<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 March 31, 1999
AMDOCS LIMITED
Tower Hill House Le Bordage
St. Peter Port, Island of Guernsey, GY1 3QT 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 MARCH 31, 1999
INDEX
PART I FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations (Unaudited)
Consolidated Statement of Changes in Shareholders' Equity
(Deficit) (Unaudited)
Consolidated Statements of Cash Flows (Unaudited)
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 6-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>
March 31, 1999 September 30, 1998
-------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets: $26,894 $25,389
Cash and cash equivalents 121,283 79,723
Accounts receivable, including unbilled of $7,124 and $10,331, respectively
Accounts receivable from related parties, including unbilled of $0 and $537,
respectively 10,144 10,235
Deferred income taxes 12,050 14,534
Prepaid expenses and other current assets 16,085 11,991
--------- ---------
Total current assets 186,456 141,872
Equipment, vehicles and leasehold improvements, net 63,533 46,404
Deferred income taxes 7,348 7,773
Intellectual property rights 22,052 23,362
Other noncurrent assets 22,161 20,555
--------- ---------
$301,550 $239,966
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses $47,449 $47,599
Accrued personnel costs 26,861 29,948
Short-term financing arrangements 75,908 91,565
Deferred revenue 61,070 29,241
Short-term portion of capital lease obligations 4,184 2,952
Forward exchange contracts 1,275 2,926
Income taxes payable and deferred income taxes 18,039 21,919
--------- ---------
Total current liabilities 234,786 226,150
Long-term forward exchange contracts 513 2,222
Long-term portion of capital lease obligations 12,675 9,215
Other noncurrent liabilities 27,805 24,268
Shareholders' equity (deficit):
Preferred Shares - Authorized 25,000 shares; (pounds)0.01 par value; 0 shares issued
and outstanding -- --
Ordinary Shares - Authorized 550,000 shares; (pounds)0.01 par value; 196,800 shares
outstanding 3,149 3,149
Additional paid-in capital 447,772 447,503
Unrealized income (loss) on derivative instruments 225 (1,495)
Unearned compensation (6,559) (8,947)
Accumulated deficit (418,816) (462,099)
--------- ---------
Total shareholders' equity (deficit) 25,771 (21,889)
--------- ---------
$301,550 $239,966
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
AMDOCS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(U.S. dollars, unless otherwise stated)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
License(*) $ 17,308 $ 9,698 $ 32,348 $ 18,419
Service(*) 130,522 84,310 246,907 162,147
--------- --------- --------- ---------
147,830 94,008 279,255 180,566
Operating expenses
Cost of license 1,370 2,655 2,693 5,867
Cost of service(*) 84,280 54,617 160,195 104,750
Research and development 9,140 5,634 17,519 10,955
Selling, general and administrative(*) 17,415 11,977 33,062 23,024
--------- --------- --------- ---------
112,205 74,883 213,469 144,596
--------- --------- --------- ---------
Operating income 35,625 19,125 65,786 35,970
Other expense (income), net:
Interest expense, net(*) 1,587 11,478 2,902 13,801
Other, net 979 (639) 1,051 (1,964)
--------- --------- --------- ---------
2,566 10,839 3,953 11,837
--------- --------- --------- ---------
Income before income taxes 33,059 8,286 61,833 24,133
Income taxes 9,918 4,181 18,550 12,067
--------- --------- --------- ---------
Net income $ 23,141 $ 4,105 $ 43,283 $ 12,066
========= ========= ========= =========
Basic earnings per share $ 0.12 $ 0.03 $ 0.22 $ 0.09
========= ========= ========= =========
Diluted earnings per share $ 0.12 $ 0.03 $ 0.22 $ 0.09
========= ========= ========= =========
</TABLE>
(*) Includes the following income (expense) resulting from transactions with
related parties for the three and six months ended March 31, 1999 and
1998, respectively: license revenue - $178, $0, $278 and $210, service
revenue - $24,551, $19,801, $45,949 and $42,832; cost of service - ($557),
($556), ($1,057) and ($1,265); selling, general and administrative -
($120), ($83), ($232) and ($189); interest expense - $0, ($2,997), $0 and
($3,048).
