20-F
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 20-F
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
OR(g) OF THE SECURITIES EXCHANGE ACT OF 1934
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or
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þ |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended September 30, 2008
or
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o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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or
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o |
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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Date of event requiring this shell
company report............
For the transition period from
to
.
Commission File Number 1-14840
AMDOCS LIMITED
(Exact name of Registrant as
specified in its charter)
Guernsey
(Jurisdiction of incorporation or
organization)
Suite 5, Tower Hill House
Le Bordage
St. Peter Port, Guernsey, GY1 3QT
Amdocs, Inc.
1390 Timberlake Manor Parkway, Chesterfield, Missouri
63017
(Address of principal executive
offices)
Thomas G. OBrien
Amdocs, Inc.
1390 Timberlake Manor Parkway, Chesterfield, Missouri 63017
Telephone:
314-212-8328
Email: dox_info@amdocs.com
(Name, Telephone, Email
and/or Facsimile number and Address of Company Contact Person)
Securities
registered or to be registered pursuant to Section 12(b) of
the Act:
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Title of each class
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Name of exchange on which registered
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Ordinary Shares, par value £0.01
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New York Stock Exchange
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Securities
registered or to be registered pursuant to Section 12(g) of
the Act:
None
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the
issuers classes of capital or common stock as of the close
of the period covered by the Annual Report.
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Ordinary Shares, par value £0.01
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203,915,726(1)
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(Title of class)
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(Number of shares)
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Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes
þ No o
If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
Yes o No þ
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 þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act.:
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this
filing:
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U.S. GAAP
þ
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International Financial Reporting Standards as issued
o
by the International Accounting Standards Board
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Other
o
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If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in
Rule 12b-2
of the Exchange Act).
Yes o No þ
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(1)
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Net of 36,919,790 shares held
in treasury. Does not include (a) 22,387,689 ordinary
shares reserved for issuance upon exercise of stock options
granted under our stock option plan or by companies we have
acquired, and (b) 10,435,995 ordinary shares reserved for
issuance upon conversion of outstanding convertible debt
securities.
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AMDOCS
LIMITED
FORM 20-F
ANNUAL
REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2008
INDEX
1
Unless the context otherwise requires, all references in this
Annual Report on
Form 20-F
to Amdocs, we, our,
us and the Company refer to Amdocs
Limited and its consolidated subsidiaries and their respective
predecessors. Our consolidated financial statements are prepared
in accordance with U.S. GAAP and are expressed in
U.S. dollars. References to dollars or
$ are to U.S. dollars. Our fiscal year
ends on September 30 of each year. References to any specific
fiscal year refer to the year ended September 30 of the calendar
year specified.
We own, have rights to or use trademarks or trade names in
conjunction with the sale of our products and services,
including, without limitation, each of the following:
Amdocstm,
Clarifytm,
Cramertm,
CEStm,
Intentional Customer
Experiencetm,
OpenMarkettm,
Qpasstm
and JacobsRimell
tm.
Forward
Looking Statements
This Annual Report on
Form 20-F
contains forward-looking statements (within the meaning of the
U.S. 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, intend and
may, and other words that convey uncertainty of
future events or outcome. Statements that we make in this Annual
Report 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;
the loss of a significant customer; consolidation within the
industries in which our customers operate; 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, please read the information set forth below
under the caption Risk Factors.
2
PART I
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Item 1.
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IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
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Not applicable.
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Item 2.
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OFFER
STATISTICS AND EXPECTED TIMETABLE
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Not applicable.
Selected
Financial Data
Our historical consolidated financial statements are prepared in
accordance with U.S. generally accepted accounting
principles (GAAP) and presented in
U.S. dollars. The selected historical consolidated
financial information set forth below has been derived from our
historical consolidated financial statements for the years
presented. Historical information as of and for the five years
ended September 30, 2008 is derived from our consolidated
financial statements, which have been audited by
Ernst & Young LLP, our independent registered public
accounting firm. You should read the information presented below
in conjunction with those statements.
The information presented below is qualified by the more
detailed historical consolidated financial statements, the notes
thereto and the discussion under Operating and Financial
Review and Prospects included elsewhere in this Annual
Report.
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2008
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2007
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2006
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2005
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2004
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(in thousands, except per share data)
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Statement of Operations Data:
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Revenue
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$
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3,162,096
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$
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2,836,173
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$
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2,480,050
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$
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2,038,621
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$
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1,773,732
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Operating income
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405,596
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357,433
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332,132
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338,492
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296,200
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Net income
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378,906
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364,937
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318,636
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288,636
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234,860
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Basic earnings per share
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1.83
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1.76
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1.57
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1.44
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1.13
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Diluted earnings per share
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1.74
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1.65
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1.48
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1.35
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1.08
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Dividends declared per share
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2008
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2007
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2006
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2005
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2004
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Balance Sheet Data:
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Total assets
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$
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4,579,063
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$
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4,344,599
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$
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3,962,828
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$
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3,202,468
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$
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2,863,884
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Long-term obligations
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2% Convertible Notes due June 1, 2008
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272
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272
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0.50% Convertible Senior Notes due 2024(1)
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450,000
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450,000
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450,000
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450,000
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450,000
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Long-term portion of capital lease obligations
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356
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4,112
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Shareholders equity
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2,805,191
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2,600,243
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2,154,165
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1,656,452
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1,444,190
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3
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Additional
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Ordinary Shares
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Paid-In
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Shares
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Amount
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Capital
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Treasury Stock
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(in thousands)
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Statement of Changes in Shareholders Equity Data:
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Balance as of September 30, 2004
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201,334
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$
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3,601
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$
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1,837,608
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$
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(502,416
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)
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Issuance of restricted stock and stock options related to
acquisitions, net
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144
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2
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6,034
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Employee stock options exercised
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2,229
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41
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23,983
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Tax benefit of stock options exercised
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3,147
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Repurchase of shares
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(3,525
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)
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(99,976
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Expense related to vesting of stock options
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150
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Balance as of September 30, 2005
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200,182
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$
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3,644
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$
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1,870,922
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$
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(602,392
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)
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Employee stock options exercised
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5,869
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106
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106,853
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Tax benefit of stock options exercised
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7,619
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Issuance of restricted stock, net of cancellations
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742
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13
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Issuance of restricted stock and stock options related to
acquisitions, net
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4,634
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Equity-based compensation expense related to employees
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46,178
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Reclassification of unearned compensation to additional paid in
capital
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(962
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Equity-based compensation expense related to non employee stock
options
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65
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Balance as of September 30, 2006
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206,793
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$
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3,763
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$
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2,035,309
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$
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(602,392
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)
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Employee stock options exercised
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3,970
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79
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74,576
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Tax benefit of stock options exercised
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3,965
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Repurchase of shares
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(1,411
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)
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(49,837
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)
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Issuance of restricted stock, net of cancellations
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410
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8
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Issuance of restricted stock and stock options related to
acquisitions, net
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768
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Equity-based compensation expense related to employees
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53,587
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Equity-based compensation expense related to non employee stock
options
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29
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Balance as of September 30, 2007
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209,762
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$
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3,850
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$
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2,168,234
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$
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(652,229
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)
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Employee stock options exercised
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2,052
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41
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37,527
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Tax benefit of stock options exercised
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1,549
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Repurchase of shares
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(8,370
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)
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(255,051
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)
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Issuance of restricted stock, net of cancellations
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472
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9
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Equity-based compensation expense related to employees
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57,490
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Balance as of September 30, 2008
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203,916
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$
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3,900
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$
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2,264,800
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$
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(907,280
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)
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(1) |
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In November 2008, our Board of Directors authorized us to
repurchase up to $100 million aggregate principal amount of
our 0.50% Convertible Senior Notes due 2024, which we refer
to as our notes, in such amounts, at such prices and at such
times that we deem appropriate. During the first quarter of
fiscal 2009, we purchased $100 million aggregate principal
amount of our notes at an average price of 98% of the principal
amount, excluding accrued interest and transaction fees. In
March 2009, the remaining notes are redeemable by us, and if we
do not elect to redeem the notes, then the holders of the notes
may require us to repurchase the notes, in each case at a
purchase price equal to 100% of the principal amount of the
notes plus accrued and unpaid interest. We anticipate that a
substantial portion of the outstanding notes will be put to us
in March 2009 if we do not elect to redeem them. As of
November 30, 2008, $350,000 aggregate principal amount of
our notes was outstanding. |
4
Risk
Factors
We are
exposed to general global economic and market conditions,
particularly those impacting the communications
industry.
Developments in the communications industry, such as the impact
of general global economic conditions, industry consolidation,
emergence of new competitors, commoditization of voice services
and changes in the regulatory environment, at times have had,
and could continue to have, a material adverse effect on our
existing or potential customers. In the past, these conditions
reduced the high growth rates that the communications industry
had previously experienced, and caused the market value,
financial results and prospects and capital spending levels of
many communications companies to decline or degrade. During
previous economic downturns, the communications industry
experienced significant financial pressures that caused many in
the industry to cut expenses and limit investment in capital
intensive projects and, in some cases, led to restructurings and
bankruptcies. Although we are unable to determine what the full
effects of the current economic turmoil will be, the forecasted
worldwide recession may lead to significant adverse consequences
for our customers and our business.
During adverse conditions in the business environment for
communications companies, service providers need to control
operating expenses and capital investment budgets which may
result in slowed customer buying decisions and price pressures
that can adversely affect our revenue. Adverse market conditions
in the future could have a negative impact on our business by
reducing the number of new contracts we are able to sign and the
size of initial spending commitments, as well as decreasing the
level of discretionary spending under contracts with existing
customers. In addition, a reoccurrence of the slowdown in the
buying decisions of service providers could extend our sales
cycle period and limit our ability to forecast our flow of new
contracts.
If we
fail to adapt to changing market conditions and cannot compete
successfully with existing or new competitors, our business
could be harmed.
We may be unable to compete successfully with existing or new
competitors. Our failure to adapt to changing market conditions
and to compete successfully with established or new competitors
could have a material adverse effect on our results of
operations and financial condition. We face intense competition
for the software products and services that we sell, including
competition for managed services we provide to customers under
long-term service agreements. These managed services include
services such as management of datacenter operations and IT
infrastructure, application management and ongoing support,
systems modernization and consolidation and management of
end-to-end business processes for billing and customer care
operations.
The market for communications information systems is highly
competitive and fragmented, and we expect competition to
continue to increase. We compete with independent software and
service providers and with the in-house IT and network
departments of communications companies. Our main competitors
include firms that provide IT services (including consulting,
systems integration and managed services), software vendors that
sell products for particular aspects of a total information
system, software vendors that specialize in systems for
particular communications services (such as Internet, wireline
and wireless services, cable, satellite and service bureaus) and
companies that offer software systems in combination with the
sale of network equipment. Since our 2006 acquisition of Qpass
Inc., which we refer to as Qpass, we also compete with companies
that provide digital commerce software and solutions.
We believe that our ability to compete depends on a number of
factors, including:
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the development by others of software that is competitive with
our products and services,
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the price at which others offer competitive software and
services,
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the ability of competitors to deliver projects at a level of
quality that rivals our own,
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the responsiveness of our competitors to customer needs, and
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the ability of our competitors to hire, retain and motivate key
personnel.
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5
A number of our competitors have long operating histories, large
customer bases, substantial financial, technical, sales,
marketing and other resources, and strong name recognition.
Current and potential competitors have established, and may
establish in the future, cooperative relationships among
themselves or with third parties to increase their abilities to
address the needs of our prospective customers. In addition, our
competitors have acquired, and may continue to acquire in the
future, companies that may enhance their market offerings.
Accordingly, new competitors or alliances among competitors may
emerge and rapidly acquire significant market share. As a
result, our competitors may be able to adapt more quickly than
us to new or emerging technologies and changes in customer
requirements, and may be able to devote greater resources to the
promotion and sale of their products. We cannot assure you that
we will be able to compete successfully with existing or new
competitors. If we fail to adapt to changing market conditions
and to compete successfully with established or new competitors,
our results of operations and financial condition may be
adversely affected.
If we
do not continually enhance our products and service offerings,
we may have difficulty retaining existing customers and
attracting new customers.
We believe that our future success will depend, to a significant
extent, upon our ability to enhance our existing products and to
introduce new products and features to meet the requirements of
our customers in a rapidly developing and evolving market. We
are currently devoting significant resources to refining and
expanding our base software modules and to developing our
customer experience systems. Our present or future products may
not satisfy the evolving needs of the communications industry or
of other industries that we serve. If we are unable to
anticipate or respond adequately to such needs, due to resource,
technological or other constraints, our business and results of
operations could be harmed.
Our
business is dependent on a limited number of significant
customers, and the loss of any one of our significant customers
could harm our results of operations.
Our business is dependent on a limited number of significant
customers, of which AT&T was our largest in fiscal 2008,
accounting for 28% of our revenue. In fiscal 2008, our three
largest groups of customers were AT&T, Bell Canada and
Sprint Nextel, and certain of their subsidiaries, each of which
accounted for more than 10% of our revenue in fiscal 2008.
Together, these three customer groups accounted for
approximately 51% of our revenue in fiscal 2008. Aggregate
revenue derived from the multiple business arrangements we have
with our ten largest customer groups accounted for approximately
75% of our revenue in fiscal 2008 and 73% of our revenue in
fiscal 2007. AT&T has historically been one of our largest
shareholders, and, as of November 24, 2008, it beneficially
owned approximately 5.1% of our outstanding ordinary shares. The
loss of any significant customer or a significant decrease in
business from any such customer could harm our results of
operations and financial condition. Revenue from individual
customers may fluctuate from time to time based on the
commencement and completion of projects, the timing of which may
be affected by market conditions.
Although we have received a substantial portion of our revenue
from recurring business with established customers, many of our
major customers do not have any obligation to purchase
additional products or services from us and generally have
already acquired fully paid licenses to their installed systems.
Therefore, our customers may not continue to purchase new
systems, system enhancements or services in amounts similar to
previous years or may delay implementation of committed
projects, each of which could reduce our revenue and profits.
Our
future success will depend on our ability to develop long-term
relationships with our customers and to meet their expectations
in providing products and performing services.
We believe that our future success will depend to a significant
extent on our ability to develop long-term relationships with
successful network operators and service providers with the
financial and other resources required to invest in significant
ongoing customer experience systems. If we are unable to develop
new customer relationships, our business will be harmed. In
addition, our business and results of operations depend in part
on our ability to provide high quality services to customers
that have already implemented our
6
products. If we are unable to meet customers expectations
in providing products or performing services, our business and
results of operations could be harmed.
We may
seek to acquire companies or technologies that could disrupt our
ongoing business, distract our management and employees and
adversely affect our results of operations.
It is a part of our business strategy to pursue acquisitions and
other initiatives in order to offer new products or services or
otherwise enhance our market position or strategic strengths.
Since 1999, we have completed numerous acquisitions, which,
among other things, have expanded our business into customer
care and billing solutions for broadband media cable and
satellite companies and into digital commerce software and
solutions, enhanced our offerings in the operational support
systems, or OSS, market and added expertise in providing
integrated billing and customer care systems in high-growth
emerging markets. In the future, we may acquire other companies
that we believe will advance our business strategy. We cannot
assure you that suitable future acquisition candidates can be
found, that acquisitions can be consummated on favorable terms
or that we will be able to complete otherwise favorable
acquisitions because of antitrust or other regulatory concerns.
We cannot assure you that the acquisitions we have completed, or
any future acquisitions that we may make, will enhance our
products or strengthen our competitive position. We also cannot
guarantee that we have identified, or will be able to identify,
all material adverse issues related to the integration of our
acquisitions, such as significant defects in the internal
control policies of companies that we have acquired. In
addition, our acquisitions could lead to difficulties in
integrating acquired personnel and operations and in retaining
and motivating key personnel from these businesses. Any failure
to recognize significant defects in the internal control
policies of acquired companies or to properly integrate and
retain personnel may require a significant amount of time and
resources to address. Acquisitions may disrupt our ongoing
operations, divert management from day-to-day responsibilities,
increase our expenses and harm our results of operations or
financial condition.
The
skilled and highly qualified workforce that we need to develop,
implement and modify our solutions may be difficult to hire and
retain, and we could face increased costs to attract and retain
our skilled workforce.
Our business operations depend in large part on our ability to
attract, train, motivate and retain highly skilled information
technology professionals, software programmers and
communications engineers on a worldwide basis. In addition, our
competitive success will depend on our ability to attract and
retain other outstanding, highly qualified personnel. Because
our software products are highly complex and are generally used
by our customers to perform critical business functions, we
depend heavily on skilled technology professionals. Skilled
technology professionals are often in high demand and short
supply. If we are unable to hire or retain qualified technology
professionals to develop, implement and modify our solutions, we
may be unable to meet the needs of our customers. In addition,
if we were to obtain several new customers or implement several
new large-scale projects in a short period of time, we may need
to attract and train additional IT professionals at a rapid
rate. We may face difficulties identifying and hiring qualified
personnel. Our inability to hire and retain the appropriate
personnel could increase our costs of retaining a skilled
workforce and make it difficult for us to manage our operations,
to meet our commitments and to compete for new customer
contracts. In particular, wage costs in some of the countries in
which we maintain development centers, such as Cyprus and India,
have historically been significantly lower than wage costs in
the United States and Europe for comparably-skilled
professionals, although such costs are increasing. We may need
to increase the levels of our employee compensation more rapidly
than in the past to remain competitive.
Our success will also depend, to a certain extent, upon the
continued active participation of a relatively small group of
senior management personnel. The loss of the services of all or
some of these executives could harm our operations and impair
our efforts to expand our business.
7
Our
quarterly operating results may fluctuate, and a decline in
revenue in any quarter could result in lower profitability for
that quarter and fluctuations in the market price of our
ordinary shares.
We have experienced fluctuations in our quarterly operating
results and anticipate that such movements may continue and
could intensify. Fluctuations may result from many factors,
including:
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the size and timing of significant customer projects and license
and service fees,
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delays in or cancellations of significant projects by customers,
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changes in operating expenses,
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increased competition,
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changes in our strategy,
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personnel changes,
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foreign currency exchange rate fluctuations, and
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general economic and political conditions.
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Generally, our combined license fee revenue and service fee
revenue relating to customization, modification, implementation
and integration are recognized as work is performed, using the
percentage of completion method of accounting. Given our
reliance on a limited number of significant customers, our
quarterly results may be significantly affected by the size and
timing of customer projects and our progress in completing such
projects.
We believe that the placement of customer orders may be
concentrated in specific quarterly periods due to the time
requirements and budgetary constraints of our customers.
Although we recognize revenue as projects are performed,
progress may vary significantly from project to project, and we
believe that variations in quarterly revenue are sometimes
attributable to the timing of initial order placements. Due to
the relatively fixed nature of certain of our costs, a decline
of revenue in any quarter could result in lower profitability
for that quarter. In addition, fluctuations in our quarterly
operating results could cause significant fluctuations in the
market price of our ordinary shares.
Our
revenue, earnings and profitability are affected by the length
of our sales cycle, and a longer sales cycle could adversely
affect our results of operations and financial
condition.
Our business is directly affected by the length of our sales
cycle. Information systems for communications companies are
relatively complex and their purchase generally involves a
significant commitment of capital, with attendant delays
frequently associated with large capital expenditures and
procurement procedures within an organization. The purchase of
these types of products typically also requires coordination and
agreement across many departments within a potential
customers organization. Delays associated with such timing
factors could have a material adverse effect on our results of
operations and financial condition. In periods of economic
slowdown in the communications industry, which may recur in the
current economic climate, our typical sales cycle lengthens,
which means that the average time between our initial contact
with a prospective customer and the signing of a sales contract
increases. The lengthening of our sales cycle could reduce
growth in our revenue in the future. In addition, the
lengthening of our sales cycle contributes to an increased cost
of sales, thereby reducing our profitability.
If the
market for our products deteriorates, we may be required to
reduce the scope of our operations, and if we fail to
successfully plan and manage changes in the size of our
operations, our business will suffer.
Over the last several years, we have both grown and contracted
our operations in order to profitably offer our products and
services in a rapidly changing market. If we are unable to
manage these changes and plan and manage any future changes in
the size and scope of our operations, our business will suffer.
8
For example, in the fourth quarter of fiscal 2008 and in the
second quarter of fiscal 2007, we commenced several measures
designed to align our operational structure to our expected
future growth and to improve efficiency. As part of these plans,
we recorded expenses of $6.0 million in fiscal 2007 and
$12.1 in fiscal 2008, 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, in fiscal 2007, for rent obligations. From time to
time in the past, we have undertaken similar cost reduction
measures.
Restructurings and cost reduction measures that we have
implemented from time to time have reduced the size of our
operations and headcount, and acquisitions and organic growth
have from time to time increased our headcount. Reductions in
personnel can result in significant severance, administrative
and legal expenses and may also adversely affect or delay
various sales, marketing and product development programs and
activities. Depending on market conditions in the communications
industry and our business and financial needs, we may be forced
to implement additional restructuring plans to further reduce
our costs, which could result in additional restructuring
charges. Additional restructuring charges could have a material
adverse effect on our financial results.
During periods of contraction, we have disposed of office space
and related obligations in efforts to keep pace with the
changing size of our operations and we may do so in the future.
These cost reduction measures have included, and may in the
future include, consolidating
and/or
relocating certain of our operations to different geographic
locations. These activities could lead to difficulties and
significant expenses related to subleasing or assigning any
surplus space and retaining our base of skilled professionals.
It is our policy to accrue the estimated expenses that will
result from our restructuring efforts. However, if it is
determined that the amount accrued is insufficient, an
additional charge could have an unfavorable impact on our
consolidated financial statements in the period this was
determined.
The
current credit crisis may adversely affect our investment
portfolio, other financial assets and our ability to secure
additional credit availability.
Our cash, cash equivalents and short-term interest-bearing
investments totaled $1,244.4 million as of
September 30, 2008. Our policy is to retain substantial
cash balances in order to support our growth. Our short-term
investments consist primarily of U.S. government
treasuries, U.S. agency securities, corporate bonds,
commercial paper, certificates of deposit, asset-backed
obligations and mortgages. Although we believe that we generally
adhere to conservative investment guidelines, the continuing
turmoil in the markets may result in impairments of the carrying
value of our investment assets. Realized or unrealized losses in
our investments or in our other financial assets may adversely
affect our financial condition.
Bank failures or closings or further declines in the financial
condition of U.S. and European banks and other financial
institutions may adversely affect our normal financial
operations, as well as our ability to secure additional credit
facilities, if needed. The unavailability of additional credit
may prevent us from executing our future business plans,
including potential acquisitions.
We may
be exposed to the credit risk of customers that have been
adversely affected by weakened markets.
We typically sell our software and related services as part of
long-term projects. During the life of a project, a
customers budgeting constraints can impact the scope of a
project and the customers ability to make required
payments. In addition, due to adverse general business
conditions, such as the recent turmoil in the financial markets,
the creditworthiness of our customers may deteriorate over time,
and we can be adversely affected by bankruptcies or other
business failures.
Our
international presence exposes us to risks associated with
varied and changing political, cultural, legal and economic
conditions worldwide.
We are affected by risks associated with conducting business
internationally. We maintain development facilities in China,
Cyprus, India, Ireland, Israel and the United States, operate a
support center in Brazil and have operations in North America,
Europe, Latin America and the Asia-Pacific region. Although a
substantial
9
majority of our revenue is derived from customers in North
America and Europe, we obtain significant revenue from customers
in the Asia-Pacific region and Latin America. Our strategy is to
continue to broaden our North American and European customer
bases and to expand into new international markets. Conducting
business internationally exposes us to certain risks inherent in
doing business in international markets, including:
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lack of acceptance of non-localized products,
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legal and cultural differences in the conduct of business,
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difficulties in staffing and managing foreign operations,
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longer payment cycles,
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difficulties in collecting accounts receivable and withholding
taxes that limit the repatriation of earnings,
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trade barriers,
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difficulties in complying with varied legal and regulatory
requirements across jurisdictions,
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immigration regulations that limit our ability to deploy our
employees,
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political instability and threats of terrorism, and
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variations in effective income tax rates among countries where
we conduct business.
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One or more of these factors could have a material adverse
effect on our international operations, which could harm our
results of operations and financial condition.
Our
international operations expose us to risks associated with
fluctuations in foreign currency exchange rates that could
adversely affect our business.
Although we have operations throughout the world, approximately
70% of our revenue and approximately 50% to 60% of our operating
costs are denominated in, or linked to, the U.S. dollar.
Accordingly, we consider the U.S. dollar to be our
functional currency. However, approximately 40% to 50% of our
operating costs in fiscal 2008 were incurred outside the United
States in other currencies. Therefore, fluctuations in exchange
rates between the currencies in which such costs are incurred
and the dollar may have a material adverse effect on our results
of operations and financial condition. From time to time we may
experience increases in the costs of our operations outside the
United States, as expressed in dollars, which could have a
material adverse effect on our results of operations and
financial condition.
For example, during fiscal 2008, we recognized
$18.9 million in foreign exchange losses under interest
income and other, net, mainly due to the revaluation of assets
and liabilities denominated in other currencies resulting from
the rapid and significant foreign exchange rate changes
associated with global economic turbulence in the fourth quarter
of fiscal 2008. We believe that foreign exchange rates will
continue to present challenges in fiscal 2009.
In addition, a portion of our revenue (approximately 30% in
fiscal 2008) is not incurred in dollars or linked to the
dollar, and, therefore, fluctuations in exchange rates between
the currencies in which such revenue is incurred and the dollar
may have a material effect on our results of operations and
financial condition. If more of our customers seek contracts
that are denominated in currencies such as the Euro and not the
dollar, our exposure to fluctuations in currency exchange rates
could increase.
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, and we generally hedge our net currency exposure with
respect to expected revenue and operating costs and certain
balance sheet items. However, we cannot assure you that we will
be able to effectively limit all of our exposure to currency
exchange rate fluctuations.
The imposition of exchange or price controls or other
restrictions on the conversion of foreign currencies could also
have a material adverse effect on our business, results of
operations and financial condition.
10
Political
and economic conditions in the Middle East and other countries
may adversely affect our business.
Of the development centers we maintain worldwide, our largest
development center is located in four different sites throughout
Israel. Approximately 27% of our workforce is located in Israel.
As a result, we are directly influenced by the political,
economic and military conditions affecting Israel and its
neighboring regions. Any major hostilities involving Israel
could have a material adverse effect on our business. We have
developed contingency plans to provide ongoing services to our
customers in the event that escalated political or military
conditions disrupt our normal operations. These plans include
the transfer of some development operations within Israel to
various of our other sites both within and outside of Israel. If
we have to implement these plans, our operations would be
disrupted and we would incur significant additional
expenditures, which would adversely affect our business and
results of operations.
While Israel has entered into peace agreements with both Egypt
and Jordan, Israel has not entered into peace arrangements with
any other neighboring countries. Over the past several years
there has been a significant deterioration in Israels
relationship with the Palestinian Authority and a related
increase in violence, including recent hostilities related to
Lebanon and the Gaza Strip. Efforts to resolve the problem have
failed to result in a permanent solution. Continued violence
between the Palestinian community and Israel may have a material
adverse effect on our business. Further deterioration of
relations with the Palestinian Authority might require more
military reserve service by some of our workforce, which may
have a material adverse effect on our business.
In 2004, we established a development center in India, and since
2005, we have expanded our operations in India, China and the
Commonwealth of Independent States (including Russia).
Conducting business in each of these countries involves unique
challenges, including political instability, threats of
terrorism, the transparency, consistency and effectiveness of
business regulation, the protection of intellectual property,
and the availability of sufficient qualified local personnel.
Any of these or other challenges associated with operating in
these countries may adversely affect our business or operations.
We have development and other facilities at multiple locations
in India and had over 3,700 software and information technology
employees in India as of the end of fiscal 2008. Recent
terrorist activity in India has led to tensions between India
and Pakistan and our operations in India may be adversely
affected by future political and other events in the region.
In addition, our development facility in Cyprus may be adversely
affected by political conditions in that country. As a result of
intercommunal strife between the Greek and Turkish communities,
Turkish troops invaded Cyprus in 1974 and continue to occupy
approximately 40% of the island. Despite the admission of
Cypress into the European Union and recent improvements in the
relations between the parties, discussions facilitated by the
United Nations, the European Union and the United States have
not resulted in a plan of reunification for Cyprus. Major
hostilities between Cyprus and Turkey could have a material
adverse effect on our development facility in Cyprus.
If we
are unable to protect our proprietary technology from
misappropriation, our business may be harmed.
Any misappropriation of our technology or the development of
competitive technology could seriously harm our business. Our
software and software systems are largely comprised of software
and systems we have developed or acquired and that we regard as
proprietary. We rely upon a combination of trademarks, patents,
contractual rights, trade secret law, copyrights, non-disclosure
agreements and other methods to protect our proprietary rights.
We enter into non-disclosure and confidentiality agreements with
our customers, workforce and marketing representatives and with
certain contractors with access to sensitive information, and we
also limit our customer access to the source codes of our
software and our software systems. However, we generally do not
include in our software any mechanisms to prevent or inhibit
unauthorized use.
The steps we have taken to protect our proprietary rights may be
inadequate. If so, we might not be able to prevent others from
using what we regard as our technology to compete with us.
Existing trade secret, copyright and trademark laws offer only
limited protection. In addition, the laws of some foreign
countries do not protect our proprietary technology or allow
enforcement of confidentiality covenants to the same extent as
the laws of the United States.
11
If we have to resort to legal proceedings to enforce our
intellectual property rights, the proceedings could be
burdensome, protracted and expensive and could involve a high
degree of risk.
Claims
by others that we infringe their proprietary technology could
harm our business.
Our software and software systems are the results of long and
complex development processes, and, although our technology is
not significantly dependent on patents or licenses from third
parties, certain aspects of our products make use of readily
available software components that we license from third
parties, including our employees and contractors. As a developer
of complex software systems, third parties may claim that
portions of our systems violate their intellectual property
rights. The ability to develop and use our software and software
systems requires knowledge and professional experience that we
believe is unique to us and would be very difficult for others
to independently obtain, however, our competitors may
independently develop technologies that are substantially
equivalent or superior to ours.
We expect that software developers will increasingly be subject
to infringement claims as the number of products and competitors
providing software and services to the communications industry
increases and overlaps occur. Any claim of infringement by a
third party could cause us to incur substantial costs defending
against the claim and could distract our management from our
business. Furthermore, a party making such a claim, if
successful, could secure a judgment that requires us to pay
substantial damages. A judgment could also include an injunction
or other court order that could prevent us from selling our
products or offering our services, or prevent a customer from
continuing to use our products. Additionally, since our 2006
acquisition of Qpass, we support service providers and media
companies with respect to digital content services, which could
subject us to claims related to such services.
If anyone asserts a claim against us relating to proprietary
technology or information, we might seek to license their
intellectual property. We might not, however, be able to obtain
a license on commercially reasonable terms or on any terms. In
addition, any efforts to develop non-infringing technology could
be unsuccessful. Our failure to obtain the necessary licenses or
other rights or to develop non-infringing technology could
prevent us from selling our products and could therefore
seriously harm our business.
Product
defects or software errors could adversely affect our
business.
Design defects or software errors may cause delays in product
introductions or damage customer satisfaction and may have a
material adverse effect on our business, results of operations
and financial condition. Our software products are highly
complex and may, from time to time, contain design defects or
software errors that may be difficult to detect and correct.
