SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 0-25346
TRANSACTION SYSTEMS ARCHITECTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 47-0772104
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization)
Identification No.)
224 South 108th Avenue
Omaha, Nebraska 68154
(Address of principal executive offices, including zip code)
(402) 334-5101
(Registrant's telephone number, including area code)
---------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
27,509,103 shares of Class A Common Stock at August 7, 1998
1,171,252 shares of Class B Common Stock at August 7, 1998
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TRANSACTION SYSTEMS ARCHITECTS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
TABLE OF CONTENTS
Page
Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets as of June 30, 1998
and September 30, 1997 3
Condensed Consolidated Statements of Income for the three
and nine months ended June 30, 1998 and 1997 4
Condensed Consolidated Statement of Stockholders' Equity
for the nine months ended June 30, 1998 5
Condensed Consolidated Statements of Cash Flows for the
nine months ended June 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9 - 12
Part II - OTHER INFORMATION
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Index to Exhibits 15
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<TABLE>
<CAPTION>
TRANSACTION SYSTEMS ARCHITECTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited and in thousands)
June 30, September 30,
1998 1997
---------- ---------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 48,601 $ 46,600
Marketable securities 5,000 -
Billed receivables, net 42,520 39,864
Accrued receivables 35,159 25,063
Deferred income taxes 4,767 3,517
Other 3,231 3,043
---------- ---------------
Total current assets 139,278 118,087
Property and equipment, net 17,887 16,263
Software, net 6,419 6,105
Intangible assets, net 9,794 9,539
Installment receivables 1,017 2,394
Investments and notes receivable 15,936 7,969
Other 4,659 4,877
---------- ---------------
Total assets $ 194,990 $ 165,234
========== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 793 $ 768
Current portion of capital lease obligations 356 524
Accounts payable 9,442 7,896
Accrued employee compensation 4,977 5,559
Accrued liabilities 9,258 9,048
Income taxes 3,858 6,230
Deferred revenue 33,278 28,792
---------- ---------------
Total current liabilities 61,962 58,817
Long-term debt 863 1,465
Capital lease obligations 1,204 914
---------- ---------------
Total liabilities 64,029 61,196
---------- ---------------
Stockholders' equity:
Class A Common Stock 137 134
Class B Common Stock 6 6
Additional paid-in capital 109,707 103,708
Accumulated translation adjustments (2,568) (260)
Retained earnings 23,691 462
Treasury stock, at cost (12) (12)
---------- ---------------
Total stockholders' equity 130,961 104,038
---------- ---------------
Total liabilities and stockholders' equity $ 194,990 $ 165,234
========== ===============
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
TRANSACTION SYSTEMS ARCHITECTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited and in thousands, except per share amounts)
Three Months Ended June 30, Nine Months Ended June 30,
--------------------------- --------------------------
1998 1997 1998 1997
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Software license fees $ 40,610 $ 31,186 $ 114,263 $ 89,504
Maintenance fees 12,504 10,746 36,089 31,031
Services 14,988 12,395 40,601 35,745
Hardware, net 997 881 3,404 2,218
-------- --------- --------- ---------
Total revenues 69,099 55,208 194,357 158,498
-------- --------- --------- ---------
Expenses:
Cost of software license fees:
Software costs 8,094 6,494 22,691 18,413
Amortization of purchased software - - - 801
Cost of maintenance and services 15,724 13,038 43,402 38,055
Research and development 6,017 4,618 17,100 13,321
Selling and marketing 15,202 12,368 43,397 34,967
General and administrative:
General and administrative costs 10,780 8,814 30,677 25,882
Amortization of goodwill and purchased
intangibles 347 210 1,076 664
-------- --------- --------- ---------
Total expenses 56,164 45,542 158,343 132,103
-------- --------- --------- ---------
Operating income 12,935 9,666 36,014 26,395
-------- --------- --------- ---------
Other income (expense):
Interest income 777 557 2,091 1,497
Interest expense (46) (55) (144) (136)
Other (204) (38) (258) (582)
-------- --------- --------- ---------
Total other 527 464 1,689 779
-------- --------- --------- ---------
Income before income taxes 13,462 10,130 37,703 27,174
Provision for income taxes (5,040) (3,793) (14,187) (11,046)
-------- --------- --------- ---------
Net income $ 8,422 $ 6,337 $ 23,516 $ 16,128
======== ========= ========= =========
Earnings Per Share Data:
Basic:
Net income $ 0.30 $ 0.23 $ 0.83 $ 0.58
======== ========= ========= =========
Average shares outstanding 28,392 27,904 28,215 27,828
======== ========= ========= =========
Diluted:
Net income $ 0.29 $ 0.22 $ 0.81 $ 0.56
======== ========= ========= =========
Average shares outstanding 29,269 28,821 29,147 28,676
======== ========= ========= =========
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
TRANSACTION SYSTEMS ARCHITECTS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the nine months ended June 30, 1998
(unaudited and in thousands)
Class A Class B Additional Accumulated
Common Common Paid-in Translation Retained Treasury
Stock Stock Capital Adjustments Earnings Stock Total
-------- -------- --------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1997 $ 134 $ 6 $ 103,708 $ (260) $ 462 $ (12)$ 104,038
Adjustment for Edgeware, Inc.
