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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,
2009
Commission File Number 0-25346
ACI WORLDWIDE, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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47-0772104
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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120 Broadway, Suite 3350
New York, New York 10271
(Address of principal
executive
offices, including zip code)
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(646) 348-6700
(Registrants
telephone
number, including area code)
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Securities registered pursuant to Section 12(b) of the
Act:
Common Stock, $.005 par value, NASDAQ Global Select
Market
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. 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 Website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the Companys voting common
stock held by non-affiliates of the registrant on June 30,
2009 (the last business day of the registrants most
recently completed second fiscal quarter), based upon the last
sale price of the common stock on that date of $13.96 was
$467,151,088. For purposes of this calculation, executive
officers, directors and holders of 10% or more of the
outstanding shares of the registrants common stock are
deemed to be affiliates of the registrant and are excluded from
the calculation.
As of February 25, 2010, there were 34,036,624 shares
of the registrants common stock outstanding.
Documents Incorporated by Reference Portions
of the registrants definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on June 10, 2010,
are incorporated by reference in Part III of this report.
This registrants Proxy Statement will be filed with the
Securities and Exchange Commission pursuant to
Regulation 14A.
Forward-Looking
Statements
This report contains forward-looking statements based on current
expectations that involve a number of risks and uncertainties.
Generally, forward-looking statements do not relate strictly to
historical or current facts and may include words or phrases
such as believes, will,
expects, anticipates,
intends, and words and phrases of similar impact.
The forward-looking statements are made pursuant to safe harbor
provisions of the Private Securities Litigation Reform Act of
1995, as amended.
Forward-looking statements in this report include, but are not
limited to, statements regarding future operations, business
strategy, business environment and key trends, as well as
statements related to expected financial and other benefits from
our organizational restructuring activities. Many of these
factors will be important in determining our actual future
results. Any or all of the forward-looking statements in this
report may turn out to be incorrect. They may be based on
inaccurate assumptions or may not account for known or unknown
risks and uncertainties. Consequently, no forward-looking
statement can be guaranteed. Actual future results may vary
materially from those expressed or implied in any
forward-looking statements, and our business, financial
condition and results of operations could be materially and
adversely affected. In addition, we disclaim any obligation to
update any forward-looking statements after the date of this
report, except as required by law.
All of the foregoing forward-looking statements are expressly
qualified by the risk factors discussed in our filings with the
Securities and Exchange Commission. Such factors include, but
are not limited to, risks related to the global financial
crisis, restrictions and other financial covenants in our credit
facility, volatility and disruption of the capital and credit
markets, our restructuring efforts, the restatement of our
financial statements, consolidation in the financial services
industry, changes in the financial services industry, the
accuracy of backlog estimates, the cyclical nature of our
revenue and earnings, exposure to unknown tax liabilities,
volatility in our stock price, risks from operating
internationally, including fluctuations in currency exchange
rates, increased competition, our offshore software development
activities, the performance of our strategic product,
BASE24-eps, the maturity of certain products, our strategy to
migrate customers to our next generation products, ratable or
deferred recognition of certain revenue associated with customer
migrations and the maturity of certain of our products, demand
for our products, failure to obtain renewals of customer
contracts or to obtain such renewals on favorable terms, delay
or cancellation of customer projects or inaccurate project
completion estimates, business interruptions or failure of our
information technology and communication systems, our alliance
with International Business Machines Corporation
(IBM), our outsourcing agreement with IBM, the
complexity of our products and services and the risk that they
may contain hidden defects or be subjected to security breaches
or viruses, compliance of our products with applicable
governmental regulations and industry standards, our compliance
with privacy regulations, the protection of our intellectual
property in intellectual property litigation, future
acquisitions and investments and litigation. The cautionary
statements in this report expressly qualify all of our
forward-looking statements. Factors that could cause actual
results to differ from those expressed or implied in the
forward-looking statements include, but are not limited to,
those discussed in Item 1A in the section entitled
Risk Factors.
Trademarks
and Service Marks
ACI, the ACI logo, BASE24-eps, BASE24, OpeN/2, among others, are
registered trademarks
and/or
registered service marks of ACI Worldwide, Inc., or one of its
subsidiaries, in the United States
and/or other
countries. ACI Enterprise Banker, ACI Global Banker, ACI Retail
Commerce Server, AS/X, ACI Issuer, ACI Acquirer, ACI
Interchange, ACI Token Management, ACI Payments Manager, ACI
Card Management System, ACI Smart Chip Manager, ACI Dispute
Management System, ACI Simulation Services for Enterprise
Testing or ASSET, ACI Money Transfer System, NET24, ACI
Proactive Risk Manager, PRM, ACI Automated Case Management
System, ACI Communication Services, ACI Enterprise Security
Services, ACI Web Access Services, ACI Monitoring and Management
and ACI DataWise, among others, have pending registrations or
are common-law trademarks
and/or
service marks of ACI Worldwide, Inc., or one of its
subsidiaries, in the United States
and/or other
countries. Other parties marks referred to in this report
are the property of their respective owners.
2
PART I
General
ACI Worldwide, Inc., a Delaware corporation, and our
subsidiaries (collectively referred to as ACI,
ACI Worldwide, the Company,
we, us or our) develop,
market, install and support a broad line of software products
and services primarily focused on facilitating electronic
payments. In addition to our own products, we distribute, or act
as a sales agent for, software developed by third parties. These
products and services are used principally by financial
institutions, retailers and electronic payment processors, both
in domestic and international markets. Most of our products are
sold and supported through distribution networks covering three
geographic regions the Americas, Europe/Middle
East/Africa (EMEA) and Asia/Pacific. Each
distribution network has its own sales force that it supplements
with independent reseller
and/or
distributor networks. Our products are marketed under the ACI
Worldwide brand.
The electronic payments market is comprised of financial
institutions, retailers, third-party electronic payment
processors, payment associations, switch interchanges and a wide
range of transaction-generating endpoints, including automated
teller machines (ATM), retail merchant locations,
bank branches, mobile phones, corporations and Internet commerce
sites. The authentication, authorization, switching, settlement
and reconciliation of electronic payments is a complex activity
due to the large number of locations and variety of sources from
which transactions can be generated, the large number of
participants in the market, high transaction volumes,
geographically dispersed networks, differing types of
authorization, and varied reporting requirements. These
activities are typically performed online and are often
conducted 24 hours a day, seven days a week.
ACI Worldwide, Inc. was formed as a Delaware corporation in
November 1993 under the name ACI Holding, Inc. and is largely
the successor to Applied Communications, Inc. and Applied
Communications Inc. Limited, which we acquired from Tandem
Computers Incorporated on December 31, 1993.
On July 24, 2007, our stockholders approved the adoption of
an Amended and Restated Certificate of Incorporation to change
our corporate name from Transaction Systems Architects,
Inc. to ACI Worldwide, Inc.. We have been
marketing our products and services under the ACI Worldwide
brand since 1993 and have gained significant market recognition
under this brand name.
On February 23, 2007, our Board of Directors approved a
change in the Companys fiscal year from a September 30
fiscal year-end to a December 31 fiscal year-end, effective as
of January 1, 2008 for the year ended December 31,
2008. In accordance with applicable Securities and Exchange
Commission (SEC) rules and regulations, we filed a
Transition Report on
Form 10-Q
for the transition period from October 1, 2007 to
December 31, 2007, with the SEC on February 19, 2008.
Accordingly, the consolidated financial statements included
herein present our financial position as of December 31,
2009 and 2008, and the results of our operations, cash flows and
changes in stockholders equity for the years ended
December 31, 2009 and 2008, the three month period ended
December 31, 2007, and the year ended September 30,
2007.
Acquisitions
On February 7, 2007, we acquired Visual Web Solutions, Inc.
(Visual Web), a provider of international trade
finance and web-based cash management solutions, primarily to
financial institutions in the Asia/Pacific region. These
solutions complement and have been integrated with our
U.S.-centric
cash management and online banking solutions to create a more
complete international offering. Visual Web had wholly-owned
subsidiaries in Singapore for sales and customer support and in
Bangalore, India for product development and services.
The aggregate purchase price of Visual Web, including direct
costs of the acquisition, was $8.3 million, net of
$1.1 million of cash acquired. Under the terms of the
acquisition, the parties established a cash escrow arrangement
in which $1.1 million of the cash consideration paid at
closing is held in escrow as security for tax and other
contingencies.
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On April 2, 2007, we acquired Stratasoft Sdn Bhd
(Stratasoft), a provider of electronic payment
solutions in Malaysia. This acquisition complements our strategy
to move to a direct sales model in selected markets in Asia. The
aggregate purchase price of Stratasoft, including direct costs
of the acquisition, was $2.5 million, net of
$0.7 million of cash acquired. During the year ended
December 31, 2009, we paid an additional amount of
$0.5 million to the sellers as Stratasoft achieved certain
financial targets set forth in the purchase agreement for the
period ended December 31, 2008.
On November 17, 2009, the Company acquired certain
intellectual property, trade names, customer contracts and
working capital of Euronet Essentis Limited
(Essentis), a division of Euronet Worldwide, Inc.
Essentis, based in Watford, England, is a provider of card
issuing and merchant acquiring solutions around the world. The
aggregate purchase price of Essentis was 3.9 million
British pounds sterling (approximately $6.6 million).
Assets of
Businesses Transferred Under Contractual Arrangements
On September 29, 2006, we entered into an agreement whereby
certain assets and liabilities related to our MessagingDirect
business and WorkPoint product line were legally conveyed to an
unrelated party for a total selling price of $3.0 million
to be paid in annual installments through 2010. The note
receivable was not recorded due to uncertainty of collection. As
of December 31, 2008, the remaining unpaid balance of the
note receivable was $1.5 million. During the year ended
December 31, 2009, we sold our right to further payments on
the note receivable to a third-party for $1.0 million,
which was recorded as a pretax gain. See Note 16,
Assets of Businesses Transferred Under Contractual
Arrangements, in the Notes to Consolidated Financial
Statements for further detail.
Products
Our software products perform a wide range of functions designed
to facilitate electronic payments. Generally, our products
address three primary market segments:
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Retail banking, including debit and credit card issuers
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Wholesale banking, including corporate cash management and
treasury management operations
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Retailers
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In addition, we market our solutions to third-party electronic
payment processors, who serve all three of the above market
segments. We also offer solutions that are not
industry-specific, but complement our payments products, to
address needs for systems connectivity, data synchronization,
testing and simulation and systems monitoring.
Our products cover four different domains within the payments
business:
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Initiate the initiation of payments through online
banking systems
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Manage the management of a payment through its
lifecycle which we split into Retail Payment Engines, Back
Office Services and Wholesale Payment Engines
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Secure the securing of payments against fraud and
money laundering
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Operate the infrastructure needed to operate a
payments system
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The sections below provide an overview of our major software
products within these domains.
In September 2009, we announced the ACI Agile Payments Solution,
the vision for our payments products. The vision recognizes the
long term direction to migrate payments processing from the
current discrete structures to a common service-based delivery
mechanism. While we are evolving our service offerings into the
ACI Agile Payments Solution reference architecture, financial
organizations can benefit from the enterprise capabilities of
the existing product suite and start moving towards an agile
payments environment.
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Initiate
Products
Within the Initiate domain, ACI has two products:
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ACI Enterprise Banker is a comprehensive Internet-based
business banking product for financial institutions including
banks, brokerage firms and credit unions and can be flexibly
packaged for small, medium and large business customers. This
product provides these customers with electronic payment
initiation capability, information reporting, and numerous other
payment related services that allow the business customer to
manage all its banking needs via the Internet.
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ACI Global Banker provides single-window access to
corporate cash management, trade finance, FX services, reporting
and data exchange. Global Banker supports single-window, Single
Sign-On access to a banks corporate Internet banking
platform. This enterprise-wide, multi-country,
multi-language,
multi-currency solution allows banks of all sizes to uniquely
package products and services for different countries and
segments or even individual customers
from a single, flexible platform.
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Manage
Retail Payment Engines
Generally, our retail payment engines are designed to route
electronic payment transactions from transaction generators to
the acquiring institutions so that they can be authorized for
payment. The software often interfaces with regional or national
switches to access the account-holding financial institution or
card issuer for approval or denial of the transactions
(authorization). The software returns messages to the original
transaction generator (e.g. an ATM), thereby completing the
transactions. Depending on how the software is configured, it
can perform all of the functions necessary to authenticate,
authorize, route and settle an electronic payment transaction,
or it can interact with other systems to ensure that these
functions are performed. Electronic payments software may be
required to interact with dozens of devices, switch interchanges
and communication protocols around the world. We currently offer
six retail payment engine solutions, as follows:
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BASE24-eps is an integrated electronic payments
processing product marketed to customers operating electronic
payment networks in the retail banking and retail industries.
The modular architecture of the product enables customers to
select the application and system components that are required
to operate their networks. BASE24-eps offers a broad range of
features and functions for electronic payment processing.
BASE24-eps allows customers to adapt to changing network needs
by supporting 12 different types of ATM and five different types
of point of sale (POS) terminals, 48 interchange
interfaces, and various authentication, authorization and
reporting options and with standardized acceptance formats
enabling processing of transactions from sources such as
internet banking, branch or mobile systems. BASE24-eps uses an
object-based architecture and languages such as C++ and Java to
offer a more flexible, open architecture for the processing of a
wide range of electronic payment transactions. BASE24-eps also
uses a scripting language to improve overall transaction
processing flexibility and improve time to market for new
services, reducing the need for traditional systems
modifications. BASE24-eps is licensed as a standalone electronic
payments solution for financial institutions, retailers and
electronic payment processors. BASE24-eps, which operates on IBM
System z, IBM System p, Hewlett-Packard Company (HP)
NonStop, HP-UX and Sun Solaris servers, provides flexible
integration points to other applications and data within
enterprises to support
24-hour per
day access to money, services and information.
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On the HP NonStop platform, BASE24-eps uses NET24-XPNET, an ACI
developed message oriented middleware solution.
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ACI Retail Commerce Server is an integrated suite of
electronic payments products that facilitate a broad range of
capabilities, specifically focused on retailers. These
capabilities include debit and credit card processing, automated
clearing house (ACH) processing, electronic benefits
transfer, card issuance and management, check authorization,
customer loyalty programs and returned check collection. The
Retail Commerce Server product line operates on open systems
technologies such as Microsoft Windows, UNIX and Linux, with
most of the current installations deployed on the Microsoft
Windows platform.
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ACI continues to support and maintain a number of other retail
payments engines which are no longer sold to new customers.
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BASE24 is an integrated family of software products
marketed to customers operating electronic payment networks in
the retail banking and retail industries. A substantial portion
of ACIs revenues are derived from licensing the BASE24
family of products and providing related services and
maintenance as it has been the core of the ACI business since
the Companys inception.
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The BASE24 product line operates exclusively on HP NonStop
servers. The HP NonStop parallel-processing environment offers
fault-tolerance, linear expandability and distributed processing
capabilities. The combination of features offered by BASE24 and
the HP NonStop technology are important characteristics in high
volume,
24-hour per
day electronic payment systems.
BASE24 makes use of NET24-XPNET, an ACI developed message
oriented middleware solution.
BASE24-eps was developed specifically to take the BASE24
functionality to a new more flexible architecture, responding to
customers ideas, as well as allow the functionality to be
delivered on a range of hardware platforms.
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ON/2 is an integrated electronic payments processing
system, exclusively designed for the Stratus VOS operating
environment. It authenticates, authorizes, routes and switches
transactions generated at ATMs and merchant POS sites.
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OpeN/2 is an integrated electronic payments processing
system, designed for open-systems environments such as Microsoft
Windows, UNIX and Linux. It offers a wide range of electronic
payments processing capabilities for financial institutions,
retailers and electronic payment processors.
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AS/X a product acquired in the eps AG acquisition, is an
integrated electronic payments processing system designed for
open-systems environments such as UNIX. It supports a wide range
of electronic payments processing capabilities for financial
institutions and electronic payment processors in Germany and
Switzerland.
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During the years ended December 31, 2009 and 2008, the
three month period ended December 31, 2007, and the year
ended September 30, 2007, approximately 46%, 47%, 51%, and
49%, respectively, of our total revenues were derived from
licensing the BASE24 product line, which revenue amounts do not
include revenue associated with licensing the BASE24-eps product.
Manage
Back Office Services
ACI Back Office Services are card issuing and merchant
management solutions which have been successfully used by the
payments industry for many years. These products run on IBM
System z, various Unix and Microsoft Windows servers. The
products within back office services are:
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ACI Issuer, acquired in the Essentis acquisition, is a
modern card and account management system. It has been developed
to support national, international, and global financial
institutions. The system has full multi-currency, multi-product,
multi-institution and
multi-language
capabilities. It manages card portfolios in different countries
and for different issuers on a single platform and has been
built to fully comply with EMV standards.
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ACI Acquirer, acquired in the Essentis acquisition,
supports the full life cycle of merchant portfolio management,
including merchant boarding, transaction acquisition,
interchange fee qualification, settlement and statement
generation. The system is enabled with the flexibility acquirers
require for complex merchant portfolios.
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ACI Interchange, acquired in the Essentis acquisition, is
the central monetary transaction manager, processing all
incoming customer transactions and maintaining a central
transactions database. ACI Interchange also manages the clearing
and settlement communication with the major international
payment schemes, ensuring compliance with Visa, MasterCard,
American Express and JCB. The module can easily be adapted to
manage clearing and settlement with additional networks such as
domestic payment schemes.
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ACI Token Management consists of the ANDiS suite of
products from ACIs partner Bell ID. The ANDiS Smart
Card & Application Management System provides for
central life-cycle management of smart cards and other tokens as
well as the management of the applications activated within the
scheme. The ANDiS Key
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Management System facilitates the implementation of security
concepts based on the generation, storage, recovery, import and
distribution of cryptographic keys. The keys are used for
encryption and decryption of data and for verification and
authorization of trusted parties using digital certificates.
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ACI Payments Manager is an integrated, modular software
solution that automates the processing, settlement and
reconciliation of electronic transactions, as well as provides
plastic card issuance and account management. This product is
now primarily marketed in North America.
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ACI continues to support and maintain several other back office
services products which are no longer sold to new customers.
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ACI Card Management System is a complete plastic card
system for issuing cards, maintaining account information,
tracking card usage and providing customer service.
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ACI Smart Chip Manager supports the deployment of
stored-value and other chip card applications used at smart
card-enabled devices.
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ACI Dispute Management System provides issuers the
ability to work retail discrepancies caused by processing
errors, disputes, charge backs and fraud.
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Manage
Wholesale Payment Engine
Our wholesale payments solutions are focused on global,
super-regional and regional financial institutions that provide
treasury management services to large corporations. In addition,
the market includes non-bank financial institutions with the
need to conduct their own internal treasury management
activities.
Our wholesale payments solutions include high value payments
processing, bulk payments processing, global messaging and
Continuous Link Settlement processing, and are collectively
referred to as the ACI Money Transfer System. The high value
payments processing products, which produce the majority of
revenues within the MTS solution set, are used to generate,
authorize, route, settle and control high value wire transfer
transactions in domestic and international environments. The ACI
Money Transfer System product operates on IBM System p servers
using the AIX operating system and communicates over proprietary
networks using a variety of messaging formats, including
S.W.I.F.T., EBA, Target, Ellips, CEC, RTGSplus, Fedwire, CHIPS
and Telex.
Secure
Products
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ACI Proactive Risk Manager
(PRM). PRM is a neural network-based
fraud detection system designed to help card issuers, merchants,
merchant acquirers and financial institutions combat fraud
schemes. The system combines the pattern recognition capability
of
neural-network
transaction scoring with custom risk models of expert
rules-based strategies and advanced client/server account
management software. PRM operates on IBM System z, HP NonStop,
Sun Solaris and Microsoft Windows servers. There are six
editions of PRM, each of which is tailored for specific industry
needs. The six editions are debit, credit, merchant, private
label, money laundering detection and enterprise.
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ACI Automated Case Management System. The ACI
Automated Case Management System offers customers the
flexibility to automate activities and processes across the
complete lifecycle of a case. Cases are created when fraud
officers checking an alert within ACI Proactive Risk Manager
identify fraud. The solution is a basic framework that defines
processes for researching and resolving cases, including
investigation resources, timeframes, escalation paths and
alerts. The Automated Case Management System also acts as a
central repository for case histories and resource activities to
provide organizations with centralized auditing capabilities.
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ACI Automated Case Management System for Anti-Money
Laundering. The ACI Automated Case Management
System for Anti-Money Laundering reduces the need for internal
resources to spend needless time on compliance requirements. The
Automated Case Management System allows customers to automate
the escalation and notification processing of potential
non-compliance exposure. Since all activities and tasks are
managed under the system from a process standpoint, it also
provides the centralized auditing and reporting needs required
for regulatory proof of compliance.