Because our products are generally used by our customers to
perform critical business functions, design defects, software
errors, misuse of our products incorrect data from external
sources or other potential problems within or outside of our
control may arise from the use of our products, and may result
in financial or other damages to our customers, for which we may
be held responsible. Although we have license agreements with
our customers that contain provisions designed to limit our
exposure to potential claims and liabilities arising from
customer problems, these provisions may not effectively protect
us against such claims in all cases and in all jurisdictions. In
addition, as a result of business and other considerations, we
may undertake to compensate our customers for damages caused to
them arising from the use of our products, even if our liability
is limited by a license or other agreement. Claims and
liabilities arising from customer problems could also damage our
reputation, adversely affecting our business, results of
operations and financial condition and the ability to obtain
Errors and Omissions insurance.
System
disruptions and failures may result in customer dissatisfaction,
customer loss or both, which could materially and adversely
affect our reputation and business.
Our systems are an integral part of our customers business
operations. The continued and uninterrupted performance of these
systems by our customers is critical to our success. Customers
may become dissatisfied by any system failure that interrupts
our ability to provide services to them. Sustained or repeated
system
12
failures would reduce the attractiveness of our services
significantly and could result in decreased demand for our
products and services.
Our ability to perform managed services depends on our ability
to protect our computer systems against damage from fire, power
loss, water damage, telecommunications failures, earthquake,
terrorism attack, vandalism and similar unexpected adverse
events. Despite our efforts to implement network security
measures, our systems are also vulnerable to computer viruses,
break-ins and similar disruptions from unauthorized tampering.
We do not carry enough business interruption insurance to
compensate for any significant losses that may occur as a result
of any of these events.
We have experienced systems outages and service interruptions in
the past. To date, these outages have not had a material adverse
effect on us. However, in the future, a prolonged system-wide
outage or frequent outages could cause harm to our reputation
and could cause our customers to make claims against us for
damages allegedly resulting from an outage or interruption. Any
damage or failure that interrupts or delays our operations could
result in material harm to our business and expose us to
material liabilities.
The
termination or reduction of certain government programs and tax
benefits could adversely affect our overall effective tax
rate.
There can be no assurance that our effective tax rate of 9.3%
for the year ended September 30, 2008 will not change over
time as a result of changes in corporate income tax rates or
other changes in the tax laws of the various countries in which
we operate. We have benefited or currently benefit from a
variety of government programs and tax benefits that generally
carry conditions that we must meet in order to be eligible to
obtain any benefit. For example, through subsidiaries, we
operate development centers and a business processing operations
center in India. In 2008, the corporation tax rate applicable in
India on trading activities was 33.99%. Our subsidiaries in
India operate under specific favorable tax entitlements that are
based upon pre-approved information technology related services
activity. As a result, our subsidiaries in Pune are entitled to
considerable corporate income tax reductions that reduce their
applicable tax rate to 11.33%, and our newly-established
subsidiary in Delhi is currently entitled to a tax exemption.
Such favorable tax treatment is applied, where applicable, on
all income derived from such pre-approved information technology
activity, provided the subsidiaries continue to meet the
conditions required for such tax benefits. The benefits
applicable to our subsidiaries based in Pune are scheduled to
expire on April 1, 2010 and the benefits applicable to our
Delhi subsidiary are scheduled to phase out over 15 years
from the subsidiarys establishment. Please see
Item 10 Additional
Information Taxation Certain Indian Tax
Considerations for more information.
If we fail to meet the conditions upon which certain favorable
tax treatment is based, we would not be able to claim future tax
benefits and could be required to refund tax benefits already
received. In addition, any of the following could have a
material effect on our overall effective tax rate:
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some tax benefit programs may be limited in duration or may be
discontinued,
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we may be unable to meet the requirements for continuing to
qualify for some programs,
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these programs and tax benefits may be unavailable at their
current levels, or
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upon expiration of a particular benefit, we may not be eligible
to participate in a new program or qualify for a new tax benefit
that would offset the loss of the expiring tax benefit.
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The
market price of our ordinary shares has and may continue to
fluctuate widely.
The market price of our ordinary shares has fluctuated widely
and may continue to do so. Since September 30, 2007, our
ordinary shares have traded as high as $38.03 and as low as
$16.19 per share. As of November 24, 2008, the closing
price of our ordinary shares was $19.12 per share. Many factors
could cause the market price of our ordinary shares to rise and
fall, including:
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market conditions in the industry and the economy as a whole,
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variations in our quarterly operating results,
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announcements of technological innovations by us or our
competitors,
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introductions of new products or new pricing policies by us or
our competitors,
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trends in the communications or software industries, including
industry consolidation,
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acquisitions or strategic alliances by us or others in our
industry,
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changes in estimates of our performance or recommendations by
financial analysts,
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changes in our shareholder base,
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changes in our backlog levels, and
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political developments in the Middle East or other areas of the
world.
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In addition, in recent years, the stock market has experienced
significant price and volume fluctuations, including
particularly significant fluctuations in recent months in
connection with the credit crisis. In the past, market
fluctuations have, from time to time, particularly affected the
market prices of the securities of many high technology
companies. These broad market fluctuations could adversely
affect the market price of our ordinary shares.
It may
be difficult for our shareholders to enforce any judgment
obtained in the United States against us or our
affiliates.
We are incorporated under the laws of the Island of Guernsey and
a majority of our directors and executive officers are not
citizens or residents of the United States. A significant
portion of our assets and the assets of those persons are
located outside the United States. As a result, it may not be
possible for investors to effect service of process upon us
within the United States or upon such persons outside their
jurisdiction of residence. Also, we have been advised that there
is doubt as to the enforceability in Guernsey of judgments of
the U.S. courts of civil liabilities predicated solely upon
the laws of the United States, including the federal securities
laws.
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ITEM 4.
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INFORMATION
ON THE COMPANY
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History,
Development and Organizational Structure of Amdocs
Amdocs Limited was organized under the laws of the Island of
Guernsey in 1988. Since 1995, Amdocs Limited has been a holding
company for the various subsidiaries that conduct our business
on a worldwide basis. Our global business is providing software
and services solutions to enable communications companies that
are major services providers in North America, Europe and the
rest of the world to move toward an integrated approach to
customer management. Our registered office is Suite 5,
Tower Hill House Le Bordage, St. Peter Port, Guernsey, GY1 3QT,
and the telephone number at that location is +44-1481-728444.
In the United States, our main sales and development center is
in St. Louis, Missouri. The executive offices of our
principal subsidiary in the United States are located at 1390
Timberlake Manor Parkway, Chesterfield, Missouri 63017, and the
telephone number at that location is +1-314-212-8328.
Our subsidiaries are organized under and subject to the laws of
several countries. Our principal operating subsidiaries are in
Cyprus, India, Ireland, Israel and the United States.
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We have pursued acquisitions in order to offer new products or
services or otherwise enhance our market position or strategic
strengths. Since fiscal 2000, we have completed numerous
acquisitions, the principal ones since fiscal 2006 are
summarized below:
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Fiscal Year
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Acquired Business
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Description of Business
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2006
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Qpass
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Software systems for digital commerce
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2006
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Cramer
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Operation support software systems
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2007
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SigValue
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Customer care, billing and service control systems for
communications providers in high-growth emerging markets
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2008
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JacobsRimell
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Fulfillment software for the broadband cable industry
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2009
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ChangingWorlds
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Mobile device personalization technology
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Our acquisitions have enabled us to expand our service offerings
and our customer base and to enhance our ability to provide
managed services solutions to our customers. Through
acquisitions, we have also expanded our presence in growing
geographical and emerging communications markets reinforcing our
leadership in delivering a comprehensive portfolio of business
software applications. In the future, we may consider, as part
of our strategy, additional acquisitions and other initiatives
in order to offer new products or services or otherwise enhance
our market position or strategic strengths.
Our software and information technology workforce has increased
from 14,826 as of September 30, 2006 to 15,978 as of the
end of fiscal 2007 and to 17,100 as of the end of fiscal 2008.
The increases in our workforce are attributable to our
acquisitions, as well as to organic growth in the size of our
operations.
Our principal capital expenditures for fiscal 2008, 2007 and
2006 have been for computer equipment, for which we spent
approximately $113.2 million, $117.3 million, and
$66.6 million, respectively. Capital expenditures in fiscal
2008 reflect investments in managed services projects and the
continued support of the overall growth of our business. We
anticipate our principal capital expenditures in fiscal 2009
will consist of additional computer equipment, with the bulk of
these expenditures for computer equipment to be located at our
facilities in North America, India and Israel.
Business
Overview
Amdocs is a leading provider of software and services for
communications, media and entertainment industry service
providers. Although our market focus has traditionally been
primarily on Tier 1 and Tier 2 service providers in
developed markets, we have begun to focus on Tier 3 and 4
providers in these markets and on providers in emerging markets,
such as China, the Commonwealth of Independent States, India and
Latin America.
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 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 collectively as customer
experience systems because of the crucial impact and increasing
importance that these systems have on the service
providers end-user experience.
We believe the demand for our customer experience systems is
driven by the need of service providers to anticipate and
respond to market demands. In established markets, service
providers are transforming their businesses as they attempt to
derive revenue and profit from
IP-based
digital content and commerce services, while confronting
increased competition from non-traditional competitors,
including major Internet companies, handset manufacturers and
network equipment providers. In emerging markets, many startup
operations are introducing communications services to markets
for the first time, coping with massive scale and rapid growth;
other companies are undergoing consolidations as providers with
global brands seek to do business in these new geographies.
Regardless of whether providers are bringing their first
offerings to market, scaling for growth, consolidating systems
or transforming the way they do business, we believe they will
succeed by
15
differentiating their offerings by delivering a customer
experience that is simple, personal and valuable at every point
of service. We refer to this type of customer experience as the
intentional customer experience. We seek to address
these market forces through a strategy of forward-looking
product development and holistic, vertical integration
encompassing all systems from the customer to the network. Our
goal is to supply software products and services that provide
functionality and flexibility to service providers as
they and their markets grow and change.
Industry
Background
Communications
Industry
Over the more than two decades that Amdocs has been in business,
the global communications industry has changed and
continues to change dramatically. Competition has
increased as a result of deregulation in the United States,
which effectively commenced with the historic
break-up of
AT&T in 1984, and the privatization of formerly government
owned or controlled communications providers in many other
countries. Consolidation has swept the worlds mature
markets and continues in emerging markets. The emergence of
technologies, such as Internet Protocol (IP), IP Multimedia
Subsystem (IMS), worldwide interoperability for microwave access
(WiMax) and others, has enabled and accelerated the introduction
of new products and services, which has led to the new,
open Internet, enabling new, non-traditional players
to emerge. In turn, these relatively new services, including
content and
IP-based
services, have created an expectation of immediacy, personal
relevance and ubiquity, and expanded the universe of
participants involved in delivering them. The bundling and
blending of wireline and wireless voice, video and data services
continues, and the evolution of directory systems has ushered in
new technologies and distribution platforms, making possible
digital advertising, search applications and location-based
services components of what we call the
digital lifestyle. We believe that, as a result of
all these forces, industry players are seeking to compete by
operating at lower cost, offering competitive prices, rapidly
introducing to market new features and services and being more
responsive to customer needs as they evolve in real time, across
different networks and geographies.
The business- and operational-support systems or
customer experience systems upon which service
providers depend are considered vital to achieving competitive
advantage. We find that our customers are seeking to upgrade
existing systems and install new systems to enable them to
transform their businesses in order to deliver new,
next-generation, convergent or bundled services in the context
of a differentiating, intentional customer experience. We
believe that service providers are looking for systems and
services that reduce IT and operational costs and transformation
risk, enhance customer management to increase average revenue
and profitability per user, support customer retention, and
enable rapid rollout of new marketing packages and advanced data
services. In addition, these systems must have the ability to
orchestrate
end-to-end
business processes and provide customers with single-contact,
single-invoice solutions for their services. We believe these
needs are driven by the move toward convergence and the demand
from consumers for simplicity and ubiquitous connectivity:
access to any service anytime, anywhere, through any device as
part of their digital lifestyle.
As a result, we believe service providers require modular, yet
integrated, customer experience systems that provide the level
of integration, flexibility and scalability they need to improve
operational efficiency and to differentiate themselves from
their competitors in an increasingly crowded marketplace. We
recognize that some providers may choose to rely on their own
internal resources to serve their customers and expand their
service offerings. However, in order to implement efficient,
flexible, cost-effective information systems on a timely basis,
we find that many providers are looking to acquire customer
experience systems from external vendors. To further save scarce
capital and operating expenditure resources, many of these
providers are investing in pre-configured open-architecture
software products, which require limited customization, rather
than highly-customized solutions. Additionally, some providers
may choose to outsource the management of these systems as a way
to reduce costs and focus internal resources on corporate
competencies delivering communication, media and
entertainment services, rather than managing software systems.
We believe these factors create significant opportunities for
vendors of information technology software products and
providers of managed services, such as Amdocs.
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The
Amdocs Offerings
We believe that our product-driven approach, commitment to and
support of quality personnel and deep industry knowledge and
expertise permit us to create and deliver effective offerings
that are highly innovative, reliable and cost-effective. In
addition, we offer software products that address the specific
business needs of service providers. We believe that our success
derives from a combination of the following factors that
differentiate us from most of our competitors.
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Software Products. In fiscal 2008, we released
the Amdocs CES (customer experience systems) 7.5 portfolio of
software products. Building on Amdocs 6 and Amdocs 7, Amdocs CES
7.5 provides the fourth generation of integration between our
post-paid and pre-paid billing, customer relationship management
(CRM) and ordering applications that are designed to enable our
customers to achieve integrated customer management and deliver
an intentional customer experience. Our portfolio of
pre-integrated software products was built to span the entire
customer lifecycle across business support systems (BSS) and
operational support systems (OSS), and enable service providers
to centralize common information assets, such as customer,
product and network resource data, align their business
processes around the end customer, and link subscriber-facing
business processes and touch points across back-office and
front-office systems. Our products are designed to allow modular
extension as a service provider evolves, to ensure fast and
reduced-cost, reduced-risk implementations.
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The Amdocs CES 7.5 product portfolio is based on an open
architecture that is intended to provide the functionality,
scalability, modularity and adaptability required by service
providers in their dynamic, highly competitive markets. The open
architecture is based on the principles of service-oriented
architecture (SOA) and business process management, which helps
to ensure our products operate together or as stand-alone
applications within existing environments. We believe this
flexibility enables our customers to achieve significant
time-to-market
advantages and reduce their dependence on technical and other
staff. In addition, our products are designed to uphold the
prevailing industry standards set by standards bodies such as
the TeleManagement (TM) Forum. Amdocs is an active, board-level
member in the TM Forum and other industry forums.
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Services. Amdocs services include
consulting and systems integration and delivery services,
product support and managed services to support the deployment
and operations of our products. We combine deep industry
knowledge, advanced methodologies, industry best practices and
pre-configured tools to deliver consistent results and minimize
our customers risks.
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Solution Bundles and Packs. Building on the
products included in the Amdocs CES 7.5 portfolio, we offer
bundled solutions of products (including those of Amdocs and
third parties)
and/or
services that address specific business issues, such as
subscriber profitability and segmentation, or the identification
of consumer segments to be targeted, or system strengths to be
enhanced. Packs are turnkey versions of our
products, designed for fast, lower-cost implementation, often
deployed in emerging markets or by new market entrants in
developed markets. We believe that these bundled and packaged
offerings provide our customers with timely, cost-effective,
relatively low-risk solutions to specific business issues at a
consistent level of quality.
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Experience. We are able to offer our customers
superior products and services on a worldwide basis in large
part because of our highly qualified and trained technical,
sales, marketing and management personnel. We invest
significantly in the ongoing training of our personnel in key
areas such as industry knowledge, software technologies and
management capabilities. Leveraging this training and
experience, we have developed a field-proven set of business
processes, tools and methodologies that we apply to all ongoing
product development and delivery activities. Significantly based
on the skills and knowledge of our workforce, we believe that we
have developed a reputation for reliably delivering quality
solutions within agreed time frames and budgets.
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Business
Strategy
Our goal is to provide products, services and support to the
worlds leading service providers, as they transform from
voice or video utilities to purveyors of the digital lifestyle.
We seek to accomplish our goal by pursuing the strategies
described below.
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Continued Focus on the Communications, Media and
Entertainment Industry. We intend to continue to
concentrate our main resources and efforts on providing customer
experience systems to service providers in the communications,
media and entertainment industry. This strategy has enabled us
to develop the specialized industry know-how and capability
necessary to deliver the technologically advanced, large-scale,
specifications-intensive customer experience systems required by
the leading wireless, wireline, broadband cable and satellite
companies. We consider our longstanding and continuing focus on
this industry a competitive advantage.
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Target Industry Leaders. We intend to continue
to direct our marketing efforts principally toward the major
service providers in established markets. We derive a
substantial majority of our revenues from our customer base of
major service providers in North America and Europe. We believe
that the development of this premier customer base has helped
position us as a market leader, while contributing to the core
strength of our business. By targeting industry leaders that
require the most sophisticated customer experience systems, we
believe that we are better able to remain at the forefront of
developments in the industry.
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Expand into Emerging Markets. Through our
acquisition of SigValue in fiscal 2007 and our own development
efforts, we believe we have improved our ability to serve the
needs of service providers operating in emerging markets where
subscriber growth, principally prepaid wireless service, is far
greater than in more developed Western markets, but where
average revenue per user is relatively low. Our prospective
customers in these markets vary dramatically, with some service
providers serving subscriber bases already numbering in the
hundreds of millions and others introducing communications
services to communities for the first time. We believe this
spectrum of emerging market providers requires offerings ranging
from relatively low-cost systems with pre-packaged services that
can be implemented rapidly, to more robust service delivery
offerings, to complete customer experience systems.
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Provide Customers with a Broad, Deep Portfolio of Integrated
Products. We seek to provide our customers with a
broad, yet vertically-integrated portfolio of products to help
them deliver an intentional customer experience. We seek to
provide customer experience systems across the BSS and OSS
domains and across multiple lines of business, often including
wireline, wireless, broadband cable and satellite services.
Integration is achieved through an open, service-oriented
architecture, allowing our products to work well together and
with third-party products. This holistic approach serves to
support the worlds largest service providers throughout
their various, often international operations. We believe that
our ability to provide a broad, deep suite of products helps
position us as a strategic partner for our customers, and also
provides us with multiple avenues for strengthening and
expanding our ongoing customer relationships.
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Leverage our Managed Services and Consulting
Capabilities. Managed services enable Amdocs to
assume responsibility for the operation and management our
customers Amdocs systems, as well as systems developed by
in-house IT departments or by other vendors. Managed services
benefit our customers by affording them improved efficiencies
and long-term savings over the
day-to-day
costs of operating and maintaining these systems, and by
enabling them to focus on their own internal strengths, leaving
systems concerns to us. Managed services also benefit Amdocs, as
they can be a source of predictable revenue and long-term
relationships for us. Similarly, Amdocs consulting
services are mutually beneficial for Amdocs and our customers.
Consulting engagements can lead to the sale of new licenses and
additional services projects. In addition, our consultants
experience in the field is channeled into our product
development process, applying the best-practices and business
processes we have accumulated over more than 25 years to
enhance the performance of our products and improve the success
of future projects for our customers.
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Maintain and Develop Long-Term Customer
Relationships. We seek to maintain and develop
long-term, mutually beneficial relationships with our customers,
and have organized our internal operations to better anticipate
and respond to their needs. We find that our most positive,
productive customer relationships lead to additional product
sales, as well as ongoing, long-term support, system enhancement
and maintenance, and managed services agreements. We believe
that such relationships are facilitated in many cases by the
mission-critical, strategic nature of Amdocs systems and by the
added value we provide through our specialized skills and
knowledge. We believe that our strong customer relationships,
and the recurring revenue that they produce, are a competitive
advantage for us, especially in times of economic stress.
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Products
Our product offerings include an extensive software portfolio
that we have developed to provide comprehensive customer
experience systems functionality for service providers. Our
software systems cover the full range of revenue management,
customer management, service and resource management, digital
commerce and service delivery and information management.
We configure individual customer experience systems into
families of offerings oriented to the service provider needs
that they are designed to address. Our products focus on the
five main business challenges of our customers:
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Revenue Management: Products that enable
service providers to manage and track sources of revenue through
any channel, from service consumption to cash in hand.
Amdocs Revenue Management offerings include:
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Billing and Charging: enables flexible,
real-time rating and billing for all voice, data broadband,
content, commerce and video services, whether
pre-paid,
post-paid or
a blend of both.
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Mediation: enables service providers to
transform network activity in real time into a form that can be
used to authorize events on the network, bill a customer or pay
a content provider.
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Partner Settlement: allows service providers
to manage an unlimited number of partners providing services
over the network across several lines of business, such as
interconnect, roaming and mobile virtual network operator (MVNO)
operations as well as digital content, commerce and advertising
and dealer incentives.
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Customer Management: Products that cover the
critical touchpoints at which customers interact with service
providers, helping to ensure consistent interactions across all
channels and throughout the customer lifecycle. Amdocs
Customer Management offerings include:
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Contact Center and Agent
Interactions: consolidates information for a
customer service agent to provide real-time guidance and
up-selling and cross-selling recommendations, all within a
single unified interface.
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Service and Support: prioritizes case
handling, enables support and closes the loop between the
initial service request and problem resolution, including field
service.
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Online and Self-Directed Interactions: enables
end-users to manage their own billing, ordering,
trouble-ticketing, account maintenance and reporting through
business-to-consumer
and
business-to-business
customer portals.
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Sales and Ordering: captures orders initiated
from any channel, including the Internet, call center and sales
automation systems, then validates and breaks down the orders
into component actions, and triggers the request to the
appropriate systems for completion.
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Service and Resource Management
(OSS): Products that comprise the core
operational support systems, such as network planning, service
fulfillment and assurance. Amdocs Service and Resource
Management (OSS) offerings include:
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Network Planning: enables network planners to
analyze current, short and long-term consumption trends of
network resources and to plan and roll out a service-ready
network.
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Service Fulfillment: includes pre-packaged
automation for specific services and lines of business,
including broadband, satellite and cable; also supports the
fulfillment of multiple services, either to support a convergent
services bundle, or to standardize fulfillment across the
organization with a single interface to orchestrate all
fulfillment processes.
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Service Assurance: assures services by
proactively identifying and resolving network problems before
outages affect customers (through integration with the inventory
system), and reactively with trouble ticketing functionality to
enable faster resolution of service issues.
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Inventory and Discovery: provides a single
source of service and network inventory and performance data, to
support network planning and service fulfillment and assurance.
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Digital Commerce and Service
Delivery: Products that help service providers,
entertainment and media companies realize new revenue streams by
managing the digital commerce lifecycle and the value chain of
parties involved in delivering digital goods and services.
Amdocs Digital Commerce and Service Delivery offerings
include:
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Search and Digital Advertising: manages the
entire digital advertising lifecycle, from partner management
campaign inception, personalization and management, to reporting
and billing.
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Digital Commerce: facilitates a rich, personal
shopping experience for digital content, enabling service
providers to offer consumers personalized product and service
recommendations across all mobile content channels and media
types.
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Open Services: provides a collaboration
environment in which third-party developers can develop new
applications and use service providers systems, such as
billing and customer case, to support interactions with
end-users.
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Service Delivery and Control: comes with
dozens of pre-built value-added services, such as ringback tones
and missed call notifications, and hundreds of pre-configured
service building blocks to quickly bring to market an infinite
number of service combinations.
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Information Management: Products that provide
service providers a single view of each customer they serve and
product they offer. Amdocs Information Management
offerings include:
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Product Management: consolidates product
information into a central location, efficiently maintains the
information and maximizes the value of product assets.
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Customer Data Integration: consolidates
customer information from all systems and lines of business
across the enterprise.
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Foundation
We consider the products in our foundation layer to
be critical components of our portfolio. These products are
integrated with all the product areas described above and form
the platform upon which our customers can implement, integrate
and centralize their operating environments.
Our foundation products are organized into three broad
frameworks, including:
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Application Framework: a common infrastructure
designed to ease the integration of our own and third-party
applications.
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Operational Framework: a unified operational
environment with tools, including a common interface, to manage
all portfolio applications.
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Delivery Framework: a set of common tools,
methodologies and web services that enable customers to simplify
the way they customize and deploy our products.
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High-Growth
and Emerging Markets Systems
The Amdocs offering designed for service providers in
high-growth emerging markets is called the Amdocs Compact
Convergence Solution. This service-provider-in-a-box
solution provides the software and hardware needed to quickly
and cost-effectively bring services to market and support any
network or payment type. Its integrated software includes
operational- and business-support systems, such as customer care
and self-care, real-time charging for converged services, a
service delivery platform, and value-added services.
Specifically, the Amdocs Compact Convergence Solution includes:
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Compact Business Platform: Provides out-of
the-box essential business functionality, such as customer care,
invoicing and provisioning, and the ability to configure and
apply new business processes as needed.
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Compact Charging Platform: Allows service
providers to implement and execute a range of tariff plans and
pricing strategies, and to bill customers for service usage.
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Service Platform: Provides value-added
services out of the box, and enables service providers to adjust
services or create new ones using its service creation
capabilities.
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Directory
Systems
The directory systems product offering is comprised of the
Integrated Advertising Management Framework, the Amdocs solution
for Internet Yellow Pages (IYP) and a set of products enabling
multimedia advertising via IP television (IPTV), mobile
telephone and the Internet. These products enable local
directory publishers to become the destination of
choice for consumers, advertisers and distribution
partners. The Directory Systems offerings include:
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Integrated Advertising Management: Comprised
of pre-integrated and modular applications that support
traditional yellow pages and white pages directory sales and
publishing operations as well as interactive advertising
products, such as advertisements, directories and catalogs
delivered across multiple digital media, including the Internet
and mobile devices. The Integrated Advertising Management
framework consists of the following key functional areas:
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Target/Market Supports all marketing
functions from product design, rollout and offer development, to
lead management and support for multiple advertiser segment
definitions.
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Sales and Ordering Supports the definition of
flexible advertising sales campaigns and the management of
purchased orders.
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Deliver Supports production of advertising
products across multiple media; the design is intended to allow
content to be collected, verified, managed and maintained using
a virtual repository consisting of multiple content types from
multiple sources.
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Syndication Partner Management (SPM) Enables
publishers to manage complex relationships with search and
content syndication partners and affiliates. SPM defines
revenue-sharing models in partner contracts, and automatically
rates and generates payments for events accordingly. SPM also
includes functionality for reporting and auditing partner
activities.
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Finance Provides a robust mechanism for
monetizing simple and complex advertising events. A mediation
layer interacts with the network layer to capture events and
supports complex rating and billing functionality.
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Support Provides support for publishers
operational activities such as the creation of new orders,
billing, managing advertiser account profiles, verifying
contracts, and viewing advertiser promotions and campaigns.
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Internet Yellow Pages Solution: Includes full
support for the Internet Yellow Pages operation under the Web
2.0 paradigm, including the following key functional
areas:
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Local Directories Uses an online local search
portal and provides business search capabilities and supports
social networking.
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User Manager Supports the collection and
maintenance of users profiles and the tracking of
users site activities.
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User Generated Content (UGC) Manager Supports
users ability to contribute content to the Internet Yellow
Pages 2.0 site repository.
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Local Search Combines fuzzy logic, run-time
expansion and machine learning to provide greater accuracy for
online and mobile search applications.
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Technology
Our portfolio architecture is designed to increase our
customers business agility and lower their overall total
cost of ownership. Our technology platform allows our
applications to work in multiple customer environments,
including:
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Hardware: IBM, Hewlett-Packard, Sun
Microsystems
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Operating Systems: IBM AIX, HP-UX, Solaris,
Windows
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Database Management Systems: Oracle, SQL
Server, IBM UDB
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Middleware: BEA WebLogic, IBM WebSphere
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We believe this ability affords our customers the freedom to
choose a preferred operating environment and to maximize return
on existing infrastructure investments. To help service
providers respond more quickly to changes in their markets and
lower their integration costs, we employ service-oriented
architecture principles in our portfolio design. For example,
Amdocs Integration Framework includes a central service
repository for defining business services for both Amdocs and
external applications allowing our applications to seamlessly
integrate with each other and with third party enterprise server
bus or legacy applications.
Our portfolio applications are based around consistent
architectural guidelines and software infrastructure, and they
also leverage, where appropriate, consistent foundation tools
and services for areas such as integration, process management,
monitoring and control, security, and information management.
Our platform-agnostic foundation layer spans our applications
and helps us evolve our products towards robust service-oriented
architecture (SOA) integration and business process support.
With these tools, we aim to provide our customers a sound
framework upon which to implement, integrate and centralize
their operating environments. This allows service providers to
mitigate many costs associated with deploying and operating new
applications, such as those related to installation,
configuration, integration and monitoring.
Our product portfolio also includes the following key
characteristics:
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Scalability. Our applications are designed to
take full advantage of the scalability capabilities of the
underlying platform, allowing progressive system expansion,
proportional with the customers growth in business
volumes. Using the same software, our applications can support
operations for small, as well as very large service providers.
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Modularity. Our product portfolio is comprised
of sets of individual functional application products. Each of
our applications can be installed on an individual stand-alone
basis, interfacing with the customers existing systems, or
as part of an integrated Amdocs system environment. This
modularity provides our customers with a highly flexible and
cost-effective solution that is able to incrementally expand
with the customers growing needs and capabilities. The
modular approach also preserves the customers initial
investment in products, while minimizing future disruptions and
the overall cost of system implementation.
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Portability. Our applications support diverse
hardware and operating systems to ensure that our customers can
choose from a variety of vendors, including Hewlett-Packard, IBM
and Sun Microsystems. Certain applications can also be deployed
on the Windows NT platform. Our applications utilize, where
applicable, Java-based design and programming to augment
cross-platform portability.
|
Services
As part of our effort to provide comprehensive offerings, we
offer a broad suite of services that are designed to help
service providers transform their businesses and deliver an
intentional customer experience. Our services methodology
incorporates rigorous focus on the people, processes and
technology of an organization, and we invite active customer
participation at all stages to help prioritize and implement
time-critical system solutions that address the customers
individual needs. We believe that our services methodology helps
us to achieve the timeframe, budget and quality objectives we
jointly set with customers.
Our services portfolio includes:
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Consulting and Systems Integration Services
These services span the entire consulting
universe from assessment and advisory services to optimization
and business transformation that help lower overall operational
costs. We have developed advanced methodologies, industry
best-practices and pre-configured tools to deliver consistent
results and minimize the service providers exposure to
risk.
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Managed Services This set of flexible
services offerings is uniquely tailored for the service provider
industry to outsource the performance and management of their
support business functions, operations and infrastructure
support. Our services for managed services projects include data
center and infrastructure management, application management and
ongoing support, systems modernization and consolidation,
business process operations support and
end-to-end
transformational business process outsourcing (BPO).
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Delivery Services Uses
best-in-class
delivery methodologies (e.g. project management governance,
solution architecture and quality assurance), best practices,
business processes and testing tools for optimal delivery. Our
delivery services are designed to maximize the value of our
products and provide service providers with cost-effective
business transformation and reduce their exposure to risk.
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Product Support Services Support packages
designed to maximize our customers business performance,
strengthen their competitive position and ensure ongoing,
consistent operations over the long-term.
|
The extent of services provided varies from customer to
customer. Our services engagements can range in size and scope
from deploying single point solutions to orchestrating
large-scale transformation projects. We have invested
considerable research and development efforts in upgrading our
applications suite to address this market requirement and to
meet each customers unique needs.