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
AMDOCS LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)(UNAUDITED)
(U.S. Dollars, unless otherwise stated)
(in thousands)
<TABLE>
<CAPTION>
Unrealized
income Total
Ordinary Shares Additional (loss) on Shareholders'
---------------- Paid-in derivative Unearned Accumulated Equity
Shares Amount Capital instruments Compensation Deficit (Deficit)
------- ------ ---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1998... 196,800 $ 3,149 $ 447,503 $ (1,495) $ (8,947) $ (462,099) $ (21,889)
Net income ..................... -- -- -- -- -- 43,283 43,283
Unrealized income on derivative
instruments, net of $737 tax .. -- -- -- 1,720 -- -- 1,720
Stock options granted, net of
forfeitures ................... -- -- 269 -- (241) -- 28
Amortization of unearned
compensation................... -- -- -- -- 2,629 -- 2,629
------- ------ ---------- ----------- ------------- ----------- -----------
Balance at March 31, 1999
(unaudited) 196,800 $3,149 $ 447,772 $ 225 $ (6,559) $ (418,816) $ 25,771
======= ====== ========== =========== ============= =========== ===========
</TABLE>
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)
<TABLE>
<CAPTION>
Six months ended March 31,
--------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flow from Operating Activities:
Net Income $43,283 $12,066
Reconciliation of net income to net cash provided by
operating activities:
Depreciation 8,343 5,646
Amortization 5,425 8,585
Loss on sale of equipment 394 80
Deferred income taxes 4,799 (2,790)
Net changes in operating assets and liabilities:
Accounts receivable (41,469) (40,478)
Prepaid expenses and other current assets (4,220) (534)
Other noncurrent assets (2,938) (2,841)
Accounts payable and accrued expenses (3,237) 5,877
Forward exchange contracts (3,360) --
Deferred revenue 31,830 17,524
Income taxes payable (6,508) 5,996
Other noncurrent liabilities 3,537 2,636
Unrealized loss on derivative instruments 2,457 --
--------- ---------
(23,908) (11,820)
--------- ---------
Net cash provided by operating activities: 38,336 11,767
--------- ---------
Cash flow from Investing Activities
Proceeds from sale of equipment, vehicles and leasehold
Improvements 1,006 544
Payments for purchase of equipment, vehicles and leasehold
Improvements (20,401) (9,581)
--------- ---------
Net cash used in investing activities: (19,395) (9,037)
--------- ---------
Cash flow from Financing Activities
Net proceeds from issuance of Ordinary Shares -- 96,448
Dividends paid -- (478,684)
Payments under short-term finance arrangements (179,274) (163,249)
Borrowings under short-term finance arrangements 163,617 171,081
Net proceeds from issuance of long-term debt -- 364,127
Principal payments under capital lease obligations (1,779) (1,195)
Payments under long-term financing arrangements -- (30,000)
Payments on notes payable to related parties -- (3,268)
--------- ---------
Net cash used in financing activities (17,436) (44,740)
--------- ---------
Net increase (decrease) in cash and cash equivalents 1,505 (42,010)
Cash and cash equivalents at beginning of period 25,389 53,732
--------- ---------
Cash and cash equivalents at end of period $26,894 $11,722
========= =========
Supplementary cash flow information
Cash paid for:
Income taxes, net of refunds $20,953 $10,496
Interest 3,012 3,972
</TABLE>
Noncash investing and financing activities
Capital lease obligations of $6,472 and $1,133 were incurred during the six
months ended March 31, 1999 and 1998, respectively, when the Company entered
into lease agreements for vehicles.
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
AMDOCS LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars, unless otherwise stated)
(in thousands, except per share data)
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.
2. Adoption of New Accounting Standards
Effective October 1, 1998, the Company adopted the provisions of Statement
of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed for or Obtained for Internal-Use". The SOP requires the
capitalization of certain costs incurred after the date of adoption in
connection with developing or obtaining software for internal use. In
accordance with the SOP, the Company capitalized approximately $1,200 of
internally developed software costs in the six-month period ended March
31, 1999.
3. Comprehensive Income
Effective October 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (Statement 130), which established standards for the reporting and
display of comprehensive income and its components. Comprehensive income
represents the change in shareholders' equity during a period from
transactions and other events and circumstances from nonowner sources. It
includes all changes in equity except those resulting from investments by
owners and distributions to owners.
<PAGE> 8
The following table sets forth the reconciliation from net income to
comprehensive income for the following periods
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income $ 23,141 $ 4,105 $ 43,283 $ 12,066
Change in unrealized income
on derivative instruments,
net of tax 3,851 -- 1,720 --
--------- --------- --------- ---------
Comprehensive income $ 26,992 $ 4,105 $ 45,003 $ 12,066
========= ========= ========= =========
</TABLE>
4. Income Taxes
The provision for income taxes for the following periods consists of the
following:
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Current $ 6,557 $ 6,004 $ 13,751 $ 14,857
Deferred 3,361 (1,823) 4,799 (2,790)
-------- -------- -------- --------
$ 9,918 $ 4,181 $ 18,550 $ 12,067
======== ======== ======== ========
</TABLE>
The effective income tax rate varied from the statutory Guernsey tax rate
as follows for the following periods:
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
------------------ ----------------
1999 1998 1999 1998
---- --- --- ---
<S> <C> <C> <C> <C>
Statutory Guernsey tax rate 20% 20% 20% 20%
Guernsey tax-exempt status (20) (20) (20) (20)
Foreign taxes 30 50(*) 30 50(*)
--- --- --- ---
Effective income tax rate 30% 50% 30% 50%
=== === === ===
</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 in fiscal 1998 was significantly
greater than the estimated fiscal 1999 effective tax rate.
5. Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Numerator:
Net income $ 23,141 $ 4,105 $ 43,283 $ 12,066
======== ======== ======== ========
Denominator:
</TABLE>
<PAGE> 9
<TABLE>
<S> <C> <C> <C> <C>
Denominator for basic earnings per share -
weighted average shares 196,800 128,424 196,800 127,858
Effect of dilutive stock options granted 2,742 1,315 2,463 475
-------- -------- -------- --------
Denominator for dilutive earnings per share -
adjusted average shares and assumed
conversions 199,542 129,739 199,263 128,333
======== ======== ======== ========
Basic earnings per share $ 0.12 $ 0.03 $ 0.22 $ 0.09
======== ======== ======== ========
Diluted earnings per share $ 0.12 $ 0.03 $ 0.22 $ 0.09
======== ======== ======== ========
</TABLE>
6. Architel Transaction
On March 2, 1999, the Company entered into a combination agreement with
Architel Systems Corporation, a Canadian corporation, by which the Company
would acquire Architel in a stock transaction valued at approximately
$400,000 at the time of the agreement. On April 8, 1999, Architel
announced that it had restructured its relationship with its largest
customer, and expected revenue and earnings for future periods to be
substantially less than originally anticipated. As a result of these
developments, on April 22, 1999, the Company terminated the combination
agreement.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
INTRODUCTION
In Management's Discussion and Analysis we explain the general financial
condition and the results of operations for Amdocs and its subsidiaries
including:
o what factors affect our business,
o what our revenue and costs were in the six months and three months ended
March 31, 1999 and 1998,
o why those revenue and costs were different from period to period,
o the sources of our revenue,
o how all of this affects our overall financial condition,
o what our expenditures were in the six months and three months ended March
31, 1999 and 1998 and
o the sources of our cash to pay for future capital expenditures.
As you read Management's Discussion and Analysis, it may be helpful to
refer to Amdocs' financial statements. In Management's Discussion and Analysis,
we analyze and explain the six months to six months and three months to three
months changes in the specific line items in the consolidated statements of
operations. Our analysis may be important to you in making decisions about your
investment in Amdocs. Our analysis contains certain forward looking statements
that involve risk and uncertainties. Our actual results could differ materially
from the results reflected in these forward looking statements as they are
subject to a variety of risk factors. We disclaim any obligation to update our
forward looking statements.
OVERVIEW
We are a leading provider of customized software products and services to
the telecommunications industry, primarily customer care and billing systems, or
CC&B Systems, for wireline, wireless and multiple-service or convergent network
operators and service providers. We also supply directory sales and publishing
systems, or Directory Systems, to publishers of both traditional printed yellow
page and white page directories and Internet directories. Our products are
mission-critical for a customer's operations. Due to the complexity of the
process and the expertise required for system support, we also provide extensive
customization, implementation, integration, ongoing support, system enhancement,
maintenance and outsourcing services.
We derive our revenue principally from:
o the initial sale of our products and related services, including
license fees and customization, implementation and integration
services; and
o recurring revenue from ongoing maintenance, support, outsourcing and
related services provided to our 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 from ongoing support and outsourcing services is
recognized as work is performed. Revenue from third party hardware and software
sales is recognized upon delivery. Maintenance revenue is recognized ratably
over the term of the maintenance agreement. As a result of our percentage of
completion accounting policies, our annual and quarterly operating results may
be significantly affected by the size and timing of customer projects and our
progress in completing such projects.
<PAGE> 11
Since 1992, we have invested substantial resources to develop our information
technology and to expand our range of products. As a result of significant
information technology expenditures, we were able to offer a full range of
integrated applications for our CC&B Systems; at the same time factors such as
increased demand for services, deregulation, privatization and technological
advancements began to transform the telecommunications industry.
o License and service fees from the sale of CC&B Systems amounted to $199.6
million for the six months ended March 31, 1999, representing 71.5% of
our revenue for such period. License and service fees from the sale of
CC&B Systems amounted to $109.2 million for the three months ended March
31, 1999, representing 73.9% of our revenue for such period.
We believe that the demand for CC&B Systems will continue to increase as
the size and complexity of the telecommunications industry increases and that
CC&B Systems will account for a larger share of our total revenue over time.
Although the business of publishing traditional yellow page and white page
directories is a mature business in the United States, it continues to be a
significant source of revenue for us worldwide. We believe that we are a
leading provider of Directory Systems in most of the markets we serve.
o License and service fee revenue from the sale of Directory Systems
totaled $79.7 million for the six months ended March 31, 1999 accounting
for 28.5% of our revenue for such period. License and service fee revenue
from the sale of Directory Systems totaled $38.6 million for the three
months ended March 31, 1999 accounting for 26.1% of our revenue for such
period.
We believe that the demand for Directory Systems will be favorably impacted
by a broader introduction of electronic directories. However, we anticipate that
the relative contribution of license and service fees for Directory Systems to
total revenue will decrease over time. We have also recently introduced a number
of new products for Internet and electronic commerce applications. We anticipate
that over the next several years products developed or to be developed for such
applications will make a modest but increasing contribution to revenue.
