> 12
telecommunications industry increases and that CC&B Systems will account for a
larger share of the Company's total revenue in fiscal year 1999.
Although the business of publishing traditional yellow page and white
page directories is a mature business in the United States, it continues to be a
significant source of revenue for the Company worldwide. The Company believes
that it is a leading provider of Directory Systems in most of the markets it
serves. License and service fee revenue from the sale of Directory Systems
totaled $41.0 million and $39.8 million in first quarter 1999 and 1998,
respectively, accounting for 31.2% and 45.9%, respectively, of the Company's
revenue for such periods. The Company believes that the demand for Directory
Systems will be favorably impacted by increased competition among international
directory publishers, as well as by a broader introduction of electronic
directories. However, the Company anticipates that the relative contribution of
license and service fees for Directory Systems to total revenue will decrease
over time. The Company has also recently introduced a number of new products for
Internet and electronic commerce applications. The Company anticipates that over
the next several years products developed or to be developed for such
applications will make a modest but increasing contribution to revenue.
The Company's research and development activities involve the
development of new software modules and product offerings in response to an
identified market demand, usually in conjunction with a customer project. The
Company also expends additional amounts on applied research and software
development activities to keep abreast of new technologies in the
telecommunications market. In the next several years, the Company intends to
continue to make significant investments in its research and development
activities both for CC&B Systems and Directory Systems.
RESULTS OF OPERATIONS
The following table sets forth certain items in the Company's
consolidated statements of operations reflected as a percentage of total revenue
for the periods of:
<TABLE>
<CAPTION>
Three months ended December 31
------------------------------
1998 1997
---- ----
<S> <C> <C>
Revenue:
License 11.4% 10.1%
Service 88.6 89.9
----- -----
100.0 100.0
----- -----
Operating expenses:
Cost of license 1.0 3.7
Cost of service 57.8 57.9
Research and development 6.4 6.1
Selling, general and administrative 11.9 12.8
----- -----
77.1 80.5
----- -----
Operating income 22.9 19.5
Interest expense, net 1.0 2.7
Other expense (income), net -- (1.5)
Income taxes 6.6 9.1
----- -----
Net income 15.3% 9.2%
===== =====
</TABLE>
<PAGE> 13
Quarter ended December 31, 1998 and 1997
The Company's fiscal year ends on September 30. The information set
forth below compares first quarter fiscal year 1999 with first quarter fiscal
year 1998.
Revenue. Revenue for the quarter ended December 31, 1998 was $131.4
million, an increase of $44.9 million, or 51.8%, compared to the prior fiscal
year's first quarter. License revenue increased from $8.7 million in first
quarter fiscal year 1998 to $15.0 million in first quarter fiscal year 1999, an
increase of 72.5%, and service revenue increased 49.5% by $38.5 million in first
quarter fiscal year 1999. Total CC&B Systems revenue for the quarter ended
December 31, 1998 was $90.4 million, an increase of $43.6 million, or 93.2%,
compared to the prior fiscal year's first quarter. Revenue attributable to
Directory Systems was $41.0 million for the quarter ended December 31, 1998, an
increase of $1.2 million, or 3.0%, from first quarter fiscal year 1998. The
growth in revenue is attributable to sales to new customers as well as to sales
of additional products and services to existing customers.
In the three months ended December 31, 1998 and 1997, revenue from
customers in North America, Europe and the rest of the world accounted for
44.1%, 38.0% and 17.9%, respectively, compared to 59.1%, 17.6%, and 23.3%,
respectively.
Cost of License. Cost of license for the quarter ended December 31,
1998 was $1.3 million, a decrease of $1.9 million, or 58.8%, from cost of
license for the quarter ended December 31, 1997. Cost of license in first
quarter 1999 includes amortization of purchased computer software and
intellectual property rights, and in 1998 included royalty expense paid to
related parties in connection with the grant to the Company of licenses to use
certain software jointly developed with such subsidiaries.
Cost of Service. Cost of service for first quarter fiscal year 1999 was
$75.9 million, an increase of $25.8 million, or 51.4%, from cost of service of
$50.1 million for first quarter fiscal year 1998. As a percentage of revenue,
cost of service decreased to 57.8% in the quarter ended December 31, 1998 from
57.9% in first quarter fiscal year 1998. The absolute increase in cost of
service is consistent with the increase in revenue for the quarter, as these
costs are predominately compensation related and reflect increased employment
levels required to support the 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 quarter ended
December 31, 1998, research and development expense was $8.4 million, or 6.4% of
revenue, compared with $5.3 million, or 6.1% of revenue, in the quarter ended
December 31, 1997. The increase in research and development expense represents
ongoing expenditures for both CC&B Systems and Directory Systems.