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Operate
Products
The Operate products provide specific technology extensions to
augment the business services provided in the Initiate, Manage
and Secure solutions.
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ACI Communication Services (formerly known as ICE) is a
set of products that enable applications to support legacy
protocols, such as SNA and X.25, running over TCP/IP networks.
It also supports hybrid networking environments such as
IBMs HPR/IP. This set of products run on HP NonStop, IBM
System z and Unix platforms.
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ACI Communication Services Network Express
provides network communications and middleware capabilities
to support legacy systems integration and connectivity.
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ACI Enterprise Security Services (formerly known as
SafeTGate) is a suite of security solutions that secure access
to systems and resources. All of these products run on the HP
NonStop platform and were designed to take advantage of HP
NonStop fundamentals.
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ACI Web Access Services (formerly known as Webgate)
allows HP NonStop users to securely expose existing applications
to peer systems as well as PC clients and web browsers. Web
Access Services supports new GUI client development, standard
6530 and 3270E terminal emulation or automated data stream
transformation to give users a range of options for integrating
NonStop services across the enterprise.
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ACI Monitoring and Management (formerly known as ENGUARD)
is a proactive monitoring, alarm and dispatching software tool.
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ACI DataWise is a transactional data management solution
that allows high volumes of transactional data to be moved
between
Stratus®
VOS systems, across different platforms and between
heterogeneous databases.
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ACI Simulation Services for Enterprise Testing (ASSET) is
a simulation and testing tool that allows companies involved in
electronic payments to simulate devices and transactions, and
perform application testing.
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Partnerships
and Industry Participation
We have two major types of third party partners: alliances,
where we work closely with industry leaders who drive key
industry trends and mandates, and product partners, where we
market or embed the products of other software companies.
We have strategic alliances with HP, IBM and Oracle whose
hardware and software are utilized by ACIs products. These
partnerships allow us to understand developments in their
technology and to utilize their expertise in topics like
performance testing.
In addition, we have a range of alliances that help us add value
to our solutions, stay abreast of current market conditions and
industry developments such as standards. Alliance organizations
include Diebold, NCR, Wincor-Nixdorf, VISA, MasterCard and
S.W.I.F.T. In addition ACI has membership in, and participates
in the relevant committees, of a number standard setting bodies,
such as the International Organization for Standardization
(ISO), Interactive Financial eXchange Forum
(IFX), UK Cards Association and the PCI Security
Standards Council.
Product partner relationships extend our product portfolio,
improve our ability to get our solutions to market and enhance
our ability to deliver market-leading solutions. We share
revenues with these product partners based on relative
responsibilities for the customer account. The agreements with
product partners generally grant us the right to embed their
technology within our applications, distribute, or represent
their products on a worldwide basis and have a term of several
years. The following is a list of currently active product
partners:
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Oracle (for its GoldenGate product)
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Ascert
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ACE Software Solutions
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Bell ID
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FairCom Corporation
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Paragon Application Systems
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Financial Software and Services
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IBM
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CB.Net
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RDM Corporation
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Intuit
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Vasco Data Security
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Metatomix
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Accuity
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RSA, The Security Division of EMC Corporation
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iPay Technologies
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Parsam Technologies
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Services
We offer our customers a wide range of professional services,
including analysis, design, development, implementation,
integration and training. We have service professionals within
each of our three geographic regions who generally perform the
majority of the work associated with installing and integrating
our software products, rather than relying on third-party
systems integrators. We offer the following types of services
for our customers:
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Implementation Services. We utilize a standard
methodology to deliver customer project implementations across
all products lines. Within the process, we provide customers
with a variety of services, including
on-site
solution scoping reviews, project planning, training, site
preparation, installation, product configuration, product
customization, testing and go-live support, and project
management throughout the project life cycle. Implementation
services are offered for a fee that varies based on the level
and quantity of included services.
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Technical Services. The majority of our
technical services are provided to customers who have licensed
one or more of our software products. Services offered include
programming and programming support,
day-to-day
systems operations, network operations, help desk staffing,
quality assurance testing, problem resolution, system design,
and performance planning and review. Technical services are
typically priced on a weekly basis according to the level of
technical expertise required and the duration of the project.
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Facilities Management. We offer facilities
management services whereby we operate a customers
electronic payments system for multi-year periods. Pricing and
payment terms for facilities management services vary on a
case-by-case
basis giving consideration to the complexity of the facility or
system to be managed, the level and quantity of technical
services required, and other factors relevant to the facilities
management agreement.
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ACI On Demand. We offer a service whereby we
host a customers system for them as opposed to the
customer licensing and installing the system on their own site.
We offer several of our solutions in this manner, including our
retail and wholesale payment engines, risk management and online
banking products. Each customer gets a unique image of the
system that can be tailored to meet their needs. The product is
generally located on facilities and hardware that we provide.
Pricing and payment terms depend on which solutions the customer
requires and their transaction volumes. Generally, customers are
required to commit to a minimum contract of three to five years.
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9
Customer
Support
We provide our customers with product support that is available
24 hours a day, seven days a week. If requested by a
customer, the product support group can remotely access that
customers systems on a real-time basis. This allows the
product support groups to help diagnose and correct problems to
enhance the continuous availability of a customers
business-critical systems. We offer our customers both a general
maintenance plan and an extended service option.
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General Maintenance. After software
installation and project completion, we provide maintenance
services to customers for a monthly fee. Maintenance services
include:
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24-hour
hotline for problem resolution
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Customer account management support
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Vendor-required mandates and updates
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Product documentation
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Hardware operating system compatibility
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User group membership
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Enhanced Support Program. Under the extended
service option, referred to as the Enhanced Support Program,
each customer is assigned an experienced technician to work with
its system. The technician typically performs functions such as:
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Install and test software fixes
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Retrofit custom software modifications (CSMs) into
new software releases
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Answer questions and resolve problems related to CSM code
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Maintain a detailed CSM history
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Monitor customer problems on HELP24 hotline database on a
priority basis
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Supply
on-site
support, available upon demand
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Perform an annual system review
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We provide new releases of our products on a periodic basis. New
releases of our products, which often contain product
enhancements, are typically provided at no additional fee for
customers under maintenance agreements. Agreements with our
customers permit us to charge for substantial product
enhancements that are not provided as part of the maintenance
agreement.
Competition
The electronic payments market is highly competitive and subject
to rapid change. Competitive factors affecting the market for
our products and services include product features, price,
availability of customer support, ease of implementation,
product and company reputation, and a commitment to continued
investment in research and development.
Our competitors vary by product line, geography and market
segment. Generally, our most significant competition comes from
in-house information technology departments of existing and
potential customers, as well as third-party electronic payments
processors (some of whom are our customers). Many of these
companies are significantly larger than us and have
significantly greater financial, technical and marketing
resources. Key competitors by product domain include the
following:
Initiate
Domain
Principal competitors for the Initiate product set are S1
Corporation, Fundtech Ltd, Fiserv, Inc., Intuit Corporation, and
Clear2Pay.
10
Manage
Domain
The third-party software competitors for the products in the
retail banking aspect of the manage domain are S1 Corporation,
OpenWay, Tieto Enator, TSYS and CSC as well as small,
regionally-focused companies such as Aleric Technology Inc.,
Distra Pty. Ltd., and Opus Software Solutions Private Limited.
Primary electronic payment processing competitors in this area
include global entities such as First Data Corporation, Fidelity
National Information Services, Inc., Total System Services
(TSYS), Atos Origin S.A., Euronet Worldwide, Inc., Visa and
MasterCard, as well as regional or country-specific processors.
In the wholesale banking side of the manage domain, the
principal competitors are Fundtech, Tieto, Clear2Pay, Dovetail,
Bottomline Technologies and a number of core banking processors.
Secure
Domain
Principal competitors for the products in the secure domain are
Fair Isaac Corporation, Norkom Technologies, Actimize, Inc., SAS
Institute, Inc., Fiserv, Inc., and Fortent Inc., as well as
dozens of smaller companies focused on niches of this segment
such as anti-money laundering.
Operate
Domain
The principal competitor for the operate domain products are HP,
IBM and Oracle, as well as dozens of small, niche-focused
competitors.
As markets continue to evolve in the electronic payments, risk
management and smartcard sectors, we may encounter new
competitors for our products and services. As electronic payment
transaction volumes increase and banks face price competition,
third-party processors may become stronger competition in our
efforts to market our solutions to smaller financial
institutions. In the larger financial institution market, we
believe that third-party processors may be less competitive
since large institutions attempt to differentiate their
electronic payment product offerings from their competition, and
are more likely to develop or continue to support their own
internally-developed solutions or use third-party software
packages such as those offered by us.
Research
and Development
Our product development efforts focus on new products and
improved versions of existing products. We facilitate user group
meetings. The user groups are generally organized geographically
or by product lines. The groups help us determine our product
strategy, development plans and aspects of customer support. We
believe that the timely development of new applications and
enhancements is essential to maintain our competitive position
in the market.
In developing new products, we work closely with our customers
and industry leaders to determine requirements. We work with
device manufacturers, such as Diebold, NCR and Wincor-Nixdorf,
to ensure compatibility with the latest ATM technology. We work
with interchange vendors, such as MasterCard and VISA, to ensure
compliance with new regulations or processing mandates. We work
with computer hardware and software manufacturers, such as HP,
IBM, Microsoft Corporation, Sun Microsystems, Inc. and Stratus
Technologies, Inc. to ensure compatibility with new operating
system releases and generations of hardware. Customers often
provide additional information on requirements and serve as
beta-test partners.
Our total research and development expenses during the years
ended December 31, 2009 and 2008, the three month period
ended December 31, 2007, and the year ended
September 30, 2007 were $77.5 million,
$75.9 million, $22.9 million, and $79.0 million,
or 19.1%, 18.2%, 22.7%, and 21.6%, of total revenues,
respectively.
Customers
We provide software products and services to customers in a
range of industries worldwide, with financial institutions,
retailers and
e-payment
processors comprising our largest industry segments. As of
December 31, 2009, our customers include more than 100 of
the 500 largest banks in the world, as measured by asset size, 7
of the top 12 retailers in the United States, as measured by
revenue, and nearly 100 retailers worldwide. As of
11
December 31, 2009, we had 749 customers in 88 countries on
six continents. Of this total, 383 are in the Americas
reportable segment, 235 are in the EMEA reportable segment and
131 are in the Asia/Pacific reportable segment. No single
customer accounted for more than 10% of our consolidated
revenues for the years ended December 31, 2009 and 2008,
the three-month period ended December 31, 2007, or the year
ended September 30, 2007.
Selling
and Marketing
Our primary method of distribution is direct sales by employees
assigned to specific regions or specific products. In addition,
we use distributors and sales agents to supplement our direct
sales force in countries where business practices or customs
make it appropriate, or where it is more economical to do so. We
generate a majority of our sales leads through existing
relationships with vendors, direct marketing programs, customers
and prospects, or through referrals.
Key international distributors and sales agents for us during
the year ended December 31, 2009 included:
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PTESA (Columbia)
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PTESAVEN (Venezuela)
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North Data (Uruguay)
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Hewlett Packard Peru (Peru)
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P.T. Abhimata Persada (Indonesia)
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Financial Software and Systems (India)
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Korea Computer & Systems (Korea)
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DataOne Asia Co (Thailand)
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Optimisa (Chile)
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Simba Technology (Kenya)
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Systems Builder (Saudi Arabia)
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Syscom Computer Engineering (Taiwan)
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Syscom Computer (Shenzhen) (China)
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We distribute the products of other vendors as complements to
our existing product lines. We are typically responsible for the
sales and marketing of the vendors products, and
agreements with these vendors generally provide for revenue
sharing based on relative responsibilities.
In addition to our principal sales office in Omaha, we also have
sales offices located outside the United States in Athens,
Bahrain, Beijing, Buenos Aires, Dubai Internet City, Gouda,
Kuala Lumpur, Johannesburg, Madrid, Manila, Melbourne, Mexico
City, Milan, Moscow, Mumbai, Naples, Paris, Riyadh, Sao Paulo,
Seoul, Shanghai, Singapore, Sulzbach, Sydney, Tokyo, Toronto,
and Watford.
Proprietary
Rights and Licenses
We rely on a combination of trade secret and copyright laws,
license agreements, contractual provisions and confidentiality
agreements to protect our proprietary rights. We distribute our
software products under software license agreements that
typically grant customers nonexclusive licenses to use our
products. Use of our software products is usually restricted to
designated computers, specified locations
and/or
specified capacity, and is subject to terms and conditions
prohibiting unauthorized reproduction or transfer of our
software products. We also seek to protect the source code of
our software as a trade secret and as a copyrighted work.
Despite these precautions, there can be no assurance that
misappropriation of our software products and technology will
not occur.
In addition to our own products, we distribute, or act as a
sales agent for, software developed by third parties. However,
we typically are not involved in the development process used by
these third parties. Our rights to those
12
third-party products and the associated intellectual property
rights are limited by the terms of the contractual agreement
between us and the respective third-party.
Although we believe that our owned and licensed intellectual
property rights do not infringe upon the proprietary rights of
third parties, there can be no assurance that third parties will
not assert infringement claims against us. Further, there can be
no assurance that intellectual property protection will be
available for our products in all foreign countries.
Like many companies in the electronic commerce and other
high-tech industries, third parties have in the past and may in
the future assert claims or initiate litigation related to
patent, copyright, trademark or other intellectual property
rights to business processes, technologies and related standards
that are relevant to us and our customers. These assertions have
increased over time as a result of the general increase in
patent claims assertions, particularly in the United States.
Third parties may also claim that the third-partys
intellectual property rights are being infringed by our
customers use of a business process method which utilizes
products in conjunction with other products, which could result
in indemnification claims against us by our customers. Any claim
against us, with or without merit, could be time-consuming,
result in costly litigation, cause product delivery delays,
require us to enter into royalty or licensing agreements or pay
amounts in settlement, or require us to develop alternative
non-infringing technology. We could also be required to defend
or indemnify our customers against such claims. A successful
claim by a third-party of intellectual property infringement by
us or one of our customers could compel us to enter into costly
royalty or license agreements, pay significant damages or even
stop selling certain products and incur additional costs to
develop alternative non-infringing technology.
Segment
Information and Foreign Operations
We derive a significant portion of our revenues from foreign
operations. For detail of revenue by geographic region see
Note 12, Segment Information, in the Notes to
Consolidated Financial Statements.
Employees
As of December 31, 2009, we had a total of approximately
2,114 employees of whom 1,121 were in the Americas
reportable segment, 610 were in the EMEA reportable segment and
383 were in the Asia/Pacific reportable segment.
None of our employees are subject to a collective bargaining
agreement. We believe that relations with our employees are good.
Available
Information
Our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (the Exchange Act), are available free of
charge on our website at www.aciworldwide.com as soon as
reasonably practicable after we file such information
electronically with the SEC. The information found on our
website is not part of this or any other report we file with or
furnish to the SEC. The public may read and copy any materials
that we file with the SEC at the SECs Public Reference
Room at 100 F Street, Room 1580, NW, Washington
DC 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC maintains an Internet site that contains reports, proxy
and information statements, and other information regarding
issuers that file electronically with the SEC at
www.sec.gov.
13
Executive
Officers of the Registrant
As of February 26, 2010, our executive officers, their ages
and their positions were as follows.
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Name
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Age
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Position
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Philip G. Heasley
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60
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President, Chief Executive Officer and Director
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Scott W. Behrens
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38
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Senior Vice President, Chief Financial Officer, Controller and
Chief Accounting Officer
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J. Ronald Totaro
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46
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Senior Vice President and Chief Operating Officer
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Craig A. Maki
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43
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Senior Vice President, Treasurer and Chief Corporate Development
Officer
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Dennis P. Byrnes
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46
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Senior Vice President, General Counsel and Secretary
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David N. Morem
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52
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Senior Vice President, Global Business Operations
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Charles H. Linberg
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52
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Vice President, Chief Technology Officer
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Mr. Heasley has been a director and our President and Chief
Executive Officer since March 2005. Mr. Heasley has a
comprehensive background in payment systems and financial
services. From October 2003 to March 2005, Mr. Heasley
served as Chairman and Chief Executive Officer of PayPower LLC,
an acquisition and consulting firm specializing in financial
services and payment services. Mr. Heasley served as
Chairman and Chief Executive Officer of First USA Bank from
October 2000 to November 2003. Prior to joining First USA Bank,
from 1987 until 2000, Mr. Heasley served in various
capacities for U.S. Bancorp, including Executive Vice
President, and President and Chief Operating Officer. Before
joining U.S. Bancorp, Mr. Heasley spent 13 years
at Citicorp, including three years as President and Chief
Operating Officer of Diners Club, Inc. Mr. Heasley is also
a director of Tier Technologies, Inc. (NASDAQ: TIER), a
provider of electronic payment biller-direct solutions, and
Lender Processing Services, Inc. (NYSE: LPS), a provider of
mortgage processing services, settlement services, mortgage
performance analytics and default solutions. Mr. Heasley
also serves on the National Infrastructure Advisory Board.
Mr. Behrens serves as Senior Vice President, Chief
Financial Officer, Controller and Chief Accounting Officer.
Mr. Behrens joined ACI in June 2007 as the Companys
Controller and Chief Accounting Officer. Mr. Behrens was
appointed Chief Financial Officer in December 2008. Prior to
joining ACI, Mr. Behrens served as Senior Vice President,
Corporate Controller and Chief Accounting Officer at SITEL
Corporation from January 2005 to June 2007. He also served as
Vice President of Financial Reporting at SITEL Corporation from
April 2003 to January 2005. From 1993 to 2003, Mr. Behrens
was with Deloitte & Touche, LLP, including two years
as a Senior Audit Manager. Mr. Behrens holds a Bachelor of
Science (Honors) from the University of Nebraska
Lincoln.
Mr. Totaro joined the Company in March 2008 and serves as
Senior Vice President and Chief Operating Officer.
Mr. Totaro is responsible for strategic planning, sales
operations and global products. Prior to joining ACI, he was
Vice President and General Manager of global credit scoring
solutions at Fair Isaac Corporation. Mr. Totaro was Vice
President of Interactive Marketing and Media at AOL Time Warner
from 2000 to 2002 and previously held management positions at
Andersen Consulting LLP, GE Capital Corporation and American
Express TRS Company. Mr. Totaro holds an undergraduate
degree from the State University of New York and a Master of
Business Administration from the Ross School of Business at the
University of Michigan.
Mr. Maki serves as Senior Vice President, Treasurer and
Chief Corporate Development Officer. Mr. Maki joined the
Company in June 2006. Mr. Maki was appointed Treasurer in
January 2008. Prior to joining the Company, Mr. Maki served
as Senior Vice President for Stephens, Inc. from 1999 through
2006. From 1994 to 1999, Mr. Maki was a Director in the
Corporate Finance group at Arthur Andersen and from 1991 to
1994, he was a Senior Consultant at Andersen Consulting.
Mr. Maki graduated from the University of Wyoming and
received his Master of Business Administration from the
University of Denver.
Mr. Byrnes serves as Senior Vice President, Chief
Administrative Officer, General Counsel and Secretary.
Mr. Byrnes joined the Company in June 2003. Prior to that
Mr. Byrnes served as an attorney in Bank One
Corporations technology group from 2002. From 1996 to 2002
Mr. Byrnes was an executive officer at Sterling Commerce,
Inc., an electronic commerce software and services company,
serving as that companys general counsel from 2000. From
1991 to 1996 Mr. Byrnes was an attorney with Baker
Hostetler, a national law firm with over 600 attorneys.
Mr. Byrnes holds a JD (cum laude) from The Ohio State
University College of Law, a Master of Business Administration
from Xavier University and a Bachelor of Science in engineering
(magna cum laude) from Case Western Reserve University.
14
Mr. Morem joined the Company in June 2005 and serves as
Senior Vice President, Global Business Operations. Prior to his
appointment as Senior Vice President, Global Business Operations
in January 2008, Mr. Morem served as Chief Administrative
Officer of the Company. Prior to joining ACI, Mr. Morem
held executive positions at GE Home Loans, Bank One Card
Services and U.S. Bank. Mr. Morem brings more than
25 years of experience in process management, finance,
credit operations, credit policy and change management.
Mr. Morem holds a B.A. degree from the University of
Minnesota and a Master of Business Administration from the
University of St. Thomas.