Depending on the customers needs, system implementation
and integration activities often are conducted jointly by teams
from Amdocs and the customer in parallel with the customization
effort. Implementation and integration activities include
project management, development of training methods and
procedures, design of work flows, hardware planning and
installation, network and system design and installation, system
conversion and documentation. In some cases, Amdocs personnel
provide support services to the customers own
implementation and integration team, which has primary
responsibility for the task. In other cases, we take a primary
role in facilitating implementation and integration. In yet
other instances, customers require turnkey solutions, in which
case we are able to provide full system implementation and
integration services.
Once the system becomes operational, we are generally retained
by the customer to provide ongoing services, such as
maintenance, enhancement design and development and operational
support. For substantially all of our customers, the
implementation and integration of an initial system has been
followed by the sale of additional systems and modules. In
recent years, we have established long-term maintenance and
support
23
contracts with a number of our customers. These contracts have
generally involved an expansion in the scope of support
provided, while also providing us with recurring revenue.
Our business is conducted on a global basis. We maintain
development facilities in China, Cyprus, India, Ireland, Israel
and the United States, operate a support center in Brazil and
have operations in North America, Europe, Latin America and the
Asia-Pacific region.
Sales
and Marketing
Our sales and marketing activities are primarily directed at
major communications, media and entertainment companies. As a
result of the strategic importance of our customer experience
systems to the operations of these companies, a number of
constituencies within a customers organization are
typically involved in purchasing decisions, including senior
management, information systems personnel and user groups, such
as the finance, customer service and marketing departments. We
maintain sales offices in the United States, the United Kingdom
and several other countries.
Our sales activities are supported by marketing efforts and
increasing cooperation with strategic partners. We reorganized
our marketing function in fiscal 2008 to better align it with
our sales functions. We also created a new Alliances group in
fiscal 2008 to provide a more formal structure for, and to
support, our activities with partner companies, such as IBM,
Alcatel-Lucent, Hewlett-Packard and others.
We interact with other third parties in our sales activities,
including independent sales agents, information systems
consultants engaged by our customers or prospective customers
and systems integrators that provide complementary products and
services to such customers. We also have value-added reseller
agreements with certain hardware and database vendors.
Customers
Our target market is comprised of service providers in the
communication, media and entertainment industry that require
customer experience systems with advanced functionality and
technology. The companies in our target segment are typically
market leaders. By working with such companies, we help ensure
that we remain at the forefront of developments in the
communication, media and entertainment industry and that our
product offerings continue to address the markets most
sophisticated needs. We have an international orientation. The
broad base of our customers is in North America and Europe,
however, with our expanded in emerging markets, we also have
customers in geographies as diverse as China, India and the
Commonwealth of Independent States.
Our customers include global communications leaders and leading
network operators and service providers, as well as directory
publishers in the United States and around the world. Our
customers include:
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America Movil
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Seat Pagine Gialle S.p.A.
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AT&T
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Sprint Nextel
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Bakcell
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Sunrise
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Bell Canada
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Svyazinvest
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BT
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Telefonica de Espana
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Cablevision
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Telkom South Africa
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China Mobile
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Telstra
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Comcast
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TELUS
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Deutsche Telekom
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T-Mobile
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DIRECTV
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|
TRUE Corporation
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Elisa
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Verizon Communications
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Excelcom
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VimpelCom
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Kazakhtelecom
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Virgin Media
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KPN Mobile
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Vodafone D2
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RH Donnelley
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Vodafone Netherlands
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Rogers
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Vodafone UK
|
24
Our business is dependent on a limited number of significant
customers, of which AT&T was our largest in fiscal 2008,
accounting for 28% of fiscal 2008 revenue. In fiscal 2008, our
three largest groups of customers were AT&T, Bell Canada
and Sprint Nextel, and certain of their subsidiaries, each of
which accounted for more than 10% of our revenue in fiscal 2008.
Together, these three customer groups accounted for
approximately 51% of our revenue in fiscal 2008. Aggregate
revenue derived from the multiple business arrangements we have
with our ten largest customer groups accounted for approximately
75% of our revenue in fiscal 2008 and 73% of our revenue in
fiscal 2007.
The following is a summary of revenue by geographic area.
Revenue is attributed to geographic region based on the location
of the customer:
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|
|
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|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
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|
North America
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|
68.7
|
%
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|
|
66.6
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%
|
|
|
69.9
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%
|
Europe
|
|
|
17.3
|
|
|
|
21.5
|
|
|
|
21.8
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|
Rest of the World
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|
|
14.0
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|
|
|
11.9
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|
|
|
8.3
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Competition
The market for customer experience systems and services in the
communication, media and entertainment industry continues to
become increasingly more competitive. Amdocs competitive
landscape is comprised of internal IT departments of large
communication companies as well as independent competitors that
can be categorized as follows:
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providers of OSS/BSS systems, including Comverse, Convergys, CSG
Systems International and Oracle Corporation;
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system integrators and providers of IT services, such as
Accenture, Cognizant, HP, Infosys, IBM Global Services, Satyam
Computer Services Ltd, Tata Consultancy Services and Tech
Mahindra Ltd (some of whom we also cooperate with in certain
opportunities and projects); and
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network equipment providers such as Motorola and Nokia.
|
Systems integrators and many providers of information systems
mainly serve other industries, while network equipment providers
focus primarily on equipment manufacturing. Nevertheless, we
expect the competition in our industry to increase from such
companies.
We believe that we are able to differentiate ourselves from
these competitors by, among other things:
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applying our 25-plus-year heritage to the development and
delivery of products and professional services that enable our
customers to achieve service differentiation via an intentional
customer experience,
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focusing on service providers and continuing to design and
develop solutions targeted specifically to this industry,
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innovating and enabling our customers to adopt new business
models that will improve their ability to drive new revenues,
and compete and win in a changing market,
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providing high-quality, reliable, scalable, integrated, yet
modular applications, and
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offering customers
end-to-end
accountability from a single vendor.
|
We compete with a number of companies that have long operating
histories, large customer bases, substantial financial,
technical, sales, marketing and other resources, and strong name
recognition. Some of these companies are continuing their
attempts to expand their communications industry market
penetration. Current and potential competitors have established,
and may establish in the future, cooperative relationships among
themselves or with third parties to increase their ability to
address the needs of our prospective customers. Accordingly, new
competitors or alliances among competitors may emerge and
rapidly acquire significant market share. There can be no
assurance that we will be able to compete successfully with
existing or new competitors.
25
Our failure to adapt to changing market conditions and compete
successfully with established or new competitors would have a
material adverse effect on our results of operations and
financial condition.
Employees
We invest significant resources in training, retention and
motivation of high quality personnel. Training programs cover
areas such as technology, applications, development methodology,
project methodology, programming standards, industry background,
business aspects and management development. Our management
development efforts are reinforced by an organizational
structure that provides opportunities for talented managers to
gain experience in general management roles. We also invest
considerable resources in personnel motivation, including
providing various incentive plans for sales staff and high
quality employees. Our future success depends in large part upon
our continuing ability to attract and retain highly qualified
managerial, technical, sales and marketing personnel.
See Directors, Senior Management and Employees
Employees for further details regarding our employees and
our relationships with them.
Research
and Development, Patents and Licenses
Our research and development activities involve the development
of new software architecture, modules and product offerings in
response to an identified market demand, either as part of our
internal product development programs or in conjunction with a
customer project. We also expend additional amounts on applied
research and software development activities to keep abreast of
new technologies in the communications markets and to provide
new and enhanced functionality to our existing product offerings.
While we have continued to upgrade our existing systems over the
last several years, we have also devoted significant research
and development efforts to the integration between our products.
As part of these efforts, during fiscal 2007, we invested in
Amdocs CES 7.5, the latest major release of our comprehensive
portfolio, which we introduced in February 2008. Amdocs CES 7.5
expands on the capabilities of our previous Amdocs 7 release by
improving subscriber management through a unified user
interface, providing support for seamless service ordering
across all channels, offering a single source for all product
and subscriber information, and comprehensive support for
critical service provider business processes. Amdocs CES 7.5
comprises an enhanced portfolio of modular billing, CRM,
self-service, order management, mediation, OSS and content
management software products.
The majority of our research and development expenditures is
directed at our customer experience systems, and the remainder
to directory solutions. We believe that our research and
development efforts are a key element of our strategy and are
essential to our success. However, 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.
Our products are largely comprised of software and systems that
we have developed or acquired and that we regard as proprietary.
Our software and software systems are the results of long and
complex development processes, and although our technology is
not significantly dependent on patents or licenses from third
parties, certain aspects of our products make use of readily
available software components licensed from third parties. As a
developer of complex software systems, third parties may claim
that portions of our systems infringe their intellectual
property rights. The ability to develop and use our software and
software systems requires knowledge and professional experience
that we believe is unique to us and would be very difficult for
others to independently obtain. However, our competitors may
independently develop technologies that are substantially
equivalent or superior to ours. We have taken, and intend to
continue to take, several measures to establish and protect our
proprietary rights in our products and technologies from
third-party infringement. We rely upon a combination of
trademarks, patents, contractual rights, trade secret law,
copyrights and nondisclosure agreements; we enter into
non-disclosure and confidentiality agreements with our
customers, employees and marketing representatives and with
certain contractors with access to sensitive information; and we
also limit customer access to the source code of our software
and software systems.
See the discussion under Operating and Financial Review
and Prospects Research and Development, Patents and
Licenses.
26
Property,
Plants and Equipment
Facilities
We lease land and buildings for our executive offices, sales,
marketing, administrative, development and support centers. We
lease an aggregate of approximately 3,139,000 square feet
worldwide, including significant leases in the United States,
Israel, Canada, China, Cyprus, India and the United Kingdom. Our
aggregate annual lease costs with respect to our properties as
of November 30, 2008, including maintenance and other
related costs, are approximately $65.7 million. The
following table summarizes information with respect to the
principal facilities leased by us and our subsidiaries as of
November 30, 2008:
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Area
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|
Location
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(Sq. Feet)
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|
|
United States:
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|
St. Louis, MO
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91,928
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|
San Jose, CA(*)
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|
|
112,120
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|
Champaign, IL
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|
|
199,183
|
|
Eldorado Hills, CA(*)
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|
70,008
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|
Others(*)
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|
361,995
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|
|
|
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Total
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835,234
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Israel:
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Raanana
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641,443
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Hod-Hasharon(*)
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236,522
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Haifa
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74,609
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|
Others
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|
|
157,479
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|
|
|
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|
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Total
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|
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1,110,053
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Canada:
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Toronto(*)
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|
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66,128
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|
Montreal
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|
|
57,705
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|
Others
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26,828
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|
|
|
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Total
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150,661
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China
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|
|
85,587
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|
Cyprus (Limassol)
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|
|
103,893
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India:
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|
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|
|
Pune
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|
|
442,633
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|
Delhi
|
|
|
122,890
|
|
|
|
|
|
|
Total
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|
|
565,523
|
|
United Kingdom(*)
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|
|
103,460
|
|
Rest of the world(**)
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|
185,060
|
|
|
|
|
(*) |
|
Includes space sublet to third parties. |
|
(**) |
|
Includes Austria, Australia, Brazil, Czech Republic, Denmark,
France, Germany, Greece, Hungary, Indonesia, Ireland, Italy,
Japan, Kazakhstan, Korea, Malaysia, Mexico, New Zealand, Poland,
Romania, Russia, Singapore, South Africa, Spain, Sweden, Taiwan,
Thailand, Turkey, The Netherlands and the United Arab Emirates. |
Our leases expire on various dates between 2009 and 2020, not
including various options to extend lease terms.
27
Equipment
We develop our customer experience systems over a system of
UNIX, MVS, Linux and Windows
2000/2003
servers owned or leased by us. We use a variety of software
products in our development centers, including products by
Microsoft, Oracle, Synscsort, CA, Merant, IBM, HP, SUN and BEA.
Our data storage is based on equipment from EMC, SUN, NetApp and
Hewlett-Packard. Our development servers are connected to
approximately 22,150 personal computers owned or leased by
us.
Automatic tape libraries provide full and incremental backups of
the data used in and generated by our business. The backup tapes
are kept
on-site and
off-site, as appropriate, to ensure security and integrity, and
are used as part of our disaster recovery plan. The distributed
development sites that we operate worldwide are connected by a
high-speed redundant wide area network, or WAN, using
telecommunication equipment manufactured by, among others, Cisco
and Nortel.
The distributed development sites that we operate worldwide are
also connected by a high speed WAN.
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|
ITEM 5.
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OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
|
Introduction
In this section, we discuss the general financial condition and
the results of operations for Amdocs Limited and its
subsidiaries, including:
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the factors that affect our business,
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our revenue and costs for the fiscal years ended
September 30, 2008, 2007 and 2006,
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the reasons why specific line items in our consolidated
statements of income were different from year to year,
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the sources of our revenue,
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how all of this affects our overall financial condition,
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our capital expenditures for the fiscal years ended
September 30, 2008, 2007 and 2006,
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the changes in our business, including those resulting from
acquisitions of other businesses, and
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the sources of our cash to pay for future capital expenditures
and possible acquisitions.
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You should read this section in conjunction with our
consolidated financial statements and the notes thereto, which
follow.
Overview
of Business and Trend Information
Amdocs is a leading provider of software and services for
communications, media and entertainment industry service
providers. Although our market focus has traditionally been
primarily on Tier 1 and Tier 2 service providers in
developed markets, we have begun to focus on Tier 3 and 4
providers in these markets, and on providers in emerging
markets, such as China, the Commonwealth of Independent States,
India and Latin America.
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 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 collectively as customer
experience systems because of the crucial impact and increasing
importance that these systems have on the service
providers end-user experience.
We believe the demand for our customer experience systems is
driven by the need of service providers to anticipate and
respond to market demands. In established markets, service
providers are transforming their businesses as they attempt to
derive revenue and profit from
IP-based
digital content and commerce services,
28
while confronting increased competition from non-traditional
competitors, including major Internet companies, handset
manufacturers and network equipment providers. In emerging
markets, many startup operations are introducing communications
services to markets for the first time, coping with massive
scale and rapid growth; other companies are undergoing
consolidations as providers with global brands seek to do
business in these new geographies. Regardless of whether
providers are bringing their first offerings to market, scaling
for growth, consolidating systems or transforming the way they
do business, we believe they will succeed by differentiating
their offerings by delivering a customer experience that is
simple, personal and valuable at every point of service. We
refer to this type of customer experience as the
intentional customer experience. We seek to address
these market forces through a strategy of forward-looking
product development and holistic, vertical integration
encompassing all systems from the customer to the network. Our
goal is to supply software products and services that provide
functionality and flexibility to service providers as
they and their markets grow and change.
In part, we have sought to expand both our functionality and
geographic markets, through acquisitions. Since 1999, we have
completed numerous acquisitions, which, among other things, have
expanded our business into customer care and billing solutions
for broadband media cable and satellite companies and enhanced
our offerings in the OSS market. In fiscal 2006, we acquired
Qpass Inc. and Cramer Systems Group Limited which we
refer to, respectively, as Qpass and Cramer in order
to offer software products for the digital content and commerce
markets and to enhance our end-to-end BSS/OSS offerings. In
fiscal 2007, we acquired SigValue Technologies Inc., which we
refer to as SigValue, to add expertise in providing integrated
billing and customer care systems in high-growth emerging
markets. In fiscal 2008, we acquired JacobsRimell Ltd.
(JacobsRimell), a provider of fulfillment solutions for the
broadband cable industry, to enrich our OSS offering for cable,
and in fiscal 2009, we acquired ChangingWorlds, a provider of
mobile device personalization technology. As part of our
strategy, we may continue to pursue acquisitions and other
initiatives in order to offer new products or services, or
otherwise enhance our market position or strategic strengths.
Please see Note 3 to the consolidated financial statements
for more information regarding our acquisitions.
Offerings
Amdocs offerings of software and related services consist
of:
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A complete, modular yet integrated portfolio of customer
experience systems, including revenue management (billing and
charging, mediation, and partner settlement), customer
management (contact center and agent interaction, service and
support, sales and ordering, and online and self-directed
interactions), service and resource management (OSS) (network
planning, service fulfillment, service assurance, and inventory
and discovery) digital commerce and service delivery (digital
commerce, search and digital advertising, open services, and
service delivery and control), information management (product
management and customer data integration), and foundation
(application framework, operational framework and delivery
framework).
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A comprehensive line of services. Because our customers
projects are complex and require systems support expertise, we
provide information technology, or IT, services, including
extensive consulting, delivery and managed services to assist
our customers with their business strategy, system
implementation, integration, modification, consolidation,
modernization and ongoing support, enhancement and maintenance
services. In addition, we offer comprehensive training services
to help our customers develop competency in their Amdocs systems
and applications.
|
We have designed our customer experience systems to meet the
high-volume, complex needs of Tier 1 and Tier 2
service providers, and as well as to address the unique issues
of service providers in emerging markets. 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 bundled or convergent service packages.
29
We also offer 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 have expanded our range of directory services to include
support for digital advertising, search applications, and
location-based services.
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, media and entertainment
industry. In fiscal 2008, customers in North America accounted
for 68.7% of our revenue, while customers in Europe and the rest
of the world accounted for 17.3% and 14.0%, respectively. 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:
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Industry transformation, including:
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ubiquitous use of communications and content services,
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increases in digital and mobile commerce,
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continued explosive growth in emerging markets,
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consolidation among service providers in established markets,
often including companies with multi-national operations,
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increased competition, including non-traditional players,
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continued convergence of communications, broadband cable and
satellite services, and
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continued commoditization and pricing pressure.
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Technology advances, such as:
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emergence and development of new communications products and
services, such as web services, video, broadband, data and
content services, including
IP-based
services, such as Internet Protocol (IP) Television (IPTV),
worldwide interoperability for microwave access (WiMax) and
Voice over IP (VoIP),
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evolution to next-generation networks, such as IP Multimedia
Subsystem (IMS), that enable converged services offerings like
fixed-mobile convergence, and
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technological changes, such as the introduction of 3G and 4G
wireless technology, next-generation content systems and WiFi-
and WiMax-based access technologies.
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Customer focus, such as:
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the need for service providers to focus on their customers in
order to build profitable customer relationships,
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the authority shift toward the consumer, with
increased customer expectations for new, innovative services
that are personally relevant and that can be accessed anytime,
anywhere and from any device,
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ever-increasing expectation of customer service and support,
including access to self-service options that are convenient and
consistent across all channels, and
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the need for service providers to differentiate themselves by
creating a unique and mutually-valuable customer experience.
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The need for operational efficiency, including:
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the shift from in-house management to vendor solutions,
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30
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business needs of service providers to reduce costs and lower
total cost of ownership of software systems while retaining
high-value customers in a highly competitive environment,
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automating and integrating business processes that span service
providers BSS and OSS systems and create a simple,
one-company face to customers,
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integrating and implementing new next-generation networks (and
retiring legacy networks) to deploy new technologies, and
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transforming fragmented legacy OSS systems to introduce new
services in a timely and cost-effective manner.
|
In fiscal 2008, our total revenue was $3,162.1 million, of
which $2,894.3 million, or 91.5%, was attributable to the
sale of customer experience systems. 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 is a significant part of our business, accounting
for approximately 35% to 40% of our fiscal 2008 and 2007
revenues, 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 customers systems. Invoices are
usually structured on a periodic fixed or unit charge basis.
Managed services projects can be less profitable in the initial
period, however, margins tend to improve over time as we derive
benefit from the operational efficiencies and from changes in
the geographical mix of our resources.
Research
and Development, Patents and Licenses
Our research and development activities involve the development
of new software architecture, modules and product offerings in
response to an identified market demand, either as part of our
internal product development programs or in conjunction with a
customer project. We also expend additional amounts on applied
research and software development activities to keep abreast of
new technologies in the communications markets and to provide
new and enhanced functionality to our existing product
offerings. Research and development expenditures were
$225.5 million, $230.4 million and $186.8 million
in the fiscal years ended September 30, 2008, 2007 and
2006, respectively, representing 7.1%, 8.1% and 7.5%,
respectively, of our revenue in these fiscal years.
While we continued to upgrade our existing systems in fiscal
year 2008, we have also devoted significant research and
development efforts to the integration between our products. As
part of these efforts, during fiscal 2007, we invested in Amdocs
CES 7.5, the latest major release of our comprehensive
portfolio, which we introduced in February 2008. Amdocs CES 7.5
expands on the capabilities of our previous Amdocs 7 release by
improving subscriber management through a unified user
interface, providing support for seamless ordering across all
channels, offering a single source for all product and
subscriber information, and comprehensive support for critical
service provider business processes. Amdocs CES 7.5 comprises an
enhanced portfolio of modular billing, CRM, self-service, order
management, mediation, OSS and content management software
products.
The majority of our research and development expenditures is
directed at our customer experience systems, and the remainder
to directory solutions. We believe that our research and
development efforts are a key element of our strategy and are
essential to our success. However, 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.
Operational
Efficiency and Cost Reduction Program
In the fourth quarter of fiscal 2008 and in the second quarter
of fiscal 2007, we commenced a series of measures designed to
improve efficiency and to align our operational structure to our
expected future growth . As part of these plans, we recorded a
charge of $12.1 million and $6.0 million in fiscal
2008 and fiscal 2007, respectively, consisting primarily of
employee separation costs in connection with the termination of
the
31
employment of software and information technology specialists
and administrative professionals at various locations around the
world and, in fiscal 2007, for rent obligations.
Notes
Repurchase Program
In November 2008, our Board of Directors authorized us to
repurchase $100 million of our 0.50% Convertible
Senior Notes in such amounts, at such prices and at such times
that we deem appropriate. During the first quarter of fiscal
2009, using proceeds from our revolving credit facility, we
purchased $100 million aggregate principal amount of our
notes at an average price of 98% of the principal amount,
excluding accrued interest and transaction fees. In March 2009,
the remaining notes are redeemable by us, and if we do not elect
to redeem the notes, then the holders of the notes may require
us to repurchase the notes, at a purchase price equal to 100% of
the principal amount of the notes, plus accrued and unpaid
interest. We anticipate that a substantial portion of the
outstanding notes will be put to us in March 2009 if we do not
elect to redeem them.
Operating
Results
The following table sets forth for the fiscal years ended
September 30, 2008, 2007 and 2006, certain items in our
consolidated statements of operations reflected as a percentage
of total revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
License
|
|
|
4.3
|
%
|
|
|
5.6
|
%
|
|
|
4.7
|
%
|
Service
|
|
|
95.7
|
|
|
|
94.4
|
|
|
|
95.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of license
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.2
|
|
Cost of service
|
|
|
64.0
|
|
|
|
63.2
|
|
|
|
63.7
|
|
Research and development
|
|
|
7.1
|
|
|
|
8.1
|
|
|
|
7.5
|
|
Selling, general and administrative
|
|
|
12.8
|
|
|
|
13.1
|
|
|
|
12.7
|
|
Amortization of purchased intangible assets
|
|
|
2.7
|
|
|
|
2.6
|
|
|
|
1.5
|
|
Restructuring charges, in-process research and development, and
other acquisition related costs
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87.2
|
|
|
|
87.4
|
|
|
|
86.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
12.8
|
|
|
|
12.6
|
|
|
|
13.4
|
|
Interest income and other, net
|
|
|
0.4
|
|
|
|
1.8
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
13.2
|
|
|
|
14.4
|
|
|
|
15.1
|
|
Income taxes
|
|
|
1.2
|
|
|
|
1.5
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
12.0
|
%
|
|
|
12.9
|
%
|
|
|
12.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Fiscal
Years Ended September 30, 2008 and 2007
The following is a tabular presentation of our results of
operations for the fiscal year ended September 30, 2008,
compared to the fiscal year ended September 30, 2007.
Following the table is a discussion and analysis of our business
and results of operations for these years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended September 30,
|
|
|
Increase (Decrease)
|
|
|
|
2008
|
|
|
2007
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
|
|
$
|
135,487
|
|
|
$
|
159,357
|
|
|
$
|
(23,870
|
)
|
|
|
(15.0
|
)%
|
Service
|
|
|
3,026,609
|
|
|
|
2,676,816
|
|
|
|
349,793
|
|
|
|
13.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,162,096
|
|
|
|
2,836,173
|
|
|
|
325,923
|
|
|
|
11.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of license
|
|
|
2,729
|
|
|
|
3,914
|
|
|
|
(1,185
|
)
|
|
|
(30.3
|
)
|
Cost of service
|
|
|
2,023,562
|
|
|
|
1,792,468
|
|
|
|
231,094
|
|
|
|
12.9
|
|
Research and development
|
|
|
225,492
|
|
|
|
230,444
|
|
|
|
(4,952
|
)
|
|
|
(2.1
|
)
|
Selling, general and administrative
|
|
|
404,134
|
|
|
|
370,194
|
|
|
|
33,940
|
|
|
|
9.2
|
|
Amortization of purchased intangible assets
|
|
|
86,687
|
|
|
|
74,959
|
|
|
|
11,728
|
|
|
|
15.6
|
|
Restructuring charges, in-process research and development and
other acquisition related costs
|
|
|
13,896
|
|
|
|
6,761
|
|
|
|
7,135
|
|
|
|
105.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,756,500
|
|
|
|
2,478,740
|
|
|
|
277,760
|
|
|
|
11.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
405,596
|
|
|
|
357,433
|
|
|
|
48,163
|
|
|
|
13.5
|
|
Interest income and other, net
|
|
|
11,955
|
|
|
|
50,566
|
|
|
|
(38,611
|
)
|
|
|
(76.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
417,551
|
|
|
|
407,999
|
|
|
|
9,552
|
|
|
|
2.3
|
|
Income taxes
|
|
|
38,645
|
|
|
|
43,062
|
|
|
|
(4,417
|
)
|
|
|
(10.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
378,906
|
|
|
$
|
364,937
|
|
|
$
|
13,969
|
|
|
|
3.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue. Total revenue increased by
$325.9 million, or 11.5%, to $3,162.1 million in
fiscal 2008, from $2,836.2 million in fiscal 2007.
Approximately 48% of the increase was attributable to an
increase in business related to managed services customers and
the remainder was primarily attributable to additional revenue
from consolidation and transformation projects for Tier 1
and for cable and satellite customers, from revenue related to
OSS projects and from revenue contributed by customers in
emerging markets.
License revenue decreased by $23.9 million, or 15.0%, to
$135.5 million in fiscal 2008, from $159.4 million in
fiscal 2007. The decrease in license revenue was attributable
primarily to completion of some projects.
License and service revenue attributable to the sale of customer
experience systems was $2,894.3 million in fiscal 2008, an
increase of $342.6 million, or 13.4%, from fiscal 2007. The
increase was primarily attributable to revenue related to the
expansion of our managed services activities, revenue from
consolidation and transformation projects for Tier 1 and
for cable and satellite customers, from revenue related to OSS
projects and from revenue contributed by customers in emerging
markets.
License and service revenue from the sale of customer experience
systems represented 91.5% and 90.0% of our total revenue in
fiscal 2008 and 2007, respectively.
License and service revenue from the sale of directory systems
was $267.8 million for fiscal 2008, a decrease of
$16.7 million, or 5.9%, from fiscal 2007. The decrease was
primarily attributable to decrease in activities related to our
existing customers. License and service revenue from the sale of
directory systems represented 8.5% and 10.0% of our total
revenue in fiscal 2008 and 2007, respectively. We believe that
we are
33
a leading provider of directory systems in most of the markets
we serve. We expect that our revenue from directory systems will
decrease in fiscal 2009.
In fiscal 2008, revenue from customers in North America, Europe
and the rest of the world accounted for 68.7%, 17.3% and 14.0%,
respectively, of total revenue, compared to 66.6%, 21.5% and
11.9%, respectively, for fiscal 2007. The decrease in revenue
contributed from customers in Europe was attributable primarily
to completion of projects. The increase in the percentage of
revenue contributed from customers in the rest of the world in
fiscal 2008 was attributable primarily to revenue contributed by
customers in the Asia-Pacific region and emerging markets.
Cost of License and Service. Cost of license
mainly includes royalty payments to software suppliers. 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 license and
service in fiscal 2008 was $229.9 million or, 12.8%, which
is higher than the increase in our total revenue in fiscal 2008.
As a percentage of revenue, cost of license and service was
64.1% in fiscal 2008, compared to 63.3% in fiscal 2007. Our cost
of service in fiscal 2008 was impacted by expansion of our
managed services activities, partially offset by cost savings
resulting from our expansion into lower cost jurisdictions and
increased efficiencies in our overall operations. Margins from
managed services tend to improve over time as we realize
synergies, create cost efficiencies and improve business
processes.
Research and Development. Research and
development expense is primarily comprised of compensation
expense. Research and development expense decreased by
$4.9 million, or 2.1%, to $225.5 million in fiscal
2008, from $230.4 million in fiscal 2007. Research and
development expense decreased as a percentage of revenue from
8.1% in fiscal 2007 to 7.1% in fiscal 2008. 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 commitment to research and development. 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.
The majority of our research and development expenditures is
directed at our customer experience systems, and the remainder
to directory systems. Please see the discussion above under the
caption Research and Development, Patents and
Licenses.
Selling, General and Administrative. Selling,
general and administrative expense increased by
$33.9 million, or 9.2%, to $404.1 million in fiscal
2008, from $370.2 million in fiscal 2007. Selling, general
and administrative expense is primarily comprised of
compensation expense. Selling, general and administrative
expense increased at a lower rate than the 11.5% increase in our
total revenue, which resulted in a decrease as a percentage of
revenue, from 13.1% in fiscal 2007 to 12.8% in fiscal 2008. 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 fiscal 2008 was $86.7 million, compared to
$74.9 million in fiscal 2007. The increase in amortization
of purchased intangible assets was primarily due to purchased
intangible assets acquired in our fiscal 2006, 2007 and 2008
acquisitions.
Restructuring Charges, In-Process Research and Development
and Other. Restructuring charges, in-process
research and development and other increased by
$7.1 million, or 105.5%, to $13.9 million in fiscal
2008, from $6.8 million in fiscal 2007. Restructuring
charges, in-process research and development and other in fiscal
2008 consisted of a $12.1 million restructuring charge
related to our restructuring plan in the fourth quarter of
fiscal 2008 and a $1.8 million charge for the write-off of
purchased in-process research and development related to an
immaterial acquisition during fiscal 2008. Restructuring
charges, in-process research and development and other in fiscal
2007 consisted of a $6.0 million restructuring charge
related to our restructuring plan in the second quarter of
fiscal 2007, and a $0.8 million net charge for the
write-off of purchased in-process research and development and
other related to a fiscal 2007 acquisition. Please see the
discussion above under the caption Operational
Efficiency and Cost Reduction Program.
34
In-process research and development was written-off as of the
closing dates of the acquisitions, in accordance with Financial
Accounting Standards Board Interpretation No. 4,
Applicability of FASB Statement No. 2 to Business
Combinations Accounted for by the Purchase Method
(FASB No. 4). The in-process research and
development had no alternative future use and had not reached
technological feasibility as of the closing dates of the
acquisitions.
Operating Income. Operating income increased
by $48.2 million, or 13.5%, to $405.6 million in
fiscal 2008, from $357.4 million in fiscal 2007. Operating
expense grew at a slightly lower rate than the 11.5% increase in
revenue during fiscal 2008, which resulted in a slight increase
in operating income as a percentage of revenue.
