UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended December 31, 2007
Commission File Number 1-14840
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 if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1):
-----
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7):
-----
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
----- -----
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82- _______
AMDOCS LIMITED
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
FOR THE QUARTER ENDED DECEMBER 31, 2007
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statement of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Unaudited Consolidated Financial Statements
Item 2. Operating and Financial Review and Prospects
PART II OTHER INFORMATION
Item 1. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities
Item 2. Reports on Form 6-K
SIGNATURES
This report on Form 6-K shall be incorporated by reference into the Registration
Statements on Form F-3 (File Nos. 333-114079 and 333-114344) and any other
Registration Statement filed by the Registrant that by its terms automatically
incorporates the Registrant's filings and submissions with the SEC under
Sections 13(a), 13(c) or 15(d) of the Securities Exchange Act of 1934.
1
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMDOCS LIMITED
CONSOLIDATED BALANCE SHEETS
(dollar and share amounts in thousands, except per share data)
AS OF
----------------------------
DECEMBER 31, SEPTEMBER 30,
2007 2007
------------ -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 581,399 $ 615,501
Short-term interest-bearing investments 585,691 563,779
Accounts receivable, net 530,957 493,418
Deferred income taxes and taxes receivable 114,701 117,623
Prepaid expenses and other current assets 105,233 98,746
---------- ----------
Total current assets 1,917,981 1,889,067
Equipment, vehicles and leasehold improvements, net 282,551 283,839
Deferred income taxes 196,779 192,761
Goodwill 1,487,361 1,489,132
Intangible assets, net 297,158 303,456
Other noncurrent assets 193,337 186,344
---------- ----------
Total assets $4,375,167 $4,344,599
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 155,079 $ 192,395
Accrued expenses and other current liabilities 238,667 222,616
Accrued personnel costs 196,723 177,926
Short-term portion of financing arrangements 2,105 2,055
Deferred revenue 165,979 173,775
Deferred income taxes and taxes payable 44,650 205,960
---------- ----------
Total current liabilities 803,203 974,727
Convertible notes 450,000 450,000
Deferred income taxes and taxes payable 274,750 122,983
Noncurrent liabilities and other 197,548 196,646
---------- ----------
Total liabilities 1,725,501 1,744,356
---------- ----------
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; 238,855 and 238,312 issued and 208,129
and 209,762 outstanding, respectively 3,861 3,850
Additional paid-in capital 2,189,967 2,168,234
Treasury stock, at cost -30,726 and 28,550 Ordinary Shares,
respectively (724,738) (652,229)
Accumulated other comprehensive income 5,213 689
Retained earnings 1,175,363 1,079,699
---------- ----------
Total shareholders' equity 2,649,666 2,600,243
---------- ----------
Total liabilities and shareholders' equity $4,375,167 $4,344,599
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
2
AMDOCS LIMITED
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollar and share amounts in thousands, except per share data)
THREE MONTHS ENDED
DECEMBER 31,
-------------------
2007 2006
-------- --------
Revenue:
License $ 26,217 $ 31,744
Service 716,033 659,288
-------- --------
742,250 691,032
-------- --------
Operating expenses:
Cost of license 774 1,069
Cost of service 470,741 435,121
Research and development 56,015 60,468
Selling, general and administrative 97,665 89,170
Amortization of purchased intangible
assets 21,753 17,698
-------- --------
646,948 603,526
-------- --------
Operating income 95,302 87,506
Interest income and other, net 8,816 11,739
-------- --------
Income before income taxes 104,118 99,245
Income taxes 8,454 5,903
-------- --------
Net income $ 95,664 $ 93,342
======== ========
Basic earnings per share $ 0.46 $ 0.45
======== ========
Diluted earnings per share $ 0.44 $ 0.42
======== ========
Basic weighted average number of shares
outstanding 208,109 206,450
======== ========
Diluted weighted average number of shares
outstanding 222,039 222,718
======== ========
The accompanying notes are an integral part of these consolidated financial
statements
3
AMDOCS LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
(dollar and share amounts in thousands)
Accumulated
Ordinary Shares Additional Other Total
---------------- Paid-in Treasury Comprehensive Retained Shareholders'
Shares Amount Capital Stock Income Earnings Equity
-------- ------ ---------- --------- ------------- ---------- -------------
BALANCE AS OF SEPTEMBER 209,762 $3,850 $2,168,234 $(652,229) $ 689 $1,079,699 $2,600,243
30, 2007
Comprehensive income:
Net income -- -- -- -- -- 95,664 95,664
Unrealized gain on
foreign currency
hedging contracts,
net of $1,098 tax -- -- -- -- 4,062 -- 4,062
Unrealized gain on
short-term
interest-bearing
investments, net of
$(13) tax -- -- -- -- 462 -- 462
----------
Comprehensive income 100,188
----------
Employee stock options
exercised 355 7 6,433 -- -- -- 6,440
Repurchase of shares (2,176) -- -- (72,509) -- -- (72,509)
Tax benefit of stock
options exercised -- -- 1,084 -- -- -- 1,084
Issuance of restricted
stock, net of
forfeitures 188 4 -- -- -- -- 4
Equity-based compensation
expense related to
employees -- -- 14,216 -- -- -- 14,216
------- ------ ---------- --------- ------ ---------- ----------
BALANCE AS OF DECEMBER
31, 2007 208,129 $3,861 $2,189,967 $(724,738) $5,213 $1,175,363 $2,649,666
======= ====== ========== ========= ====== ========== ==========
As of December 31, 2007 and September 30, 2007, accumulated other comprehensive
income (loss) is comprised of unrealized gain (loss) on derivatives, net of tax,
of $3,483 and $(579), respectively, and unrealized income on cash equivalents
and short-term interest-bearing investments, net of tax, of $1,003 and $541,
respectively and adjustment to accumulated other comprehensive income upon
adoption of statement 158, net of tax, of $727.
The accompanying notes are an integral part of these consolidated financial
statements.