Mr. Linberg serves as Vice President and Chief Technology
Officer. In this capacity he is responsible for the
architectural direction of ACI products including the formation
of platform, middleware and integration strategies. A graduate
of the University of Delaware, Mr. Linberg joined ACI in
1988 and has served in various technical management roles
including Vice President of Payment Systems, Vice President of
Architecture and Technology, Vice President of BASE24
Development and Vice President of Network Systems. Prior to
joining ACI, Mr. Linberg was Vice President of Research and
Development at XRT, Inc., where he led the development of
XRTs proprietary fault-tolerant LAN/WAN communications
middleware, relational database and 4GL products.
Factors
That May Affect Our Future Results or the Market Price of Our
Common Stock
We operate in a rapidly changing technological and economic
environment that presents numerous risks. Many of these risks
are beyond our control and are driven by factors that often
cannot be predicted. The following discussion highlights some of
these risks.
The
global financial crisis affecting the banking system and
financial markets and the current global economic conditions
could reduce the demand for our products and services or
otherwise adversely impact our cash flows, operating results and
financial condition.
The global financial crisis, declining real estate and retail
markets, changes in bank credit quality in the
United States or abroad, extreme capital and credit market
volatility, higher unemployment and declining business and
consumer confidence have precipitated a global recession. The
global electronic payments industry and the banking and
financial services industries depend heavily upon the overall
levels of consumer, business and government spending. For the
foreseeable future, we expect to derive most of our revenue from
products and services we provide to the banking and financial
services industries. The current economic conditions could
result in a decrease in consumers use of banking services
and financial service providers and the implementation by banks
and related financial service providers of cost reduction
measures which could result in significant decreases in the
demand for our products and services and adversely affect our
operating results.
Moreover, to the degree that the financial crisis and the
volatility in the credit markets makes it more difficult for our
customers to maintain sufficient liquidity to meet their
operating needs or obtain financing, customers may be unable to
timely meet their payment obligations to us and we may
experience greater difficulties in accounts receivable
collection, increases in bad debt write-offs and additions to
reserves in our receivables portfolio which could have a
material adverse impact on our cash flows, operating results and
financial condition.
Our
current credit facility contains restrictions and other
financial covenants that limit our flexibility in operating our
business.
Our credit facility contains customary affirmative and negative
covenants for credit facilities of this type that limit our
ability to engage in specified types of transactions. These
covenants limit our ability, and the ability of our
subsidiaries, to, among other things: pay dividends on,
repurchase or make distributions in respect of our capital stock
or make other restricted payments; make certain investments;
sell certain assets; create liens; incur additional indebtedness
or issue certain preferred shares; consolidate, merge, sell or
otherwise dispose of all or substantially all of our assets; and
enter into certain transactions with our affiliates. Our credit
facility also requires us to meet certain quarterly financial
tests, including a maximum leverage ratio and a minimum interest
coverage ratio. Our credit facility includes customary events of
default, including, but not limited to, failure to pay principal
or interest, breach of covenants or representations and
warranties, cross-default to other indebtedness, judgment
default and insolvency. If an event of default occurs under the
credit facility, the lenders will be entitled to take various
actions, including, but not limited to, demanding payment for
all amounts outstanding. If adverse global economic conditions
persist or worsen, we could experience decreased revenues from
our operations attributable to reduced
15
demand for our products and services and as a result, we could
fail to satisfy the financial and other restrictive covenants to
which we are subject under our existing credit facility,
resulting in an event of default. If we are unable to cure the
default or obtain a waiver, we will not be able to access our
credit facility and we cannot assure you that we would be able
to obtain alternative financing.
The
volatility and disruption of the capital and credit markets and
adverse changes in the global economy may negatively impact our
liquidity and our ability to access financing.
While we intend to finance our operations and growth of our
business with existing cash and cash flow from operations, if
adverse global economic conditions persist or worsen, we could
experience a decrease in cash from operations attributable to
reduced demand for our products and services and as a result, we
may need to borrow additional amounts under our existing credit
facility or we may require additional financing for our
continued operation and growth. However, due to the existing
uncertainty in the capital and credit markets and the impact of
the current economic crisis on our operating results and
financial conditions, the amount of available unused borrowings
under our existing credit facility may be insufficient to meet
our needs
and/or our
access to capital outside of our existing credit facility may
not be available on terms acceptable to us or at all.
Additionally, if one or more of the financial institutions in
our syndicate were to default on its obligation to fund its
commitment, the portion of the committed facility provided by
such defaulting financial institution would not be available to
us. We cannot assure you that alternative financing on
acceptable terms would be available to replace any defaulted
commitments.
Our
announced restructuring and efficiency efforts as part of the
implementation of our strategic plan may not achieve the
expected efficiencies and cost savings which could affect our
results of operations and financial condition.
In August 2008 we announced the implementation of our strategic
plan and our expectations related to certain cost take-outs
during 2008 and 2009 to be achieved primarily through a
reduction in the work force, reallocation of headcount to
different geographies and consolidation of non-core products and
facilities. While we expect our cost saving initiatives to
result in significant cost savings throughout our organization,
our estimated savings are based on several assumptions that may
prove to be inaccurate, and as a result we cannot assure you
that we will realize these cost savings. The failure to achieve
our estimated cost savings, or a significant delay in our
achievement of the expected benefits, could negatively affect
our financial condition and results of operations. Factors that
could cause actual results to differ materially from our
expectations with regard to our announced restructuring include:
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timing and execution of plans and programs that may be subject
to local labor law requirements, including consultation with
appropriate work councils;
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changes in assumptions related to severance and postretirement
costs;
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risks associated with litigation for wrongful termination;
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new business initiatives and changes in product roadmaps and
development efforts;
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changes in employment levels and turnover rates; and
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changes in product demand and the business environment.
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While we have and will continue to implement these strategies,
there can be no assurance that we will be able to do so
successfully or that we will realize the projected benefits of
these and other cost saving plans. If we are unable to realize
these anticipated cost reductions, our financial health may be
adversely affected. Moreover, our continued implementation of
cost saving plans may result in the continued diversion of
management time and resources and the disruption of our
operations, services to customers and performance.
We may
face risks related to recent restatements of our financial
statements.
Prior to filing the 2008 Annual Report, we determined that we
needed to restate our consolidated financial statements for the
quarter ended March 31, 2008 to make adjustments related to
the recognition of $1.9 million of revenue during that
quarter for a software project in the Asia/Pacific reportable
operating segment which should have been deferred until further
project milestones were achieved. As a result, we also amended
our quarterly reports on
Form 10-Q/A
for the periods ended June 30, 2008 and September 30,
2008 to report
year-to-date
data
16
reflecting the adjustments made in the restated consolidated
financial statements for the quarter ended March 31, 2008.
In addition, during fiscal 2007, we restated our consolidated
balance sheet as of September 30, 2005, and our
consolidated statements of operations, our consolidated
statements of stockholders equity and comprehensive income
and consolidated statements of cash flows for each of the years
ended September 30, 2005 and 2004. In addition, we restated
selected financial data for fiscal years 2004, 2003 and 2002.
Companies that restate their financial statements sometimes face
litigation claims
and/or SEC
proceedings following such a restatement. We could face monetary
judgments, penalties or other sanctions which could adversely
affect our financial condition and could cause our stock price
to decline.
Consolidation
in the financial services industry may adversely impact the
number of customers and our revenues in the
future.
Mergers, acquisitions and personnel changes at key financial
services organizations have the potential to adversely affect
our business, financial condition, and results of operations.
Our business is concentrated in the financial services industry,
making us susceptible to a downturn in that industry.
Consolidation activity among financial institutions has
increased in recent years. There are several potential negative
effects of increased consolidation activity. Continuing
consolidation of financial institutions could cause us to lose
existing and potential customers for our products and services.
For instance, consolidation of two of our customers could result
in reduced revenues if the combined entity were to negotiate
greater volume discounts or discontinue use of certain of our
products. Additionally, if a non-customer and a customer combine
and the combined entity in turn decided to forego future use of
our products, our revenues would decline.
Most
of our customers are in the banking and financial services
industries which are subject to economic changes that could
reduce the demand for our products and services.
For the foreseeable future, we expect to derive most of our
revenue from products and services we provide to the banking and
financial services industries. Our financial condition depends
on the health of the general economy as well as the software
sector and financial services industry as our revenue and
profits are driven by demand for our products and services.
Changes in economic conditions and unforeseen events like
recession, the current financial and mortgage crisis, inflation
or changes in bank credit quality in the United States or
abroad, could occur and reduce consumers use of banking
services and financial service providers. Any event of this
kind, or implementation for any reason by banks or related
financial service providers of cost reduction measures, could
result in significant decreases in the demand for our products
and services and adversely affect our operating results. When an
economy is struggling, companies in many industries delay or
reduce technology purchases. A lessening demand in either the
overall economy, the software sector or the financial services
industry could result in reduced capital spending by our
customers, longer sales cycles, deferral or delay of purchase
commitments for our products and increased price competition
which could lead to a material decrease in our future revenues
and earnings.
Managements
backlog estimate may not be accurate and may not generate the
predicted revenues.
Estimates of future financial results are inherently unreliable.
Our backlog estimates require substantial judgment and are based
on a number of assumptions, including managements current
assessment of customer and third party contracts that exist as
of the date the estimates are made, as well as revenues from
assumed contract renewals, to the extent that we believe that
recognition of the related revenue will occur within the
corresponding backlog period. A number of factors could result
in actual revenues being less than the amounts reflected in
backlog. Our customers or third party partners may attempt to
renegotiate or terminate their contracts for a number of
reasons, including mergers, changes in their financial
condition, or general changes in economic conditions within
their industries or geographic locations, or we may experience
delays in the development or delivery of products or services
specified in customer contracts. Actual renewal rates and
amounts may differ from historical experiences used to estimate
backlog amounts. Changes in foreign currency exchange rates may
also impact the amount of revenue actually recognized in future
periods. Accordingly, there can be no assurance that contracts
included in backlog will actually generate the specified
revenues or that the actual revenues will be generated within a
12-month
17
or 60-month
period. Additionally, because backlog estimates are operating
metrics, the estimates are not subject to the same level of
internal review or controls as a generally accepted accounting
principles (GAAP) financial measure.
Our
revenue and earnings are highly cyclical and our quarterly
results fluctuate significantly.
Our revenue and earnings are highly cyclical causing significant
quarterly fluctuations in our financial results. Revenue and
operating results are usually strongest during the third and
fourth fiscal quarters ending September 30 and December 31
primarily due to the sales and budgetary cycles of our
customers. We experience lower revenues, and possible operating
losses, in the first and second quarters ending March 31 and
June 30. Our financial results may also fluctuate from
quarter to quarter and year to year due to a variety of factors,
including changes in product sales mix that affect average
selling prices; and the timing of customer renewals (any of
which may impact the pattern of revenue recognition).
We may
face exposure to unknown tax liabilities, which could adversely
affect our financial condition
and/or
results of operations.
We are subject to income and non-income based taxes in the
United States and in various foreign jurisdictions. Significant
judgment is required in determining our worldwide income tax
liabilities and other tax liabilities. In addition, we expect to
continue to benefit from implemented tax-saving strategies. We
believe that these tax-saving strategies comply with applicable
tax law. If the governing tax authorities have a different
interpretation of the applicable law and successfully challenge
any of our tax positions, our financial condition
and/or
results of operations could be adversely affected.
Our tax positions in our United States federal income tax
returns filed for the 2005 and 2006 tax years are the subject of
an ongoing examination by the Internal Revenue Service
(IRS). We believe that our tax positions comply with
applicable tax law and intend to vigorously defend our
positions. This examination could result in the IRS issuing
proposed adjustments that could adversely affect our financial
condition
and/or
results of operations.
One of our foreign subsidiaries is the subject of a tax
examination by the local taxing authorities. Other foreign
subsidiaries could face challenges from various foreign tax
authorities. It is not certain that the local authorities will
accept our tax positions. We believe our tax positions comply
with applicable tax law and intend to vigorously defend our
positions. However, differing positions on certain issues could
be upheld by foreign tax authorities, which could adversely
affect our financial condition
and/or
results of operations.
Our
stock price may be volatile.
Prices on the global financial markets for equity securities
declined precipitously since September 2008. No assurance can be
given that operating results will not vary from quarter to
quarter, and past performance may not accurately predict future
performance. Any fluctuations in quarterly operating results may
result in volatility in our stock price. Our stock price may
also be volatile, in part, due to external factors such as
announcements by third parties or competitors, inherent
volatility in the technology sector, and changing market
conditions in the software industry.
There
are a number of risks associated with our international
operations, including, exposure to fluctuations in currency
exchange rates, that could have a material impact on our
operations and financial condition.
We have historically derived a majority of our revenues from
international operations and anticipate continuing to do so. As
a result, we are subject to risks of conducting international
operations. One of the principal risks associated with
international operations is potentially adverse movements of
foreign currency exchange rates. Our exposures resulting from
fluctuations in foreign currency exchange rates may change over
time as our business evolves and could have an adverse impact on
our financial condition
and/or
results of operations. We have not entered into any derivative
instruments or hedging contracts to reduce exposure to adverse
foreign currency changes.
18
Other potential risks include difficulties associated with
staffing and management, reliance on independent distributors,
longer payment cycles, potentially unfavorable changes to
foreign tax rules, compliance with foreign regulatory
requirements, reduced protection of intellectual property
rights, variability of foreign economic conditions, governmental
currency controls, difficulties in enforcing our contracts in
foreign jurisdictions, and general economic and political
conditions in the countries where we sell our products and
services. Some of our products may contain encrypted technology,
the export of which is regulated by the United States
government. Changes in United States and other applicable export
laws and regulations restricting the export of software or
encryption technology could result in delays or reductions in
our shipments of products internationally.
The
software market is a rapidly changing and highly competitive
industry, and we may not be able to compete
effectively.
The software market is characterized by rapid change, evolving
technologies and industry standards and intense competition.
There is no assurance that we will be able to maintain our
current market share or customer base. We face intense
competition in our business and we expect competition to remain
intense in the future. We have many competitors that are
significantly larger than us and have significantly greater
financial, technical and marketing resources, have
well-established relationships with our current or potential
customers, advertise aggressively or beat us to the market with
new products and services. In addition, we expect that the
markets in which we compete will continue to attract new
competitors and new technologies. Increased competition in our
markets could lead to price reductions, reduced profits, or loss
of market share. The current global economic conditions could
also result in increased price competition for our products and
services.
To compete successfully, we need to maintain a successful
research and development effort. If we fail to enhance our
current products and develop new products in response to changes
in technology and industry standards, bring product enhancements
or new product developments to market quickly enough, or
accurately predict future changes in our customers needs
and our competitors develop new technologies or products, our
products could become less competitive or obsolete.
We are
engaged in offshore software development activities, which may
not be successful and which may put our intellectual property at
risk.
As part of our globalization strategy and to optimize available
research and development resources, in fiscal 2006 we
established a new subsidiary in Ireland to serve as the focal
point for certain international product development and
commercialization efforts. This subsidiary oversees remote
software development operations in Romania and elsewhere, as
well as manages certain of our intellectual property rights.
While our experience to date with our offshore development
centers has been positive, there is no assurance that this will
continue. Specifically, there are a number of risks associated
with this activity, including but not limited to the following:
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communications and information flow may be less efficient and
accurate as a consequence of the time, distance and language
differences between our primary development organization and the
foreign based activities, resulting in delays in development or
errors in the software developed;
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in addition to the risk of misappropriation of intellectual
property from departing personnel, there is a general risk of
the potential for misappropriation of our intellectual property
that might not be readily discoverable;
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the quality of the development efforts undertaken offshore may
not meet our requirements because of language, cultural and
experiential differences, resulting in potential product errors
and/or
delays;
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potential disruption from the involvement of the United States
in political and military conflicts around the world; and
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currency exchange rates could fluctuate and adversely impact the
cost advantages intended from maintaining these facilities.
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19
One of
our most strategic products, BASE24-eps, could prove to be
unsuccessful in the market.
Our BASE24-eps product is strategic for us, in that it is
designated to help us win new accounts, replace legacy payments
systems on multiple hardware platforms and help us transition
our existing customers to a new, open-systems product
architecture. Our business, financial condition
and/or
results of operations could be materially adversely affected if
we are unable to generate adequate sales of BASE24-eps, if
market acceptance of BASE24-eps is delayed, or if we are unable
to successfully deploy BASE24-eps in production environments.
Our
announcement of the maturity of certain legacy retail payment
products may result in decreased customer investment in our
products and our strategy to migrate customers to our next
generation products may be unsuccessful which may adversely
impact our business and financial condition, including the
timing of revenue recognition associated with the legacy retail
payment products.
Our announcement related to the maturity of certain retail
payment engines may result in customer decisions not to purchase
or otherwise invest in these engines, related products
and/or
services. Alternatively, the maturity of these products may
result in delayed customer purchase decisions or the
renegotiation of contract terms based upon scheduled maturity
activities. In addition, our strategy related to migrating
customers to our next generation products may be unsuccessful.
Reduced investments in our products, deferral or delay in
purchase commitments by our customers or our failure to
successfully manage our migration strategy could have a material
adverse effect on our business, liquidity and financial
condition.
Our
announcement of the maturity of certain legacy retail payment
products, and customer migrations to our next generation
products, may result in ratable or deferred recognition of
certain revenue associated with the legacy retail payment
products.
As a result of the maturity announcement, certain up-front fees
associated with the legacy payment engines, including initial
license fees, may become subject to ratable revenue recognition
over time rather than up front at the time of contract. This
will result in a delay in the recognition of these up-front
fees. Additionally, customers may negotiate terms associated
with their migration to Base24-eps which may cause the
recognition of revenue associated with the customers
legacy payment engine to be deferred pending the completion of
the migration.
Our
future profitability depends on demand for our products; lower
demand in the future could adversely affect our
business.
Our revenue and profitability depend on the overall demand for
our products and services. Historically, a majority of our total
revenues resulted from licensing our BASE24 product line and
providing related services and maintenance. Any reduction in
demand for, or increase in competition with respect to, the
BASE24 product line could have a material adverse effect on our
financial condition
and/or
results of operations.
We have historically derived a substantial portion of our
revenues from licensing of software products that operate on HP
NonStop servers. Any reduction in demand for HP NonStop servers,
or any change in strategy by HP related to support of its
NonStop servers, could have a material adverse effect on our
financial condition
and/or
results of operations.
Failure
to obtain renewals of customer contracts or obtain such renewals
on favorable terms could adversely affect our results of
operations and financial
condition.
Failure to achieve favorable renewals of customer contracts
could negatively impact our business. Our contracts with our
customers generally run for a period of five years. At the end
of the contract term, customers have the opportunity to
renegotiate their contracts with us and to consider whether to
engage one of our competitors to provide products and services.
Failure to achieve high renewal rates on commercially favorable
terms could adversely affect our results of operations and
financial condition.
20
The
delay or cancellation of a customer project, or inaccurate
project completion estimates, may adversely affect our operating
results and financial performance.
Any unanticipated delays in a customer project, changes in
customer requirements or priorities during the project
implementation period, or a customers decision to cancel a
project, may adversely impact our operating results and
financial performance. In addition, during the project
implementation period, we perform ongoing estimates of the
progress being made on complex and difficult projects and
documenting this progress is subject to potential inaccuracies.
Changes in project completion estimates are heavily dependent on
the accuracy of our initial project completion estimates and our
ability to evaluate project profits and losses. Any inaccuracies
or changes in estimates resulting from changes in customer
requirements, delays or inaccurate initial project completion
estimates may result in increased project costs and adversely
impact our operating results and financial performance.
If we
experience business interruptions or failure of our information
technology and communication systems, the availability of our
products and services could be interrupted which could adversely
effect our reputation, business and financial
condition.
Our ability to provide reliable service in a number of our
businesses depends on the efficient and uninterrupted operation
of our data centers, information technology and communication
systems, and those of our external service providers. As we
continue to grow our On Demand business, our dependency on the
continuing operation and availability of these systems
increases. Our systems and data centers, and those of our
external service providers, could be exposed to damage or
interruption from fire, natural disasters, power loss,
telecommunications failure, unauthorized entry and computer
viruses. Although we have taken steps to prevent system failures
and we have installed
back-up
systems and procedures to prevent or reduce disruption, such
steps may not be sufficient to prevent an interruption of
services and our disaster recovery planning may not account for
all eventualities. Further, our property and business
interruption insurance may not be adequate to compensate us for
all losses or failures that may occur.
An operational failure or outage in any of these systems, or
damage to or destruction of these systems, which causes
disruptions in our services, could result in loss of customers,
damage to customer relationships, reduced revenues and profits,
refunds of customer charges and damage to our brand and
reputation and may require us to incur substantial additional
expense to repair or replace damaged equipment and recover data
loss caused by the interruption. Any one or more of the
foregoing occurrences could have a material adverse effect on
our reputation, business, financial condition and results of
operations.