Interest Income and Other, Net. Interest
income and other, net decreased by $38.6 million to
$12.0 million in fiscal 2008, from $50.6 million in
fiscal 2007. The decrease in interest income and other, net, was
primarily attributable to the impact of foreign exchange losses
and to lower income on our short-term interest-bearing
investments due to current market conditions.
Income Taxes. Income taxes for fiscal 2008
were $38.6 million on pretax income of $417.6 million,
resulting in an effective tax rate of 9.3%, compared to 10.6% in
fiscal 2007. Of the decrease in our effective tax rate,
approximately 2.1% was attributable to adjustments made during
fiscal 2007 to deferred tax liabilities related to two fiscal
2006 acquisitions, approximately 1.8% was attributable to a tax
benefit resulting from a lapse of statute of limitations and
approximately 1.1% was attributable to the changes in our tax
reserves. These decreases were partially offset by increases of
approximately 3.7% attributable to changes in the valuation
allowances and approximately 0.3% attributable to the effect of
acquisition-related costs (which include amortization of
purchased intangible assets, and in-process research and
development and other), restructuring charges and equity-based
compensation expense, and the remaining difference was primarily
attributable to a decrease in our effective tax rate due to the
geographical distribution of earnings from global operations.
Our effective tax rate may fluctuate between quarters as a
result of discrete items that may affect a specific quarter.
Please see Note 9 to our consolidated financial statements
and the discussion below under the caption Effective Tax
Rate.
Net Income. Net income was $378.9 million
in fiscal 2008, compared to net income of $364.9 million in
fiscal 2007. The increase in net income was attributable to the
increase in our operating income and to the decrease of our
effective tax rate, offset by the decrease in interest income
and other, net.
Diluted Earnings Per Share. Diluted earnings
per share increased by $0.09, or 5.5%, to $1.74 in fiscal 2008,
from $1.65 in fiscal 2007. The increase in diluted earnings per
share resulted from the increase in net income and the decrease
in diluted weighted average number of shares outstanding. Please
see Note 18 to our consolidated financial statements.
35
Fiscal
Years Ended September 30, 2007 and 2006
The following is a tabular presentation of our results of
operations for the fiscal year ended September 30, 2007,
compared to the fiscal year ended September 30, 2006.
Following the table is a discussion and analysis of our business
and results of operations for these years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended September 30,
|
|
|
Increase (Decrease)
|
|
|
|
2007
|
|
|
2006
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
|
|
$
|
159,357
|
|
|
$
|
116,285
|
|
|
$
|
43,072
|
|
|
|
37.0
|
%
|
Service
|
|
|
2,676,816
|
|
|
|
2,363,765
|
|
|
|
313,051
|
|
|
|
13.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,836,173
|
|
|
|
2,480,050
|
|
|
|
356,123
|
|
|
|
14.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of license
|
|
|
3,914
|
|
|
|
4,003
|
|
|
|
(89
|
)
|
|
|
(2.2
|
)
|
Cost of service
|
|
|
1,792,468
|
|
|
|
1,579,823
|
|
|
|
212,645
|
|
|
|
13.5
|
|
Research and development
|
|
|
230,444
|
|
|
|
186,760
|
|
|
|
43,684
|
|
|
|
23.4
|
|
Selling, general and administrative
|
|
|
370,194
|
|
|
|
313,997
|
|
|
|
56,197
|
|
|
|
17.9
|
|
Amortization of purchased intangible assets
|
|
|
74,959
|
|
|
|
37,610
|
|
|
|
37,349
|
|
|
|
99.3
|
|
Restructuring charges, in-process research and development and
other acquisition related costs
|
|
|
6,761
|
|
|
|
25,725
|
|
|
|
(18,964
|
)
|
|
|
(73.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,478,740
|
|
|
|
2,147,918
|
|
|
|
330,822
|
|
|
|
15.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
357,433
|
|
|
|
332,132
|
|
|
|
25,301
|
|
|
|
7.6
|
|
Interest income and other, net
|
|
|
50,566
|
|
|
|
41,741
|
|
|
|
8,825
|
|
|
|
21.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
407,999
|
|
|
|
373,873
|
|
|
|
34,126
|
|
|
|
9.1
|
|
Income taxes
|
|
|
43,062
|
|
|
|
55,237
|
|
|
|
(12,175
|
)
|
|
|
(22.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
364,937
|
|
|
$
|
318,636
|
|
|
$
|
46,301
|
|
|
|
14.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue. Total revenue increased by
$356.1 million, or 14.4%, to $2,836 million in fiscal
2007, from $2,480 million in fiscal 2006. Approximately 52%
of the increase was attributable to revenue contributed by the
businesses that we acquired during fiscal 2006 and 2007, a
portion of which we attribute to synergies and benefits
resulting from those businesses being a part of the Amdocs
group. The remainder was primarily attributable to additional
revenue from consolidation and transformation projects for
Tier 1 customers.
License revenue increased by $43.1 million, or 37.0%, to
$159.4 million in fiscal 2007, from $116.3 million in
fiscal 2006. The increase in license revenue was attributable
primarily to license revenue contributed by acquisitions made
during fiscal 2006, as well as additional license revenue from
our customers.
License and service revenue attributable to the sale of customer
experience systems was $2,552 million in fiscal 2007, an
increase of $350.5 million, or 15.9%, from fiscal 2006.
Approximately 52% of the increase was attributable to revenue
contributed by the businesses that we acquired during fiscal
2006 and 2007, a portion of which we attribute to synergies and
benefits resulting from those businesses being a part of the
Amdocs group, and the remainder was primarily attributable to
additional revenue from consolidation and transformation
projects for Tier 1 customers. License and service revenue
from the sale of customer experience systems represented 90.0%
and 88.8% of our total revenue in fiscal 2007 and 2006,
respectively.
License and service revenue from the sale of directory systems
was $284.4 million for fiscal 2007, an increase of
$5.6 million, or 2.0%, from fiscal 2006. License and
service revenue from the sale of directory systems represented
10.0% and 11.2% of our total revenue in fiscal 2007 and 2006,
respectively. We believe that we are a leading provider of
directory systems in most of the markets we serve.
36
In fiscal 2007, revenue from customers in North America, Europe
and the rest of the world accounted for 66.6%, 21.5% and 11.9%,
respectively, of total revenue compared to 69.9%, 21.8% and
8.3%, respectively, for fiscal 2006. Revenue from customers in
North America and Europe increased in absolute amounts, but in
each case the increase was less than the 14.4% increase in our
total revenue which resulted in a decrease in revenue from
customers in North America and Europe as a percentage of total
revenue . The increase in revenue from customers in the rest of
the world in fiscal 2007 was attributable primarily to revenue
contributed by customers in the Asia-Pacific region.
Cost of License. Cost of license mainly
includes amortization of purchased computer software and
intellectual property rights. Because such amortization is
relatively stable from period to period and, absent impairment,
is generally fixed in amount, an increase or decrease in license
revenue will cause a significant fluctuation in cost of license
as a percentage of license revenue. In fiscal 2007, cost of
license as a percentage of license revenue was 2.5%, compared to
3.4% in fiscal 2006.
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 fiscal
2007 was $212.6 million or 13.5%, which is less than the
increase in our total revenue in fiscal 2007. As a percentage of
revenue, cost of service was 63.2% in fiscal 2007, compared to
63.7% in fiscal 2006. The decrease in cost of service in fiscal
2007 as a percentage of revenue was attributable to a decrease
in cost of service expense related to our core business,
partially offset by cost of service expenses related to our
fiscal 2006 and 2007 acquisitions. Our 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 increased by
$43.6 million, or 23.4%, in fiscal 2007 to
$230.4 million from $186.8 million in fiscal 2006.
Research and development expense increased as a percentage of
revenue from 7.5% in fiscal 2006 to 8.1% in fiscal 2007. The
increase in research and development expense as a percentage of
revenue was attributable primarily to research and development
activities related to our fiscal 2006 and 2007 acquisitions.
While we invested in upgrading our existing systems in fiscal
2007, we also devoted significant research and development
efforts to the integration between our products and a unified
user interface in order to enable our customers to adopt an
integrated customer management approach. As part of these
efforts, in January 2007 we launched Amdocs 7, the next major
release of our comprehensive portfolio. Amdocs 7 expanded on the
capabilities of our previous Amdocs 6 release and comprises an
enhanced portfolio of modular billing, CRM, self-service, order
management, mediation, OSS and content management software
products.
The majority of our research and development expenditures is
directed at our customer experience systems, and the remainder
to directory systems. We believe that our research and
development efforts are a key element of our strategy and are
essential to our success. However, 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. Please see the discussion above under the caption
Research and Development, Patents and Licenses.
Selling, General and Administrative. Selling,
general and administrative expense increased by
$56.2 million, or 17.9%, in fiscal 2007 to
$370.2 million, from $314.0 million in fiscal 2006.
Selling, general and administrative expense is primarily
comprised of compensation expense. The increase in selling,
general and administrative expense as a percentage of revenue is
attributable to selling, general and administrative expense
related to our fiscal 2006 and 2007 acquisitions partially
offset by a decrease in selling, general and administrative
expense related to our core business.
Amortization of Purchased Intangible
Assets. Amortization of purchased intangible
assets in fiscal 2007 was $74.9 million, compared to
$37.6 million in fiscal 2006. The increase in amortization
of purchased intangible assets was due to purchased intangible
assets acquired in our fiscal 2006 and 2007 acquisitions.
Restructuring Charges, In-Process Research and Development
and Other. Restructuring charges,
in-process
research and development and other in fiscal 2007 consisted of a
$6.0 million restructuring charge
37
related to our restructuring plan in the second quarter of
fiscal 2007, and a charge of $2.7 million for the write-off
of purchased in-process research and development related to our
acquisition of SigValue, offset by the cumulative effect of our
14% share in SigValues pre-acquisition results of
$1.9 million. In fiscal 2006, restructuring charges,
in-process research and development and other acquisition
related costs consisted of $25.7 million for the write-off
of purchased in-process research and development related to our
acquisitions of Cramer and Qpass.
In-process research and development was written-off as of the
closing dates of the acquisitions, in accordance with Financial
Accounting Standards Board Interpretation No. 4,
Applicability of FASB Statement No. 2 to Business
Combinations Accounted for by the Purchase Method
(FASB No. 4). The in-process research and
development had no alternative future use and had not reached
technological feasibility as of the closing dates of the
acquisitions.
Operating Income. Operating income increased
by $25.3 million, or 7.6%, in fiscal 2007, to
$357.4 million from $332.1 million in fiscal 2006.
Operating expense grew at a greater rate than the 14.4% increase
in revenue during fiscal 2007, which resulted in a decrease in
operating income as a percentage of revenue. The increase in
operating expense as a percentage of revenue is primarily
attributable to the increases in amortization of purchased
intangible assets, and to operating expense related to our
fiscal 2006 and 2007 acquisitions, partially offset by a
decrease in our core operating expenses as a percentage of
revenue, and in restructuring charges, in-process research and
development and other.
Interest Income and Other, Net. Interest
income and other, net increased by $8.8 million in fiscal
2007 to $50.6 million from $41.7 million in fiscal
2006. The increase is primarily attributable to the impact of
foreign exchange benefits.
Income Taxes. Income taxes for fiscal 2007
were $43.1 million on pretax income of $408.0 million,
resulting in an effective tax rate of 10.6% compared to 14.8% in
fiscal 2006. Of the reduction in our effective tax rate, 2.1%
was attributable to the net effect of acquisition-related costs
(which include amortization of purchased intangible assets and
other), restructuring charges and equity-based compensation
expense, 1.4% was attributable to the net change in valuation
allowances and tax reserves, offset by 2.1% attributable to
adjustments to deferred tax liabilities related to two fiscal
2006 acquisitions, and the remaining difference was primarily
attributable to the geographical distribution of earnings from
global operations. Our effective tax rate for fiscal year 2008
is expected to 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 and changes in our tax
reserves in the ordinary course of business. See the discussion
below under the caption Effective Tax Rate.
Net Income. Net income was $364.9 million
in fiscal 2007, compared to net income of $318.6 million in
fiscal 2006. The increase in net income is attributable to the
increase in operating income and interest income and other, net
and to the decrease of our effective tax rate in fiscal 2007.
Diluted Earnings Per Share. Diluted earnings
per share increased by $0.17, or 11.5%, in fiscal 2007 to $1.65
from $1.48 in fiscal 2006. The increase in diluted earnings per
share resulted from the increase in net income partially offset
by the increase in diluted weighted average number of shares
outstanding. Please see Note 18 to our consolidated
financial statements.
Liquidity
and Capital Resources
Cash, cash equivalents and short-term interest-bearing
investments totaled $1,244.4 million as of
September 30, 2008, compared to $1,179.3 million as of
September 30, 2007. The increase during fiscal 2008 is
mainly attributable to $483.6 million in positive cash
flows from operations and $37.6 million in proceeds from
the exercise of employee stock options, partially offset by
approximately $247.6 million used to repurchase ordinary
shares pursuant to our share repurchase program,
$135.8 million for capital expenditures and
$58.8 million in net cash paid for acquisitions. Net cash
provided by operating activities amounted to $483.6 million
for fiscal 2008 and $424.0 million for fiscal 2007.
38
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.
Our short-term interest-bearing investments are classified as
available-for-sale securities. Unrealized gains or losses are
reported as a separate component of accumulated other
comprehensive income, net of tax. Such short-term
interest-bearing investments consist primarily of
U.S. government treasuries, U.S. agency securities and
corporate bonds. We have conservative investment policy
guidelines and, consistent with these guidelines, in prior years
we also purchased AAA
asset-backed
obligations and mortgages. Our
interest-bearing
investments are stated at fair value. The estimated fair values
of the investments are based on quoted market prices and on
observable market inputs as of the end of the reporting period.
We review various factors in determining whether we should
recognize an impairment charge for our short-term
interest-bearing investments, including our intent and ability
to hold the investment for a period of time sufficient to allow
for any anticipated recovery in market value, the length of time
and extent to which the fair value has been less than our cost
basis, the credit ratings of the securities and the financial
condition and near-term prospects of the issuers. Based on our
considerations of these factors the other-than-temporary
impairment on our short-term interest-bearing investments was
immaterial during fiscal 2008, 2007 and 2006.
In November 2007, we entered into an unsecured $500 million
five-year revolving credit facility with a syndicate of banks,
which is available for general corporate purposes, including
acquisitions and repurchases of our ordinary shares that we may
consider from time to time. The interest rate for borrowings
under the revolving credit facility is chosen at our option
(from several
pre-defined
alternatives) and depends on the circumstances of any advance
and, is based on our credit ratings. As of September 30,
2008, we were in compliance with specified financial covenants
that the agreement imposes on us and had not borrowed against
this facility. However, during the first quarter of fiscal 2009,
we borrowed $100 million under the facility which accrues
interest at rate that is equal to LIBOR plus 35 basis
points margin, and used the proceeds to repurchase a portion of
our outstanding notes as described below.
In November 2008, our Board of Directors authorized us to
repurchase 100 million of our notes in such amounts, at
such prices and at such times that we deem appropriate. During
the first quarter of fiscal 2009, using proceeds from our
revolving credit facility as described above, we purchased
$100 million aggregate principal amount of our notes at an
average price of 98% of the principal amount, excluding accrued
interest and transaction fees. In March 2009, the notes are
redeemable by us, and if we do not elect to redeem the notes,
then the holders of the notes may require us to repurchase the
notes at a purchase price equal to 100% of the principal amount
of the notes plus accrued and unpaid interest. We anticipate
that a substantial portion of the outstanding notes will be put
to us in March 2009 if we do not elect to redeem them.
As of September 30, 2008, we had outstanding letters of
credit and bank guarantees from various banks totaling
$5.2 million. As of September 30, 2008, we also had
outstanding short-term loans of $1.5 million secured by
specified pledges and guarantees.
The following table summarizes our contractual obligations as of
September 30, 2008, and the effect such obligations are
expected to have on our liquidity and cash flows in future
periods (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
1-3
|
|
|
4-5
|
|
|
Over 5
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
Convertible notes including interest (1)
|
|
$
|
486.1
|
|
|
$
|
2.3
|
|
|
$
|
6.8
|
|
|
$
|
4.5
|
|
|
$
|
472.5
|
|
Financing arrangements
|
|
|
1.5
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension funding
|
|
|
20.0
|
|
|
|
4.4
|
|
|
|
4.9
|
|
|
|
3.6
|
|
|
|
7.1
|
|
Purchase Obligations
|
|
|
39.8
|
|
|
|
26.4
|
|
|
|
13.4
|
|
|
|
|
|
|
|
|
|
Non-cancelable operating leases
|
|
|
229.1
|
|
|
|
71.7
|
|
|
|
125.4
|
|
|
|
25.5
|
|
|
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
776.5
|
|
|
$
|
106.3
|
|
|
$
|
150.5
|
|
|
$
|
33.6
|
|
|
$
|
486.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
(1) |
|
During the first quarter of fiscal 2009, using proceeds from our
revolving credit facility as described above, we purchased
$100 million aggregate principal amount of our notes at an
average price of 98% of the principal amount, excluding accrued
interest and transaction fees. In March 2009, the notes are
redeemable by us, and if we do not elect to redeem the notes,
then the holders of the notes may require us to repurchase the
notes at a purchase price equal to 100% of the principal amount
of the notes plus accrued and unpaid interest. The notes mature
on 2024, however, we anticipate that a substantial portion of
the outstanding notes will be put to us in March 2009 if we do
not elect to redeem them. Please see Note 11 to our
consolidated financial statements. |
Our capital expenditures were approximately $135.8 million
in fiscal 2008. Approximately 83% of these expenditures
consisted of purchases of computer equipment with the remainder
attributable mainly to leasehold improvements. Our fiscal 2008
capital expenditures were mainly attributable to investments in
our operating facilities and our development centers around the
world. Our policy is to fund our capital expenditures
principally from operating cash flows, and we do not anticipate
any changes to this policy in the foreseeable future.
From time to time, we have engaged in share repurchase programs
in which we repurchase our shares in the open market or
privately negotiated transactions and at times and prices we
deem appropriate.
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. In fiscal 2008, we repurchased
8.4 million ordinary shares at an average price of $30.45
per share (excluding broker and transaction fees), leaving us
with authority as of September 30, 2008 to repurchase up to
$95.3 million of our ordinary shares under the share
repurchase plan. In the first quarter of fiscal 2009 (through
November 30, 2008), we repurchased approximately
0.5 million ordinary shares at an average price of $26.90
per share (excluding broker and transaction fees). Although we
currently do not plan to repurchase additional ordinary shares
in the immediate future, we have authority, as of
November 30, 2008, to repurchase up to $82.7 million
of our ordinary shares under this plan.
Net
Deferred Tax Assets
As of September 30, 2008, deferred tax assets of
$76.5 million, derived from net capital and operating loss
carryforwards related primarily to some of our subsidiaries,
were offset by valuation allowances due to the uncertainty of
the realizing any 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.
Critical
Accounting Policies
Our discussion and analysis of our consolidated financial
condition and results of operations are based upon our
consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting
principles. The preparation of these financial statements
requires us to make estimates, assumptions and judgments that
affect the reported amounts of assets, liabilities, revenue and
expenses, and related disclosure of contingent liabilities. On a
regular basis, we evaluate and may revise our estimates. We base
our estimates on historical experience and various other
assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent. Actual results could differ
materially from the estimates under different assumptions or
conditions.
We believe that the estimates, assumptions and judgments
involved in the accounting policies described below have the
greatest potential impact on our financial statements, so we
consider these to be our critical accounting policies. These
policies require that we make estimates in the preparation of
our financial statements as of a given date. Our critical
accounting policies are as follows:
|
|
|
|
|
Revenue recognition and contract accounting
|
40
|
|
|
|
|
Tax accounting
|
|
|
|
Business combinations
|
|
|
|
Equity-based compensation expense
|
|
|
|
Goodwill and intangible assets
|
|
|
|
Derivative and hedge accounting
|
|
|
|
Short-term interest-bearing investments
|
|
|
|
Realizability of long-lived assets
|
|
|
|
Accounts receivable reserves
|
Below, we discuss these policies further, as well as the
estimates and judgments involved. We also have other key
accounting policies. We believe that, compared to the critical
accounting policies listed above, the other policies either do
not generally require us to make estimates and judgments that
are as difficult or as subjective, or it is less likely that
they would have a material impact on our reported consolidated
results of operations for a given period.
Revenue
Recognition and Contract Accounting
We derive our revenue principally from:
|
|
|
|
|
the initial sales of licenses to use our products and related
services, including modification, implementation, integration
and customization services,
|
|
|
|
providing managed services and other related services for our
solutions, and
|
|
|
|
recurring revenue from ongoing support and maintenance provided
to our customers, and from incremental license fees resulting
from increases in a customers 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 or determinable; and (iv) collectibility 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. Those services and
those in which the services are not available from third-party
vendors are deemed essential to the software. 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 customers 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, implementation and modification is recognized
upon delivery. Revenue from services that do not involve
significant ongoing obligations is recognized as services are
rendered. In managed services contracts, we typically recognize
revenue from the operation of a customers 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. Typically, managed
services contracts are long-term in duration and are not subject
to seasonality. Revenue from ongoing support services is
recognized as work is performed. 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. A significant portion of our
revenue is recognized over the course of long-term projects
under the percentage of completion method of accounting. The
percentage of completion method requires the exercise of
judgment, such as with respect to estimations of
progress-to-completion,
41
contract revenue, loss contracts and contract costs. Progress in
completing such projects may significantly affect our annual and
quarterly operating results.
We follow very specific and detailed guidelines, several of
which are discussed above, in measuring revenue; however,
certain judgments affect the application of our revenue
recognition policy.
Our revenue recognition policy takes into consideration the
creditworthiness and past transaction history of each customer
in determining the probability of collection as a criterion of
revenue recognition. This determination requires the exercise of
judgment, which affects our revenue recognition. If we determine
that collection of a fee is not reasonably assured, we defer the
revenue recognition until the time collection becomes reasonably
assured, which is generally upon receipt of cash. We regularly
review the allowance by considering factors that may affect a
customers ability to pay, such as historical experience,
credit quality, age of the accounts receivable balances, and
current economic conditions.
For arrangements with multiple deliverables, we allocate revenue
to each component based upon its relative fair value, which is
determined in reliance on the Vendor Specific Objective Evidence
(VSOE) of fair value for that element. Such
determination is judgmental and for most contracts is based on
normal pricing and discounting practices for those elements when
sold separately in similar arrangements. We use the residual
method in accordance with
SOP 97-2,
Software Revenue Recognition
(SOP 97-2)
and EITF
No. 00-21,
Revenue Arrangements with Multiple Deliverables
(EITF
No. 00-21).
In the absence of fair value for a delivered element we first
allocate revenue to the fair value of the undelivered elements
and residual revenue to the delivered elements. The residual
method is used mainly in multiple element arrangements that
include license for the sale of software solutions that do not
require significant customization, modification and
implementation and maintenance to determine the appropriate
value for the license component.
Revenue from third-party hardware and software sales is recorded
at a gross or net amount according to certain indicators. The
application of these indicators for gross and net reporting of
revenue depends on the relative facts and circumstances of each
sale and requires significant judgment.
Tax
Accounting
As part of the process of preparing our consolidated financial
statements, we are required to estimate our income tax expense
in each of the jurisdictions in which we operate. In the
ordinary course of a global business, there are many
transactions and calculations where the ultimate tax outcome is
uncertain. Some of these uncertainties arise as a consequence of
revenue sharing and reimbursement arrangements among related
entities, the process of identifying items of revenue and
expenses that qualify for preferential tax treatment and
segregation of foreign and domestic income and expense to avoid
double taxation. We also assess temporary differences resulting
from differing treatment of items, such as deferred revenue, for
tax and accounting differences. These differences result in
deferred tax assets and liabilities, which are included within
our consolidated balance sheet. We may record a valuation
allowance to reduce our deferred tax assets to the amount of
future tax benefit that is more likely than not to be realized.
Although we believe that our estimates are reasonable and that
we have considered future taxable income and ongoing prudent and
feasible tax strategies in estimating our tax outcome and in
assessing the need for the valuation allowance, there is no
assurance that the final tax outcome and the valuation allowance
will not be different than those that are reflected in our
historical income tax provisions and accruals. Such differences
could have a material effect on our income tax provision, net
income and cash balances in the period in which such
determination is made.
Effective October 1, 2007, we adopted Financial
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes - an interpretation of FASB Statement
No. 109 (FIN No. 48), which
contains a two-step approach to recognizing and measuring
uncertain tax positions accounted for in accordance with
Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes
(SFAS No. 109). The first step is to
evaluate the tax position for recognition by determining if the
weight of available evidence indicates that it is more likely
than not that the position will be sustained on audit, including
resolution of related appeals or
42
litigation processes, if any. The second step is to measure the
tax benefit as the largest amount that is more than 50% likely
of being realized upon settlement. Significant judgment is
required in evaluating our uncertain tax positions and
determining our provision for income taxes. Although we believe
our reserves are reasonable, no assurance can be given that the
final tax outcome of these matters will not be different from
that which is reflected in our historical income tax provisions
and accruals. We adjust these reserves in light of changing
facts and circumstances, such as the closing of a tax audit or
the refinement of an estimate. To the extent that the final tax
outcome of these matters is different than the amounts recorded,
such differences will affect the provision for income taxes in
the period in which such determination is made. The provision
for income taxes includes the effect of reserve provisions and
changes to reserves that are considered appropriate, as well as
the related net interest.
We have filed or are in the process of filing tax returns that
are subject to audit by the respective tax authorities. Although
the ultimate outcome is unknown, we believe that any adjustments
that may result from tax return audits are not likely to have a
material, adverse effect on our consolidated results of
operations, financial condition or cash flows.
Business
Combinations
In accordance with business combination accounting, we allocate
the purchase price of acquired companies to the tangible and
intangible assets acquired and liabilities assumed, as well as
to in-process research and development based on their estimated
fair values. Such valuations require management to make
significant estimates and assumptions, especially with respect
to intangible assets.
Management makes estimates of fair value based upon assumptions
believed to be reasonable. These estimates are based on
historical experience and information obtained from the
management of the acquired companies and are inherently
uncertain. Critical estimates in valuing certain assets acquired
and liabilities assumed include, but are not limited to: future
expected cash flows from license and service sales, maintenance
and hosting agreements, customer contracts and acquired
developed technologies, expected costs to develop the in-process
research and development into commercially viable products and
estimated cash flows from the projects when completed and the
acquired companys brand awareness and discount rate.
Unanticipated events and circumstances may occur that may affect
the accuracy or validity of such assumptions, estimates or
actual results.
As discussed above under Tax Accounting, we may
establish a valuation allowance for certain deferred tax assets
of a newly acquired entity. This process requires significant
judgment and analysis.
Equity-Based
Compensation Expense
We account for equity-based compensation in accordance with
SFAS No. 123(R), Share-Based Payment
(SFAS No. 123(R)). Under the fair value
recognition provisions of this statement, share-based
compensation cost is measured at the grant date based on the
value of the award and is recognized as expense over the
requisite service periods. We estimate the fair value of
employee stock options using a Black-Scholes valuation model and
value restricted stock based on the market value of the
underlying shares at the date of grant. We recognize
compensation costs using the graded vesting attribution method
that results in an accelerated recognition of compensation costs
in comparison to the straight line method.
The fair value of an award is affected by our stock price on the
date of grant and other assumptions, including the estimated
volatility of our stock price over the term of the awards and
the estimated period of time that we expect employees to hold
their stock options. We use a combination of implied volatility
of our traded options and historical stock price volatility
(blended volatility) as the expected volatility
assumption required in the Black-Scholes option valuation model.
The selection of the blended volatility approach was based upon
the availability of traded options on our shares and our
assessment that blended volatility is more representative of
future share price trends than historical volatility.
Equity-based compensation expense recognized in our consolidated
statement of operations were reduced for estimated forfeitures.
43
Determining the fair value of share-based awards at the grant
date requires the exercise of judgment. In addition, the
exercise of judgment is also required in estimating the amount
of share-based awards that are expected to be forfeited. If
actual results differ significantly from these estimates,
equity-based compensation expense and our results of operations
could be materially impacted. Please see Note 17 to our
consolidated financial statements.
Goodwill
and Intangible Assets
We follow SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142). Under
SFAS No. 142, goodwill and intangible assets deemed to
have indefinite lives and are subject to periodic impairment
tests in accordance with the Statement. Goodwill impairment is
deemed to exist if the net book value of a reporting unit
exceeds its estimated fair value. The total purchase price of
business acquisitions accounted for using the purchase method is
allocated first to identifiable assets and liabilities based on
estimated fair values. The excess of the purchase price over the
fair value of net assets of purchased businesses is recorded as
goodwill.
We perform an annual impairment test during the fourth quarter
of each fiscal year, or more frequently if impairment indicators
are present. We operate in one operating segment, and this
segment comprises our only reporting unit. In calculating the
fair value of the reporting unit, we used a discounted cash flow
methodology. There was no impairment of goodwill upon adoption
of SFAS No. 142 and there was no impairment at the
annual impairment test date.
Derivative
and Hedge Accounting
Approximately 70% of our revenue and 50% to 60% of our operating
expenses are denominated in U.S. dollar or linked to the
U.S. dollar. We enter into foreign exchange forward
contracts and options to hedge a significant portion of our
foreign currency net exposure resulting from revenue and expense
in each foreign currency, in order to reduce the impact of
foreign currency on our results. We also enter into foreign
exchange forward contracts to reduce the impact of foreign
currency on balance sheet items. The effective portion of
changes in the fair value of forward exchange contracts and
options that are classified as cash flow hedges are recorded in
other comprehensive income (loss). We estimate the fair value of
such derivative contracts by reference to forward and spot rates
quoted in active markets.
Establishing and accounting for foreign exchange contracts
involve judgments, such as determining the nature of the
exposure, assessing its amount and timing, and evaluating the
effectiveness of the hedging arrangement.
Although we believe that our estimates are accurate and meet the
requirement of hedge accounting, actual results differ from
these estimates, and such difference could cause fluctuation of
our recorded revenue and expenses.
Short-Term
Interest-Bearing Investments
Our short-term interest-bearing investments are classified as
available-for-sale securities. Unrealized gains or losses are
reported as a separate component of accumulated other
comprehensive income, net of tax. Such short-term
interest-bearing investments consist primarily of U.S.
government treasuries, U.S. agency securities and corporate
bonds. We have conservative investment policy guidelines and,
consistent with these guidelines, in prior years we also
purchased only AAA asset-backed obligations and mortgages. Our
interest-bearing investments are stated at fair value. The
estimated fair values of the investments are based on quoted
market prices and on observable market inputs as of the end of
the reporting period. We review various factors in determining
whether we should recognize an impairment charge for our
short-term interest-bearing investments, including our intent
and ability to hold the investment for a period of time
sufficient to allow for any anticipated recovery in market
value, the length of time and extent to which the fair value has
been less than our cost basis, the credit ratings of the
securities and the financial condition and near-term prospects
of the issuers. Based on our considerations of these factors,
the other-than-temporary impairment on our short-term
interest-bearing investments was immaterial during fiscal 2008,
2007 and 2006.
44
Due to the continuing changes and uncertainty in the credit
markets, it is possible that the valuation of the securities
will further fluctuate, and as market conditions change, we may
determine that unrealized losses, which are currently considered
temporary in nature, may become other than
temporary, resulting in additional impairment charges.
