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EXHIBIT 99.01
TRANSACTION SYSTEMS ARCHITECTS, INC.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
CERTAIN CAUTIONARY STATEMENTS AND
RISK FACTORS
Transaction Systems Architects, Inc. and its subsidiaries
(collectively, the Company) or their representatives from time to time may make
or may have made certain forward-looking statements, whether orally or in
writing, including without limitation, any such statements made or to be made in
the Management's Discussion and Analysis contained in its various SEC filings or
orally in conferences or teleconferences. The Company wishes to ensure that such
statements are accompanied by meaningful cautionary statements, so as to ensure
to the fullest extent possible the protections of the safe harbor established in
the Private Securities Litigation Reform Act of 1995.
ACCORDINGLY, THE FORWARD-LOOKING STATEMENTS ARE QUALIFIED IN THEIR
ENTIRETY BY REFERENCE TO AND ARE ACCOMPANIED BY THE FOLLOWING MEANINGFUL
CAUTIONARY STATEMENTS IDENTIFYING CERTAIN IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING
STATEMENTS.
This list of factors is likely not exhaustive. The Company operates in
a rapidly changing and evolving business involving electronic commerce and
payments, and new risk factors will likely emerge. Management cannot predict all
of the important risk factors, nor can it assess the impact, if any, of such
risk factors on the Company's business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
in any forward-looking statements.
ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT FORWARD-LOOKING STATEMENTS
WILL BE ACCURATE INDICATORS OF FUTURE ACTUAL RESULTS AND IT IS LIKELY THAT
ACTUAL RESULTS WILL DIFFER FROM RESULTS PROJECTED IN FORWARD-LOOKING STATEMENTS.
SUCH DIFFERENCES MAY BE MATERIAL.
TSA is dependent on its BASE24 products
TSA has derived a substantial majority of its total revenues from
licensing its BASE24 family of software products and providing services and
maintenance related to those products. The BASE24 products and related services
and maintenance are expected to provide the majority of TSA's revenues in the
foreseeable future. TSA's results will depend upon continued market acceptance
of its BASE24 products and related services as well as TSA's ability to continue
to adapt and modify them to meet the changing needs of its customers. Any
reduction in demand for, or increase in competition with respect to, BASE24
products would have a material adverse effect on TSA's financial condition and
results of operations.
TSA is subject to risks of conducting international operations
TSA has derived a majority of its total revenues from sales to
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customers outside the United States. International operations generally are
subject to certain risks, including:
- difficulties in staffing and management,
- reliance on independent distributors,
- fluctuations in foreign currency exchange rates,
- compliance with foreign regulatory requirements,
- variability of foreign economic conditions, and
- changing restrictions imposed by U.S. export laws.
There can be no assurance that TSA will be able to manage the risks related to
selling its products and services in international markets.
TSA is dependent on the banking industry
TSA's business is concentrated in the banking industry, making TSA
susceptible to a downturn in that industry. For example, a decrease in bank
spending for software and related services could result in a smaller overall
market for electronic payment software. Furthermore, banks are continuing to
consolidate, decreasing the overall potential number of buyers for TSA's
products and services. These factors as well as others negatively affecting the
banking industry could have a material adverse effect on TSA's financial
condition and results of operations.
TSA's future results depend on the success of Compaq Computer Corporation
(Compaq) and TSA's relationship with Compaq
Historically, TSA has derived a substantial portion of its total
revenues from the licensing of software products that operate on Compaq
computers. TSA's BASE24 product line as well as TSA's CoACH, MoneyNet and ICE
products run exclusively on Compaq computers. The BASE24 product line is
expected to provide a majority of TSA's revenues in the foreseeable future.
TSA's future results depend on market acceptance of Compaq computers and the
financial success of Compaq. Any reduction in demand for these computers or
in Compaq's ability to deliver products on a timely basis could have a
material adverse effect on TSA's financial condition and results of
operations.
Although TSA has several written agreements with Compaq, none of those
agreements governs the primary relationship between TSA and Compaq, which is
that TSA's major product line, BASE24, runs exclusively on Compaq computers. The
cooperation and past affiliation between TSA and Compaq have facilitated TSA's
ability to develop and market Compaq-compatible products. However, this
cooperation is not mandated by contract. The cessation of such cooperation would
adversely affect TSA's business. None of TSA's agreements with Compaq would
protect TSA if Compaq's cooperation ceased or if Compaq were unable to deliver
products on a timely basis. The written agreements cover such discrete matters
as funding of market development efforts.