If we
are unable to successfully perform under the terms of our
alliance with IBM or our customers are not receptive to the
alliance, our business, financial condition
and/or
results of operations may be adversely affected.
In December 2007, we entered into a Master Alliance Agreement
and certain other related agreements with IBM to create a
strategic alliance between us and IBM (the
Alliance). Pursuant to the Alliance Agreement, we
agreed to enable our payment application software products on
certain of IBMs hardware platforms, including the IBM
System z Platform and we agreed to enter into collective sales
and marketing efforts with IBM to offer a combination of ACI and
IBM solutions. We cannot be certain that we will be able to
successfully enable our products on IBMs hardware
platforms or that our customers and potential customers will be
receptive to this Alliance or our new sales and marketing
strategy. If we are unable to enable our software products on
the IBM hardware platforms or the market does not react
positively to the Alliance, our business, financial condition
and/or
results of operations could be materially adversely affected.
Our
outsourcing agreement with IBM may not achieve the level of
savings that we anticipate and many associated changes in
systems and personnel are being made, increasing operational and
control risk during transition, which may have an impact on the
business and its financial condition.
Our seven-year outsourcing agreement with IBM is estimated to
deliver operating cost savings for us of $25 million to
$30 million over the course of the contract and reduce our
capital expenditures. The estimated cost
21
savings and capital expenditure reductions are dependent upon
many factors, and unanticipated changes in operations may cause
actual cost savings and capital expenditure reductions to be
substantially less than expected.
In addition, as a part of the outsourcing agreement, many
functions have been transitioned to IBM and many new personnel
are assuming responsibilities across these functions, increasing
the risk of operational delays, potential errors and control
failures which may have an impact on us and our financial
condition. Additionally, new information technology systems and
process changes are also being put into place increasing the
risk of operational delays, potential errors and control
failures which may have an adverse impact on us and our
financial condition.
Our
software products may contain undetected errors or other
defects, which could damage our reputation with customers,
decrease profitability, and expose us to
liability.
Our software products are complex. Software typically contains
bugs or errors that can unexpectedly interfere with the
operation of the software products. Our software products may
contain undetected errors or flaws when first introduced or as
new versions are released. These undetected errors may result in
loss of, or delay in, market acceptance of our products and a
corresponding loss of sales or revenues. Customers depend upon
our products for mission-critical applications, and these errors
may hurt our reputation with customers. In addition, software
product errors or failures could subject us to product
liability, as well as performance and warranty claims, which
could materially adversely affect our business, financial
condition
and/or
results of operations.
Security
breaches or computer viruses could harm our business by
disrupting delivery of services and damaging our
reputation.
As part of our business, we electronically receive, process,
store, and transmit sensitive business information of our
customers. Unauthorized access to our computer systems or
databases could result in the theft or publication of
confidential information or the deletion or modification of
records or could otherwise cause interruptions in our
operations. These concerns about security are increased when we
transmit information over the Internet. Security breaches in
connection with the delivery of our products and services,
including products and services utilizing the Internet, or
well-publicized security breaches, and the trend toward broad
consumer and general public notification of such incidents,
could significantly harm our business, financial condition
and/or
results of operations. We cannot be certain that advances in
criminal capabilities, discovery of new vulnerabilities,
attempts to exploit vulnerabilities in our systems, data thefts,
physical system or network break-ins or inappropriate access, or
other developments will not compromise or breach the technology
protecting our networks and confidential information. Computer
viruses have also been distributed and have rapidly spread over
the Internet. Computer viruses could infiltrate our systems,
disrupting our delivery of services and making our applications
unavailable. Any inability to prevent security breaches or
computer viruses could also cause existing customers to lose
confidence in our systems and terminate their agreements with
us, and could inhibit our ability to attract new customers.
If our
products and services fail to comply with government regulations
and industry standards to which our customers are subject, it
could result in a loss of customers and decreased
revenue.
Our customers are subject to a number of government regulations
and industry standards with which our products and services must
comply. For example, our products are affected by VISA and
MasterCard electronic payment standards that are generally
updated twice annually. In addition, action by regulatory
authorities relating to credit availability, data usage,
privacy, or other related regulatory developments could have an
adverse effect on our customers and therefore could have a
material adverse effect on our business, financial condition,
and results of operations.
If we
fail to comply with privacy regulations imposed on providers of
services to financial institutions, our business could be
harmed.
As a provider of services to financial institutions, we may be
bound by the same limitations on disclosure of the information
we receive from our customers as apply to the financial
institutions themselves. If we are subject to these limitations
and we fail to comply with applicable regulations, we could be
exposed to suits for breach of contract or to governmental
proceedings, our customer relationships and reputation could be
harmed, and we could
22
be inhibited in our ability to obtain new customers. In
addition, if more restrictive privacy laws or rules are adopted
in the future on the federal or state level, or, with respect to
our international operations, by authorities in foreign
jurisdictions on the national, provincial, state, or other
level, that could have an adverse impact on our business.
We may
be unable to protect our intellectual property and technology
and may be subject to increasing litigation over our
intellectual property rights.
To protect our proprietary rights in our intellectual property,
we rely on a combination of contractual provisions, including
customer licenses that restrict use of our products,
confidentiality agreements and procedures, and trade secret and
copyright laws. Despite such efforts, we may not be able to
adequately protect our proprietary rights, or our competitors
may independently develop similar technology, duplicate
products, or design around any rights we believe to be
proprietary. This may be particularly true in countries other
than the United States because some foreign laws do not protect
proprietary rights to the same extent as certain laws of the
United States. Any failure or inability to protect our
proprietary rights could materially adversely affect our
business.
There has been a substantial amount of litigation in the
software industry regarding intellectual property rights. Third
parties have in the past, and may in the future, assert claims
or initiate litigation related to exclusive patent, copyright,
trademark or other intellectual property rights to business
processes, technologies and related standards that are relevant
to us and our customers. These assertions have increased over
time as a result of the general increase in patent claims
assertions, particularly in the United States. Because of the
existence of a large number of patents in the electronic
commerce field, the secrecy of some pending patents and the
rapid issuance of new patents, it is not economical or even
possible to determine in advance whether a product or any of its
components infringes or will infringe on the patent rights of
others. Any claim against us, with or without merit, could be
time-consuming, result in costly litigation, cause product
delivery delays, require us to enter into royalty or licensing
agreements or pay amounts in settlement, or require us to
develop alternative non-infringing technology.
We anticipate that software product developers and providers of
electronic commerce solutions could increasingly be subject to
infringement claims, and third parties may claim that our
present and future products infringe upon their intellectual
property rights. Third parties may also claim, and we are aware
that at least two parties have claimed on several occasions,
that our customers use of a business process method which
utilizes our products in conjunction with other products
infringe on the third-partys intellectual property rights.
These third-party claims could lead to indemnification claims
against us by our customers. Claims against our customers
related to our products, whether or not meritorious, could harm
our reputation and reduce demand for our products. Where
indemnification claims are made by customers, resistance even to
unmeritorious claims could damage the customer relationship. A
successful claim by a third-party of intellectual property
infringement by us or one of our customers could compel us to
enter into costly royalty or license agreements, pay significant
damages, or stop selling certain products and incur additional
costs to develop alternative non-infringing technology. Royalty
or licensing agreements, if required, may not be available on
terms acceptable to us or at all, which could adversely affect
our business.
Our exposure to risks associated with the use of intellectual
property may be increased for third-party products distributed
by us or as a result of acquisitions since we have a lower level
of visibility, if any, into the development process with respect
to such third-party products and acquired technology or the care
taken to safeguard against infringement risks.
Risks
associated with future acquisitions and investments could
materially adversely affect our business.
We may acquire new products and services or enhance existing
products and services through acquisitions of other companies,
product lines, technologies and personnel, or through
investments in other companies. During the fiscal year 2009, we
acquired certain assets from Essentis. During fiscal 2007, we
acquired Visual Web and Stratasoft. Any acquisition or
investment, including the acquisitions of the Essentis assets,
Visual Web and Stratasoft, is subject to a number of risks. Such
risks include the diversion of management time and resources,
disruption of our ongoing business, dilution to existing
stockholders if our common stock is issued in consideration for
an acquisition or investment, incurring or assuming indebtedness
or other liabilities in connection with an acquisition, lack of
familiarity with new markets, and difficulties in supporting new
product lines.
23
Further, even if we successfully complete acquisitions, we face
challenges in integrating any acquired business. These
challenges include eliminating redundant operations, facilities
and systems, coordinating management and personnel, retaining
key employees, managing different corporate cultures, and
achieving cost reductions and cross-selling opportunities. There
can be no assurance that we will be able to fully integrate all
aspects of acquired businesses successfully or fully realize the
potential benefits of bringing them together, and the process of
integrating these acquisitions may disrupt our business and
divert our resources.
Our failure to successfully manage acquisitions or investments,
or successfully integrate acquisitions could have a material
adverse effect on our business, financial condition
and/or
results of operations. Correspondingly, our expectations related
to the benefits related to the Essentis, Visual Web and
Stratasoft acquisitions, prior acquisitions or any other future
acquisition or investment could be inaccurate.
We may
become involved in litigation that could materially adversely
affect our business financial condition
and/or
results of operations.
From time to time, we are involved in litigation relating to
claims arising out of our operations. Any claims, with or
without merit, could be time-consuming and result in costly
litigation. Failure to successfully defend against these claims
could result in a material adverse effect on our business,
financial condition, results of operations
and/or cash
flows.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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None.
We lease office space in New York, New York for our principal
executive headquarters. We also lease office space in Omaha,
Nebraska, for our principal product development group, sales and
support groups for the Americas, as well as our corporate,
accounting and administrative functions. We moved into our new
Omaha-based facility during the year ended December 31,
2008, which facility is under a lease that continues through
2028. Our EMEA headquarters is located in Watford, England. The
lease for the Watford facility expires at the end of 2016. Our
Asia/Pacific headquarters is located in Singapore, with the
lease for this facility expiring in fiscal 2011. We also lease
office space in numerous other locations in the United States
and in many other countries.
We believe that our current facilities are adequate for our
present and short-term foreseeable needs and that additional
suitable space will be available as required. We also believe
that we will be able to renew leases as they expire or secure
alternate suitable space. See Note 17, Commitments
and Contingencies, in the Notes to Consolidated Financial
Statements for additional information regarding our obligations
under our facilities leases.
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ITEM 3.
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LEGAL
PROCEEDINGS
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From time to time, we are involved in various litigation matters
arising in the ordinary course of our business. Other than as
described below, we are not currently a party to any legal
proceedings, the adverse outcome of which, individually or in
the aggregate, we believe would be likely to have a material
adverse effect on our financial condition or results of
operations.
Class Action Litigation. In November
2002, two class action complaints were filed in the
U.S. District Court for the District of Nebraska (the
Court) against the Company and certain former
officers alleging violations of Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934 and
Rule 10b-5
thereunder. Pursuant to a Court order, the two complaints were
consolidated as Desert Orchid Partners v. Transaction
Systems Architects, Inc., et al., with Genesee County
Employees Retirement System designated as lead plaintiff.
The complaints, as amended, sought unspecified damages,
interest, fees, and costs and alleged that (i) during the
purported class period, the Company and the former officers
misrepresented the Companys historical financial
condition, results of operations and its future prospects, and
failed to disclose facts that could have indicated an impending
decline in the Companys revenues, and (ii) prior to
August 2002, the purported truth regarding the Companys
financial condition had not been disclosed to the market while
simultaneously alleging that the purported truth about the
Companys
24
financial condition was being disclosed throughout that time,
commencing in April 1999. The Company and the individual
defendants filed a motion to dismiss and the lead plaintiff
opposed the motion. Prior to any ruling on the motion to
dismiss, on November 7, 2006, the parties entered into a
Stipulation of Settlement for purposes of settling all of the
claims in the Class Action Litigation, with no admissions
of wrongdoing by the Company or any individual defendant. The
settlement provides for an aggregate cash payment of
$24.5 million of which, net of insurance, the Company
contributed approximately $8.5 million. The settlement was
approved by the Court on March 2, 2007 and the Court
ordered the case dismissed with prejudice against the Company
and the individual defendants.
On March 27, 2007, James J. Hayes, a class member, filed a
notice of appeal with the United States Court of Appeals for the
Eighth Circuit appealing the Courts order. On
August 13, 2008, the Court of Appeals affirmed the judgment
of the district court dismissing the case. Thereafter,
Mr. Hayes petitioned the Court of Appeals for a rehearing
en banc, which petition was denied on September 22, 2008.
Mr. Hayes filed a petition with the U.S. Supreme Court
seeking a writ of certiorari which was docketed on
February 20, 2009. On April 27, 2009, the Company was
informed that Mr. Hayes petition was denied.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matters were submitted to vote of stockholders during the
fourth quarter of 2009.
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Our common stock trades on The NASDAQ Global Select Market under
the symbol ACIW. The following table sets forth, for the periods
indicated, the high and low sale prices of our common stock as
reported by The NASDAQ Global Select Market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
Fourth quarter
|
|
$
|
17.97
|
|
|
$
|
14.39
|
|
|
$
|
17.94
|
|
|
$
|
8.86
|
|
Third quarter
|
|
$
|
15.98
|
|
|
$
|
13.20
|
|
|
$
|
22.49
|
|
|
$
|
14.16
|
|
Second quarter
|
|
$
|
20.32
|
|
|
$
|
13.28
|
|
|
$
|
23.19
|
|
|
$
|
16.10
|
|
First quarter
|
|
$
|
19.14
|
|
|
$
|
15.90
|
|
|
$
|
21.39
|
|
|
$
|
12.32
|
|
As of February 25, 2010, there were 234 holders of record
of our common stock. A substantially greater number of holders
of our common stock are street name or beneficial
holders, whose shares are held of record by banks, brokers and
other financial institutions.
Dividends
We have never declared nor paid cash dividends on our common
stock. We do not presently anticipate paying cash dividends.
However, any future determination relating to our dividend
policy will be made at the discretion of our board of directors
and will depend upon our financial condition, capital
requirements and earnings, as well as other factors the board of
directors may deem relevant.
Issuer
Purchases of Equity Securities
We did not repurchase any of our common stock during the
three-month period ended December 31, 2009.
In fiscal 2005, we announced that our board of directors
approved a stock repurchase program authorizing us, from time to
time as market and business conditions warrant, to acquire up to
$80 million of our common stock. In May 2006, our board of
directors approved an increase of $30 million to the stock
repurchase program, bringing the total of the approved program
to $110 million. In March 2007, our board of directors
approved an increase of $100 million to its current
repurchase authorization, bringing the total authorization to
$210 million, of which
25
approximately $42 million remains available. In June 2007,
we implemented this previously announced increase to our share
repurchase program. There is no guarantee as to the exact number
of shares that will be repurchased by us. Repurchased shares are
returned to the status of authorized but unissued shares of
common stock. In March 2005, our board of directors approved a
plan under
Rule 10b5-1
of the Securities Exchange Act of 1934 to facilitate the
repurchase of shares of common stock under the existing stock
repurchase program. Under our
Rule 10b5-1
plan, we have delegated authority over the timing and amount of
repurchases to an independent broker who does not have access to
inside information about the Company.
Rule 10b5-1
allows us, through the independent broker, to purchase shares at
times when we ordinarily would not be in the market because of
self-imposed trading blackout periods, such as the time
immediately preceding the end of the fiscal quarter through a
period three business days following our quarterly earnings
release. During the year ended December 31, 2009, we
purchased 1,032,660 shares of common stock under this
repurchase plan for $15 million. All shares were purchased
in open market transactions.
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The following selected financial data has been derived from our
consolidated financial statements. This data should be read
together with Item 7, Managements Discussion
and Analysis of Financial Condition and Results of
Operations, and the consolidated financial statements and
related notes included elsewhere in this Annual Report. The
financial information below is not necessarily indicative of the
results of future operations. Future results could differ
materially from historical results due to many factors,
including those discussed in Item 1A in the section
entitled Risk Factors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
Years Ended
|
|
Ended
|
|
|
|
|
December 31,
|
|
December 31,
|
|
Years Ended September 30,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2007
|
|
2006
|
|
2005
|
|
|
(In thousands, except per share data)
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
405,755
|
|
|
$
|
417,653
|
|
|
$
|
101,282
|
|
|
$
|
366,218
|
|
|
$
|
347,902
|
|
|
$
|
313,237
|
|
Net income (loss)(1)
|
|
$
|
19,626
|
|
|
$
|
10,582
|
|
|
$
|
(2,016
|
)
|
|
$
|
(9,131
|
)
|
|
$
|
55,365
|
|
|
$
|
43,099
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.57
|
|
|
$
|
0.31
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
1.48
|
|
|
$
|
1.14
|
|
Diluted
|
|
$
|
0.57
|
|
|
$
|
0.30
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
1.45
|
|
|
$
|
1.12
|
|
Shares used in computing earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
34,368
|
|
|
|
34,498
|
|
|
|
35,700
|
|
|
|
36,933
|
|
|
|
37,369
|
|
|
|
37,682
|
|
Diluted
|
|
|
34,554
|
|
|
|
34,795
|
|
|
|
35,700
|
|
|
|
36,933
|
|
|
|
38,237
|
|
|
|
38,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
As of September 30,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2007
|
|
2006
|
|
2005
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital(2)
|
|
$
|
78,662
|
|
|
$
|
80,280
|
|
|
$
|
39,585
|
|
|
$
|
17,358
|
|
|
$
|
67,932
|
|
|
$
|
120,594
|
|
Total assets(2)
|
|
|
590,043
|
|
|
|
552,842
|
|
|
|
570,458
|
|
|
|
506,741
|
|
|
|
539,365
|
|
|
|
363,700
|
|
Current portion of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,165
|
|
Debt (long-term portion)(2)(3)
|
|
|
77,408
|
|
|
|
76,014
|
|
|
|
75,911
|
|
|
|
76,546
|
|
|
|
78,093
|
|
|
|
905
|
|
Stockholders equity(1)
|
|
|
236,063
|
|
|
|
213,841
|
|
|
|
241,039
|
|
|
|
225,012
|
|
|
|
267,212
|
|
|
|
217,438
|
|
|
|
|
(1) |
|
We adopted FAS 123(R)(codified as ASC 718) using the
modified prospective transition method on October 1, 2005. |
|
(2) |
|
On September 29, 2006, we acquired P&H Solutions, Inc.
(P&H). The aggregate purchase price for
P&H was approximately $134 million, of which
$73 million was financed by long-term debt. |
|
(3) |
|
Debt (long-term portion) also includes long-term capital lease
obligations of $1.5 million, $1.0 million,
$0.9 million, $1.5 million, $3.1 million, and
$0.8 million as of December 31, 2009, 2008 and 2007,
and |
26
|
|
|
|
|
September 30, 2007, 2006, and 2005, respectively, which is
included in other noncurrent liabilities in the consolidated
balance sheets. |
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
OVERVIEW
We develop, market, install and support a broad line of software
products and services primarily focused on facilitating
electronic payments. In addition to our own products, we
distribute, or act as a sales agent for, software developed by
third parties. Our products are sold and supported through
distribution networks covering three geographic
regions the Americas, EMEA and Asia/Pacific. Each
distribution network has its own sales force and supplements its
sales force with independent reseller
and/or
distributor networks. Our products and services are used
principally by financial institutions, retailers and electronic
payment processors, both in domestic and international markets.
Accordingly, our business and operating results are influenced
by trends such as information technology spending levels, the
growth rate of the electronic payments industry, mandated
regulatory changes, and changes in the number and type of
customers in the financial services industry. Our products are
marketed under the ACI Worldwide brand.
We derive a majority of our revenues from non-domestic
operations and believe our greatest opportunities for growth
exist largely in international markets. Refining our global
infrastructure is a critical component of driving our growth. We
have launched a globalization strategy which includes elements
intended to streamline our supply chain and provide low-cost
centers of expertise to support a growing international customer
base. In fiscal 2006, we established a new subsidiary in Ireland
to serve as the focal point for certain international product
development and commercialization efforts. This subsidiary
manages certain of our intellectual property rights. Since 2006
we have been growing low-cost centers of expertise in Timisoara
in Romania and Bangalore in India. During 2009, we continued our
efforts to try and take a direct selling and support strategy in
certain countries where historically we have used third-party
distributors to represent our products, in an effort to develop
closer relationships with our customers and develop a stronger
overall position in those countries.
