e20vf
For the fiscal year ended
September 30, 2009
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 20-F
|
|
o |
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR(g)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
OR
|
|
þ |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
For the fiscal year ended September 30, 2009
OR
|
|
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
OR
|
|
o |
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
|
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:
|
|
|
Title of each class
|
|
Name of exchange on which registered
|
|
Ordinary Shares, par value £0.01
|
|
New York Stock Exchange
|
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.
|
|
|
Ordinary Shares, par value £0.01
(Title of class)
|
|
205,079,239(1)
(Number of shares)
|
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 has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such files).
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.(Check one):
|
|
|
|
|
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:
|
|
|
|
|
U.S. GAAP
þ
|
|
International Financial Reporting Standards as issued
o
by the International Accounting Standards Board
|
|
Other
o
|
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
|
|
|
(1)
|
|
Net of 37,387,598 shares held
in treasury. Does not include (a) 21,321,437 ordinary
shares reserved for issuance upon exercise of stock options
granted under our stock option plan or by companies we have
acquired, and (b) 23,655 ordinary shares reserved for
issuance upon conversion of outstanding convertible debt
securities.
|
AMDOCS
LIMITED
FORM 20-F
ANNUAL
REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2009
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 generally accepted accounting principles in
the United States, or 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,
JacobsRimelltm
and
ChangingWorldstm.
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
|
|
Item 1.
|
IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
Not applicable.
|
|
Item 2.
|
OFFER
STATISTICS AND EXPECTED TIMETABLE
|
Not applicable.
Selected
Financial Data
Our historical consolidated financial statements are prepared in
accordance with U.S. 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, 2009 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in thousands, except per share data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,862,607
|
|
|
$
|
3,162,096
|
|
|
$
|
2,836,173
|
|
|
$
|
2,480,050
|
|
|
$
|
2,038,621
|
|
Operating income
|
|
|
367,319
|
|
|
|
405,596
|
|
|
|
357,433
|
|
|
|
332,132
|
|
|
|
338,492
|
|
Net income
|
|
|
326,176
|
|
|
|
378,906
|
|
|
|
364,937
|
|
|
|
318,636
|
|
|
|
288,636
|
|
Basic earnings per share
|
|
|
1.61
|
|
|
|
1.83
|
|
|
|
1.76
|
|
|
|
1.57
|
|
|
|
1.44
|
|
Diluted earnings per share
|
|
|
1.58
|
|
|
|
1.74
|
|
|
|
1.65
|
|
|
|
1.48
|
|
|
|
1.35
|
|
Dividends declared per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term interest-bearing
investments
|
|
$
|
1,173,041
|
|
|
$
|
1,244,378
|
|
|
$
|
1,179,280
|
|
|
$
|
979,381
|
|
|
$
|
1,145,563
|
|
Total assets
|
|
|
4,328,417
|
|
|
|
4,579,063
|
|
|
|
4,345,350
|
|
|
|
3,962,828
|
|
|
|
3,202,468
|
|
Long-term obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Senior Notes(1)
|
|
|
1,020
|
|
|
|
450,000
|
|
|
|
450,000
|
|
|
|
450,000
|
|
|
|
450,272
|
|
Long-term portion of capital lease obligations
|
|
|
510
|
|
|
|
356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
3,213,053
|
|
|
|
2,805,191
|
|
|
|
2,600,243
|
|
|
|
2,154,165
|
|
|
|
1,656,452
|
|
|
|
|
(1) |
|
During fiscal 2009, using proceeds from our revolving credit
facility, we purchased $449.0 million aggregate principal amount
of our 0.50% convertible notes at an average price of 99.5% of
the principal amount, excluding accrued interest and transaction
fees. As of September 30, 2009, $1.0 million principal amount of
the notes remain as our obligations, due in 2024, in accordance
with their terms. |
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Ordinary Shares
|
|
|
Paid-In
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Treasury Stock
|
|
|
|
(in thousands)
|
|
|
Statement of Changes in Shareholders Equity Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2005
|
|
|
200,182
|
|
|
$
|
3,644
|
|
|
$
|
1,870,922
|
|
|
$
|
(602,392
|
)
|
Employee stock options exercised
|
|
|
5,869
|
|
|
|
106
|
|
|
|
106,853
|
|
|
|
|
|
Tax benefit of stock options exercised/cancelled
|
|
|
|
|
|
|
|
|
|
|
7,619
|
|
|
|
|
|
Issuance of restricted stock, net of forfeitures
|
|
|
742
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock and stock options related to
acquisitions, net
|
|
|
|
|
|
|
|
|
|
|
4,634
|
|
|
|
|
|
Equity-based compensation expense related to employees
|
|
|
|
|
|
|
|
|
|
|
46,178
|
|
|
|
|
|
Reclassification of unearned compensation to additional paid in
capital
|
|
|
|
|
|
|
|
|
|
|
(962
|
)
|
|
|
|
|
Equity-based compensation expense related to non-employee stock
options
|
|
|
|
|
|
|
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2006
|
|
|
206,793
|
|
|
$
|
3,763
|
|
|
$
|
2,035,309
|
|
|
$
|
(602,392
|
)
|
Employee stock options exercised
|
|
|
3,970
|
|
|
|
79
|
|
|
|
74,576
|
|
|
|
|
|
Tax benefit of stock options exercised/cancelled
|
|
|
|
|
|
|
|
|
|
|
3,965
|
|
|
|
|
|
Repurchase of shares
|
|
|
(1,411
|
)
|
|
|
|
|
|
|
|
|
|
|
(49,837
|
)
|
Issuance of restricted stock, net of forfeitures
|
|
|
410
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
Issuance of stock options related to acquisitions, net
|
|
|
|
|
|
|
|
|
|
|
768
|
|
|
|
|
|
Equity-based compensation expense related to employees
|
|
|
|
|
|
|
|
|
|
|
53,587
|
|
|
|
|
|
Equity-based compensation expense related to non-employee stock
options
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2007
|
|
|
209,762
|
|
|
$
|
3,850
|
|
|
$
|
2,168,234
|
|
|
$
|
(652,229
|
)
|
Employee stock options exercised
|
|
|
2,052
|
|
|
|
41
|
|
|
|
37,527
|
|
|
|
|
|
Tax benefit of stock options exercised/cancelled
|
|
|
|
|
|
|
|
|
|
|
1,549
|
|
|
|
|
|
Repurchase of shares
|
|
|
(8,370
|
)
|
|
|
|
|
|
|
|
|
|
|
(255,051
|
)
|
Issuance of restricted stock, net of forfeitures
|
|
|
472
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
Equity-based compensation expense related to employees
|
|
|
|
|
|
|
|
|
|
|
57,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2008
|
|
|
203,916
|
|
|
$
|
3,900
|
|
|
$
|
2,264,800
|
|
|
$
|
(907,280
|
)
|
Employee stock options exercised
|
|
|
1,289
|
|
|
|
23
|
|
|
|
27,863
|
|
|
|
|
|
Tax benefit of stock options exercised/cancelled
|
|
|
|
|
|
|
|
|
|
|
(1,484
|
)
|
|
|
|
|
Repurchase of shares
|
|
|
(468
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,594
|
)
|
Issuance of restricted stock, net of forfeitures
|
|
|
342
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
Equity-based compensation expense related to employees
|
|
|
|
|
|
|
|
|
|
|
42,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2009
|
|
|
205,079
|
|
|
$
|
3,930
|
|
|
$
|
2,334,090
|
|
|
$
|
(919,874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 its full
effects will be, the current worldwide economic turmoil has had,
and may have further, adverse consequences for our customers and
our business.
During adverse conditions in the business environment for
communications companies, service providers often need to
control operating expenses and capital investment budgets, which
can adversely affect our business. For example, the recent
business climate for communications companies has resulted in
slowed customer buying decisions and price pressures that have
increased pressure on our ability to generate revenue. These
adverse market conditions have had a negative impact on our
business by decreasing our new customer engagements and the size
of initial spending commitments under those engagements, as well
as decreasing the level of discretionary spending with existing
customers. In addition, the slowdown in the buying decisions of
service providers has extended our sales cycle period and limits
our ability to forecast our flow of new contracts. If such
adverse business conditions continue or arise again in the
future, our business may be harmed.
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
network equipment providers 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:
|
|
|
|
|
the development by others of software products that are
competitive with our products and services,
|
|
|
|
the price at which others offer competitive software and
services,
|
|
|
|
the ability of competitors to deliver projects at a level of
quality that rivals our own,
|
5
|
|
|
|
|
the responsiveness of our competitors to customer needs, and
|
|
|
|
the ability of our competitors to hire, retain and motivate key
personnel.
|
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 existing or 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 2009,
accounting for 33% of our revenue. In fiscal 2009, our two next
largest customers were Bell Canada and Sprint Nextel, and
certain of their subsidiaries, each of which accounted for
approximately 10% of our revenue in fiscal 2009. Aggregate
revenue derived from the multiple business arrangements we have
with our ten largest customers accounted for approximately 76%
of our revenue in fiscal 2009 and 75% of our revenue in fiscal
2008. 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
management and billing solutions for broadband media cable and
satellite companies, as well as digital commerce software and
solutions, enhanced our offerings in the operational support
systems, or OSS, market, and enabled us to provide 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
assure you 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,
meet our commitments and 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, Europe and Israel 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.
As a result of our entry into the digital commerce space, we now
compete for high quality employees in that spaces limited
and competitive talent market. In addition, recent cost
containment measures undertaken in response to current business
conditions, such as the relocation of projects to lower costs
countries, may lead to greater employee attrition and increase
the cost of retaining our most skilled employees. The transition
of
7
projects to new locations may also lead to business disruptions
due to differing levels of employee knowledge, organizational
and leadership skills.
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.
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.
Fluctuations may result from many factors, including:
|
|
|
|
|
the size and timing of significant customer projects and license
and service fees,
|
|
|
|
delays in or cancellations of significant projects by customers,
|
|
|
|
changes in operating expenses,
|
|
|
|
increased competition,
|
|
|
|
changes in our strategy,
|
|
|
|
personnel changes,
|
|
|
|
foreign currency exchange rate fluctuations, and
|
|
|
|
general economic and political conditions.
|
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 a significant portion of our 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 and services 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 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 addition, the
lengthening of our sales cycle contributes to an increased cost
of sales, thereby reducing our profitability.
8
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.
For example, in the first quarter of fiscal 2009, the fourth
quarter of fiscal 2008 and the second quarter of fiscal 2007, we
undertook measures designed to improve efficiency and to align
our operational structure to our expected level of future
activities. As part of these plans, we recorded expenses of
$15.1 million in fiscal 2009, $12.1 million in fiscal
2008 and $6.0 million in fiscal 2007, 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 $1,173.0 million as of
September 30, 2009. Our policy is to retain substantial
cash balances in order to support our growth. Our short-term
investments consist primarily of money market funds,
U.S. government treasuries, U.S. agency securities and
government guaranteed debt. Although we believe that we
generally adhere to conservative investment guidelines, recent
market turmoil has resulted in immaterial impairments of the
carrying value of certain of our investment assets. Continuing
adverse market conditions may lead to additional impairments.
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. or European banks or 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
9
make required payments. In addition, adverse general business
conditions may degrade the creditworthiness of our customers
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 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:
|
|
|
|
|
lack of acceptance of non-localized products,
|
|
|
|
legal and cultural differences in the conduct of business,
|
|
|
|
difficulties in staffing and managing foreign operations,
|
|
|
|
longer payment cycles,
|
|
|
|
difficulties in collecting accounts receivable and withholding
taxes that limit the repatriation of earnings,
|
|
|
|
trade barriers,
|
|
|
|
difficulties in complying with varied legal and regulatory
requirements across jurisdictions,
|
|
|
|
immigration regulations that limit our ability to deploy our
employees,
|
|
|
|
political instability and threats of terrorism, and
|
|
|
|
variations in effective income tax rates among countries where
we conduct business.
|
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% to 80% 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 2009 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
(expense) income and other, net, mainly due to the significant
revaluation of assets and liabilities denominated in other
currencies attributable to the rapid and significant foreign
exchange rate changes associated with global economic turbulence
beginning in the fourth quarter of fiscal 2008. Although our
foreign exchange losses were less significant in fiscal 2009, we
believe that foreign exchange rates may continue to present
challenges in future periods.
In addition, a portion of our revenue (approximately 20% to 30%
in fiscal 2009) is not incurred in dollars or linked to the
dollar, and, therefore, fluctuations in exchange rates between
the dollar and the currencies in
10
which such revenue is incurred 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.
Political
and economic conditions in the Middle East and other countries
may adversely affect our business.
Of the development centers we maintain worldwide, our two
largest development centers are located in Israel and India. In
Israel, the centers are located in three different sites
throughout Israel, and approximately 23% of our software and
information technology 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 approximately 28% of our software and information
technology workforce is located in India. Recent terrorist
activity in India and Pakistan has contributed to tensions
between those countries 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 Cyprus
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.
11
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.
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
12
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 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 10.9%
for the year ended September 30, 2009 will not change over
time as a result of changes in corporate income tax rates, or
other changes in the tax laws of Guernsey, the jurisdiction in
which our holding company is organized, or 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 2009, the corporation tax rate applicable in India
on trading activities was 34%. 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
current applicable tax rate to 17%, 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, 2011 and the benefits applicable to our
Delhi subsidiary are scheduled to phase out over 15 years
from the subsidiarys establishment. Proposed changes in
Indian tax law may reduce or eliminate the availability of the
noted beneficial tax rates for our Indian subsidiaries. Please
see Item 10 Additional
Information Taxation Certain Indian Tax
Considerations for more information.
13
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:
|
|
|
|
|
some tax benefit programs may be limited in duration or may be
discontinued,
|
|
|
|
we may be unable to meet the requirements for continuing to
qualify for some programs,
|
|
|
|
these programs and tax benefits may be unavailable at their
current levels, or
|
|
|
|
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.
|
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. From September 30, 2007 to
November 30, 2009, our ordinary shares have traded as high
as $38.03 and as low as $14.61 per share. As of
November 30, 2009, the closing price of our ordinary shares
was $26.43 per share. Many factors could cause the market price
of our ordinary shares to rise and fall, including:
|
|
|
|
|
market conditions in the industry and the economy as a whole,
|
|
|
|
variations in our quarterly operating results,
|
|
|
|
changes in our backlog levels,
|
|
|
|
announcements of technological innovations by us or our
competitors,
|
|
|
|
introductions of new products or new pricing policies by us or
our competitors,
|
|
|
|
trends in the communications or software industries, including
industry consolidation,
|
|
|
|
acquisitions or strategic alliances by us or others in our
industry,
|
|
|
|
changes in estimates of our performance or recommendations by
financial analysts,
|
|
|
|
changes in our shareholder base, and
|
|
|
|
political developments in the Middle East or other areas of the
world.
|
In addition, in recent years, the stock market has experienced
significant price and volume fluctuations. 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.
14
|
|
ITEM 4.
|
INFORMATION
ON THE COMPANY
|
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.
