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 December 31, 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:
31,259,798 shares of Class A Common Stock at February 5, 1999
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
Page
Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets as of December 31, 1998
and September 30, 1998 3
Condensed Consolidated Statements of Income for the three
months ended December 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for the
three months ended December 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 11
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Index to Exhibits 14
<PAGE>
<TABLE>
<CAPTION>
TRANSACTION SYSTEMS ARCHITECTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited and in thousands)
December 31, September 30,
1998 1998
-------------- ---------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 62,027 $ 63,648
Marketable securities 1,720 2,188
Billed receivables, net 66,422 58,080
Accrued receivables 34,034 33,000
Deferred income taxes 5,013 4,921
Other 4,624 3,585
-------------- ---------------
Total current assets 173,840 165,422
Property and equipment, net 20,797 21,001
Software, net 8,715 7,172
Intangible assets, net 21,927 9,385
Installment receivables 768 2,056
Investments and notes receivable 11,756 16,754
Other 5,191 4,517
-------------- ---------------
Total assets $ 242,994 $ 226,307
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,283 $ 1,078
Accounts payable 12,583 13,720
Accrued employee compensation 4,323 8,426
Accrued liabilities 17,239 14,826
Income taxes 7,603 4,784
Deferred revenue 40,777 35,594
-------------- ---------------
Total current liabilities 83,808 78,428
Long-term debt 2,455 2,002
-------------- ---------------
Total liabilities 86,263 80,430
-------------- ---------------
Stockholders' equity:
Class A Common Stock 156 150
Class B Common Stock - 6
Additional paid-in capital 114,768 112,400
Retained earnings 47,677 38,220
Accumulated translation adjustments (2,579) (2,075)
Unrealized investment holding loss (3,279) (2,812)
Treasury stock, at cost (12) (12)
-------------- ---------------
Total stockholders' equity 156,731 145,877
-------------- ---------------
Total liabilities and stockholders' equity $ 242,994 $ 226,307
============== ===============
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 December 31,
--------------------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenues:
Software license fees $ 46,077 $ 38,565
Maintenance fees 15,567 13,173
Services 23,295 15,941
Hardware, net 1,131 1,389
--------- ---------
Total revenues 86,070 69,068
--------- ---------
Expenses:
Cost of software license fees 11,822 8,763
Cost of maintenance and services 20,293 15,734
Research and development 8,198 6,109
Selling and marketing 15,978 14,404
General and administrative:
General and administrative costs 14,368 11,832
Amortization of goodwill and purchased
intangibles 445 315
--------- ---------
Total expenses 71,104 57,157
--------- ---------
Operating income 14,966 11,911
--------- ---------
Other income (expense):
Interest income 703 647
Interest expense (111) (20)
Transaction related expenses (653) -
Other 197 (80)
--------- ---------
Total other 136 547
--------- ---------
Income before income taxes 15,102 12,458
Provision for income taxes (5,732) (4,740)
--------- ---------
Net income $ 9,370 $ 7,718
========= =========
Earnings Per Share Data:
Basic:
Net income $ 0.30 $ 0.26
========= =========
Average shares outstanding 30,938 30,235
========= =========
Diluted:
Net income $ 0.30 $ 0.25
========= =========
Average shares outstanding 31,727 31,024
========= =========
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)
Three months ended December 31,
-------------------------------
1998 1997
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,370 $ 7,718
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,927 1,493
Amortization 1,587 988
Changes in operating assets and liabilities:
Billed and accrued receivables (8,914) (4,777)
Other current and noncurrent assets 353 500
Accounts payable (2,474) (1,413)
Deferred revenue 5,091 (145)
Other current and noncurrent liabilities 1,288 293
--------- ---------
Net cash provided by operating activities 8,228 4,657
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (1,014) (1,222)
Purchases of software (1,969) (1,020)
Acquisition of businesses, net of cash acquired (7,062) (100)
Additions to investment and notes receivable (602) (3,231)
--------- ---------
Net cash used in investing activities (10,647) (5,573)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of Class A Common Stock 322 184
Proceeds from sale and exercise of stock options 926 214
Payments of long-term debt (577) (49)
--------- ---------
Net cash provided by financing activities 671 349
--------- ---------
Effect of exchange rate fluctuations on cash 127 (129)
--------- ---------
Decrease in cash and cash equivalents (1,621) (696)
Cash and cash equivalents, beginning of period 63,648 52,855
--------- ---------
Cash and cash equivalents, end of period $ 62,027 $ 52,159
========= =========
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,
installs 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 December 31, 1998 and for
the three months ended December 31, 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, 1998. The results of operations for the three
months ended December 31, 1998 are not necessarily indicative of the results
for the entire fiscal year ending September 30, 1999.