On February 23, 2007, our board of directors approved a
change in the Companys fiscal year from a September 30
fiscal year-end to a December 31 fiscal year-end, effective as
of January 1, 2008 for the fiscal year ended
December 31, 2008. In accordance with applicable SEC Rules,
we filed a Transition Report on
Form 10-Q
for the transition period from October 1, 2007 to
December 31, 2007, with the SEC on February 19, 2008.
Accordingly, the consolidated financial statements included
herein present our financial position as of December 31,
2009 and 2008, and the results of our operations, cash flows and
changes in stockholders equity for the years ended
December 31, 2009 and 2008, the three-month period ended
December 31, 2007, and the year ended September 30,
2007.
Key trends that currently impact our strategies and operations
include:
|
|
|
|
|
Global Financial Markets Uncertainty. The
continuing uncertainty in the global financial markets has
negatively impacted general business conditions. It is possible
that a weakening economy could adversely affect our customers,
their purchasing plans, or even their solvency, but we cannot
predict whether or to what extent this will occur. We have
diversified counterparties and customers, but we continue to
monitor our counterparty and customer risks closely. While the
effects of the economic conditions in the future are not
predictable, we believe our global presence, the breadth and
diversity of our service offerings and our enhanced expense
management capabilities position us well in a slower economic
climate. Market analysts, such as Boston Consulting Group,
indicate that banks now recognize the importance of payments to
their business, so providing services for that aspect of the
business is of less risk than for other aspects of their
business.
|
|
|
|
Availability of Credit. There have been
significant disruptions in the capital and credit markets during
the past two years and many lenders and financial institutions
have reduced or ceased to provide funding to borrowers. The
availability of credit, confidence in the entire financial
sector, and volatility in financial markets have been adversely
affected. These disruptions are likely to have some impact on
all institutions in
|
27
|
|
|
|
|
the U.S. banking and financial industries, including our
lenders and the lenders of our customers. The Federal Reserve
Bank has been providing vast amounts of liquidity into the
banking system to compensate for weaknesses in short-term
borrowing markets and other capital markets. A reduction in the
Federal Reserves activities or capacity could reduce
liquidity in the markets, thereby increasing funding costs or
reducing the availability of funds to finance our existing
operations as well as those of our customers. We are not
currently dependent upon short-term funding, and the limited
availability of credit in the market has not affected our
revolving credit facility or our liquidity or materially
impacted our funding costs.
|
|
|
|
|
|
Increasing electronic payment transaction
volumes. Electronic payment volumes continue to
increase around the world, taking market share from traditional
cash and check transactions. A Boston Consulting Group 2009
report predicts that payments globally will grow at 8% per annum
between 2008 and 2016, with varying growth rates based on the
type of payment and part of the world. We leverage the growth in
transaction volumes through the licensing of new systems to
customers whose older systems cannot handle increased volume and
through the licensing of capacity upgrades to existing customers.
|
|
|
|
Increasing competition. The electronic
payments market is highly competitive and subject to rapid
change. Our competition comes from in-house information
technology departments, third-party electronic payment
processors and third-party software companies located both
within and outside of the United States. Many of these companies
are significantly larger than us and have significantly greater
financial, technical and marketing resources. As electronic
payment transaction volumes increase, third-party processors
tend to provide competition to our solutions, particularly among
customers that do not seek to differentiate their electronic
payment offerings. As consolidation in the financial services
industry continues, we anticipate that competition for those
customers will intensify.
|
|
|
|
Adoption of open systems technology. In an
effort to leverage lower-cost computing technologies and current
technology staffing and resources, many financial institutions,
retailers and electronic payment processors are seeking to
transition their systems from proprietary technologies to open
technologies. Our continued investment in open systems
technologies is, in part, designed to address this demand.
|
|
|
|
Electronic payments fraud and compliance. As
electronic payment transaction volumes increase, criminal
elements continue to find ways to commit a growing volume of
fraudulent transactions using a wide range of techniques.
Financial institutions, retailers and electronic payment
processors continue to seek ways to leverage new technologies to
identify and prevent fraudulent transactions. Due to concerns
with international terrorism and money laundering, financial
institutions in particular are being faced with increasing
scrutiny and regulatory pressures. We continue to see
opportunity to offer our fraud detection solutions to help
customers manage the growing levels of electronic payment fraud
and compliance activity.
|
|
|
|
Adoption of smartcard technology. In many
markets, card issuers are being required to issue new cards with
embedded chip technology. Chip-based cards are more secure,
harder to copy and offer the opportunity for multiple functions
on one card (e.g. debit, credit, electronic purse,
identification, health records, etc.). The EMV standard for
issuing and processing debit and credit card transactions has
emerged as the global standard, with many regions throughout the
world working on EMV rollouts. The primary benefit of EMV
deployment is a reduction in electronic payment fraud, with the
additional benefit that the core infrastructure necessary for
multi-function chip cards is being put in place (e.g., chip card
readers in ATMs and POS devices) allowing the deployment of
other technologies like contactless. We are working with many
customers around the world to facilitate EMV deployments,
leveraging several of our solutions.
|
|
|
|
Single Euro Payments Area
(SEPA). The SEPA, primarily focused
on the European Economic Community and the United Kingdom, is
designed to facilitate lower costs for cross-border payments and
reduce timeframes for settling electronic payment transactions.
Our retail and wholesale banking solutions facilitate key
functions that help financial institutions address these
mandated regulations.
|
|
|
|
Financial institution
consolidation. Consolidation continues on a
national and international basis, as financial institutions seek
to add market share and increase overall efficiency. Such
consolidations have increased, and may continue to increase, in
their number, size and market impact as a result of the global
economic crisis and the financial crisis affecting the banking
and financial industries. There are several
|
28
|
|
|
|
|
potential negative effects of increased consolidation activity.
Continuing consolidation of financial institutions may result in
a smaller number of existing and potential customers for our
products and services. Consolidation of two of our customers
could result in reduced revenues if the combined entity were to
negotiate greater volume discounts or discontinue use of certain
of our products. Additionally, if a non-customer and a customer
combine and the combined entity in turn decides to forego future
use of our products, our revenue would decline. Conversely, we
could benefit from the combination of a non-customer and a
customer when the combined entity continues use of our products
and, as a larger combined entity, increases its demand for our
products and services. We tend to focus on larger financial
institutions as customers, often resulting in our solutions
being the solutions that survive in the consolidated entity.
|
|
|
|
|
|
Electronic payments convergence. As electronic
payment volumes grow and pressures to lower overall cost per
transaction increase, financial institutions are seeking methods
to consolidate their payment processing across the enterprise.
We believe that the strategy of using
service-oriented-architectures to allow for re-use of common
electronic payment functions such as authentication,
authorization, routing and settlement will become more common.
Using these techniques, financial institutions will be able to
reduce costs, increase overall service levels, enable
one-to-one
marketing in multiple bank channels, leverage volumes for
improved pricing and liquidity, and manage enterprise risk. Our
Agile Payments Solution strategy is, in part, focused on this
trend, by creating integrated payment functions that can be
re-used by multiple bank channels, across both the consumer and
wholesale bank. While this trend presents an opportunity for us,
it may also expand the competition from third-party electronic
payment technology and service providers specializing in other
forms of electronic payments. Many of these providers are larger
than us and have significantly greater financial, technical and
marketing resources.
|
Several other factors related to our business may have a
significant impact on our operating results from year to year.
For example, the accounting rules governing the timing of
revenue recognition in the software industry are complex and it
can be difficult to estimate when we will recognize revenue
generated by a given transaction. Factors such as maturity of
the software product licensed, payment terms, creditworthiness
of the customer, and timing of delivery or acceptance of our
products often cause revenues related to sales generated in one
period to be deferred and recognized in later periods. For
arrangements in which services revenue is deferred, related
direct and incremental costs may also be deferred. Additionally,
while the majority of our contracts are denominated in the
United States dollar, a substantial portion of our sales are
made, and some of our expenses are incurred, in the local
currency of countries other than the United States. Fluctuations
in currency exchange rates in a given period may result in the
recognition of gains or losses for that period. Also during the
year ended September 30, 2007, we entered into two interest
rate swaps with a commercial bank whereby we pay a fixed rate of
5.375% and 4.90% and receive a floating rate indexed to the
3-month
LIBOR from the counterparty on a notional amount of
$75 million and $50 million, respectively. During the
year ended December 31, 2009, the Company elected
1-month
LIBOR as the variable-rate benchmark for its revolving facility
and changed its interest rate to 5.195%. The Company also
amended its interest rate swap on the $75 million notional
amount from
3-month
LIBOR to
1-month
LIBOR. This basis swap did not impact the maturity date of the
interest rate swap or the accounting. Fluctuations in interest
rates in a given period may result in the recognition of gains
or losses for that period.
We continue to seek ways to grow, through organic sources,
partnerships, alliances, and acquisitions. We continually look
for potential acquisitions designed to improve our
solutions breadth or provide access to new markets. As
part of our acquisition strategy, we seek acquisition candidates
that are strategic, capable of being integrated into our
operating environment, and financially accretive to our
financial performance.
International
Business Machines Corporation Alliance
On December 16, 2007, we entered into the Alliance with IBM
relating to joint marketing and optimization of our electronic
payments application software and IBMs middleware and
hardware platforms, tools and services. On March 17, 2008,
the Company and IBM entered into Amendment No. 1 to the
Alliance (Amendment No. 1 and included
hereafter in all references to the Alliance), which
changed the timing of certain payments to be made by IBM. Under
the terms of the Alliance, each party will retain ownership of
its respective intellectual property and will independently
determine product offering pricing to customers. In connection
with the formation of the Alliance, we granted warrants to IBM
to purchase up to 1,427,035 shares of our common stock at a
price of $27.50
29
per share and up to 1,427,035 shares of our common stock at
a price of $33.00 per share. The warrants are exercisable for
five years.
The stated initial term of the Alliance is five years, subject
to extension for successive two-year terms if not previously
terminated by either party and subject to earlier termination
for cause.
During the year ended December 31, 2008, the Company
received an additional payment from IBM of $37.3 million
per Amendment No. 1. This payment, less the cost of
technical enablements, has been recorded in the Alliance
agreement liability in the accompanying consolidated balance
sheet as of December 31, 2009. This amount represents a
prepayment of funding for technical enablement milestones and
incentive payments to be earned under the Alliance and related
agreements and, accordingly, a portion of this payment is
subject to refund by the Company to IBM under certain
circumstances. As of December 31, 2009, $20.7 million
is refundable subject to achievement of future milestones. No
additional payments were received in 2009 relating to Amendment
No. 1 of this agreement.
International
Business Machines Corporation Outsourcing Agreement
On March 17, 2008, we entered into a Master Services
Agreement (Outsourcing Agreement) with IBM to
outsource our internal information technology (IT)
environment to IBM. Under the terms of the Outsourcing
Agreement, IBM provides us with global IT infrastructure
services including the following services, which were previously
provided by our employees: cross functional delivery management
services, asset management services, help desk services, end
user services, server system management services, storage
management services, data network services, enterprise security
management services and disaster recovery/business continuity
plans (collectively, the IT Services). We retain
responsibility for our security policy management and on-demand
business operations.
The initial term of the Outsourcing Agreement is seven years,
which commenced on March 17, 2008. We have the right to
extend the Outsourcing Agreement for one additional one-year
term unless otherwise terminated in accordance with the terms of
the Outsourcing Agreement. Under the Outsourcing Agreement, we
retain the right to terminate the agreement both for cause and
for convenience. However, upon any termination of the
Outsourcing Agreement by us for any reason (other than for
material breach by IBM), we will be required to pay a
termination charge to IBM, which charge may be material.
We pay IBM for the IT services through a combination of fixed
and variable charges, with the variable charges fluctuating
based on our actual need for such services as well as the
applicable service levels and statements of work. Based on the
currently projected usage of these IT services, we expect to pay
$116 million to IBM in service fees and project costs over
the initial seven-year term.
To protect our expectations regarding IBMs performance,
the Outsourcing Agreement has performance standards and minimum
services levels that IBM must meet or exceed. If IBM fails to
meet a given performance standard, we would, in certain
circumstances, receive a credit against the charges otherwise
due.
Additionally, to assure that the charges under the Outsourcing
Agreement do not become significantly higher than the market
rate for such services, we have the right to periodically
perform benchmark studies to determine whether IBMs price
and performance are consistent with the then current market. We
have the right to conduct such benchmark studies, at our cost,
beginning in the second year of the Outsourcing Agreement.
Restructuring
Plan
During the year ended December 31, 2009, we reduced our
headcount by 120 employees as a part of our plan to reduce
operating expenses. In connection with these actions, during the
year ended December 31, 2009, approximately
$2.9 million of termination costs were recognized in
general and administrative expense in the accompanying
consolidated statement of operations. The charges, by reportable
segment, were as follows for the year ended December 31,
2009: $1.5 million in the Americas segment,
$1.1 million in the EMEA reportable segment, and
$0.3 million in the Asia/Pacific reportable segment.
Approximately $2.6 million of these termination costs were
paid during the year ended December 31, 2009. The remaining
liability is expected to be paid over the next 12 months.
30
ACQUISITIONS
On February 7, 2007, we acquired Visual Web Solutions, Inc.
Visual Web marketed trade finance and web-based cash management
solutions, primarily to financial institutions in the
Asia/Pacific region. Visual Web had a sales and customer support
office in Singapore, and a product development facility in
Bangalore, India. The aggregate purchase price of Visual Web,
including direct costs of the acquisition, was
$8.3 million, net of $1.1 million of cash acquired.
On April 2, 2007, we acquired Stratasoft Sdn. Bhd.
Stratasoft was a Kuala Lumpur based company focused on the
provision of mainframe based payments systems to the Malaysian
market. Prior to the acquisition, Stratasoft had been a
distributor of our OCM 24 product within the Malaysian market
since 1995. The aggregate purchase price of Stratasoft,
including direct costs of the acquisition, was
$2.5 million, net of $0.7 million of cash acquired.
On November 17, 2009, the Company acquired certain
intellectual property, trade names, customer contracts and
working capital of Euronet Essentis Limited
(Essentis), a division of Euronet Worldwide, Inc.
Essentis, based in Watford, England, is a provider of card
issuing and merchant acquiring solutions around the world. The
aggregate purchase price of Essentis was 3.9 million
British pounds sterling (approximately $6.6 million).
BACKLOG
Included in backlog estimates are all software license fees,
maintenance fees and services specified in executed contracts,
as well as revenues from assumed contract renewals to the extent
that we believe recognition of the related revenue will occur
within the corresponding backlog period. We have historically
included assumed renewals in backlog estimates based upon
automatic renewal provisions in the executed contract and our
historic experience with customer renewal rates.
Our 60-month
backlog estimate represents expected revenues from existing
customers using the following key assumptions:
|
|
|
|
|
Maintenance fees are assumed to exist for the duration of the
license term for those contracts in which the committed
maintenance term is less than the committed license term.
|
|
|
|
License and facilities management arrangements are assumed to
renew at the end of their committed term at a rate consistent
with our historical experiences.
|
|
|
|
Non-recurring license arrangements are assumed to renew as
recurring revenue streams.
|
|
|
|
Foreign currency exchange rates are assumed to remain constant
over the
60-month
backlog period for those contracts stated in currencies other
than the U.S. dollar.
|
|
|
|
Our pricing policies and practices are assumed to remain
constant over the
60-month
backlog period.
|
In computing our
60-month
backlog estimate, the following items are specifically not taken
into account:
|
|
|
|
|
Anticipated increases in transaction volumes in customer systems.
|
|
|
|
Optional annual uplifts or inflationary increases in recurring
fees.
|
|
|
|
Services engagements, other than facilities management, are not
assumed to renew over the
60-month
backlog period.
|
|
|
|
The potential impact of merger activity within our markets
and/or
customers.
|
We review our customer renewal experience on an annual basis.
The impact of this review and subsequent update may result in a
revision to the renewal assumptions used in computing the
60-month and
12-month
backlog estimates. In the event a revision to renewal
assumptions is determined to be necessary, prior periods will be
adjusted for comparability purposes. Based on our annual review
of customer renewal experience completed during the three months
ended December 31, 2009, backlog results for all reported
periods have been updated to reflect our most current customer
renewal experience.
31
The following table sets forth our
60-month
backlog estimate, by geographic region, as of December 31,
2009, September 30, 2009, June 30, 2009,
March 31, 2009, and December 31, 2008 (in millions).
Dollar amounts reflect foreign currency exchange rates as of
each period end.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
Americas
|
|
$
|
850
|
|
|
$
|
829
|
|
|
$
|
819
|
|
|
$
|
793
|
|
|
$
|
773
|
|
EMEA
|
|
|
510
|
|
|
|
505
|
|
|
|
505
|
|
|
|
466
|
|
|
|
480
|
|
Asia/Pacific
|
|
|
157
|
|
|
|
156
|
|
|
|
155
|
|
|
|
153
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,517
|
|
|
$
|
1,490
|
|
|
$
|
1,479
|
|
|
$
|
1,412
|
|
|
$
|
1,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in our
60-month
backlog estimates are amounts expected to be recognized during
the initial license term of customer contracts (Committed
Backlog) and amounts expected to be recognized from
assumed renewals of existing customer contracts (Renewal
Backlog). Amounts expected to be recognized from assumed
contract renewals are based on our historical renewal
experience. The estimated Committed Backlog and Renewal
60-month
Backlog estimates as of December 31, 2009 are
$764 million and $753 million, respectively.
We also estimate
12-month
backlog, segregated between monthly recurring and non-recurring
revenues, using a methodology consistent with the
60-month
backlog estimate. Monthly recurring revenues include all monthly
license fees, maintenance fees and processing services fees.
Non-recurring revenues include other software license fees and
services. Amounts included in our
12-month
backlog estimate assume renewal of one-time license fees on a
monthly fee basis if such renewal is expected to occur in the
next 12 months. The following table sets forth our
12-month
backlog estimate, by geographic region, as of December 31,
2009 and 2008 (in millions). Dollar amounts reflect currency
exchange rates as of each period end.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Monthly
|
|
|
Non-
|
|
|
|
|
|
Monthly
|
|
|
Non-
|
|
|
|
|
|
|
Recurring
|
|
|
Recurring
|
|
|
Total
|
|
|
Recurring
|
|
|
Recurring
|
|
|
Total
|
|
|
Americas
|
|
$
|
149
|
|
|
$
|
40
|
|
|
$
|
189
|
|
|
$
|
133
|
|
|
$
|
40
|
|
|
$
|
173
|
|
EMEA
|
|
|
89
|
|
|
|
37
|
|
|
|
126
|
|
|
|
73
|
|
|
|
37
|
|
|
|
110
|
|
Asia/Pacific
|
|
|
29
|
|
|
|
11
|
|
|
|
40
|
|
|
|
28
|
|
|
|
14
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
267
|
|
|
$
|
88
|
|
|
$
|
355
|
|
|
$
|
234
|
|
|
$
|
91
|
|
|
$
|
325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimates of future financial results are inherently unreliable.
Our backlog estimates require substantial judgment and are based
on a number of assumptions as described above. These assumptions
may turn out to be inaccurate or wrong, including for reasons
outside of managements control. For example, our customers
may attempt to renegotiate or terminate their contracts for a
number of reasons, including mergers, changes in their financial
condition, or general changes in economic conditions in the
customers industry or geographic location, or we may
experience delays in the development or delivery of products or
services specified in customer contracts which may cause the
actual renewal rates and amounts to differ from historical
experiences. Changes in foreign currency exchange rates may also
impact the amount of revenue actually recognized in future
periods. Accordingly, there can be no assurance that amounts
included in backlog estimates will actually generate the
specified revenues or that the actual revenues will be generated
within the corresponding
12-month or
60-month
period. Additionally, because backlog estimates are operating
metrics, the estimates are not subject to the same level of
internal review or controls as a GAAP financial measure.
RESULTS
OF OPERATIONS
During 2009, we refined the definition of our cost of software
licenses fees in order to better conform to industry practice.
Our definition of cost of software license fees has been revised
to include third-party software royalties as well as the
amortization of purchased and developed software for resale.
Previously, cost of software license fees also included certain
costs associated with maintaining software products that have
already been developed and directing future product development
efforts. These costs included human resource costs and other
32
incidental costs related to product management, documentation,
publications and education. These costs have now been
reclassified to research and development and cost of maintenance
and services. As a result of this change in definition of cost
of software license fees, we reclassified $2.7 million,
$0.2 million, and $1.6 million to the cost of
maintenance and services from the cost of software license fees
in the accompanying consolidated statements of operations for
the year ended December 31, 2008, three months ended
December 31, 2007, and year ended September 30, 2007.