Our research and development activities involve the development of new
software modules and product offerings in response to an identified market
demand, usually in conjunction with a customer project. We also expend
additional amounts on applied research and software development activities to
keep abreast of new technologies in the telecommunications market. In the next
several years, we intend to continue to make significant investments in our
research and development activities both for CC&B Systems and Directory Systems.
RESULTS OF OPERATIONS
The following table sets forth, for the three months and six months ended
March 31, 1999 and 1998 certain items in our consolidated statements of
operations reflected as a percentage of total revenue:
<TABLE>
<CAPTION>
Three months Six months
ended ended
March 31, March 31,
---------------- ---------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue:
License 11.7% 10.3% 11.6% 10.2
Service 88.3 89.7 88.4 89.8
----- ----- ----- -----
100.0 100.0 100.0 100.0
Operating expenses:
Cost of license 0.9 2.8 1.0 3.2
Cost of service 57.0 58.2 57.4 58.0
Research and development 6.2 6.0 6.3 6.1
Selling, general and administrative 11.8 12.7 11.8 12.8
----- ----- ----- -----
75.9 79.7 76.5 80.1
----- ----- ----- -----
Operating income 24.1 20.3 23.5 19.9
Other expense, net 1.7 11.5 1.4 6.5
----- ----- ----- -----
Income before income taxes 22.4 8.8 22.1 13.4
Income taxes 6.7 4.4 6.6 6.7
----- ----- ----- -----
Net income 15.7% 4.4% 15.5% 6.7
===== ===== ===== =====
</TABLE>
<PAGE> 12
SIX MONTHS ENDED MARCH 31, 1999 AND 1998
REVENUE. Revenue for the six months ended March 31, 1999 was $279.3
million, an increase of $98.7 million, or 54.7%, compared to the six months
ended March 31, 1998, primarily due to additional CC&B Systems sales to
European customers. License revenue increased from $18.4 million in the first
six months of fiscal 1998 to $32.3 million in the first six months of fiscal
1999, an increase of 75.5%, and service revenue increased 52.3% by $84.8
million in the first six months of fiscal 1999, from $162.1 million in the
first six months of fiscal 1998 to $246.9 million in the first six months of
fiscal 1999. Total CC&B Systems revenue for the six months ended March 31, 1999
was $199.6 million, an increase of $98.6 million, or 97.6%, compared to the
prior year's first six months. Revenue attributable to Directory Systems was
$79.7 million for the six months ended March 31, 1999, an increase of $0.1
million, or 0.1%, from the first six months of fiscal 1998.
In the six months ended March 31, 1999, revenue from customers in North
America, Europe and the rest of the world accounted for 44%, 36% and 20%,
respectively, compared to 58%, 20% and 22% respectively, in the six months
ended March 31, 1998.
COST OF LICENSE. Cost license for the six months ended March 31, 1999 was
$2.7 million, a decrease of $3.2 million, or 54.1%, from cost of license for
the six months ended March 31, 1998. Cost of license includes amortization of
purchased computer software and intellectual property rights.
COST OF SERVICE. Cost of service for the first six months of fiscal 1999
was $160.2 million, an increase of $55.4 million, or 52.9%, compared to the
cost of service of $104.8 million for the first six months of fiscal 1998. As a
percentage of revenue, cost of service decreased to 57.4% in the six months
ended March 31, 1999 from 58.0% in the first six months of fiscal 1998. The
absolute increase in cost of service is consistent with the increase in revenue
for the first six months of fiscal 1999, 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 six months
ended March 31, 1999, research and development expense was $17.5 million, or
6.3% of revenue, compared with $11.0 million, or 6.1% of revenue, in the six
months ended March 31, 1998. 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 43.6%
to $33.1 million, or 11.8% of revenue, in the six months ended March 31, 1999
from $23.0 million, or 12.8% of revenue, in the corresponding period of fiscal
1998.
OPERATING INCOME. Operating income in the six months ended March 31, 1999
was $65.8 million, as compared with $36.0 million in the first six months of
fiscal 1998, an increase of 82.9%. As a percentage of revenue, operating income
was 23.5% in the first six months of fiscal 1999 as compared to 19.9% in the
first six months of fiscal 1998, primarily due to an increase in license
revenue and a decrease in cost of license. In addition, selling, general and
administrative expense increased at a lesser rate than revenue.
OTHER EXPENSE, NET. Other expense, net is primarily interest expense
incurred by us related to senior bank debt and subordinated debt, which was
substantially repaid from the proceeds of our initial public offering. In the
first six months of fiscal 1999, other expense, net was $4.0 million, a
decrease of $7.8 million from the first six months of fiscal 1998.
INCOME TAXES. Income taxes in the six months ended March 31, 1999 were
$18.6 million on income before taxes of $61.8 million. In the prior year's first
half, income taxes were $12.1 million on income before taxes of $24.1 million.
See discussion below "--Effective Tax Rate."
NET INCOME. Net income was $43.3 million in the first six months of
fiscal 1999 compared to $12.1 for the first six months of fiscal 1998. The
increase was primarily the result of an increase in operating income and a
decrease in interest expense, which also resulted in an increase in earnings
per share from $.09 in the first six months of fiscal 1998 to $0.22 in the
first six months of fiscal 1999.
