<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 YEAR ENDED SEPTEMBER 30, 2000
AMDOCS LIMITED
Suite 5, Tower Hill House Le Bordage
St. Peter Port, Island of Guernsey, GY1 3QT Channel Islands
---------------
Amdocs, Inc.
1390 Timberlake Manor Parkway, Chesterfield, Missouri 63017
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F)
Form 20 F X Form 40 F
--- ---
(Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
YES NO X
--- ---
<PAGE> 2
AMDOCS LIMITED
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
FOR THE YEAR ENDED SEPTEMBER 30, 2000
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets as of September 30, 2000 and
1999
Consolidated Statements of Operations for the years ended
September 30, 2000, 1999 and 1998
Consolidated Statements of Changes in Shareholders' Equity
(Deficit) for the years ended September 30, 2000, 1999 and
1998
Consolidated Statements of Cash Flows for the years ended
September 30, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
Item 2. Financial Statement Schedule
PART II OTHER INFORMATION
Item 1. Exhibits
SIGNATURES
EXHIBIT INDEX
<PAGE> 3
The information presented herein shall be deemed filed by us for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and
incorporation by reference.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
<PAGE> 4
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Amdocs Limited
We have audited the accompanying consolidated balance sheets of Amdocs
Limited as of September 30, 2000 and 1999, and the related statements of
operations, changes in stockholders' equity (deficit) and cash flows for each of
the three years in the period ended September 30, 2000. Our audits also included
the financial statement schedule listed in the index at Item 2 of Part I. These
financial statements and the financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and the financial statement schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Amdocs Limited
at September 30, 2000 and 1999, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended September 30,
2000, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
Ernst & Young LLP
St. Louis, Missouri
November 2, 2000
<PAGE> 5
AMDOCS LIMITED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-----------------------------
2000 1999
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 402,300 $ 85,174
Accounts receivable, including unbilled of $4,203 and
$4,243, less allowances of $6,868 and $0, in 2000 and
1999, respectively(*).................................. 263,100 159,312
Deferred income taxes and taxes receivable................ 35,179 29,899
Prepaid expenses and other current assets................. 34,327 16,390
---------- ----------
Total current assets.............................. 734,906 290,775
Equipment, vehicles and leasehold improvements, net......... 128,081 83,997
Deferred income taxes....................................... 13,900 5,605
Goodwill and other intangible assets, net................... 1,011,053 22,798
Other noncurrent assets..................................... 47,145 26,836
---------- ----------
Total assets...................................... $1,935,085 $ 430,011
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 128,249 $ 68,594
Accrued personnel costs................................... 70,196 40,092
Short-term financing arrangements......................... 20,000 2,381
Deferred revenue.......................................... 133,546 104,688
Short-term portion of capital lease obligations........... 8,713 5,722
Deferred income taxes and taxes payable................... 55,197 33,412
---------- ----------
Total current liabilities......................... 415,901 254,889
Long-term portion of capital lease obligations.............. 23,417 17,148
Deferred income taxes....................................... 11,191 --
Other noncurrent liabilities................................ 53,804 34,237
---------- ----------
Total liabilities................................. 504,313 306,274
---------- ----------
Shareholders' equity:
Preferred Shares -- Authorized 25,000 shares; L0.01 par
value; 0 shares issued and outstanding................. -- --
Ordinary Shares -- Authorized 550,000 shares; L0.01 par
value; 221,165 and 198,800 outstanding in 2000 and
1999, respectively..................................... 3,539 3,181
Additional paid-in capital................................ 1,784,816 489,099
Accumulated other comprehensive income (loss)............. 1,159 (1,157)
Unearned compensation..................................... (1,164) (3,830)
Accumulated deficit....................................... (357,578) (363,556)
---------- ----------
Total shareholders' equity........................ 1,430,772 123,737
---------- ----------
Total liabilities and shareholders' equity........ $1,935,085 $ 430,011
========== ==========
</TABLE>
---------------
(*) See Note 4.
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 6
AMDOCS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
2000 1999 1998
---------- -------- --------
<S> <C> <C> <C>
Revenue:
License(*)............................................. $ 124,822 $ 74,387 $ 42,891
Service(*)............................................. 993,498 552,468 360,876
---------- -------- --------
1,118,320 626,855 403,767
---------- -------- --------
Operating expenses:
Cost of license........................................ 5,624 5,515 10,732
Cost of service(*)..................................... 639,900 357,809 231,360
Research and development............................... 74,852 40,874 25,612
Selling, general and administrative(*)................. 137,004 75,659 51,168
Amortization of goodwill and purchased intangible
assets............................................... 111,199 -- --
In-process research and development and other indirect
acquisition-related costs............................ 75,617 -- --
---------- -------- --------
1,044,196 479,857 318,872
---------- -------- --------
Operating income............................................ 74,124 146,998 84,895
Other income (expense), net(*).............................. 10,734 (6,223) (24,126)
---------- -------- --------
Income before income taxes and cumulative effect............ 84,858 140,775 60,769
Income taxes................................................ 78,880 42,232 30,385
---------- -------- --------
Income before cumulative effect............................. 5,978 98,543 30,384
Cumulative effect of change in accounting principle, net of
$0, $0 and $277 tax, respectively......................... -- -- 277
---------- -------- --------
Net income........................................ $ 5,978 $ 98,543 $ 30,107
========== ======== ========
Basic earnings per share:
Income before cumulative effect........................... $ 0.03 $ 0.50 $ 0.19
Cumulative effect of change in accounting principle ($0,
$0 and less than $0.01, respectively).................. -- -- --
---------- -------- --------
Net earnings per share............................ $ 0.03 $ 0.50 $ 0.19
========== ======== ========
Diluted earnings per share:
Income before cumulative effect........................... $ 0.03 $ 0.49 $ 0.19
Cumulative effect of change in accounting principle ($0,
$0 and less than $0.01, respectively).................. -- -- --
---------- -------- --------
Net earnings per share............................ $ 0.03 $ 0.49 $ 0.19
========== ======== ========
Basic weighted average number of shares outstanding......... 212,005 197,436 158,528
========== ======== ========
Diluted weighted average number of shares outstanding....... 216,935 200,262 159,442
========== ======== ========
</TABLE>
---------------
(*) See Note 4.