Realizability
of Long-Lived Assets
We are required to assess the impairment of long-lived assets,
other than goodwill, tangible and intangible under
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets
(SFAS No. 144) on a periodic basis, and if
events or changes in circumstances indicate that the carrying
value may not be recoverable. Impairment indicators include any
significant changes in the manner of our use of the assets or
the strategy of our overall business, significant negative
industry or economic trends and significant decline in our share
price for a sustained period.
If the sum of expected future cash flows (undiscounted and
without interest charges) of the long-lived assets is less than
the carrying amount of such assets, an impairment would be
recognized and the assets would be written down to their
estimated fair values, based on expected future discounted cash
flows.
Accounts
Receivable Reserves
The allowance for doubtful accounts is for estimated losses
resulting from accounts receivable for which their collection is
not reasonably assured. We evaluate accounts receivable to
determine if they will ultimately be collected. Significant
judgments and estimates are involved in performing this
evaluation, which we base on factors that may affect a
customers ability to pay, such as past experience, credit
quality of the customer, age of the receivable balance and
current economic conditions. If collection is not reasonably
assured at the time the transaction is consummated, we do not
recognize revenue until collection becomes reasonably assured.
If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments,
additional allowances may be required. The allowance for
doubtful accounts is established either through a charge to
selling, general and administrative expenses or as a reduction
to revenue.
Within the context of these critical accounting policies, we are
not currently aware of any reasonably likely events or
circumstances that would result in materially different amounts
being reported.
Recent
Accounting Pronouncements
In June 2008, the Financial Accounting Standards Board
(FASB) issued FASB Staff Position No. EITF
No. 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities
(FSP EITF
No. 03-6-1).
According to FSP EITF
No. 03-6-1,
unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents are considered
participating securities under Statement of Financial Accounting
Standards No. 128, Earnings per Share
(SFAS No. 128). As such, they should be
included in the computation of basic earnings per share
(EPS) using the two-class method. FSP EITF
No. 03-6-1
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, as well as interim
periods within those years. Once effective, all prior-period EPS
data presented must be adjusted retrospectively. We are
currently evaluating the effect that adopting the provisions of
FSP EITF
No. 03-6-1
will have on our consolidated results of operations, and we
currently expect that the effect will not be material.
In March 2008, the FASB issued Statement No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133
(SFAS No. 161). SFAS No. 161
applies to all derivative instruments and nonderivative
instruments that are designated and qualify as hedging
instruments and related hedged items accounted for under FASB
Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities
(SFAS No. 133). SFAS No. 161
requires entities to provide greater transparency through
additional disclosures about (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under
SFAS No. 133 and its related interpretations, and
(c) how derivative instruments and related hedged items
affect an entitys financial
45
position, results of operations, and cash flows.
SFAS No. 161 is effective for financial statements
issued for fiscal years and interim periods beginning after
November 15, 2008. Although SFAS No. 161 requires
us to make additional disclosures, it does not affect the
underlying accounting policy or the application thereof.
In December 2007, the FASB issued Statement No. 141
(revised), Business Combinations
(SFAS No. 141(R)).
SFAS No. 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 No. 141(R) applies to us 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 No. 160). SFAS No. 160
changes the accounting for noncontrolling (minority) interests
in consolidated financial statements including the requirements
to classify noncontrolling interests as a component of
consolidated shareholders equity, the elimination of
minority interest accounting in results of
operations and changes in the accounting for both increases and
decreases in a parents controlling ownership interest.
SFAS No. 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 No. 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 No. 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 No. 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 No. 157). We will apply
SFAS No. 159 beginning in the first quarter of fiscal
2009, and we do not expect it to have a material impact on our
results of operations or financial position.
In September 2006, the FASB issued SFAS No. 157 which
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 No. 157 is effective for fiscal years beginning
after November 15, 2007, and interim periods within those
fiscal years. In February 2008, the FASB issued FASB Staff
Position
No. SFAS No. 157-2,
Effective Date of FASB Statement No. 157, which provides a
one-year deferral of the effective date of
SFAS No. 157 for non-financial assets and
non-financial liabilities, except those that are recognized or
disclosed in the financial statements at fair value on a
recurring basis (at least annually). We do not expect the
adoption of SFAS No. 157 for financial assets and
financial liabilities to have a material impact on our results
of operations or financial position. We are currently assessing
the impact that SFAS No. 157 will have on our results
of operations and financial position when it is applied to
nonfinancial assets and nonfinancial liabilities beginning in
the first quarter of fiscal 2010.
Adoption
of New Accounting Standard
In June 2006, the FASB issued FIN No. 48 which clarifies
the accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with
SFAS No. 109, Accounting for Income Taxes.
FIN No. 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 No. 48 provides guidance on de-recognition, income
statement classification of interest and penalties, accounting
in interim periods, disclosure and transition. We adopted
46
FIN No. 48 in the first quarter of fiscal 2008. The
adoption of FIN No. 48 did not result in a change to
retained earnings. Please see Note 9 to our consolidated
financial statements.
|
|
ITEM 6.
|
DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
|
Directors
and Senior Management
We rely on the executive officers of our principal operating
subsidiaries to manage our business. In addition, Amdocs
Management Limited, our management subsidiary, performs certain
executive coordination functions for all of our operating
subsidiaries.
As of November 30, 2008, our directors and senior managers
were as follows:
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Bruce K. Anderson(2)(4)(5)
|
|
68
|
|
Chairman of the Board, Amdocs Limited
|
Adrian Gardner(1)(3)
|
|
46
|
|
Director and Chairman of the Audit Committee, Amdocs Limited
|
Charles E. Foster(1)(3)
|
|
72
|
|
Director and Chairman of the Nominating and Corporate Governance
Committee, Amdocs Limited
|
James S. Kahan(2)(3)(4)
|
|
61
|
|
Director and Chairman of the Compensation Committee, Amdocs
Limited
|
Zohar Zisapel(5)
|
|
59
|
|
Director and Chairman of the Technology and Innovation
Committee, Amdocs Limited
|
Julian A. Brodsky(3)
|
|
75
|
|
Director, Amdocs Limited
|
Eli Gelman(5)
|
|
50
|
|
Director, Amdocs Limited
|
Nehemia Lemelbaum(4)(5)
|
|
66
|
|
Director, Amdocs Limited
|
John T. McLennan(1)
|
|
63
|
|
Director, Amdocs Limited
|
Robert A. Minicucci(2)(4)
|
|
56
|
|
Director, Amdocs Limited
|
Simon Olswang(1)
|
|
64
|
|
Director, Amdocs Limited
|
Dov Baharav(4)
|
|
58
|
|
Director, Amdocs Limited; President and Chief Executive Officer,
Amdocs Management Limited
|
Tamar Rapaport Dagim
|
|
37
|
|
Senior Vice President and Chief Financial Officer, Amdocs
Management Limited
|
James Liang
|
|
51
|
|
Senior Vice President and Chief Strategy Officer, Amdocs, Inc.
|
Ayal Shiran
|
|
43
|
|
Senior Vice President and Head of Customer Business Group
|
Anshoo Gaur
|
|
40
|
|
Division President, Amdocs Development Center India Pvt. Ltd.
|
Thomas G. OBrien
|
|
47
|
|
Treasurer and Secretary, Amdocs Limited
|
|
|
|
(1) |
|
Member of the Audit Committee |
|
(2) |
|
Member of the Compensation Committee |
|
(3) |
|
Member of the Nominating and Corporate Governance Committee |
|
(4) |
|
Member of the Executive Committee |
|
(5) |
|
Member of the Technology and Innovation Committee |
In November 2008, Mario Segal resigned as a director of Amdocs.
Mr. Segal had been a director since December 2001 and
served as Senior Vice President and Chief Operating Officer of
Amdocs Management Limited from 1995 until July 2002.
47
Bruce K. Anderson has been Chairman of the Board of Directors of
Amdocs since September 1997. Since August 1978,
Mr. Anderson has been a general partner of Welsh, Carson,
Anderson & Stowe (WCAS), an investment
firm that specializes in the acquisition of companies in the
information and business services and health care industries.
Until September 2003, investment partnerships affiliated with
WCAS had been among our largest shareholders. Mr. Anderson
served for nine years with Automated Data Processing, Inc.
(ADP) until his resignation as Executive Vice
President and a director of ADP, and President of ADP
International, effective August 1978. Mr. Anderson serves
on the board of Alliance Data Systems, Inc., a publicly held
company that provides transaction, credit and marketing services
to large consumer based businesses.
Adrian Gardner has been a director of Amdocs since April 1998
and is Chairman of the Audit Committee. Since November 2007,
Mr. Gardner has been Chief Financial Officer of PA
Consulting Group, a London-based business consulting firm. From
April until November 2007, Mr. Gardner was a private
investor. Mr. Gardner was Chief Financial Officer of
ProStrakan Group plc, a pharmaceuticals company based in the
United Kingdom and listed on the London Stock Exchange, from
2002 until April 2007 and a director from 2002 until June 2007.
Prior to joining ProStrakan, he was a Managing Director of
Lazard LLC, based in London, where he worked with technology-
and telecommunications-related companies. Prior to joining
Lazard in 1989, Mr. Gardner qualified as a chartered
accountant with Price Waterhouse (now PricewaterhouseCoopers).
Mr. Gardner is a member of the Institute of Chartered
Accountants in England & Wales.
Charles E. Foster has been a director of Amdocs since December
2001 and is Chairman of the Nominating and Corporate Governance
Committee. He was Chairman of the Board of Prodigy
Communications Corporation from June until November 2001. From
April 1997 until June 2001, Mr. Foster served as Group
President of SBC, where he was responsible, at various times,
for engineering, network, centralized services, marketing and
operations, information systems, procurement, treasury,
international operations, wireless services, merger integration,
real estate, yellow pages and cable TV operations. In 2005, SBC
acquired AT&T Corp. and became AT&T Inc. AT&T,
together with its affiliates, holds 5.1% of our outstanding
ordinary shares and is our most significant customer.
Mr. Foster serves as trustee of the Southwest Foundation
for Bio-Medical Research, a non-profit research institute.
Mr. Foster is a member of the Texas Society of Professional
Engineers and a director of Morningside Ministries, a non-profit
operator of nursing homes in the San Antonio area.
James S. Kahan has been a director of Amdocs since April 1998
and is Chairman of the Compensation Committee. From 1983 until
his June 2007 retirement, he worked at SBC, which is now
AT&T, and served as a Senior Executive Vice President from
1992 until June 2007. AT&T, together with its affiliates,
holds 5.1% of our outstanding ordinary shares and is our most
significant customer. Prior to joining AT&T, Mr. Kahan
held various positions at several telecommunications companies,
including Western Electric, Bell Laboratories, South Central
Bell and AT&T Corp.
Zohar Zisapel has been a director of Amdocs since July 2008 and
is the Chairman of the Technology and Innovation Committee.
Mr. Zisapel co-founded RAD Data Communications Ltd. and has
been its chairman since 1982, a privately-held voice and data
communications company and part of the RAD Group, a family of
independent networking and telecommunications companies.
Mr. Zisapel also serves as chairman of Ceragon Networks
Ltd., RADVision Ltd. and RADCOM Ltd., each of which is a
publicly-traded member of the RAD Group, as well as on the
boards of directors of several privately-held companies.
Mr. Zisapel previously served as head of the electronics
research and development department in the Israeli Ministry of
Defense from 1978 until 1982 and as chairman of the Israel
Association of Electronic Industries from 1998 until 2001.
Julian A. Brodsky has been a director of Amdocs since July 2003.
Mr. Brodsky has served as a director and as Vice Chairman
of Comcast Corporation since 1989. From 1989 to May 2004,
Mr. Brodsky was Chairman of Comcast Interactive Capital,
LP, a venture fund affiliated with Comcast. He is a director of
RBB Fund, Inc.
Eli Gelman has been a director of Amdocs since 2002. Since April
2007, Mr. Gelman has devoted his time to charitable matters
focused on youth education. He served as Executive Vice
President of Amdocs
48
Management Limited from 2002 until 2007 and as our Chief
Operating Officer from October 2006 until April 2007. Prior to
October 2002, he was a Senior Vice President, where he headed
our U.S. sales and marketing operations and helped
spearhead our entry into the customer care and billing systems
market. Before that, Mr. Gelman was an account manager for
our major European and North American installations, and has led
several major software development projects. Mr. Gelman has
more than 28 years of experience in the software industry,
including more than 20 years with Amdocs. Before joining
Amdocs, Mr. Gelman was involved in the development of
real-time software systems for communications networks.
Nehemia Lemelbaum has been a director of Amdocs since December
2001 and was a Senior Vice President of Amdocs Management
Limited from 1985 until January 2005. Since 2005,
Mr. Lemelbaum has been a private investor. He joined Amdocs
in 1985, with initial responsibility for U.S. operations.
Mr. Lemelbaum led our development of graphic products for
the yellow pages industry and later led our development of
customer care and billing systems, as well as our penetration
into that market. Prior to joining Amdocs, he served for nine
years with Contahal Ltd., a leading Israeli software company,
first as a senior consultant, and later as Managing Director.
From 1967 to 1976, Mr. Lemelbaum was employed by the
Ministry of Communications of Israel (the organization that
predated Bezeq, the Israel Telecommunication Corp. Ltd.), with
responsibility for computer technology in the area of business
data processing.
John T. McLennan has been a director of Amdocs since November
1999. From May 2000 until June 2004, he served as Vice-Chair and
Chief Executive Officer of Allstream (formerly AT&T
Canada). Mr. McLennan founded and was the President of
Jenmark Consulting Inc. from 1997 until May 2000. From 1993 to
1997, Mr. McLennan served as the President and Chief
Executive Officer of Bell Canada. Prior to that, he held various
positions at several telecommunications companies, including BCE
Mobile Communications and Cantel Inc. Mr. McLennan is also
a director of Air Canada Jazz, a publicly held regional airline
company, Emera Inc., a Canadian publicly held energy services
company, and Chairman of Nova Scotia Power Inc., a wholly-owned
subsidiary of Emera Inc.
Robert A. Minicucci has been a director of Amdocs since
September 1997. He has been a general partner of WCAS since
1993. From 1992 to 1993, Mr. Minicucci served as Senior
Vice President and Chief Financial Officer of First Data
Corporation, a provider of information processing and related
services for credit card and other payment transactions. From
1991 to 1992, he served as Senior Vice President and Treasurer
of the American Express Company. He served for 12 years
with Lehman Brothers (and its predecessors) until his
resignation as a Managing Director in 1991. Mr. Minicucci
is also a director of Alliance Data Systems, Inc., a publicly
held company, and several private companies.
Simon Olswang has been a director of Amdocs since November 2004.
In 2002, Mr. Olswang retired as Chairman of Olswang, a
media and communications law firm in the United Kingdom that he
founded in 1981. He is a member of the Advisory Board of Palamon
Capital Partners LLP. Mr. Olswang was a member of the Board
of Directors of The British Library until March 2008 and has
served as a non-executive director of a number of companies and
organizations, including Aegis Group plc, The Press Association
and the British Film Institute. Mr. Olswang serves as
Trustee of Langdon College of Further (Special) Education in
Salford, of which he is a co-founder.
Dov Baharav has been a director of Amdocs and the President and
Chief Executive Officer of Amdocs Management Limited, our
wholly-owned subsidiary, since July 2002. Mr. Baharav has
overall coordination responsibilities for the operations and
activities of our operating subsidiaries. In 1991,
Mr. Baharav joined Amdocs, Inc., our principal wholly-owned
U.S. subsidiary, serving as its Vice President and then
President in St. Louis, Missouri until 1995. From 1995
until July 2002, Mr. Baharav was a Senior Vice President
and the Chief Financial Officer of Amdocs Management Limited.
Prior to joining Amdocs, Mr. Baharav served as Chief
Operating Officer of Optrotech Ltd., a publicly held company
that develops, manufactures and markets electro-optical devices.
Tamar Rapaport-Dagim has been Senior Vice President and Chief
Financial Officer of Amdocs Management Limited since November
2007. Ms. Rapaport-Dagim joined Amdocs in 2004 and served
as Vice President of Finance from 2004 until 2007. Prior to
joining Amdocs, from 2000 to 2004, Ms. Rapaport-Dagim was
the Chief Financial Officer of Emblaze, a provider of multimedia
solutions over wireless and IP networks.
49
She has also served as controller of Teledata Networks (formerly
a subsidiary of ADC Telecommunications) and has held various
finance management positions in public accounting.
James L. Liang has been our Senior Vice President and Chief
Strategy Officer since July 2008. Mr. Liang is responsible
for guiding our corporate strategy and strategic alliances, as
well as for leading the companys acquisitions and
divestitures work. From January 2005 to June 2008,
Mr. Liang served as Vice President of Strategy of
IBMs Global Technology Services Division, where he was
responsible for charting the overall strategic direction for
this division. From January 1993 to December 2004,
Mr. Liang served as an investment banker at Morgan Stanley,
providing capital raising and advisory services to technology
industry clients.
Ayal Shiran has been Senior Vice President and Head of the
Customer Business Group since August 2008. Mr. Shiran
joined Amdocs in 2004, with initial responsibility as President
of our Customer Business Unit responsible for Amdocs business
with Cingular Wireless and later as Division President,
responsible for Amdocs business with AT&T group of
companies, including SBC, Bellsouth and Cingular. Prior to
joining Amdocs, Mr. Shiran served as Acting Vice President
at TTI Team Telecom International, a telecommunications company.
He also served in the Israel Air Force, where he was responsible
for various projects concerning the development of computer
systems for the F-15 jet airplane, and software development
laboratories for the F-15 at Boeing.
Anshoo Gaur has been our Division President for India
operations since August 2007. From 2006 to 2007, Mr. Gaur
was the President of IT Infrastructure Management of
EDS/MphasiS, a technology services company. From 2005 to 2006,
Mr. Gaur served as the Managing Director of EDS India
Enterprise (EDS), where he was responsible for India
strategy and operations. From 2003 to 2005, Mr. Gaur was
the Global Transformation Director for Desktop Services of EDS.
Thomas G. OBrien has been Treasurer and Secretary of
Amdocs Limited since 1998 and has held other financial
management positions within Amdocs since 1995. From 1993 to
1995, Mr. OBrien was Controller of Big River Minerals
Corporation, a diversified natural resources company. From 1989
to 1993, Mr. OBrien was the Assistant Controller for
Big River Minerals Corporation. From 1983 to 1989,
Mr. OBrien was with Arthur Young and Company (now
Ernst & Young LLP). Mr. OBrien is a member
of the American Institute of Certified Public Accountants.
Compensation
Our directors who are not our employees, which we refer to as
our Non-Employee Directors, receive compensation for their
services as directors in the form of cash and options to
purchase ordinary shares. During fiscal 2008, our compensation
policy provided that each Non-Employee Director receives an
annual cash payment of $35,000, however, for fiscal 2009, our
Board of Directors has approved a reduction in this annual cash
payment to $31,500. Each member of our Audit and Executive
Committees who is a Non-Employee Director receives an annual
cash payment of $10,000. In addition, the Chairman of the Board
of Directors receives an annual cash payment of $75,000, the
Chairmen of our Audit and Executive Committees each receive an
annual cash payment of $10,000 and the Chairmen of our
Compensation, Nominating and Corporate Governance and Technology
and Innovation Committees each receive an annual cash payment of
$5,000. Each Non-Employee Director receives $1,500 per meeting
of the Board of Directors and $1,000 per meeting of a committee
of the Board of Directors, except for Non-Employee Directors who
are members of our Audit Committee or Executive Committee, who
each receive $2,000 per meeting. Upon election or appointment to
our Board of Directors, each Non-Employee Director also receives
an initial option grant for the purchase of 12,000 ordinary
shares. Thereafter, Non-Employee Directors receive an annual
option grant for the purchase of 11,500 ordinary shares. All
option grants to our Non-Employee Directors vest as to
one-quarter of the shares immediately, with the remainder
vesting annually in three equal installments. The exercise price
of all options granted to our Non-Employee Directors is the NYSE
closing price of our shares on the last trading day preceding
the grant date. We reimburse all of our directors for their
reasonable travel expenses incurred in connection with attending
Board or committee meetings.
A total of 22 persons who served either as directors of
Amdocs or members of its senior management during all or part of
fiscal 2008 received remuneration from Amdocs. The aggregate
remuneration paid by us
50
to such persons was approximately $10.1 million, which
includes amounts set aside or accrued to provide cash bonuses,
pension, retirement or similar benefits, but does not include
amounts expended by us for automobiles made available to such
persons, expenses (including business travel, professional and
business association dues) or other fringe benefits. During
fiscal 2008, we granted to such persons options to purchase an
aggregate of 2,683,833 ordinary shares at a weighted average
price of $32.71 per share with vesting generally over three to
four-year terms and expiring ten years from the date of grant,
and an aggregate of 222,222 restricted shares subject to
four-year vesting. All options and restricted share awards were
granted pursuant to our 1998 Stock Option and Incentive Plan, as
amended. See discussion below Share
Ownership Employee Stock Option and Incentive
Plan.
Board
Practices
Our Board of Directors is comprised of 12 directors, as of
November 30, 2008, of whom 11 were elected to our Board of
Directors at our annual meeting of shareholders on
January 23, 2008. Mr. Zisapel was elected by our Board
of Directors on July 23, 2008 to fill a vacancy on our
Board of Directors. All directors hold office until the next
annual meeting of our shareholders, which generally is in
January of each calendar year, or until their respective
successors are duly elected and qualified or their positions are
earlier vacated by resignation or otherwise.
Executive officers of Amdocs are elected by the Board of
Directors on an annual basis and serve until the next annual
meeting of the Board of Directors or until their respective
successors have been duly elected and qualified or their
positions are earlier vacated by resignation or otherwise. The
executive officers of each of the Amdocs subsidiaries are
elected by the Board of Directors of such subsidiary on an
annual basis and serve until the next annual meeting of such
Board of Directors or until their respective successors have
been duly elected and qualified or their positions are earlier
vacated by resignation or otherwise.
Other than the employment agreement between us and the President
and Chief Executive Officer of Amdocs Management Limited, which
provides for immediate cash severance upon termination of
employment, there are currently no service contracts in effect
between us and any of our directors providing for immediate cash
severance upon termination of their employment.
Board
Committees
Our Board of Directors has formed five committees set forth
below. Members of each committee are appointed by the Board of
Directors.
The Audit Committee reviews, acts on and reports to the Board of
Directors with respect to various auditing and accounting
matters, including the selection of our independent registered
public accounting firm, the scope of the annual audits, fees to
be paid to, and the performance of, such public accounting firm,
and assists with the Board of Directors oversight of our
accounting practices, financial statement integrity and
compliance with legal and regulatory requirements, including
establishing and maintaining adequate internal control over
financial reporting. The current members of our Audit Committee
are Messrs. Gardner (Chair), Foster, McLennan and Olswang,
all of whom are independent directors, as defined by the rules
of the NYSE, and pursuant to the categorical director
independence standards adopted by our Board of Directors. The
Board of Directors has determined that Mr. Gardner is an
audit committee financial expert as defined by rules
promulgated by the SEC, and that each member of the Audit
Committee is financially literate as required by the rules of
the NYSE. The Audit Committee written charter is available on
our website at www.amdocs.com.
The Nominating and Corporate Governance Committee identifies
individuals qualified to become members of our Board of
Directors, recommends to the Board of Directors the persons to
be nominated for election as directors at the annual general
meeting of shareholders, develops and makes recommendations to
the Board of Directors regarding our corporate governance
principles and oversees the evaluations of our Board of
Directors and our management. The current members of the
Nominating and Corporate Governance Committee are
Messrs. Foster (Chair), Brodsky, Gardner and Kahan, all of
whom are independent directors, as required by the NYSE listing
standards, and pursuant to the categorical director independence
standards adopted by our Board of Directors. The Nominating and
Corporate Governance Committee written charter is
51
available on our website at www.amdocs.com. The
Nominating and Corporate Governance Committee has approved
corporate governance guidelines that are also available on our
website at www.amdocs.com.
The Compensation Committee discharges the responsibilities of
our Board of Directors relating to the compensation of the Chief
Executive Officer of Amdocs Management Limited and makes
recommendations to our Board of Directors with respect to the
compensation of our other executive officers. The current
members of our Compensation Committee are Messrs. Kahan
(Chair), Anderson and Minicucci, all of whom are independent
directors, as defined by the rules of the NYSE, and pursuant to
the categorical director independence standards adopted by our
Board of Directors. The Compensation Committee written charter
is available on our website at www.amdocs.com.
The Executive Committee has such responsibilities as may be
delegated to it from time to time by the Board of Directors. The
current members of our Executive Committee are
Messrs. Anderson (Chair), Baharav, Kahan, Lemelbaum and
Minicucci.
The Technology and Innovation Committee was established to
assist the Board of Directors in reviewing our technological
development, opportunities and innovation, in connection with
the current and future business and markets. The current members
of our Technology and Innovation Committee are
Messrs. Zisapel (Chair), Anderson, Gelman and Lemelbaum.
Our independent directors receive no compensation from us,
except in connection with their membership on the Board of
Directors and its committees as described above regarding
Non-Employee Directors under
Compensation.
Workforce
Personnel
The following table presents the approximate number of our
workforce as of each date indicated, by function and by
geographical location (in each of which we operate at multiple
sites):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Software and Information Technology
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
5,351
|
|
|
|
4,541
|
|
|
|
4,391
|
|
Israel
|
|
|
4,314
|
|
|
|
4,588
|
|
|
|
4,686
|
|
India
|
|
|
3,767
|
|
|
|
3,091
|
|
|
|
2,182
|
|
Rest of the World
|
|
|
3,668
|
|
|
|
3,758
|
|
|
|
3,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,100
|
|
|
|
15,978
|
|
|
|
14,826
|
|
Management and Administration
|
|
|
1,435
|
|
|
|
1,483
|
|
|
|
1,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Workforce
|
|
|
18,535
|
|
|
|
17,461
|
|
|
|
16,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a company with global operations, we are required to comply
with various labor and immigration laws throughout the world,
including laws and regulations in Australia, Brazil, Canada,
China, Cyprus, Europe, India, Israel, Japan, Mexico, South
Africa and the United States. Our employees in Europe are
protected, in some countries, by mandatory collective bargaining
agreements. To date, compliance with such laws has not been a
material burden for us. As the number of our employees increases
over time in particular countries, our compliance with such
regulations could become more burdensome.
Our principal operating subsidiaries are not party to any
collective bargaining agreements. However, our Israeli
subsidiaries are subject to certain labor-related statutes and
to certain provisions of general extension orders issued by the
Israeli Ministry of Labor and Welfare. A significant provision
applicable to all employees in Israel under collective
bargaining agreements and extension orders is an adjustment of
wages in relation to increases in the consumer price index, or
CPI. The amount and frequency of these adjustments are modified
from time to time.
52
Some employees in Canada have union representation. In addition,
all employees in Brazil, including members of management, are
represented by unions. Collective bargaining between employers
and unions is mandatory, negotiated annually, and covers work
conditions, including cost of living increases, minimum wages
that exceed government thresholds and overtime pay. In the
Netherlands we have works council which represents the
employees. We work closely with the works council to ensure
compliance with the local law. In France, we have employee
representatives.
We consider our relationship with our employees to be good and
have never experienced an organized labor dispute, strike or
work stoppage.
Share
Ownership
Security
Ownership of Directors and Senior Management and Certain Key
Employees
As of November 24, 2008, the aggregate number of our
ordinary shares beneficially owned by our directors and senior
management was 5,893,734 shares. As of November 24,
2008, none of our directors or members of senior management
beneficially owned 1% or more of our outstanding ordinary
shares. Shares held by AT&T are not included in shares
beneficially owned by our directors and officers as of
November 24, 2008. Historically, this number had included
shares held by AT&T, since Mr. Kahan, who served as
Senior Executive Vice President of AT&T until June 2007,
serves on our Board of Directors.
Beneficial ownership by a person, as of a particular date,
assumes the exercise of all options and warrants held by such
person that are currently exercisable or are exercisable within
60 days of such date.
Stock
Option and Incentive Plan
Our Board of Directors has adopted, and our shareholders have
approved, our 1998 Stock Option and Incentive Plan, as amended
(the 1998 Plan), pursuant to which up to 55,300,000
of our ordinary shares may be issued. The 1998 Plan expires on
January 17, 2016.
The 1998 Plan provides for the grant of restricted shares, stock
options and other stock-based awards to our directors, officers,
employees and consultants. The purpose of the 1998 Plan is to
enable us to attract and retain qualified personnel and to
motivate such persons by providing them with an equity
participation in Amdocs. As of September 30, 2008, of the
55,300,000 ordinary shares available for issuance under the 1998
Plan, 19,533,114 ordinary shares had been issued as a result of
option exercises and restricted share issuances under the
provisions of the 1998 Plan, and 13,563,452 ordinary shares
remained available for future grants. As of October 31,
2008, there were outstanding options to purchase an aggregate of
22,073,665 ordinary shares at exercise prices ranging from $6.40
to $78.31 per share and an aggregate of 1,064,405 restricted
shares outstanding under the 1998 Plan.
The 1998 Plan is administered by a committee, which determines
all the terms of the awards (subject to the above), including
which employees, directors or consultants are granted awards.
The Board of Directors may amend or terminate the 1998 Plan,
provided that shareholder approval is required to increase the
number of ordinary shares available under the 1998 Plan, to
materially increase the benefits accruing to participants, to
change the class of employees eligible for participation, to
decrease the basis upon which the minimum exercise price of
options is determined or to extend the period in which awards
may be granted or to grant an option that is exercisable for
more than ten years. Ordinary shares acquired upon exercise of a
restricted stock award are subject to certain restrictions on
sale, transfer or hypothecation. No awards may be granted after
January 2016.
As a result of acquisitions, as of September 30, 2008, we
are obligated to issue (and have reserved for issuance) an
additional 184,255 ordinary shares upon exercise of options that
had previously been granted under the option plans of the
acquired companies and were exchanged for options to purchase
our ordinary shares. These options have exercise prices ranging
from $0.38 to $67.59 per share. No additional options have been
or will be granted under these predecessor plans.
53
|
|
ITEM 7.
|
MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
Major
Shareholders
The following table sets forth specified information with
respect to the beneficial ownership of the ordinary shares as of
November 24, 2008 of (i) any person known by us to be
the beneficial owner of more than 5% of our ordinary shares, and
(ii) all of our directors and executives officers as a
group. Beneficial ownership is determined in accordance with the
rules of the SEC and, unless otherwise indicated, includes
voting and investment power with respect to all ordinary shares,
subject to community property laws, where applicable. The number
of ordinary shares used in calculating the percentage beneficial
ownership included in the table below is based on
203,615,917 ordinary shares outstanding as of
November 24, 2008. Information concerning shareholders
other than AT&T and our directors and executive officers is
based on periodic public filings made by such shareholders and
may not necessarily be accurate as of November 24, 2008.