pooling of interests 1 3 (287) (283)
Issuance of Class A Common Stock for
purchase of Coyote Systems, Inc. 1 1,086 1,087
Exercise of stock options 1 1,676 1,677
Tax benefit of stock options exercised 2,541 2,541
Sale of Class A Common Stock pursuant
to Employee Stock Purchase Plan 693 693
Net Income 23,516 23,516
Translation adjustments (2,308) (2,308)
-------- -------- --------- --------- --------- -------- ---------
Balance, June 30, 1998 $ 137 $ 6 $ 109,707 $ (2,568) $ 23,691 $ (12)$ 130,961
======== ======== ========= ========= ========= ======== =========
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
TRANSACTION SYSTEMS ARCHITECTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
Nine Months Ended June 30,
-------------------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 23,5$6 $ 16,635
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,636 4,006
Amortization 3,578 3,392
Increase in receivables, net (13,905) (11,263)
(Increase) decrease in other current assets (256) 1,802
Decrease in installment receivables 1,377 318
Increase in other assets (1,529) (3,202)
Increase (decrease) in accounts payable 482 (1,349)
Decrease in accrued employee compensation (559) (1,972)
Increase in accrued liabilities 92 2,431
Increase in income tax liabilities 172 3,535
Increase in deferred revenue 4,133 6,597
----------- ------------
Net cash provided by operating activities 21,737 20,930
----------- ------------
Cash flows from investing activities:
Purchases of property and equipment (6,007) (4,918)
Purchases of software and distribution rights (2,368) (4,312)
Purchase of marketable securities (5,000) -
Acquisiton of businesses, net of cash acquired (253) (2,422)
Additions to investment and notes receivable (7,022) (3,886)
Proceeds from notes receivable repayments 149 4,180
----------- ------------
Net cash used in investing activities (20,501) (11,358)
----------- ------------
Cash flows from financing activities:
Proceeds from issuance of Class A Common Stock 693 582
Proceeds from sale and exercise of stock options 1,676 4,021
Distribution to RVS owners - (3,306)
Payments of long-term debt (759) (934)
Payments on capital lease obligations (209) (85)
----------- ------------
Net cash provided by financing activities 1,401 278
----------- ------------
Effect of exchange rate fluctuations on cash (636) (22)
----------- ------------
Increase in cash and cash equivalents 2,001 9,828
Cash and cash equivalents, beginning of period 46,600 32,751
----------- ------------
Cash and cash equivalents, end of period $ 48,601 $ 42,579
=========== ============
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Consolidated Financial Statements
Transaction Systems Architects, Inc. (the Company or TSA) develops, markets and
supports a broad line of software products and services primarily focused on
facilitating electronic payments and electronic commerce. In addition to its own
products, the Company distributes software developed by third parties. The
products are used principally by financial institutions, retailers and
third-party processors, both in domestic and international markets.
The condensed consolidated financial statements at June 30, 1998 and for the
three and nine months ended June 30, 1998 and 1997 are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto, together with management's
discussion and analysis of financial condition and results of operations,
contained in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1997. The results of operations for the three and nine months
ended June 30, 1998 are not necessarily indicative of the results for the entire
fiscal year ending September 30, 1998.
The condensed consolidated financial statements include all domestic and foreign
subsidiaries which are more than 50% owned and controlled. Investments in
companies less than 20% owned are carried at cost.
2. Earnings Per Share
Effective October 1, 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 "Earnings Per Share." Basic earnings per share is computed by
dividing net income by the weighted average number of shares of common stock
outstanding during the periods. Diluted earnings per share is computed by
dividing net income by the sum of the weighted average number of shares of
common stock outstanding and the potential dilutive effect of the outstanding
stock options associated with the Company's stock incentive plans.