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. Acquisitions
In November 1998, the Company and Media Integration BV (MINT) completed a stock
exchange transaction which resulted in MINT becoming a wholly-owned subsidiary
of the Company. MINT's products are used to issue and manage multi-functional
applications on smart cards. Shareholders of MINT received 740,000 shares of TSA
Class A Common Stock in exchange for 100% of MINT shares. The stock exchange was
accounted for as a pooling of interests and, accordingly, the Company's
financial statements have been retroactively restated to incluede the historical
results for MINT for all periods presented.
Also in November 1998, the Company purchased the remaining 49% interest of its
South African distributor (Applied Communications (Proprietary) Limited) by
paying $3.5 million in cash. The purchase price was paid out of corporate funds.
The transaction resulted in the recording of goodwill of $3.5 million which is
being amortized over 10 years.
In December 1998, the Company acquired the remaining interests in the net assets
of US Processing, Inc. (USPI) by paying $3.6 million in cash and forgiving of
$5.6 million of debt owed to TSA. Prior to that date, the Company owned 19.9% of
USPI which is a provider of transaction processing services for the electronic
funds transfer industry. The purchase price was paid out of corporate funds. The
transaction resulted in the recording of goodwill of approximately $9.4 million
which is being amortized over 10 years.
3. Comprehensive Income
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standard No. 130, "Reporting Comprehensive Income", which
establishes standards for reporting and display of comprehensive income and
its components in a financial statement for the period in which they are
recognized. The Company's comprehensive income was as follows (in thousands):
Three months ended
December 31,
------------------
1998 1997
------ ------
Net income $ 9,370 $ 7,718
Unrealized investment holding loss (467) -
Foreign currency translation adjustments (504) (358)
------ ------
Comprehensive income $ 8,399 $ 7,360
====== ======
<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 December 31,
-----------------------------------------------
1998 1997
--------------------- ---------------------
% of % of
Amount Revenue Amount Revenue
--------- --------- --------- ---------
<S> <C> <C>
Revenues:
Software license fees $ 46,077 53.5 % $ 38,565 55.8 %
Maintenance fees 15,567 18.1 13,173 19.1
Services 23,295 27.1 15,941 23.1
Hardware, net 1,131 1.3 1,389 2.0
--------- --------- --------- ---------
Total revenues 86,070 100.0 69,068 100.0
--------- --------- --------- ---------
Expenses:
Cost of software license fees 11,822 13.7 8,763 12.7
Cost of maintenance and services 20,293 23.6 15,734 22.8
Research and development 8,198 9.5 6,109 8.8
Selling and marketing 15,978 18.6 14,404 20.9
General and administrative:
General and administrative costs 14,368 16.7 11,832 17.1
Amortization of goodwill and purchased
intangibles 445 0.5 315 0.5
--------- --------- --------- ---------
Total expenses 71,104 82.6 57,157 82.8
--------- --------- --------- ---------
Operating income 14,966 17.4 11,911 17.2
--------- --------- --------- ---------
Other income (expense):
Interest income 703 0.8 647 0.9
Interest expense (111) (0.1) (20) 0.0
Transaction related expenses (653) (0.8) 0 0.0
Other 197 0.2 (80) (0.1)
--------- --------- --------- ---------
Total other 136 0.2 547 0.8
--------- --------- --------- ---------
Income before income taxes 15,102 17.5 12,458 18.0
Provision for income taxes (5,732) (6.7) (4,740) (6.9)
--------- --------- --------- ---------
Net income $ 9,370 10.9 % $ 7,718 11.2 %
========= ========= ========= =========
</TABLE>
<PAGE>
Revenues
Total revenues for the first quarter of fiscal 1999 increased 24.6% or $17.0
million over the comparable period in fiscal 1998. Of this increase, $7.5
million of the growth resulted from a 19.5% increase in software license fee
revenue, $7.3 million from a 46.1% increase in services revenue and $2.4 million
from a 18.2% increase in maintenance fee revenue. During the first quarter of
fiscal 1999, 50% of total revenues resulted from international operations as
compared to 54% for all of fiscal 1998.