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
Canada, Cyprus, India, Ireland, Israel and the United States.
We have pursued and may continue to pursue 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; our principal acquisitions
since fiscal 2006 are summarized below:
|
|
|
|
|
Fiscal Year
|
|
Acquired Business
|
|
Description of Business
|
|
2006
|
|
Qpass
|
|
Software systems for digital commerce
|
2006
|
|
Cramer
|
|
Operation support software systems
|
2007
|
|
SigValue
|
|
Customer care, billing and service control systems for
communications providers in high-growth emerging markets
|
2008
|
|
JacobsRimell
|
|
Fulfillment software for the broadband cable industry
|
2009
|
|
ChangingWorlds
|
|
Mobile device personalization technology
|
2010
|
|
jNetX
|
|
Service delivery platform provider
|
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 and
emerging communications markets, reinforcing our leadership in
delivering a comprehensive portfolio of business software
applications.
As the result of our acquisitions and organic growth in the size
of our operations, our software and information technology
workforce increased from 15,978 as of the end of fiscal 2007 to
17,100 as of the end of fiscal 2008, although our workforce has
fluctuated with changes in business conditions. In light of the
current economic downturn, we reduced our software and
information technology workforce to 15,871 as of the end of
fiscal 2009.
Our principal capital expenditures for fiscal 2009, 2008 and
2007 have been for computer equipment, for which we spent
approximately $71.5 million, $113.2 million, and
$117.3 million, respectively. Capital expenditures in
fiscal 2009 were mainly attributable to investments in our
operating facilities and our development centers around the
world. We anticipate our principal capital expenditures in
fiscal 2010 will consist of additional computer equipment, with
the bulk of these expenditures for computer equipment to be
located at our facilities in North America, Cyprus, 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 also focused in the last several
years on Tier 3 and 4
15
providers in developed markets and on providers in emerging
markets, such as Latin America, China, the Commonwealth of
Independent States, India and Southeast Asia.
We develop, implement and manage software and services
associated with business support systems, or BSS, and
operational support systems, or OSS, to enable service providers
to introduce new products quickly, understand their customers
more deeply, process orders more efficiently and support new
business models. We refer to these systems collectively as
customer experience systems because of the crucial impact 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 consumer demands. In a global communications industry
impacted by the move toward convergence of services and devices
and increasing network capacity, consumers expect immediate and
constant connectivity to personalized services, information and
applications. We refer to these developments as the evolution to
the Connected World.
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 and handset manufacturers. 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 in 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 cost-effective, scalable 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), Long Term Evolution (LTE) 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. We believe that, as a
result of all these forces, industry players are seeking to
compete by 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. Our customers are transforming their businesses by
upgrading their existing systems and installing new systems to
deliver new, next-generation, convergent services. 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, advanced digital data
services and new business models. In addition, these systems
must have the
16
ability to orchestrate
end-to-end
business processes and provide customers with single-contact,
single-invoice solutions for their services.
As a result, we believe service providers require modular
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.
The
Amdocs Offerings
We believe that our product-driven approach, commitment to and
support of quality personnel and deep industry knowledge and
expertise enable 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.
|
|
|
|
|
Software Products. Our portfolio of
pre-integrated software products was built to span the entire
customer lifecycle across BSS and OSS. Our products 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. In addition, our products
are designed to allow modular expansion as a service provider
evolves, ensuring rapid, low-cost, reduced-risk implementations.
Amdocs CES (Customer Experience Systems) 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. Building on the CES 7.5
portfolio, in fiscal 2009, we released several products and
solutions, including Amdocs Convergent Charging Turbo Edition
and the Amdocs Mobile Money Solution; and prepackaged offerings,
such as the BSS Pack, Carrier Ethernet Operational Product Pack
and
E-Billing
StartPack that are preconfigured for fast, cost-effective
deployment to support specific business processes.
|
The Amdocs CES 7.5 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 reduces their dependence on technical and other
personnel. In addition, our products are designed to uphold the
prevailing industry standards set by standards bodies such as
the
TeleManagementtm
Forum. Amdocs is an active, board-level member in the
TeleManagement Forum and other industry forums.
|
|
|
|
|
Services. Our services include business
consulting, systems integration and delivery services, managed
services and product 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.
|
17
|
|
|
|
|
Solution Bundles and Packs. Building on
products included in the Amdocs CES 7.5 portfolio, we offer
bundled solutions of products (including those of Amdocs and
third parties) and services that address specific business
issues, such as subscriber profitability and segmentation, the
identification of consumer segments to be targeted, and 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.
|
|
|
|
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, consulting 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-tested set of business
processes, tools and methodologies that we apply to all ongoing
product development and delivery activities. Based in
significant part on the skills and knowledge of our workforce,
we believe that we have developed a reputation for reliably
delivering quality solutions.
|
Business
Strategy
Our goal is to provide products, services and support to the
worlds leading service providers, as they evolve to remain
relevant and competitive in an increasingly connected world. We
seek to accomplish our goal by pursuing the strategies described
below.
|
|
|
|
|
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.
|
|
|
|
Target Industry Leaders. We intend to continue
to direct our marketing efforts principally toward the major
service providers. 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.
|
|
|
|
Continued Expansion into Emerging
Markets. Through our acquisition of SigValue in
fiscal 2007, our ongoing development efforts and our expansion
into China, Latin America and Southeast Asia, we believe we have
improved our ability to serve the needs of service providers
operating in emerging markets where subscriber growth,
principally for 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 require 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.
|
|
|
|
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 of our systems is achieved through an open,
service-oriented architecture, allowing our products to work
well together and with third-party products. This holistic
|
18
|
|
|
|
|
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.
|
|
|
|
|
|
Leverage our Managed Services
Capabilities. Managed services enable us to
assume responsibility for the operation and management of 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 us, as
they can be a source of predictable revenue and long-term
relationships.
|
|
|
|
Leverage our Consulting Capabilities. Our
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.
|
|
|
|
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 the longevity of our customer
relationships and the recurring revenue that such relationships
produce provide a competitive advantage for us.
|
Products
Our product offerings consist of an extensive software portfolio
that we have developed to provide comprehensive customer
experience systems functionality for service providers. Our
software systems support the full span of the customer
lifecycle: revenue management, customer management, service and
resource management, personalized portal and value-added
services and portfolio management. In addition to these offering
areas, we also provide solutions for high growth and emerging
markets, as well as directory systems.
Our products focus on:
|
|
|
|
|
Revenue Management: Products that enable
service providers to manage and collect all sources of revenue
through any channel, from service consumption to
cash-in-hand.
Amdocs Revenue Management offerings include:
|
|
|
|
|
|
Charging and Billing: 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.
|
|
|
|
Mediation: enables service providers to
address BSS/OSS data processing and event handling needs across
all lines of business and to transform raw network data into
actionable business information that can be used to authorize
events on the network, bill a customer or pay a content provider.
|
|
|
|
Partner Settlements: 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 and advertising.
|
19
|
|
|
|
|
Customer Management: Products that transform
the way service providers deliver a cost-effective, superior
customer experience across channels. Amdocs Customer
Management offerings include:
|
|
|
|
|
|
Contact Center and Retail Interaction
Management: gives customer contact center agents
and store representatives the information needed to easily and
efficiently execute all customer-facing activities.
|
|
|
|
Service and Support: prioritizes case
handling, enables support and closes the loop between the
initial service request and problem resolution, including field
service.
|
|
|
|
Sales and Ordering: provides an
end-to-end
solution, across all customer channels, to complete an
order-to-cash
cycle from a business or an end customer across multiple lines
of business.
|
|
|
|
|
|
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:
|
|
|
|
|
|
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.
|
|
|
|
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.
|
|
|
|
Service Assurance: supports service assurance
by managing the problem resolution process, including impact
analysis to assess what services are affected by outages.
|
|
|
|
Inventory and Discovery: provides a single
source of service and network inventory and performance data, to
support network planning and service fulfillment and assurance.
|
|
|
|
Service Management: provides an automated,
end-to-end
solution to manage the entire order fulfillment lifecycle,
including multiple order channels and lines of business.
|
|
|
|
|
|
Personalized Portal and Value-Added
Services: Solutions that help service providers
create a personalized online experience for their subscribers
and maximize profits from content, value-added services and
applications. Amdocs Portal and Value-Added Services
offerings include:
|
|
|
|
|
|
Commerce and Partner
Collaboration: facilitates a personalized
shopping experience for digital, physical and network goods.
This offering spans
e-commerce,
digital commerce and app stores, enabling service providers to
benefit from emerging business models, such as converged online
storefronts.
|
|
|
|
Portal and Self-Service: enables service
providers to deliver a mobile and web portal experience,
providing personalized on- and off-portal browsing,
self-directed service and intelligent searching. It allows
subscribers to manage their own services, bills across all lines
of business and turns service interactions into cross-sell
opportunities.
|
|
|
|
Service Delivery and Control: provides a Next
Generation Intelligent Network (IN) service delivery platform
for the creation, delivery and control of products, value-added
services and end-user applications. The solution includes a
graphical service creation environment (SCE) for rapid service
design and creation, dozens of pre-built value-added services,
such as ringback tones and missed call notifications, a
messaging platform (SMSC), a real-time service control point
(SCP) and application and media servers, such as interactive
voice response (IVR) and unstructured supplementary service data
(USSD).
|
|
|
|
|
|
Portfolio Management: Products and frameworks
that are integrated within all our product offering areas and
form the platform upon which our customers can implement,
integrate and centralize their operating environments. Our
Portfolio Management offerings include:
|
|
|
|
|
|
Product Management: consolidates a service
providers product information into a central location,
efficiently maintains the information and maximizes the value of
product assets.
|
20
|
|
|
|
|
Application Framework: a common infrastructure
designed to ease the integration of Amdocs and third-party
applications.
|
|
|
|
Operational Framework: a unified operational
tools environment, including a common interface to manage all
portfolio applications.
|
|
|
|
Delivery Framework: a set of common tools,
methodologies and web services that enable our customers to
simplify the customization and deployment of our products.
|
High-Growth
Emerging Markets Systems
We have designed Amdocs Compact Convergence as our offering for
service providers in high-growth emerging markets. This
integrated,
end-to-end,
network-connected service delivery solution provides the
software and hardware needed to quickly and cost-effectively
launch new lines of business or deploy new technologies. It
includes operational- and business-support systems, a service
delivery platform, and value-added services. Specifically,
Amdocs Compact Convergence includes:
|
|
|
|
|
Compact Business Platform: Provides
out-of-the-box essential business functionality, such as
invoicing and provisioning, and the ability to configure and
apply new business processes, as needed. It includes customer
care, self web-care and reporting capabilities, in addition to a
set of system and operational tools for functions, such as
network monitoring and analysis.
|
|
|
|
Compact Charging Platform: Supports convergent
rating and real-time charging for services, including voice,
messaging data and value-added services. It also provides
support for any payment method, allowing service providers to
implement and execute a range of tariff plans and pricing
strategies and to bill customers for service usage.
|
|
|
|
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.
|
Directory
Systems
Our directory systems, or advertising, media and entertainment
offerings, are comprised of a comprehensive set of products and
services designed to enable local content and advertising
publishers to manage the entire advertising process across
multiple electronic and print media and channels. Our directory
systems offerings include:
|
|
|
|
|
Consumer Engagement: Offerings that allow
directory publishers to launch an Internet directory or to
extend their existing portal functionality, including
personalized Yellow Page content and advertising delivery, as
well as advanced search capabilities across multiple channels.
|
|
|
|
Advertiser Engagement: Offerings that support
any combination of traditional printed Yellow Pages and new
interactive advertising products across multiple delivery
channels, managing the complete lifecycle of advertisers and
advertising products.
|
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:
|
|
|
|
|
Hardware: IBM, Hewlett-Packard, Sun
Microsystems
|
|
|
|
Operating Systems: IBM AIX, HP-UX, Solaris,
Windows
|
|
|
|
Database Management Systems: Oracle, SQL
Server, IBM UDB
|
|
|
|
Middleware: BEA WebLogic, IBM WebSphere
|
We believe our technology platforms flexibility 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
21
a central service repository for defining business services for
both Amdocs and external applications, allowing our applications
to 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 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:
|
|
|
|
|
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.
|
|
|
|
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.
|
|
|
|
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. Because our customers
projects are complex and require systems support expertise, we
provide information technology, or IT, services, including
extensive consulting, product 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. 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 our
customers.
Our services portfolio includes:
|
|
|
|
|
Consulting and Technology Services These
services span assessment and advisory services designed to help
our customers to achieve optimal results from their business
transformation projects, drive additional revenue streams and
control their operating costs. We have developed advanced
methodologies, industry best-practices and pre-configured tools
to deliver a cohesive implementation plan, including business
and enterprise architecture, functional solution architecture,
change management and business benefit realization.
|
|
|
|
Managed Services This set of flexible
strategic sourcing services is uniquely tailored for the service
provider industry to outsource the performance and management of
their support business functions,
|
22
|
|
|
|
|
operations and infrastructure support across all environments,
whether Amdocs systems or other implementations. Our services
for managed services projects include IT and infrastructure
management, application management and ongoing support, systems
modernization and consolidation, business process operations
support,
end-to-end
transformational business process outsourcing (BPO) and delivery.
|
|
|
|
|
|
Product Services Professional support and
maintenance services designed to help our customers solve key
challenges and to maximize their investment in our products
throughout the entire product life cycle.
|
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 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 and support facilities worldwide, including Brazil,
China, Cyprus, India, Ireland, Israel and the United States, and
have operations in North America, Europe, Israel, 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 organization in fiscal 2009 to better align it
with our sales functions and to provide an increased focus on
emerging markets. Our marketing activities also continue to
support projects 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.
23
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 expansion in emerging markets, we also have
customers in geographies as diverse as China, the Commonwealth
of Independent States, India, Latin America and Southeast Asia.
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:
|
|
|
America Movil
|
|
MetroPCS
|
AT&T
|
|
RH Donnelley
|
Bakcell
|
|
Rogers
|
Bell Canada
|
|
Sprint Nextel
|
BT
|
|
Svyazinvest
|
Cablevision
|
|
Telefonica de Espana/Germany
|
China Mobile
|
|
Telkom South Africa
|
Clearwire
|
|
Telstra
|
Comcast
|
|
TELUS
|
Deutsche Telekom
|
|
T-Mobile
|
DIRECTV
|
|
Verizon Communications
|
Elisa
|
|
VimpelCom
|
Excelcom
|
|
Virgin Media
|
Instituto Costarricense de Electricidad
|
|
Vodafone D2
|
J:COM
|
|
Vodafone Netherlands
|
Kazakhtelecom
|
|
Vodafone UK
|
KPN Mobile
|
|
|
Our business is dependent on a limited number of significant
customers, of which AT&T was our largest in fiscal 2009,
accounting for 33% of fiscal 2009 revenue. In fiscal 2009, our
two next largest customers were Bell Canada and Sprint Nextel,
and certain of their subsidiaries, each of which accounted for
approximately 10% of our revenue in fiscal 2009. Aggregate
revenue derived from the multiple business arrangements we have
with our ten largest customers accounted for approximately 76%
of our revenue in fiscal 2009 and 75% of our revenue in fiscal
2008.