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Beneficially
|
|
|
Percentage
|
|
Name
|
|
Owned
|
|
|
Ownership
|
|
|
T. Rowe Price Associates, Inc.(1)
|
|
|
17,360,591
|
|
|
|
8.5
|
|
Janus Capital Management LLC(2)
|
|
|
16,389,277
|
|
|
|
8.0
|
|
J &W Seligman & Co. Incorporated(3)
|
|
|
11,740,656
|
|
|
|
5.8
|
|
Glenview Capital Management, LLC(4)
|
|
|
11,639,877
|
|
|
|
5.7
|
|
AT&T Inc.(5)
|
|
|
10,364,698
|
|
|
|
5.1
|
|
All directors and executive officers as a group
(17 persons)(6)
|
|
|
5,893,734
|
|
|
|
2.8
|
|
|
|
|
(1) |
|
The address of T. Rowe Price Associates, Inc. (T. Rowe
Price) is 100 E. Pratt Street, Baltimore,
Maryland 21202. Based on a Schedule 13G filed by T. Rowe
Price with the SEC on February 12, 2008, as of
December 31, 2007, T. Rowe Price had sole voting power over
3,629,100 of our ordinary shares and sole dispositive power over
17,360,591 of our ordinary shares. |
|
(2) |
|
The address of Janus Capital Management LLC (Janus)
is 151 Detroit Street, Denver, Colorado 80206. Based on a
Schedule 13G filed by Janus with the SEC on
February 14, 2008, as of December 31, 2007, Janus
Capital has an indirect 86.5% ownership stake in Enhanced
Investment Technologies LLC (INTECH) and an indirect
30% ownership stake in Perkins, Wolf, McDonnell and Company, LLC
(Perkins Wolf). Due to this ownership structure,
holdings for Janus, Perkins Wolf and INTECH are aggregated.
Janus, Perkins Wolf and INTECH are registered investment
advisers, each furnishing investment advice to various
investment companies registered under Section 8 of the
Investment Company Act of 1940 and to individual and
institutional clients (collectively, the Managed
Portfolios). As a result of its role as investment adviser
or sub-adviser to the Managed Portfolios, Janus may be deemed to
be the beneficial owner of 16,389,277 ordinary shares held by
the Managed Portfolios. However, Janus does not have the right
to receive any dividends from, or the proceeds from the sale of,
the securities held in the Managed Portfolios and disclaims any
ownership associated with such rights. |
|
(3) |
|
The address of J &W Seligman & Co.
Incorporated (Seligman) is 100 Park Avenue, New
York, New York 10017. Based on a Schedule 13G filed by
Seligman with the SEC on January 28, 2008, as of
December 31, 2007, Seligman had shared voting power over
11,740,656 of our ordinary shares and shared dispositive power
over 11,740,656 of our ordinary shares. William C. Morris, as
the owner of a majority of the outstanding voting securities of
Seligman, may be deemed to beneficially own the shares reported
by Seligman. |
|
(4) |
|
The address of Glenview Capital Management, LLC
(Glenview) is 767 Fifth Avenue, 44th Floor,
New York, New York 10153. Based on a Schedule 13G filed by
Glenview with the SEC on April 18, 2008, as of
April 17, 2008, Glenview had shared voting power and shared
dispositive power over all of these ordinary shares. Of these
ordinary shares, 386,390 were held for the account of Glenview
Capital Partners, L.P., 6,377,229 were held for the account of
Glenview Capital Master Fund, Ltd., 2,595,536 were held for the
account of Glenview Institutional Partners, L.P., 694,616 were
held for the account of GCM Little Arbor Master Fund, Ltd.,
120,812 were held for the account of GCM Little Arbor
Institutional Partners, L.P., |
54
|
|
|
|
|
747,059 were held for the account of Glenview Capital
Opportunity Fund, L.P., 686,270 were held for the account of
Glenview Offshore Opportunity Master Fund, Ltd., 8,545 were held
for the account of GCM Little Arbor Partners, L.P. and 23,420
were held for the account of GCM Opportunity Fund, L.P.
Lawrence M. Robbins, as the Chief Executive Officer of
Glenview, may be deemed to beneficially own the shares reported
by Glenview. |
|
(5) |
|
The address of AT&T Inc. is 175 East Houston,
San Antonio, Texas 78205. Based upon information provided
to us by AT&T, as of November 24, 2008, AT&T
beneficially owned 10,364,698 of our ordinary shares. |
|
(6) |
|
Includes options held by such directors and executive officers
that are exercisable within 60 days after November 24,
2008. |
Over the last three years, our major shareholders have included
our directors and executive officers as a group, AT&T, and
other institutional investors, including T. Rowe Price,
Massachusetts Financial Services Company (MFS) and
Thornburg Investment Management, Inc (Thornburg).
AT&Ts share ownership has decreased to 5.1% as of
November 24, 2008 from 9.1% in November 2002, and it has,
at times during fiscal 2008, decreased to below 5.0%. MFS and
Thornburg ceased to be major shareholders in fiscal 2008.
Thornburg did not file a 13G for fiscal 2008.
As of November 24, 2008, our ordinary shares were held by
1,296 record holders. Based on a review of the information
provided to us by our transfer agent, 1,233 record holders,
holding approximately 86.2% of our outstanding ordinary shares
held of record, were residents of the United States.
Related
Party Transactions
In addition to being a major shareholder at times during fiscal
2008, AT&T and some of its operating subsidiaries are also
significant customers of ours. During fiscal 2008, AT&T and
those subsidiaries accounted for approximately 28% of our
revenue. AT&T is also a beneficial owner of companies that
provide certain miscellaneous support services to us in United
States.
|
|
ITEM 8.
|
FINANCIAL
INFORMATION
|
Financial
Statements
See Financial Statements for our audited
Consolidated Financial Statements and Financial Statement
Schedule filed as part of this Annual Report.
Legal
Proceedings
We are involved in various legal proceedings arising in the
normal course of our business. Based upon the advice of counsel,
we do not believe that the ultimate resolution of these matters
will have a material adverse effect on our consolidated
financial position, results of operations or cash flows.
Dividend
Policy
After the payment of dividends in 1998 that followed a corporate
reorganization, we decided in general to retain earnings to
finance the development of our business, and we have not paid
any cash dividends on our ordinary shares since that time. The
payment of any future dividends will be paid by us based on
conditions then existing, including our earnings, financial
condition and capital requirements, as well as other conditions
we deem relevant. The terms of our revolving credit facility
restrict, and the terms of any other debt that we may incur
could effectively limit, our ability to pay dividends.
55
|
|
ITEM 9.
|
THE
OFFER AND LISTING
|
Our ordinary shares have been quoted on the NYSE since
June 19, 1998, under the symbol DOX. The
following table sets forth the high and low reported sale prices
for our ordinary shares for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Fiscal Year Ended September 30
|
|
|
|
|
|
|
|
|
2004
|
|
$
|
30.69
|
|
|
$
|
18.08
|
|
2005
|
|
$
|
30.96
|
|
|
$
|
20.70
|
|
2006
|
|
$
|
41.01
|
|
|
$
|
24.30
|
|
2007
|
|
$
|
40.74
|
|
|
$
|
32.50
|
|
2008
|
|
$
|
38.03
|
|
|
$
|
24.65
|
|
Quarter
|
|
|
|
|
|
|
|
|
Fiscal 2007:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
40.74
|
|
|
$
|
35.22
|
|
Second Quarter
|
|
$
|
39.48
|
|
|
$
|
32.50
|
|
Third Quarter
|
|
$
|
40.26
|
|
|
$
|
34.39
|
|
Fourth Quarter
|
|
$
|
40.36
|
|
|
$
|
32.75
|
|
Fiscal 2008:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
34.72
|
|
|
$
|
33.73
|
|
Second Quarter
|
|
$
|
31.77
|
|
|
$
|
30.69
|
|
Third Quarter
|
|
$
|
31.28
|
|
|
$
|
30.50
|
|
Fourth Quarter
|
|
$
|
29.59
|
|
|
$
|
28.72
|
|
Fiscal 2009:
|
|
|
|
|
|
|
|
|
First Quarter (through November 24, 2008)
|
|
$
|
27.71
|
|
|
$
|
16.19
|
|
Most Recent Six Months
|
|
|
|
|
|
|
|
|
June 2008
|
|
$
|
31.81
|
|
|
$
|
31.09
|
|
July 2008
|
|
$
|
30.02
|
|
|
$
|
29.13
|
|
August 2008
|
|
$
|
30.37
|
|
|
$
|
29.76
|
|
September 2008
|
|
$
|
28.36
|
|
|
$
|
27.24
|
|
October 2008
|
|
$
|
27.71
|
|
|
$
|
19.39
|
|
November 2008 (through November 24, 2008)
|
|
$
|
24.60
|
|
|
$
|
16.19
|
|
|
|
ITEM 10.
|
ADDITIONAL
INFORMATION
|
Memorandum
and Articles of Association
Amdocs Limited is registered at the Companies Registry in
Guernsey and has been assigned company number 19528, with its
registered office situated at Suite 5, Tower Hill House, Le
Bordage, St Peter Port, Guernsey, GY1 3QT. The telephone number
at that location is +44-1481-728444.
Amdocs Limiteds purpose is to engage in any and all
corporate activities permissible under Guernsey law, as set
forth in detail at Clause 3(1) to (37) of our
Memorandum of Association (the Memorandum of
Association). Article 21(2) of our Amended and
Restated Articles of Association (the Articles of
Association) provides that a director may vote in respect
of any contract or arrangement in which such director has an
interest notwithstanding such directors interest and an
interested director will not be liable to us for any profit
realized through any such contract or arrangement by reason of
such director holding the office of director. Article 20 of
the Articles of Association provides that the remuneration of
the directors shall from time to time be determined by us by
ordinary resolution of our shareholders, but that the directors
are authorized to determine from time to time the remuneration
for any outside or unaffiliated directors. Article 22
56
provides that directors may exercise all the powers of Amdocs
Limited to borrow money, and to mortgage or charge its
undertaking, property and uncalled capital or any part thereof,
and to issue securities whether outright or as security for any
debt, liability or obligation of the company for any third
party. Such borrowing powers can only be altered through an
amendment to the Articles of Association. Our Memorandum of
Association and Articles of Association do not impose a
requirement on our directors to own shares of Amdocs Limited in
order to serve as directors, however, our Board of Directors has
adopted guidelines for minimum share ownership by our directors
and senior managers, who have until January 2010 to be in
compliance with the guidelines.
On July 1, 2008, a new companies law, the Companies
(Guernsey) Law, 2008 (the New Companies Law), became
effective in Guernsey. Under the New Companies Law, the term
Memorandum of Incorporation is now used in place of
the term Memorandum of Association, and the term
Articles of Incorporation is now used in place of
the term Articles of Association. Accordingly, we
use these terms interchangeably below.
In order to comply with the provisions of the New Companies Law,
our Board of Directors has approved certain amendments to our
Memorandum of Incorporation and Articles of Incorporation, which
will be presented to shareholders for their approval at our
annual meeting of shareholders scheduled for January 2009. The
proposed amendments will:
(i) amend the Memorandum of Association to state that our
purpose is to engage in any and all corporate activities
permissible under Guernsey law and to delete the detailed
specification of permissible activities contained in the current
Memorandum of Association;
(ii) eliminate certain provisions of the current Articles
of Association that are set forth in substantially the same
terms in the New Companies Law, including provisions dealing
with transactions between a director and us and the rights of
shareholders to receive certificates for their shares;
(iii) permit our Board of Directors to issue up to
700 million ordinary shares and 25 million preferred
shares for a period of up to five years after the adoption of
the amended Articles of Incorporation, subject to the ability of
shareholders to approve extensions of such authority for further
periods not exceeding five years;
(iv) conform the provisions of the Articles of
Incorporation dealing with the indemnification of directors and
officers to the requirements of the New Companies Law;
(v) expressly authorize us to obtain insurance to cover
claims against directors and officers to the fullest extent
permitted by the New Companies Law;
(vi) permit our Board of Directors to determine the
compensation of all directors, whether or not employed by
us; and
(vii) state that the Board of Directors will have all the
powers necessary for managing and for directing and supervising
the management of our business and affairs and delete the
specification of powers contained in the current Articles of
Association.
Our current share capital is £5,750,000 divided into
(i) 25,000,000 preferred shares with a par value of
£0.01 per share and (ii) 550,000,000 ordinary shares
with a par value of £0.01 per share, consisting of
500,000,000 voting ordinary shares and 50,000,000 non-voting
ordinary shares. Under the New Companies Law, and subject to
shareholder approval of the amended Memorandum of Incorporation
and Articles of Incorporation, our share capital will continue
to include 25,000,000 preferred shares and we will be permitted
to issue up to 700,000,000 ordinary shares. As of
September 30, 2008, 203,915,726 ordinary shares were
outstanding (net of treasury shares) and no non-voting ordinary
shares or preferred shares were outstanding. The rights,
preferences and restrictions attaching to each class of the
shares, under our current Memorandum
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of Association and Articles of Association, which would not
change as a result of the amendments described above, are as
follows:
Preferred
Shares
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Issue the preferred shares may be issued from
time to time in one or more series of any number of shares up to
the amount authorized.
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Authorization to Issue Preferred Shares
authority is vested in the directors from time
to time to authorize the issue of one or more series of
preferred shares and to provide for the designations, powers,
preferences and relative participating, optional or other
special rights and qualifications, limitations or restrictions
thereon.
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Relative Rights all shares of any one series
of preferred shares must be identical with each other in all
respects, except that shares of any one series issued at
different times may differ as to the dates from which dividends
shall be cumulative.
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Liquidation in the event of any liquidation,
dissolution or
winding-up
of Amdocs Limited, the holders of preferred shares are entitled
to preference with respect to payment and to receive payment (at
the rate fixed in any resolution or resolutions adopted by the
directors in such case) plus an amount equal to all dividends
accumulated to the date of final distribution to such holders.
The holders of preferred shares are entitled to no further
payment other than that stated above. If upon any liquidation,
our assets are insufficient to pay in full the amount stated
above then such assets shall be distributed among the holders of
preferred shares.
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Voting Rights except as otherwise provided
for by the directors upon the issue of any new series of
preferred shares, the holders of preferred shares have no right
or power to vote on any question or in any proceeding or to be
represented at, or to receive notice of, any meeting of members.
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Ordinary
Shares and Non-Voting Ordinary Shares
Except as otherwise provided by the Memorandum of Association
and Articles of Association, the ordinary shares and non-voting
ordinary shares are identical and entitle holders thereof to the
same rights and privileges.
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Dividends when and as dividends are declared
on our shares, the holders of voting ordinary shares and
non-voting shares are entitled to share equally, share for
share, in such dividends except that if dividends are declared
that are payable in voting ordinary shares or non-voting
ordinary shares, dividends must be declared that are payable at
the same rate in both classes of shares.
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Conversion of Non-Voting Ordinary Shares into Voting Ordinary
Shares upon the transfer of non-voting ordinary
shares from the original holder thereof to any third party not
affiliated with such original holder, non-voting ordinary shares
are redesignated in our books as voting ordinary shares and
automatically convert into the same number of voting ordinary
shares.
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Liquidation upon any liquidation, dissolution
or
winding-up
of Amdocs Limited, our assets remaining after creditors and the
holders of any preferred shares have been paid in full shall be
distributed to the holders of voting ordinary shares and
non-voting ordinary shares equally share for share.
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Voting Rights the holders of voting ordinary
shares are entitled to vote on all matters to be voted on by the
members, and the holders of non-voting ordinary shares are not
entitled to any voting rights.
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Preferences the voting ordinary shares and
non-voting ordinary shares are subject to all the powers,
rights, privileges, preferences and priorities of the preferred
shares as are set out in the Articles of Association.
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As regards both preferred shares and voting and non-voting
ordinary shares, we have the power to purchase any of its own
shares, whether or not they are redeemable and may make a
payment out of capital
58
for such purchase, however the terms of such repurchases must be
approved in advance by a special resolution of the holders of
our ordinary shares. Our subsidiaries may purchase our ordinary
shares without the approval of our shareholders.
The current Articles of Association provide that our directors,
officers and other agents will be indemnified against
liabilities sustained in connection with the performance of
their duties as directors, officers or agents, except to the
extent attributable to their own willful act or default. In
accordance with the New Companies Law, the Articles will be
amended, subject to shareholder approval, to provide that our
directors, officers and other agents will be indemnified by us
from and against all liabilities sustained in connection with
their performance of their duties, except to the extent
prohibited by the New Companies Law. Under that Law, we may not
indemnify for certain excluded liabilities, which are:
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fines imposed in criminal proceedings;
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regulatory fines;
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expenses incurred in defending criminal proceedings resulting in
a conviction;
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expenses incurred in defending civil proceedings brought by the
company or an affiliated company in which judgment is rendered
against the director; and
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expenses incurred in unsuccessfully seeking judicial relief from
claims of a breach of duty.
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Although our directors may not be exempted from, or indemnified
for, liabilities to Amdocs Limited arising out of negligence,
default, breach of duty or breach of trust, liabilities to third
parties (including to our shareholders) arising out of
negligence, default, breach of duty or breach of trust may be
indemnified by us and the New Companies Law authorizes Guernsey
companies to purchase insurance against such liabilities to
companies or to third parties for the benefit of directors and
we do maintain such insurance. In any event, judicial relief is
available for an officer charged with a neglect of duty if the
court determines that such person acted honestly and reasonably,
having regard to all the circumstances of the case.
There are no provisions for a classified Board of Directors or
for cumulative voting for directors.
Article 8 of the Articles of Association provides that all
or any of the rights, privileges, or conditions attached to any
class or group of shares may be changed as follows:
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by an agreement between us and any person purporting to contract
on behalf of the holders of shares of the class or group
affected, provided that such agreement is ratified in writing by
the holders of at least two-thirds of the issued shares of the
class affected; or
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with the consent in writing of the holders of three-fourths of
the issued shares of that class or with the sanction of an
extraordinary resolution passed by majority of three-fourths of
the votes of the holders of shares of the class or group
affected entitled to vote and voting in person or by attorney or
proxy and passed at a separate meeting of the holders of such
shares but not otherwise.
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A special resolution must be passed by not less than
three-quarters of the votes recorded at a meeting called for
purposes of voting on the matter. As such, the conditions set
out above are as significant as the requirements of Guernsey law.
Provisions in respect of the holding of general meetings and
extraordinary general meetings are set out at Articles 14,
15 and 16 of the Articles of Association. The Articles of
Association provide that an annual general meeting must be held
once in every calendar year (provided that not more than
15 months have elapsed since the last such meeting) at such
time and place as the directors appoint and, in default, an
annual general meeting may be convened by any two members
holding at least 10% in the aggregate of our share capital. The
directors may, whenever they deem fit, convene an extraordinary
general meeting, and extraordinary general meetings will also be
convened on the requisition in writing of holders of at least
20% of our issued share capital carrying voting rights or, if
the directors fail upon such requisition to convene such meeting
within 21 days, then such meeting may be convened by such
holders in such manner as provided by Guernsey Law. A minimum of
10 days written notice is required in connection with
an annual general
59
meeting and a minimum of 14 days written notice is
required in connection with any other meeting. The notice shall
specify the place, the day and the hour of the meeting, and in
the case of any special business, the general nature of that
business to such persons as are entitled by the Articles of
Association to receive such notices from us provided that a
meeting shall, notwithstanding that it is called by shorter
notice than that specified in the Articles, be deemed to have
been duly called if it is so agreed by all the members entitled
to attend and vote thereat.
There are no limitations on the rights to own securities,
including the rights of non-resident or foreign shareholders to
hold or exercise voting rights on the securities.
There are no provisions in the Memorandum of Association or
Articles of Association that would have the effect of delaying,
deferring or preventing a change in control of Amdocs Limited
and that would operate only with respect to a merger,
acquisition or corporate restructuring involving us (or any of
our subsidiaries).
There are no provisions in the Memorandum of Association or
Articles of Association governing the ownership threshold above
which shareholder ownership must be disclosed. U.S. federal
law, however, requires that all directors, executive officers
and holders of 10% or more of the stock of a company that has a
class of stock registered under the Securities Exchange Act of
1934, as amended (other than a foreign private issuer, such as
Amdocs Limited), disclose such ownership. In addition, holders
of more than 5% of a registered equity security of a company
(including a foreign private issuer) must disclose such
ownership.
Pursuant to Article 13 of the Articles of Association, we
may from time to time by ordinary resolution increase our share
capital by such sum, to be divided into shares of such amount,
as the resolution prescribes. A restructuring of the existing
share capital must be done by extraordinary resolution (which
requires the same vote as a special resolution), and we may by
special resolution reduce our share capital, any capital
redemption reserve fund or any share premium account in
accordance with Guernsey law. These provisions in relation to
the alteration of our capital are in accordance with but no more
onerous than the Companies Law.
Material
Contracts
On November 27, 2007, we entered into a Credit Agreement
among us, certain of our subsidiaries, the lenders from time to
time party thereto, JPMorgan Chase Bank, N.A., as administrative
agent, J.P. Morgan Europe Limited, as London agent, and
JPMorgan Chase Bank, N.A., Toronto branch, as Canadian agent.
The agreement provides for an unsecured $500 million
five-year revolving credit facility with a syndicate of banks,
which is available for general corporate purposes, including
acquisitions and repurchases of our ordinary shares that we may
consider from time to time.
On December 28, 2007, we entered into an Amended and
Restated Information Technology Services Agreement, which amends
and restates in its entirety the Information Technology Services
Agreement that we entered into with AT&T Services, Inc.
effective April 17, 2007. The agreement provides that
Amdocs will provide services for application software to
AT&T for fees as specified therein.
In the past two years, we have not entered into any other
material contracts other than contracts entered into in the
ordinary course of our business.
Taxation
Taxation
of the Company
The following is a summary of certain material tax
considerations relating to Amdocs and our subsidiaries. To the
extent that the discussion is based on tax legislation that has
not been subject to judicial or administrative interpretation,
there can be no assurance that the views expressed in the
discussion will be accepted by the tax authorities in question.
The discussion is not intended, and should not be construed, as
legal or professional tax advice and is not exhaustive of all
possible tax considerations.
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General
Our effective tax rate was 9.3% for the year ended
September 30, 2008, compared to 10.6% for fiscal 2007 and
14.8% for fiscal 2006.
There can be no assurance that our effective tax rate will not
change over time as a result of a change in corporate income tax
rates or other changes in the tax laws of the various countries
in which we operate. Moreover, our effective tax rate in future
years may be adversely affected in the event that a tax
authority challenged the manner in which items of income and
expense are allocated among us and our subsidiaries. In
addition, we and certain of our subsidiaries benefit from
certain special tax benefits. The loss of any such tax benefits
could have an adverse effect on our effective tax rate.
Certain
Guernsey Tax Considerations
In the past we qualified as an exempt company (i.e., our
shareholders are not Guernsey residents and we do not carry on
business in Guernsey) so we generally were not subject to
taxation in Guernsey. Tax legislation enacted in Guernsey with
effect from January 1, 2008 repealed the exemption and
subjected us to a zero percent corporate tax rate, which we
believe will not impact our effective tax rate.
Certain
Indian Tax Considerations
Through subsidiaries, we operate a development center and a
business processing operations center in Pune, India, and
another development center in Delhi, India. In 2008, the
corporation tax rate applicable in India on trading activities
was 33.99%. Our subsidiaries in India operate under specific
favorable tax entitlements that are based upon pre-approved
information technology related services activity. As a result,
our subsidiaries based in Pune are entitled to corporate income
tax exemptions on all income derived from such pre-approved
information technology activity, provided they continue to meet
the conditions required for such tax benefits. The benefits
applicable for our Pune-based subsidiaries are scheduled to
expire on April 1, 2010. However, as of April 1, 2007,
the Minimum Alternative Tax (MAT) became applicable
to our Indian subsidiaries based in Pune. The MAT is levied on
book profits at the rate of 11.33% and can be carried forward
for five years to be credited against corporate income tax.
Our-Delhi based subsidiary is subject to a separate tax
entitlement under which, it is exempt from tax on its tax
incentive-eligible activity for its first five years of
operation and it will enjoy 50% reduction on its corporate
income tax for such activity for the following five years. After
10 years of operations, such 50% reduction may be available
for an additional five years, subject to further
investment-related undertakings that we would be required to
make. Under Indian laws, any dividend distribution by our Indian
subsidiaries would be subject to a dividend distribution tax at
the rate of 16.995% to be paid by such subsidiaries.
Certain
Israeli Tax Considerations
Our Israeli subsidiary, Amdocs (Israel) Limited, operates our
largest development center. Discussed below are certain Israeli
tax considerations relating to this subsidiary.
General Corporate Taxation in Israel. In
August 2005, the Israeli parliament enacted legislation, which
has gradually reduced the Companies Tax rates of
taxable income apply to Israeli companies. According to this
legislation, the Companies Tax rate on taxable income in 2005
and upcoming years was and will be as follows: 34% in 2005, 31%
in 2006, and 29% in 2007, 27% in 2008, 26% in 2009 and 25% for
2010 and thereafter. However, the effective tax rate payable by
an Israeli company that derives income from an Approved
Enterprise may be considerably less.
Law for the Encouragement of Capital Investments,
1959. Certain production and development
facilities of our Israeli subsidiary have been granted
Approved Enterprise status pursuant to the Law for
the Encouragement of Capital Investments, 1959 (the
Investment Law), which provides certain tax and
financial benefits to investment programs that have been granted
such status.
In April 2005, the Israeli parliament enacted legislation that
significantly revised the Investment Law. Generally, investment
programs of our Israeli subsidiary that have already obtained
instruments of approval for
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an Approved Enterprise by the Israeli Investment Center will
continue to be subject to the old provisions as described below
of the Investment Law prior to being revised. The revisions that
were introduced into the Investment Law did not affect our
effective tax rate for year ended September 30, 2008 and we
do not expect them to have a significant impact on our effective
tax rate in fiscal 2009.
The provisions of the Investment Law applicable to investment
programs approved prior to the effective date of the amendments
to the Investment Law provide that capital investments in
production facilities (or other eligible assets) may, upon
application to the Israeli Investment Center, be designated as
an Approved Enterprise. Each instrument of approval for an
Approved Enterprise relates to a specific investment program
delineated both by the financial scope of the investment,
including source of funds, and by the physical characteristics
of the facility or other assets. The tax benefits available
under any instrument of approval relate only to taxable profits
attributable to the specific investment program and are
contingent upon compliance with the conditions set out in the
instrument of approval.
Tax Benefits. Taxable income derived from an
Approved Enterprise is subject to a reduced corporate tax rate
of 25% until the earliest of:
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seven consecutive years (or ten in the case of an FIC (as
defined below)) commencing in the year in which the Approved
Enterprise first generates taxable income,
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12 years from the year of commencement of
production, or
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14 years from the year of the approval of the Approved
Enterprise status.
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Such income is eligible for further reductions in tax rates if
we qualify as a Foreign Investors Company
(FIC) depending on the percentage of the foreign
ownership. Subject to certain conditions, an FIC is a company
more than 25% of whose share capital (in terms of shares, rights
of profits, voting and appointment of directors) and more than
25% of whose combined share and loan capital are owned by
non-Israeli residents. The tax rate is 20% if the foreign
investment is 49% or more but less than 74%; 15% if the foreign
investment is 74% or more but less than 90%; and 10% if the
foreign investment is 90% or more. The determination of foreign
ownership is made on the basis of the lowest level of foreign
ownership during the tax year. A company that owns an Approved
Enterprise approved after April 1, 1986, may elect to
forego the entitlement to grants and apply for an alternative
package of tax benefits. In addition, a company (like our
Israeli subsidiary) with an enterprise outside the National
Priority Regions (which is not entitled to grants) may also
apply for the alternative benefits. Under the alternative
benefits, undistributed income from the Approved Enterprise
operations is fully tax exempt (a tax holiday) for a defined
period. The tax holiday ranges between two to ten years from the
first year of taxable income subject to the limitations as
described above, depending principally upon the geographic
location within Israel. On expiration of the tax holiday, the
Approved Enterprise is eligible for a beneficial tax rate (25%
or lower in the case of an FIC, as described above) for the
remainder of the otherwise applicable period of benefits.
Our primary Israeli subsidiary has elected the alternative
benefits with respect to its current Approved Enterprise and its
enlargements, pursuant to which the Israeli subsidiary enjoys,
in relation to its Approved Enterprise operations, certain tax
holidays, based on the location of activities within Israel, for
a period of two or ten years (and in some cases for a period of
four years) and, in the case of a two year tax holiday, reduced
tax rates for an additional period of up to eight years. In case
this Israeli subsidiary pays a dividend, at any time, out of
income earned during the tax holiday period in respect of its
Approved Enterprise, it will be subject, assuming that the
current level of foreign investment in Amdocs is not reduced, to
corporate tax at the otherwise applicable rate of 10% of the
income from which such dividend has been paid and up to 25% if
such foreign investments are reduced (as detailed above). This
tax is in addition to the withholding tax on dividends as
described below. Under an instrument of approval issued in
December 1997 and an amendment issued in September 2006 to an
instrument of approval issued in December 2000 and relating to
specific investment programs of our Israeli subsidiary and to
the income derived therefrom, the subsidiary is entitled to a
reduced tax rate period of 13 years (instead of the
eight-year period referred to above). The tax benefits,
available with respect to an Approved Enterprise only to taxable
income attributable to that specific enterprise, are given
according to an allocation formula provided for in the
Investment Law or in the instrument of
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approval, and are contingent upon the fulfillment of the
conditions stipulated by the Investment Law, the regulations
published thereunder and the instruments of approval for the
specific investments in the Approved Enterprises. In the event
our Israeli subsidiary fails to comply with these conditions,
the tax and other benefits could be canceled, in whole or in
part, and the subsidiary might be required to refund the amount
of the canceled benefits, with the addition of CPI linkage
differences and interest. We believe that the Approved
Enterprise of our Israeli subsidiary substantially complies with
all such conditions currently, but there can be no assurance
that it will continue to do so.
Dividends
Dividends paid out of income derived by an Approved Enterprise
during the benefit periods (or out of dividends received from a
company whose income is derived by an Approved Enterprise) are
subject to withholding tax at a reduced rate of 15% (deductible
at source). In the case of companies that do not qualify as a
FIC, the reduced rate of 15% is limited to dividends paid at any
time up to 12 years thereafter. This withholding tax is in
addition to the corporate tax that a company is subject to in
the event it pays a dividend out of income earned during the tax
holiday period related to its Approved Enterprise status.
Taxation
Of Holders Of Ordinary Shares
Certain
United States Federal Income Tax Considerations
The following discussion describes the material
U.S. federal income tax consequences to the ownership or
disposition of our ordinary shares to a U.S. holder. A
U.S. holder is:
(i) an individual who is a citizen or resident of the
United States;
(ii) a corporation created or organized in, or under the
laws of, the United States or of any state thereof;
(iii) an estate, the income of which is includable in gross
income for U.S. federal income tax purposes regardless of
its source; or
(iv) a trust, if a court within the United States is able
to exercise primary supervision over the administration of the
trust and one or more U.S. persons has the authority to
control all substantial decisions of the trust.
This summary generally considers only U.S. holders that own
ordinary shares as capital assets. This summary does not discuss
the U.S. federal income tax consequences to a holder of
ordinary shares that is not a U.S. holder.
This discussion is based on current provisions of the Internal
Revenue Code of 1986, as amended (the Code), current
and proposed Treasury regulations promulgated thereunder, and
administrative and judicial decisions as of the date hereof, all
of which are subject to change, possibly on a retroactive basis.
This discussion does not address all aspects of
U.S. federal income taxation that may be relevant to a
holder of ordinary shares based on such holders particular
circumstances (including potential application of the
alternative minimum tax), U.S. federal income tax
consequences to certain holders that are subject to special
treatment (such as taxpayers who are broker-dealers, insurance
companies, tax-exempt organizations, financial institutions,
holders of securities held as part of a straddle,
hedge or conversion transaction with
other investments, or holders owning directly, indirectly or by
attribution at least 10% of the ordinary shares), or any aspect
of state, local or
non-U.S. tax
laws. Additionally, this discussion does not consider the tax
treatment of persons who hold ordinary shares through a
partnership or other pass-through entity or the possible
application of U.S. federal gift or estate taxes.