3. Acquisitions
In October 1996, the Company completed the acquisition of Open Systems
Solutions, Inc. (OSSI). Stockholders of OSSI received 210,000 shares of TSA
Class A Common Stock in exchange for 100% of OSSI's common stock. The stock
exchange was accounted for as a pooling of interests. OSSI's results of
operations prior to the acquisition were not material.
In May 1997, the Company completed the acquisition of Regency Voice Systems,
Inc. and related entities (RVS). Shareholders of RVS received 1,615,383 shares
of TSA Class A Common Stock in exchange for 100% of RVS's shares. The stock
exchange was accounted for as a pooling of interests. The accompanying condensed
consolidated financial statements for the three and nine months ended June 30,
1997 have been restated to reflect the results of operations of RVS.
In February 1998, the Company completed the acquisition of Coyote Systems, Inc.
(Coyote). Shareholders of Coyote received 26,400 shares of TSA Class A Common
Stock in exchange for 100% of Coyote's shares. The stock exchange has been
accounted for using the purchase method of accounting and, accordingly, the cost
in excess of the fair value of the net tangible assets acquired totaling
approximately $1.1 million was allocated to goodwill.
In May 1998, the Company completed the acquisition of Edgeware, Inc. (Edgeware).
Edgeware is a provider of customer specific marketing software and services to
the retail industry. Under the terms of the agreement, owners of Edgeware
received 143,436 shares of TSA Class A Common Stock in exchange for 100% of
Edgeware's outstanding stock. The exchange was accounted for as a pooling of
interests. Edgeware's results of operations prior to the acquisition were not
material.
4. Marketable Securities
In April 1998, the Company entered into a transaction with Nestor, Inc.
(Nestor), whereby the Company acquired 2.5 million shares of Nestor's Common
Stock for $5.0 million. In addition, the Company received warrants to purchase
an additional 2.5 million shares at an exercise price of $3 per share. Nestor is
a provider of neural-network solutions for financial, internet and
transportation industries. The Company distributes Nestor's PRISM intelligent
fraud detection product. The Company has accounted for the investment in
Nestor's Common Stock and warrants in accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain investments in Debt and
Equity Securities".
The investment in marketable securities has been classified as
available-for-sale and recorded at fair market value, which is estimated based
on quoted market prices. Net unrealized holding gains and losses, net of the
related tax effect, are reported as a separate component of stockholders'
equity. Unrealized gains and losses are determined by specific identification.
5. Investments and Notes Receivable
In January 1996, the Company entered into a transaction with Insession, Inc.
(Insession) whereby the Company acquired a 6% minority interest in Insession for
$1.5 million. In addition, the Company has extended Insession $6.6 million in
promissory notes as of June 30, 1998. The promissory notes bear an interest rate
of prime plus 0.25%, and are payable in January 1999 ($1.0 million), January
2000 ($1.0 million) and January 2001 ($1.5 million). The remaining $3.1 million
of promissory notes are payable upon demand. The promissory notes are secured by
future royalties owed by the Company to Insession.
The Company has extended a line of credit facility to U.S. Processing, Inc.
(USPI), a transaction processing business in which the Company has a 19.9%
ownership interest. As of June 30, 1998, borrowings under the line of credit
totaled $5.2 million.
5. Subsequent Events
On August 7, 1998 the Company completed the acquisition of IntraNet, Inc.
(IntraNet). IntraNet is a provider of electronic funds transfer and payment
processing systems for financial institutions. Under the terms of the agreement,
owners of IntraNet received 1,220,300 shares of TSA Class A Common Stock in
exchange for 100% of IntraNet's outstanding stock. The exchange will be
accounted for as a pooling of interests and accordingly the Company's
consolidated financial statements to be issued in the future will be restated to
reflect the results of operations of IntraNet for the periods presented prior to
the date of acquisition.