The following is a summary of revenue by geographic area.
Revenue is attributed to geographic region based on the location
of the customer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
North America
|
|
|
75.3
|
%
|
|
|
68.7
|
%
|
|
|
66.6
|
%
|
Europe
|
|
|
13.8
|
|
|
|
17.3
|
|
|
|
21.5
|
|
Rest of the World
|
|
|
10.9
|
|
|
|
14.0
|
|
|
|
11.9
|
|
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
24
internal IT departments of large communication companies as well
as independent competitors that can be categorized as follows:
|
|
|
|
|
providers of OSS/BSS systems, including Comverse, Convergys, CSG
Systems International, NetCracker, Oracle Corporation and
Telecordia;
|
|
|
|
system integrators and providers of IT services, such as
Accenture, Cognizant, Hewlett-Packard, IBM Global Services,
Infosys, Tata Consultancy Services, Tech Mahindra Ltd and Wipro
(some of whom we also cooperate with in certain opportunities
and projects); and
|
|
|
|
network equipment providers such as Alcatel-Lucent, Ericsson,
Huawei and Nokia Siemens (some of whom we also cooperate with in
certain opportunities and projects).
|
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:
|
|
|
|
|
applying our 25-plus-year heritage to the development and
delivery of products and professional services that enable our
customers to achieve service differentiation by means of an
intentional customer experience,
|
|
|
|
focusing on communications service providers and continuing to
design and develop solutions targeted specifically to this
industry,
|
|
|
|
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,
|
|
|
|
providing high-quality, reliable, scalable, integrated, yet
modular applications, and
|
|
|
|
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 existing or 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. 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, management development and leadership. 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 and outstanding leaders.
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
25
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.
In fiscal 2009, we invested in several additional releases of
our last major release, Amdocs CES 7.5, as well as on our next
major product release. Amdocs CES 7.5 expanded 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, delivering
real-time rating and charging across postpaid and prepaid
services through turbo charging technology, and 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. Amdocs CES 7.5
enhanced our portfolio in various areas, including billing, self
service, digital commerce and the personalization engine we
acquired from ChangingWorlds. Our next major product release
will address additional challenges and opportunities of the
Connected World by further personalizing the mobile Internet
experience, enhancing retail processes, providing more effective
smart device support, enabling a personalized one-stop shopping
experience and driving operational efficiencies with advanced
network management capabilities.
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 2,843,373 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, 2009, including maintenance and other
related costs, were approximately $59.2 million. The
following table summarizes information with respect to the
principal facilities leased by us and our subsidiaries as of
November 30, 2009:
|
|
|
|
|
|
|
Area
|
|
Location
|
|
(Sq. Feet)
|
|
|
United States:
|
|
|
|
|
St. Louis, MO
|
|
|
113,625
|
|
San Jose, CA(*)
|
|
|
112,120
|
|
Champaign, IL
|
|
|
195,183
|
|
Eldorado Hills, CA(*)
|
|
|
113,291
|
|
Others
|
|
|
202,268
|
|
|
|
|
|
|
Total
|
|
|
736,487
|
|
Israel:
|
|
|
|
|
Raanana
|
|
|
641,443
|
|
Hod-Hasharon
|
|
|
81,052
|
|
Haifa
|
|
|
74,608
|
|
Others
|
|
|
108,406
|
|
|
|
|
|
|
Total
|
|
|
905,508
|
|
Canada:
|
|
|
|
|
Toronto(*)
|
|
|
58,446
|
|
Montreal
|
|
|
55,414
|
|
Others
|
|
|
24,931
|
|
|
|
|
|
|
Total
|
|
|
138,791
|
|
China
|
|
|
96,579
|
|
Cyprus (Limassol)
|
|
|
103,892
|
|
India:
|
|
|
|
|
Pune
|
|
|
449,951
|
|
Delhi
|
|
|
122,416
|
|
|
|
|
|
|
Total
|
|
|
572,367
|
|
United Kingdom(*)
|
|
|
103,569
|
|
Rest of the world(**)
|
|
|
186,180
|
|
|
|
|
|
|
Total
|
|
|
2,843,373
|
|
|
|
|
(*) |
|
Includes space sublet to third parties. |
|
|
|
(**) |
|
Includes Austria, Australia, Brazil, Costa Rica, Czech Republic,
Denmark, France, Germany, Greece, Hungary, Indonesia, Ireland,
Italy, Japan, Kazakhstan, Malaysia, Mexico, Netherlands, Russia,
Singapore, South Africa, Spain, Sweden, Thailand, Turkey, and
Vietnam. |
Our leases expire on various dates between 2010 and 2020, not
including various options to terminate or 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, IBM, Hewlett-Packard, SUN and
BEA. Our data storage is based on equipment from EMC, SUN,
NetApp and Hewlett-Packard. Our development servers are
connected to more than 20,000 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.
|
|
ITEM 5.
|
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:
|
|
|
|
|
the factors that affect our business,
|
|
|
|
our revenue and costs for the fiscal years ended
September 30, 2009, 2008 and 2007,
|
|
|
|
the reasons why specific line items in our consolidated
statements of income were different from year to year,
|
|
|
|
the sources of our revenue,
|
|
|
|
how all of this affects our overall financial condition,
|
|
|
|
our capital expenditures for the fiscal years ended
September 30, 2009, 2008 and 2007,
|
|
|
|
the changes in our business, including those resulting from
acquisitions of other businesses, and
|
|
|
|
the sources of our cash to pay for future capital expenditures
and possible acquisitions.
|
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 also focused in the last several
years on Tier 3 and 4 providers in developed markets, and
on providers in emerging markets, such as China, the
Commonwealth of Independent States, India, Latin America and
Southeast Asia.
We develop, implement and manage software and services
associated with business support systems, or BSS, and
operational support systems, or OSS, that enable service
providers to introduce new products quickly, understand their
customers more deeply, process orders more efficiently and
support new business models. We refer to these systems
collectively as customer experience systems because of the
crucial impact 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 consumer demands. In a global communications industry
impacted by the move toward convergence of services and devices
and increasing network capacity, consumers expect immediate and
28
constant connectivity to personalized services, information and
applications. We refer to these developments as the evolution to
the Connected World.
In established markets, service providers are transforming their
businesses as they attempt to derive revenue and profit from
IP-based
content services, while confronting increased competition from
non-traditional competitors, including major Internet companies
and handset manufacturers. 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 in 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 cost-effective, scalable 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 cable and satellite companies and enhanced our offerings in
the OSS market. In fiscal 2006, we acquired Qpass Inc. and
Cramer Systems Group Limited 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. to add expertise in providing integrated
billing and customer care systems in high-growth emerging
markets. In fiscal 2008, we acquired JacobsRimell Ltd., a
provider of fulfillment solutions for the broadband cable
industry, to enrich our OSS offering for cable, in fiscal 2009,
we acquired ChangingWorlds, a provider of mobile device
personalization technology, and in fiscal year 2010, we acquired
jNetX, a provider in the service delivery platform market to
enable service providers to combine converged network services
with IT and Web domain services for innovative and valuable
applications. 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 our consolidated financial statements
for more information regarding our acquisitions.
Offerings
Amdocs offerings of software and related services consist
of:
|
|
|
|
|
A complete, modular yet integrated portfolio of customer
experience systems, including revenue management (billing and
charging, mediation, and partner settlements), customer
management (contact center and retail interaction management,
service and support, and sales and ordering), service and
resource management (OSS) (network planning, service
fulfillment, service assurance, inventory and discovery, and
service management), personalized portal and value-added
services (commerce and partner collaboration, portal and
self-service, and service delivery and control), and portfolio
management (product management, application framework,
operational framework and delivery framework).
|
|
|
|
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, product and managed services to assist our
customers with their business strategy, system implementation,
integration, modification, consolidation, modernization, 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 to address the unique issues of service
providers in emerging markets. We
29
support our customers various lines of business, including
wireline, wireless, cable and satellite, and a wide range of
communication services, including voice, video, data, broadband,
content, electronic and mobile commerce applications. We also
support companies that offer bundled or convergent service
packages.
We also offer a full range of directory systems and related
services 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 three-screen Yellow Pages, video advertising, voice
and mobile, search applications, and personalization and
advertising serving 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 2009, customers in North America accounted
for 75.3% of our revenue, while customers in Europe and the rest
of the world accounted for 13.8% and 10.9%, respectively. We
maintain development facilities in China, Cyprus, India,
Ireland, Israel and the United States. AT&T was our largest
customer in fiscal 2009, accounting for 33% of our revenue, and
aggregate revenue derived from the multiple business
arrangements we have with our ten largest customers accounted
for approximately 76% of our revenue in fiscal 2009 and 75% of
our revenue in fiscal 2008.
We believe that demand for our customer experience systems is
primarily driven by the following key factors:
|
|
|
|
|
Industry transformation, including:
|
|
|
|
|
|
increasing use of communications and content services,
|
|
|
|
widespread access to content, information and applications,
|
|
|
|
continued rapid growth in emerging markets,
|
|
|
|
consolidation among service providers in established markets,
often including companies with multi-national operations,
|
|
|
|
increased competition, including non-traditional players,
|
|
|
|
continued bundling and blending of communications and
entertainment, and
|
|
|
|
continued commoditization and pricing pressure.
|
|
|
|
|
|
Technology advances, such as:
|
|
|
|
|
|
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),
|
|
|
|
evolution to next-generation networks, such as IP Multimedia
Subsystem (IMS), that enable converged services offerings, such
as fixed-mobile convergence,
|
|
|
|
technological changes, such as the introduction of 3G and 4G
wireless technology, next-generation content systems, WiFi,
WiMax-, and LTE-based access technologies, and
|
|
|
|
evolution to and expansion of more sophisticated and
interconnected communication devices, such as smart devices,
personal computers and home security systems that enable
communication across devices and widespread access to
information.
|
|
|
|
|
|
Customer focus, such as:
|
|
|
|
|
|
the need for service providers to focus on their customers in
order to build profitable customer relationships,
|
|
|
|
the need for service providers to have a unified view of the
customer across multiple services, devices and channels,
|
30
|
|
|
|
|
the authority shift toward the consumer, with
increased customer expectations for new, innovative services and
applications that are personally relevant and that can be
accessed anytime, anywhere and from any device,
|
|
|
|
the ever-increasing expectation of customer service and support,
including access to self-service options that are convenient and
consistent across all channels, and
|
|
|
|
the need for service providers to differentiate themselves by
creating a unique and mutually-valuable customer experience.
|
|
|
|
|
|
The need for operational efficiency, including:
|
|
|
|
|
|
the shift from in-house management to vendor solutions,
|
|
|
|
business needs of service providers to reduce costs and lower
total cost of ownership of software systems while retaining
high-value customers in a highly competitive environment,
|
|
|
|
automating and integrating business processes that span service
providers BSS and OSS systems and create a simple,
one-company face to customers,
|
|
|
|
integrating and implementing new next-generation networks (and
retiring legacy networks) to deploy new technologies, and
|
|
|
|
transforming fragmented legacy OSS systems to introduce new
services in a timely and cost-effective manner.
|
In fiscal 2009, our total revenue was $2,862.6 million, of
which $2,685.5 million, or 93.8%, 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 slightly more than 40% of our fiscal 2009 revenue and
slightly less than 40% of our fiscal 2008 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
$210.4 million, $225.5 million and $230.4 million
in the fiscal years 2009, 2008 and 2007, respectively,
representing 7.3%, 7.1% and 8.1%, respectively, of our revenue
in these fiscal years.
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.
In fiscal 2009, we invested in several additional releases of
our last major release, Amdocs CES 7.5, as well as on our next
major product release. Amdocs CES 7.5 expanded 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, delivering
real-time rating and charging across postpaid and prepaid
services through turbo charging technology, and 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. Amdocs CES 7.5
enhanced our portfolio in various areas, including billing,
31
self service, digital commerce and the personalization engine we
acquired from ChangingWorlds. Our next major product release
will address additional challenges and opportunities of the
Connected World by further personalizing the mobile Internet
experience, enhancing retail processes, providing more effective
smart device support, enabling a personalized one-stop shopping
experience and driving operational efficiencies with advanced
network management capabilities.
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 first quarter of fiscal 2009, 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 level of
future activities, including reductions in headcount,
subcontractors, travel and other discretionary costs. As part of
these plans, we recorded a charge of $15.1, $12.1 million
and $6.0 million in fiscal 2009, 2008 and fiscal 2007,
respectively, 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.
Notes
Repurchase Program
During fiscal 2009, using proceeds from our revolving credit
facility, we purchased $449.0 million aggregate principal
amount of our 0.50% convertible notes at an average price of
99.5% of the principal amount, excluding accrued interest and
transaction fees. As of September 30, 2009,
$1.0 million principal amount of the notes remain as our
obligations, due in 2024, in accordance with their terms.
Operating
Results
The following table sets forth for the fiscal years ended
September 30, 2009, 2008 and 2007, certain items in our
consolidated statements of income reflected as a percentage of
total revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
License
|
|
|
4.7
|
%
|
|
|
4.3
|
%
|
|
|
5.6
|
%
|
Service
|
|
|
95.3
|
|
|
|
95.7
|
|
|
|
94.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of license
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Cost of service
|
|
|
64.0
|
|
|
|
64.0
|
|
|
|
63.2
|
|
Research and development
|
|
|
7.3
|
|
|
|
7.1
|
|
|
|
8.1
|
|
Selling, general and administrative
|
|
|
12.0
|
|
|
|
12.8
|
|
|
|
13.1
|
|
Amortization of purchased intangible assets
|
|
|
3.0
|
|
|
|
2.7
|
|
|
|
2.6
|
|
Restructuring charges and in-process research and development
|
|
|
0.8
|
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87.2
|
|
|
|
87.2
|
|
|
|
87.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
12.8
|
|
|
|
12.8
|
|
|
|
12.6
|
|
Interest (expense) income and other, net
|
|
|
|
|
|
|
0.4
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
12.8
|
|
|
|
13.2
|
|
|
|
14.4
|
|
Income taxes
|
|
|
1.4
|
|
|
|
1.2
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
11.4
|
%
|
|
|
12.0
|
%
|
|
|
12.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Fiscal
Years Ended September 30, 2009 and 2008
The following is a tabular presentation of our results of
operations for the fiscal year ended September 30, 2009,
compared to the fiscal year ended September 30, 2008.