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 7
AMDOCS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
ORDINARY SHARES ADDITIONAL COMPREHENSIVE SHAREHOLDERS'
---------------- PAID-IN INCOME UNEARNED ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL (LOSS) COMPENSATION DEFICIT (DEFICIT)
------- ------ ---------- ------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AS OF OCTOBER 1,
1997........................ 124,708 $1,996 $ 105,779 $ -- $ -- $ (13,522) $ 94,253
Net income.................... -- -- -- -- -- 30,107 30,107
Unrealized loss on derivative
instruments, net of $640
tax......................... -- -- -- (1,495) -- -- (1,495)
Dividends declared, $3.76 per
share....................... -- -- -- -- -- (478,684) (478,684)
Issuance of Ordinary Shares,
net......................... 54,092 865 97,583 -- -- -- 98,448
Initial public offering of
Ordinary Shares, net........ 18,000 288 233,902 -- -- -- 234,190
Stock options granted, net of
forfeitures................. -- -- 10,239 -- (10,239) -- --
Amortization of unearned
compensation................ -- -- -- -- 1,292 -- 1,292
------- ------ ---------- ------- -------- --------- ----------
BALANCE AS OF SEPTEMBER 30,
1998........................ 196,800 3,149 447,503 (1,495) (8,947) (462,099) (21,889)
Net income.................... -- -- -- -- -- 98,543 98,543
Unrealized income on
derivative instruments, net
of $145 tax................. -- -- -- 338 -- -- 338
Issuance of Ordinary Shares,
net......................... 2,000 32 41,352 -- -- -- 41,384
Stock options granted, net of
forfeitures................. -- -- 244 -- (163) -- 81
Amortization of unearned
compensation................ -- -- -- -- 5,280 -- 5,280
------- ------ ---------- ------- -------- --------- ----------
BALANCE AS OF SEPTEMBER 30,
1999........................ 198,800 3,181 489,099 (1,157) (3,830) (363,556) 123,737
Net income.................... -- -- -- -- -- 5,978 5,978
Employee stock options
exercised................... 2,058 33 21,327 -- -- -- 21,360
Tax benefit of stock options
exercised................... -- -- 10,825 -- -- -- 10,825
Unrealized other comprehensive
income, net of $993 tax..... -- -- -- 2,316 -- -- 2,316
Issuance of Ordinary Shares
related to acquisitions,
net......................... 20,307 325 1,263,330 -- -- -- 1,263,655
Stock options granted......... -- -- 235 -- -- -- 235
Amortization of unearned
compensation................ -- -- -- -- 2,666 -- 2,666
------- ------ ---------- ------- -------- --------- ----------
BALANCE AS OF SEPTEMBER 30,
2000........................ 221,165 $3,539 $1,784,816 $ 1,159 $ (1,164) $(357,578) $1,430,772
======= ====== ========== ======= ======== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 8
AMDOCS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income................................................. $ 5,978 $ 98,543 $ 30,107
Reconciliation of net income to net cash provided by
operating activities:
Depreciation and amortization............................ 155,359 30,601 29,096
In-process research and development expenses............. 70,319 -- --
Loss on sale of equipment................................ 148 549 149
Deferred income taxes.................................... (1,196) (4,026) (1,351)
Tax benefit of stock options exercised................... 10,825 -- --
Unrealized income (loss) on other comprehensive income... 3,309 483 (2,135)
Net changes in operating assets and liabilities:
Accounts receivable...................................... (29,763) (69,354) (26,000)
Prepaid expenses and other current assets................ (12,408) (4,400) (5,244)
Other noncurrent assets.................................. (10,861) (10,350) (3,324)
Accounts payable and accrued expenses.................... 38,852 22,893 29,054
Deferred revenue......................................... 24,313 75,448 11,800
Income taxes payable..................................... 16,071 2,177 (1,429)
Other noncurrent liabilities............................. 16,642 9,739 5,760
--------- --------- ---------
Net cash provided by operating activities.................. 287,588 152,303 66,483
--------- --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment, vehicles and leasehold
improvements............................................. 1,280 1,461 889
Payments for purchase of equipment, vehicles and leasehold
improvements............................................. (56,571) (42,180) (26,566)
Investment in noncurrent assets............................ (9,000) -- --
Net cash acquired in acquisitions.......................... 67,791 -- --
Purchase of computer software and intellectual property.... (6,169) (1,000) --
--------- --------- ---------
Net cash used in investing activities...................... (2,669) (41,719) (25,677)
--------- --------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid............................................. -- -- (478,684)
Net proceeds from issuance of Ordinary Shares.............. -- 42,535 330,638
Proceeds from employee stock options exercised............. 21,360 -- --
Payments under short-term finance arrangements............. (284,464) (395,345) (269,946)
Borrowings under short-term finance arrangements........... 301,933 306,161 358,862
Net proceeds from issuance of long-term debt............... -- -- 364,127
Principal payments on long-term debt....................... -- -- (368,521)
Principal payments on capital lease obligations............ (6,622) (4,150) (2,357)
Payments on issuance of notes payable...................... -- -- (3,268)
--------- --------- ---------
Net cash provided by (used in) financing activities........ 32,207 (50,799) (69,149)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents....... 317,126 59,785 (28,343)
Cash and cash equivalents at beginning of year............. 85,174 25,389 53,732
--------- --------- ---------
Cash and cash equivalents at end of year................... $ 402,300 $ 85,174 $ 25,389
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 9
AMDOCS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
SUPPLEMENTARY CASH FLOW INFORMATION
Interest and Income Taxes Paid
Cash paid for:
Income taxes, net of refunds........................... $49,262 $38,369 $32,472
Interest............................................... 2,614 6,393 25,150
</TABLE>
NON CASH INVESTING AND FINANCING ACTIVITIES
Capital lease obligations of $15,732, $14,853 and $5,200 were incurred
during the years ended September 30, 2000, 1999 and 1998, respectively, when the
Company (as hereinafter defined) entered into lease agreements for vehicles.
As of September 30, 1999, the Company incurred stock issuance costs of
$1,153, which had not been paid as of that date. Such costs were paid during
fiscal year 2000.
The Company issued 6,461 Ordinary Shares and 1,103 options in connection
with the acquisition of ITDS (as hereinafter defined). The Company issued 13,846
exchangeable shares and 1,654 options in connection with the acquisition of
Solect (as hereinafter defined). See Note 3.
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 10
AMDOCS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 -- NATURE OF ENTITY
Amdocs Limited (the "Company") is a leading provider of software products
and services to the communications industry. The Company and its subsidiaries
operate in one business segment, providing business support systems and related
services for the communications industry. The Company designs, develops,
markets, supports and operates information system solutions to major wireless,
wireline and Internet Protocol ("IP") companies throughout the world.
The Company is a Guernsey corporation, which holds directly or indirectly
several wholly-owned subsidiaries in the Asia-Pacific region, Australia, Europe,
Israel, Latin America and North America. The Company's customers are mainly in
North America, Europe, Latin America and the Asia-Pacific region. During fiscal
2000, the Company derived approximately 46 percent of its revenue from North
America. The Company's main production and operating facilities are located in
Israel, the United States, Cyprus, Ireland and Canada.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States.
CONSOLIDATION
The financial statements include the accounts of the Company and all its
subsidiaries, which are wholly-owned. All significant intercompany transactions
and balances have been eliminated in consolidation.