We reclassified $30.5 million, $6.6 million, and
$20.6 million to research and development from cost of
software license fees in the accompanying consolidated
statements of operations for the year ended December 31,
2008, three months ended December 31, 2007, and year ended
September 30, 2007. Additionally, $5.0 million of
third-party royalties have been reclassified from cost of
maintenance and services to cost of software license fees for
the year ended December 31, 2008 to conform to the current
period presentation.
Also for the year ended December 31, 2009, we reported
depreciation and amortization expense (excluding amortization of
purchased and developed software for resale) as a separate line
item in the consolidated statements of operations. Previously,
depreciation and amortization was allocated to functional line
items of the consolidated statements of operations rather than
being reported as a separate line item. As a result of
disclosing depreciation and amortization as a separate line
item, we reclassified $4.4 million from cost of software
licenses fees, $5.4 million from cost of maintenance and
services, $0.5 million from research and development,
$0.8 million from selling and marketing, and
$5.5 million from general and administrative for the year
ended December 31, 2008. We reclassified $0.9 million
from cost of software licenses fees, $1.4 million from cost
of maintenance and services, $0.1 million from research and
development, $0.1 million from selling and marketing, and
$1.4 million from general and administrative for the three
months ended December 31, 2007. We reclassified
$2.6 million from cost of software licenses fees,
$3.9 million from cost of maintenance and services,
$0.4 million from research and development,
$0.3 million from selling and marketing, and
$4.5 million from general and administrative for the year
ended September 30, 2007.
These reclassifications have been made to prior periods to
conform to the current period presentation. These
reclassifications did not impact total expenses or net income
(loss) for the prior periods presented.
33
The following table presents the consolidated statements of
operations as well as the percentage relationship to total
revenues of items included in our Consolidated Statements of
Operations (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
Years Ended December 31,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
% of Total
|
|
|
|
|
|
% of Total
|
|
|
|
|
|
% of Total
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial license fees (ILFs)
|
|
$
|
83,321
|
|
|
|
20.5
|
%
|
|
$
|
94,999
|
|
|
|
22.7
|
%
|
|
$
|
87,341
|
|
|
|
23.8
|
%
|
Monthly license fees (MLFs)
|
|
|
73,148
|
|
|
|
18.0
|
%
|
|
|
74,211
|
|
|
|
17.8
|
%
|
|
|
62,144
|
|
|
|
17.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software license fees
|
|
|
156,469
|
|
|
|
38.6
|
%
|
|
|
169,210
|
|
|
|
40.5
|
%
|
|
|
149,485
|
|
|
|
40.8
|
%
|
Maintenance fees
|
|
|
136,737
|
|
|
|
33.7
|
%
|
|
|
130,015
|
|
|
|
31.1
|
%
|
|
|
121,233
|
|
|
|
33.1
|
%
|
Services
|
|
|
112,549
|
|
|
|
27.7
|
%
|
|
|
118,428
|
|
|
|
28.4
|
%
|
|
|
95,500
|
|
|
|
26.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
405,755
|
|
|
|
100.0
|
%
|
|
|
417,653
|
|
|
|
100.0
|
%
|
|
|
366,218
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of software license fees
|
|
|
14,754
|
|
|
|
3.6
|
%
|
|
|
12,846
|
|
|
|
3.1
|
%
|
|
|
9,145
|
|
|
|
2.5
|
%
|
Cost of maintenance and services
|
|
|
112,893
|
|
|
|
27.8
|
%
|
|
|
117,087
|
|
|
|
28.0
|
%
|
|
|
95,691
|
|
|
|
26.1
|
%
|
Research and development
|
|
|
77,506
|
|
|
|
19.1
|
%
|
|
|
75,850
|
|
|
|
18.2
|
%
|
|
|
78,950
|
|
|
|
21.6
|
%
|
Selling and marketing
|
|
|
61,799
|
|
|
|
15.2
|
%
|
|
|
73,236
|
|
|
|
17.5
|
%
|
|
|
69,957
|
|
|
|
19.1
|
%
|
General and administrative
|
|
|
79,244
|
|
|
|
19.5
|
%
|
|
|
100,272
|
|
|
|
24.0
|
%
|
|
|
94,762
|
|
|
|
25.9
|
%
|
Depreciation and amortization
|
|
|
17,989
|
|
|
|
4.4
|
%
|
|
|
16,649
|
|
|
|
4.0
|
%
|
|
|
15,294
|
|
|
|
4.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
364,185
|
|
|
|
89.8
|
%
|
|
|
395,940
|
|
|
|
94.8
|
%
|
|
|
363,799
|
|
|
|
99.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
41,570
|
|
|
|
10.2
|
%
|
|
|
21,713
|
|
|
|
5.2
|
%
|
|
|
2,419
|
|
|
|
0.7
|
%
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,042
|
|
|
|
0.3
|
%
|
|
|
2,609
|
|
|
|
0.6
|
%
|
|
|
4,082
|
|
|
|
1.1
|
%
|
Interest expense
|
|
|
(2,856
|
)
|
|
|
(0.7
|
)%
|
|
|
(5,013
|
)
|
|
|
(1.2
|
)%
|
|
|
(6,644
|
)
|
|
|
(1.8
|
)%
|
Other, net
|
|
|
(6,648
|
)
|
|
|
(1.6
|
)%
|
|
|
8,247
|
|
|
|
2.0
|
%
|
|
|
(3,740
|
)
|
|
|
(1.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(8,462
|
)
|
|
|
(2.1
|
)%
|
|
|
5,843
|
|
|
|
1.4
|
%
|
|
|
(6,302
|
)
|
|
|
(1.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
33,108
|
|
|
|
8.2
|
%
|
|
|
27,556
|
|
|
|
6.6
|
%
|
|
|
(3,883
|
)
|
|
|
(1.1
|
)%
|
Income tax expense
|
|
|
13,482
|
|
|
|
3.3
|
%
|
|
|
16,974
|
|
|
|
4.1
|
%
|
|
|
5,248
|
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
19,626
|
|
|
|
4.8
|
%
|
|
$
|
10,582
|
|
|
|
2.5
|
%
|
|
$
|
(9,131
|
)
|
|
|
(2.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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2009
Compared to 2008
The following discussion of the results of operations compares
the year ended December 31, 2009 to the year ended
December 31, 2008.
Revenues
Total revenues for the year ended December 31, 2009
decreased $11.9 million, or 2.8%, as compared to the same
period in 2008. The decrease is the result of a
$12.7 million, or 7.5%, decrease in software license fee
revenue and a $5.9 million, or 5.0%, decrease in services
revenues, partially offset by a $6.7 million, or 5.2%,
increase in maintenance fee revenue. Included in the years ended
December 31, 2009 and 2008 was approximately
$7.3 million and $7.1 million, respectively, of
revenue related to acquired businesses.
The decline in total revenues for the year ended
December 31, 2009 as compared to the year ended
December 31, 2008 was due to a $32.0 million decrease,
or 18.9%, in the EMEA reportable segment. During the year ended
December 31, 2008, we recognized approximately
$18.0 million of revenues associated with certain Faster
Payments implementations in the United Kingdom. Of this amount,
approximately $5.3 million is reported in
34
initial license fees revenue, $0.6 million is reported in
maintenance fees, and approximately $12.1 million is
reported as services revenue.
The decline in total revenues in the EMEA reportable segment was
offset by increases in the Americas and Asia/Pacific reportable
segments of $15.6 million, or 7.5%, and $4.5 million,
or 10.9%, respectively, compared to fiscal 2008. Excluding the
impact of the Faster Payments implementations, EMEA declined
$14.0 million, or 8.3%, compared to fiscal 2008. This was
primarily the result of a decline in initial license fees due to
the timing and structure of customer renewal and capacity
related events. EMEA was also negatively impacted by
approximately $8.5 million due to changes in foreign
currencies during the year ended December 31, 2009 as
compared to the year ended December 31, 2008.
Software
License Fee Revenues
Customers purchase the right to license ACI software for the
term of their agreement which term is generally 60 months.
Within these agreements are specified capacity limits typically
based on transaction volumes. ACI employs measurement tools that
monitor the number of transactions processed by customers and if
contractually specified limits are exceeded, additional fees are
charged for the overage. Capacity overages may occur at varying
times throughout the term of the agreement depending on the
product, the size of the customer, and the significance of
customer transaction volume growth. Depending on specific
circumstances, multiple overages or no overages may occur during
the term of the agreement.
Initial
License Fee (ILF) Revenue
ILF revenues during the year ended December 31, 2009
compared to the year ended December 31, 2008 decreased by
$11.7 million. The EMEA reportable segment decreased by
$26.4 million, offset by increases in the Americas and
Asia/Pacific reportable segments of $13.9 million and
$0.8 million, respectively. The increases were driven by
recognition of ILF revenues associated with new deals or term
renewals signed during the year as well as customer
go-live events that occurred throughout the year.
The decline in ILF revenues in the EMEA reportable segment is
largely attributable to ILF revenues from certain Faster
Payments implementations during the year ended December 31,
2008 that did not repeat in the year-ended December 31,
2009. The EMEA reportable segment was also negatively impacted
by the timing and structure of certain customer renewal and
capacity events some of which are required to be recognized
ratably as Monthly License Fee Revenue rather than as a one-time
fee. Included in the overall ILF increase are capacity related
revenue increases of $11.9 million and $0.8 million in
the Americas and Asia/Pacific reportable segments, respectively,
offset by a decrease of $10.9 million in the EMEA
reportable segment, within the year ended December 31, 2009
as compared to the year ended December 31, 2008.
Monthly
License Fee (MLF) Revenue
The $1.1 million decrease in MLF revenues during the year
ended December 31, 2009, as compared to the year ended
December 31, 2008, is due to a $2.2 million decline in
the Americas reportable segment offset by increases in the EMEA
and Asia/Pacific reportable segments of $0.3 million and
$0.8 million, respectively. Within this decrease is a
$5.1 million decrease in the amount of paid up-front
revenue recognized ratably by customers in the Americas
reportable segment offset by a $4.0 million increase in
license and capacity fees that are both invoiced and recognized
monthly or quarterly. Approximately $4.0 million of the
decrease in MLF revenue is due to paid up-front revenue
recognized ratably during the year ended December 31, 2008
that was short-term in nature, and did not recur in 2009.
Maintenance
Fee Revenue
Maintenance fee revenue includes standard and enhanced
maintenance or any post contract support fees received from
customers for the provision of product support services.
Maintenance fee revenues increased $6.7 million, or 5.2%,
during the year ended December 31, 2009, as compared to the
same period in 2008.
Maintenance fee revenue increased in all reportable segments as
compared to the year ended December 31, 2008 with increases
of $4.7 million in the Americas reportable segment,
$1.2 million in the EMEA reportable
35
segment, and $0.8 million in the Asia/Pacific reportable
segment. Increases in maintenance fee revenues are primarily
driven by an increase in the customer installation base as well
as expanded product usage.
Services
Revenue
Services revenue includes fees earned through implementation
services, professional services and processing services.
Implementation services include product installations, product
upgrades, CSMs and product education. Professional services
include business consultancy, technical consultancy, on site
support services, CSMs, product education, and testing services.
Processing services include hosting, on-demand, and facilities
management services.
Services revenues declined by $5.9 million for the year
ended December 31, 2009, as compared to the same period in
2008, of which implementation and professional services
decreased by $8.0 million while processing services
increased by $2.1 million. Implementation and professional
services declined in the Americas and EMEA reportable segments
by $3.0 million and $7.2 million, respectively. These
declines were offset by an increase of $2.2 million in the
Asia/Pacific reportable segment. The decline in the EMEA
reportable segment was primarily due to approximately
$12.1 million of services revenue from certain Faster
Payments implementations recognized in the year ended
December 31, 2008 that did no recur in the year ended
December 31, 2009. The increase in processing services
revenue is primarily due to increased usage and adoption of our
on-demand and hosted product offerings in the Americas
reportable segment as compared to the year ended
December 31, 2008.
Expenses
Total operating expenses for the year ended December 31,
2009 decreased $31.8 million, or 8.0%, as compared to the
same period in 2008. Total expenses decreased primarily as a
result of a $21.0 million, or 21.0%, decrease in general
and administrative costs, a $4.2 million, or 3.6%, decrease
in cost of maintenance and services, and a $11.4 million,
or 15.6%, decrease in selling and marketing expenses, partially
offset by a $1.7 million, or 2.2%, increase in research and
development, a $1.9 million, or 14.9%, increase in cost of
software licenses fees, and a $1.3 million, or 8.0%
increase in depreciation and amortization.
Cost of
Software License Fees
The cost of software licenses for our products sold includes
third party software royalties as well as the amortization of
purchased and developed software for resale. In general, the
cost of software licenses for our products is minimal because we
internally develop most of the software components, the cost of
which is reflected in research and development expense as it is
incurred.
Cost of software licenses increased $1.9 million, or 14.9%,
in the year ended December 31, 2009 compared to the same
period in 2008. Third-party software royalty expense increased
$1.6 million as a result of an increase in license revenue
associated with certain products that include a corresponding
royalty expense. Amortization of purchased and developed
software for resale was $5.7 million and $5.4 million
for the years ended December 31, 2009 and 2008,
respectively.
Cost of
Maintenance and Services
Cost of maintenance and services includes costs to provide
hosting services and both the costs of maintaining our software
products at customer sites as well as the service costs required
to deliver, install and support software at customer sites.
Maintenance costs include the efforts associated with providing
the customer with upgrades,
24-hour
helpdesk, post go-live (remote) support and production-type
support for software that was previously installed at a customer
location. Service costs include human resource costs and other
incidental costs such as travel and training required for both
pre go-live and post go-live support. Such efforts include
project management, delivery, product customization and
implementation, installation support, consulting, configuration,
and on-site
support.
Cost of maintenance and services for the year ended
December 31, 2009 decreased $4.2 million, or 3.6%,
compared to the same period in 2008 due to a $2.9 million
reduction in personnel and related costs primarily as a
36
result of previously announced headcount reductions and the
strengthening of the U.S. dollar. Additionally, the cost of
maintenance and services for the year ended December 31,
2008 included $2.8 million of additional costs related to
the recognition of previously deferred expenses primarily
associated with the completion of certain Faster Payments
implementations in the EMEA reportable segment and a large
multi-product implementation in the Americas reportable segment.
Approximately $1.2 million of the decrease was the result
of personnel reallocated to general and administrative functions
to invest in our new regional general manager organization.
These decreases were partially offset by $2.7 million of
additional costs resulting from our outsourced information
technology services.
Research
and Development
Research and development (R&D) expenses are
primarily human resource costs related to the creation of new
products, improvements made to existing products and the costs
associated with maintaining software products that have already
been developed. Examples of maintaining software products
include product management, documentation, publications and
education. Continued R&D effort on existing products
addresses issues, if any, related to regulatory requirements and
processing mandates as well as compatibility with new operating
system releases and generations of hardware.
R&D expense for the year ended December 31, 2009
increased $1.7 million or 2.2%, as compared to the same
period in 2008 primarily due to $2.7 million higher costs
resulting from our outsourced information technology services
under the IBM Outsourcing Agreement. This increase was partially
offset by $1.0 million of lower personnel and related costs
as a result of previously announced headcount reductions and the
strengthening of the U.S. dollar.
Selling
and Marketing
Selling and marketing includes both the costs related to selling
our products to current and prospective customers as well as the
costs related to promoting the Company, its products and the
research efforts required to measure customers future
needs and satisfaction levels. Selling costs are primarily the
human resource and travel costs related to the effort expended
to license our products and services to current and potential
clients within defined territories
and/or
industries as well as the management of the overall relationship
with customer accounts. Selling costs also include the costs
associated with assisting distributors in their efforts to sell
our products and services in their respective local markets.
Marketing costs include costs needed to promote the Company and
its products as well as perform or acquire market research to
help us better understand what products our customers are
looking for in the future. Marketing costs also include the
costs associated with measuring customers opinions toward
the Company, our products and personnel.
Selling and marketing expense for the year ended
December 31, 2009 decreased $11.4 million, or 15.6%,
compared to the same period in 2008 primarily as a result of a
decrease in personnel and related costs as a result of
previously announced headcount reductions and the strengthening
of the U.S. dollar. Approximately $2.8 million of the
decrease was the result of personnel reallocated to general and
administrative functions to invest in our new regional general
manager organization.
General
and Administrative
General and administrative expenses are primarily human resource
costs including executive salaries and benefits, personnel
administration costs, and the costs of corporate support
functions such as legal, administrative, human resources and
finance and accounting.
General and administrative expense for the year ended
December 31, 2009 decreased $21.0 million, or 21.0%,
compared to the same period in 2008. The year ended
December 31, 2008 included $7.5 million of expenses
for Transition Services incurred and $1.7 million of
severance expense incurred related to the IBM Outsourcing
Agreement, while the year ended December 31, 2009 included
$0.3 million of expenses for Transition Services incurred.
The year ended December 31, 2008 included $6.2 million
of expenses related to termination costs while the year ended
December 31, 2009 included $2.9 million of termination
costs. In addition, general and administrative expenses
decreased $5.2 million due to lower personnel and related
costs as a result of previously
37
announced headcount reductions and the strengthening of the
U.S. dollar. The remaining decrease in general and
administrative expenses is primarily a result of a
$1.0 million decrease in data communication costs, a
$1.0 million decrease in software maintenance costs, a
$0.7 million decrease in costs incurred related to rent and
other expenses associated with moving into our new Omaha
facility, and a $0.9 million decrease in professional fee
expenses, all due to an emphasis on cost savings as well as a
strengthening of the U.S. dollar.
Depreciation
and Amortization
Depreciation includes depreciation on property and equipment
primarily consisting of computer and office equipment, furniture
and fixtures and leasehold improvements. Amortization includes
amortization of acquired intangibles consisting primarily of
customer relationships, purchased contracts and trademarks and
trade names. Amortization also includes various software that
has been acquired or developed for internal use. Amortization of
acquired software marketed for external sale is recorded in cost
of software license fees in the accompanying consolidated
statements of operations. Depreciation and amortization expense
for the year ended December 31, 2009 increased
$1.3 million, or 8.0%, compared to the same period in 2008
as a result of higher capital expenditures.
Other
Income and Expense
Interest income for the year ended December 31, 2009
decreased $1.6 million, or 60.1%, as compared to the same
period in 2008. The decrease in interest income is due to a
decrease in interest rates during the year ended
December 31, 2009 as compared to the same period in 2008.
Interest expense for the year ended December 31, 2009
decreased $2.2 million, or 43.0%, as compared to the same
period in 2008 due to lower interest rates.
Other income and expense consists of foreign currency gains and
losses, and other non-operating items. Other expense for the
year ended December 31, 2009 was $6.6 million as
compared to other income for the same period in 2008 of
$8.2 million. Comparative changes in other income and
expense amounts were attributable to fluctuating currency rates
which impacted the amounts of foreign currency gains or losses
recognized by us during the respective fiscal years and the loss
on the change in fair value of our interest rate swaps. We
realized $5.3 million in net foreign currency losses during
the year ended December 31, 2009 as compared with a
$13.8 million foreign currency gain during the same period
in 2008. We realized losses on the change in the fair value of
interest rate swaps of $1.6 million and $5.8 million
for the years ended December 31, 2009 and December 31,
2008, respectively. These losses were partially offset by a
$1.0 million and $0.2 million gain under a contractual
arrangement for the years ended December 31, 2009 and 2008,
respectively.
Income
Taxes
The effective tax rates for the years ended December 31,
2009 and 2008 were approximately 40.7% and 61.6%, respectively.
Our effective tax rate each year varies from our federal
statutory rate because we operate in multiple foreign countries
where we apply their tax laws and rates which vary from those
that we apply to the income we generate from our domestic
operations. The effective tax rate for both years was higher
than the U.S. effective rate of 35% due to the impact of
our inability to recognize income tax benefits during the period
resulting from losses sustained in certain tax jurisdictions
where the future utilization of the losses are uncertain and by
the recognition of tax expense associated with the transfer of
certain intellectual property rights from U.S. to
non-U.S. entities.
The year ended December 31, 2009 was positively impacted by
adjustments to unrecognized tax benefits of $1.6 million.
2008
Compared to 2007
The following discussion of the results of operations compares
the year ended December 31, 2008 to the year ended
September 30, 2007.
38
Revenues
Total revenues for the year ended December 31, 2008
increased $51.4 million, or 14.0%, compared to the year
ended September 30, 2007 as a result of a
$19.7 million, or 13.2%, increase in software license fee
revenues, an $8.8 million, or 7.2%, increase in maintenance
fee revenues, and a $22.9 million, or 24.0%, increase in
services revenues.
During the year ended December 31, 2008, we recognized
approximately $18.0 million of revenues associated with
certain Faster Payments implementations in the United Kingdom.