Following the table is a discussion and analysis of our business
and results of operations for these years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended September 30,
|
|
|
Increase (Decrease)
|
|
|
|
2009
|
|
|
2008
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
|
|
$
|
135,146
|
|
|
$
|
135,487
|
|
|
$
|
(341
|
)
|
|
|
(0.3
|
)%
|
Service
|
|
|
2,727,461
|
|
|
|
3,026,609
|
|
|
|
(299,148
|
)
|
|
|
(9.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,862,607
|
|
|
|
3,162,096
|
|
|
|
(299,489
|
)
|
|
|
(9.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of license
|
|
|
2,686
|
|
|
|
2,729
|
|
|
|
(43
|
)
|
|
|
(1.6
|
)
|
Cost of service
|
|
|
1,831,947
|
|
|
|
2,023,562
|
|
|
|
(191,615
|
)
|
|
|
(9.5
|
)
|
Research and development
|
|
|
210,387
|
|
|
|
225,492
|
|
|
|
(15,105
|
)
|
|
|
(6.7
|
)
|
Selling, general and administrative
|
|
|
344,335
|
|
|
|
404,134
|
|
|
|
(59,799
|
)
|
|
|
(14.8
|
)
|
Amortization of purchased intangible assets
|
|
|
85,153
|
|
|
|
86,687
|
|
|
|
(1,534
|
)
|
|
|
(1.8
|
)
|
Restructuring charges and in-process research and development
|
|
|
20,780
|
|
|
|
13,896
|
|
|
|
6,884
|
|
|
|
49.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,495,288
|
|
|
|
2,756,500
|
|
|
|
(261,212
|
)
|
|
|
(9.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
367,319
|
|
|
|
405,596
|
|
|
|
(38,277
|
)
|
|
|
(9.4
|
)
|
Interest (expense) income and other, net
|
|
|
(1,165
|
)
|
|
|
11,955
|
|
|
|
(13,120
|
)
|
|
|
(109.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
366,154
|
|
|
|
417,551
|
|
|
|
(51,397
|
)
|
|
|
(12.3
|
)
|
Income taxes
|
|
|
39,978
|
|
|
|
38,645
|
|
|
|
1,333
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
326,176
|
|
|
$
|
378,906
|
|
|
$
|
(52,730
|
)
|
|
|
(13.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue. Total revenue decreased by
$299.5 million, or 9.5%, to $2,862.6 million in fiscal
2009, from $3,162.1 million in fiscal 2008. Of the 9.5%
decrease in revenue, 3.5% was attributable to foreign exchange
impacts. The decrease in revenue in fiscal 2009 was also
attributable to the downturn in macroeconomic conditions, which
resulted in a slower pace of new project signings and fewer
transformation deals, as well as a decrease in revenue from
directory systems customers. The decrease was partially offset
by increases in revenue from cable and satellite customers and
from managed services telecommunication customers.
License and service revenue attributable to the sale of customer
experience systems was $2,685.5 million in fiscal 2009, a
decrease of $208.9 million, or 7.2%, from fiscal 2008. The
decrease was primarily attributable to a decrease in revenue
from transformation projects and to foreign exchange impacts,
partially offset by an increase in revenue attributable to cable
and satellite customers and from managed services arrangements.
License and service revenue resulting from the sale of customer
experience systems represented 93.8% and 91.5% of our total
revenue in fiscal 2009 and 2008, respectively.
License and service revenue from the sale of directory systems
was $177.1 million for fiscal 2009, a decrease of
$90.6 million, or 33.8%, from fiscal 2008. The decrease was
primarily attributable to a decrease in revenue from existing
directory systems customers. License and service revenue from
the sale of directory systems represented 6.2% and 8.5% of our
total revenue in fiscal 2009 and 2008, respectively.
In fiscal 2009, revenue from customers in North America, Europe
and the rest of the world accounted for 75.3%, 13.8% and 10.9%,
respectively, of total revenue, compared to 68.7%, 17.3% and
14.0%, respectively, for fiscal 2008. Revenue from customers in
North America, in absolute amount, was relatively stable in
fiscal 2009 compared to fiscal 2008, which resulted in an
increase in revenue from customers in North America as a
percentage of total revenue. The decrease in revenue from
customers in Europe was primarily attributable to
33
completion of projects, a decrease in the pace of new project
commitments and foreign exchange impacts. The decrease in
revenue from customers in the rest of the world was primarily
attributable to completion of projects, a decrease in the pace
of new project commitments, a decrease in revenue attributable
to the sale of directory systems and foreign exchange impacts.
Cost of License and Service. Cost of license
includes license fees and 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. Cost of
license and service decreased by $191.7 million, or 9.5%,
to $1,834.6 million in fiscal 2009, from
$2,026.3 million in fiscal 2008. As a percentage of
revenue, cost of license and service was 64.1% in fiscal 2009,
the same level as in fiscal 2008. Cost of service in fiscal
2009, as a percentage of revenue, was affected by the decrease
in revenue which was offset by the effects of our cost savings
programs, including reductions in headcount, subcontractors,
travel and other costs, our expansion into lower cost
jurisdictions, foreign exchange impacts and higher margins from
existing managed services arrangements. Margins from existing
managed services tend to improve over time as we realize
synergies, create cost efficiencies and improve business
processes.
Research and Development. Research and
development is primarily comprised of compensation expense.
Research and development expense decreased in absolute amount by
$15.1 million, or 6.7%, to $210.4 million in fiscal
2009, from $225.5 million in fiscal 2008, primarily as a
result of our cost savings measures and changes in the
geographical mix of our research and development resources.
However, as a percentage of revenue, research and development
expense increased to 7.3% in fiscal 2009, compared to 7.1% in
fiscal 2008. 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
Research and Development, Patents and Licenses.
Selling, General and Administrative. Selling,
general and administrative expense decreased by
$59.8 million, or 14.8%, to $344.3 million in fiscal
2009, from $404.1 million in fiscal 2008. Selling, general
and administrative expense is primarily comprised of
compensation expense. The decrease in selling, general and
administrative expense was primarily attributable to the effects
of our cost savings programs and foreign exchange impacts.
Restructuring Charges and In-Process Research and
Development. Restructuring charges and in-process
research and development increased by $6.9 million, or
49.5%, to $20.8 million in fiscal 2009, from
$13.9 million in fiscal 2008. Restructuring charges and
in-process research and development in fiscal 2009 consisted of
a $15.1 million restructuring charge related primarily to
our restructuring plan in the first quarter of fiscal 2009 and a
$5.7 million charge for the write-off of purchased
in-process research and development related to a small
acquisition during fiscal 2009. Restructuring charges and
in-process research and development 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 a small
acquisition during fiscal 2008.
In-process research and development was written off as of the
closing dates of the acquisitions. 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. Effective October 1, 2009, we adopted new
accounting rules for business combinations and as a result will
capitalize in-process research and development.
Operating Income. Operating income decreased
by $38.3 million, or 9.4%, to $367.3 million in fiscal
2009, from $405.6 million in fiscal 2008. As a percentage
of revenue, operating income was 12.8% in fiscal 2009, the same
level as in fiscal 2008. Operating income in fiscal 2009 was
affected by the decrease in revenue, foreign exchange impacts
and increase in restructuring and in-process research and
development charges, which was offset by the effects of our cost
savings programs, our expansion into lower cost jurisdictions
and higher margins from existing managed services arrangements.
34
Interest (Expense) Income and Other,
Net. Interest (expense) income and other, net
decreased by $13.1 million to expense of $1.2 million
in fiscal 2009, from income of $12.0 million in fiscal
2008. The decrease in interest (expense) income and other, net,
was primarily attributable to lower income on our short-term
interest-bearing investments due to market conditions, offset by
an improvement in foreign exchange effects.
Income Taxes. Income taxes for fiscal 2009
were $40.0 million on pre-tax income of
$366.2 million, resulting in an effective tax rate of
10.9%, compared to 9.3% in fiscal 2008. Of the increase in our
effective tax rate, approximately 4.5% was attributable to
changes in our tax reserves, approximately 1.8% was attributable
to a tax benefit in fiscal 2008, resulting from a lapse of
statute of limitations and approximately 0.4% attributable to
changes in our valuation allowances, which was partially offset
by a decrease of approximately 5.2% attributable to the
geographical distribution of earnings from global operations and
the remaining difference was attributable to the net effect of
acquisition-related costs (which include amortization of
purchased intangible assets, and in-process research and
development), restructuring charges and equity-based
compensation expense. Our effective tax rate may fluctuate
between quarters as a result of discrete items that may affect a
specific quarter. Please see Note 11 to our consolidated
financial statements.
Net Income. Net income decreased by
$52.7 million, or 13.9%, to $326.2 million in fiscal
2009, from $378.9 million in fiscal 2008. The decrease in
net income was attributable primarily to the decrease in
operating income and the decrease in interest (expense) income
and other, net.
Diluted Earnings Per Share. Diluted earnings
per share decreased by $0.16, or 9.2%, to $1.58 in fiscal 2009,
from $1.74 in fiscal 2008. The decrease in diluted earnings per
share resulted primarily from the decrease in net income,
partially offset by the decrease in diluted weighted average
shares outstanding resulting primarily from the repurchase and
redemption of our convertible notes and the full impact of the
repurchase of our ordinary shares in fiscal 2008. Please see
Note 20 to our consolidated financial statements.
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
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
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.
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 affected 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.
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.
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.
36
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.
In-process research and development was written off as of the
closing dates of the acquisitions. 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 pre-tax 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. Please see Note 11 to our
consolidated financial statements.
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 shares outstanding. Please see
Note 20 to our consolidated financial statements.
Liquidity
and Capital Resources
Cash, cash equivalents and short-term interest-bearing
investments totaled $1,173.0 million as of
September 30, 2009, compared to $1,244.4 million as of
September 30, 2008. The decrease during fiscal 2009 was
mainly attributable to $446.8 million used for the
redemption and repurchase of our convertible notes,
$82.3 million for net capital expenditures,
$65.9 million in net cash paid for acquisitions and
$20.0 million used to repurchase our ordinary shares
pursuant to our share repurchase program, partially offset by
$519.2 million in positive cash flows from operations and
$27.9 million in proceeds from the exercise of employee
stock options. Net cash provided by operating activities
amounted to $519.2 million and $483.0 million for
fiscal 2009 and 2008, respectively.
37
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 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 money market funds, U.S. government
treasuries, U.S. agency securities and government
guaranteed debt. We have conservative investment policy
guidelines and consistent with these guidelines, in prior years,
we also purchased AAA-rated asset-backed obligations and
mortgages. Our interest-bearing investments are stated at fair
value. Our interest-bearing investments are priced by pricing
vendors and are classified as Level 1 or Level 2
investments, since these vendors either provide a quoted market
price in an active market or use observable inputs. Please see
Note 4 to the consolidated financial statements. In the
third quarter of fiscal 2009, we adopted the April 2009
accounting pronouncement that provides guidance on recognition
and presentation of
other-than-temporary
impairments and assessed whether the unrealized losses for the
investments in our portfolio were
other-than-temporary
under this guidance. For securities that we intend to sell or it
is more likely than not that we will be required to sell the
securities before recovery, the entire difference between
amortized cost and fair value is recognized in earnings. For
securities that we do not intend to sell and it is not more
likely than not that we will be required to sell, we used a
discounted cash flow analysis to determine the portion of the
impairment that relates to the credit loss. To the extent that
the net present value of the projected cash flows was less than
the amortized cost of the securities, the difference is
considered credit loss and is recorded through earnings. The
inputs on the future performance of the underlying assets used
in the cash flow models include prepayments, defaults and loss
severity assumptions. Based on this assessment, we recognized a
credit loss of $1.1 million in fiscal 2009. As of
September 30, 2009, unrealized losses of $3.5 million
related to
other-than-temporarily
impaired securities was included in accumulated other
comprehensive loss.
In November 2007, we entered into an unsecured
$500.0 million five-year revolving credit facility with a
syndicate of banks, which is available for general corporate
purposes, including acquisitions and repurchases of 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, depends on the
circumstances of any advance and is based on our credit rating.
As of September 30, 2009, we were in compliance with the
financial covenants under the revolving credit facility. During
the first half of fiscal 2009, we borrowed $450.0 million
under the facility at an average interest rate equal to LIBOR
plus 40 basis points and used the proceeds to acquire our
outstanding notes as described below. During the second half of
fiscal 2009, we repaid all of the $450.0 million
outstanding under our credit facility.
During fiscal 2009, using proceeds from our revolving credit
facility, we purchased $449.0 million aggregate principal
amount of our 0.50% convertible notes at an average price of
99.5% of the principal amount, excluding accrued interest and
transaction fees. As of September 30, 2009,
$1.0 million principal amount of the notes remain as our
obligations, due in 2024, in accordance with their terms.
As of September 30, 2009, we had outstanding letters of
credit and bank guarantees from various banks totaling
$15.1 million. As of September 30, 2009, we had
outstanding obligations of $0.9 million in connection with
leasing arrangements.
Our capital expenditures were approximately $83.3 million
in fiscal 2009. Approximately 86% of these expenditures
consisted of purchases of computer equipment with the remainder
attributable mainly to leasehold improvements. Our fiscal 2009
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.
38
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 permitted us to purchase our ordinary shares in
open market or privately negotiated transactions at times and
prices that we considered 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). In the
first quarter of fiscal 2009, we repurchased approximately
0.5 million ordinary shares at an average price of $26.90
per share excluding broker and transaction fees. As of August
2009, our authority to repurchase our ordinary shares expired.
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet arrangements.
Contractual
Obligations
The following table summarizes our contractual obligations as of
September 30, 2009, 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
|
|
$
|
1.1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1.1
|
|
Pension funding
|
|
|
15.3
|
|
|
|
1.5
|
|
|
|
4.8
|
|
|
|
3.5
|
|
|
|
5.5
|
|
Purchase Obligations
|
|
|
37.9
|
|
|
|
26.5
|
|
|
|
11.4
|
|
|
|
|
|
|
|
|
|
Non-cancelable operating leases
|
|
|
159.0
|
|
|
|
64.9
|
|
|
|
79.6
|
|
|
|
14.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
213.3
|
|
|
$
|
92.9
|
|
|
$
|
95.8
|
|
|
$
|
18.0
|
|
|
$
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total amount of unrecognized tax benefits for uncertain tax
positions was $103.3 million as of September 30, 2009.
Payment of these obligations would result from settlements with
taxing authorities. Due to the difficulty in determining the
timing of resolution of audits, these obligations are not
included in the above table.
Net
Deferred Tax Assets
As of September 30, 2009, we had deferred tax assets of
$82.8 million, derived primarily from net capital and
operating loss carryforwards related to some of our
subsidiaries, which 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.
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
39
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
|
|
|
|
Tax accounting
|
|
|
|
Business combinations
|
|
|
|
Share-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 are
deemed essential to the software. As a result, we generally
recognize initial license fee and related service revenue over
the course of these long-term projects, 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. 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,
40
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 for doubtful accounts 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 software revenue recognition and
revenue arrangements with multiple deliverables guidance. 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. Beginning October 1, 2009, we adopted the new
authoritative guidance for revenue arrangements with multiple
deliverables that are outside the scope of the software revenue
recognition guidance. Please See Recent
Accounting Pronouncements.
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.
We recognize the tax benefit from an uncertain tax position only
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 tax benefits recognized in the financial statements
from such a position should be measured based on the largest
benefit that has a greater than 50% likelihood of being realized
upon ultimate settlement.
41
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.
Share-Based
Compensation Expense
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.