4
AMDOCS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollar amounts in thousands)
THREE MONTHS ENDED
DECEMBER 31,
---------------------
2007 2006
--------- ---------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 95,664 $ 93,342
Reconciliation of net income to net cash provided by
operating activities:
Depreciation and amortization 46,706 38,042
Loss (Gain) on sale of equipment 106 (171)
Equity-based compensation expense 14,216 15,325
Deferred income taxes (9,192) (2,928)
Excess tax benefit from equity-based compensation (65) (154)
Realized gain from short-term interest-bearing
investments and other (332) (1,255)
Net changes in operating assets and liabilities, net of
amounts acquired:
Accounts receivable (37,388) 7,113
Prepaid expenses and other current assets (2,449) 7,280
Other noncurrent assets (7,345) (6,091)
Accounts payable, accrued expenses and accrued
personnel 4,516 11,390
Deferred revenue (9,565) (46,986)
Income taxes payable (5,560) (19,884)
Noncurrent liabilities and other 3,834 4,046
--------- ---------
Net cash provided by operating activities 93,146 99,069
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment, vehicles and leasehold
improvements 284 450
Payments for purchase of equipment, vehicles and
leasehold improvements (34,509) (50,568)
Proceeds from sale of short-term interest-bearing
investments 155,018 216,001
Purchase of short-term interest-bearing investments (176,149) (295,903)
Net cash paid for acquisition (9,069) (26,595)
--------- ---------
Net cash used in investing activities (64,425) (156,615)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from employee stock options exercised 6,444 15,500
Excess tax benefit from equity-based compensation 65 154
Repurchase of shares (69,332) --
--------- ---------
Net cash (used in) provided by financing activities (62,823) 15,654
--------- ---------
Net decrease in cash and cash equivalents (34,102) (41,892)
Cash and cash equivalents at beginning of period 615,501 607,187
--------- ---------
Cash and cash equivalents at end of period $ 581,399 $ 565,295
========= =========
SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for:
Income taxes, net of refunds $ 22,118 $ 22,754
Interest 537 441
The accompanying notes are an integral part of these consolidated financial
statements.
5
AMDOCS LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollar and share amounts in thousands, except per share data)
1. BASIS OF PRESENTATION
Amdocs Limited (the "Company") is a leading provider of software products
and services primarily to the communications industry. The Company and its
subsidiaries operate in one segment offering products and services that enable
their customers to move toward an integrated approach to customer management.
The Company designs, develops, markets, supports, operates, and provides managed
services for information system solutions primarily for leading communications
companies throughout the world.
The unaudited consolidated financial statements of the Company have been
prepared in accordance with U.S. generally accepted accounting principles
("GAAP"). In the opinion of the Company's management, all adjustments considered
necessary for a fair presentation of the unaudited interim consolidated
financial statements have been included herein and are of a normal recurring
nature.
The preparation of financial statements during interim periods requires
management to make numerous estimates and assumptions that impact the reported
amounts of assets, liabilities, revenue and expenses. Estimates and assumptions
are reviewed periodically and the effect of revisions is reflected in the
results of operations of the interim periods in which changes are determined to
be necessary.
The results of operations for the interim periods presented herein are not
necessarily indicative of the results to be expected for the full fiscal year.
These statements do not include all information and footnotes necessary for a
complete presentation of financial position, results of operations and cash
flows in conformity with GAAP. These statements should be read in conjunction
with the Company's consolidated financial statements for the fiscal year ended
September 30, 2007, set forth in the Company's Annual Report on Form 20-F filed
on December 3, 2007 with the U.S. Securities and Exchange Commission (the
"SEC").
Reclassification
Certain immaterial amounts in prior year financial statements have been
reclassified to conform to the current year presentation.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2007, the Financial Accounting Standards Board ("FASB") issued
Statement No. 141 (revised), Business Combinations ("SFAS 141(R)"). SFAS 141(R)
significantly changes the accounting for business combinations and establishes
principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed
and any noncontrolling interest in the acquiree and recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase.
SFAS 141(R) applies to the Company prospectively for business combinations for
which the acquisition date is on or after October 1, 2009.
In December 2007, the FASB issued Statement No. 160, Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB No. 51
("SFAS 160"). SFAS 160 changes the accounting for noncontrolling (minority)
interests in consolidated financial statements including the requirements to
classify noncontrolling interests as a component of consolidated stockholders'
equity, the elimination of "minority interest" accounting in results of
operations and changes in the accounting for both increases and decreases in a
parent's controlling ownership interest. SFAS 160 is effective for fiscal years
beginning after December 15, 2008, and early adoption is
6
AMDOCS LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollar and share amounts in thousands, except per share data)
prohibited. The Company is currently evaluating the effect that the application
of SFAS 160 will have on its consolidated results of operations and financial
condition.
In February 2007, the FASB issued Statement No. 159 "The Fair Value Option
for Financial Assets and Financial Liabilities" including an amendment of FASB
Statement No. 115 ("SFAS 159"), which allows an entity the irrevocable option to
elect fair value for the initial and subsequent measurement for certain
financial assets and liabilities under an instrument-by-instrument election. If
the fair value option is elected for an instrument, subsequent changes in fair
value for that instrument will be recognized in earnings. SFAS 159 also
establishes additional disclosure requirements and is effective for fiscal years
beginning after November 15, 2007, with early adoption permitted provided that
the entity also adopts Statement No. 157, "Fair Value Measurements" ("SFAS
157"). The Company is currently evaluating the effect that the application of
SFAS 159 will have on its consolidated results of operations and financial
condition.
In September 2006, the FASB issued Statement No. 157, "Fair Value
Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles, and
expands disclosures about fair value measurements. SFAS No.157 applies under
other accounting pronouncements that require or permit fair value measurements.
SFAS 157 will be effective for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. The Company is currently
evaluating the effect that the application of SFAS 157 will have on its
consolidated results of operations and financial condition.
3. ADOPTION OF NEW ACCOUNTING STANDARD
In June 2006, the FASB issued Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes," An Interpretation of SFAS No. 109 ("FIN 48"). FIN
48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with SFAS No. 109, Accounting
for Income Taxes. FIN 48 also prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return that results in a tax
benefit. Additionally, FIN 48 provides guidance on de-recognition, income
statement classification of interest and penalties, accounting in interim
periods, disclosure and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The Company adopted FIN 48 in the first
quarter of fiscal 2008. The adoption of FIN 48 did not result in a change to
retained earnings. See Note 6 for additional information regarding the Company's
provision for income taxes, including the effects of adoption of FIN 48 on its
Consolidated Financial Statements.
7
AMDOCS LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollar and share amounts in thousands, except per share data)
4. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
AS OF
----------------------------
DECEMBER 31, SEPTEMBER 30,
2007 2007
------------ -------------
Accounts receivable - billed $ 485,372 $457,393
Accounts receivable - unbilled 73,355 63,441
Less-allowances (27,770) (27,416)
--------- --------
Accounts receivable, net $ 530,957 $493,418
========= ========
5. COMPREHENSIVE INCOME
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.