Of this amount, approximately $5.3 million is reported in
initial license fees revenue, $0.6 million is reported in
maintenance fees, and approximately $12.1 million is
reported as services revenue.
The remainder of the software license fees and services revenue
increase is due to the completion of various customer
implementation projects resulting in revenue recognition of
previously deferred amounts that typically result in increases
to non-recurring initial license fee and services revenues.
Completion of customer implementation projects also allows us to
begin recognition of recurring maintenance fees which will
result in a gradual increase in maintenance fees revenues over
time.
The Company has also reduced its emphasis on non-recurring
license fees most notably with renewals or term extensions for
existing customers. The increase in monthly license fees can be
attributed to these efforts in addition to completing certain
implementation projects as noted above. In certain instances,
customers elect to pay their recurring license
and / or capacity fees annually. While recurring in
nature, these annually recurring revenues are included as
initial license fees.
Software
License Fee Revenues
Customers purchase the right to license ACI software for the
term of their agreement which term is generally 60 months.
Within these agreements are specified capacity limits typically
based on transaction volumes. ACI employs measurement tools that
monitor the number of transactions processed by customers and if
contractually specified limits are exceeded, additional fees are
charged for the overage. Capacity overages may occur at varying
times throughout the term of the agreement depending on the
product, the size of the customer, and the significance of
customer transaction volume growth. Depending on specific
circumstances, multiple overages or no overages may occur during
the term of the agreement.
Initial
License Fee (ILF) Revenue
ILF revenues during the year ended December 31, 2008
compared to the year ended September 30, 2007 increased by
$7.7 million. The EMEA and Asia/Pacific reportable segments
increased by $14.0 million and $0.7 million,
respectively, offset by a decrease in the Americas reportable
segment of $7.0 million. The increases were driven by
recognition of ILF revenues associated with new deals or term
renewals signed during the year as well as customer
go-live events that occurred throughout the year,
most notably the Faster Payments implementations in the United
Kingdom. The decline in ILF revenues in the Americas reportable
segment is largely attributable to certain agreements being
recognized ratably as Monthly License Fee Revenue rather than as
a one-time fee as discussed below. Included in the above are
capacity related revenue increases of $6.9 million in the
EMEA reportable reportable segment offset by a decrease of
$3.9 million in the Americas reportable reportable segment,
within the year ended December 31, 2008 as compared to the
year ended September 30, 2007.
Monthly
License Fee (MLF) Revenue
The $12.1 million increase in MLF revenues during the year
ended December 31, 2008, as compared to the year ended
September 30, 2007, is primarily in the Americas
reportable reportable segment with only modest changes in both
the EMEA and Asia/Pacific reportable reportable segments. Within
this increase is an $8.1 million increase in the amount of
paid up-front revenue recognized ratably by customers in the
Americas reportable reportable segment and a $4.0 million
increase in license and capacity fees that are both invoiced and
recognized monthly or quarterly. Approximately $4.0 million
of the increase in MLF revenue is due to paid up-front revenue
that is recognized ratably, is short-term in nature, and is not
expected to recur in future periods.
39
Maintenance
Fee Revenue
The increase in maintenance fee revenues during the year ended
December 31, 2008, compared to the year ended
September 30, 2007, is primarily a result of an increase in
the number of customers that achieved live status, primarily in
the Americas and EMEA reportable reportable segments, subsequent
to September 30, 2007.
Services
Revenue
Services revenue increased $22.9 million, or 24.0%, for the
year ended December 31, 2008, primarily as a result of an
increase in implementation services revenue in the EMEA
reportable reportable segment, and to a lesser extent, the
Americas and Asia/Pacific reportable reportable segments. The
increase in the EMEA reportable reportable segment was largely
attributable to $12.1 million of revenues associated with
Faster Payments implementations. The remainder of the increase
is primarily related to the completion of certain customer
implementations allowing for the recognition of cumulative
services performed over the duration of the project.
Expenses
Total operating expenses for the year ended December 31,
2008 increased $32.1 million, or 8.8%, compared to the year
ended September 30, 2007 as a result of a
$21.4 million, or 22.4%, increase in cost of maintenance
and services, a $5.5 million, or 5.8%, increase in general
and administrative costs, a $3.7 million, or 40.5%,
increase in cost of software license fees, a $3.3 million,
or 4.7%, increase in cost of selling and marketing and a
$1.4 million, or 8.9% increase in depreciation and
amortization expense. These increases were partially offset by a
$3.1 million, or 3.9%, decrease in research and development
costs.
Cost of
Software License Fees
The cost of software license fees for the year ended
December 31, 2008 increased compared to the year ended
September 30, 2007 by $3.7 million or 40.5%.
Third-party software royalty expense increased $3.5 million
as a result of an increase in license revenue associated with
certain products that include a corresponding royalty expense.
Amortization of purchased and developed software for resale was
$5.4 million and $5.2 million for the years ended
December 31, 2008 and September 30, 2007, respectively.
Cost of
Maintenance and Services
Cost of maintenance and services for the year ended
December 31, 2008 increased compared to the year ended
September 30, 2007 as a result of higher personnel and
related costs of $19.4 million required primarily to
support the implementation services for the increase in large
complex multi-product installations. Costs of maintenance and
services also increased as a result of the recognition of
$2.8 million of previously deferred expenses associated
with the completion of certain Faster Payments implementations
in the EMEA reportable operating segment and a large
multi-product implementation in the Americas operating segment
offset by an increase of $2.1 million in additional
deferred implementation costs for various products currently
being installed and a decrease of $0.9 million related to
IBM deferred implementation costs. Additionally, cost of
maintenance and services increased $1.6 million from higher
third party software maintenance expense compared to the year
ended September 30, 2007. The remaining $0.6 million
increase is related to miscellaneous items including insurance,
telecommunications, and facilities costs.
Research
and Development
R&D expense for the year ended December 31, 2008
decreased as compared to the year ended September 30, 2007,
due primarily to $3.2 million of reimbursement from IBM for
certain expenditures determined to be direct and incremental to
satisfying the technical enablement milestones under the
Alliance and are recorded as a reduction of R&D expense.
40
Selling
and Marketing
Selling and marketing expense for the year ended
December 31, 2008 increased $3.3 million compared to
the year ended September 30, 2007 primarily as a result of
an increase of $1.6 million in personnel and related costs
and $0.7 million in advertising and promotional expenses to
support the 2008 sales plan and Alliance joint sales and
marketing initiatives. In addition, selling and marketing
expenses increased as a result of a $0.4 million increase
in professional fees and a $0.6 million increase in
telecommunications and facilities costs.
General
and Administrative
General and administrative expense for the year ended
December 31, 2008 increased $5.5 million compared to
the year ended September 30, 2007. Included in the year
ended September 30, 2007, with no corresponding amount
during the year ended December 31, 2008, were approximately
$11.9 million of expenses related to the historical stock
option review. Included in the year ended December 31,
2008, with no corresponding amounts during the year ended
September 30, 2007, were $7.5 million of expenses for
Transition Services related to the IBM Outsourcing Agreement. In
addition, general and administrative expense increased
$5.1 million as a result of the services performed under
the IBM Outsourcing Agreement offset by a $2.2 million
reduction in personnel and related costs due to the headcount
reduction associated with the outsource agreement. The remaining
increase in general and administrative expenses is primarily the
result of a $3.9 million increase in severance expense,
$1.9 million increase in professional fees primarily
related to the 2008 restructuring activities and related
reinvestments, and $1.0 million of consulting expense
incurred for the development of our corporate management office
and $0.2 million of costs incurred related to moving into
our new Omaha facility.
Depreciation
and Amortization
Depreciation and amortization expense increased
$1.4 million during the year ended December 31, 2008
compared to the year ended September 30, 2007 as a result
of higher capital expenditures and as a result of a full year of
depreciation and amortization related to fiscal year 2007
acquisitions.
Other
Income and Expense
Other income and expense includes interest income and expense,
foreign currency gains and losses, and other non-operating
items. Fluctuating currency rates impacted the year ended
December 31, 2008 by $13.8 million in net foreign
currency gains, compared to $1.9 million net loss during
the year ended September 30, 2007. A $5.8 million loss
on change in fair value of interest rate swaps was incurred
during the year ended December 31, 2008, compared to a
$2.1 million loss in the year ended September 30,
2007. Interest income for the year ended December 31, 2008
decreased $1.5 million, or 36.1%, as compared to the year
ended September 30, 2007 as a result of lower interest
rates and interest income on an amended income tax return in
2007 that did not recur in 2008. Interest expense decreased
$1.6 million, or 24.5%, for the year ended
December 31, 2008 compared to the year ended
September 30, 2007 as a result of lower interest rates and
interest expense on income tax returns in 2007 that did not
recur in 2008.
Income
Taxes
The effective tax rate for the year ended December 31, 2008
was 61.6%. The effective tax rate is higher than the
U.S. effective rate of 35% due to the impact of our
inability to recognize income tax benefits during the period
resulting from losses sustained in certain tax jurisdictions
where the future utilization of the losses are uncertain and by
the recognition of tax expense associated with the transfer of
certain intellectual property rights from U.S. to
non-U.S. entities.
The effective tax rate for the year ended September 30,
2007 was (135.2)%. This rate was negative due to a tax charge
compared to a pretax loss, primarily related to reporting losses
in countries in which we are unable to record a tax benefit and
reporting profits in countries where we do record a tax charge.
41
Segment
Results
The following table presents revenues and operating income
(loss) for the periods indicated by geographic region (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
222,952
|
|
|
$
|
207,350
|
|
|
$
|
195,775
|
|
EMEA
|
|
|
137,061
|
|
|
|
169,046
|
|
|
|
133,776
|
|
Asia/Pacific
|
|
|
45,742
|
|
|
|
41,257
|
|
|
|
36,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
405,755
|
|
|
$
|
417,653
|
|
|
$
|
366,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
42,091
|
|
|
$
|
21,714
|
|
|
$
|
14,578
|
|
EMEA
|
|
|
7,210
|
|
|
|
2,140
|
|
|
|
(16,942
|
)
|
Asia/Pacific
|
|
|
(7,731
|
)
|
|
|
(2,141
|
)
|
|
|
4,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,570
|
|
|
$
|
21,713
|
|
|
$
|
2,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
Transition
Period Ended December 31, 2007 compared to Quarter Ended
December 31, 2006
The following table presents the consolidated statements of
operations as well as the percentage relationship to total
revenues of items included in our Consolidated Statements of
Operations (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
% of Total
|
|
|
|
|
|
% of Total
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial license fees (ILFs)
|
|
$
|
30,274
|
|
|
|
29.9
|
%
|
|
$
|
25,948
|
|
|
|
27.8
|
%
|
Monthly license fees (MLFs)
|
|
|
15,992
|
|
|
|
15.8
|
%
|
|
|
15,237
|
|
|
|
16.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software license fees
|
|
|
46,266
|
|
|
|
45.6
|
%
|
|
|
41,185
|
|
|
|
44.1
|
%
|
Maintenance fees
|
|
|
32,167
|
|
|
|
31.8
|
%
|
|
|
28,729
|
|
|
|
30.8
|
%
|
Services
|
|
|
22,849
|
|
|
|
22.6
|
%
|
|
|
23,375
|
|
|
|
25.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
101,282
|
|
|
|
100.0
|
%
|
|
|
93,289
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of software licenses fees
|
|
|
2,483
|
|
|
|
2.5
|
%
|
|
|
1,865
|
|
|
|
2.0
|
%
|
Cost of maintenance and services
|
|
|
23,530
|
|
|
|
23.2
|
%
|
|
|
23,614
|
|
|
|
25.3
|
%
|
Research and development
|
|
|
22,945
|
|
|
|
22.7
|
%
|
|
|
18,637
|
|
|
|
20.0
|
%
|
Selling and marketing
|
|
|
20,587
|
|
|
|
20.3
|
%
|
|
|
18,078
|
|
|
|
19.4
|
%
|
General and administrative
|
|
|
25,011
|
|
|
|
24.7
|
%
|
|
|
22,514
|
|
|
|
24.1
|
%
|
Depreciation and amortization
|
|
|
3,874
|
|
|
|
3.8
|
%
|
|
|
3,616
|
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
98,430
|
|
|
|
97.2
|
%
|
|
|
88,324
|
|
|
|
94.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
2,852
|
|
|
|
2.8
|
%
|
|
|
4,965
|
|
|
|
5.3
|
%
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
763
|
|
|
|
0.8
|
%
|
|
|
885
|
|
|
|
0.9
|
%
|
Interest expense
|
|
|
(1,389
|
)
|
|
|
(1.4
|
)%
|
|
|
(1,460
|
)
|
|
|
(1.6
|
)%
|
Other, net
|
|
|
(334
|
)
|
|
|
(0.3
|
)%
|
|
|
(293
|
)
|
|
|
(0.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(960
|
)
|
|
|
(0.9
|
)%
|
|
|
(868
|
)
|
|
|
(0.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,892
|
|
|
|
1.9
|
%
|
|
|
4,097
|
|
|
|
4.4
|
%
|
Income tax expense
|
|
|
3,908
|
|
|
|
3.9
|
%
|
|
|
1,476
|
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,016
|
)
|
|
|
(2.0
|
)%
|
|
$
|
2,621
|
|
|
|
2.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
Total revenues for the three months ended December 31, 2007
increased $8.0 million, or 8.6%, as compared to the same
period of 2006. Included in the three months ended
December 31, 2007 revenue with no corresponding amount in
the same period of 2006 was approximately $0.8 million of
revenue related to the acquisitions of Visual Web and
Stratasoft. Excluding the impact of the acquired businesses,
total revenues increased primarily as a result of a
$5.1 million, or 12.3%, increase in software license fee
revenues, a $3.1 million, or 10.7%, increase in maintenance
fee revenues partially offset by a $1.0 million or 4.2%
decrease in services revenue.
The increase in software license fee revenues, excluding the
impact of Visual Web and Stratasoft, during the three months
ended December 31, 2007, as compared to the same period of
2006, is primarily due to greater license and capacity fee
revenues in the Americas and EMEA reportable operating segments.
This increase is primarily due to increased capacity
requirements for existing customers which is often combined with
the renewal of license term.
43
The increase in maintenance fee revenues, excluding the impact
of Visual Web and Stratasoft, during the three months ended
December 31, 2007, as compared to the same period of 2006,
is primarily a result of an increase in the number of customers
in the EMEA reportable operating segment that achieved go live
status since December 31, 2006.
The decrease in services revenues, excluding the impact of
Visual Web and Stratasoft, during the three months ended
December 31, 2007, as compared to the same period of 2006,
resulted from a $1.3 million or a 17.7% decline of
implementation services primarily in the EMEA reportable
operating segment. This was a result of a series of large
projects that were completed during the three months ended
December 31, 2006. Recognition of implementation services
is often a function of timing, as in this case, which drives
variances between years. Processing services increased by
$0.8 million or 10.7%, driven primarily by Enterprise
Banker application services growth offset by the cancellation of
a facilities management contract in the Americas reportable
operating segment.
Expenses
Total operating expenses for the three months ended
December 31, 2007 increased $10.1 million, or 11.4%,
as compared to the same period of 2006. Included in the three
months ended December 31, 2007 operating expenses with no
corresponding amount in the same period of 2006 was
approximately $2.3 million of operating expenses related to
acquired businesses.
Total expenses increased primarily as a result of a
$0.6 million, or 33.1%, increase in the cost of software
license fees, a $4.3 million, or 23.1% increase in research
and development costs, a $2.5 million, or 13.9%, increase
in selling and marketing costs, a $2.5 million, or 11.1%
increase in general and administrative costs, and a
$0.3 million, or 7.1% increase in depreciation and
amortization, offset by a $0.1 million, or 0.4%, decrease
in maintenance and service costs.
Cost of software license fees for the three months ended
December 31, 2007 increased $0.6 million compared with
the same period of 2006 primarily due to an increase in
third-party software royalty expenses as a result of an increase
in license revenue associated with certain products that include
a corresponding royalty expense.
Cost of maintenance and services for the three months ended
December 31, 2007 decreased $0.1 million, or 0.4%, as
compared to the same period of 2006.
Research and development (R&D) costs for the
three months ended December 31, 2007 increased
$4.3 million, or 23.1%, as compared to the same period of
2006. The increase resulted primarily from expenses associated
with B24-eps R&D activities, build-out of ACI On Demand and
other software optimization efforts.
Selling and marketing costs for the three months ended
December 31, 2007 increased $2.5 million, or 13.9%, as
compared to the same period of 2006. The increase resulted from
an approximate $2.0 million increase in commissions driven
by a relative increase in sales activity partly attributable to
the change from a fiscal year to a calendar year-end. The
remaining expense was driven by timing of advertising and
promotions activities.
General and administrative costs for the three months ended
December 31, 2007 increased $2.5 million, or 11.1%, as
compared to the same period of 2006. Included in the three
months ended December 31, 2007, were $3.0 million of
accounting and tax professional fees, $1.3 million of
expense associated with early termination of the corporate jet
lease, $0.7 million of restructuring and other employee
related expense, $0.5 million of professional fees to
support the Alliance, $0.5 million of increased rent and
utilities expense related to improvements made in our United
Kingdom and Canada facilities and $0.4 million of other
expenses offset by $1.3 million for release of the accrual
related to LTIP Performance Shares granted in fiscal 2005 and
2006. Approximately $2.6 million of the expenses incurred
in the three months ended December 31, 2006, with no
corresponding amount during the same period in 2007, related to
the historical stock option review and management analysis.
Depreciation and amortization expense for the three months ended
December 31, 2007 increased $0.3 million, or 7.1%
compared to the same period in 2006 as a result of higher
capital expenditures.
44
Other
Income and Expense
Other income and expense includes interest income and expense,
foreign currency gains and losses, and other non-operating
items. Fluctuating currency rates impacted the three months
ended December 31, 2007 by $1.9 million in net foreign
currency gains, as compared with $0.6 million in net losses
during the same period in 2006. A $2.5 million loss on
change in fair value of interest rate swaps was incurred during
the three months ended December 31, 2007 with no
corresponding amount in the same period of 2006. Interest income
for the three months ended December 31, 2007 decreased
$0.1 million or 13.8% as compared to the corresponding
period of 2006. Interest expense was consistent for the three
months ended December 31, 2007 and 2006.
Income
Taxes
The effective tax rate for the three months ended
December 31, 2007 and 2006 was approximately 206.6% and
36.0%, respectively. The effective tax rate for the three months
ended December 31, 2007 was negatively impacted by losses
in foreign countries in which the Company was not able to record
tax benefits. The effective tax rate for the three months ended
December 31, 2006 was positively impacted primarily by a
U.S. tax law change during the quarter that extended the
research and development tax credit and negatively impacted
primarily by the recognition of tax expense associated with the
transfer of certain intellectual property rights out of the U.S.
Segment
Results
The following table presents revenues and operating income
(loss) for the periods indicated by geographic region (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
49,618
|
|
|
$
|
47,134
|
|
EMEA
|
|
|
43,094
|
|
|
|
37,555
|
|
Asia/Pacific
|
|
|
8,570
|
|
|
|
8,600
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
101,282
|
|
|
$
|
93,289
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
2,883
|
|
|
$
|
2,622
|
|
EMEA
|
|
|
403
|
|
|
|
697
|
|
Asia/Pacific
|
|
|
(434
|
)
|
|
|
1,646
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,852
|
|
|
$
|
4,965
|
|
|
|
|
|
|
|
|
|
|
LIQUIDITY
AND CAPITAL RESOURCES
As of December 31, 2009, our principal sources of liquidity
consisted of $125.9 million in cash and cash equivalents
and up to $75.0 million of unused borrowings under our
revolving credit facility. The amount of unused borrowings
actually available under the revolving credit facility varies in
accordance with the terms of the agreement. We believe that the
amount currently available along with our current cash balance
provides sufficient liquidity for at least the next twelve month
period. We are not currently dependent upon short-term funding,
and the limited availability of credit in the market has not
affected our revolving credit facility, our liquidity or
materially impacted our funding costs. We had bank borrowings of
$75.0 million outstanding under our revolving credit
facility as of December 31, 2009. However, due to the
existing uncertainty in the capital and credit markets and the
impact of the current economic crisis on our operating results
and financial conditions, the amount of available unused
borrowings under our existing credit facility may be
insufficient to meet our needs
and/or our
access to capital outside of our existing credit facility may
not be available on terms acceptable to us or at all.
Additionally, if one or more of the financial institutions in
our syndicate were to default on its obligation to fund its
commitment, the
45
portion of the committed facility provided by such defaulting
financial institution would not be available to us. We cannot
assure you that alternative financing on acceptable terms would
be available to replace any defaulted commitments.