Share-based compensation expense recognized in our consolidated
statements of income was reduced for estimated forfeitures.
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,
share-based compensation expense and our results of operations
could be materially affected. Please see Note 19 to our
consolidated financial statements.
42
Goodwill
and Intangible Assets
Goodwill is measured as the excess of the cost of acquisition
over the sum of the amounts assigned to tangible and
identifiable intangible assets acquired less liabilities
assumed. Goodwill is subject to periodic impairment tests.
Goodwill impairment is deemed to exist if the net book value of
a reporting unit exceeds its estimated fair value.
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 our market
capitalization and a discounted cash flow methodology. There was
no impairment of goodwill in fiscal 2009, 2008 and 2007.
Derivative
and Hedge Accounting
Approximately 70% to 80% of our revenue and 50% to 60% of our
operating expenses are denominated in U.S. dollars 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 major foreign currencies in which we operate, in
order to reduce the impact of foreign currency on our results.
We also enter into foreign exchange forward contracts and
options 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 fair value of the
contracts, 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 money market funds, U.S. government
treasuries, U.S. agency securities and government
guaranteed debt. We have conservative investment policy
guidelines and, consistent with these guidelines, in prior
years, we also purchased only AAA-rated asset-backed obligations
and mortgages. Our interest-bearing investments are stated at
fair value. Our interest-bearing investments are priced by
pricing vendors and are classified as Level 1 or
Level 2 investments, since these vendors either provide a
quoted market price in an active market or use observable
inputs. In the third quarter of fiscal 2009, we adopted the
April 2009 accounting pronouncement that provides guidance on
recognition and presentation of
other-than-temporary
impairments and assessed whether the unrealized losses for the
investments in our portfolio were
other-than-temporary
under this guidance. For securities that we intend to sell or it
is more likely than not that we will be required to sell the
securities before recovery, the entire difference between
amortized cost and fair value is recognized in earnings. For
securities that we do not intend to sell and it is not more
likely than not that we will be required to sell, we used a
discounted cash flow analysis to determine the portion of the
impairment that relates to the credit loss. To the extent that
the net present value of the projected cash flows was less than
the amortized cost of the security, the difference is considered
credit loss and is recorded through earnings. The inputs on the
future performance of the underlying assets used in the cash
flow models include prepayments, defaults and loss severity
assumptions. Prior to April 2009, we reviewed 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. The
other-than-temporary
impairment on our short-term interest-bearing investments was
immaterial during fiscal 2009, 2008 and 2007.
43
Given the relative reliability of the inputs we use to value our
investment portfolio, and because substantially all of our
valuation inputs are obtained using quoted market price in an
active market or observable inputs, we do not believe that the
nature of estimates and assumptions affected by levels of
subjectivity and judgment was material to the valuation of the
investment portfolio as of September 30, 2009.
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 test long-lived assets, including definite life intangible
assets, for impairment in the event an indication of impairment
exists. 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. There was no impairment of long-lived assets in fiscal
2009, 2008 and 2007.
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 and intent 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 we estimate that our
customers ability and intent to make payments have been
impaired, 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 October 2009, the Financial Accounting Standards Board, or
FASB, issued authoritative guidance for revenue recognition
relating to arrangements containing both hardware and software
elements. Under the new guidance, tangible products that have
software components that are essential to the functionality of
the tangible product will no longer be within the scope of the
software revenue recognition guidance, and will now be subject
to other relevant revenue recognition guidance. Additionally,
the FASB superseded its authoritative guidance for revenue
arrangements with multiple deliverables that are outside the
scope of the software revenue recognition guidance. The new
guidance eliminates the residual method of revenue recognition
and allows the use of managements best estimate of selling
price for individual elements of an arrangement when vendor
specific objective evidence or third-party evidence is
unavailable. Both guidance pronouncements will be effective for
fiscal years starting June 15, 2010 and early adoption is
permitted. We adopted the pronouncements effective October 1,
2009.
In June 2009, the FASB issued authoritative guidance on the
consolidation of variable interest entities, which is effective
for us beginning October 1, 2010. The new guidance requires
revised evaluations of whether entities represent variable
interest entities, ongoing assessments of control over such
entities, and additional disclosures for variable interests. We
believe that the adoption of this new guidance will not have a
material impact on our financial statements.
In June 2008, the FASB issued authoritative guidance for
determining whether instruments granted in share-based payment
transactions are participating securities. According to this
guidance, unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents are
considered
44
participating securities. As such, they should be included in
the computation of basic earnings per share, or EPS, using the
two-class method. This guidance became effective for us
beginning after October 1, 2009. Once effective, all
prior-period EPS data presented must be adjusted
retrospectively. We believe that the adoption of this guidance
will reduce previously reported basic and diluted earnings per
share by up to $0.01 per share for fiscal 2009 and 2008.
In February 2008, FASB delayed until the beginning of fiscal
2010, the effective date of the fair value measurements guidance
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 that the application of the fair
value measurements guidance, when applied to non-financial
assets and liabilities, will have a material impact on our
results of operations or financial position.
In December 2007, the FASB issued authoritative guidance on
business combinations. The guidance 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.
Among the more significant changes of this guidance, acquired
in-process research and development will be capitalized and upon
completion amortized over its useful life; acquisition costs
will be expensed as incurred; restructuring costs will generally
be expensed in periods after the acquisition date; contingent
consideration will be recognized at fair value at the
acquisition date with subsequent changes recognized in earnings,
and reductions in deferred tax valuation allowance relating to a
business acquisition will be recognized in earnings. In April
2009, the FASB issued an amendment to the revised business
combination guidance regarding the accounting for assets
acquired and liabilities assumed in a business combination that
arise from contingencies. This guidance 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 authoritative guidance that
changes the accounting and reporting for noncontrolling
(minority) interests in consolidated financial statements
including the requirement to classify noncontrolling interests
as a component of consolidated stockholders equity, the
elimination of minority interest accounting in
results of operations and changes in the accounting for both
increases and decreases in a parents controlling ownership
interest. This guidance became effective for us starting
October 1, 2009. We do not expect that the application of
this guidance will have a material impact on our consolidated
results of operations or financial condition.
Adoption
of New Accounting Standards
On July 1, 2009, the FASB issued the FASB Accounting
Standards Codification, or the Codification. The Codification
became the single source of authoritative nongovernmental
U.S. GAAP, superseding existing pronouncements issued by
the FASB, the American Institute of Certified Public
Accountants, the Emerging Issues Task Force and related
literature. The Codification eliminates the previous U.S. GAAP
hierarchy and establishes one level of authoritative GAAP. Rules
and interpretive releases issued by the SEC under authority of
federal securities law are also sources of the authoritative
GAAP for SEC registrants. All other literature is considered
non-authoritative. The Codification is effective for interim and
annual periods ending after September 15, 2009.
In May 2009, the FASB issued authoritative guidance on
subsequent events, which sets forth the period after the balance
sheet date during which management of a reporting entity should
evaluate events or transactions that may have occurred for
potential recognition or disclosure in the financial statements.
The guidance also sets forth the circumstances under which an
entity should recognize events or transactions occurring after
the balance sheet date in its financial statements and the
disclosures that an entity should make about events or
transactions that occurred after the balance sheet date. We
adopted this guidance during the quarter ended June 30, 2009.
Please see Note 2 to our consolidated financial statements.
In April 2009, the FASB issued authoritative guidance on how to
determine the fair value of an asset and liability when the
volume and level of activity for such asset or liability has
significantly decreased in relation to normal market activity
for such asset or liability. It also provides guidance on
identifying circumstances that indicate a transaction is not
orderly and when the use of multiple (or different) valuation
techniques may be warranted and considered. In addition, this
guidance requires disclosure in interim and annual periods of
the
45
inputs and valuation techniques used to measure fair value and a
discussion of changes in valuation techniques. Our adoption of
this guidance on April 1, 2009, did not have a material
impact on our financial statements.
In April 2009, the FASB issued authoritative guidance on
recognition and presentation of
other-than-temporary
impairments. This guidance clarifies the interaction of the
factors that should be considered when determining whether a
debt security is other than temporarily impaired; provides
guidance on the amount of an
other-than-temporary
impairment recognized in earnings and other comprehensive
income; and expands the disclosures required for
other-than-temporary
impairments for debt and equity securities. The guidance
requires an entity to assess whether it intends to sell, or it
is more likely than not that it will be required to sell a
security before recovery of its amortized cost basis. If either
of those criteria is met, the entire difference between
amortized cost and fair value is recognized in earnings. For
securities that do not meet these criteria, the amount of
impairment recognized in earnings is limited to the amount
related to credit losses, while impairment related to other
factors is recognized in other comprehensive income. We adopted
this guidance on April 1, 2009, and reclassified the $1,783
non-credit related portion of other-than-temporary impairment
losses recognized in prior period earnings as a cumulative
effect adjustment that increased retained earnings and decreased
accumulated other comprehensive income at April 1, 2009.
Please see Note 5 to our consolidated financial statements.
In April 2009, the FASB issued authoritative guidance regarding
interim disclosures about fair value of financial instruments
which were previously only disclosed on an annual basis.
Entities are now required to disclose the fair value of
financial instruments that are not recorded at fair value in the
financial statements in both their interim and annual financial
statements. Additionally, a disclosure of the methods and
significant assumptions used to estimate the fair value of
financial instruments on an interim basis as well as changes of
the methods and significant assumptions from prior periods is
required. This guidance does not change the accounting treatment
for these financial instruments. We adopted this guidance on
April 1, 2009. Please see Notes 2 and 4 to our
consolidated financial statements.
In March 2008, the FASB issued amended guidance on disclosures
about derivative instruments and hedging activities. This
guidance applies to all derivative instruments and
non-derivative instruments that are designated and qualify as
hedging instruments and related hedged items. This guidance
requires entities to provide greater transparency through
additional disclosures about how and why an entity uses
derivative instruments, how derivative instruments and related
hedged items are accounted for, and how derivative instruments
and related hedged items affect an entitys financial
position, results of operations and cash flows. We adopted this
guidance on January 1, 2009. Our adoption of this guidance
did not impact our consolidated financial results as it requires
additional disclosure, rather than a change in accounting.
Please see Note 6 to our consolidated financial statements.
In February 2007, the FASB issued authoritative guidance on the
fair value option for financial assets and financial
liabilities, 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. Effective October 1, 2008, we
adopted this guidance, but we have not elected the fair value
option for any eligible financial instruments as of
September 30, 2009.
In September 2006, the FASB issued authoritative guidance on
fair value measurements, which defines fair value, establishes a
framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value
measurements. In October 2008, the FASB issued additional
guidance clarifying the application of the fair value
measurements guidance in a market that is not active, and
providing guidance on the key considerations in determining the
fair value of a financial asset in such a market. Effective
October 1, 2008, we adopted the measurement and disclosure
requirements related to financial assets and financial
liabilities. The adoption of this guidance for financial assets
and financial liabilities did not have a material impact on our
results of operations or the fair values of our financial assets
and liabilities. Please see Note 4 to our consolidated
financial statements.
46
|
|
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, 2009, our directors and senior managers
were as follows:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Bruce K. Anderson(2)(4)(5)
|
|
|
69
|
|
|
Chairman of the Board, Amdocs Limited
|
Adrian Gardner(1)(3)
|
|
|
47
|
|
|
Director and Chairman of the Audit Committee, Amdocs Limited
|
Charles E. Foster(1)(3)
|
|
|
73
|
|
|
Director and Chairman of the Nominating and Corporate Governance
Committee, Amdocs Limited
|
James S. Kahan(2)(3)(4)
|
|
|
62
|
|
|
Director and Chairman of the Compensation Committee, Amdocs
Limited
|
Zohar Zisapel(5)
|
|
|
60
|
|
|
Director and Chairman of the Technology and Innovation
Committee, Amdocs Limited
|
Julian A. Brodsky(3)
|
|
|
76
|
|
|
Director, Amdocs Limited
|
Eli Gelman(5)
|
|
|
51
|
|
|
Director, Amdocs Limited
|
Nehemia Lemelbaum(4)(5)
|
|
|
67
|
|
|
Director, Amdocs Limited
|
John T. McLennan(1)
|
|
|
64
|
|
|
Director, Amdocs Limited
|
Robert A. Minicucci(2)(4)
|
|
|
57
|
|
|
Director, Amdocs Limited
|
Simon Olswang(1)
|
|
|
65
|
|
|
Director, Amdocs Limited
|
Giora Yaron
|
|
|
60
|
|
|
Director, Amdocs Limited
|
Dov Baharav(4)
|
|
|
59
|
|
|
Director, Amdocs Limited; President and Chief Executive Officer,
Amdocs Management Limited
|
Tamar Rapaport Dagim
|
|
|
38
|
|
|
Senior Vice President and Chief Financial Officer, Amdocs
Management Limited
|
James Liang
|
|
|
52
|
|
|
Senior Vice President and Chief Strategy Officer, Amdocs
Management Limited
|
Ayal Shiran
|
|
|
44
|
|
|
Senior Vice President and Head of Customer Business Group,
Amdocs Management Limited
|
Anshoo Gaur
|
|
|
41
|
|
|
Division President, Amdocs Development Center India Pvt. Ltd.
|
Thomas G. OBrien
|
|
|
48
|
|
|
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 |
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
47
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 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 former
member of the Texas Society of Professional Engineers and a
director of Morningside Ministries Foundation, 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, and a member of
the Executive and Nominating and Corporate Governance
Committees. 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 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. Mr. Kahan also serves on the Board
of Directors of Live Nation, Inc., the worlds largest
producer of live music concerts and events.
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
2008, Mr. Gelman has devoted his time to charitable matters
focused on youth education. He served as Executive Vice
President of Amdocs Management Limited from October 2002 until
April 2008 and as our Chief Operating Officer from October 2006
until April 2008. 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
48
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 and since
December 2006, Mr. Lemelbaum has been a director and the
Chief Executive Officer of EHYN, a privately-held investment
company. 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, Chairman of Emera Inc., a Canadian publicly-held energy
services company, and director 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 two other publicly-held companies:
Alliance Data Systems, Inc. and Retalix Ltd., 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.
Dr. Giora Yaron has been a director of Amdocs since July
2009. Dr. Yaron co-founded Itamar Medical Ltd., a
publicly-traded medical technology company, and has been its
co-chairman since 1997. Dr. Yaron provides consulting
services to Itamar Medical and to various other technology
companies. He also co-founded Exanet, Inc., a privately-held
company focused on building single entity scalable storage
networks, and has been its chairman since 2000. Since 2004,
Dr. Yaron has been the chairman of Yissum Research
Development Company, the technology transfer company of the
Hebrew University of Jerusalem. Dr. Yaron also has served
on the advisory board of Rafael Advanced Defense Systems, Ltd.,
a developer of high-tech defense systems, since 2008. In
addition, Dr. Yaron previously co-founded and served as
chairman of Qumranet Inc. from 2006 to 2008, a privately-held
enterprise software company acquired by Red Hat, Mercury
Interactive from 1996 to 2006, a publicly-traded IT optimization
software company acquired by Hewlett-Packard, P-cube Inc., a
privately-held company focused on content-based switching for
smart networks acquired by Cisco, Comsys Communication and
Signal Processing Ltd., a semiconductor company.