The following table sets forth the reconciliation from net income to
comprehensive income for the following periods:
THREE MONTHS ENDED
DECEMBER 31,
-------------------
2007 2006
-------- --------
Net income $ 95,664 $ 93,342
Other comprehensive income:
Unrealized gain on foreign
currency hedging contracts, net
of tax 4,062 1,667
Unrealized gain (loss) on
short-term interest-bearing
investments, net of tax 462 (106)
-------- --------
Comprehensive income $100,188 $ 94,903
======== ========
6. INCOME TAXES
The provision for income taxes for the following periods consisted of:
THREE MONTHS ENDED
DECEMBER 31,
------------------
2007 2006
------- --------
Current $18,388 $3,744
Deferred (9,934) 2,159
------- ------
$ 8,454 $5,903
======= ======
8
AMDOCS LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollar and share amounts in thousands, except per share data)
The Company's effective income tax rate varied from the statutory Guernsey
tax rate as follows for the following periods:
THREE MONTHS ENDED
DECEMBER 31,
------------------
2007 2006 (1)
------ ---------
Statutory Guernsey tax rate 20% 20%
Guernsey tax-exempt status (20) (20)
Foreign taxes 8 6
--- ---
8% 6%
--- ---
(1) Includes the Company's net release of $8,748 of tax reserves during the
three months ended December 31, 2006, attributable to a resolved tax audit
of a prior year, as well as changes in the Company's tax reserves made
during that quarter in the ordinary course of business.
As a Guernsey company with tax-exempt status, the Company's overall
effective tax rate is attributable to foreign taxes. Tax legislation recently
enacted in Guernsey with effect from January 1, 2008 is expected to repeal the
exemption and subject the Company to a zero percent corporate tax rate, which
the Company believes will not impact its effective tax rate.
As of December 31, 2007, deferred tax assets of $32,951, derived from net
capital and operating loss carry forwards related to some of the Company's
subsidiaries, were offset by valuation allowances related to the uncertainty of
realizing tax benefit for such losses. When realization of the tax benefits
associated with such net capital and operating losses is deemed more likely than
not, the valuation allowance will be released through income taxes or through
goodwill when it relates to a business combination.
On October 1, 2007, the Company adopted FIN 48 which prescribes a
comprehensive model for the financial statement recognition, measurement,
classification and disclosure of uncertain tax positions. The adoption of FIN 48
did not result in a change to the Company's retained earnings. The total amount
of gross unrecognized tax benefits as of the date of adoption, which includes
interest and penalties, was $108,929, of which $104,762 would affect the
Company's effective tax rate if realized. The Company historically classified
unrecognized tax benefits in current income taxes payable. In implementing FIN
48, the Company has reclassified unrecognized tax benefits for which the Company
does not anticipate making payment within one year to long-term income taxes
payable.
The total amount of gross unrecognized tax benefits, which includes
interest and penalties, was $106,323 as of December 31, 2007, of which $102,042
would affect the effective tax rate if realized. As a result of the settlement
of certain tax matters during the first quarter of fiscal 2008, the amount of
gross unrecognized tax benefits was reduced by approximately $11,750 (including
interest), of which $4,688 was recorded against reduction in tax receivable.
The Company's policy of including interest and penalties related to income
taxes, including unrecognized tax benefits, within the provision for income
taxes on the consolidated statements of income did not change as a result of
implementing FIN 48. As of the date of adoption of FIN 48, the Company had
accrued $17,530 in income taxes payable for interest and penalties relating to
unrecognized tax benefits.
9
AMDOCS LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollar and share amounts in thousands, except per share data)
The Company is currently under audit in several jurisdictions for the tax
years 2001 and onwards. Timing of the resolution of audits is highly uncertain
and therefore the Company cannot estimate the change in unrecognized tax
benefits resulting from these audits within the next 12 months.
7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
THREE MONTHS ENDED
DECEMBER 31,
------------------
2007 2006
-------- --------
Numerator:
Numerator for basic earnings per
share $ 95,664 $ 93,342
Effect of assumed conversion of
convertible notes 985 985
-------- --------
Numerator for diluted earnings per
share $ 96,649 $ 94,327
======== ========
Denominator:
Denominator for basic earnings per
share- weighted average number
of shares outstanding 208,109 206,450
Effect of assumed conversion of
convertible notes 10,436 10,436
Effect of dilutive stock options
granted 3,109 5,522
Effect of restricted stock issued 385 310
-------- --------
Denominator for diluted earnings
per share - adjusted weighted
average shares and assumed
conversions 222,039 222,718
======== ========
Basic earnings per share $ 0.46 $ 0.45
======== ========
Diluted earnings per share $ 0.44 $ 0.42
======== ========
8. REPURCHASE OF SECURITIES
In August 2007, the Company announced that its board of directors had
authorized a share repurchase plan allowing the repurchase of up to $400 million
of its outstanding ordinary shares. The authorization permits the Company to
purchase its ordinary shares in open market or privately negotiated transactions
10
AMDOCS LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollar and share amounts in thousands, except per share data)
at times and prices that it considers appropriate. During the three months ended
December 31, 2007, the Company repurchased 2,176 ordinary shares under this
repurchase program, at an average price of $33.31 per share (excluding broker
and transaction fees).
9. STOCK OPTION AND INCENTIVE PLAN
In January 1998, the Company adopted the 1998 Stock Option and Incentive
Plan (the "Plan"), which provides for the grant of restricted stock awards,
stock options and other equity-based awards to employees, officers, directors
and consultants. The purpose of the Plan is to enable the Company to attract and
retain qualified personnel and to motivate such persons by providing them with
an equity participation in the Company. Since its adoption, the Plan has been
amended on several occasions to, among other things, increase the number of
ordinary shares issuable under the Plan. In January 2008, the maximum number of
ordinary shares authorized to be granted under the Plan was increased from
46,300 to 55,300. Awards granted under the Plan generally vest over a period of
four years and stock options have a term of ten years.