<PAGE> 13
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
REVENUE. Revenue for the three months ended March 31, 1999 was $147.8
million, an increase of $53.8 million, or 57.3%, compared to the three months
ended March 31, 1998, primarily due to additional CC&B Systems sales to European
customers. License revenue increased from $9.7 million in the three months ended
March 31, 1998 to $17.3 million during the three months ended March 31, 1999, an
increase of 78.5%, and service revenue increased 54.8% by $46.2 million in the
three months ended March 31, 1999. Total CC&B Systems revenue for the quarter
ended March 31, 1999 was $109.2 million, an increase of $55.0 million, or 101%,
compared to the three months ended March 31, 1998. Revenue attributable to
Directory Systems was $38.6 million for the quarter ended March 31, 1999, a
decrease of $1.2 million, or 3.0%, from three months ended March 31, 1998.
In the three months ended March 31, 1999 and 1998, revenue from customers
in North America, Europe and the rest of the world accounted for 43%, 35% and
22% respectively compared to 57%, 22%, and 21% respectively.
COST OF LICENSE. Cost of license for the quarter ended March 31, 1999 was
$1.4 million, a decrease of $1.3 million, or 48.4%, from cost of license for the
quarter ended March 31, 1998. Cost of license includes amortization of purchased
computer software and intellectual property rights.
COST OF SERVICE. Cost of service for three months ended March 31, 1999 was
$84.3 million, an increase of $29.7 million, or 54.3%, from cost of service of
$54.6 million for three months ended March 31, 1998. As a percentage of revenue,
cost of service decreased to 57.0% in the quarter ended March 31, 1999 from
58.2% in three months ended March 31, 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
March 31, 1999, research and development expense was $9.1 million, or 6.2% of
revenue, compared with $5.6 million, or 6.0% of revenue, in the quarter ended
March 31, 1998. 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 45.4% to
$17.4 million, or 11.8% of revenue, in the quarter ended March 31, 1999 from
$12.0 million, or 12.7% of revenue, in the corresponding period of fiscal 1998.
OPERATING INCOME. Operating income in the quarter ended March 31, 1999 was
$35.6 million, as compared with $19.1 million in the three months ended March
31, 1998, an increase of 86.3%. As a percentage of revenue, operating income was
24.1% in the three months ended March 31, 1999 as compared to 20.3% in the three
months ended March 31, 1998.
OTHER EXPENSE, NET. Other expense, net is primarily interest expense
incurred by us related to senior bank debt and subordinated debt, which was
substantially repaid from the proceeds of our initial public offering. In the
quarter ended March 31, 1999, other expenses, net was $2.6 million, a decrease
of $8.3 million from three months ended March 31, 1998.
INCOME TAXES. Income taxes in the quarter ended March 31, 1999 were $9.9
million on income before taxes of $33.1 million. In the three months ended March
31, 1998, income taxes were $4.2 million on income before taxes of $8.3 million.
See discussion below "Effective Tax Rate."
NET INCOME. Net income was $23.1 million in the three months ended March
31, 1999 compared to $4.1 for the three months ended March 31, 1998. Earnings
per share increased from $0.03 in the three months ended March 31, 1998 to $0.12
in the three months ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
FINANCING TRANSACTIONS
We have primarily financed our operations through cash generated from
operations and borrowings from banks and other lenders. Cash and cash
equivalents totaled $26.9 million at March 31, 1999 compared to $25.4 million at
September 30, 1998. Net cash
<PAGE> 14
provided by operating activities amounted to $38.3 million and $11.8 million for
the first half of fiscal 1999 and 1998, respectively.
We currently intend to retain our earnings to repay our outstanding loans
and to finance the development of our business. The terms of our bank agreement
effectively restrict our ability to pay cash dividends.
At March 31, 1999, we had short term lines of credit totaling $152.0
million from various banks or bank groups, of which $75.9 million was
outstanding. As of that date, we had also utilized approximately $8.2 million of
our revolving credit facility to support outstanding letters of credit. At March
31, 1999, we had negative working capital of $48.3 million as compared to
negative working capital of $84.3 million at September 30, 1998. We do not
believe this will have a negative impact on our liquidity as this temporary
situation is primarily a result of a three-year revolving credit facility which
the Company anticipates paying with cash flows from operations. We believe that
cash generated from operations and our current lines of credit will provide
sufficient resources to meet our financing needs in the near future.
At March 31, 1999, we had long-term obligations outstanding of $16.9
million in connection with vehicle leasing arrangements.
Currently, our capital expenditures are funded primarily by operating cash
flows and capital leasing arrangements. We do not anticipate any change to this
policy in the foreseeable future.
NET DEFERRED TAX ASSETS
Based on our assessment, it is more likely than not that all the net
deferred tax assets at March 31, 1999 will be realized through future taxable
earnings. No significant increase in future taxable earnings would be required
to fully realize the net deferred tax assets.