<PAGE>
<TABLE>
<CAPTION>
TRANSACTION SYSTEMS ARCHITECTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth certain financial data and the percentage of total revenues of the Company for the periods indicated:
Three Months Ended June 30, Nine Months Ended June 30,
----------------------------------------- ----------------------------------------
1998 1997 1998 1997
----------------------------------------- ----------------------------------------
% of % of % of % of
Amount Revenue Amount Revenue Amount Revenue Amount Revenue
-------- --------- -------- ---------- ------- --------- ------- ----------
<S> <C> <C> <C> <C>
Revenues:
Software license fees $ 40,610 58.8% $ 31,186 56.5% $ 114,263 58.9% $ 89,504 56.5%
Maintenance fees 12,504 18.1 10,746 19.5 36,089 18.6 31,031 19.6
Services 14,988 21.7 12,395 22.5 40,601 20.8 35,745 22.6
Hardware, net 997 1.4 881 1.5 3,404 1.7 2,218 1.3
-------- --------- -------- -------- -------- ------- -------- --------
Total revenues 69,099 100.0 55,208 100.0 194,357 100.0 158,498 100.0
-------- --------- -------- -------- -------- ------- -------- --------
Expenses:
Cost of software license fees:
Software costs 8,094 11.7 6,494 11.8 22,691 11.7 18,413 11.6
Amortization of purchased software 0 0.0 0 0.0 0 0.0 801 0.5
Cost of maintenance and services 15,724 22.8 13,038 23.6 43,402 22.3 38,055 24.0
Research and development 6,017 8.7 4,618 8.4 17,100 8.8 13,321 8.4
Selling and marketing 15,202 22.0 12,368 22.4 43,397 22.3 34,967 22.1
General and administrative:
General and administrative costs 10,780 15.6 8,814 16.0 30,677 15.8 25,882 16.3
Amortization of goodwill and
purchase intangibles 347 0.6 210 0.4 1,076 0.6 664 0.4
-------- --------- ------- --------- -------- ------- -------- --------
Total expenses 56,164 81.3 45,542 82.5 158,343 81.5 132,103 83.3
-------- --------- ------- --------- -------- ------- -------- --------
Operating income 12,935 18.7 9,666 17.5 36,014 18.5 26,395 16.7
-------- --------- ------- --------- -------- ------- -------- --------
Other income (expense):
Interest income 777 1.1 557 1.0 2,091 1.1 1,497 0.9
Interest expense (46) (0.1) (55) (0.1) (144) (0.1) (136) (0.1)
Other (204) (0.2) (38) (0.1) (258) (0.1) (582) (0.3)
-------- --------- ------- --------- -------- ------- -------- --------
Total other 527 0.8 464 0.8 1,689 0.9 779 0.5
-------- --------- ------- --------- -------- ------- -------- --------
Income before income taxes 13,462 19.5 10,130 18.3 37,703 19.4 27,174 17.1
Provision for income taxes (5,040) (7.4) (3,793) (6.9) (14,187) (7.3) (11,046) (7.0)
-------- --------- ------- --------- -------- ------- -------- --------
Net income $ 8,422 12% $ 6,337 12% $ 23,516 12% $ 16,128 10%
======== ========= ======= ========= ======== ======= ======= ========
</TABLE>
<PAGE>
Results of Operations (continued)
Revenues
Total revenues for the third quarter of fiscal 1998 increased 25.2% or $13.9
million over the comparable period in fiscal 1997. Of this increase, $9.4
million of the growth resulted from a 30.2% increase in software license fee
revenue, $2.6 million from a 20.9% increase in services revenue and $1.8 million
from a 16.4% increase in maintenance fee revenue.
Total revenues for the first three quarters of fiscal 1998 increased 22.6% or
$35.9 million over the comparable period in fiscal 1997. Of this increase, $24.8
million of the growth resulted from a 27.7% increase in software license fee
revenue, $4.9 million from a 13.6% increase in services revenue and $5.1 million
from a 16.3% increase in maintenance fee revenue.
The growth in software license fee revenue is the result of increased demand for
the Company's BASE24 products and continued growth of the installed base of
customers paying monthly license fee (MLF) revenue. Contributing to the strong
demand for the Company's products is the continued world-wide growth of
electronic payment transaction volume and the growing complexity of electronic
payment systems. MLF revenue was $11.5 million in the third quarter of fiscal
1998 compared to $8.6 million in the third quarter of fiscal 1997. MLF revenue
was $31.9 million in the first three quarters of fiscal 1998 compared to $23.7
million in the first three quarters of fiscal 1997.
The growth in services revenue for both the third quarter and first three
quarters of fiscal 1998 is the result of increased demand for technical and
project management services which is a direct result of the increased installed
base of the Company's BASE24 products.
The increase in maintenance fee revenue for the third quarter and first three
quarters of fiscal 1998 is a result of the continued growth of the installed
base of the Company's BASE24 products.
During the third quarter of fiscal 1998, the Company finalized the terms of a
market development funding (MDF) agreement with Tandem. The MDF agreement
replaces the previous hardware commission agreement which expired in December
1997. Revenue from the MDF agreement is expected to approximate revenue the
Company received under the hardware commission agreement.