The following table summarizes information about options to purchase the
Company's ordinary shares, as well as changes during the three-month period
ended December 31, 2007:
WEIGHTED
WEIGHTED AVERAGE
AVERAGE REMAINING
NUMBER OF EXERCISE CONTRACTUAL
OPTIONS PRICE TERM
--------- -------- -----------
Outstanding as of October 1, 2007 20,456.5 $31.62
Granted 3,271.0 33.96
Exercised (354.5) 18.17
Forfeited (369.5) 37.23
--------
Outstanding as of December 31, 2007 23,003.5 $32.07 6.32
======== ====== ========
Exercisable on December 31, 2007 13,460.7 $31.95 4.54
======== ====== ========
11
AMDOCS LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollar and share amounts in thousands, except per share data)
The following table summarizes information relating to awards of restricted
shares, as well as changes to such awards during the three-month period ended on
December 31, 2007:
WEIGHTED
AVERAGE
NUMBER OF GRANT DATE
SHARES FAIR VALUE
--------- ----------
Outstanding unvested shares as of 955.1 $34.50
October 1, 2007
Granted 216.1 34.77
Vested (122.2) 32.53
Forfeited (28.2) 37.60
------- ------
Outstanding unvested shares as of
December 31, 2007 1,020.8 $34.71
======= ======
As of December 31, 2007, there was $72,166 of unrecognized compensation
expense related to unvested stock options and unvested restricted stock awards.
The Company recognizes compensation costs using the graded vesting attribution
method which results in a weighted average period of approximately one year over
which the unrecognized compensation expense is expected to be recognized.
Equity-based payments to employees, including grants of employee stock
options, are recognized in the statements of income based on their fair values
in accordance with FASB Statement No. 123 (revised 2004), "Share-Based Payment,"
a revision of SFAS No. 123 ("SFAS 123(R)") and Staff Accounting Bulletin No. 107
("SAB 107"), which provides supplemental implementation guidance on SFAS 123(R).
Employee equity-based compensation pre-tax expense under SFAS 123(R) for
the three months ended December 31, 2007 and 2006 was as follows:
THREE MONTHS ENDED
---------------------------
DECEMBER 31, DECEMBER 31,
2007 2006
------------ ------------
Cost of service $ 6,282 $ 6,322
Research and development 1,376 1,778
Selling, general and administrative 6,558 7,225
------- -------
Total $14,216 $15,325
The total income tax benefit recognized in the income statement for
stock-based compensation (including restricted shares) for the three months
ended December 31, 2007 and 2006 was $1,396 and $2,392, respectively.
The Company selected the Black-Scholes option pricing model as the most
appropriate fair value method for its equity-based awards and recognizes
compensation costs using the graded vesting
12
AMDOCS LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollar and share amounts in thousands, except per share data)
attribution method. The Black-Scholes option pricing model assumptions used are
noted in the following table (all in weighted averages for options granted
during the period):
THREE MONTHS ENDED
DECEMBER 31,
------------------
2007 2006
------ ---------
Risk-free interest rate (1) 3.47% 4.46%
Expected life of stock options (2) 4.18 4.36
Expected volatility (3) 0.32 0.33
Expected dividend yield (4) None None
Fair value per option $10.55 $13.14
(1) Risk-free interest rate is based upon U.S. Treasury yield curve appropriate
for the term of the Company's employee stock options.
(2) Expected life of stock options is based upon historical experience.
(3) Expected volatility for the three months ended December 31, 2007 and 2006
is based on a combination of implied volatility of the Company's traded
options and historical stock price volatility ("blended volatility").
(4) Expected dividend yield is based on the Company's history and future
expectation of dividend payouts.
Equity-based compensation recognized is reduced for estimated forfeitures
and revised, if necessary, in subsequent periods if actual forfeitures differ
from those estimates.
13
AMDOCS LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollar and share amounts in thousands, except per share data)
10. OPERATIONAL EFFICIENCY AND COST REDUCTION PROGRAMS
In the quarter ended March 31, 2007, the Company commenced a series of
measures designed to align its operational structure to its expected future
growth and to improve efficiency. As part of this plan, the Company recorded an
expense of $6,011, consisting primarily of employee separation costs in
connection with the termination of the employment of software and information
technology specialists and administrative professionals at various locations
around the world and for facility related costs. Approximately $5,004 of the
total expense had been paid in cash as of December 31, 2007. The
facility-related costs are expected to be paid through May 2013.
In connection with its acquisition of DST Innovis, Inc. and DST
Interactive, Inc (collectively, "DST Innovis") in fiscal 2005, the Company
commenced integration activities with respect to the DST Innovis business based
on a plan to exit specific research and development activities and to terminate
employees associated with these activities. The liabilities associated with this
plan, which were recorded as part of the purchase accounting, are presented in
the following table:
CONTRACTUAL
OBLIGATIONS OTHER TOTAL
----------- ----- -------
Balance as of October 1, 2007 $4,247 $112 $ 4,359
Cash payments (485) -- (485)
------ ---- -------
Balance as of December 31, 2007 $3,762 $112 $ 3,874
====== ==== =======
11. CONTINGENCIES
Legal Proceedings
The Company is involved in various legal proceedings arising in the normal
course of its business. Based upon the advice of counsel, the Company does not
believe that the ultimate resolution of these matters will have a material
adverse effect on the Company's consolidated financial position, results of
operations or cash flows.
The Company generally sells its products with a limited warranty for a
period of 90 days. The Company's policy is to account for warranty costs, if
needed, based on historical trends in product failure. Based on the Company's
experience, only minimal warranty services have been required and, as a result,
the Company did not accrue any amounts for product warranty liability during the
three months ended December 31, 2007 and 2006.
The Company generally indemnifies its customers against claims of
intellectual property infringement made by third parties arising from the use of
the Company's software. To date, the Company has incurred and recorded only
minimal costs as a result of such obligations and in its consolidated financial
statements.
14
ITEM 2. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
FORWARD LOOKING STATEMENTS
This section contains forward-looking statements (within the meaning of the
United States federal securities laws) that involve substantial risks and
uncertainties. You can identify these forward-looking statements by words such
as "expect", "anticipate", "believe", "seek", "estimate", "project", "forecast",
"continue", "potential", "should", "would", "could", and "may", and other words
that convey uncertainty of future events or outcome. Statements that we make in
this document that are not statements of historical fact also may be
forward-looking statements. Forward-looking statements are not guarantees of
future performance, and involve risks, uncertainties and assumptions that may
cause our actual results to differ materially from the expectations that we
describe in our forward-looking statements. There may be events in the future
that we are not accurately able to predict, or over which we have no control.
You should not place undue reliance on forward-looking statements. We do not
promise to notify you if we learn that our assumptions or projections are wrong
for any reason. We disclaim any obligation to update our forward-looking
statements, except where applicable law may otherwise require us to do so.