This summary is for general information only and is not binding
on the Internal Revenue Service (IRS). There can be
no assurance that the IRS will not challenge one or more of the
statements made herein. U.S. holders are urged to consult
their own tax advisers as to the particular tax consequences to
them of owning and disposing of our ordinary shares.
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Dividends. In general, a U.S. holder
receiving a distribution with respect to the ordinary shares
will be required to include such distribution (including the
amount of foreign taxes, if any, withheld therefrom) in gross
income as a taxable dividend to the extent such distribution is
paid from our current or accumulated earnings and profits as
determined under U.S. federal income tax principles. Any
distributions in excess of such earnings and profits will first
be treated, for U.S. federal income tax purposes, as a
nontaxable return of capital to the extent of the
U.S. holders tax basis in the ordinary shares, and
then, to the extent in excess of such tax basis, as gain from
the sale or exchange of a capital asset. See Disposition
of Ordinary Shares below. In general, U.S. corporate
shareholders will not be entitled to any deduction for
distributions received as dividends on the ordinary shares.
Dividend income is generally taxed as ordinary income. However,
a maximum U.S. federal income tax rate of 15% will apply to
qualified dividend income received by individuals
(as well as certain trusts and estates) before January 1,
2011, provided that certain holding period requirements are met.
Qualified dividend income includes dividends paid on
shares of U.S. corporations as well as dividends paid on
shares of qualified foreign corporations, including
shares of a foreign corporation that are readily tradable on an
established securities market in the United States. Since our
ordinary shares are readily tradable on the New York Stock
Exchange, we believe that dividends paid by us with respect to
our ordinary shares should constitute qualified dividend
income for U.S. federal income tax purposes, provided
that the holding period requirements are satisfied and none of
the other special exceptions applies.
The amount of foreign income taxes that may be claimed as a
credit against U.S. federal income tax in any year is
subject to certain complex limitations and restrictions, which
must be determined on an individual basis by each
U.S. holder. The limitations set out in the Code include,
among others, rules that may limit foreign tax credits allowable
with respect to specific classes of income to the
U.S. federal income taxes otherwise payable with respect to
each such class of income. Dividends paid by us generally will
be foreign source passive income or financial
services income for U.S. foreign tax credit purposes.
Disposition of Ordinary Shares. Upon the sale,
exchange or other disposition of our ordinary shares, a
U.S. holder generally will recognize capital gain or loss
in an amount equal to the difference between the amount realized
on the disposition by such U.S. holder and its tax basis in
the ordinary shares. Such capital gain or loss will be long-term
capital gain or loss if the U.S. holder has held the
ordinary shares for more than one year at the time of the
disposition. In the case of a U.S. holder that is an
individual, trust or estate, long-term capital gains realized
upon a disposition of the ordinary shares during taxable years
beginning before January 1, 2011 generally will be subject
to a maximum U.S. federal tax income rate of 15%. Gains
realized by a U.S. holder on a sale, exchange or other
disposition of ordinary shares generally will be treated as
U.S. source income for U.S. foreign tax credit
purposes.
Information Reporting and Backup
Withholding. Dividend payments with respect to
the ordinary shares and proceeds from the sale, exchange or
redemption of ordinary shares may be subject to information
reporting to the IRS and possible U.S. backup withholding.
Backup withholding will not apply, however, to a
U.S. holder who furnishes a correct taxpayer identification
number and makes any other required certification or who is
otherwise exempt from backup withholding. Generally a
U.S. holder will provide such certification on IRS
Form W-9
(Request for Taxpayer Identification Number and Certification).
Amounts withheld under the backup withholding rules may be
credited against a U.S. holders tax liability or
refunded if the holder provides the required information to the
IRS.
Passive Foreign Investment Company
Considerations. If, during any taxable year, 75%
or more of our gross income consists of certain types of passive
income, or the average value during a taxable year of passive
assets (generally assets that generate passive income) is 50% or
more of the average value of all of our assets, we will be
treated as a passive foreign investment company
under U.S. federal income tax law for such year and
succeeding years. If we are treated as a passive foreign
investment company, we do not intend to take steps necessary to
qualify as a qualified electing fund. However, if we are treated
as a passive foreign investment company, a U.S. holder may
be subject to increased tax liability upon the sale of our
ordinary shares or upon the receipt of certain distributions,
unless such U.S. holder makes an election to mark our
ordinary shares to market annually.
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Based on an analysis of our financial position, we believe that
we have not been a passive foreign investment company for
U.S. federal income tax purposes for any preceding taxable
year and expect that we will not become a passive foreign
investment company during the current taxable year. However,
because the tests for determining passive foreign investment
company status are applied as of the end of each taxable year
and are dependent upon a number of factors, some of which are
beyond our control, including the value of our assets, based on
the market price of our ordinary shares, and the amount and type
of our gross income, we cannot assure you that we will not
become a passive foreign investment company in the future or
that the IRS will agree with our conclusion regarding our
current passive foreign investment company status. We intend to
use reasonable efforts to avoid becoming a passive foreign
investment company.
Rules relating to a passive foreign investment company are very
complex. U.S. holders should consult their own tax advisors
regarding the U.S. federal income tax considerations
discussed above and the applicability of passive foreign
investment company rules to their investments in our ordinary
shares.
Certain
Guernsey Tax Considerations
Under the laws of Guernsey as currently in effect, a holder of
our ordinary shares who is not a resident of Guernsey and who
does not carry on business in Guernsey through a permanent
establishment situated there is exempt from Guernsey income tax
on dividends paid with respect to the ordinary shares and is not
liable for Guernsey income tax on gains realized on sale or
disposition of such ordinary shares. In addition, Guernsey does
not impose a withholding tax on dividends paid by us to the
holders of our ordinary shares. Tax legislation was enacted in
Guernsey, effective as of January 1, 2008, to tax Guernsey
resident shareholders on actual or deemed distribution of
certain profits of a Guernsey company. We do not believe this
legislation will affect the taxation of a holder of ordinary
shares who is not a resident of Guernsey and who does not carry
on business in Guernsey through a permanent establishment
situated there.
There are no capital gains, gift or inheritance taxes levied by
Guernsey, and the ordinary shares generally are not subject to
any transfer taxes, stamp duties or similar charges on issuance
or transfer.
Corporate
Governance
We believe there are no significant ways that our corporate
governance practices differ from those followed by
U.S. domestic companies under the NYSE listing standards.
For further information regarding our corporate governance
practices, please refer to our Notice and Proxy Statement to be
mailed to our shareholders along with this Annual Report, and to
our website at www.amdocs.com.
Documents
On Display
We are subject to the reporting requirements of foreign private
issuers under the U.S. Securities Exchange Act of 1934.
Pursuant to the Exchange Act, we file reports with the SEC,
including this Annual Report on
Form 20-F.
We also submit reports to the SEC, including
Form 6-K
Reports of Foreign Private Issuers. You may read and copy such
reports at the SECs public Reference Room at
100 F Street, N.E., Room 1580,
Washington, D.C. 20549. You may call the SEC at
1-800-SEC-0330
for further information about the Public Reference Room. Such
reports are also available to the public on the SECs
website at www.sec.gov. Some of this information may also
be found on our website at www.amdocs.com.
You may request copies of our reports, at no cost, by writing to
or telephoning us as follows:
Amdocs, Inc.
Attention: Thomas G. OBrien
1390 Timberlake Manor Parkway
Chesterfield, Missouri 63017
Telephone: +1-314-212-8328
65
|
|
ITEM 11.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|
Foreign
Currency Risk
We manage our foreign subsidiaries as integral direct components
of our operations. The operations of our foreign subsidiaries
provide the same type of services with the same type of
expenditures throughout the Amdocs group. Based on the salient
economic factors indicated in SFAS No. 52,
Foreign Currency Translation, we have determined
that the U.S. dollar is our functional currency. We
periodically assess the applicability of the U.S. dollar as
our functional currency by reviewing the salient indicators.
During fiscal 2008, our revenue and operating expenses in the
U.S. dollar or linked to the U.S. dollar were
approximately 70% and 50% to 60%, respectively. As a result of
long-term contracts and more customers seeking contracts in
currencies other than the U.S. dollar, the percentage of
our revenue and operating expenses in the U.S. dollar or
linked to the U.S. dollar may decrease over time and 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 use such contracts to hedge net exposure to changes
in foreign currency exchange rates associated with revenue
denominated in a foreign currency, primarily Canadian dollars,
Euros and Australian dollars, and anticipated costs to be
incurred in a foreign currency, primarily Israeli shekels and
Indian rupees. We also use forward contracts to hedge the impact
of the variability in exchange rates on certain balance sheet
items such as accounts receivable and employee related accruals
denominated primarily in Canadian dollars, Israeli shekels,
British pounds, Australian dollars and Euros. We seek to
minimize the net exposure that the anticipated cash flow from
sales of our products and services and cash flow required for
our expenses denominated in a currency other than our functional
currency will be affected by changes in exchange rates. Please
see Note 21 to our consolidated financial statements. The
following table summarizes our foreign currency forward exchange
agreements and options as of September 30, 2008. A
significant portion of the forward contracts and options are
expected to mature during fiscal 2009 and the rest during fiscal
2010. The table below (all dollar amounts in millions) presents
the notional amounts and fair value of the total derivative
instruments as of September 30, 2008. Notional values are
calculated based on forward rates as of September 30, 2008,
U.S. dollar translated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2008
|
|
|
|
Notional Amount
|
|
|
|
|
|
|
Translated to
|
|
|
|
|
|
|
U.S. Dollar(*)
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
Maturing
|
|
|
|
|
|
|
During Fiscal
|
|
|
Fair Value of
|
|
|
|
2009
|
|
|
2010
|
|
|
Derivatives
|
|
|
Revenue
|
|
$
|
116.8
|
|
|
$
|
0.9
|
|
|
$
|
2.8
|
|
Costs
|
|
|
(354.9
|
)
|
|
|
(0.8
|
)
|
|
|
(11.4
|
)
|
Assets
|
|
|
79.4
|
|
|
|
|
|
|
|
2.3
|
|
Liabilities
|
|
|
(101.6
|
)
|
|
|
|
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(260.3
|
)
|
|
$
|
0.1
|
|
|
$
|
(8.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*)
|
Positive notional amounts represent forward contracts to sell
foreign currency. Negative notional amounts represent forward
contracts and options to buy foreign currency.
|
Interest
Rate Risk
Our interest expenses and income are sensitive to changes in
interest rates, as all of our cash reserves and some of our
borrowings, other than the 0.50% Notes, are subject to
interest rate changes. Our short-term interest-bearing
investments are invested in short term conservative debt
instruments. Excess liquidity is invested in short-term high
quality interest-bearing investments primarily
U.S. dollar-denominated. Such short-term interest-bearing
investments consist mainly of U.S. government treasuries,
U.S. agencies, and corporate bonds. As of
September 30, 2008, there were $1.5 million
outstanding short term loans and there were no outstanding
borrowings under our revolving lines of credit or our short-term
credit facilities.
66
|
|
ITEM 12.
|
DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES
|
Not applicable.
67
PART II
|
|
ITEM 13.
|
DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES
|
Not applicable.
|
|
ITEM 14.
|
MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
|
Not applicable.
|
|
ITEM 15.
|
CONTROLS
AND PROCEDURES
|
Our management, with the participation of the Chief Executive
Officer and Chief Financial Officer of Amdocs Management
Limited, evaluated the effectiveness of our disclosure controls
and procedures as of September 30, 2008. The term
disclosure controls and procedures, as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act, means controls and other procedures of a
company that are designed to ensure that information required to
be disclosed by a company in the reports that it files or
submits under the Exchange Act is recorded, processed,
summarized and reported, within the time period specified in the
SECs rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by a company in
the reports that it files or submits under the Exchange Act is
accumulated and communicated to the companys management,
including its principal executive and principal financial
officers, as appropriate to allow timely decisions regarding
adequate disclosure. Management recognizes that any controls and
procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving their objectives
and management necessarily applies its judgment in evaluating
the cost-benefit relationship of possible controls and
procedures. Based on the evaluation of our disclosure controls
and procedures as of September 30, 2008, the Chief
Executive Officer and the Chief Financial Officer of Amdocs
Management Limited concluded that, as of such date, our
disclosure controls and procedures were effective at the
reasonable assurance level.
No change in our internal control over financial reporting (as
defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) occurred during the fiscal year ended
September 30, 2008 that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.
Managements report on our internal control over financial
reporting (as such defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act), and the related report of our
independent public accounting firm, are included in on
pages F-3 and F-4 of this Annual Report on
Form 20-F,
and are incorporated herein by reference.
|
|
ITEM 16A.
|
AUDIT
COMMITTEE FINANCIAL EXPERT
|
Our Board of Directors has determined that there is at least one
audit committee financial expert, Adrian Gardner, serving on our
Audit Committee. Our Board of Directors has determined that
Mr. Gardner is an independent director.
|
|
ITEM 16B.
|
CODE
OF ETHICS AND BUSINESS CONDUCT
|
Our Board of Directors has adopted a Code of Ethics and Business
Conduct that sets forth legal and ethical standards of conduct
for our directors and employees, including executive officers,
our subsidiaries and other business entities controlled by us
worldwide.
Our Code of Ethics and Business Conduct is available on our
website at www.amdocs.com, or you may request a copy of
our code of ethics, at no cost, by writing to or telephoning us
as follows:
Amdocs, Inc.
Attention: Thomas G. OBrien
1390 Timberlake Manor Parkway
Chesterfield, Missouri 63017
Telephone: +1-314-212-8328
We intend to post on our website all disclosures that are
required by law or NYSE rules concerning any amendments to, or
waivers from, any provision of the code.
68
|
|
ITEM 16C.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
During each of the last three fiscal years, Ernst &
Young LLP has acted as our independent registered public
accounting firm.
Audit
Fees
Ernst & Young billed us approximately
$3.8 million for audit services for fiscal 2008, including
fees associated with the annual audit and reviews of our
quarterly financial results submitted on
Form 6-K,
consultations on various accounting issues and performance of
local statutory audits. Ernst & Young billed us
approximately $3.6 million for audit services for fiscal
2007.
Audit-Related
Fees
Ernst & Young billed us approximately
$1.0 million for audit-related services for fiscal 2008.
Audit-related services principally include due diligence
examinations and SAS 70 report issuances. Ernst &
Young billed us approximately $0.7 million for
audit-related services for fiscal 2007.
Tax
Fees
Ernst & Young billed us approximately
$1.6 million for tax advice, including fees associated with
tax compliance, tax advice and tax planning services for fiscal
2008. Ernst & Young billed us approximately
$1.9 million for tax advice in fiscal 2007.
All Other
Fees
Ernst & Young did not bill us for services other than
Audit Fees, Audit-Related Fees and Tax Fees described above for
fiscal 2008 or fiscal 2007.
Pre-Approval
Policies for Non-Audit Services
The Audit Committee has adopted policies and procedures relating
to the approval of all audit and non-audit services that are to
be performed by our independent registered public accounting
firm. These policies generally provide that we will not engage
our independent registered public accounting firm to render
audit or non-audit services unless the service is specifically
approved in advance by the Audit Committee or the engagement is
entered into pursuant to the pre-approval procedure described
below.
From time to time, the Audit Committee may pre-approve specified
types of services that are expected to be provided to us by our
independent registered public accounting firm during the next
12 months. Any such pre-approval is detailed as to the
particular service or type of services to be provided and is
also generally subject to a maximum dollar amount. In fiscal
2008, our Audit Committee approved all of the services provided
by Ernst & Young.
|
|
ITEM 16D.
|
EXEMPTION FROM
THE LISTING STANDARDS FOR AUDIT COMMITTEES
|
Not applicable.
69
|
|
ITEM 16E.
|
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 fiscal year ended
September 30, 2008 of equity securities that are registered
by us pursuant to Section 12 of the Exchange Act:
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
|
|
|
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
|
|
1/1/08 1/31/08
|
|
|
405,448
|
|
|
$
|
32.06
|
|
|
|
405,448
|
|
|
$
|
264,725,486
|
|
2/1/08 2/28/08
|
|
|
359,000
|
|
|
$
|
31.27
|
|
|
|
359,000
|
|
|
$
|
253,500,920
|
|
3/1/08 3/31/08
|
|
|
886,100
|
|
|
$
|
28.97
|
|
|
|
886,100
|
|
|
$
|
227,826,473
|
|
6/1/08 6/30/08
|
|
|
1,562,184
|
|
|
$
|
31.92
|
|
|
|
1,562,184
|
|
|
$
|
177,959,939
|
|
7/1/08 7/31/08
|
|
|
8,600
|
|
|
$
|
28.00
|
|
|
|
8,600
|
|
|
$
|
177,719,165
|
|
8/1/08 8/31/08
|
|
|
270,000
|
|
|
$
|
30.02
|
|
|
|
270,000
|
|
|
$
|
169,613,360
|
|
9/1/08 9/30/08
|
|
|
2,702,979
|
|
|
$
|
27.49
|
|
|
|
2,702,979
|
|
|
$
|
95,307,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8,369,917
|
|
|
$
|
30.45
|
|
|
|
8,369,917
|
|
|
$
|
95,307,756
|
|
|
|
|
(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. In fiscal 2008, we repurchased
approximately 8.4 million ordinary shares at an average
price of $30.45 per share (excluding broker and transaction
fees) under this plan, leaving us with authority as of
September 30, 2008, to repurchase up to $95.3 million
of our ordinary shares under the share repurchase plan. In the
first quarter of 2009 (through November 30, 2008), we
repurchased approximately 0.5 million ordinary shares at an
average price of $26.90 per share (excluding broker and
transaction fees). Although we currently do not plan to
repurchase additional ordinary shares in the immediate future,
we have authority, as of November 30, 2008, to repurchase
up to $82.7 million of our ordinary shares under this plan. |
Convertible
Notes
In November 2008, our Board of Directors authorized us to
repurchase up to $100 million aggregate principal amount of
our notes in such amounts, at such prices and at such times that
we deem appropriate. During the first quarter of fiscal 2009,
using loan proceeds from our revolving credit facility, we
purchased $100 million aggregate principal amount of our
notes at an average price of 98% of the principal amount,
excluding accrued interest and transaction fees. In March 2009,
the remaining notes are redeemable by us, and if we do not elect
to redeem the notes, then the holders of the notes may require
us to repurchase the notes at a purchase price equal to 100% of
the principal amount of the notes plus accrued and unpaid
interest. We anticipate that a substantial portion of the
outstanding notes will be put to us in March 2009 if we do not
elect to redeem them. As of November 30, 2008, $350,000
aggregate principal amount of our notes was outstanding.
70
PART III
|
|
ITEM 17.
|
FINANCIAL
STATEMENTS
|
Not applicable.
|
|
ITEM 18.
|
FINANCIAL
STATEMENTS
|
Financial
Statements And Schedule
The following Financial Statements and Financial Statement
Schedule of Amdocs Limited, with respect to financial results
for the fiscal years ended September 30, 2008, 2007 and
2006, are included at the end of this Annual Report:
Audited
Financial Statements of Amdocs Limited
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of September 30, 2008 and
2007
Consolidated Statements of Income for the years ended
September 30, 2008, 2007 and 2006
Consolidated Statements of Changes in Shareholders Equity
for the years ended September 30, 2008, 2007 and 2006
Consolidated Statements of Cash Flows for the years ended
September 30, 2008, 2007 and 2006
Notes to Consolidated Financial Statements
Financial
Statement Schedules of Amdocs Limited
Valuation and Qualifying Accounts
All other schedules have been omitted since they are either not
required or not applicable, or the information has otherwise
been included.
The exhibits listed on the Exhibit Index hereof are filed
herewith in response to this Item.
71
SIGNATURES
The registrant hereby certifies that it meets all of the
requirements for filing on
Form 20-F
and that it has duly caused and authorized the undersigned to
sign this annual report on its behalf.
Amdocs Limited
Thomas G. OBrien
Treasurer and Secretary
Authorized U.S. Representative
Date: December 8, 2008
72
EXHIBIT INDEX
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
1.
|
|
Memorandum and Articles of Association of Amdocs Limited
(incorporated by reference to Exhibits 3.1 and 3.2 to
Amdocs Registration Statement on
Form F-1
dated June 19, 1998; Registration
No. 333-8826)
|
2.a.1
|
|
Indenture dated May 30, 2001 between Amdocs and United
States Trust Company of New York (incorporated by reference
to Exhibit 4.1 to Amdocs
Form 6-K
dated May 31, 2001)
|
2.a.2
|
|
Registration Rights Agreement dated May 30, 2001 between
Amdocs and Goldman, Sachs & Co. (incorporated by
reference to Exhibit 4.2 to Amdocs
Form 6-K
dated May 31, 2001)
|
2.a.3
|
|
Indenture, dated March 5, 2004, between Amdocs Limited and
The Bank of New York, as trustee, for 0.50% Convertible
Senior Notes due 2024 (incorporated by reference to
Exhibit 99.1 to Amdocs
Form 6-K,
filed March 5, 2004)
|
2.a.4
|
|
Registration Rights Agreement, dated March 5, 2004, among
Amdocs Limited and Morgan Stanley & Co. Incorporated,
Goldman, Sachs & Co. and Merrill Lynch, Pierce
Fenner & Smith Incorporated (incorporated by reference
to Exhibit 99.2 to Amdocs
Form 6-K,
filed March 5, 2004)
|
4.a.1
|
|
Share Sale and Purchase Agreement, dated as of July 1,
2005, by and among DST Systems, Inc., Amdocs, Inc. and Amdocs
Limited (incorporated by reference to Exhibit 99.1 to
Amdocs
Form 6-K
dated July 5, 2005)
|
4.a.2
|
|
Agreement and Plan of Merger, dated as of April 17, 2006,
by and among Amdocs Limited, Amdocs Thesaurus, Inc., Qpass Inc.
and Ray A. Rothrock, as Shareholders Agent (incorporated
by reference to Exhibit 99.1 to Amdocs
Form 6-K
dated April 21, 2006)
|
4.a.3
|
|
Share Sale and Purchase Agreement relating to Cramer Systems
Group Limited, dated July 18, 2006, by and among Amdocs
Limited, Amdocs Astrum Limited and certain shareholders of
Cramer Systems Group Limited (incorporated by reference to
Exhibit 99.1 to Amdocs
Form 6-K
dated July 20, 2006)
|
4.a.4
|
|
Agreement, dated August 14, 2006, amending the Share Sale
and Purchase Agreement relating to Cramer Systems Group Limited
dated July 18, 2006, by and among Amdocs Limited, Amdocs
Astrum Limited and certain shareholders of Cramer Systems Group
Limited (incorporated by reference to Exhibit 99.1 to
Amdocs
Form 6-K
dated August 17, 2006)
|
4.a.5
|
|
Agreement, dated September 14, 2006, amending the Share
Sale and Purchase Agreement relating to Cramer Systems Group
Limited dated July 18, 2006, by and among Amdocs Limited,
Amdocs Astrum Limited and certain shareholders of Cramer Systems
Group Limited, as amended (incorporated by reference to
Exhibit 99.1 to Amdocs
Form 6-K
dated September 14, 2006)
|
4.b.1
|
|
Further Amended and Restated Information Technology Services
Agreement, dated September 1, 2007, between Amdocs, Inc.
and AT&T Services, Inc. (confidential material has been
redacted and complete exhibits have been separately filed with
the Securities and Exchange Commission) (incorporated by
reference to Exhibit 99.3 to Amdocs Report of Foreign
Private Issuer on
Form 6-K
dated December 3, 2007)
|
4.b.2
|
|
Master Agreement for Software and Services between Amdocs, Inc.
and SBC Operations, Inc., effective July 7, 1998
(confidential material has been redacted and complete exhibits
have been separately filed with the Securities and Exchange
Commission) (incorporated by reference to Exhibit 10.13 to
Amdocs Amendment No. 1 to Registration Statement on
Form F-1,
dated May 21, 1999, Registration
No. 333-75151)
|
4.b.3
|
|
Software Master Agreement between Amdocs Software Systems
Limited and SBC Services, Inc., effective December 10, 2003
(confidential material has been redacted and complete exhibits
have been separately filed with the Securities and Exchange
Commission) (incorporated by reference to Exhibit 99.2 to
Amdocs Amendment No. 1 to Registration Statement on
Form F-3,
dated September 21, 2004, Registration
No. 333-114344)
|
4.b.4
|
|
Agreement between Amdocs, Inc. and SBC Services, Inc. for
Software and Professional Services, effective August 7,
2003 (confidential material has been redacted and complete
exhibits have been separately filed with the Securities and
Exchange Commission) (incorporated by reference to
Exhibit 99.3 to Amdocs Amendment No. 1 to
Registration Statement on
Form F-3,
dated September 21, 2004, Registration
No. 333-114344)
|
73
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
4.b.5
|
|
Amended and Restated Customer Care and Billing Services
Agreement, dated as of July 1, 2006, between Sprint/United
Management Company and Amdocs Software Systems Limited
(confidential material has been redacted and complete exhibits
have been separately filed with the Securities and Exchange
Commission) (incorporated by reference to Exhibit 99.1 to
Amdocs
Form 6-K
dated December 13, 2006)
|
4.b.6
|
|
Agreement Amending the Further Amended and Restated Master
Outsourcing Agreement and Master License and Services Agreement,
dated as of October 5, 2006, between Bell Canada and Amdocs
Canadian Managed Services Inc. (confidential material has been
redacted and complete exhibits have been separately filed with
the Securities and Exchange Commission) (incorporated by
reference to Exhibit 4.c.1 to Amdocs Report of
Foreign Private Issuer on
Form 6-K
dated December 13, 2006)
|
4.b.7
|
|
Information Technology Services Agreement, dated as of
April 1, 2007, between Amdocs, Inc. and AT&T Services,
Inc. (confidential material has been redacted and complete
exhibits have been separately filed with the Securities and
Exchange Commission) (incorporated by reference to
Exhibit 99.1 to Amdocs Report of Foreign Private
Issuer on
Form 6-K
dated December 3, 2007)
|
4.b.8
|
|
Amended and Restated Information Technology Services Agreement,
dated as of December 28, 2007, between Amdocs, Inc. and
AT&T Services, Inc. (confidential material has been
redacted and complete exhibits have been separately filed with
the Securities and Exchange Commission) (incorporated by
reference to Exhibit 99.1 to Amdocs Report of Foreign
Private Issuer on
Form 6-K
dated December 8, 2008)
|
4.b.9
|
|
Credit Agreement, dated as of November 27, 2007, among
Amdocs Limited, certain of its subsidiaries, the lenders from
time to time party thereto, JPMorgan Chase Bank, N.A., as
administrative agent, J.P. Morgan Europe Limited, as London
agent, and JPMorgan Chase Bank, N.A., Toronto branch, as
Canadian agent (incorporated by reference to Exhibit 4.B.9
to Amdocs Annual Report on
Form 20-F
filed December 3, 2007)
|
4.c.1
|
|
Amdocs Limited 1998 Stock Option and Incentive Plan, as amended
(incorporated by reference to Exhibit 4.c.1 to Amdocs
Annual Report on Form 20-F filed December 13, 2006)
|
8
|
|
Subsidiaries of Amdocs Limited
|
12.1
|
|
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a)/15d-14(a)
|
12.2
|
|
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a)/15d-14(a)
|
13.1
|
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. 1350
|
13.2
|
|
Certification of Chief Financial Officer pursuant to
18 U.S.C. 1350
|
14.1
|
|
Consent of Ernst & Young LLP
|
74
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of the Company is responsible for establishing
and maintaining adequate internal control over financial
reporting for the Company. Internal control over financial
reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and
includes those policies and procedures that:
|
|
|
|
|
Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions
of the assets of the Company;
|
|
|
|
Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and
directors of the Company; and
|
|
|
|
Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the
financial statements.
|
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
The Companys management assessed the effectiveness of the
Companys internal control over financial reporting as of
September 30, 2008. In making this assessment, the
Companys management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework.
Based on its assessment, management concluded that, as of
September 30, 2008, the Companys internal control
over financial reporting is effective based on those criteria.
The financial statements and internal control over financial
reporting have been audited by Ernst & Young LLP, an
independent registered public accounting firm.
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
Amdocs Limited
We have audited the accompanying consolidated balance sheets of
Amdocs Limited as of September 30, 2008 and 2007, and the
related consolidated statements of income, changes in
shareholders equity, and cash flows for each of the three
years in the period ended September 30, 2008. Our audits
also included the financial statement schedule listed in the
Index at Item 18 of Part III. These financial
statements and the schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and the schedule based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Amdocs Limited at September 30, 2008
and 2007, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
September 30, 2008, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
As discussed in the Notes to the consolidated financial
statements, the Company adopted FASB Interpretation No. 48,
Accounting For Uncertainty in Income Taxes, effective
October 1, 2007 and the Company changed its method of
accounting for equity-based compensation to adopt Statement of
Financial Accounting Standards No. 123(R), Share-Based
Payment, effective October 1, 2005.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Amdocs Limiteds internal control over financial reporting
as of September 30, 2008, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our
report dated December 8, 2008 expressed an unqualified
opinion thereon.