Selling, General and Administrative. Selling, general and
administrative expense is primarily comprised of compensation expense and
increased by 41.6%, to $15.6 million, or 11.9% of revenue, in the quarter ended
December 31, 1998 from $11.0 million, or 12.8% of revenue, in the prior fiscal
year's first quarter.
<PAGE> 14
Operating Income. Operating income in the quarter ended December 31, 1998 was
$30.2 million, or 22.9% of revenue, as compared with $16.8 million, or 19.5% of
revenue, in the prior fiscal year's first quarter, an increase of 79.1%. As a
percentage of revenue, operating income was 22.9% in first quarter fiscal year
1999 as compared to 19.5% in first quarter fiscal year 1998.
Interest Expense, Net. Interest expense, net is primarily interest
expense incurred by the Company related to bank debt and subordinated debt,
which debt was substantially repaid from the proceeds of the Company's initial
public offering. In the quarter ended December 31, 1998, interest expense, net
was an expense of $1.3 million, a decrease of $1.0 million from first quarter
fiscal year 1998.
Income Taxes. Income taxes in the quarter ended December 31, 1998 were
$8.6 million on income before taxes of $28.8 million. In the prior fiscal year's
first quarter, income taxes were $7.9 million on income before taxes of $15.8
million. See the discussion of "Effective Tax Rate" below.
Net Income. The Company's net income was $20.1 million, or 15.3% of
revenue, in the quarter ended December 31, 1998. The increase was primarily the
result of an increase in operating income.
Basic and Diluted Earnings Per Share. Basic and diluted earnings per
share increased 67.0% from $.06 in first quarter fiscal year 1998 to $.10 in
first quarter fiscal year 1999. This was positively effected by the increase
in net revenue and partially offset by an increase in the weighted average
number of shares.
YEAR 2000 ISSUES
Background. The term "year 2000 issues" is a general term used to
describe the various problems that may result from the improper processing of
dates and fault date calculations by computers and other machinery in the
upcoming millenium. These problems generally arise from the fact that most of
the world's legacy computer hardware and software have historically used only
two digits to identify the year in a date, often meaning that the computer will
fail to distinguish dates in the "2000's" from dates in the "1900's". These
problems may also arise from other sources such as the use of special codes and
conventions in software that make use of the date field. This could result in a
system failure or miscalculation causing disruptions of operations, including,
among other things, total failure of mass systems that depend on computers such
as electricity, telephone networks, and banking systems.
Year 2000 issues, which potentially impact the Company, include the
Company's own internal systems, its customized software products sold and the
compliance efforts of third parties.
The Company's State of Readiness. The Company has identified the
information technology ("IT") and non-IT systems, software and products which
could be affected by the year 2000 issue, and has assessed the efforts required
to remediate or replace them. The Company has also identified versions of its
products that will not be made compliant and is assisting customers in upgrading
or migrating to year 2000 compliant versions. By the end of 1999, it is the
Company's intention that all of the major or key systems, software and products
will be remediated or replaced.
The Company began evaluating year 2000 compliancy issues in mid-
<PAGE> 15
1996. Since then the following functions have been performed: thorough
examination and study of year 2000 compliance status, process methodology
adaptation, analysis of solution alternatives and determination of Amdocs'
technical and business year 2000 policies. In recent years, systems have been
developed as year 2000 compliant; older generations of applications are being
migrated to year 2000 compliance in cooperation with our customers (using Amdocs
year 2000 methodology and toolkit). 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, Amdocs has
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 Amdocs
including a powerful search utility (as a result of an analysis for
cost-effectiveness). 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. This subject is crucial in view of
the technical and functional interaction with third party systems and those
developed by the customers locally.
The Company anticipates completing the majority of the testing,
implementation of changes and necessary refinements by mid 1999. Management
expects that systems, software and products for which the Company has
responsibility currently are year 2000 compliant or will be compliant on a
timely basis. The Company is currently not aware of any year 2000 issues with
its customers that cannot be remedied.
The Company has contacted all of its customers, and several of its
vendors and other third parties with whom it deals to identify potential issues
the Company might encounter concerning year 2000 compliancy. These
communications are also used to elicit the status of year 2000 readiness, and to
clarify which year 2000 issues are the responsibility of the Company and which
are the responsibility of the third party. The Company does not anticipate that
the year 2000 issues it will encounter with third parties will be different than
those encountered by other providers of information services, including the
Company's competitors. At this time, the Company is not aware of any year 2000
issues or problems relating to third parties with which the Company has a
material relationship.