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Implementation of the Corporate Strategy to Focus on Consumer e-Payments
Business
TSA has announced a corporate strategy to focus on its Consumer
e-Payments business and to consider and implement alternatives for its
Electronic Business Infrastructure, Corporate Banking e-Payments and Health
Payments Systems businesses ("Other Businesses"). The decision of TSA to
implement any aspect of its corporate strategy and the feasibility of
implementing the strategy is subject to numerous factors, including market
conditions and perceptions, demand for the Other Businesses by potential
investors or potential acquirers, personnel, tax, business, general economic
conditions, viability of the Other Businesses as stand alone operations, and
other factors that could affect TSA's decisions and ability to separate
businesses, to divest, raise capital, or implement other alternatives for such
businesses, and to implement other aspects of TSA's corporate strategy. There
can be no assurance that TSA will implement any aspect of the corporate strategy
or that if implemented the strategy will be successful.
Continuation of Post Year 2000 Business Downturn
During the first quarter of fiscal 2000, TSA's large bank and merchant
customers and potential new customers, in effect, locked down their systems in
preparation for the Year 2000. This Year 2000 lock-down has had a negative
impact on TSA's software license fee and services revenue due to the less than
expected demand by TSA's customers and potential new customers to upgrade and
enhance their current systems. In addition, since the Year 2000 cutover, TSA has
found its customers increasingly scrutinizing their information technology
purchases which has led to further delays in software and services purchases as
compared to the activity in prior periods. The Year 2000 lock-down has
interrupted TSA's normal sales cycle and therefore is likely to have a negative
impact on the company's revenue and net income beyond fiscal 2000. TSA also
believes customer demand for system upgrades and enhancements will be slow to
return to normal growth levels, as many of the company's customers upgraded and
enhanced their systems prior to the Year 2000. There can be no assurance that
TSA's growth rates will return to historical levels.
Changes in Accounting Standards Could Affect the Calculation of Revenues and
Operating Results
Additional revenue recognition standards, interpretations or guidance
regarding existing standards could be issued in the future. These
interpretations and additional standards and guidance could lead to
unanticipated changes in TSA's current revenue recognition policies which could
affect the timing of the recognition of revenue and cause fluctuations in
operating results. Statement of Position 97-2, "Software Recognition" ("SOP
97-2") was issued in October 1997 by the American Institute of Certified Public
Accountants. TSA was required to adopt SOP 97-2 beginning in fiscal 1999. As a
result of adopting SOP 97-2, TSA was required to change its revenue recognition
policy. Under the revised policy, for certain software license contracts with
fixed payment terms that extent beyond 12 months, software license fees are
recognized upon delivery of the software. Prior to the adoption of SOP
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97-2, these software license fees were recognized as the fees were billed and
collected.
TSA may not be able to attract and retain key personnel
TSA's success depends on certain of its executive officers, the loss of
one or more of whom could have a material adverse effect on TSA's financial
condition and results of operations. None of TSA's U.S.-based executive officers
is a party to an employment agreement, except for the Company's Chief Executive
Officer. TSA believes that its future success also depends on its ability to
attract and retain highly-skilled technical, managerial and marketing personnel,
including, in particular, personnel in the areas of research and development and
technical support. Competition for personnel is intense. There can be no
assurance that TSA will be successful in attracting and retaining the personnel
it requires.
The market for electronic payment software and services is highly competitive
Many applications software vendors offer products that are directly
competitive with BASE24 and other products of TSA. TSA also experiences
competition from software developed internally by potential customers and
experiences competition for its consulting services from professional services
organizations. In addition, processing companies provide services similar to
those made possible by TSA's products. Many of TSA's current and potential
competitors have significantly greater financial, marketing, technical and other
competitive resources than TSA. Current and potential competitors, including
providers of transaction-based software, processing, or professional services,
may establish cooperative relationships with one another or with third parties
to compete more effectively against TSA. It is also possible that new
competitors may emerge and acquire market share. In either case, TSA's financial
condition and results of operations could be adversely affected. TSA's future
success depends on its ability to timely develop and market product enhancements
and new products.
The market for software in general is characterized by rapid change in
computer hardware and software technology and is highly competitive with respect
to the need for timely product innovation and new product introductions. TSA
believes that its future success depends upon its ability to enhance its current
applications and develop new products that address the increasingly complex
needs of customers. In particular, TSA believes that it must continue to respond
quickly to users' needs for additional functionality and multi-platform support.