Important factors that may affect these projections or expectations
include, but are not limited to: changes in the overall economy; changes in
competition in markets in which we operate; changes in the demand for our
products and services; consolidation within the industries in which our
customers operate; the loss of a significant customer; changes in the
telecommunications regulatory environment; changes in technology that impact
both the markets we serve and the types of products and services we offer;
financial difficulties of our customers; losses of key personnel; difficulties
in completing or integrating acquisitions; litigation and regulatory
proceedings; and acts of war or terrorism. For a discussion of these important
factors and other risks, please read the information set forth under the caption
"Risk Factors" in our Annual Report on Form 20-F for fiscal 2007 that we filed
on December 3, 2007 with the United States Securities and Exchange Commission
("SEC").
15
OVERVIEW OF BUSINESS AND TREND INFORMATION
Amdocs is a leading provider of software and services for communications
service providers. Our market focus is primarily Tier 1 and Tier 2
communications companies, including leading wireline and wireless
telecommunications, broadband cable and satellite service providers. In
addition, Amdocs also operates in emerging markets and supports smaller tier
communication service providers.
We develop, implement and manage software and services associated with the
business support systems and operational support systems (BSS and OSS) that
enable service providers to deliver a better, differentiated, and intentional
customer experience, by, for example, introducing products quickly,
understanding their customers more deeply, processing orders efficiently and
solving problems productively. We refer to these systems as customer experience
systems.
We believe the demand for our customer experience systems is primarily
driven by the need for communications service providers to transform their
business and support next generation products and services.
Consolidation in the communications industry is continuing, and competition
among incumbent and new entrant service providers is intensifying. At the same
time, convergence is accelerating, with consumers expecting continuous access to
voice, data and video services anywhere, through any device. Service providers
are responding to this challenge by seeking to develop new revenue streams that
take advantage of ubiquitous connectivity and convergence. In this changing
environment, we believe service providers will succeed by differentiating their
offerings in order to deliver a customer experience that is simple, personal,
and valuable at every point of service. Service providers can do this by
adopting our strategy of integrated customer management. While we recognize that
there are some macro-economic indicators that cause uncertainty in our industry,
we continue to see demand for Amdocs products and services, and currently expect
that we will continue to expand our business in 2008.
Offerings
Amdocs offerings of software and related services consist of:
- A complete, modular portfolio of BSS and OSS software, including
revenue management (billing, mediation and partner settlement),
customer management (ordering, customer relationship management or
CRM, and self-service), service and resource management (network
management, planning and fulfillment ) digital commerce management
(content revenue management, search and digital advertising) and
foundation products (such as enterprise product catalog). In January
2008, we introduced our most current version of the portfolio, Amdocs
CES 7.5.
- A comprehensive line of services, from strategy to execution. Because
our customers' projects are complex and require systems support
expertise, we also provide information technology, or IT, services,
including extensive consulting, business strategy, system
implementation, training, integration, modification, ongoing support,
enhancement and maintenance services. In addition, we offer managed
services, which include services such as system modernization and
consolidation, the operation of data centers, ongoing support,
maintenance services, system modification, rating and billing services
and communications facility management services.
We have designed our customer experience systems to meet the
mission-critical needs of leading service providers around the world. We support
their various lines of business, including wireline, wireless, cable and
satellite, and a wide range of communication services, including voice, video,
data, IP, broadband, content, electronic and mobile commerce applications. We
also support companies that offer multiple service packages, commonly referred
to as bundled or convergent service packages. We have also applied our
experience to assist service providers in the financial services sector to meet
operational challenges that are similar to those experienced by communications
companies.
16
Amdocs also offers a full range of directory sales and publishing systems
and related services, which we refer to as directory systems, for publishers of
both traditional printed yellow page and white page directories and electronic
Internet directories.
We conduct our business globally, and, as a result we are subject to the
effects of global economic conditions and, in particular, market conditions in
the communications industry. We maintain development facilities in China,
Cyprus, India, Ireland, Israel and the United States.
We believe that demand for our customer experience systems is primarily
driven by the following key factors:
- Industry transformation, including:
- ubiquitous use of communications and content services,
- increases in digital and mobile commerce,
- ongoing consolidation among incumbent communications providers,
- increased competition from new entrants,
- continued convergence of communications, broadband cable and
satellite industries, and
- continued commoditization and pricing pressure.
- Technology advances, such as:
- emergence of new communications products and services, especially
video, broadband, data and content services, including IP-based
services, such as Internet Protocol (IP) Television (IPTV) and
Voice over IP (VoIP),
- evolution to next generation networks such as IP Multimedia
Subsystem (IMS), that enable converged services offerings like
fixed-mobile convergence, and
- technological changes, such as the introduction of 3G and 4G
wireless technology, next-generation content systems and WiFi-
and WiMax- based access technologies.
- Customer focus, such as:
- the need for service providers to focus on their customers in
order to build profitable customer relationships,
- the "authority shift" toward the consumer, with customers
demanding new, innovative services that can be personalized, that
are timely and relevant to them, that they can participate in
creating, and that can be accessed anytime and anywhere,
- ever-increasing expectation of customer service and support,
including access to self service options, and
- the need for service providers to differentiate themselves by
creating a unique and mutually valuable customer experience.
- The need for operational efficiency, including:
- the shift from in-house management to vendor solutions,
- business needs of service providers to reduce costs and lower
total cost of ownership while retaining high-value customers in a
highly competitive environment,
- automating and integrating business processes that span service
providers' BSS and OSS systems and create a simple, one-company
face to customers,
- integrating and implementing new next-generation networks (and
retiring legacy networks) to deploy new technologies, and
- transforming fragmented legacy OSS systems to introduce new
services in a timely and cost-effective manner.
We derive our revenue principally from:
- the initial sales of licenses to use our products and related
services, including modification, implementation and integration
services,
- providing Managed Services and other related IT services, and
17
- recurring revenue from ongoing support, maintenance and enhancements
provided to our customers, and from incremental license fees resulting
from increases in a customer's business volume.