FUNCTIONAL CURRENCY
The U.S. dollar is the functional currency for the Company and its
subsidiaries, as the U.S. dollar is the predominant currency of the Company's
revenue and expenses.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and short-term investments with
insignificant interest rate risk and original maturities of 90 days or less.
INVESTMENTS
From time to time the Company invests in short-term interest-bearing
investments. The Company classifies all of its short-term interest-bearing
investments as available-for-sale securities. Such short-term interest-bearing
investments consist primarily of United States governmental securities and
commercial paper, which are stated at market value. Unrealized gains and losses
are comprised of the difference between market value and amortized costs of such
securities and are reflected, net of tax, as other comprehensive income in
shareholders' equity. Realized gains and losses on short-term interest-bearing
investments are included in earnings and are derived using the specific
identification method for determining the cost of securities. Except for its
cash and cash equivalents, the Company has no short-term interest-bearing
investments as of September 30, 2000.
The Company also has certain investments in non-publicly traded companies.
These investments are included in other noncurrent assets in the Company's
balance sheet and are generally carried at cost. The Company monitors these
investments for impairment and will make appropriate reductions in carrying
values if necessary. There were no impairment charges in fiscal 2000.
<PAGE> 11
AMDOCS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
EQUIPMENT, VEHICLES AND LEASEHOLD IMPROVEMENTS
Equipment, vehicles and leasehold improvements are stated at cost. Assets
under capital leases are recorded at the present value of the future minimum
lease payments at the date of acquisition. Depreciation is computed using the
straight-line method over the estimated useful life of the asset, which ranges
from 2 to 12 years and includes the amortization of assets under capitalized
leases. Leasehold improvements are amortized over the shorter of the estimated
useful lives or the term of the lease. Management reviews property and equipment
and other long-lived assets on a periodic basis to determine whether events or
changes in circumstances indicate that the carrying amount of such assets may
not be recoverable.
The Company accounts for certain costs incurred in connection with
developing or obtaining software for internal use in accordance with Statement
of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed
for or Obtained for Internal-Use". SOP 98-1 requires the capitalization of
certain costs incurred in connection with developing or obtaining software for
internal use.
GOODWILL AND OTHER INTANGIBLE ASSETS
The total purchase price of product line or business acquisitions accounted
for using the purchase method is allocated first to identifiable assets and
liabilities based on estimated fair values. The excess of the purchase price
over the fair value of net assets of purchased businesses is recorded as
goodwill. Goodwill is amortized on a straight-line basis over its estimated
useful life.
Other intangible assets consist of purchased computer software,
intellectual property rights, core technology, workforce-in-place and customer
base.
Purchased computer software is reported at the lower of amortized cost or
net realizable value, and is amortized over its estimated useful life based on
the ratio of the current gross revenue for each product to the total current and
anticipated future gross revenue for each product. This accounting policy
results in amortization of purchased computer software on a basis faster than
the straight-line method.
Intellectual property rights, core technology, workforce-in-place and
customer base acquired by the Company are amortized over their estimated useful
lives on a straight-line basis.
Periodically, the Company considers whether there are indicators of
impairment that would require the evaluation of the net realizable value of
goodwill and other intangible assets in comparison to their carrying value. Any
impairment would be recognized when the expected future operating cash flows
derived from such intangible assets is less than their carrying value.
STOCK SPLIT
In May 1998, the Board of Directors of the Company authorized a stock split
that was effected as a dividend of Ordinary Shares. All references in the
consolidated financial statements referring to shares, per share amounts and
contingently issuable shares have been adjusted retroactively for the stock
split.
COMPREHENSIVE INCOME
The Company accounts for comprehensive income under the provisions of
Statement of Financial Standards (SFAS) No. 130, "Reporting Comprehensive
Income", 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> 12
AMDOCS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME TAXES
The Company records deferred income taxes to reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and for tax purposes. Deferred taxes are computed
based on tax rates anticipated to be in effect (under applicable laws at the
time the financial statements are prepared) when the deferred taxes are expected
to be paid or realized. A valuation allowance is provided for deferred tax
assets if it is more likely than not these items will either expire before the
company is able to realize their benefit, or that future deductibility is
uncertain. In the event that a valuation allowance relating to business
acquisitions is subsequently reduced, the adjustment may reduce the original
amount allocated to goodwill.
Deferred tax liabilities and assets are classified as current or noncurrent
based on the classification of the related asset or liability for financial
reporting, or according to the expected reversal dates of the specific temporary
differences, if not related to an asset or liability for financial reporting,
and also include anticipated withholding taxes due on subsidiaries' earnings
when paid as dividends to the Company.
REVENUE RECOGNITION
The Company's software products require significant customization and
therefore the development projects are recognized as long term contracts in
conformity with Accounting Research Bulletin (ARB) No. 45 "Long Term
Construction Type Contracts", SOP 81-1 "Accounting for Performance of
Construction Type and Certain Production Type Contracts" and SOP 97-2 "Software
Revenue Recognition". Initial license fee revenue is recognized as work is
performed, under the percentage of completion method of accounting. Subsequent
license fee revenue is recognized upon completion of the specified conditions in
each contract. Service revenue that involves significant ongoing obligations,
including fees for customization, implementation and initial support services,
is recognized as work is performed, under the percentage of completion method of
accounting. In outsourcing contracts, revenue from operation and maintenance of
customers' billing systems is recognized in the period in which the bills are
produced. Revenue from ongoing support is recognized as work is performed.
Revenue from third-party hardware and software sales is recognized upon
delivery, and recorded at gross or net amount according to the criterions
established in Emerging Issues Task Force (EITF) 99-19 "Recording Revenue Gross
as a Principal versus Net as an Agent" and Staff Accounting Bulletins (SAB) 101
"Revenue Recognition in Financial Statements". Maintenance revenue is recognized
ratably over the term of the maintenance agreement, which in most cases is one
year or less. Losses are recognized on contracts in the period in which the
liability is identified. As a result of its percentage of completion accounting
policies, the Company's annual and quarterly operating results may be
significantly affected by the size and timing of customer projects and the
Company's progress in completing such projects.
Deferred revenue represents billings to customers for licenses, services
and third-party products for which revenue has not been recognized.
Included in service revenue are sales of third-party products. Revenue from
sales of such products includes third-party computer hardware and computer
software products and was less than 10 percent of total revenue in fiscal 2000,
1999 and 1998.
COST OF LICENSE AND COST OF SERVICE
Cost of license and service consists of all costs associated with providing
services to customers, including warranty expense. Estimated costs related to
warranty obligations are initially provided at the time the product is delivered
and are revised to reflect subsequent changes in circumstances and estimates.
Cost of license includes royalty payments to software suppliers, amortization of
purchased computer software and intellectual property rights.
<PAGE> 13
AMDOCS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Included in cost of service are costs of third-party products associated
with reselling third-party computer hardware and computer software products to
customers, when revenue from third-party products is recognized at gross amount.