YEAR 2000 ISSUES
Our State of Readiness. We have identified the information technology, or
IT, and non-IT systems, software and products which could be affected by year
2000 issues, and have assessed the efforts required to remediate or replace
them. We have also identified versions of our products that will not be made
compliant and are assisting customers in upgrading or migrating to year 2000
compliant versions. By the end of 1999, it is our intention that all of the
major or key systems, software and products will be remediated or replaced.
We began evaluating year 2000 compliance issues in mid-1996. Since then
the following functions have been performed:
o a thorough examination and study of year 2000 compliance status;
o adoption of a work plan;
o analysis of solution alternatives; and
o determination of our technical and business year 2000 policies.
In recent years, new systems have been developed as year 2000 compliant;
older generations of applications are being made year 2000 compliant in
cooperation with our customers (using Amdocs year 2000 methodology and tool
kit). None of these systems need mass data conversion, which is usually the most
sensitive portion of the year 2000 migration. Recognizing the importance of year
2000 support it IT industry and to provide an additional level of assurance to
our customers, we have decided to conduct a thorough and systematic verification
process. This effort is based on the application of industry-wide standards for
year 2000 compliance. This verification process utilizes a specialized tool kit
developed by us including a powerful search utility. For many customers we offer
to conduct the verification process, since the ultimate verification for year
2000 compliance should be executed in their own working environment.
We anticipate completing the majority of the testing, implementation of
changes and necessary refinements by mid-1999 but will continue testing through
calendar 1999. We expect that systems, software and products for which we have
responsibility currently are year 2000 compliant or will be compliant on a
timely basis. We are not aware of any year 2000 issues with our customers that
cannot be remedied.
We have contacted all of our customers, and several of our vendors and
other third parties with whom we deal to identify potential year 2000 issues.
These communications are also used to clarify which year 2000 issues are our
responsibility and which are the
<PAGE> 15
responsibility of the third party. We do not anticipate that our third party
year 2000 issues will be different than those encountered by other providers of
information services, including our competitors. At this time, we are not aware
of any year 2000 issues or problems relating to third parties with which we have
a material relationship.
With respect to our internal IT systems (including IT-based office
facilities such as data and voice communications, building management and
security systems, human resources and recruitment systems, purchasing,
invoicing, finance and budget systems, general ledger and other administrative
systems), both third party software and in-house developments, we have adopted
standard industry practices, as published by the British Standards Institute,
and methodologies suggested by the Gartner Group (INSPCT), in preparing for the
year 2000 date change. Our year 2000 internal readiness program primarily
covers:
o taking inventory of hardware, software and embedded systems;
o assessing business risks associated with such systems;
o creating action plans to address known risks;
o executing and monitoring action plans; and
o contingency planning.
Although we do not believe that we will incur any material cost or
experience material disruptions in our business associated with preparing our
internal systems for the year 2000, there can be no assurance that we will not
experience serious unanticipated negative consequences and/or material costs
caused by undetected errors or defects in the technology used in our internal
systems, which are composed of third party software, third party hardware that
contains embedded software and our own software products. We are in the process
of implementing action plans for the remediation of high risk areas and we are
scheduled to implement remediation plans for medium to low risk areas during the
remainder of fiscal 1999. We expect our contingency plans to include, among
other things, manual "work-arounds" for software and hardware failure, as well
as substitution of systems, if necessary.
Costs To Address Our Year 2000 Issues. A significant portion of our year
2000 compliance efforts have occurred or are occurring in connection with system
upgrades or replacements that were otherwise planned (but perhaps accelerated
due to the year 2000 issue) or which have significant improvements and benefits
unrelated to year 2000 issues. The remainder of the costs that are incremental
and directly related to year 2000 issues are not expected to be material to our
financial position or results of operations.
At March 31, 1999, we have accrued approximately $2.0 million representing
the estimated remaining costs to modify previously sold customized software
products. We do not anticipate capitalizing any of these costs as they relate to
warranties related to products developed for customers.
Our Contingency Plans. Detailed contingency plans are being prepared and
will be refined as appropriate. Those plans will focus on matters which appear
to be our most likely year 2000 risks, such as possible additional customer
support efforts by us that would be necessary if customers or vendors are not
year 2000 compliant, or if a year 2000 issue should not be timely detected in
our own compliance efforts.
EUROPEAN MONETARY UNION CURRENCY
The European Monetary Union currency, or the euro, will be phased in over
the three-year period commencing January 1, 1999, when participating European
countries began using the euro currency for non-cash transactions. We intend to
offer software products that are capable of handling the euro currency and
converting from local currencies to the euro. There can be no assurance that our
software or software provided to our customers by other vendors will ensure an
errorless transition to the euro currency. At March 31, 1999, we have accrued
approximately $1.9 million representing estimated remaining costs to modify our
software products to accept the euro currency under existing agreements with
customers relating to previously sold products. We do not currently anticipate
recovering these expenditures from our customers, as they relate to warranty
agreements. There can be no assurance that such costs will not significantly
exceed such estimate, in which case such costs could have a material effect on
our results of operations and financial condition.