Costs To Address The Company's Year 2000 Issues. A significant portion
of the Company's 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 the financial position or results of operations of
the Company.
The Company has accrued approximately $3.3 million at December 31, 1998
representing the estimated amount of costs to modify previously sold customized
software products. The Company does not anticipate capitalizing any of these
costs as they relate to warranties related to products developed for customers.
The Company has not yet estimated year 2000 costs for periods after
1999. Some post-1999 costs might be anticipated due to extra customer service
efforts created by the failure of third parties to be
<PAGE> 16
year 2000 compliant. Neither the costs incurred for year 2000 compliance
efforts, nor the delay or deferral of certain development projects that might
have otherwise been undertaken in the absence of year 2000 compliance efforts,
are expected to have a material effect on the Company's financial position or
results of operations. Such costs generally have been funded by the
re-deployment of both IT and non-IT personnel resources. In addition, the
Company's philosophy is to address many year 2000 issues as part of
re-engineering or replacement efforts. There were several situations in which
customers funded a special effort for the year 2000, but those projects were
usually treated by Amdocs as a part of ongoing support of the customer.
The Company's Contingency Plans. Detailed contingency plans are being
prepared and will be refined as appropriate. Those plans will focus on matters
which appear to be the Company's most likely year 2000 risks, such as possible
additional customer support efforts by the Company 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 the Company's own compliance efforts.
Risks of The Company's Year 2000 Issues. The Company does not
anticipate that the year 2000 issues and risks, including the most reasonably
likely worst case year 2000 scenario, it will encounter will be significantly
different than those encountered by other providers of information services.
Although the Company believes its remediation, replacement and testing efforts
will address all of the year 2000 issues for which the Company is responsible,
to the extent these efforts are not successful, additional compliance efforts
would be necessary together with additional customer service efforts and
expenditures. If third parties fail in their compliance efforts, the Company
could also be impacted and required to provide additional customer service
efforts. In such an event, the Company could incur additional costs and
experience a negative impact on revenue and operating income.
The Company's cost and timetable estimates for its year 2000 efforts
are subject to potentially significant estimation uncertainties that could cause
actual results to differ materially. These estimates are based on management's
current best estimates and reflect certain assumptions. Factors which could
impact these estimates include: the availability of appropriate technology
personnel; the rate and magnitude of related labor costs; the successful
identification of all aspects of the Company's systems, the success of third
parties in their year 2000 compliance efforts; software and products that
require remediation or replacement; the extent of testing required; the costs of
the Company's efforts to assist certain customers in the remediation of their
customized code; and the amount of cost recoveries from those efforts. Due to
the complexity and pervasiveness of the year 2000 issue, and in particular the
uncertainty regarding the compliance efforts of third parties, no assurance can
be given that these estimates will be achieved, and actual results could differ
materially.
EUROPEAN MONETARY UNION CURRENCY
The European Monetary Union currency, or the euro, will be phased in
over a three-year period commencing January 1, 1999, when participating European
countries began using the euro currency for non-cash transactions. The Company
intends 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 the Company's software or software provided to the Company's
customers by other
<PAGE> 17
vendors will ensure an errorless transition to the euro currency. The Company
has accrued approximately $2.3 million at December 31, 1998 representing the
estimated amount of costs to modify its software products to accept the euro
currency under existing agreements with customers relating to previously sold
products. The Company does not currently anticipate recovering these
expenditures from the 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 adverse effect on the Company's
results of operations and financial condition.
EFFECTIVE TAX RATE
The Company's overall effective tax rate has historically been
approximately 30% due to the various tax rates in the countries in which the
Company operates and the relative magnitude of the activities of the Company in
those countries. The Company's consolidated effective tax rate for the first
quarter of the fiscal year 1998 was 50% due to significant interest expense in a
tax jurisdiction in which the Company is tax exempt, which resulted in no tax
benefit to offset the tax expense incurred in other jurisdictions. Due to the
repayment of the debt which gave rise to the interest expense, the effective tax
rate is expected to be 30% for fiscal year 1999.
CURRENCY FLUCTUATIONS
The Company regards the U.S. dollar as its functional currency and
measures itself according to that currency. Approximately 80% of the Company's
revenue is in US dollars or linked to the US dollar. Approximately 60% of its
operating expenses are paid in U.S. dollars or are linked to U.S. dollars. Other
significant currencies in which the Company receives revenue or pays expenses
are Australian dollars, Austrian shillings, British pounds, Canadian dollars and
Israeli shekels. Historically, the effect of fluctuations in currency exchange
rates has had a minimal impact on the operations of the Company. As the Company
expands its operations outside of the United States, its exposure to
fluctuations in currency exchange rates could increase. The Company enters into
various foreign exchange hedging contracts in managing its foreign exchange
risks. At December 31, 1998, the Company had hedged all significant exposures in
currencies other than the US dollar.