Customers purchasing third-party products from the Company generally do so in
conjunction with the purchase of services.
RESEARCH AND DEVELOPMENT
Research and development expenditures consist of costs incurred in the
development of new software modules and product offerings, either in conjunction
with customer projects or as part of the Company's product development program.
Research and development costs, which are in conjunction with a customer
project, are expensed as incurred. Certain computer software costs are
capitalized in accordance with SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed", which requires
capitalization of software development costs subsequent to the establishment of
technological feasibility.
Based on the Company's product development process, technological
feasibility is established upon completion of a detailed program design or, in
the absence thereof, completion of a working model. Costs incurred by the
Company after achieving technological feasibility and before the product is
ready for customer release have been insignificant.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees". Pursuant to this accounting standard, the Company records
deferred compensation for share options granted to employees at the date of
grant based on the difference between the exercise price of the options and the
market value of the underlying shares at that date. Deferred compensation is
amortized to compensation expense over the vesting period of the underlying
options. No compensation expense is recorded for stock options that are granted
to employees and directors at an exercise price equal to the fair market value
of the Ordinary Shares at the time of the grant. See Note 17 for pro forma
disclosures required in accordance with SFAS No. 123, "Accounting for
Stock-Based Compensation".
Compensation expenses that are deductible in a tax return in a period
different from the one in which they are reported as expenses in measuring net
income are temporary differences that result in deferred taxes. To the extent
that compensation is not recorded for stock-based compensation, the benefit of
the related tax deduction is recorded as an increase to additional paid-in
capital in the period of the tax reduction.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial instruments of the Company consist mainly of cash and cash
equivalents, short-term interest-bearing investments, accounts receivable,
short-term financing arrangements, forward exchange contracts and lease
obligations. In view of their nature, the fair value of the financial
instruments included in the accounts of the Company does not significantly vary
from their carrying amount. The fair values of the Company's foreign currency
exchange contracts are estimated based on quoted market prices of comparable
contracts.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of trade receivables. The Company invests its
excess cash primarily in highly liquid U.S. dollar-denominated securities with
major U.S. and U.K. institutions. The Company does not expect any credit losses
<PAGE> 14
AMDOCS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
in respect of these items. The Company's revenue is generated primarily in North
America and Europe and to a lesser extent in the Asia-Pacific region and Latin
America. Most customers are among the largest communications and directory
publishing companies in the world (or are owned by them). The Company performs
ongoing credit analyses of its customer base and generally does not require
collateral.
EARNINGS PER SHARE
The Company accounts for earnings per share based on SFAS No. 128 "Earnings
per Share". SFAS No. 128 requires companies to compute earnings per share under
two different methods, basic and diluted earnings per share, and to disclose the
methodology used for the calculations. Basic earnings per share is calculated
using the weighted average number of shares outstanding during the period.
Diluted earnings per share is computed on the basis of the weighted average
number of shares outstanding and the effect of the dilutive outstanding stock
options using the treasury stock method.
DERIVATIVES AND HEDGING
Effective July 1, 1998, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 requires the
Company to recognize all derivatives on the balance sheet at fair value. If the
derivative meets the definition of a hedge and is so designated, depending on
the nature of the hedge, changes in the fair value of derivatives will either be
offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value is recognized in earnings. The adoption of
SFAS No. 133 on July 1, 1998 did not have a material impact on results of
operations but resulted in the cumulative effect of change in accounting
principle of $277, net of tax in 1998.
RECLASSIFICATIONS
Certain amounts in prior years' financial statements have been reclassified
to conform to the current year's presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. The Company's most significant estimates are related to contract
accounting estimates used to recognize revenue under the percentage of
completion method of accounting. Actual results could differ from those
estimates.
NOTE 3 -- ACQUISITIONS
ITDS
On November 30, 1999, the Company completed a stock-for-stock acquisition
transaction of International Telecommunication Data Systems, Inc. ("ITDS"), a
leading provider of solutions to communications companies for outsourcing of
billing operations. The total purchase price of $189,034, based on a per share
price of $28.25 for the Company's Ordinary Shares, included issuance of 6,461
Ordinary Shares, the grant of 1,103 options and transaction costs. The
acquisition was accounted for using the purchase method of accounting. The fair
market value of ITDS' assets and liabilities has been included in the Company's
balance sheet as of the acquisition date. The results of ITDS' operations are
included in the Company's consolidated
<PAGE> 15
AMDOCS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
statement of operations, commencing December 1, 1999. An acquired technology
valuation, which was independently determined, included both existing technology
and in-process research and development. The valuation of these technologies was
made by applying the income forecast method, which considered the present value
of cash flows by product lines. The fair value of core technology was valued at
$12,342 and is being amortized over five years. Purchased in-process research
and development, valued at $19,876, was charged as an expense immediately
following the completion of the acquisition since this technology had not
reached technological feasibility and had no alternative use. This technology
required additional development, coding and testing efforts before technological
feasibility could be determined. The fair value of customer base was valued at
$647 and the fair value of workforce-in-place was valued at $5,407, each of
which is being amortized over five years. The excess of the purchase price over
the fair value of the net assets acquired, or goodwill, of $71,154 is being
amortized over 15 years.
SOLECT
On April 5, 2000, the Company completed a stock-for-stock acquisition
transaction of Solect Technology Group Inc. ("Solect"), a leading provider of
customer care and billing software to IP service providers. Under the terms of
the combination agreement, all then outstanding Solect common shares were
exchanged for shares of a newly issued class of exchangeable shares of Solect.
The Solect exchangeable shares entitle holders to dividends and other rights
economically equivalent to the Company's Ordinary Shares, including the right,
through a voting trust, to vote at the Company's shareholder meetings, and are
exchangeable at the option of holders into the Company's Ordinary Shares on a
one-for-one basis. The total purchase price of $1,087,711, based on a per share
price of $69.875 for the Company's Ordinary Shares, included both the issuance
of 13,846 exchangeable shares, the grant of options to purchase 1,654 Ordinary
Shares, as well as transaction costs. An aggregate 1,170 of the exchangeable
shares issued in the transaction have been placed in escrow until April 2001 to
indemnify the Company against any breaches of representations or warranties
under the combination agreement. The acquisition was accounted for using the
purchase method of accounting. The fair market value of Solect's assets and
liabilities has been included in the Company's balance sheet as of the
acquisition date. The results of Solect's operations are included in the
Company's consolidated statement of operations, commencing April 6, 2000. An
acquired technology valuation, which was independently determined, included both
existing technology and in-process research and development. The valuation of
these technologies was made by applying the income forecast method, which
considered the present value of cash flows by product lines. The fair value of
core technology was valued at $18,259 and is being amortized over two years.
Purchased in-process research and development, valued at $50,443, was charged as
an expense immediately following the completion of the acquisition since this
technology had not reached technological feasibility and had no alternative use.