The growth in software license fee revenue is the result of increased demand
for the Company's BASE24 and System Solutions products accompanied by the
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
$12.0 million in the first quarter of fiscal 1999 compared to $10.0 million in
the first quarter of fiscal 1998.
The growth in services revenue for the first quarter of fiscal 1999 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 products.
The increase in maintenance fee revenue for the first quarter of fiscal 1999
is a result of the continued growth of the installed base of the Company's
products.
Expenses
Total operating expenses for the first quarter of fiscal 1999 increased 24.4%
or $13.9 million over the comparable period in fiscal 1998. The increase is
due to increased staff required to support the increased demand for the
Company's products and services, and, increased royalties to third party owners
of the System Solutions products. Total staff (including both employees and
independent contractors) increased from 1,711 at December 31, 1997 to 2,260 at
December 31, 1998.
The Company's operating margin for the first quarter of fiscal 1999 was 17.4%
as compared to 17.2% for the comparable period in fiscal 1998. This
improvement is primarily due to the impact of the growth in the Company's
recurring revenues (MLF's, maintenance and facilities management fees).
Transaction related expenses of $653,000 incurred in the first quarter of 1999
include legal, accounting, investment banking fees and other non-recurring
expenses associated with the acquisition of MINT which was accounted for as a
pooling of interests.
EBITDA
The Company's earnings before interest expense, income taxes, depreciation and
amortization (EBITDA) increased from $14.4 million in the first quarter of
fiscal 1998 to $18.5 million in the first quarter of fiscal 1999. 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 rate for the first quarter of fiscal 1999 and 1998 was
38.0%.
As of December 31, 1998, the Company has deferred tax assets of $16.1 million
and deferred tax liabilities of $0.3 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 $5.0 million of the deferred tax assets were more
likely than not to be realized. Accordingly, the Company has recorded a
valuation allowance of $11.1 million as of December 31, 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 December 31, 1998 and 1997, the Company had non-recurring revenue backlog
of $35.5 million and $28.1 million in software license fees, respectively, and
$32.2 million and $23.2 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 and its customers 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 December 31, 1998 and 1997, the Company had recurring revenue backlog of
$131.2 million and $98.2 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 or that the actual revenues will be generated within the one
year period.
Year 2000
Year 2000 problems may arise in computer equipment and software, as well as
embedded electronic systems, because of the way these systems are programmed to
interpret certain dates that will occur around the change in century. In the
computer industry this is primarily the result of computer programs being
designed and developed using or reserving only two digits in date fields (rather
than four digits) to identify the century, without considering the ability of
the program to properly distinguish the upcoming century change in the Year
2000. In addition, the Year 2000 is a special-case leap year and some programs
may drop February 29th from their internal calendars. Certain other dates may
present problems because of the way the digits are interpreted. Because the
Company's business is based on the licensing of applications software, the
Company's business would be adversely impacted if its products or its internal
systems experience problems associated with the century change. This issue also
potentially affects the software programs and systems used by the Company in its
operations.
Project Definition. In 1996 the Company initiated a company wide program to
analyze three specific categories of systems: (1) software developed by the
Company which is licensed to customers; (2) Information Technology or "IT"
systems utilized by the Company consisting of applications developed in-house
and purchased from third party suppliers; and (3) non-IT systems and embedded
technology which are integral components of the infrastructure of the Company.
The Company adopted a methodology for reviewing its licensed software consisting
of four categories. These categories are (1) preparation, (2) analysis and
remediation, (3) testing, and (4) delivery. The Company developed tools during
the preparation phase of the project which were utilized during the analysis and
testing phases. The tools were subsequently made available to the Company's
customers at no charge. The Company believes that its remediation efforts with
respect to its software products will prove to be successful. The Company's
belief is based on testing by the Company of its software products by using
testing tools simulating dates and testing by many of its customers who have in
turn completed their own Year 2000 testing. Year 2000 compliant versions of its
software products have been made available by the Company to customers in a
timely manner and its communication efforts have been proactive and ongoing. The
Company continues to actively monitor the status and progress of customers and
distributors and assess the risk associated in those cases where the customer
has not taken delivery of Compliant software or may have not made satisfactory
progress in their own Year 2000 testing.