LIQUIDITY AND CAPITAL RESOURCES
Financing Transactions
The Company has primarily financed its operations through cash
generated from operations, sales of equity securities and borrowing from banks
and other lenders. Cash and cash equivalents totaled $18.1 million at December
31, 1998 compared to $25.4 million in September 1998. Net cash provided by
operating activities amounted to $17.9 million, and $14.6 million for the first
quarter fiscal years 1999 and 1998, respectively.
The Company currently intends to retain its earnings to repay its
outstanding loans and to finance the development of its business. The terms of
the July 1998 bank agreement
<PAGE> 18
effectively restrict the payment of cash dividends by the Company.
At December 31, 1998, the Company had a shareholders' deficit of $2.6
million as a result of the $478.7 million in dividends distributed to
shareholders in January 1998 and the net proceeds of $234.2 million from the
initial public offering. The Company believes that cash generated from
operations and the Company's current lines of credit will provide sufficient
resources to meet the Company's needs in the near future.
At December 31, 1998, the Company had short term lines of credit
totaling $147.0 million from various banks or bank groups, of which $75.7
million was outstanding. As of such date, the Company had also used
approximately $2.8 million of its revolving credit facility to support
outstanding letters of credit.
As of December 31, 1998, the Company had negative working capital of
$69.7 million as compared to negative working capital of $84.3 million at
September 30, 1998. The Company does not believe this will have a negative
impact on its liquidity as this temporary situation is primarily a result of a
three year revolving credit line which the Company intends to repay within the
next twelve months with cash flows from operations.
As of December 31, 1998, the Company had long-term obligations
outstanding of $14.8 million in connection with vehicle leasing arrangements.
Currently, capital expenditures of the Company are funded primarily by
operating cash flows and capital leasing arrangements. The Company does not
anticipate a change to this policy in the foreseeable future.
Net Deferred Tax Assets
Based on management's assessment, it is more likely than not that all
the net deferred tax assets at December 31, 1998 will be realized through future
taxable earnings. No significant increase in future taxable earnings would be
required to fully realize the net deferred tax assets.
<PAGE> 19
AMDOCS LIMITED
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
EXHIBIT NO. DESCRIPTION
99.1 Amdocs Limited Press Release dated January 25, 1999
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during this period.
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Amdocs Limited
/s/ Thomas G. O'Brien
Date: February 16, 1999 ------------------------------
Thomas G. O'Brien
Treasurer and Secretary
Authorized U.S.
Representative
<PAGE> 21
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
99.1 Amdocs Limited Press Release dated
January 25, 1999.
<PAGE> 1
EXHIBIT 99.1
99.1. PRESS RELEASE
Contact: Thomas G. O'Brien
Treasurer and Secretary
Amdocs Limited
(314) 957-8328
FOR IMMEDIATE RELEASE
AMDOCS LIMITED REPORTS 79.1% INCREASE IN OPERATING INCOME IN FIRST
QUARTER OF FISCAL 1999
Revenue Grows 51.8% to a New High of $131.4 Million
St. Louis, MO - January 25, 1999, Amdocs Limited (NYSE: DOX) today reported that
for the first quarter ended December 31, 1998, revenue increased by 51.8% to
$131.4 million from $86.6 million in the first quarter last year.
First quarter operating income grew 79.1% to $30.2 million. Operating income was
favorably impacted by the 72.5% growth in license revenue in the quarter.
Net income increased 153.0% to $20.1 million, compared to $8.0 million in the
first quarter last year. Diluted earnings per share for the quarter increased to
$0.10, compared to $0.06 in the first quarter of fiscal 1998.
Avi Naor, Chief Executive Officer of Amdocs Management Limited, noted, "The
customer care and billing systems market in telecom continues to be vibrant.
There is strong demand across the board -- in wireline and wireless, in voice
and data, and in retail and wholesale. This demand is reflected in our revenues
from customer care and billing, which in the first quarter grew 93.2%."
Naor added, "Demand is being generated both by new entrants and, even more so,
by incumbent market leaders establishing new business units or replacing legacy
systems. With new players entering their markets, these leading incumbents are
demanding customized solutions that differentiate them from the competition. As
reflected in some of our key wins this quarter, we have been utilizing our
strengths in providing product-driven customized solutions, combined with proven
upwards scalability, to foster our continued expansion in this key market
segment. These same strengths are also creating opportunities for Amdocs in the
wake of consolidation among telecom carriers."