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
49
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. 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 the 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).
Compensation
For 2010, we recently revised our compensation program for our
directors who are not our employees, which we refer to as our
Non-Employee Directors. For their services as directors during
fiscal 2009, our Non-Employee Directors received compensation in
the form of cash and options to purchase ordinary shares. During
fiscal 2009, each Non-Employee Director received an annual cash
payment of $31,500, reflecting a $3,500 reduction in
compensation from prior years, which was approved by our Board
of Directors. Each member of our Audit and Executive Committees
who is a Non-Employee Director received an annual cash payment
of $10,000. In addition, the Chairman of the Board of Directors
received $75,000 in cash and options to purchase 16,910 ordinary
shares. The Chairmen of our Audit and Executive Committees each
received an annual cash payment of $10,000 and the Chairmen of
our Compensation, Nominating and Corporate Governance and
Technology and Innovation Committees each received an annual
cash payment of $5,000. Each Non-Employee Director received
$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 received $2,000 per meeting.
During fiscal 2009, upon election
50
or appointment to our Board of Directors, each Non-Employee
Director also received an initial option grant for the purchase
of 12,000 ordinary shares, followed by annual option grants 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.
Commencing in fiscal 2010, our Non-Employee Directors will
receive compensation for their services as directors in the form
of cash and restricted shares. Our new compensation policy
provides that each Non-Employee Director will receive an annual
cash payment of $80,000. Each member of our Audit and Executive
Committees who is a Non-Employee Director and who is not the
chairman of such committees will receive an annual cash payment
of $5,000. Each member of our Compensation, Nominating and
Corporate Governance and Technology and Innovation Committees,
who is a Non-Employee Director and who is not the chairman of
such committees, will receive an annual cash payment of $1,000.
The Chairmen of our Audit and Executive Committees will each
receive an annual cash payment of $10,000 and the Chairmen of
our Compensation, Nominating and Corporate Governance and
Technology and Innovation Committees will each receive an annual
cash payment of $5,000. Non-Employee Directors will receive an
annual grant of restricted shares at a total value of $150,000.
The Chairman of the Board of Directors will receive an
additional annual amount equal to $200,000, of which $75,000
will be paid in cash and $125,000 will be awarded in the form of
restricted shares. All restricted share awards to our
Non-Employee Directors will be immediately vested with respect
to 25%, with the remainder vesting annually in three equal
installments. The price per share for the purpose of determining
the value of the grants to our Non-Employee Directors will be
the NYSE closing price of our shares on the last trading day
preceding the grant date. We will continue to reimburse all of
our Non-Employee Directors for their reasonable travel expenses
incurred in connection with attending Board or committee
meetings.
A total of 19 persons who served either as directors of
Amdocs or members of its senior management during all or part of
fiscal 2009 received remuneration from Amdocs. The aggregate
remuneration paid by us to such persons was approximately
$4.4 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 2009, we granted to such
persons options to purchase an aggregate of 730,577 ordinary
shares at a weighted average price of $19.23 per share with
vesting generally over three to four-year terms and expiring ten
years from the date of grant, and an aggregate of 115,824
restricted shares subject to two 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 13 directors, 12 of
whom were elected to our Board of Directors at our annual
meeting of shareholders on January 22, 2009. Dr. Yaron
was elected by our Board of Directors in July 2009 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.
The executive officers of Amdocs Limited and each of its
subsidiaries are elected by the board of directors of the
relevant company 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
51
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 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.
52
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,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Software and Information Technology
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
4,547
|
|
|
|
5,351
|
|
|
|
4,541
|
|
Israel
|
|
|
3,616
|
|
|
|
4,314
|
|
|
|
4,588
|
|
India
|
|
|
4,418
|
|
|
|
3,767
|
|
|
|
3,091
|
|
Rest of the World
|
|
|
3,290
|
|
|
|
3,668
|
|
|
|
3,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,871
|
|
|
|
17,100
|
|
|
|
15,978
|
|
Management and Administration
|
|
|
1,373
|
|
|
|
1,435
|
|
|
|
1,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Workforce
|
|
|
17,244
|
|
|
|
18,535
|
|
|
|
17,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, France, Germany, India, Israel, Japan, Mexico,
South Africa, the United Kingdom 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.
Some employees in Canada have union representation. In addition,
all employees in Brazil, including local senior employees, 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 a 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 23, 2009, the aggregate number of our
ordinary shares beneficially owned by our directors and senior
management was 6,088,728 shares. As of November 23,
2009, none of our directors or members of senior management
beneficially owned 1% or more of our outstanding ordinary shares.
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.
53
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,
which we refer to as 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, 2009, of the
55,300,000 ordinary shares available for issuance under the 1998
Plan, 21,111,216 ordinary shares had been issued as a result of
option exercises and restricted share issuances under the
provisions of the 1998 Plan, and 12,983,096 ordinary shares
remained available for future grants. As of October 31,
2009, there were outstanding options to purchase an aggregate of
22,523,935 ordinary shares at exercise prices ranging from $6.40
to $78.31 per share.
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 subject to restricted stock
awards 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, 2009, we
are obligated to issue (and have reserved for issuance) an
additional 115,749 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 $37.66 per share. No additional options have been
or will be granted under these predecessor plans.
|
|
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 23, 2009 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 205,612,198
ordinary shares outstanding as of November 23, 2009.
Information concerning shareholders is based on periodic public
filings made by such shareholders and may not necessarily be
accurate as of November 23, 2009.
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Beneficially
|
|
|
Percentage
|
|
Name
|
|
Owned
|
|
|
Ownership
|
|
|
Thornburg Investment Management Inc.(1)
|
|
|
20,963,453
|
|
|
|
10.2
|
|
Ameriprise Financial, Inc.(2)
|
|
|
13,248,322
|
|
|
|
6.4
|
|
All directors and executive officers as a group
(18 persons)(3)
|
|
|
6,088,728
|
|
|
|
2.9
|
%
|
|
|
|
(1) |
|
The address of Thornburg Investment Management Inc., or
Thornburg, is 2300 North Ridgetop Road, Santa Fe, New
Mexico 87506. Based on a Schedule 13G filed by Thornburg
with the SEC on March 10, 2009, Thornburg had sole voting
and dispositive power over all of these ordinary shares. |
|
(2) |
|
Based on a Schedule 13G filed by Ameriprise Financial,
Inc., or Ameriprise, and RiverSource Investments, LLC, or
RiverSource, with the SEC on February 12, 2009, Ameriprise
and RiverSource had shared voting power over 299 of our ordinary
shares and shared dispositive power over 13,248,322 of our |
54
|
|
|
|
|
ordinary shares. Ameriprise is the parent company of
RiverSource. Ameriprise and RiverSource disclaim beneficial
ownership of these shares. The address of Ameriprise and
RiverSource is 145 Ameriprise Financial Center, Minneapolis,
Minnesota 55474. |
|
(3) |
|
Includes options held by such directors and executive officers
that are exercisable within 60 days after November 23,
2009. |
Over the last three years, our major shareholders have included
our directors and executive officers as a group, AT&T and
its affiliates, and other institutional investors, including T.
Rowe Price, Massachusetts Financial Services Company
(MFS), Janus Capital Management LLC
(Janus), J &W Seligman & Co.
Incorporated (Seligman) and Glenview Capital
Management, LLC (Glenview). AT&Ts share
ownership has decreased below 5.0% as of November 23, 2009
from 5.2% in November 2006. MFS ceased to be a major shareholder
in fiscal 2008. T. Rowe Price, Janus and Glenview Capital
Management, LLC ceased to be major shareholders in fiscal 2009.
Seligman was acquired by Ameriprise in 2008. None of our major
shareholders have voting rights that are different from those of
any other shareholder.
As of November 23, 2009, our ordinary shares were held by
1,920 record holders. Based on a review of the information
provided to us by our transfer agent, 925 record holders,
holding approximately 99.96% of our outstanding ordinary shares
held of record, were residents of the United States.
Related
Party Transactions
AT&T, together with some of its operating subsidiaries, is
our most significant customer. During fiscal 2009, AT&T and
those subsidiaries accounted for approximately 33% 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
|
|
|
|
|
|
|
|
|
2005
|
|
$
|
30.96
|
|
|
$
|
20.70
|
|
2006
|
|
$
|
41.01
|
|
|
$
|
24.30
|
|
2007
|
|
$
|
40.74
|
|
|
$
|
32.50
|
|
2008
|
|
$
|
38.03
|
|
|
$
|
24.65
|
|
2009
|
|
$
|
27.71
|
|
|
$
|
14.61
|
|
Quarter
|
|
|
|
|
|
|
|
|
Fiscal 2008:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
38.03
|
|
|
$
|
30.42
|
|
Second Quarter
|
|
$
|
34.80
|
|
|
$
|
27.18
|
|
Third Quarter
|
|
$
|
33.47
|
|
|
$
|
27.20
|
|
Fourth Quarter
|
|
$
|
31.37
|
|
|
$
|
24.65
|
|
Fiscal 2009:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
27.71
|
|
|
$
|
15.62
|
|
Second Quarter
|
|
$
|
21.66
|
|
|
$
|
14.61
|
|
Third Quarter
|
|
$
|
22.55
|
|
|
$
|
18.15
|
|
Fourth Quarter
|
|
$
|
27.40
|
|
|
$
|
19.88
|
|
Fiscal 2010:
|
|
|
|
|
|
|
|
|
First Quarter (through November 30, 2009)
|
|
$
|
27.65
|
|
|
$
|
24.10
|
|
Most Recent Six Months
|
|
|
|
|
|
|
|
|
June 2009
|
|
$
|
22.55
|
|
|
$
|
20.07
|
|
July 2009
|
|
$
|
24.35
|
|
|
$
|
19.88
|
|
August 2009
|
|
$
|
24.92
|
|
|
$
|
23.23
|
|
September 2009
|
|
$
|
27.40
|
|
|
$
|
23.57
|
|
October 2009
|
|
$
|
27.65
|
|
|
$
|
24.76
|
|
November 2009
|
|
$
|
27.39
|
|
|
$
|
24.10
|
|
|
|
ITEM 10.
|
ADDITIONAL
INFORMATION
|
Memorandum
and Articles of Incorporation
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.
Our Memorandum of Incorporation, or the Memorandum, provides
that the objects and powers of Amdocs Limited are not restricted
and our Articles of Incorporation, or the Articles, provides
that our business is to engage in any lawful act or activity for
which companies may be organized under the Companies (Guernsey)
Law, 2008, as amended, or the Companies Law.
Article 70(1) of the Articles 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 71(1) of the Articles provides that the directors
shall be paid out of the funds of Amdocs Limited by way of fees
such sums as the Board shall reasonably determine.
Article 73 of the
56
Articles 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 Amdocs Limited for any
third party. Such borrowing powers can only be altered through
an amendment to the Articles by special resolution. Our
Memorandum and Articles do not impose a requirement on the
directors to own shares of Amdocs Limited in order to serve as
directors, however, the Board of Directors has adopted
guidelines for minimum share ownership by the directors, who
have until 2013 to be in compliance with the guidelines.
On July 1, 2008, the Companies Law was introduced,
repealing the existing legislation in Guernsey governing
companies. In order to comply with the provisions of the
Companies Law, we adopted a new Memorandum and Articles at our
annual meeting of shareholders on January 22, 2009.
Some of the significant amendments were to:
(i) amend the Memorandum to state that the objects and
powers of Amdocs Limited are unrestricted;
(ii) eliminate certain provisions of the previous articles
that are set forth in substantially the same terms in the
Companies Law, including provisions dealing with transactions
between a director and Amdocs Limited 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, subject to the ability
of shareholders to revoke such authority or approve extensions
of such authority for further periods not exceeding five years;
(iv) conform the provisions of the Articles dealing with
the indemnification of directors and officers to the
requirements of the Companies Law;
(v) expressly authorize Amdocs Limited to obtain insurance
to cover claims against directors and officers to the fullest
extent permitted by the Companies Law;
(vi) permit our Board of Directors to determine the
compensation of all directors, whether or not employed by Amdocs
Limited; and
(vii) state that the Board of Directors will have all the
powers necessary for managing, directing and supervising the
management of our business and affairs and delete the
specification of powers contained in the previous articles.
Our current share capital is £5,250,000, which is comprised
of (i) 25,000,000 preferred shares with a par value of
£0.01 per share and (ii) 700,000,000 ordinary shares
with a par value of £0.01 per share, consisting of voting
and non-voting ordinary shares. As of September 30, 2009,
205,072,590 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 were not changed by the
amendment to our charter documents and are set out in the
Memorandum and Articles and are as follows:
Preferred
Shares
|
|
|
|
|
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.
|
|
|
|
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.
|
|
|
|
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 accrue.
|
57
|
|
|
|
|
Liquidation in the event of any liquidation,
dissolution or
winding-up
of Amdocs Limited, the holders of preferred shares are entitled
to a 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 ratably in accordance with the
respective amount such holder would have received if all amounts
had been paid in full.
|
|
|
|
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
shareholders.
|
Ordinary
Shares and Non-Voting Ordinary Shares
Except as otherwise provided by the Memorandum and Articles, the
ordinary shares and non-voting ordinary shares are identical and
entitle holders thereof to the same rights and privileges.
|
|
|
|
|
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.
|
|
|
|
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.
|
|
|
|
Liquidation upon any liquidation, dissolution
or
winding-up,
any 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.
|
|
|
|
Voting Rights the holders of voting ordinary
shares are entitled to vote on all matters to be voted on by the
shareholders, and the holders of non-voting ordinary shares are
not entitled to any voting rights.
|
|
|
|
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.
|
As regards both preferred shares and voting and non-voting
ordinary shares, we have the power to purchase any of our own
shares, whether or not they are redeemable and may make a
payment out of capital for such purchase. Where our shares are
repurchased by us off market, the repurchase must be approved by
special resolution of our shareholders. If we are making a
market acquisition of our own shares, the acquisition must be
approved by an ordinary resolution of our shareholders. In
practice, we expect that we would continue to effect any future
repurchases of our ordinary shares through our subsidiaries.
The Articles now 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 Companies
Law. Under the Companies Law, Amdocs Limited may not indemnify a
director for certain excluded liabilities, which are:
|
|
|
|
|
fines imposed in criminal proceedings;
|
|
|
|
regulatory fines;
|
|
|
|
expenses incurred in defending criminal proceedings resulting in
a conviction;
|
|
|
|
expenses incurred in defending civil proceedings brought by
Amdocs Limited or an affiliated company in which judgment is
rendered against the director; and
|
|
|
|
expenses incurred in unsuccessfully seeking judicial relief from
claims of a breach of duty.
|
58
Although the 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 Companies Law authorizes Guernsey
companies to purchase insurance against such liabilities to
companies or to third parties for the benefit of directors. We
currently maintain such insurance. 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 in the Memorandum or Articles that
provide for a classified board of directors or for cumulative
voting for directors.