This technology required varying additional development, coding and testing
efforts before technological feasibility could be determined. The fair value of
customer base was valued at $1,211 and the fair value of workforce-in-place was
valued at $3,259, each of which is being amortized over three years. The excess
of the purchase price over the fair value of net assets acquired, or goodwill,
of $986,312 is being amortized over five years.
Set forth below is the pro forma revenue, operating income (loss), net loss
and loss per share as if ITDS and Solect had been acquired as of October 1,
1998, excluding the write off of purchased in-process research and development
and other indirect acquisition-related costs:
<PAGE> 16
AMDOCS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------
2000 1999 1998
---------- -------- ---------
<S> <C> <C> <C>
Revenue.......................................... $1,152,783 $775,653 $ 500,554
Operating income (loss).......................... 41,516 (43,744) (134,543)
Net loss......................................... (25,516) (97,933) (161,239)
Basic loss per share............................. (0.12) (0.45) (1.03)
Diluted loss per share........................... (0.12) (0.45) (1.03)
</TABLE>
NOTE 4 -- RELATED PARTY TRANSACTIONS
The following related party balances are included in the balance sheet:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Accounts receivable, including unbilled of $0 and $828 in
2000 and 1999, respectively............................ $27,116 $14,128
</TABLE>
The following related party transactions are included in the statements of
operations:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
2000 1999 1998
-------- ------- -------
<S> <C> <C> <C>
Revenue(1):
License................................................... $ 15,888 $ 743 $ 2,300
Service................................................... 144,859 98,761 82,100
Operating expenses(2):
Cost of service........................................... 2,814 2,656 2,325
Selling, general and administrative....................... 700 570 510
Other income (expense), net(3).............................. -- -- (6,268)
</TABLE>
---------------
(1) The Company licenses software and provides computer systems integration and
related services to several affiliates of a significant shareholder of the
Company (the "Affiliates").
(2) The Company leases office space in Israel on a month-to-month basis and
purchases other miscellaneous support services from affiliates of certain
shareholders.
(3) On September 22, 1997, the Company issued junior subordinated notes payable
in the aggregate amount of $3,268 to certain persons affiliated with the
investors party to the Share Subscription Agreement referred to in Note 16.
The notes bore an interest rate of 5.75 percent per annum and were
originally due September 22, 1998. The notes were paid in March 1998. In
January 1998, the Company issued $123,500 in principal amount of 10 percent
subordinated notes to affiliates of certain shareholders, which were party
to the Conditional Investment Agreement referred to in Note 16. The
subordinated notes were repaid in 1998.
NOTE 5 -- COMPENSATING BALANCES
The Company was required to maintain compensating cash balances of $4,777
and $2,791 as of September 30, 2000 and 1999, respectively, primarily relating
to foreign currency contracts, letters of credit and bank guarantees.
<PAGE> 17
AMDOCS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 6 -- EQUIPMENT, VEHICLES AND LEASEHOLD IMPROVEMENTS, NET
Components of equipment, vehicles and leasehold improvements, net are:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-------------------
2000 1999
-------- -------
<S> <C> <C>
Furniture and fixtures.................................. $ 24,297 $14,009
Computer equipment...................................... 110,583 67,416
Vehicles furnished to employees......................... 44,766 31,541
Leasehold improvements.................................. 30,593 19,315
-------- -------
210,239 132,281
Less accumulated depreciation........................... 82,158 48,284
-------- -------
$128,081 $83,997
======== =======
</TABLE>
The Company has entered into various arrangements for the leasing of
vehicles for periods of five years, carrying interest rates of LIBOR plus an
interest rate of 0.5 percent (7.3 percent as of September 30, 2000). The Company
has accounted for these as capital leases and amortization costs have been
included in depreciation expense. Capital lease payments, excluding interest,
due over the next five years are as follows:
<TABLE>
<S> <C>
2001........................................ $8,713
2002........................................ 8,068
2003........................................ 7,368
2004........................................ 5,234
2005........................................ 2,747
</TABLE>
NOTE 7 -- GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill and other intangible assets, net are:
<TABLE>
<CAPTION>
ESTIMATED AS OF SEPTEMBER 30,
USEFUL LIFE ---------------------
(IN YEARS) 2000 1999
----------- ---------- -------
<S> <C> <C> <C>
Goodwill................................... 5 - 15 $1,057,466 $ --
Intellectual property rights and purchased
computer software........................ 2 - 10 74,107 39,200
Other intangible assets.................... 3 - 5 12,403 --
---------- -------
1,143,976 39,200
Less accumulated amortization.............. 132,923 16,402
---------- -------
$1,011,053 $22,798
========== =======
</TABLE>
<PAGE> 18
AMDOCS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 8 -- OTHER NONCURRENT ASSETS
Other noncurrent assets consist of the following:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Funded personnel benefit costs......................... $25,913 $18,264
Noncurrent investments, at cost........................ 9,250 --
Other.................................................. 11,982 8,572
------- -------
$47,145 $26,836
======= =======
</TABLE>
NOTE 9 -- INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Current..................................... $80,076 $46,258 $31,736
Deferred.................................... (1,196) (4,026) (1,351)
------- ------- -------
$78,880 $42,232 $30,385
======= ======= =======
</TABLE>
All income taxes are from continuing operations reported by the Company in
the applicable taxing jurisdiction. Income taxes also include anticipated
withholding taxes due on subsidiaries' earnings when paid as dividends to the
Company.
Deferred income taxes are comprised of the following components:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Deferred revenue....................................... $19,560 $21,021
Accrued personnel costs................................ 15,733 8,184
Computer software and intellectual property............ 3,496 --
Warranty and maintenance accruals...................... -- 195
Net operating loss carry forwards...................... 18,713 --
Other.................................................. 5,685 4,947
Valuation allowances................................... (16,743) --
------- -------
Total deferred tax assets.............................. 46,444 34,347
------- -------
Deferred tax liabilities:
Anticipated withholdings on subsidiaries' earnings..... (17,391) (14,033)
Intangible assets, computer software and intellectual
property............................................ (11,191) (2,071)
Other.................................................. (500) --
------- -------
Total deferred tax liabilities......................... (29,082) (16,104)
------- -------
Net deferred tax assets.................................. $17,362 $18,243
======= =======
</TABLE>
<PAGE> 19
AMDOCS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The effective income tax rate varied from the statutory Guernsey tax rate
as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
--------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Statutory Guernsey tax rate............................. 20% 20% 20%
Guernsey tax-exempt status.............................. (20) (20) (20)
Foreign taxes........................................... 30 30 50
Effect of acquisition-related costs..................... 19 -- --
--- --- ---
Effective income tax rate............................... 49% 30% 50%
=== === ===
</TABLE>
In fiscal 2000, the Company incurred certain non-tax deductible indirect
acquisition- related costs and non deductible goodwill amortization related to
the acquisitions of ITDS and Solect. As a result, the Company's effective income
tax rate in 2000 (calculated based on the income taxes out of the income before
income taxes, excluding non recurring charges for write-offs of purchased
in-process research and development and other indirect acquisition-related
costs) is significantly higher than the 1999 effective income tax rate.