Naor continued, "In all our key markets, especially the United States and
Europe, telecom companies are faced with new challenges -convergence, provision
of data services, customer retention, wholesale-retail separation, and the focus
on corporate customers. These emerging developments are changing the way telecom
companies do business and creating an excellent pipeline of demand for our
products. As the result of our intensive and highly focused R&D efforts, we are
consistently releasing new products such as churn management, the wholesale
system, and customer hierarchy management, which are helping our customers
achieve and maintain market supremacy."
Naor also noted that, "By staying totally focused on information systems
<PAGE> 2
for the telecom industry, we are perfectly positioned to maintain our leadership
position and to expand market share. Our results this quarter continue to
reflect strong growth. With our long-term customer relationships, visibility is
exceptionally high. We have every reason to be confident going forward."
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 3,200 information systems professionals
dedicated to the telecommunications industry, Amdocs has an installed base of
successful projects with more than 60 major telecommunications companies
throughout the world. For more information visit our Web site at www.amdocs.com
This press release may contain forward looking statements as defined under the
Securities Act of 1933, as amended. Such statements involve risks and
uncertainties that may cause future results to differ from those anticipated.
These risks include, but are not limited to, the adverse effects of market
competition, rapid changes in technology that may render the company's products
and services obsolete, potential loss of a major customer, and risks associated
with operating businesses in the international market. These and other risks are
discussed at greater length in the company's filings with the Securities and
Exchange Commission.
(Financial Tables Follow)
<PAGE> 3
Amdocs Limited
Consolidated Statements of Operations (Unaudited)
(US dollars, unless otherwise stated)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
December 31,
------------------------------
1998 1997
--------- --------
<S> <C> <C>
Revenue:
License $ 15,040 $ 8,721
Service 116,385 77,837
--------- --------
131,425 86,558
Operating expenses:
Cost of license 1,323 3,212
Cost of service 75,915 50,133
Research and development 8,379 5,321
Selling, general, and administrative 15,647 11,047
--------- --------
101,264 69,713
--------- --------
Operating income 30,161 16,845
Interest expense, net 1,315 2,323
Other expense (income), net 72 (1,325)
--------- --------
1,387 998
--------- --------
Income before income taxes 28,774 15,847
Income taxes 8,632 7,886
--------- --------
Net income $20,142 $7,961
========= ========
Basic earnings per share $ 0.10 $ 0.06
========= ========
Diluted earnings per share $ 0.10 $ 0.06
========= ========
Weighted average number of shares - Basic 196,800 124,708
========= ========
Weighted average number of shares - Diluted 198,905 127,292
========= ========
</TABLE>
<PAGE> 4
Amdocs Limited
Consolidated Balance Sheets
(US dollars, unless otherwise stated)
(in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 18,129 $ 25,389
Accounts receivable, including unbilled of $14,030 and $10,331,
respectively 109,063 79,723
Accounts receivable from related parties, including unbilled of
$0 and $537, respectively 19,530 10,235
Deferred income taxes 16,026 14,534
Prepaid expenses and other current assets 14,600 11,991
--------- ---------
Total current assets 177,348 141,872
Equipment, vehicles and leasehold improvements, net 54,305 46,404
Deferred income taxes 7,224 7,773
Intellectual property rights 22,707 23,362
Other noncurrent assets 20,926 20,555
--------- =========
$282,510 $239,966
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses $ 54,136 $ 47,599
Accrued personnel costs 32,454 29,948
Short-term financing arrangements 75,708 91,565
Unearned revenue 52,121 29,241
Short-term portion of capital lease obligations 3,597 2,952
Forward exchange contracts 5,782 2,926
Income taxes payable and deferred income taxes 23,253 21,919
--------- ---------
Total current liabilities 247,051 226,150
Long-term forward exchange contracts 2,094 2,222
Long-term portion of capital lease obligations 11,217 9,215
Other noncurrent liabilities 24,733 24,268
Shareholders' Equity (Deficit):
Preferred Shares--Authorized 25,000 shares; (pound)0.01 par value; 0
shares issued and outstanding - -
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
Ordinary Shares--Authorized 550,000 shares; (pound)0.01 par value;
196,800 issued and outstanding 3,149 3,149
Additional paid-in capital 447,745 447,503
Unrealized loss on derivative instruments (3,626) (1,495)
Unearned compensation (7,896) (8,947)
Accumulated deficit (441,957) (462,099)
-------- --------
Total shareholders' equity (deficit) (2,585) (21,889)
-------- --------
$282,510 $239,966
======== ========
</TABLE>
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