With respect to IT and non-IT systems, the Company is utilizing a methodology
similar to that adopted for its software products. Specifically, the Company is
utilizing the following steps: (1) preparation, in which the Company conducts
systematic inventory, analysis, and prioritization of the systems in accordance
with mission critical impact (2) analysis, replacement and remediation (3)
testing and (4) implementation.
Recognizing communications regarding and organization of Year 2000 tasks and
responsibilities, the Company has embraced a management approach utilizing
central coordination with distributed administration over geographic and
business units. This approach mirrors the Company's organization and ensures
that Year 2000 Communications Managers are deployed and managing tasks in close
proximity to actual efforts. Those efforts are then reported centrally to upper
management. The approach also ensures that customers are kept informed of
product and Company activities relating to the Year 2000 and that the Company is
able to measure progress and plan support for customers' Year 2000 projects.
Current Status. Following analysis, remediation and testing efforts, the Company
began shipping Year 2000 compliant versions of its major licensed software
applications in March of 1997. As efforts were completed on other applications,
they too were shipped to customers so that they could be upgraded as part of the
customers' own Year 2000 projects. As of January 1999, 96% of all of the
Company's licensed software applications are compliant and available to
customers. The remaining applications are expected to be complete during the
first calendar quarter of 1999. The Company continues to conduct analysis of
newly acquired software products with appropriate measurement and documentation
in accordance with the Year 2000 methodology in place.
With respect to the IT and non-IT systems, remediation and replacement is
underway and has been substantially completed in the most critical areas. The
internal accounting systems utilized by the Company and most of the
subsidiaries have been replaced and are in production. Replacement or
remediation of accounting systems for the other subsidiaries is currently
underway and is expected to be implemented by June of 1999. The overall IT and
non-IT project is approximately 65% complete. As new IT and non-IT purchases
are made, each is scrutinized and inventoried for Year 2000 compliance. The
Company currently anticipates it will complete its Year 2000 IT and non-IT
compliance efforts by June of 1999.
The majority of the embedded systems on which the Company relies in its day to
day operations around the world are owned and managed by the lessors of the
buildings in which the Company's offices are located, or by agents of such
lessors. The Company has sent letters to its lessors and, as applicable, their
agents requesting certifications of the Year 2000 compliance of the embedded
systems. The Company has received responses from more than half of its lessors
indicating that the systems in the buildings either already are, or are
expected to be before the end of 1999, Year 2000 compliant. Those systems not
owned by and managed by lessors have undergone a similar inventory and
certification gathering. The Company will prioritize systems and develop
necessary test plans based on the further responses it continues to receive,
or not to receive, to its letters.
The Company is developing contingency plans for support of its customers prior
to, during, and following the "Year 2000 weekend". Such plans will
incorporate, but not be limited to, distribution of support personnel in
locations around the world, backup plans for telecommunications, decision and
notification hierarchy, and other infrastructure support. Contingency plans
are presently anticipated to be complete by July of 1999.
Costs. The Company expects to incur project costs of approximately
$10 million over the life of the Year 2000 project. These costs consist of: (i)
internal staff costs related to licensed product remediation and testing;
(ii) internal staff costs related to IT and non-IT compliance; (iii) hardware
and software cost for replacement of IT systems; and (iv) costs related to
non-IT compliance involving embedded systems and consulting services. Cost
incurred from the beginning of the project in 1996 through December 1998 have
totaled approximately $7.8 million. The Company expects to incur an additional
$2.2 million over the remaining life of the Year 2000 project. All costs
related to the Year 2000 project are being expensed as incurred. The estimated
remaining costs are based on currently known circumstances and various
assumptions regarding future events. There can be no assurance that this
estimate will be achieved and actual results could differ materially from
those anticipated.
Risks. The Company believes that the most likely Year 2000 risks relate to third
parties with which it has material relationships. Those parties include computer
hardware system providers on which the Company and its customers rely as well as
service providers such as those providing telecommunications and electricity.