If the share capital is divided into different classes of
shares, Article 11 of the Articles provides that the rights
attached to any class of shares (unless otherwise provided by
the terms of issue) may be varied with the consent in writing of
the holders of three-fourths of the issued shares of that class
or with the sanction of a special resolution of the holders of
the shares of that class.
A special resolution is defined by the Companies Law as being a
resolution passed by a majority of shareholders representing not
less than 75% of the total voting rights of the shareholders
present in person or by proxy.
Rather than attend general or special meetings of our
shareholders, shareholders may confer voting authority by proxy
to be represented at such meetings. Generally speaking, proxies
will not be counted as voting in respect of any matter as to
which abstention is indicated, but abstentions will be counted
as ordinary shares that are present for purposes of determining
whether a quorum is present at a general or special meeting.
Nominees who are members of the NYSE, and who, as brokers, hold
ordinary shares in street name for customers have,
by NYSE rules, the authority to vote on certain items in the
absence of instructions from their customers, the beneficial
owners of the ordinary shares. If such nominees or brokers
indicate that they do not have authority to vote shares as to a
particular matter, we will not count those votes in favor of
such matter, however, such broker non-votes will be
counted as ordinary shares that are present for purposes of
determining whether a quorum is present.
Provisions in respect of the holding of general meetings and
extraordinary general meetings are set out at
Articles 22-41
of the Articles. The Articles 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. The
shareholders of the Company may waive the requirement to hold an
annual general meeting in accordance with the Companies Law. The
directors may, whenever they deem fit, convene an extraordinary
general meeting. General meetings may be convened by any
shareholders holding more than 10% in the aggregate of Amdocs
Limiteds share capital. Shareholders may participate in
general meetings by video link, telephone conference call or
other electronic or telephonic means of communication.
A minimum of ten days written notice is required in
connection with an annual general meeting and a minimum of
14 days written notice is required for an
extraordinary general meeting, although a general meeting may be
called by shorter notice if all shareholders entitled to attend
and vote agree. 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 and details of any
special resolutions, waiver resolutions or unanimous resolutions
being proposed at the meeting. The notice must be sent to every
shareholder and every director and may be published on a website.
At general meetings, the Chairman of the Board may choose
whether a resolution put to a vote shall be decided by a show of
hands or by a poll. However, a poll may be demanded by not less
than five shareholders having the right to vote on the
resolution or by shareholders representing not less than 10% of
the total voting rights of all shareholders having the right to
vote on the resolution.
A shareholder is entitled to appoint another person as his proxy
to exercise all or any of his rights to attend and to speak and
vote at a meeting of Amdocs Limited.
Amdocs Limited may pass resolutions by way of written resolution.
59
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 or Articles 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 or Articles governing
the ownership threshold above which our 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 19 of the Articles, 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. The directors may reduce our share capital or any
other capital subject to us satisfying the solvency requirements
set out in 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.
General
Our effective tax rate was 10.9% for fiscal 2009, compared to
9.3% for fiscal 2008 and 10.6% for fiscal 2007.
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 Guernsey, the
jurisdiction in which our holding company is organized, or 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.
60
Certain
Guernsey Tax Considerations
Tax legislation enacted in Guernsey with effect from
January 1, 2008 subjected us to a zero percent corporate
tax rate. In October 2009, Guernsey officials announced that
Guernseys corporate income tax regime was under review.
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 2009, the
corporation tax rate applicable in India on trading activities
was 34%. 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 considerable
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, 2011. However, as of
April 1, 2007, the Minimum Alternative Tax, or MAT, became
applicable to our Indian subsidiaries based in Pune. The MAT is
levied on book profits at the rate of 17% (during the Indian
fiscal year commencing on April 1, 2009) and can be
carried forward for 10 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 17% to be paid by such subsidiaries. Recently, the
Indian government published a preliminary draft for the
replacement of the countrys tax code. This draft, if
enacted, would substantially change Indian tax laws, and might
reduce or eliminate the availability of these beneficial tax
rates for our Indian subsidiaries.
Certain
Israeli Tax Considerations
Our Israeli subsidiary, Amdocs (Israel) Limited, operates one of
our largest development centers. Discussed below are certain
Israeli tax considerations relating to this subsidiary.
General Corporate Taxation in Israel. In
August 2005, the Israeli parliament enacted legislation that 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, or the
Investment Law, which provides certain tax and financial
benefits to investment programs that have been granted such
status.
In general, investment programs of our Israeli subsidiary that
have already obtained instruments of approval for an Approved
Enterprise by the Israeli Investment Center prior to the change
in legislation in 2005 continue to be subject to the old
provisions of the Investment Law as described below. The
revisions that were introduced into the Investment Law in 2005
did not affect our effective tax rate for year ended
September 30, 2009 and we do not expect them to have a
significant impact on our effective tax rate in fiscal 2010.
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
61
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:
|
|
|
|
|
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,
|
|
|
|
12 years from the year of commencement of
production, or
|
|
|
|
14 years from the year of the approval of the Approved
Enterprise status.
|
Such income is eligible for further reductions in tax rates if
we qualify as a Foreign Investors Company, or 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 is 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 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.
62
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, or 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, or the 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.
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
63
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 NYSE, 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.
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
64
cannot guarantee 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
|
|
ITEM 11.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES 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. 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 as
indicated in the authoritative guidance for foreign currency
matters.
65
During fiscal 2009, our revenue and operating expenses in the
U.S. dollar or linked to the U.S. dollar were
approximately 70% to 80% and 50% to 60%, respectively. If more
customers will seek 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,
Australian dollars and euros, and anticipated costs to be
incurred in a foreign currency, primarily Israeli shekels,
British pounds and Indian rupees. We also use such 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 Israeli shekels,
Canadian dollars, euros, British pounds and Australian dollars.
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 6 to our consolidated financial
statements.
The table below (all dollar amounts in millions) presents the
total volume or notional amounts and fair value of our
derivative instruments as of September 30, 2009. Notional
values are U.S. dollar translated and calculated based on
forward rates as of September 30, 2009 for forward
contracts and based on spot rates as of September 30, 2009
for options.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of
|
|
|
Notional Value*
|
|
Derivatives
|
|
Foreign exchange contracts
|
|
$
|
524.3
|
|
|
$
|
13.9
|
|
|
|
|
|
(*)
|
Gross notional amounts do not quantify risk or represent our
assets or liabilities, but are used in the calculation of
settlements under the contracts.
|
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, 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 money market funds,
U.S. government treasuries, U.S. agencies and
government guaranteed debt. As of September 30, 2009, there
were no outstanding borrowings under our revolving lines of
credit or our short-term credit facilities.
|
|
ITEM 12.
|
DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES
|
Not applicable.
66
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, 2009. 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
required 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, 2009, 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, 2009 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.
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
67
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.
|
|
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
$3.3 million for audit services for fiscal 2009, 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 $3.8 million for audit services for fiscal
2008.
Audit-Related
Fees
Ernst & Young billed us approximately
$1.3 million for audit-related services for fiscal 2009.
Audit-related services principally include SAS 70 report
issuances and due diligence examinations. Ernst &
Young billed us approximately $1.0 million for
audit-related services for fiscal 2008.
Tax
Fees
Ernst & Young billed us approximately
$1.1 million for tax advice, including fees associated with
tax compliance, tax advice and tax planning services for fiscal
2009. Ernst & Young billed us approximately
$1.6 million for tax advice in fiscal 2008.
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 2009 or fiscal 2008.
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
2009, our Audit Committee approved all of the services provided
by Ernst & Young.
|
|
ITEM 16D.
|
EXEMPTION FROM
THE LISTING STANDARDS FOR AUDIT COMMITTEES
|
Not applicable.
68
|
|
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, 2009 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(2)
|
|
|
or Programs
|
|
|
the Plans or Programs(1)
|
|
|
10/1/08 10/31/08
|
|
|
467,808
|
|
|
$
|
26.90
|
|
|
|
467,808
|
|
|
$
|
82,723,018
|
|
11/1/08 11/30/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,723,018
|
|
12/1/08 12/31/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,723,018
|
|
1/1/09 1/31/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,723,018
|
|
2/1/09 2/28/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,723,018
|
|
3/1/09 3/31/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,723,018
|
|
4/1/09 4/30/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,723,018
|
|
5/1/09 5/31/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,723,018
|
|
6/1/09 6/30/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,723,018
|
|
7/1/09 7/31/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,723,018
|
|
8/1/09 8/31/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/1/09 9/30/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
467,808
|
|
|
$
|
26.90
|
|
|
|
467,808
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 permitted us to purchase our ordinary shares in
open market or privately negotiated transactions at times and
prices that we considered appropriate. During the first quarter
of fiscal 2009, we repurchased 0.5 million ordinary shares
of this repurchase program, at an average price of $26.90 per
share. As of August 2009, our authority to repurchase ordinary
shares expired. |
|
(2) |
|
The average price per share excludes broker and transaction fees. |
69
Convertible
Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
(d)
|
|
|
|
|
|
|
(b)
|
|
|
Total Number of
|
|
|
Maximum Number (or
|
|
|
|
(a)
|
|
|
Average Price
|
|
|
Principal Amount of
|
|
|
Approximate Dollar Value)
|
|
|
|
Total Principal
|
|
|
Paid per $1,000
|
|
|
Convertible Notes
|
|
|
of Convertible Notes that
|
|
|
|
Amount of
|
|
|
Principal Amount
|
|
|
Purchased as Part of
|
|
|
May Yet Be
|
|
|
|
Convertible Notes
|
|
|
of Convertible
|
|
|
Publicly Announced
|
|
|
Purchased Under
|
|
Period
|
|
Purchased
|
|
|
Notes
|
|
|
Plans or Programs
|
|
|
the Plans or Programs(1)
|
|
|
10/1/08 10/31/08
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
450,000,000
|
|
11/1/08 11/30/08
|
|
|
100,000,000
|
|
|
|
978.88
|
|
|
|
100,000,000
|
|
|
|
350,000,000
|
|
12/1/08 12/31/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350,000,000
|
|
1/1/09 1/31/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350,000,000
|
|
2/1/09 2/28/09
|
|
|
18,200,000
|
|
|
|
996.0
|
|
|
|
18,200,000
|
|
|
|
331,800,000
|
|
3/1/09 3/31/09
|
|
|
330,780,000
|
|
|
|
1,000.0
|
|
|
|
330,780,000
|
|
|
|
1,020,000
|
|
4/1/09 4/30/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,020,000
|
|
5/1/09 5/31/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,020,000
|
|
6/1/09 6/30/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,020,000
|
|
7/1/09 7/31/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,020,000
|
|
8/1/09 8/31/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,020,000
|
|
9/1/09 9/30/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,020,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
448,980,000
|
|
|
$
|
995.1
|
|
|
$
|
448,980,000
|
|
|
$
|
1,020,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During fiscal 2009, using proceeds from our revolving credit
facility, we purchased $449.0 million aggregate principal
amount of our 0.50% convertible notes at an average price of
99.5% of the principal amount, excluding accrued interest and
transaction fees. As of September 30, 2009,
$1.0 million principal amount of the notes remain as our
obligation, due in 2024, in accordance with their terms. |
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, 2009, 2008 and
2007, 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, 2009 and
2008
Consolidated Statements of Income for the years ended
September 30, 2009, 2008 and 2007
Consolidated Statements of Changes in Shareholders Equity
for the years ended September 30, 2009, 2008 and 2007
Consolidated Statements of Cash Flows for the years ended
September 30, 2009, 2008 and 2007
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 7, 2009
72
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
1
|
.1
|
|
Amended and Restated Memorandum of Incorporation of Amdocs
Limited (incorporated by reference to Exhibits 99.1 to
Amdocs Form 6-K filed January 26, 2009)
|
|
1
|
.2
|
|
Amended and Restated Articles of Incorporation of Amdocs Limited
(incorporated by reference to Exhibit 99.2 to Amdocs
Form 6-K filed January 26, 2009)
|
|
2
|
.a.1
|
|
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.2
|
|
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
|
.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)
|
|
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)
|
73
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
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
|
|
100
|
.1
|
|
The following financial information from Amdocs Limiteds
Annual Report on Form 20-F for the year ended September 30,
2009, filed with the SEC on December 7, 2009, formatted in
Extensible Business Reporting Language (XBRL): (i) Consolidated
Balance Sheets as of September 30, 2009 and 2008, (ii)
Consolidated Statements of Income for the years ended September
30, 2009, 2008 and 2007, (iii) Consolidated Statements of
Changes in Shareholders Equity for the years ended
September 30, 2009, 2008 and 2007, (iv) the Consolidated
Statements of Cash Flows for the years ended September 30, 2009,
2008 and 2007, and (iv) Notes to Consolidated Financial
Statements (tagged as blocks of text).
|
74
AMDOCS
LIMITED
|
|
|
|
|
|
|
Page
|
|
Audited Consolidated Financial Statements
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
|
|
|
F-10
|
|
Financial Statement Schedule
|
|
|
|
|
|
|
|
F-40
|
|
F-1
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, 2009. 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, 2009, 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, 2009 and 2008, 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, 2009. 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, 2009
and 2008, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
September 30, 2009, 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 the requirements of Financial
Accounting Standards Board (FASB) Interpretation
No. 48, Accounting For Uncertainty in Income Taxes
(primarily codified in FASB Topic
740-10,
Income Taxes), effective October 1, 2007.
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, 2009, 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 7, 2009 expressed an unqualified
opinion thereon.