Revenue is recognized only when all of the following conditions have been
met: (i) there is persuasive evidence of an arrangement; (ii) delivery has
occurred; (iii) the fee is fixed and determinable; and (iv) collectability of
the fee is reasonably assured. We usually sell our software licenses as part of
an overall solution offered to a customer that combines the sale of software
licenses with a broad range of services, which normally include significant
customization, modification, implementation and integration. As a result, we
generally recognize combined license and service revenue over the course of
these long-term projects, using the percentage of completion method of
accounting. Initial license fee revenue is recognized as work is performed,
using the percentage of completion method of accounting. Subsequent license fee
revenue is recognized upon completion of specified conditions in each contract,
based on a customer's subscriber or transaction volume or other measurements
when greater than the level specified in the contract for the initial license
fee. Service revenue that involves significant ongoing obligations, including
fees for software customization, implementation and modification, also is
recognized as work is performed, under the percentage of completion method of
accounting. Revenue from software solutions that do not require significant
customization and modification is recognized upon delivery or as services are
provided. In Managed Services contracts, we typically recognize revenue from the
operation of a customer's system as services are performed based on time
elapsed, output produced or volume of data processed, depending on the specific
contract terms of the managed services arrangement. Revenue from ongoing support
services is recognized as work is performed or based on straight line over the
service period.
Revenue from third-party hardware sales is recognized upon delivery and
installation, and revenue from third-party software sales is recognized upon
delivery. Maintenance revenue is recognized ratably over the term of the
maintenance agreement.
As a result of a significant portion of our revenue being subject to the
percentage of completion accounting method, the size and timing of customer
projects and our progress in completing such projects may significantly affect
our annual and quarterly operating results.
Revenue from managed services arrangements (for customer experience systems
and directory systems) is included in both license and service revenue. Revenue
generated in connection with managed services arrangements are a significant
part of our business, accounting for approximately 35% to 40% of our total
revenue in the three months ended December 31, 2007 and 2006, and generating
substantial, long-term revenue streams, cash flow and operating income. In the
initial period of our managed services projects, we generally invest in
modernization and consolidation of the customer's systems. Invoices are usually
structured on a periodic fixed or unit charge basis. As a result, managed
services projects can be less profitable in the initial period. Margins tend to
improve over time as we derive benefit from the operational efficiencies
provided by system modernization and consolidation.
RECENT ACCOUNTING STANDARDS
In December 2007, the Financial Accounting Standards Board ("FASB") issued
Statement No. 141 (revised), Business Combinations ("SFAS 141(R)"). SFAS 141(R)
significantly changes the accounting for business combinations and establishes
principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed
and any noncontrolling interest in the acquiree and recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase.
SFAS 141(R) applies to us prospectively for business combinations for which the
acquisition date is on or after October 1, 2009.
18
In December 2007, the FASB issued Statement No. 160, Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB No. 51
("SFAS 160"). SFAS 160 changes the accounting for noncontrolling (minority)
interests in consolidated financial statements including the requirements to
classify noncontrolling interests as a component of consolidated stockholders'
equity, the elimination of "minority interest" accounting in results of
operations and changes in the accounting for both increases and decreases in a
parent's controlling ownership interest. SFAS 160 is effective for fiscal years
beginning after December 15, 2008, and early adoption is prohibited. We are
currently evaluating the effect that the application of SFAS 160 will have on
our consolidated results of operations and financial condition.
In February 2007, the FASB issued Statement No. 159 "The Fair Value Option
for Financial Assets and Financial Liabilities" including an amendment of FASB
Statement No. 115 ("SFAS 159"), which allows an entity the irrevocable option to
elect fair value for the initial and subsequent measurement for certain
financial assets and liabilities under an instrument-by-instrument election. If
the fair value option is elected for an instrument, subsequent changes in fair
value for that instrument will be recognized in earnings. SFAS 159 also
establishes additional disclosure requirements and is effective for fiscal years
beginning after November 15, 2007, with early adoption permitted provided that
the entity also adopts Statement No. 157, "Fair Value Measurements" ("SFAS
157"). We are currently evaluating the effect that the application of SFAS 159
will have on our consolidated results of operations and financial condition.
In September 2006, the FASB issued Statement No. 157, "Fair Value
Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles, and
expands disclosures about fair value measurements. SFAS No.157 applies under
other accounting pronouncements that require or permit fair value measurements.
SFAS 157 will be effective for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. We are currently evaluating the
effect that the application of SFAS 157 will have on our consolidated results of
operations and financial condition.
ADOPTION OF NEW ACCOUNTING STANDARD
In June 2006, the FASB issued Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes," An Interpretation of SFAS No. 109, ("FIN 48"). FIN
48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with SFAS No. 109, Accounting
for Income Taxes. FIN 48 also prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return that results in a tax
benefit. Additionally, FIN 48 provides guidance on de-recognition, income
statement classification of interest and penalties, accounting in interim
periods, disclosure and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006. We adopted FIN 48 in the first quarter of
fiscal 2008. The adoption of FIN 48 did not result in a change to retained
earnings. See Note 6 to our consolidated financial statements for additional
information on our provision for income taxes, including the effects of adoption
of FIN 48 on our Consolidated Financial Statements.
19
RESULTS OF OPERATIONS
The following table sets forth for the three months ended December 31, 2007
and 2006 certain items in our consolidated statements of income reflected as a
percentage of total revenue:
THREE MONTHS ENDED
DECEMBER 31,
------------------
2007 2006
----- -----
Revenue:
License.............................. 3.5% 4.6%
Service.............................. 96.5 95.4
----- -----
100.0 100.0
----- -----
Operating expenses:
Cost of license...................... 0.1 0.2
Cost of service...................... 63.4 63.0
Research and development............. 7.6 8.7
Selling, general and administrative.. 13.2 12.9
Amortization of purchased intangible
assets............................... 2.9 2.5
----- -----
87.2 87.3
----- -----
Operating income........................ 12.8 12.7
Interest income and other, net.......... 1.2 1.7
----- -----
Income before income taxes.............. 14.0 14.4
Income taxes............................ 1.1 0.9
----- -----
Net income.............................. 12.9% 13.5%
===== =====
20
THREE MONTHS ENDED DECEMBER 31, 2007 AND 2006
The following is a tabular presentation of our results of operations for
the three months ended December 31, 2007 compared to the three months ended
December 31, 2006. Following the table is a discussion and analysis of our
business and results of operations for such periods.