Expenses
Total operating expenses for the third quarter of fiscal 1998 increased 23.3% or
$10.6 million over the comparable period in fiscal 1997. Total operating
expenses for the first three quarters of fiscal 1998 increased 19.9% or $26.2
million over the comparable period in fiscal 1997. The primary reason for the
overall increase in operating expenses is the increase in staff required to
support the increased demand for the Company's products and services. Total
staff (including both employees and independent contractors) increased from
1,508 at June 30, 1997 to 1,791 at June 30, 1998.
The Company's operating margin for the third quarter of fiscal 1998 was 18.7% as
compared to 17.5% for the comparable period in fiscal 1997. Operating margin for
the first three quarters of fiscal 1998 was 18.5% as compared to 16.7% for the
first three quarters of fiscal 1997. These improvements are primarily due to the
impact of the growth in the Company's recurring revenues (MLF's, maintenance and
facilities management fees) and the conclusion in December 1996 of the software
amortization associated with the acquisition of Applied Communications, Inc.
(ACI) and Applied Communications Inc. Limited (ACIL) in December 1993.
The Company's gross margin (total revenues minus cost of software and cost of
maintenance and services) for the third quarter of fiscal 1998 was 65.5% as
compared to 64.6% for the comparable period in fiscal 1997. The gross margin for
the first three quarters of fiscal 1998 was 66.0% as compared to 64.4% for the
first three quarters of fiscal 1997. The improvements are due to the conclusion
of the software amortization associated with the acquisitions of ACI and ACIL
and higher amounts of hardware and MLF revenue. Hardware revenue generates the
highest gross margin as the generation of this revenue is incidental to the
generation of software license fee and services revenue and has minimal
incremental costs associated with it.
EBITDA
The Company's earnings before interest expense, income taxes, depreciation and
amortization (EBITDA) increased from $11.8 million in the third quarter of
fiscal 1997 to $15.9 million in the third quarter of fiscal 1998. EBITDA
increased from $33.7 million in the first three quarters of fiscal 1997 to $44.2
million in the first three quarters of fiscal 1998. The increase in EBITDA can
be attributed to the continued growth in both recurring and non-recurring
revenues more than offsetting the growth in operating expenses. EBITDA is not
intended to represent cash flows for the periods.
Income Taxes
The effective tax rates for the third quarter and first three quarters of fiscal
1998 were 37.4% and 37.6%, respectively. This compares to 39.1% for all of
fiscal 1997. The change in the effective tax rates is principally the result of
the amount of deferred tax assets recognized in the first three quarters of
fiscal 1998 as compared to fiscal year 1997.
As of June 30, 1998, the Company has deferred tax assets of $15.6 million and
deferred tax liabilities of $0.4 million. Each quarter, the Company evaluates
its historical operating results as well as its projections for the future to
determine the realizability of the deferred tax assets. This analysis indicated
that $4.8 million of the deferred tax assets were more likely than not to be
realized. Accordingly, the Company has recorded a valuation allowance of $10.8
million as of June 30, 1998.
The Company intends to analyze the realizability of the net deferred tax assets
at each future reporting period. Such analysis may indicate that the realization
of various deferred tax benefits is more likely than not and, therefore, the
valuation reserve may be reduced.
Backlog
As of June 30, 1998 and 1997, the Company had non-recurring revenue backlog of
$29.3 million and $24.4 million in software license fees, respectively, and
$29.5 million and $16.6 million in services, respectively. The Company includes
in its non-recurring revenue backlog all fees specified in contracts which have
been executed by the Company to the extent that the Company contemplates
recognition of the related revenue within one year. There can be no assurance
that the contracts included in non-recurring revenue backlog will actually
generate the specified revenues or that the actual revenues will be generated
within the one year period.
As of June 30, 1998 and 1997, the Company had recurring revenue backlog of
$108.7 million and $88.1 million, respectively. The Company defines recurring
revenue backlog to be all monthly license fees, maintenance fees and facilities
management fees specified in contracts which have been executed by the Company
and its customers to the extent that the Company contemplates recognition of the
related revenue within one year. There can be no assurance, however, that
contracts included in recurring revenue backlog will actually generate the
specified revenues.
Liquidity and Capital Resources
As of June 30, 1998, the Company had working capital of $77.3 million which
includes cash and cash equivalents and marketable securities of $53.6 million.