/s/ ERNST & YOUNG LLP
New York, New York
December 7, 2009
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, 2009, 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, 2009, 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, 2009 and 2008, 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, 2009 of Amdocs Limited and our report dated
December 7, 2009 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
New York, New York
December 7, 2009
F-4
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
728,762
|
|
|
$
|
718,850
|
|
Short-term interest-bearing investments
|
|
|
444,279
|
|
|
|
525,528
|
|
Accounts receivable, net
|
|
|
454,965
|
|
|
|
573,764
|
|
Deferred income taxes and taxes receivable
|
|
|
117,848
|
|
|
|
84,515
|
|
Prepaid expenses and other current assets
|
|
|
126,704
|
|
|
|
102,930
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,872,558
|
|
|
|
2,005,587
|
|
Equipment and leasehold improvements, net
|
|
|
279,659
|
|
|
|
317,081
|
|
Deferred income taxes
|
|
|
137,662
|
|
|
|
187,173
|
|
Goodwill
|
|
|
1,539,424
|
|
|
|
1,526,371
|
|
Intangible assets, net
|
|
|
227,337
|
|
|
|
270,551
|
|
Other noncurrent assets
|
|
|
271,777
|
|
|
|
272,300
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,328,417
|
|
|
$
|
4,579,063
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
86,189
|
|
|
$
|
157,357
|
|
Accrued expenses, other current liabilities and other
|
|
|
174,341
|
|
|
|
226,359
|
|
Accrued personnel costs
|
|
|
154,841
|
|
|
|
218,229
|
|
Deferred revenue
|
|
|
186,158
|
|
|
|
197,851
|
|
Deferred income taxes and taxes payable
|
|
|
9,338
|
|
|
|
30,228
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
610,867
|
|
|
|
830,024
|
|
Convertible notes
|
|
|
1,020
|
|
|
|
450,000
|
|
Deferred income taxes and taxes payable
|
|
|
273,110
|
|
|
|
266,548
|
|
Noncurrent liabilities and other
|
|
|
230,367
|
|
|
|
227,300
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,115,364
|
|
|
|
1,773,872
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Preferred Shares Authorized 25,000 shares;
£0.01 par value; 0 shares issued and outstanding
|
|
|
|
|
|
|
|
|
Ordinary Shares Authorized 700,000 and
550,000 shares; £0.01 par value; 242,466 and
240,836 issued and 205,079 and 203,916 outstanding, in 2009 and
2008, respectively
|
|
|
3,930
|
|
|
|
3,900
|
|
Additional paid-in capital
|
|
|
2,334,090
|
|
|
|
2,264,800
|
|
Treasury stock, at cost 37,387 and 36,920 Ordinary
Shares in 2009 and 2008, respectively
|
|
|
(919,874
|
)
|
|
|
(907,280
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
8,343
|
|
|
|
(14,834
|
)
|
Retained earnings
|
|
|
1,786,564
|
|
|
|
1,458,605
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
3,213,053
|
|
|
|
2,805,191
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
4,328,417
|
|
|
$
|
4,579,063
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
License
|
|
$
|
135,146
|
|
|
$
|
135,487
|
|
|
$
|
159,357
|
|
Service
|
|
|
2,727,461
|
|
|
|
3,026,609
|
|
|
|
2,676,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,862,607
|
|
|
|
3,162,096
|
|
|
|
2,836,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of license
|
|
|
2,686
|
|
|
|
2,729
|
|
|
|
3,914
|
|
Cost of service
|
|
|
1,831,947
|
|
|
|
2,023,562
|
|
|
|
1,792,468
|
|
Research and development
|
|
|
210,387
|
|
|
|
225,492
|
|
|
|
230,444
|
|
Selling, general and administrative
|
|
|
344,335
|
|
|
|
404,134
|
|
|
|
370,194
|
|
Amortization of purchased intangible assets
|
|
|
85,153
|
|
|
|
86,687
|
|
|
|
74,959
|
|
Restructuring charges, in-process research and development and
other
|
|
|
20,780
|
|
|
|
13,896
|
|
|
|
6,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,495,288
|
|
|
|
2,756,500
|
|
|
|
2,478,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
367,319
|
|
|
|
405,596
|
|
|
|
357,433
|
|
Interest (expense) income and other, net
|
|
|
(1,165
|
)
|
|
|
11,955
|
|
|
|
50,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
366,154
|
|
|
|
417,551
|
|
|
|
407,999
|
|
Income taxes
|
|
|
39,978
|
|
|
|
38,645
|
|
|
|
43,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
326,176
|
|
|
$
|
378,906
|
|
|
$
|
364,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.61
|
|
|
$
|
1.83
|
|
|
$
|
1.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.58
|
|
|
$
|
1.74
|
|
|
$
|
1.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average number of shares outstanding
|
|
|
202,867
|
|
|
|
206,590
|
|
|
|
207,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average number of shares outstanding
|
|
|
207,606
|
|
|
|
219,606
|
|
|
|
223,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
Total
|
|
|
|
Ordinary Shares
|
|
|
Paid-in
|
|
|
Treasury
|
|
|
(Loss)
|
|
|
Retained
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stock
|
|
|
Income
|
|
|
Earnings
|
|
|
Equity
|
|
|
Balance as of October 1, 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 SFAS 158 (primarily codified in ASC
715-Compensation-Retirement Benefits) 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/cancelled
|
|
|
|
|
|
|
|
|
|
|
3,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,965
|
|
Issuance of restricted stock, net of forfeitures
|
|
|
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, 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/cancelled
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
326,176
|
|
|
|
326,176
|
|
Unrealized gain on foreign currency hedging contracts, net of
$647 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,092
|
|
|
|
|
|
|
|
18,092
|
|
Unrealized gain on short-term interest-bearing investments, net
of $218 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,828
|
|
|
|
|
|
|
|
4,828
|
|
Unrealized gain on defined benefit plan, net of $1,078 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,040
|
|
|
|
|
|
|
|
2,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
351,136
|
|
Cumulative effect from adoption of FSP
No. 115-2/124-2
(primarily codified in ASC
320-10-
Investments-Debt and Equity Securities-Overall) at April 1,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,783
|
)
|
|
|
1,783
|
|
|
|
|
|
Employee stock options exercised
|
|
|
1,289
|
|
|
|
23
|
|
|
|
27,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,886
|
|
Repurchase of shares
|
|
|
(468
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,594
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,594
|
)
|
Tax benefit of stock options exercised/cancelled
|
|
|
|
|
|
|
|
|
|
|
(1,484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,484
|
)
|
Issuance of restricted stock, net of forfeitures
|
|
|
342
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Equity-based compensation expense related to employees
|
|
|
|
|
|
|
|
|
|
|
42,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2009
|
|
|
205,079
|
|
|
$
|
3,930
|
|
|
$
|
2,334,090
|
|
|
$
|
(919,874
|
)
|
|
$
|
8,343
|
|
|
$
|
1,786,564
|
|
|
$
|
3,213,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2009, 2008 and 2007, accumulated other
comprehensive income (loss) is comprised of unrealized gain
(loss) on derivatives, net of tax, of $12,936, $(5,157) and
$(579), unrealized (loss) income on cash equivalents and
short-term interest-bearing investments, net of tax, of
$(6,417), $(9,461) and $541 and unrealized gain (loss) on
defined benefit plan, net of tax of $1,824, $(216) and $727.
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash Flow from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
326,176
|
|
|
$
|
378,906
|
|
|
$
|
364,937
|
|
Reconciliation of net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
198,119
|
|
|
|
192,937
|
|
|
|
164,994
|
|
In-process research and development expenses
|
|
|
5,640
|
|
|
|
1,780
|
|
|
|
750
|
|
Equity-based compensation expense
|
|
|
42,911
|
|
|
|
57,490
|
|
|
|
53,587
|
|
Loss (gain) on sale of equipment
|
|
|
197
|
|
|
|
(970
|
)
|
|
|
(8
|
)
|
Deferred income taxes
|
|
|
16,249
|
|
|
|
1,111
|
|
|
|
(21,095
|
)
|
Gain on repurchase of convertible notes
|
|
|
(2,185
|
)
|
|
|
|
|
|
|
|
|
Excess tax benefit from equity-based compensation
|
|
|
(18
|
)
|
|
|
(211
|
)
|
|
|
(795
|
)
|
Loss (gain) from short-term interest-bearing investments
|
|
|
4,449
|
|
|
|
4,945
|
|
|
|
(3,012
|
)
|
Net changes in operating assets and liabilities, net of amounts
acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
131,527
|
|
|
|
(118,291
|
)
|
|
|
(67,333
|
)
|
Prepaid expenses and other current assets
|
|
|
(13,614
|
)
|
|
|
4,173
|
|
|
|
(62
|
)
|
Other noncurrent assets
|
|
|
(2,690
|
)
|
|
|
(31,739
|
)
|
|
|
(26,264
|
)
|
Accounts payable, accrued expenses and accrued personnel
|
|
|
(160,321
|
)
|
|
|
(27,501
|
)
|
|
|
29,642
|
|
Deferred revenue
|
|
|
20,956
|
|
|
|
28,408
|
|
|
|
(96,674
|
)
|
Income taxes payable, net
|
|
|
(19,980
|
)
|
|
|
(26,824
|
)
|
|
|
12,243
|
|
Noncurrent liabilities and other
|
|
|
(28,260
|
)
|
|
|
18,799
|
|
|
|
12,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
519,156
|
|
|
|
483,013
|
|
|
|
423,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of equipment, vehicles and leasehold
improvements
|
|
|
994
|
|
|
|
2,655
|
|
|
|
3,832
|
|
Payments for purchase of equipment and leasehold improvements
|
|
|
(83,325
|
)
|
|
|
(135,823
|
)
|
|
|
(166,426
|
)
|
Proceeds from sale of short-term interest-bearing investments
|
|
|
1,045,278
|
|
|
|
708,708
|
|
|
|
781,315
|
|
Purchase of short-term interest-bearing investments
|
|
|
(963,433
|
)
|
|
|
(685,873
|
)
|
|
|
(969,198
|
)
|
Net cash paid for acquisitions
|
|
|
(65,890
|
)
|
|
|
(58,772
|
)
|
|
|
(90,724
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(66,376
|
)
|
|
|
(169,105
|
)
|
|
|
(441,201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under long-term financing arrangements
|
|
|
450,000
|
|
|
|
|
|
|
|
|
|
Payments under long-term financing arrangements
|
|
|
(450,000
|
)
|
|
|
|
|
|
|
|
|
Redemption of convertible notes
|
|
|
(330,780
|
)
|
|
|
(175
|
)
|
|
|
|
|
Repurchase of convertible notes
|
|
|
(116,015
|
)
|
|
|
|
|
|
|
|
|
Repurchase of shares
|
|
|
(20,014
|
)
|
|
|
(247,630
|
)
|
|
|
(49,837
|
)
|
Proceeds from employee stock options exercised
|
|
|
27,893
|
|
|
|
37,577
|
|
|
|
74,663
|
|
Payments under capital lease and short-term financing
arrangements
|
|
|
(3,970
|
)
|
|
|
(542
|
)
|
|
|
|
|
Excess tax benefit from equity-based compensation
|
|
|
18
|
|
|
|
211
|
|
|
|
795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(442,868
|
)
|
|
|
(210,559
|
)
|
|
|
25,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
9,912
|
|
|
|
103,349
|
|
|
|
8,314
|
|
Cash and cash equivalents at beginning of year
|
|
|
718,850
|
|
|
|
615,501
|
|
|
|
607,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
728,762
|
|
|
$
|
718,850
|
|
|
$
|
615,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Supplementary Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and Income Taxes Paid
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes, net of refunds
|
|
$
|
39,793
|
|
|
$
|
51,273
|
|
|
$
|
44,642
|
|
Interest
|
|
|
3,321
|
|
|
|
4,863
|
|
|
|
4,167
|
|
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 and services for communications, media and
entertainment industry service providers. 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 management, customer management, service and
resource management (OSS), personalized portal and value-added
services, portfolio management, and consulting and managed
services, primarily to leading wireless, wireline, cable and
satellite service providers throughout the world. Amdocs also
offers a full range of directory sales and publishing systems.
The Company is a Guernsey corporation, which directly or
indirectly holds numerous 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 Canada, 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, or
U.S. GAAP. Subsequent events were evaluated through
December 7, 2009, the date these financial statements were
issued.
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.
Use of
Estimates
The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the dates of the financial statements, and the reported
amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
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. 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 as indicated in the authoritative guidance for
foreign currency matters.
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.
F-10
AMDOCS
LIMITED
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(dollar
and share amounts in thousands, except per share data)
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 money market funds, U.S. government
treasuries, U.S. agencies and government guaranteed debt,
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 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.
For securities that the Company intends to sell, or it is more
likely than not that the Company will be required to sell before
recovery of their amortized cost basis, the entire difference
between amortized cost and fair value is recognized in earnings.
For securities that do not meet these criteria, the amount of
impairment recognized in earnings is limited to the amount
related to credit losses, while impairment related to other
factors is recognized in other comprehensive income. The Company
uses a discounted cash flow analysis to determine the portion of
the impairment that relates to the credit loss. To the extent
that the net present value of the projected cash flows is less
than the amortized cost of the security, the difference is
considered credit loss and is recorded through earnings.
Equipment
and Leasehold Improvements
Equipment 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
three to ten 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
Goodwill and intangible assets deemed to have indefinite lives
are subject to an annual impairment test. 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 core technology,
customer arrangements and trademarks. 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 tests long-lived assets, including definite life
intangible assets, for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets
may not be recoverable.
F-11
AMDOCS
LIMITED
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(dollar
and share amounts in thousands, except per share data)
Determination of recoverability of long-lived assets is based on
an estimate of the undiscounted future cash flows resulting from
the use of the asset and its eventual disposition. Measurement
of an impairment loss for long-lived assets, including definite
life intangible assets, that management expects to hold and use
is based on the fair value of the asset. Long-lived assets,
including definite life intangible assets, to be disposed of are
reported at the lower of carrying amount or fair value less
costs to sell.
Comprehensive
Income (Loss)
Comprehensive income, net of related taxes where applicable,
includes, in addition to net income:
(i) unrealized gains and losses on
available-for-sale
securities;
(ii) unrealized gains and losses in respect of derivative
instruments designated as a cash flow hedge; and
(iii) unrealized losses on defined benefit plans.
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.
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.
The Company recognizes the tax benefit from an uncertain tax
position only 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 tax benefits recognized in the financial
statements from such a position should be measured based on the
largest benefit that has a greater than 50% likelihood of being
realized upon ultimate 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 11 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 result, combined license and service revenue generally is
recognized over the course of these long-term
F-12
AMDOCS
LIMITED
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(dollar
and share amounts in thousands, except per share data)
projects, using the percentage of completion method of
accounting and in accordance with software revenue recognition
authoritative guidance. 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.
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.
Fees are generally considered fixed and determinable unless a
significant portion (more than 10%) of the license and related
service fee is due more than 12 months after delivery, in
which case license and related services fees are recognized when
payments are due.
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 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 2009, 2008 and 2007.
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 by Vendor Specific Objective
Evidence (VSOE). The Company uses the residual
method in accordance with software revenue recognition and
revenue arrangements with multiple deliverables authoritative
guidance. 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.
Beginning October 1, 2009, the Company adopted the new
authoritative guidance for revenue arrangements with multiple
deliverables that are outside the scope of the software revenue
recognition guidance. Please see Recent Accounting
Pronouncements.
F-13
AMDOCS
LIMITED
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(dollar
and share amounts in thousands, except per share data)
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 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, if the revenue for a delivered item is
not recognized because it is not separable from the undelivered
item, 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. Deferred
revenue that is expected to be recognized beyond the next twelve
months is considered long-term deferred revenue. 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. Unbilled accounts receivable
that are expected to be billed beyond the next twelve months are
considered long-term unbilled receivables. 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 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
license fees and royalty payments to software suppliers.
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, which are sold, leased or otherwise
marketed, or in conjunction with customer projects. Research and
development costs are expensed as incurred.
Based on the Companys product development process,
technological feasibility is established upon completion of a
detailed program design or, in the absence thereof, 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 measures and recognizes the compensation expense for
all equity-based payments to employees and directors based on
their estimated fair values. The Company estimates the fair
value of employee stock options at the date of grant 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
F-14
AMDOCS
LIMITED
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(dollar
and share amounts in thousands, except per share data)
compensation costs using the graded vesting attribution method
that results in an accelerated recognition of compensation costs
in comparison to the straight-line method.