THREE MONTHS ENDED
DECEMBER 31, INCREASE (DECREASE)
------------------- -------------------
2007 2006 AMOUNT %
-------- -------- -------- --------
(in thousands)
Revenue:
License......................... $ 26,217 $ 31,744 $(5,527) (17.4)%
Service......................... 716,033 659,288 56,745 8.6
-------- -------- -------
742,250 691,032 51,218 7.4
-------- -------- -------
Operating expenses:
Cost of license................. 774 1,069 (295) (27.6)
Cost of service................. 470,741 435,121 35,620 8.2
Research and development........ 56,015 60,468 (4,453) (7.4)
Selling, general and
administrative................ 97,665 89,170 8,495 9.5
Amortization of purchased
intangible assets............. 21,753 17,698 4,055 22.9
-------- -------- -------
646,948 603,526 43,422 7.2
-------- -------- -------
Operating income................... 95,302 87,506 7,796 8.9
Interest income and other, net..... 8,816 11,739 (2,923) (24.9)
-------- -------- -------
Income before income taxes......... 104,118 99,245 4,873 4.9
Income taxes....................... 8,454 5,903 2,551 43.2
-------- -------- -------
Net income......................... $ 95,664 $ 93,342 $ 2,322 2.5%
======== ======== =======
REVENUE. Total revenue increased by $51.2 million, or 7.4%, to $742.3
million in the three months ended December 31, 2007, from $691.0 million in the
three months ended December 31, 2006. The increase was primarily attributable to
revenue from consolidation and transformation projects for Tier One customers as
well as from revenue related to the expansion of our managed services
activities.
License revenue in the three months ended December 31, 2007 decreased by
$5.5 million, or 17.4%, over the three months ended December 31, 2006, primarily
due to timing of projects as we completed some projects and some are expected to
start in the near future.
License and service revenue attributable to the sale of customer experience
systems was $672.8 million in the three months ended December 31, 2007, an
increase of $53.4 million, or 8.6%, over the three months ended December 31,
2006. The increase was primarily attributable to revenue from consolidation and
transformation projects for Tier One customers as well as from revenue related
to the expansion of our managed services activities. License and service revenue
resulting from the sale of customer experience systems represented 90.6% and
89.6% of our total revenue in the three months ended December 31, 2007 and 2006,
respectively.
License and service revenue attributable to the sale of Directory Systems
was $69.5 million in the three months ended December 31, 2007, a decrease of
$2.1 million, or 2.9%, as compared to the three months
21
ended December 31, 2006. License and service revenue from the sale of Directory
Systems represented 9.4% and 10.4% of our total revenue in the three months
ended December 31, 2007 and 2006, respectively. We believe that we are a leading
provider of Directory Systems in most of the markets we serve.
In the three months ended December 31, 2007, revenue from customers in
North America, Europe and the rest of the world accounted for 67.4%, 17.3% and
15.3%, respectively, of total revenue compared to 68.6%, 21.9% and 9.5%,
respectively, in the three months ended December 31, 2006. Revenue from
customers in North America increased in absolute amounts, but the increase was
less than the 7.4% increase in our total revenue which resulted in a decrease in
revenue from customers in North America as a percentage of total revenue. The
decrease in revenue from customers in Europe was attributable partially to
timing of projects as we completed some projects and some are expected to start
in the near future. The increase in revenue from customers in the rest of the
world in the three months ended December 31, 2007 was attributable primarily to
revenue contributed in Asia Pacific, as well as to customers in emerging
markets.
COST OF LICENSE. Cost of license mainly includes royalty payments to
software suppliers. In the three months ended December 31, 2007 and 2006, cost
of license as a percentage of license revenue was 3.0% and 3.4%, respectively.
COST OF SERVICE. Cost of service consists primarily of costs associated
with providing services to customers, including compensation expense and costs
of third-party products. The increase in cost of service in the three months
ended December 31, 2007 was $35.6 million or 8.2%, which is slightly higher than
the increase in our total revenue in the three months ended December 31, 2007.
As a percentage of revenue, cost of service was 63.4% in the three months ended
December 31, 2007, compared to 63.0% in the three months ended December 31,
2006. Our cost of service and gross margin may vary depending on the types and
geographic locations of projects that we undertake.
RESEARCH AND DEVELOPMENT. Research and development expense is primarily
comprised of compensation expense. Research and development expense decreased by
$4.5 million, or 7.4%, in the three months ended December 31, 2007 to $56.0
million from $60.5 million in the three months ended December 31, 2006. Research
and development expense decreased as a percentage of revenue from 8.7% in the
three months ended December 31, 2006 to 7.6% in the three months ended December
31, 2007. We believe that our research and development efforts are a key element
of our strategy and are essential to our success and we intend to maintain our
level of commitment to research and development; the decrease in research and
development expense was attributable to increased efficiency as well as to
changes in the geographical mix of our research and development resources. An
increase or a decrease in our total revenue would not necessarily result in a
proportional increase or decrease in the levels of our research and development
expenditures, which could affect our operating margin.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expense increased by $8.5 million, or 9.5%, to $97.7 million in the three months
ended December 31, 2007, from $89.2 million in the three months ended December
31, 2006. Selling, general and administrative expense is primarily comprised of
compensation expense. The increase in selling, general and administrative
expense was attributable to an overall increase in our operations.
AMORTIZATION OF PURCHASED INTANGIBLE ASSETS. Amortization of purchased
intangible assets in the three months ended December 31, 2007 was $21.8 million,
compared to $17.7 million in the three months ended December 31, 2006. The
increase in amortization of purchased intangible assets was due to purchased
intangible assets acquired in our fiscal 2006 and 2007 acquisitions.
OPERATING INCOME. Operating income increased by $7.8 million, or 8.9%, in
the three months ended December 31, 2007, to $95.3 million from $87.5 million in
the three months ended December 31, 2006. Operating income as a percentage of
revenue in the three months ended December 31, 2007 was at the same level as in
the three months ended December 31, 2006.
INTEREST INCOME AND OTHER, NET. Interest income and other, net decreased by
$2.9 million to $8.8 million in the three months ended December 31, 2007, from
$11.7 million in the three months ended December 31, 2006. The decrease in
interest income and other, net, is primarily attributable to the impact of
foreign
22
exchange loss which was partially offset by an increase in interest income
resulting from the increase in our cash and short-term interest-bearing
investments balances.
INCOME TAXES. Income taxes for the three months ended December 31, 2007
were $8.5 million on pretax income of $104.1 million, resulting in an effective
tax rate of 8.1%, compared to 5.9 % in the three months ended December 31, 2006.
Of the increase in our effective tax rate, approximately 9.1% was attributable
to the net changes in the Company's tax reserves and valuation allowances, and
approximately 1% was attributable to the net effect of acquisition-related costs
and equity-based compensation expense, which was partially offset by decrease in
effective tax rate attributable to the geographical distribution of earnings
from global operations. We expect that our effective tax rate for fiscal year
2008 will be between 9% and 12% on an annualized basis, compared to 10.6% in
fiscal year 2007. Our effective tax rate may fluctuate between quarters as a
result of discrete items that may affect a specific quarter.