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. This resulted in no tax benefit to offset the
expense incurred. No such loss occurred in 1999 or 2000 and, as a result, the
Company's effective income tax rate in 1998 was significantly higher than the
1999 effective income tax rate.
The Company's Israeli subsidiary, which accounted for approximately 34%,
36% and 34% for 2000, 1999 and 1998, respectively, of the Company's income
before income taxes, enjoys tax benefits from Approved Enterprise status, as
established under Israeli law. The benefits from this status began phasing out
in 1999. However, the effect on the 1999 and 2000 effective income tax rate on
the Company is not significant.
As of September 30, 2000, the Company had $41,900 of Canadian net operating
loss carry-forwards, most of which were acquired in the Solect transaction. The
net operating loss carry-forwards will expire within 5-10 years. Given the
uncertainty of the realization of these assets through future taxable earnings,
a valuation allowance of $16,743 has been recorded.
NOTE 10 -- SHORT-TERM FINANCING ARRANGEMENTS
The Company's financing transactions are described below:
In December 1997, the Company entered into various credit agreements (the
"Credit Agreements") with several commercial banks. According to an amendment to
the Credit Agreements (the "Revolving Credit Agreement") entered into in July
1998, the Company may borrow up to $100,000 under a revolving line of credit.
This agreement expires in June 2001. The revolving line of credit bears a
variable interest rate (7.3 percent as of September 30, 2000). The Revolving
Credit Agreement has various covenants, that limit the Company's ability to make
investments, incur debt, pay dividends and dispose of property. The Company is
also required to maintain certain financial ratios as defined in the Revolving
Credit Agreement. Except for vehicles, substantially all of the Company's assets
have been pledged as security under the terms of the Revolving Credit Agreement.
As of September 30, 2000, the outstanding balance under this arrangement was
$20,000.
According to an agreement with several commercial banks the Company may
borrow up to $40,000 under a short-term credit line. The short-term credit line
bears a variable interest rate. As of September 30, 2000, there was no
outstanding balance.
<PAGE> 20
AMDOCS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
As of September 30, 2000, the Company had utilized approximately $19,295 of
revolving credit facilities to support letters of credit or bank guarantees.
The maximum amount of short-term borrowings under the revolving bank credit
arrangements at the end of any month was approximately $31,700 in 2000 and
$97,300 in 1999. The average short-term borrowings during the year were
approximately $13,300 in 2000 and $63,500 in 1999. The weighted average interest
rates approximated 7.0 percent in 2000, 6.0 percent in 1999 and 6.4 percent in
1998.
NOTE 11 -- OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consist of the following:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Accrued personnel costs.................................. $49,313 $32,441
Long term forward exchange obligations................... 2,987 231
Other.................................................... 1,504 1,565
------- -------
$53,804 $34,237
======= =======
</TABLE>
NOTE 12 -- COMPREHENSIVE INCOME
The following table sets forth the reconciliation from net income to
comprehensive income:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
2000 1999 1998
------ ------- -------
<S> <C> <C> <C>
Net income..................................... $5,978 $98,543 $30,107
Other comprehensive income:
Unrealized income (loss) on derivative
instruments, net of tax................... 2,333 338 (1,495)
Unrealized income on cash equivalents, net of
tax....................................... (17) -- --
------ ------- -------
Comprehensive income........................... $8,294 $98,881 $28,612
====== ======= =======
</TABLE>
NOTE 13 -- OTHER INCOME (EXPENSE), NET
Other income (expense), net consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
2000 1999 1998
------- ------- --------
<S> <C> <C> <C>
Interest income.............................. $14,274 $ 1,680 $ 3,445
Interest expense............................. (2,528) (5,654) (24,267)
Interest expense relating to settlement of
tax claims................................. -- -- (680)
Other, net................................... (1,012) (2,249) (2,624)
------- ------- --------
$10,734 $(6,223) $(24,126)
======= ======= ========
</TABLE>
<PAGE> 21
AMDOCS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 14 -- COMMITMENTS
The Company leases office space under non-cancelable operating leases in
various countries in which it does business. Future minimum lease payments
required for the five-year period beginning October 1, 2000 are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
---------------------------------
<S> <C>
2001...................................... $ 27,100
2002...................................... 27,000
2003...................................... 22,800
2004...................................... 19,100
2005...................................... 17,300
--------
$113,300
========
</TABLE>
Rent expense was approximately $20,400, $12,600 and $8,000 for 2000, 1999
and 1998, respectively.
NOTE 15 -- EMPLOYEE BENEFITS
The Company accrues severance pay for the employees of its Israeli
operations in accordance with Israeli law and certain employment procedures on
the basis of the latest monthly salary paid to these employees and the length of
time that they have worked for the Israeli operations. The severance pay
liability, which is included in other noncurrent liabilities, is partially
funded by amounts on deposit with insurance companies, which are included in
other noncurrent assets. Severance pay expenses were approximately $17,614,
$9,200 and $7,100 for 2000, 1999 and 1998, respectively.
The Company sponsors defined contribution plans covering substantially all
employees in the U.S., U.K. and Canada. The plans provide for Company matching
contributions based upon a percentage of the employees' voluntary contributions.
The Company's 2000, 1999 and 1998 plan contributions were not significant.
NOTE 16 -- CAPITAL TRANSACTIONS
The following are details of the Ordinary Shares outstanding:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Voting Ordinary Shares................................... 198,029 174,590
Non-Voting Ordinary Shares............................... 23,136 24,210
------- -------
221,165 198,800
======= =======
</TABLE>
All the Non-Voting Ordinary Shares are held by a single shareholder. Under
the Company's Articles of Association, upon the transfer or sale of such shares
to another party, the shares automatically convert to Voting Ordinary Shares.
The Company's capital transactions are described below:
On September 22, 1997, the Company entered into a Share Subscription
Agreement, under which 11,072 Ordinary Shares and 990 voting shares (Voting
Shares) and $3,268 principal amount of junior promissory notes were issued to
certain investors. These notes were repaid in March 1998. Also, on September 22,
1997, the Company entered into a Conditional Investment Agreement whereby such
investors were to be obligated to purchase 51,508 Ordinary Shares of the Company
in second quarter 1998 for approximately $99,000, if the
<PAGE> 22
AMDOCS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Company achieved certain financial performance targets. In addition, the Company
entered into a note purchase agreement with certain affiliates of the investors
to issue, at its election, up to $125,000 of subordinated notes.
In January 1998, the Company issued 36 additional Voting Shares at par
value, which were redeemed in May 1998, as discussed below, and issued 2,584
contingently issuable Ordinary Shares, which were paid in advance in the amount
of $2,000 pursuant to a 1995 Stock Subscription Agreements with certain
shareholders.