/s/ ERNST & YOUNG LLP
New York, New York
December 8, 2008
F-3
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
Amdocs Limited
We have audited Amdocs Limiteds internal control over
financial reporting as of September 30, 2008, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). Amdocs
Limiteds management is responsible for maintaining
effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Amdocs Limited maintained, in all material
respects, effective internal control over financial reporting as
of September 30, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Amdocs Limited as of
September 30, 2008 and 2007, and the related consolidated
statements of income, changes in shareholders equity, and
cash flows for each of the three years in the period ended
September 30, 2008 of Amdocs Limited and our report dated
December 8, 2008 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
New York, New York
December 8, 2008
F-4
AMDOCS
LIMITED
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
718,850
|
|
|
$
|
615,501
|
|
Short-term interest-bearing investments
|
|
|
525,528
|
|
|
|
563,779
|
|
Accounts receivable, net
|
|
|
573,764
|
|
|
|
473,847
|
|
Deferred income taxes and taxes receivable
|
|
|
84,515
|
|
|
|
117,623
|
|
Prepaid expenses and other current assets
|
|
|
102,930
|
|
|
|
98,746
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,005,587
|
|
|
|
1,869,496
|
|
Equipment, vehicles and leasehold improvements, net
|
|
|
317,081
|
|
|
|
283,839
|
|
Deferred income taxes
|
|
|
187,173
|
|
|
|
192,761
|
|
Goodwill
|
|
|
1,526,371
|
|
|
|
1,489,132
|
|
Intangible assets, net
|
|
|
270,551
|
|
|
|
303,456
|
|
Other noncurrent assets
|
|
|
272,300
|
|
|
|
206,666
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,579,063
|
|
|
$
|
4,345,350
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
157,357
|
|
|
$
|
192,395
|
|
Accrued expenses and other current liabilities
|
|
|
224,699
|
|
|
|
222,616
|
|
Accrued personnel costs
|
|
|
218,229
|
|
|
|
177,926
|
|
Short-term portion of financing arrangements and capital lease
obligations
|
|
|
1,660
|
|
|
|
2,055
|
|
Deferred revenue
|
|
|
197,851
|
|
|
|
174,526
|
|
Deferred income taxes and taxes payable
|
|
|
30,228
|
|
|
|
205,960
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
830,024
|
|
|
|
975,478
|
|
Convertible notes
|
|
|
450,000
|
|
|
|
450,000
|
|
Deferred income taxes and taxes payable
|
|
|
266,548
|
|
|
|
122,983
|
|
Noncurrent liabilities and other
|
|
|
227,300
|
|
|
|
196,646
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,773,872
|
|
|
|
1,745,107
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Preferred Shares Authorized 25,000 shares;
£0.01 par value; 0 shares issued and outstanding
|
|
|
|
|
|
|
|
|
Ordinary Shares Authorized 550,000 shares;
£0.01 par value 240,836 and 238,312 issued and 203,916
and 209,762 outstanding, in 2008 and 2007, respectively
|
|
|
3,900
|
|
|
|
3,850
|
|
Additional paid-in capital
|
|
|
2,264,800
|
|
|
|
2,168,234
|
|
Treasury stock, at cost 36,920 and 28,550 Ordinary
Shares in 2008 and 2007
|
|
|
(907,280
|
)
|
|
|
(652,229
|
)
|
Accumulated other comprehensive (loss) income
|
|
|
(14,834
|
)
|
|
|
689
|
|
Retained earnings
|
|
|
1,458,605
|
|
|
|
1,079,699
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
2,805,191
|
|
|
|
2,600,243
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
4,579,063
|
|
|
$
|
4,345,350
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
AMDOCS
LIMITED
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
License
|
|
$
|
135,487
|
|
|
$
|
159,357
|
|
|
$
|
116,285
|
|
Service
|
|
|
3,026,609
|
|
|
|
2,676,816
|
|
|
|
2,363,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,162,096
|
|
|
|
2,836,173
|
|
|
|
2,480,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of license
|
|
|
2,729
|
|
|
|
3,914
|
|
|
|
4,003
|
|
Cost of service
|
|
|
2,023,562
|
|
|
|
1,792,468
|
|
|
|
1,579,823
|
|
Research and development
|
|
|
225,492
|
|
|
|
230,444
|
|
|
|
186,760
|
|
Selling, general and administrative
|
|
|
404,134
|
|
|
|
370,194
|
|
|
|
313,997
|
|
Amortization of purchased intangible assets
|
|
|
86,687
|
|
|
|
74,959
|
|
|
|
37,610
|
|
Restructuring charges, in-process research and development and
other acquisition-related costs
|
|
|
13,896
|
|
|
|
6,761
|
|
|
|
25,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,756,500
|
|
|
|
2,478,740
|
|
|
|
2,147,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
405,596
|
|
|
|
357,433
|
|
|
|
332,132
|
|
Interest income and other, net
|
|
|
11,955
|
|
|
|
50,566
|
|
|
|
41,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
417,551
|
|
|
|
407,999
|
|
|
|
373,873
|
|
Income taxes
|
|
|
38,645
|
|
|
|
43,062
|
|
|
|
55,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
378,906
|
|
|
$
|
364,937
|
|
|
$
|
318,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.83
|
|
|
$
|
1.76
|
|
|
$
|
1.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.74
|
|
|
$
|
1.65
|
|
|
$
|
1.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average number of shares outstanding
|
|
|
206,590
|
|
|
|
207,846
|
|
|
|
203,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average number of shares outstanding
|
|
|
219,606
|
|
|
|
223,256
|
|
|
|
218,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
AMDOCS
LIMITED
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Ordinary Shares
|
|
|
Paid-in
|
|
|
Treasury
|
|
|
Income
|
|
|
Unearned
|
|
|
Retained
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stock
|
|
|
(Loss)
|
|
|
Compensation
|
|
|
Earnings
|
|
|
Equity
|
|
|
Balance as of October 1, 2005
|
|
|
200,182
|
|
|
$
|
3,644
|
|
|
$
|
1,870,922
|
|
|
$
|
(602,392
|
)
|
|
$
|
(10,886
|
)
|
|
$
|
(962
|
)
|
|
$
|
396,126
|
|
|
$
|
1,656,452
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
318,636
|
|
|
|
318,636
|
|
Unrealized gain on foreign currency hedging contracts, net of
$1,847 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,938
|
|
|
|
|
|
|
|
|
|
|
|
11,938
|
|
Unrealized gain on short-term interest-bearing investments, net
of $485 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,671
|
|
|
|
|
|
|
|
|
|
|
|
1,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
332,245
|
|
Employee stock options exercised
|
|
|
5,869
|
|
|
|
106
|
|
|
|
106,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106,959
|
|
Tax benefit of stock options exercised
|
|
|
|
|
|
|
|
|
|
|
7,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,619
|
|
Issuance of restricted stock, net of cancellations
|
|
|
742
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Issuance of restricted stock and stock options related to
acquisitions, net
|
|
|
|
|
|
|
|
|
|
|
4,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,634
|
|
Equity-based compensation expense related to employees
|
|
|
|
|
|
|
|
|
|
|
46,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,178
|
|
Reclassification of unearned compensation to additional paid-in
capital
|
|
|
|
|
|
|
|
|
|
|
(962
|
)
|
|
|
|
|
|
|
|
|
|
|
962
|
|
|
|
|
|
|
|
|
|
Equity-based compensation expense related to non employee stock
options
|
|
|
|
|
|
|
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2006
|
|
|
206,793
|
|
|
|
3,763
|
|
|
|
2,035,309
|
|
|
|
(602,392
|
)
|
|
|
2,723
|
|
|
|
|
|
|
|
714,762
|
|
|
|
2,154,165
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
364,937
|
|
|
|
364,937
|
|
Unrealized loss on foreign currency hedging contracts, net of
$(1,363) tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,420
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,420
|
)
|
Unrealized gain on short-term interest-bearing investments, net
of $30 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
659
|
|
|
|
|
|
|
|
|
|
|
|
659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
362,176
|
|
Adjustment to accumulated other comprehensive income upon
adoption of statement 158 net of $(378) tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
727
|
|
|
|
|
|
|
|
|
|
|
|
727
|
|
Employee stock options exercised
|
|
|
3,970
|
|
|
|
79
|
|
|
|
74,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,655
|
|
Repurchase of shares
|
|
|
(1,411
|
)
|
|
|
|
|
|
|
|
|
|
|
(49,837
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49,837
|
)
|
Tax benefit of stock options exercised
|
|
|
|
|
|
|
|
|
|
|
3,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,965
|
|
Issuance of restricted stock, net of cancellations
|
|
|
410
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Issuance of stock options related to acquisitions, net
|
|
|
|
|
|
|
|
|
|
|
768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
768
|
|
Equity-based compensation expense related to employees
|
|
|
|
|
|
|
|
|
|
|
53,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,587
|
|
Equity-based compensation expense related to non- employee stock
options
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2007
|
|
|
209,762
|
|
|
|
3,850
|
|
|
|
2,168,234
|
|
|
|
(652,229
|
)
|
|
|
689
|
|
|
|
|
|
|
|
1,079,699
|
|
|
|
2,600,243
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
378,906
|
|
|
|
378,906
|
|
Unrealized loss on foreign currency hedging contracts, net of
$3,272 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,578
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,578
|
)
|
Unrealized loss on short-term interest-bearing investments, net
of $(468) tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,002
|
)
|
|
|
|
|
|
|
|
|
|
|
(10,002
|
)
|
Unrealized loss on defined benefit plan assets, net of $(489) tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(943
|
)
|
|
|
|
|
|
|
|
|
|
|
(943
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
363,383
|
|
Employee stock options exercised
|
|
|
2,052
|
|
|
|
41
|
|
|
|
37,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,568
|
|
Repurchase of shares
|
|
|
(8,370
|
)
|
|
|
|
|
|
|
|
|
|
|
(255,051
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(255,051
|
)
|
Tax benefit of stock options exercised
|
|
|
|
|
|
|
|
|
|
|
1,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,549
|
|
Issuance of restricted stock, net of forfeitures
|
|
|
472
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
Equity-based compensation expense related to employees
|
|
|
|
|
|
|
|
|
|
|
57,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2008
|
|
|
203,916
|
|
|
$
|
3,900
|
|
|
$
|
2,264,800
|
|
|
$
|
(907,280
|
)
|
|
$
|
(14,834
|
)
|
|
$
|
|
|
|
$
|
1,458,605
|
|
|
$
|
2,805,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2008, 2007 and 2006, accumulated other
comprehensive income (loss) is comprised of unrealized (loss)
gain on derivatives, net of tax, of $(5,157), $(579) and $2,841,
unrealized (loss) income on cash equivalents and short-term
interest-bearing investments, net of tax, of $(9,461), $541 and
$(118) and unrealized (loss) gain on defined benefit plan
assets, net of tax of $(216), $727 and $0.
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
AMDOCS
LIMITED
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cash Flow from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
378,906
|
|
|
$
|
364,937
|
|
|
$
|
318,636
|
|
Reconciliation of net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
192,937
|
|
|
|
164,994
|
|
|
|
117,900
|
|
In-process research and development expenses
|
|
|
1,780
|
|
|
|
750
|
|
|
|
25,725
|
|
Equity-based compensation expense
|
|
|
57,490
|
|
|
|
53,587
|
|
|
|
46,178
|
|
(Gain) loss on sale of equipment
|
|
|
(970
|
)
|
|
|
(8
|
)
|
|
|
789
|
|
Deferred income taxes
|
|
|
1,111
|
|
|
|
(21,095
|
)
|
|
|
22,811
|
|
Excess tax benefit from equity-based compensation
|
|
|
(211
|
)
|
|
|
(795
|
)
|
|
|
(722
|
)
|
Loss (gain) from short-term interest-bearing investments
|
|
|
5,553
|
|
|
|
(2,936
|
)
|
|
|
(4,030
|
)
|
Net changes in operating assets and liabilities, net of amounts
acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(118,291
|
)
|
|
|
(67,333
|
)
|
|
|
(79,363
|
)
|
Prepaid expenses and other current assets
|
|
|
4,173
|
|
|
|
(62
|
)
|
|
|
(10,536
|
)
|
Other noncurrent assets
|
|
|
(31,739
|
)
|
|
|
(26,264
|
)
|
|
|
(18,313
|
)
|
Accounts payable, accrued expenses and other current liabilities
|
|
|
(27,501
|
)
|
|
|
29,642
|
|
|
|
54,569
|
|
Deferred revenue
|
|
|
28,408
|
|
|
|
(96,674
|
)
|
|
|
(52,050
|
)
|
Income taxes payable, net
|
|
|
(26,824
|
)
|
|
|
12,243
|
|
|
|
(10,796
|
)
|
Noncurrent liabilities and other
|
|
|
18,799
|
|
|
|
12,984
|
|
|
|
18,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
483,621
|
|
|
|
423,970
|
|
|
|
429,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of equipment, vehicles and leasehold
improvements
|
|
|
2,655
|
|
|
|
3,832
|
|
|
|
4,274
|
|
Payments for purchase of equipment, vehicles and leasehold
improvements
|
|
|
(135,823
|
)
|
|
|
(166,426
|
)
|
|
|
(80,717
|
)
|
Purchase of short-term interest-bearing investments
|
|
|
(685,873
|
)
|
|
|
(969,198
|
)
|
|
|
(1,216,259
|
)
|
Proceeds from sale of short-term interest-bearing investments
|
|
|
708,100
|
|
|
|
781,239
|
|
|
|
1,288,261
|
|
Net cash paid for acquisitions
|
|
|
(58,772
|
)
|
|
|
(90,724
|
)
|
|
|
(624,801
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(169,713
|
)
|
|
|
(441,277
|
)
|
|
|
(629,242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from employee stock options exercised
|
|
|
37,577
|
|
|
|
74,663
|
|
|
|
106,853
|
|
Excess tax benefit from equity-based compensation
|
|
|
211
|
|
|
|
795
|
|
|
|
722
|
|
Repurchase of shares
|
|
|
(247,630
|
)
|
|
|
(49,837
|
)
|
|
|
|
|
Repurchase of 2% convertible notes
|
|
|
(175
|
)
|
|
|
|
|
|
|
(97
|
)
|
Principal payments under financing arrangements
|
|
|
(542
|
)
|
|
|
|
|
|
|
(4,677
|
)
|
Principal payments on capital lease obligations
|
|
|
|
|
|
|
|
|
|
|
(3,144
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(210,559
|
)
|
|
|
25,621
|
|
|
|
99,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
103,349
|
|
|
|
8,314
|
|
|
|
(100,365
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
615,501
|
|
|
|
607,187
|
|
|
|
707,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
718,850
|
|
|
$
|
615,501
|
|
|
$
|
607,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
AMDOCS
LIMITED
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Supplementary Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and Income Taxes Paid
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes, net of refunds
|
|
$
|
51,273
|
|
|
$
|
44,642
|
|
|
$
|
40,861
|
|
Interest
|
|
|
4,863
|
|
|
|
4,167
|
|
|
|
2,630
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-9
AMDOCS
LIMITED
(dollar
and share amounts in thousands, except per share
data)
|
|
Note 1
|
Nature of
Entity
|
Amdocs Limited (the Company) is a leading provider
of software products and services to the communications, media
and entertainment industry. The Company and its subsidiaries
operate in one segment, providing integrated products and
services. The Company designs, develops, markets, supports,
implements and operates customer experience systems, including
revenue, customer and information management, digital commerce
and service delivery, service and resource management, and
consulting and managed services, primarily to leading wireless,
wireline, broadband cable and satellite service providers
throughout the world.
The Company is a Guernsey corporation, which directly or
indirectly holds several wholly-owned subsidiaries around the
world. The majority of the Companys customers are in North
America, Europe, Latin America and the Asia-Pacific region. The
Companys main production and operating facilities are
located in Cyprus, India, Ireland, Israel, the United States,
and China.
|
|
Note 2
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation
The consolidated financial statements are prepared in accordance
with U.S. generally accepted accounting principles.
Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All intercompany
transactions and balances have been eliminated in consolidation.
Reclassifications
Certain immaterial amounts in prior years financial
statements have been reclassified to conform to the current
years presentation.
Functional
Currency
The Company manages its foreign subsidiaries as integral direct
components of its operations. The operations of the
Companys foreign subsidiaries provide the same type of
services with the same type of expenditures throughout the
Amdocs group. Based on the salient economic factors indicated in
Statement of Financial Accounting Standards (SFAS)
No. 52, Foreign Currency Translation, the
Company has determined that its functional currency is the
U.S. dollar. The Company periodically assesses the
applicability of the U.S. dollar as the Companys
functional currency by reviewing the salient indicators.
Cash
and Cash Equivalents
Cash and cash equivalents consist of cash and interest-bearing
investments with insignificant interest rate risk and original
maturities of 90 days or less.
Investments
The Company classifies all of its short-term interest-bearing
investments as available-for-sale securities. Such short-term
interest-bearing investments consist primarily of
U.S. government treasuries, U.S. agencies and
corporate bonds, which are stated at market value. Unrealized
gains and losses are comprised of the difference between market
value and amortized costs of such securities and are reflected,
net of tax, as accumulated other comprehensive
income in shareholders equity. Realized gains and
losses on short-term interest-bearing investments are
F-10
AMDOCS
LIMITED
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(dollar
and share amounts in thousands, except per share data)
included in earnings and are derived using the specific
identification method for determining the cost of securities.
The Company recognizes an impairment charge when a decline in
the fair value of its investments below the cost basis is judged
to be other-than-temporary. The Company considers various
factors in determining whether to recognize an impairment
charge, including the Companys intent and ability to hold
the investment for a period of time sufficient to allow for any
anticipated recovery in market value, the length of time and
extent to which the fair value has been less than the cost
basis, the credit ratings of the securities and the financial
condition and near-term prospects of the issuers.
Equipment,
Vehicles and Leasehold Improvements
Equipment, vehicles and leasehold improvements are stated at
cost. Assets under capital leases are recorded at the present
value of the future minimum lease payments at the date of
acquisition. Depreciation is computed using the straight-line
method over the estimated useful life of the asset, which
primarily ranges from 3 to 10 years and includes the
amortization of assets under capitalized leases. Leasehold
improvements are amortized over the shorter of the estimated
useful lives or the term of the related lease. Management
reviews property and equipment and other long-lived assets on a
periodic basis to determine whether events or changes in
circumstances indicate that the carrying amount of such assets
may not be recoverable.
Goodwill
and Other Intangible Assets
SFAS No. 141, Business Combinations
(SFAS No. 141) requires that the purchase
method of accounting be used for all business combinations.
Under SFAS No. 142, Goodwill and Other
Intangible Assets, goodwill and intangible assets deemed
to have indefinite lives are subject to an annual impairment
test in accordance with the Statement. Goodwill impairment is
deemed to exist if the net book value of a reporting unit
exceeds its estimated fair value. Other intangible assets are
amortized over their useful lives.
The total purchase price of business acquisitions accounted for
using the purchase method is allocated first to identifiable
assets and liabilities based on estimated fair values. The
excess of the purchase price over the fair value of net assets
of purchased businesses is recorded as goodwill.
Other intangible assets consist primarily of purchased computer
software, intellectual property rights, core technology,
customer arrangements and trademarks. Intellectual property
rights, purchased computer software, core technology and
trademarks acquired by the Company are amortized over their
estimated useful lives on a straight-line basis.
Some of the acquired customer arrangements are amortized over
their estimated useful lives in proportion to the economic
benefits realized. This accounting policy results in accelerated
amortization of such customer arrangements as compared to the
straight-line method. All other acquired customer arrangements
are amortized over their estimated useful lives on a
straight-line basis.
Long-Lived
Assets
The Company considers whether there are indicators of impairment
that would require the comparison of the estimated net
realizable value of intangible assets with finite lives,
equipment, leasehold improvements and vehicles and other
long-lived assets, using an undiscounted cash flow analysis, to
their carrying value under SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. Any impairment would be recognized when the fair
market value of such long-lived assets is less than their
carrying value.
Comprehensive
Income (Loss)
The Company accounts for comprehensive income (loss) under the
provisions of SFAS No. 130, Reporting
Comprehensive Income, which established standards for the
reporting and display of
F-11
AMDOCS
LIMITED
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(dollar
and share amounts in thousands, except per share data)
comprehensive income (loss) and its components. Comprehensive
income (loss) 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.
Convertible
Notes
Accrued interest on the Companys convertible notes is
included in accrued expenses and other current
liabilities. The Company amortizes the issuance costs
related to the convertible notes on a straight-line basis over
the term of the convertible notes.
Treasury
Stock
The Company repurchases its ordinary shares from time to time on
the open market or in other transactions and holds such shares
as treasury stock. The Company presents the cost to repurchase
treasury stock as a reduction of shareholders equity.
Income
Taxes
The Company records deferred income taxes to reflect the net tax
effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting and tax purposes.
Deferred taxes are computed based on tax rates anticipated to be
in effect when the deferred taxes are expected to be paid or
realized. A valuation allowance is provided for deferred tax
assets if it is more likely than not these items will either
expire before the Company is able to realize their benefit, or
where future deductibility is uncertain. In the event that a
valuation allowance relating to a business acquisition is
subsequently reduced, the adjustment will reduce the original
amount allocated to goodwill.
Deferred tax liabilities and assets are classified as current or
noncurrent based on the classification of the related asset or
liability for financial reporting, or according to the expected
reversal dates of the specific temporary differences if not
related to an asset or liability for financial reporting, and
also include anticipated withholding taxes due on
subsidiaries earnings when paid as dividends to the
Company.
Effective October 1, 2007, the Company adopted
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes - an Interpretation of SFAS No. 109
(FIN No. 48). FIN No. 48, is a change in
accounting for income taxes. FIN No. 48 contains a two-step
approach to recognizing and measuring uncertain tax positions
accounted for in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income
Taxes (SFAS No. 109). The first step is
to evaluate the tax position for recognition by determining if
the weight of available evidence indicates that it is more
likely than not that the position will be sustained on audit,
including resolution of related appeals or litigation processes,
if any. The second step is to measure the tax benefit as the
largest amount that is more than 50% likely of being realized
upon settlement. The Company will classify the liability for
unrecognized tax benefits as current to the extent that the
Company anticipates payment of cash within one year. Interest
and penalties related to uncertain tax positions are recognized
in the provision for income taxes. Please see Note 9 to the
consolidated financial statements.
Revenue
Recognition
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 or determinable; and (iv) collectibility of the
fee is reasonably assured. The Company usually sells its
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
F-12
AMDOCS
LIMITED
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(dollar
and share amounts in thousands, except per share data)
result, combined license and service revenue generally is
recognized over the course of these long-term projects, using
the percentage of completion method of accounting in conformity
with Accounting Research Bulletin (ARB) No. 45,
Long Term Construction-Type Contracts, Statement of
Position (SOP)
81-1,
Accounting for Performance of Construction-Type and
Certain Production-Type Contracts
(SOP 81-1),
Software Revenue Recognition
(SOP 97-2).
When total cost estimates exceed revenues in a fixed-price
arrangement, the estimated losses are recognized immediately
based upon the cost applicable to the delivering unit in
accordance with
SOP 81-1.
Initial license fee for software revenue is recognized as work
is performed, under the percentage of completion method of
accounting. Subsequent license fee revenue is recognized upon
completion of specified conditions in each contract, based on a
customers subscriber level 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, modification,
implementation and integration as part of a long-term contract,
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. Service revenue that does not
involve significant ongoing obligations is recognized as
services are rendered, in accordance with SAB No. 104,
Revenue Recognition and
SOP 97-2.
The Company complies with Emerging Issues Task Force
(EITF)
No. 03-05,
Applicability of AICPA
SOP 97-2
to Non-Software Deliverables in an Arrangement Containing More
Than Incidental Software.
Fees are generally considered fixed and determinable unless a
significant portion (more than 10%) of the license and related
service fee is due more then 12 months after delivery, in
which case license and related services fees are recognized when
payments are due, in accordance with SOP
97-2.
In managed services contracts and in other long term contracts,
revenue from the operation of a customers system is
recognized either as services are performed based on time
elapsed, output produced or volume of data processed. 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. Revenue from third-party
hardware and software sales is recorded according to the
criteria established in
EITF No. 99-19,
Recording Revenue Gross as a Principal versus Net as an
Agent and SAB No. 104. Revenue is recorded at
gross amount for transactions in which the Company is the
primary obligor under the arrangement
and/or
possesses other attributes such as pricing and supplier
selection latitude. In specific circumstances where the Company
does not meet the above criteria, particularly when the contract
stipulates that the Company is not the primary obligor, the
Company recognizes revenue on a net basis.
Included in service revenue are sales of third-party products.
Revenue from sales of such products includes third-party
computer hardware and computer software products. Revenue from
third-party sales was less than 10% of total revenue in each of
fiscal 2008, 2007 and 2006.
Maintenance revenue is recognized ratably over the term of the
maintenance agreement, which in most cases is one year.
As a result of a significant portion of the Companys
revenue being subject to the percentage of completion accounting
method, the Companys annual and quarterly operating
results may be significantly affected by the size and timing of
customer projects and the Companys progress in completing
such projects.
Many of the Companys agreements include multiple
deliverables. For these multiple element arrangements, the
Company allocates revenue to each element based upon its
relative fair value as determined
F-13
AMDOCS
LIMITED
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(dollar
and share amounts in thousands, except per share data)
by Vendor Specific Objective Evidence (VSOE). The
Company uses the residual method in accordance with
SOP 97-2
and
EITF No. 00-21,
Revenue Arrangements with Multiple Deliverables
(EITF No. 00-21).
In the absence of fair value for a delivered element the Company
first allocates revenue to the fair value of the undelivered
elements and residual revenue to delivered elements. The
residual method is used mainly in multiple element arrangements
that include license for the sale of software solutions that do
not require significant customization, modification,
implementation and integration and maintenance to determine the
appropriate value for the license component.
In circumstances where the Company enters into a contract with a
customer for the provision of managed services for a defined
period of time, the Company defers, in accordance with SAB
No. 104, certain incremental costs incurred at the
inception of the contract. These costs include time and expense
incurred in association with the origination of a contract. In
addition, under the provisions of
EITF No. 00-21,
if the revenue for a delivered item is not recognized because it
is not separable from the managed services arrangement, then the
Company also defers the cost of the delivered item. The deferred
costs are amortized on a straight-line basis over the life of
the applicable customer contract. Revenue associated with these
capitalized costs is deferred and is recognized over the same
period.
In cases where extended payment terms exist and revenue is
deferred until payments are due, related costs are capitalized
as contract costs and recognized as revenue is recognized.
Deferred revenue represents billings to customers for licenses
and services for which revenue has not been recognized. Unbilled
accounts receivable include all revenue amounts that had not
been billed as of the balance sheet date due to contractual or
other arrangements with customers. Allowances that are netted
against accounts receivable represent amounts provided for
accounts for which their collectibility is not reasonably
assured.
Cost
of License and Cost of Service
Cost of license and cost of service consist of all costs
associated with providing software licenses and services to
customers, including identified losses on contracts and warranty
expense. Estimated losses on contracts accounted for in
accordance with
SOP 81-1
are recognized in the period in which the loss is identified.
Estimated costs related to warranty obligations are initially
provided at the time the product is delivered and are revised to
reflect subsequent changes in circumstances and estimates. Cost
of license includes royalty payments to software suppliers,
amortization of purchased computer software and intellectual
property rights.
Cost of service also includes costs of third-party products
associated with reselling third-party computer hardware and
software products to customers, when revenue from third-party
products is recorded at the gross amount. Customers purchasing
third-party products from the Company generally do so in
conjunction with the purchase of services.
Research
and Development
Research and development expenditures consist of costs incurred
in the development of new software modules and product
offerings, either as part of the Companys internal product
development programs or in conjunction with customer projects.
Research and development costs, which are incurred in
conjunction with a customer project, are expensed as incurred.
Based on the Companys product development process,
technological feasibility, as defined in SFAS No. 86,
Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed
(SFAS No. 86), is established upon
completion of a detailed program design or, in the absence
thereof,
F-14
AMDOCS
LIMITED
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(dollar
and share amounts in thousands, except per share data)
completion of a working model. Costs incurred by the Company
after achieving technological feasibility and before the product
is ready for customer release have been insignificant.
Equity-Based
Compensation
The Company accounts for equity-based payments to employees in
accordance with FASB Statement No. 123 (revised 2004),
Share-Based Payment (SFAS
No. 123(R)), which requires all equity-based payments
to employees, including grants of employee stock options, to be
recognized in the income statement based on their fair values.
In addition, the Company has applied the provisions of Staff
Accounting Bulletin No. 107 (SAB
No. 107), in its adoption of SFAS No. 123(R). The
Company estimates the fair value of employee stock options using
a Black-Scholes valuation model and values restricted stock
based on the market value of the underlying shares at the date
of grant. The Company recognizes compensation costs using the
graded vesting attribution method that results in an accelerated
recognition of compensation costs in comparison to the
straight-line method.
The Company uses a combination of implied volatility of the
Companys traded options and historical stock price
volatility (blended volatility) as the expected
volatility assumption required in the Black-Scholes option
valuation model. Prior to the Companys adoption of SFAS
No. 123(R) on October 1, 2005, the Company had used
its historical stock price volatility in accordance with
Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS
No. 123) for purposes of presenting its pro forma
information. The selection of the blended volatility approach
was based upon the availability of traded options on the
Companys shares and the Companys assessment that
blended volatility is more representative of future share price
trends than historical volatility. As equity-based compensation
expense recognized in the Companys consolidated statements
of income for fiscal 2008, 2007 and 2006 is based on awards
ultimately expected to vest, such expense has been reduced for
estimated forfeitures. SFAS No. 123(R) requires forfeitures
to be estimated at the time of grant and revised, if necessary,
in subsequent periods if actual forfeitures differ from those
estimates. For the periods prior to fiscal 2006, the Company
accounted for forfeitures as they occurred.
Fair
Value of Financial Instruments
The financial instruments of the Company consist mainly of cash
and cash equivalents, short-term interest-bearing investments,
accounts receivable, accounts payable, short-term financing
arrangements, forward exchange contracts and options, lease
obligations and convertible notes. The fair value of the
financial instruments, excluding the convertible notes (for
which the fair value as of September 30, 2008 is
approximately $438,000), included in the accounts of the Company
does not significantly vary from their carrying amount.
Concentrations
of Credit Risk
Financial instruments that potentially subject the Company to
concentration of credit risk consist principally of cash and
cash equivalents, short-term interest-bearing investments and
trade receivables. The Company has conservative investment
policy guidelines under which it invests its excess cash
primarily in highly liquid U.S. dollar-denominated
securities primarily with major U.S. institutions. The
Companys revenue is generated primarily in North America
and Europe. To a lesser extent, revenue is generated in the
Asia-Pacific region and Latin America. Most of the
Companys customers are among the largest communications
and directory publishing companies in the world (or are owned by
them). The Companys business is subject to the effects of
general global economic conditions and, in particular, market
conditions in the communications industry. The Company performs
ongoing credit analyses of its customer base and generally does
not require collateral. The allowance for doubtful accounts is
for estimated losses resulting
F-15
AMDOCS
LIMITED
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(dollar
and share amounts in thousands, except per share data)
from the inability of the Companys customers to make
required payments. The Company evaluates accounts receivable to
determine if they will ultimately be collected. Significant
judgments and estimates are involved in performing this
evaluation, which are based on factors that may affect a
customers ability to pay, such as past experience, credit
quality of the customer, age of the receivable balance and
current economic conditions. As of September 30, 2008, the
Company had two groups of customers with accounts receivable
balances of more than 10% of total accounts receivable,
aggregating 39% (27.5% and 11.5%). These two groups of customers
accounted for approximately 40% of our revenue in fiscal 2008.
As of September 30, 2007, the Company had two customers
that had accounts receivable balances of more than 10% of total
accounts receivable, aggregating 31.4% (21.0% and 10.4%).
Earnings
per Share
The Company accounts for earnings per share based on
SFAS No. 128, Earnings per Share
(SFAS No. 128). SFAS No. 128
requires companies to compute earnings per share under two
different methods, basic and diluted earnings per share, and to
disclose the methodology used for the calculations. Basic
earnings per share are calculated using the weighted average
number of shares outstanding during the period. Diluted earnings
per share is computed on the basis of the weighted average
number of shares outstanding and the effect of dilutive
outstanding equity-based awards using the treasury stock method
and the effect of dilutive outstanding convertible notes using
the if-converted method.
Derivatives
and Hedging
The Company accounts for derivatives and hedging based on
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS No.
133), as amended and related Interpretations.
SFAS No. 133 requires the Company to recognize all
derivatives on the balance sheet at fair value. If a derivative
meets the definition of a hedge and is so designated, depending
on the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective
portion of a derivatives change in fair value is
recognized in earnings. If a derivative does not meet the
definition of a hedge the changes in the fair value will be
included in earnings.
Guarantors
Accounting and Disclosure Requirements for
Guarantees
The Company follows FASB Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others (FIN No. 45).
FIN No. 45 requires that, at the inception of certain
types of guarantees, the guarantor must disclose and recognize a
liability for the fair value of the obligation it assumes under
the guarantee.
Recent
Accounting Pronouncements
In June 2008, the Financial Accounting Standards Board
(FASB) issued FASB Staff Position No. EITF
No. 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities
(FSP EITF
No. 03-6-1).
According to FSP EITF
No. 03-6-1,
unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents are considered
participating securities under SFAS No. 128. As such, they
should be included in the computation of basic earnings per
share (EPS) using the two-class method. FSP EITF
No. 03-6-1
is effective for financial statements issued for f