<PAGE> 16
EFFECTIVE TAX RATE
Our overall effective tax rate has historically been approximately 30% due
to the various corporate income tax rates in the countries in which we operate
and the relative magnitude of our business in those countries. Our consolidated
effective tax rate for the first half of fiscal 1999 was 30% compared to 50% in
the prior period. The consolidated effective tax rate of 50% for 1998 was due to
significant interest expense in a tax jurisdiction in which we are tax exempt,
which resulted in no tax benefit to offset the tax expense incurred in other
jurisdictions. The debt which gave rise to the non deductible interest expense
was substantially repaid with the proceeds of our initial public offering.
CURRENCY FLUCTUATIONS
Approximately 80% of our revenue are in U.S. dollars or linked to the U.S.
dollar and therefore the U.S. dollar is our functional currency. Approximately
60% of our operating expenses are paid in U.S. dollars or are linked to U.S.
dollars. Other significant currencies in which we receive revenue or pay
expenses are Australian dollars, British pounds, Canadian dollars, the euro and
Israeli shekels. Historically, the effect of fluctuations in currency exchange
rates has had a minimal impact on our operations. As we expand our operations
outside of the United States, our exposure to fluctuations in currency exchange
rates could increase. In managing our foreign exchange risk, we enter from time
to time into various foreign exchange contracts. As of March 31, 1999, we had
hedged most of our significant exposures in currencies other than the dollar.
ARCHITEL TRANSACTION
On March 2, 1999, we entered into a combination agreement with Architel
Systems Corporation, a Canadian corporation, by which we would acquire Architel
in a stock transaction valued at approximately $400 million at the time of the
agreement. On April 8, 1999, Architel announced that it had restructured its
relationship with its largest customer, and expected revenue and earnings for
future periods to be substantially less than originally anticipated. As a result
of these developments, on April 22, 1999, we terminated the combination
agreement.
<PAGE> 17
AMDOCS LIMITED
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
We held our 1998 Annual General Meeting of Shareholders on January 27, 1999. At
that meeting, shareholders elected eleven directors for terms to expire at the
next Annual General Meeting or until their positions are vacated by resignation
or otherwise. In addition, shareholders approved three Company proposals. The
persons elected and the results of the voting are as follows:
<TABLE>
<CAPTION>
Votes Votes
For Against
<S> <C> <C>
Bruce K. Anderson 143,383,272 6,631
Robert A. Minicucci 143,383,272 6,631
Avinoam Naor 143,383,272 6,631
Adrian Gardner 143,383,072 6,831
James S. Kahan 143,383,272 6,631
Stephen Hermer 143,382,147 7,756
Paz Littman 143,383,472 6,431
Shmuel Meitar 143,383,472 6,431
Revital Naveh 143,383,472 6,431
Lawrence Perlman 143,383,472 6,431
Michael J. Price 143,383,472 6,431
</TABLE>
<TABLE>
<CAPTION>
Votes Votes Broker
For Against Abstain Non-votes
<S> <C> <C> <C> <C>
Company proposal
number 1 - Approval
of Consolidated Financial
Statements for fiscal year
1999 143,374,703 2,075 13,125 0
Company proposal
number 2 - Approval
of Ernst & Young LLP
and authorization of
Board to fix
remuneration 143,376,767 7,889 5,247 0
Company proposal
number 3 - Approval
of amendment to Stock
Option and Incentive
Plan 142,708,718 654,174 27,011 0
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 6-K.
(a) Exhibits
EXHIBIT NO. DESCRIPTION
99.1 Amdocs Limited Press Release dated April 27, 1999.
(b) Reports on Form 6-K.
A single report on Form 6-K describing our combination agreement with Architel
Systems Corporation was filed during the three months ended March 31, 1999.
<PAGE> 18
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: May 19, 1999 ------------------------------
Thomas G. O'Brien
Treasurer and Secretary
Authorized U.S.
Representative
<PAGE> 19
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
99.1 Amdocs Limited Press Release dated
April 27, 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
NEWS RELEASE
AMDOCS LIMITED CONTINUES TO SHOW STRONG
GROWTH IN SECOND QUARTER
- REVENUE INCREASES BY 57.3% AND OPERATING INCOME BY 86.3% -
St. Louis, Missouri - April 27, 1999 - Amdocs Limited (NYSE: DOX) today reported
that for the second quarter ended March 31, 1999, revenue increased by 57.3% to
$147.8 million from $94.0 million in the second quarter last year.
Second quarter operating income grew 86.3%, to $35.6 million. Net income
increased 463.7% to $23.1 million, compared to $4.1 million in the second
quarter last year. Diluted earnings per share for the quarter increased to $0.12
compared to $0.03 in the second quarter of fiscal 1998.
Avi Naor, President and Chief Executive Officer of Amdocs Management Limited,
noted, "Amdocs continues to demonstrate strong, consistent growth. We have
exceeded performance targets for the quarter and the first half of fiscal 1999."