The introduction and marketing of new or enhanced products requires TSA to
manage the transition from current products in order to minimize disruption in
customer purchasing patterns. There can be no assurance
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that TSA will continue to be successful in the timely development and marketing
of product enhancements or new products that respond to technological advances,
that its new products will adequately address the changing needs of the domestic
and international markets or that it will successfully manage the transition
from current products.
TSA is continually developing new products, product versions and
individual features within a large, complex software system. Development
projects can be lengthy and are subject to changing requirements, programming
difficulties and unforeseen factors which can result in delays in the
introduction of new products and features. Delays could have a material adverse
effect on TSA's financial condition and results of operations.
In addition, new products, versions or features, when first released by
TSA, may contain undetected errors that, despite testing by TSA, are discovered
only after a product has been installed and used by customers. To date,
undetected errors have not caused significant delays in product introduction and
installation or required substantial design modifications. However, there can be
no assurance that TSA will avoid problems of this type in the future.
A majority of TSA's license fee revenue is generated by licenses for
software products designed to run on Compaq's fault-tolerant mainframe
computers. TSA has developed, and continues to develop, certain products for
other platforms. However, revenues from these products have not been significant
to date. There can be no assurance that TSA will be successful in selling these
software products or other products under development. TSA's failure in this
regard could have a material adverse effect on its financial condition and
results of operations.
TSA is dependent on proprietary technology
TSA relies on a combination of trade secret and copyright laws,
nondisclosure and other contractual and technical measures to protect its
proprietary rights in its products. There can be no assurance that these
provisions will be adequate to protect its proprietary rights. In addition, the
laws of certain foreign countries do not protect intellectual property rights to
the same extent as the laws of the United States. Although TSA believes that its
intellectual property rights do not infringe upon the proprietary rights of
third parties, there can be no assurance that third parties will not assert
infringement claims against TSA.
Fluctuations in quarterly operating results may result in volatility in TSA's
stock price
TSA's quarterly revenues and operating results may fluctuate depending
on the timing of executed contracts, license upgrades and the delivery of
contracted business during the quarter. In addition, quarterly operating results
may fluctuate due to the extent of commissions associated with third party
product sales, timing of TSA's hiring of additional staff, new product
development and other expenses. No assurance can be given that operating results
will not vary due to these factors.
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Customers may cancel contracts
TSA derives a substantial portion of its total revenues from
maintenance fees and monthly software license fees pursuant to contracts which
the customer has the right to cancel. A substantial number of cancellations of
these maintenance or monthly license fee contracts would have a material adverse
effect on TSA's financial condition and results of operations.
TSA's stock price may be volatile
The stock market has from time to time experienced extreme price and
volume fluctuations, particularly in the high technology sector, which have
often been unrelated to the operating performance of particular companies. Any
announcement with respect to any variance in revenue or earnings from levels
generally expected by securities analysts for a given period could have an
immediate and significant effect on the trading price of the Class A Common
Stock. In addition, factors such as announcements of technological innovations
or new products by TSA, its competitors or other third parties, as well as
changing market conditions in the computer software or hardware industries, may
have a significant impact on the market price of the Class A Common Stock.
TSA's charter contains provisions that may affect changes in control
TSA's Certificate of Incorporation contains provisions that may
discourage acquisition bids for TSA. The effect of such provisions may be to
limit the price that investors might be willing to pay in the future for shares
of the Class A Common Stock.
TSA's acquisition strategy involves numerous risks and challenges
TSA has expanded and will seek to continue to expand its operations
through the acquisition of additional businesses that complement it's core
skills and have the potential to increase it's overall value. TSA's future
growth may depend, in part, upon the continued success of its acquisition
strategy. TSA may not be able to successfully identify and acquire, on favorable
terms, compatible businesses. Acquisitions involve many risks, which could have
a material adverse effect on TSA's business, financial condition and results of
operations, including:
- Acquired businesses may not achieve anticipated revenues, earnings or
cash flow;
- Integration of acquired businesses and technologies may not be
successful and TSA may not realize anticipated economic, operational and other
benefits in a timely manner, particularly if TSA acquires a business in a market
in which TSA has limited or no current expertise or with a corporate culture
different from TSA's;
- Potential dilutive effect on TSA's stockholders from continued
issuance of Common Stock as consideration for acquisitions;
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- Adverse effect on net income of amortization expense related to
goodwill and other intangible assets and other acquisition-related charges,
costs and expenses on net income;
- Competing with other companies, many of which have greater financial
and other resources to acquire attractive companies makes it more difficult to
acquire suitable companies on acceptable terms; and
- Disruption of TSA's existing business, distraction of management and
other resources and difficulty in maintaining TSA's current business standards,
controls and procedures.