In January 1998, the Company's Board of Directors declared dividends of
$478,684, which were paid at that time. The dividends were financed by the
proceeds of the Credit Agreements and subordinated notes from affiliates of
certain shareholders, and surplus working capital.
In March 1998, the Company issued 51,508 Ordinary Shares according to the
Conditional Investment Agreement discussed above. The net proceeds to the
Company after the deduction of transaction costs amounted to $96,448.
In May 1998, in contemplation of the Company's initial public offering, the
Board of Directors took the following actions: (i) redeemed the outstanding
Voting Shares at the par value thereof; (ii) amended the terms of the Ordinary
Shares to create two classes: voting and non-voting; (iii) authorized 25,000
Preferred Shares, 500,000 Ordinary Shares and 50,000 Non-Voting Ordinary Shares;
and (iv) declared a stock split of 52-for-1 for each Ordinary Share outstanding.
The rights of the two classes of Ordinary Shares are identical except as to
voting rights. After the initial public offering, all of the outstanding
Non-Voting Ordinary Shares have been held by one existing shareholder of the
Company. All references to the number of shares and earnings per share have been
restated to reflect the stock split and the redemption of Voting Ordinary Shares
has been given retroactive effect.
On June 19, 1998, the Company conducted an initial public offering on the
New York Stock Exchange of 18,000 Ordinary Shares. Total net proceeds to the
Company, after deduction of offering expenses and underwriting commissions,
amounted to $234,190.
On June 7, 1999, the Company and certain shareholders of the Company
completed a public offering pursuant to which the Company sold 2,000 Ordinary
Shares. The net proceeds to the Company, after deduction of underwriting
discounts and offering expenses, amounted to $41,384.
On November 30, 1999 the Company issued 6,461 Ordinary Shares in connection
with the acquisition of ITDS. On April 5, 2000 the Company issued 13,846
exchangeable shares in connection with the acquisition of Solect. See Note 3.
Total proceeds from the exercise of employee stock options amounted to
$21,360 in fiscal 2000.
NOTE 17 -- STOCK OPTION AND INCENTIVE PLAN
In January 1998, the Company adopted, and in January 1999 and January 2000
the Company amended, the Amdocs Limited 1998 Stock Option and Incentive Plan, as
amended ("the Plan"). Under the provisions of the Plan, 13,300 Ordinary Shares
are available to be granted to officers, directors, employees and consultants.
Such options fully vest over two to nine years and have a term of ten years.
On November 30, 1999, the Company issued 1,103 additional options in
connection with the acquisition of ITDS to replace then issued ITDS options. On
April 5, 2000, the Company issued 1,654 additional options in connection with
the acquisition of Solect to replace then issued Solectoptions. See Note 3.
<PAGE> 23
AMDOCS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes information about share options, as well as
changes during the years ended September 30, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
SHARE AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding as of October 1, 1997................... -- $ --
Granted............................................. 3,527.4 3.93
Exercised........................................... -- --
Forfeited........................................... (7.8) 1.92
-------- ------
Outstanding as of September 30, 1998................ 3,519.6 3.93
Granted............................................. 2,752.6 21.67
Exercised........................................... -- --
Forfeited........................................... (35.3) 6.23
-------- ------
Outstanding as of September 30, 1999................ 6,236.9 11.75
Granted............................................. 4,948.7 52.82
Options exchanged in acquisitions................... 2,756.7 18.24
Exercised........................................... (2,057.5) 10.38
Forfeited........................................... (656.7) 30.11
-------- ------
Outstanding as of September 30, 2000................ 11,228.1 $30.62
======== ======
</TABLE>
The following table summarizes information about share options outstanding
as of September 30, 2000:
<TABLE>
<CAPTION>
EXERCISABLE AS OF
OUTSTANDING AS OF SEPTEMBER 30, 2000 SEPTEMBER 30, 2000
------------------------------------------------------------------- ------------------------------
WEIGHTED
AVERAGE
REMAINING
NUMBER CONTRACTUAL LIFE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICE OUTSTANDING (IN YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------------- ----------- ----------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0 - 3.01 2,384.4 7.68 $ 1.92 640.7 $ 1.85
8.75 - 16.75 1,659.3 8.22 11.39 261.5 9.27
18.70 - 28.05 1,990.5 8.72 23.56 88.3 24.37
28.06 - 37.40 1,452.3 9.15 33.63 20.1 31.63
37.41 - 46.74 205.9 7.10 41.39 125.9 41.74
53.19 - 65.44 2,678.5 9.74 59.09 44.8 64.32
65.45 - 77.25 857.2 9.51 70.82 100.3 71.96
</TABLE>
The following table summarizes information about share options outstanding
as of September 30, 1999:
<TABLE>
<CAPTION>
EXERCISABLE AS OF
OUTSTANDING AS OF SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
------------------------------------------------------------------- ------------------------------
WEIGHTED
AVERAGE
REMAINING
NUMBER CONTRACTUAL LIFE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICE OUTSTANDING (IN YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------------- ----------- ----------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$1.92 2,492.6 8.27 $ 1.92 -- $ --
8.75 - 16.75 1,613.4 9.08 11.62 166.75 9.08
21.90 - 23.63 2,130.9 9.82 23.34 -- --
</TABLE>
<PAGE> 24
AMDOCS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The weighted average grant-date fair value of the 4,948.7 and 2,752.6
options granted amounted to $35.71 and $13.92 for 2000 and 1999, respectively,
per option. The Company utilized the Black-Scholes option-pricing model to
estimate fair value, utilizing the following assumptions for the year (all in
weighted averages):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Risk-free interest rate............................. 5.75% 5.31% 5.24%
Expected life of options............................ 9.51 7.3 7.1
Expected annual volatility.......................... 1.086 0.550 0.945
Expected dividend yield............................. None None None
</TABLE>
Had compensation cost for the Company's options been determined based on
fair value at the grant dates for awards made in 2000, 1999 and 1998 in
accordance with SFAS 123, the Company's pro forma net income (loss) and earnings
(loss) per share would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
2000 1999 1998
-------- ------- -------
<S> <C> <C> <C>
Pro forma net income (loss).................. $(23,022) $92,624 $29,463
Pro forma diluted earnings (loss) per
share...................................... (0.11) 0.46 0.18
</TABLE>
NOTE 18 -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Numerator:
Income before cumulative effect.................. $ 5,978 $ 98,543 $ 30,384
======== ======== ========
Denominator:
Denominator for basic earnings per
share -- weighted average number of shares
outstanding(*)................................ 212,005 197,436 158,528
Effect of dilutive stock options granted......... 4,930 2,826 914
-------- -------- --------
Denominator for dilutive earnings per
share -- adjusted weighted average shares and
assumed conversions(*)........................ 216,935 200,262 159,442
======== ======== ========
Basic earnings per share........................... $ 0.03 $ 0.50 $ 0.19
======== ======== ========
Diluted earnings per share......................... $ 0.03 $ 0.49 $ 0.19
======== ======== ========
</TABLE>
---------------
(*) The weighted average number of shares outstanding includes the Solect
exchangeable shares.