Naor added, "Looking at the market, we are experiencing excellent demand for
both our customer care and billing and order management products. This reflects
the unique standing of Amdocs' solutions in our target market -- high-end and
mid-tier telecom carriers, as well as high-growth new entrants."
Naor continued, "We continue to expand our range of products, enabling us to
continually broaden the solutions we offer to our customers. We are serving an
ever-widening set of telecom operations, including wireless, local, long
distance, international, ISP, VOIP and data services. In addition, our new Order
Management system is being received enthusiastically."
Naor concluded, "Looking forward, our pipeline remains strong, with many
promising sales prospects. Visibility remains at the same high level as in
previous quarters, due to the ongoing business relationships that we have with
our customers, together with new sales. Overall, we are very confident regarding
our future business prospects."
For the first half of fiscal 1999, Amdocs reported that revenues increased 54.7%
to $279.3 million compared to $180.6 million in the same period last year.
Operating income reached $65.8 million, up 82.9% from $36.0 million in the first
half of 1998. Net income grew to $43.3 million, or $0.22 per diluted share, as
compared to $12.1 million, or $0.09 per diluted share for the first half last
year.
AMDOCS
<PAGE> 2
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 3,600 information systems professionals
dedicated to the telecommunications industry, Amdocs has an installed base of
successful projects with more than 70 major telecommunications companies
throughout the world. For more information visit our Web site at www.amdocs.com
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
DOX: CONTINUES TO SHOW STRONG GROWTH IN SECOND QUARTER
AMDOCS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- ---------------------
1999 1998 1999 1998
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Revenue:
License $ 17,308 $ 9,698 $ 32,348 $ 18,419
Service 130,522 84,310 246,907 162,147
-------- --------- -------- ---------
147,830 94,008 279,255 180,566
Operating expenses:
Cost of license 1,370 2,655 2,693 5,867
Cost of service 84,280 54,617 160,195 104,750
Research and development 9,140 5,634 17,519 10,955
Selling, general and administrative 17,415 11,977 33,062 23,024
-------- --------- -------- ---------
112,205 74,883 213,469 144,596
-------- --------- -------- ---------
Operating income 35,625 19,125 65,786 35,970
Other expense (income), net:
Interest expense, net 1,587 11,478 2,902 13,801
Other, net 979 (639) 1,051 (1,964)
-------- --------- -------- ---------
2,566 10,839 3,953 11,837
-------- --------- -------- ---------
Income before income taxes 33,059 8,286 61,833 24,133
Income taxes 9,918 4,181 18,550 12,067
-------- --------- -------- ---------
Net income $ 23,141 $ 4,105 $ 43,283 $ 12,066
======== ========= ======== =========
Basic earnings per share $ 0.12 $ 0.03 $ 0.22 $ 0.09
======== ========= ======== =========
Diluted earnings per share $ 0.12 $ 0.03 $ 0.22 $ 0.09
======== ========= ======== =========
Weighted Average number of shares-Basic 196,800 128,424 196,800 127,858
======== ========= ======== =========
Weighted Average number of shares-Diluted 199,542 129,739 199,263 128,333
======== ========= ======== =========
</TABLE>
<PAGE> 4
DOX: CONTINUES TO SHOW STRONG GROWTH IN SECOND QUARTER
AMDOCS LIMITED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1999 1998
--------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 26,894 $ 25,389
Accounts receivable, including unbilled of $7,124 and $10,331, 121,283 79,723
respectively
Accounts receivable from related parties, including unbilled of $0 and
$537, respectively 10,144 10,235
Deferred income taxes 12,050 14,534
Prepaid expenses and other current assets 16,085 11,991
--------- ---------
Total current assets 186,456 141,872
Equipment, vehicles and leasehold improvements, net 63,533 46,404
Deferred income taxes 7,348 7,773
Intellectual property rights 22,052 23,362
Other noncurrent assets 22,161 20,555
--------- ---------
$ 301,550 $ 239,966
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses $ 47,449 $ 47,599
Accrued personnel costs 26,861 29,948
Short-term financing arrangements 75,908 91,565
Deferred revenue 61,070 29,241
Short-term portion of capital lease obligations 4,184 2,952
Forward exchange contracts 1,275 2,926
Income taxes payable and deferred income taxes 18,039 21,919
--------- ---------
Total current liabilities 234,786 226,150
Long-term forward exchange contracts 513 2,222
Long-term portion of capital lease obligations 12,675 9,215
Other noncurrent liabilities 27,805 24,268
Shareholders' equity (deficit):
Preferred Shares - Authorized 25,000 shares; pound sterling 0.01 par value; 0 shares
issued and outstanding -- --
Ordinary Shares - Authorized 550,000 shares;pound sterling 0.01 par value; 196,800
shares outstanding 3,149 3,149
Additional paid-in capital 447,772 447,503
Unrealized income (loss) on derivative instruments 225 (1,495)
Unearned compensation (6,559) (8,947)
Accumulated deficit (418,816) (462,099)
--------- ---------
Total shareholders' equity (deficit) 25,771 (21,889)
--------- ---------
$ 301,550 $ 239,966
========= =========
</TABLE>