Failure or disruption of such services or systems could adversely affect
operations and the Company's ability to support its customers. The second most
likely Year 2000 risk relates to Company's products that are used in conjunction
with software products developed by other vendors or by customers who have
developed their own applications for use with the Company's products, which may
not be Year 2000 compliant. Since the majority of the Company's customers
utilize the Company's products for authorization, routing, or processing of
financial transactions, the failure of such customers' systems, which may be
particularly susceptible to Year 2000 compliance issues, could impact the
transaction volume processed by the customers thereby reducing transaction fees
paid by customers with usage based fee structures. Failures of such systems
could also increase the efforts required by the Company to assist customers with
resolving problems unrelated to the Company's licensed products. The third most
likely Year 2000 risk relates to certain foreign countries in which the Company
operates and the Company's customers in such countries which are not acting to
sufficiently remediate Year 2000 issues. Some customers outside of the United
States have chosen to concentrate on issues other than the Year 2000. Without
concentrating on the Year 2000 upgrade and testing efforts, such customers will
not be prepared and may require additional support to assist them. Commercial
risks are associated with operating in countries which are not prepared for the
Year 2000.
In each case cited previously, the Company is developing contingency plans to
address each identified risk. In addition, the Company continues to use its
methodology of centralized and distributed management to keep in contact and
monitor progress with customer projects and to communicate at an upper
management level to those customers categorized as "at risk" due to their lack
of progress. The contingency plan being developed by the Company acknowledges
the risk associated with suppliers of material services, hardware vendors
closely related to the operation of the Company's licensed products, the
Company's own licensed products and the ability of the Company to support its
customers. In addition to distributed support methods, the Company is
investigating alternative services, such as telecommunications, as part of the
contingency plan. The (i) inability to timely implement contingency plans, if
deemed necessary and (ii) the cost to implement such plans, may have a material
adverse effect on the Company's results of operations.
Except for statements of existing or historical facts, the foregoing discussion
consists of forward-looking statements and assumptions relating to forward-
looking statements, including without limitation the statements relating to the
timetable for completion of Year 2000 compliance efforts, future costs,
potential problems relating to Year 2000, the Company's state of readiness,
third party representations, and the Company's plans and objectives for
addressing Year 2000 problems. Certain factors could cause actual results to
differ materially from the Company's expectations, including without limitation
(i) the failure of existing or future customers to achieve Year 2000 compliance,
(ii) the failure of computer hardware system providers on which the Company and
its customers rely or other vendors or service providers of the Company or its
customers to timely achieve Year 2000 compliance, (iii) the Company's products
and systems not containing all necessary date code changes, (iv) the failure of
the Company's analysis and testing to detect operational problems in IT and non-
IT systems utilized by the Company or in the Company's products or services,
whether such failure results from the technical inadequacy of the Company's
validation and testing efforts, the technological infeasibility of testing
certain non-IT systems, and the unavailability of customers or other third
parties to participate in testing, (v) potential litigation arising out of Year
2000 issues, with respect to providers of software and related technical and
consulting services such as the Company generally, and particularly in light of
the numerous interfaces between the Company's products and products and systems
of third parties which are required to successfully utilize the Company's
products which could involve the Company in expensive, multiple party litigation
even though the Company may have no responsibility for the alleged problem, and
(vi) the failure to timely implement a contingency plan to the extent Year 2000
compliance is not achieved.
Liquidity and Capital Resources
As of December 31, 1998, the Company had working capital of $90.0 million
which includes cash and cash equivalents of $62.0 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 three months ended December 31, 1998, the Company's cash flow from
operations amounted to $8.2 million and cash used in investing activities
amounted to $10.6 million. Of the $10.6 million of cash used in investing
activities, $3.6 million was used to purchase the net assets of USPI and $3.5
was used to purchase the remaining 49% interest in it's South African
subsidiary.
In the normal course of business, the Company evaluates potential acquisitions
of complementary businesses, products or technologies. In November 1998 the
Company acquired 100% of MINT in exchange for 740,000 shares of the Company's
Class A Common Stock. In December 1998 the Company acquired the remaining
interests in the net assets of USPI for $3.6 million in cash and the
foregivness of $5.6 million of debt owed to TSA.
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.
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
PART II. OTHER INFORMATION
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: February 12, 1999
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> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
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0
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