NOTE 19 -- SEGMENT INFORMATION AND SALES TO SIGNIFICANT CUSTOMERS
GEOGRAPHIC INFORMATION
The following is a summary of revenue and long-lived assets by geographic
area. Revenue is attributed to geographic region based on the location of the
customers.
<PAGE> 25
AMDOCS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
2000 1999 1998
---------- -------- --------
<S> <C> <C> <C>
REVENUE
North America............................. $ 510,129 $226,387 $210,867
Europe.................................... 474,300 261,726 109,752
Australia................................. 51,093 61,237 33,215
Other..................................... 82,798 77,505 49,933
---------- -------- --------
Total................................... $1,118,320 $626,855 $403,767
========== ======== ========
LONG-LIVED ASSETS
North America(*).......................... $1,041,383 $ 35,228 $ 30,441
Israel(**)................................ 85,518 61,472 38,917
Other..................................... 33,466 18,772 7,378
---------- -------- --------
$1,160,367 $115,472 $ 76,736
========== ======== ========
</TABLE>
---------------
(*) Primarily goodwill, computer software and intellectual property
rights.
(**) Primarily computers and vehicles.
REVENUE AND CUSTOMER INFORMATION
Customer Care, Billing and Order Management systems ("CC&B Systems")
include systems for wireline, wireless, broadband, electronic and mobile
commerce and IP services. Directory includes directory sales and publishing
systems for publishers of both traditional printed yellow pages and white pages
directories and electronic Internet directories.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
2000 1999 1998
---------- -------- --------
<S> <C> <C> <C>
CC&B Systems.............................. $ 986,553 $468,216 $251,829
Directory................................. 131,767 158,639 151,938
---------- -------- --------
Total................................... $1,118,320 $626,855 $403,767
========== ======== ========
</TABLE>
SALES TO SIGNIFICANT CUSTOMERS
The following table summarizes the percentage of sales to significant
customers groups (when they exceed 10 percent of total revenue for the year).
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
--------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Customer 1.............................................. 14% (*)% (*)%
Customer 2.............................................. 13 16 21
Customer 3.............................................. (*) (*) 16
</TABLE>
---------------
(*) less than 10 percent of total revenue
NOTE 20 -- FINANCIAL INSTRUMENTS
The Company enters into forward contracts to sell foreign currency in order
to hedge its exposure associated with most firm commitments from customers in
non-U.S. dollar-based currencies and treats these
<PAGE> 26
AMDOCS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
for accounting purposes as fair value hedges. The Company also enters into
forward contracts in foreign currency to reduce the exposure associated with
estimated receipts from customers and with liabilities (primarily personnel
costs), in non-U.S. dollar-based currencies and treats these as cash flow
hedges. The derivative financial instruments are afforded hedge accounting
because they are effective in managing foreign exchange risks and are
appropriately assigned to the underlying exposures. The Company does not engage
in currency speculation. Generally, the Company measures the differential
between forward rates and spot rates on forward exchange contracts as the
inherent ineffectiveness of a hedging arrangement. Accordingly, changes in the
fair value of forward exchange contracts, which are classified as fair value
hedges, offset the change in the fair value of the hedged item to the extent of
the arrangement's effectiveness. The effective portion of the change in the fair
value of forward exchange contracts, which are classified as cash flow hedges,
is recorded as comprehensive income until the underlying transaction is
recognized in earnings.
The following table describes forward contracts outstanding:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Contracts treated as fair value hedges for the sale of:
British pounds....................................... $ 19,346 $ 24,567
Canadian dollars..................................... 8,332 11,394
Austrian schillings.................................. -- 10,779
Japanese yen......................................... -- 770
Other currencies..................................... 178 4,658
-------- --------
$ 27,856 $ 52,168
======== ========
Contracts treated as cash flow hedges for the purchase
of:
Israeli shekels...................................... $196,700 $145,000
Australian dollars................................... 22,240 31,655
-------- --------
$218,940 $176,655
======== ========
</TABLE>
The fair values of the forward derivatives were $3,016 and $(3,412) on
September 30, 2000 and 1999, respectively. The Company currently enters into
forward exchange contracts exclusively with major financial institutions.
<PAGE> 27
AMDOCS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 21 -- SELECTED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following are details of the unaudited quarterly results of operations
for the three months ended:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
------------- -------- --------- ------------
<S> <C> <C> <C> <C>
2000
Revenue........................................ $315,067 $297,002 $270,745 $235,506
Operating income (loss)........................ 20,955 (39,806) 60,115 32,860
Net income (loss).............................. 12,993 (67,159) 42,863 17,281
Basic earnings (loss) per share................ 0.06 (0.31) 0.21 0.09
Diluted earnings (loss) per share.............. 0.06 (0.31) 0.20 0.08
1999
Revenue........................................ $182,716 $164,884 $147,830 $131,425
Operating income............................... 43,430 37,782 35,625 30,161
Net income..................................... 29,839 25,421 23,141 20,142
Basic and diluted earnings per share........... 0.15 0.13 0.12 0.10
1998
Revenue........................................ $116,704 $106,497 $ 94,008 $ 86,558
Operating income............................... 26,104 22,821 19,125 16,845
Net income..................................... 11,598 6,443 4,105 7,961
Basic and diluted earnings per share........... 0.06 0.04 0.03 0.06
</TABLE>
The fiscal quarters ended December 31, 1999 and June 30, 2000 include
purchased in-process research and development and other indirect
acquisition-related costs of $19,876 and $55,741, respectively.
<PAGE> 28
Item 2. Financial Statement Schedule
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
--------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING OF COSTS AND OTHER AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
----------- ------------ ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowances for doubtful debts ................... -- 1,844 5,024(*) -- 6,868
Valuation allowances ............................ -- 2,411 14,332(**) -- 16,743
--------------
(*) Allowances for doubtful debts that we acquired as part of our acquisition of ITDS.
(**) Valuation allowance related to accumulated tax benefit from losses we acquired as part of
our acquisition of Solect.
</TABLE>
<PAGE> 29
AMDOCS LIMITED
Part II OTHER INFORMATION
Item 1. Exhibits
Exhibit No. Description
----------- -----------
23 Consent of Ernst & Young LLP
99.1 Amdocs Limited Press Release dated
November 8, 2000
<PAGE> 30
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
-------------------------------
Thomas G. O'Brien
Treasurer and Secretary
Authorized U.S. Representative
Date: December 29, 2000
<PAGE> 31
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
23 Consent of Ernst & Young LLP
99.1 Amdocs Limited Press Release dated November 8, 2000
</TABLE>