NET INCOME. Net income was $95.7 million in the three months ended December
31, 2007, compared to net income of $93.3 million in the three months ended
December 31, 2006. The increase in net income was attributable to the increase
in our operating income offset by the decrease in interest income and other,
net, and the increase of our effective tax rate.
DILUTED EARNINGS PER SHARE. Diluted earnings per share increased by $0.02,
or 4.8%, to $0.44 in the three months ended December 31, 2007, from $0.42 in the
three months ended December 31, 2006. The increase in diluted earnings per share
resulted primarily from the increase in net income, as well as the decrease in
diluted weighted average numbers of shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term interest-bearing investments totaled
$1,167.1 million as of December 31, 2007, compared to $1,179.3 million as of
September 30, 2007. The decrease was mainly attributable to $69.3 million used
to repurchase ordinary shares pursuant to our share repurchase program and to
$34.5 million of capital expenditures, partially offset by $93.1 million in
positive cash flow from operations. Net cash provided by operating activities
amounted to $93.1 million and $99.1 million for the three months ended December
31, 2007 and 2006, respectively.
Our policy is to retain substantial cash balances in order to support our
growth. We believe that our current cash balances, cash generated from
operations and our current lines of credit will provide sufficient resources to
meet our operational needs for at least the next fiscal year.
As of December 31, 2007, $450.0 million and $0.2 million aggregate
principal amount of our 0.50% Convertible Senior Notes due 2024 and 2%
Convertible Notes due 2008 were outstanding, respectively. As of December 31,
2007, we had available an unsecured $500 million five-year revolving credit
facility, none of which was outstanding, and which we may use for general
corporate purposes, including acquisitions and repurchases of our ordinary
shares that we may consider from time to time. As of December 31, 2007, we also
had a $0.9 million short-term general revolving line of credit, none of which
was outstanding. In addition we had outstanding letters of credit and bank
guarantees from various banks totaling $6.9 million. As of December 31, 2007, we
had outstanding short-term loans totaling $1.9 million secured by specified
pledges and guaranties.
We have contractual obligations for our convertible notes, financing
arrangements, non-cancelable operating leases and purchase obligations
summarized in the tabular disclosure of contractual obligations in our Annual
Report on Form 20-F for our fiscal year ended September 30, 2007. Since
September 30, 2007, there have been no material changes in our contractual
obligations other than in the ordinary course of our business.
23
Our capital expenditures were approximately $34.5 million in the three
months ended December 31, 2007. Approximately 80% of these expenditures
consisted of purchases of computer equipment, and the remainder to leasehold
improvements. The capital expenditures in the three months ended December 31,
2007 were mainly attributable to investments in our operating facilities and our
development centers around the world. We fund our capital expenditures
principally from operating cash flows. We do not anticipate any changes to this
policy in the foreseeable future.
CURRENCY FLUCTUATIONS
We manage our foreign subsidiaries as integral direct components of our
operations. The U.S. dollar is our functional currency. According to the salient
economic factors indicated in SFAS No.52, "Foreign Currency Translation", our
cash flow, sale price, sales market, expense, financing and intercompany
transactions and arrangement indicators are predominately denominated in the
U.S. dollar. The operations of our foreign subsidiaries provide the same type of
services with the same type of expenditure throughout the Amdocs group.
During the three months ended December 31, 2007 and 2006, approximately 70%
of our revenue and approximately 50% to 60% of our operating expenses were in
U.S. dollars or linked to the U.S. dollar. As a result of long-term contracts in
currencies other than the U.S. dollar and more customers seeking contracts that
are denominated in currencies such as the Euro, the percentage of our revenue
and operating expenses in U.S. dollar or linked to the U.S. dollar may decrease
slightly over time. Historically, the effect of fluctuations in currency
exchange rates on our consolidated operations was not material. As more of our
customers seek contracts that are denominated in currencies other than the U.S.
dollar, our exposure to fluctuations in currency exchange rates could increase.
In managing our foreign exchange risk, we enter from time to time into various
foreign exchange hedging contracts. We do not hedge all of our exposure in
currencies other than the U.S. dollar, but rather our policy is to hedge
significant net exposures in the major foreign currencies in which we operate.
We periodically assess the applicability of the U.S. dollar as our functional
currency by reviewing the salient indicators.
24
PART II OTHER INFORMATION
ITEM 1. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES.
ISSUER PURCHASES OF EQUITY SECURITIES
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
The following table provides information about purchases by us and our
affiliated purchasers during the quarter ended December 31, 2007 of equity
securities that are registered by us pursuant to Section 12 of the Exchange Act:
25
Ordinary Shares
(C)
TOTAL NUMBER OF (D)
SHARES MAXIMUM NUMBER (OR
(A) PURCHASED AS PART APPROXIMATE DOLLAR VALUE)
TOTAL NUMBER OF (B) OF PUBLICLY OF SHARES THAT
SHARES AVERAGE PRICE ANNOUNCED PLANS MAY YET BE PURCHASED UNDER
PERIOD PURCHASED PAID PER SHARE (2) OR PROGRAMS THE PLANS OR PROGRAMS(1)
------ --------------- ------------------- ----------------- --------------------------
10/1/07-10/31/07............. 565,106 $33.77 565,106 $331,109,793
11/1/07-11/30/07............. 997,700 $32.85 997,700 $298,333,727
12/1/07-12/31/07............. 612,800 $33.63 612,800 $277,725,141
--------- ---------
Total........................ 2,175,606 $33.31 2,175,606 $277,725,141
========= =========
(1) In August 2007, our board of directors authorized a share repurchase plan
allowing the repurchase of up to $400 million of our outstanding ordinary
shares. The authorization permits us to purchase our ordinary shares in
open market or privately negotiated transactions at times and prices that
we consider appropriate.
(2) The average price per share excludes broker and transaction fees.
26
ITEM 2. REPORTS ON FORM 6-K
(a) Reports on Form 6-K
The Company furnished or filed the following reports on Form 6-K during the
three months ended December 31, 2007:
(1) Form 6-K dated December 18, 2007.
(2) Form 6-K dated December 3, 2007.
(3) Form 6-K dated November 1, 2007.
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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
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Thomas G. O'Brien
Treasurer and Secretary
Authorized U.S. Representative
Date: February 11, 2008