The Company has a $10 million bank line of credit of which there are no
borrowings outstanding. The bank line of credit expires on June 30, 1999.
During the nine months ended June 30, 1998, the Company's cash flow from
operations amounted to $21.7 million and cash used in investing activities
amounted to $20.5 million. Of the $20.5 million of cash used in investing
activities, $2.1 million consisted of advances to Insession under promissory
notes and $3.2 million consisted of advances to USPI under a line of credit.
In the normal course of business, the Company evaluates potential acquisitions
of complementary businesses, products or technologies. In fiscal year 1997, the
Company acquired 100% of RVS and OSSI in exhange for 1,615,383 and 210,000
shares, respectively, of the Company's Class A Common Stock. In February 1998
the Company acquired 100% of Coyote in exchange for 26,400 shares of the
Company's Class A Common Stock.
In April 1998, the Company acquired 2.5 million shares of Nestor Common Stock
for $5.0 million. The Company also received warrants to purchase an additionanl
2.5 million shares of Nestor Common Stock for an exercise price of $3 per share.
In May 1998 the Company acquired 100% of Edgeware in exchange for 143,436 shares
of the Company's Class A Common Stock. On August 7, 1998 the Company acquired
100% of IntraNet in exchange for 1,220,300 shares of the Company's Class A
Common Stock.
Management believes that the Company's working capital, cash flow generated from
operations and borrowing capacity are sufficient to meet the Company's working
capital requirements for the foreseeable future.
Year 2000
Management has initiated a Company-wide program to prepare the Company's
computer systems and applications as well as the Company's product offerings for
the year 2000. The Company expects to incur internal staff costs as well as
consulting and other expenses related to system enhancements and product
modifications for the year 2000. The majority of the Company's product offerings
are currently year 2000 compliant. The total cost to be incurred by the Company
for all year 2000 related projects is not expected to have a material impact on
the future results of operations. However, there could be a material adverse
effect on the results of operations of the Company if the system enhancements
and product modifications for the year 2000 prove not to be effective.
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
PART II. OTHER INFORMATION
Item 5. Other Information
Pursuant to Rule 14a-4(c) under the Securities Exchange Act of 1934,
if the Company does not receive advance notice of a stockholder
proposal to be raised at its 1999 Annual Meeting in accordance with
the requirements of the Company's By-laws, management may use its
discretionary voting authority to vote management proxies on the
stockholder proposal without any discussion of the matter in the proxy
statement. The Company's By-laws provide that written notice of a
stockholder proposal must be delivered to or mailed and received by
the Secretary of the Company at the principal executive offices of the
Company not less than 80 days prior to the meeting; provided, however,
that in the event that the date of the meeting is not publicly
announced by the Company by mail, press release or otherwise more than
90 days prior to the meeting, notice by the stockholder to be timely
must be delivered to the Secretary of the Company not later than the
close of business on the tenth day following the day on which such
announcement of the date of the meeting was communicated to
stockholders. The stockholder's notice must set forth as to each
matter the stockholder proposes to bring before the annual meeting (a)
a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the
annual meeting, (b) the name and address, as they appear on the
Compan's books, of the stockholder proposing such business, (c) the
class and number of shares of the Company which are beneficially owned
by the stockholder, and (d) any material interest of the stockholder
in such business. The Company's By-laws also provide that the chairman
of an annual meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before
the meeting, and if he should so determine, any such business not
properly brought before the meeting shall not be transacted.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.00 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 12, 1998
TRANSACTION SYSTEMS ARCHITECTS, INC
(Registrant)
/s/Dwight G. Hanson
------------------------------------
Dwight G. Hanson
Vice President of Finance
(Principal Accounting Officer)
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
- -------- --------------------
27.00 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 48,601
<SECURITIES> 5,000
<RECEIVABLES> 77,679
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 139,278
<PP&E> 37,779
<DEPRECIATION> 19,892
<TOTAL-ASSETS> 194,990
<CURRENT-LIABILITIES> 61,962
<BONDS> 0
0
0
<COMMON> 143
<OTHER-SE> 130,818
<TOTAL-LIABILITY-AND-EQUITY> 194,990
<SALES> 194,357
<TOTAL-REVENUES> 194,357
<CGS> 66,093
<TOTAL-COSTS> 158,343
<OTHER-EXPENSES> (1,833)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144
<INCOME-PRETAX> 37,703
<INCOME-TAX> 14,187
<INCOME-CONTINUING> 23,516
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,516
<EPS-PRIMARY> .83
<EPS-DILUTED> .81
</TABLE>