In connection with funding the purchase of P&H, as
discussed in Note 6, Debt in the Notes to
Consolidated Financial Statements, on September 29, 2006,
we entered into a five year revolving credit facility with a
syndicate of financial institutions, as lenders, providing for
revolving loans and letters of credit in an aggregate principal
amount not to exceed $150 million. We have the option to
increase the aggregate principal amount to $200 million.
The facility has a maturity date of September 29, 2011.
Obligations under the facility are unsecured and
uncollateralized, but are jointly and severally guaranteed by
certain of our domestic subsidiaries.
The credit facility contains certain affirmative and negative
covenants including certain financial measurements. The facility
also provides for certain events of default. The facility does
not contain any subjective acceleration features and does not
have any required payment or principal reduction schedule and is
included as a non-current liability in our consolidated balance
sheet.
On August 27, 2007, we entered into an amendment to our
credit agreement which amended the definition of consolidated
EBITDA, as it relates to the calculation for our debt covenants,
to exclude certain non-recurring items and to incorporate the
change in our fiscal year end to a calendar year, effective
January 1, 2008.
We have previously obtained certain extensions and may continue
to seek additional extensions under our credit facilities. The
extensions waived certain potential breaches of representations
and covenants under our credit facilities and established
extended deadlines for the delivery of certain financial reports
during the period in which we were not current with our SEC
reporting obligations. At December 31, 2009 and
December 31, 2008, (and at all times during these periods)
we were in compliance with our debt covenants.
We may select either a base rate loan or a LIBOR based loan.
Base rate loans are computed at the national prime interest rate
plus a margin ranging from 0% to 0.125%. LIBOR based loans are
computed at the applicable LIBOR rate plus a margin ranging from
0.625% to 1.375%. The margins are dependent upon our total
leverage ratio at the end of each quarter.
On October 5, 2006, we exercised our right to convert the
rate on our initial borrowing to the LIBOR based option, thereby
reducing the effective interest rate to 6.12%. The interest rate
in effect at December 31, 2009 was 1.0%. There is also an
unused commitment fee to be paid annually of 0.15% to 0.3% based
on our leverage ratio. The initial principal borrowings of
$75 million were outstanding at December 31, 2009.
There is $75 million remaining under the credit facility
for future borrowings.
On July 18, 2007, we entered into an interest rate swap
with a commercial bank whereby we paid a fixed rate of 5.375%
and received a floating rate indexed to the
3-month
LIBOR (5.36% at inception) from the counterparty on a notional
amount of $75 million. The swap effective date was
July 20, 2007, and terminates on October 4, 2010. The
variable rate was set to re-price quarterly for both swaps
originally.
During the year ended December 31, 2009, we elected
1-month
LIBOR as the variable-rate benchmark for our revolving facility.
We also amended our interest rate swap on the $75 million
notional amount from the
3-month
LIBOR to
1-month
LIBOR. This basis swap did not impact the maturity date of the
interest rate swap or the accounting.
On August 16, 2007, we entered into an interest rate swap
with a commercial bank whereby we pay a fixed rate of 4.90% and
receive a floating rate indexed to the
3-month
LIBOR from the counterparty on a notional amount of
$50 million. The swap effective date is October 4,
2007, and terminates on October 4, 2010. The variable rate
will be first determined on the effective date and will re-price
quarterly. See Note 7, Derivative Instruments and
Hedging Activities, in the Notes to Consolidated Financial
Statements for further detail.
Since these interest rate swaps do not qualify for hedge
accounting under Financial Accounting Standards Board
(FASB) Accounting Standards Codification (the
Codification or ASC) 815, Derivatives
and Hedging, (previous GAAP reference was Statement of
Financial Accounting Standard (SFAS) No. 133,
Accounting for Derivatives and Hedging Instruments), changes
in market interest rates will impact our earnings. See
Item 7A,
46
Quantitative and Qualitative Disclosures About Market Risk and
Note 7, Derivative Instruments and Hedging
Activities, in the Notes to Consolidated Financial
Statements.
In fiscal 2005, we announced that our board of directors
approved a stock repurchase program authorizing us, from time to
time as market and business conditions warrant, to acquire up to
$80 million of our common stock. In May 2006, our board of
directors approved an increase of $30 million to the stock
repurchase program, bringing the total of the approved program
to $110 million. In March 2007, our board of directors
approved an increase of $100 million to its current
repurchase authorization, bringing the total authorization to
$210 million, of which approximately $42 million
remains available. In June 2007, we implemented this previously
announced increase to our share repurchase program. There is no
guarantee as to the exact number of shares that will be
repurchased by us. Repurchased shares are returned to the status
of authorized but unissued shares of common stock. In March
2005, our board of directors approved a plan under
Rule 10b5-1
of the Securities Exchange Act of 1934 to facilitate the
repurchase of shares of common stock under the existing stock
repurchase program. Under our
Rule 10b5-1
plan, we have delegated authority over the timing and amount of
repurchases to an independent broker who does not have access to
inside information about the Company.
Rule 10b5-1
allows us, through the independent broker, to purchase shares at
times when we ordinarily would not be in the market because of
self-imposed trading blackout periods, such as the time
immediately preceding the end of the fiscal quarter through a
period three business days following our quarterly earnings
release. During the year ended December 31, 2009, we
purchased 1,032,660 shares of common stock under this
repurchase plan for $15 million. All shares were purchased
in open market transactions.
We may also decide to use cash to acquire new products and
services or enhance existing products and services through
acquisitions of other companies, product lines, technologies and
personnel, or through investments in other companies.
Cash
Flows
The following table sets forth summary cash flow data for the
periods indicated. Please refer to this summary as you read our
discussion of the sources and uses of cash in each year (amounts
in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Years Ended December 31,
|
|
September 30,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
44,217
|
|
|
$
|
77,826
|
|
|
$
|
24,847
|
|
Investing activities
|
|
|
(23,367
|
)
|
|
|
(16,956
|
)
|
|
|
(25,964
|
)
|
Financing activities
|
|
|
(14,056
|
)
|
|
|
(27,687
|
)
|
|
|
(50,005
|
)
|
2009
compared to 2008
Net cash flows provided by operating activities during the year
ended December 31, 2009 amounted to $44.2 million
compared to net cash flows provided by operating activities of
$77.8 million during the same period in 2008. The
comparative period decrease in net cash flows from operating
activities of $33.6 million principally resulted from the
receipt of $40.9 million during 2008 from IBM pursuant to
the terms of the IBM Alliance agreement. This item was partially
offset by an increase in net income of $9.0 million for the
year ended December 31, 2009 compared to the same period in
2008.
Net cash flows used in investing activities totaled
$23.4 million during the year ended December 31, 2009
compared to $17.0 million used during the same period in
2008. This $6.4 million increase in cash used was primarily
driven by the $6.6 million of cash paid to acquire Essentis
intellectual property, trade names, customer contracts, and
working capital during the year ended December 31, 2009. In
addition, we used $7.5 million for purchases of software
and distribution rights during the year ended December 31,
2009 compared to $4.9 million during the same period in
2008. These uses of cash were partially offset by a decrease of
$4.1 million in cash used for purchases of property and
equipment during the year ended December 31, 2009 compared
to same period in 2008.
47
Net cash flows used in financing activities totaled
$14.1 million during the year ended December 31, 2009
compared to net cash flows used of $27.7 million during the
same period in 2008. In the years ended December 31, 2009
and 2008, we used cash of $15.0 million and
$30.1 million, respectively, to purchase shares of our
common stock under the stock repurchase program. We also made
payments to third-party financial institutions, primarily
related to debt and capital leases, totaling $1.6 million
and $3.3 million during the years ended December 31,
2009 and 2008, respectively. During the years ended
December 31, 2009 and 2008, we received proceeds of
$1.9 million and $4.0 million, respectively, including
corresponding excess tax benefits, from the exercises of stock
options.
We realized a $6.2 million increase in cash during the year
ended December 31, 2009 and a $17.2 million decrease
in cash during the same period in 2008 related to foreign
exchange rate variances.
2008
compared to 2007
Net cash flows provided by operating activities during the year
ended December 31, 2008 amounted to $77.8 million as
compared to $24.8 million during the year ended
September 30, 2007. The comparative period increase in net
cash flows from operating activities of $53.0 million was
principally the result of the following items:
$40.9 million received from IBM primarily for prepayment of
estimated incentives payments pursuant to the terms of the
Alliance, an increase of $19.7 million from net income of
$10.6 million during the year ended December 31, 2008
compared to a net loss of $9.1 million during the year
ended September 30, 2007, the payment of $10.6 million
for P&H acquisition-related compensation charges during the
year ended September 30, 2007, the payment of a class
action litigation settlement of $8.5 million during the
year ended September 30, 2007, and an increase in accruals
for other expenses of $1.5 million during the year ended
December 31, 2008. Additionally, non-cash expense increased
by $16.1 million during the year ended December 31,
2008 for items including depreciation, amortization, deferred
taxes, and the interest rate swaps. These items were partially
offset by decreased cash collections on customer receivables and
decreased deferred revenues during the year ended
December 31, 2008 as compared to the year ended
September 30, 2007 of $44.3 million.
Net cash flows used in investing activities totaled
$17.0 million during the year ended December 31, 2008
as compared to $26.0 million used in investing activities
during the year ended September 30, 2007. During the year
ended December 31, 2008, we used cash of $12.0 million
to purchase software, property and equipment and
$6.3 million for costs related to fulfillment of the
technical enablement milestones under the Alliance. We also used
cash of $0.2 million for contingency payments on prior
acquisitions. These uses of cash were partially offset during
the year ended December 31, 2008, by $1.5 million
received from IBM for reimbursement of estimated capitalizable
technical enablement milestones costs pursuant to the terms of
the Alliance. During the year ended September 30, 2007, we
used cash of $6.1 million to pay costs related to the
second closing of the purchase of eps AG, $0.7 million
related to the P&H acquisition, $8.3 million for the
acquisition of Visual Web, $2.5 million for the acquisition
of Stratasoft, and other direct acquisition costs. These uses of
cash were partially offset during the year ended
September 30, 2007 by $0.5 million in proceeds from an
asset transfer. We also used cash of $8.9 million to
purchase software, property and equipment during the year ended
September 30, 2007.
Net cash flows used in financing activities totaled
$27.7 million during the year ended December 31, 2008
as compared to net cash flows used of $50.0 million during
the year ended September 30, 2007. During the years ended
December 31, 2008 and September 31, 2007, we used cash
of $30.1 million and $46.7 million, respectively, to
purchase shares of our common stock under the stock repurchase
program. We also made payments to third-party financial
institutions, primarily related to debt and capital leases,
totaling $3.3 million and $3.4 million during the
years ended December 31, 2008 and September 30, 2007,
respectively. During the years ended December 31, 2008 and
September 30, 2007, we received proceeds of
$4.0 million and $0.1 million, respectively, including
corresponding excess tax benefits, from the exercises of stock
options. During the year ended December 31, 2008, we
received proceeds of $1.7 million for the issuance of
common stock for purchases under our Employee Stock Purchase
Plan.
We realized a $17.2 million decrease in cash during the
year ended December 31, 2008 and a $1.8 million
increase in cash during year ended September 30, 2007
related to foreign exchange rate variances.
48
Transition
Period Ended December 31, 2007 compared to Quarter Ended
December 31, 2006
The following table sets forth summary cash flow data for the
periods indicated. Please refer to this summary as you read our
discussion of the sources and uses of cash in each period
(amounts in thousands).
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
December 31,
|
|
|
2007
|
|
2006
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
12,123
|
|
|
$
|
611
|
)
|
Investing activities
|
|
|
5,898
|
|
|
|
(13,836
|
)
|
Financing activities
|
|
|
20,382
|
|
|
|
(6,085
|
)
|
Net cash flows provided by operating activities for the three
months ended December 31, 2007 amounted to
$12.1 million as compared to net cash flows used by
operating activities of $0.6 million during the same period
in 2006. The comparative period increase in net cash flows from
operating activities of $12.7 million was principally the
result of the following items: $8.5 million paid during the
three months ended December 31, 2006 for settlement of the
class action lawsuit, a $16.1 million increase in deferred
revenue and a decrease in accruals for other expenses of
$21.1 million in the three months ended December 31,
2007. These items were partially offset by a net loss of
$2.0 million for the three months ended December 31,
2007 as compared to net income of $2.6 million for the same
period in 2006 and decreased cash collections on customer
receivables of $27.1 million in the three months ended
December 31, 2007 as compared to the same period in 2006
and decreased non-cash expenses of $1.3 million, such as
depreciation, amortization, change in fair value of interest
rate swaps and deferred taxes.
Net cash flows provided by investing activities totaled
$5.9 million in the three months ended December 31,
2007 as compared to $13.8 million used in investing
activities during the same period in 2006. During the three
months ended December 31, 2007, we used cash of $47,000 for
a contingency payment under the S2 Systems, Inc. purchase
agreement. We also used cash of $3.9 million to purchase
software, property and equipment. These uses of cash flow were
offset in the three months ended December 31, 2007 by
$9.3 million received related to the Alliance and
$0.5 million in proceeds from asset transferred under
contractual arrangement. During the three months ended
December 31, 2006, we used cash of $2.5 million to
increase our holdings of marketable securities and
$5.1 million to purchase software, property and equipment.
We also used cash of $6.2 million for the acquisition of
eps AG and $0.6 million related to the acquisition of
P&H during the three months ended December 31, 2006.
These uses of cash were partially offset in the three months
ended December 31, 2006 by $0.5 million provided by
assets transferred under contractual arrangement.
Net cash flows provided by financing activities totaled
$20.4 million in the three months ended December 31,
2007 as compared to net cash flows used of $6.1 million
during the same period in 2006. In the three months ended
December 31, 2007 and 2006, we used cash of
$4.0 million and $4.4 million, respectively, to
purchase shares of our common stock under the stock repurchase
program. We also made payments to third-party financial
institutions, primarily related to debt and capital leases,
totaling $0.6 million and $1.5 million during the
three months ended December 31, 2007 and 2006,
respectively. In 2007 and 2006, we received proceeds of
$0.7 million and $42,000, respectively, including
corresponding excess tax benefits, from the exercises of stock
options. In the three months ended December 31, 2007, we
received $24.0 million for issuance of common stock
warrants related to the Alliance and $0.3 million in
proceeds for the issuance of common stock for a purchase under
our Employee Stock Purchase Plan.
We also realized a $2.2 million decrease in cash during the
three months ended December 31, 2007 compared to a
$0.3 million increase in cash during the same period of
2006 related to foreign exchange rate variances.
Contractual
Obligations and Commercial Commitments
We lease office space and equipment under operating leases that
run through August 2028, and also lease certain property under
capital lease agreements that expire in various years through
2013. Additionally, we have entered into a long term credit
facility agreement that expires in 2011. Under the Outsourcing
Agreement with IBM, we will pay IBM for IT services through a
combination of fixed and variable charges subject to actual
services
49
needed, applicable service levels and statements of work. The
total amount paid is subject to a minimum commitment as provided
in the Outsourcing Agreement. Contractual obligations as of
December 31, 2009 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
$
|
62,454
|
|
|
$
|
9,422
|
|
|
$
|
13,088
|
|
|
$
|
9,494
|
|
|
$
|
30,450
|
|
Capital leases
|
|
|
2,452
|
|
|
|
765
|
|
|
|
1,403
|
|
|
|
284
|
|
|
|
|
|
Long-term credit facility
|
|
|
75,000
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
Long-term credit facility interest(1)
|
|
|
1,313
|
|
|
|
750
|
|
|
|
563
|
|
|
|
|
|
|
|
|
|
IBM Outsourcing Minimum Commitment
|
|
|
82,357
|
|
|
|
8,225
|
|
|
|
16,045
|
|
|
|
15,613
|
|
|
|
42,474
|
|
Net Settlement Payments on Interest Rate Swaps(2)
|
|
|
5,258
|
|
|
|
5,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
223,576
|
|
|
$
|
19,162
|
|
|
$
|
106,099
|
|
|
$
|
25,391
|
|
|
$
|
72,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Based upon the interest rate in effect at December 31, 2009
of 1% excluding the effects of interest rate swaps. |
|
(2) |
|
Based upon the interest rates in effect at December 31,
2009. |
We are unable to reasonably estimate the ultimate amount or
timing of settlement of our reserves for income taxes under ASC
740, Income Taxes (previous GAAP reference was FASB
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes). The liability for unrecognized tax benefits at
December 31, 2009 is $10.9 million.
The following table discloses aggregate information about our
derivative financial instruments as of December 31, 2009,
the source of fair value of these instruments and their
maturities (amounts in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Contracts at Period-End
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Source of fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments(1)
|
|
$
|
5,271
|
|
|
$
|
5,271
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,271
|
|
|
$
|
5,271
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Fair value of interest rate swaps at December 31, 2009 was
provided by the counter-party to the underlying contract. |
Off-Balance
Sheet Arrangements
We do not have any obligations that meet the definition of an
off-balance sheet arrangement and that have or are reasonably
likely to have a material effect on our consolidated financial
statements.
Critical
Accounting Estimates
The preparation of the consolidated financial statements
requires that we make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities. We
base our estimates on historical experience and other
assumptions that we believe to be proper and reasonable under
the circumstances. We continually evaluate the appropriateness
of estimates and assumptions used in the preparation of our
consolidated financial statements. Actual results could differ
from those estimates.
The following key accounting policies are impacted significantly
by judgments, assumptions and estimates used in the preparation
of the consolidated financial statements. See Note 1,
Summary of Significant Accounting Policies in the
Notes to Consolidated Financial Statements for a further
discussion of revenue recognition and other significant
accounting policies.
50
Revenue
Recognition
For software license arrangements for which services rendered
are not considered essential to the functionality of the
software, we recognize revenue upon delivery, provided
(1) there is persuasive evidence of an arrangement, (2)
collection of the fee is considered probable, and (3) the
fee is fixed or determinable. In most arrangements, because
vendor-specific objective evidence of fair value does not exist
for the license element, we use the residual method to determine
the amount of revenue to be allocated to the license element.
Under the residual method, the fair value of all undelivered
elements, such as post contract customer support or other
products or services, is deferred and subsequently recognized as
the products are delivered or the services are performed, with
the residual difference between the total arrangement fee and
revenues allocated to undelivered elements being allocated to
the delivered element. For software license arrangements in
which we have concluded that collectibility issues may exist,
revenue is recognized as cash is collected, provided all other
conditions for revenue recognition have been met. In making the
determination of collectibility, we consider the
creditworthiness of the customer, economic conditions in the
customers industry and geographic location, and general
economic conditions.
Our sales focus continues to shift from our more-established
products to more complex arrangements involving multiple
products inclusive of our BASE24-eps product and
less-established (collectively referred to as newer)
products. As a result of this shift to newer products and more
complex, multiple product arrangements, absent other factors, we
initially experience an increase in deferred revenue and a
corresponding decrease in current period revenue due to
differences in the timing of revenue recognition for the
respective products. Revenues from newer products are typically
recognized upon acceptance or first production use by the
customer whereas revenues from mature products, such as BASE24,
are generally recognized upon delivery of the product, provided
all other conditions for revenue recognition have been met. For
those arrangements where revenues are being deferred and we
determine that related direct and incremental costs are
recoverable, such costs are deferred and subsequently expensed
as the revenues are recognized. Newer products are continually
evaluated by our management and product development personnel to
determine when any such product meets specific internally
defined product maturity criteria that would support its
classification as a mature product. Evaluation criteria used in
making this determination include successful demonstration of
product features and functionality; standardization of sale,
installation, and support functions; and customer acceptance at
multiple production site installations, among others. A change
in product classification (from newer to mature) would allow us
to recognize revenues from new sales of the product upon
delivery of the product rather than upon acceptance or first
production use by the customer, resulting in earlier recognition
of revenues from sales of that product, as well as related
costs, provided all other revenue recognition criteria have been
met. BASE24-eps was reclassified as a mature product as of
October 1, 2006.
When a software license arrangement includes services to provide
significant modification or customization of software, those
services are not considered to be separable from the software.
Accounting for such services delivered over time is referred to
as contract accounting. Under contract accounting, we generally
use the
percentage-of-completion
method. Under the
percentage-of-completion
method, we record revenue for the software license fee and
services over the development and implementation period, with
the percentage of completion generally measured by the
percentage of labor hours incurred to-date to estimated total
labor hours for each contract. Estimated total labor hours for
each contract are based on the project scope, complexity, skill
level requirements, and similarities with other projects of
similar size and scope. For those contracts subject to contract
accounting, estimates of total revenue and profitability under
the contract consider amounts due under extended payment terms.
For arrangements where we believe it is reasonably assured that
no loss will be incurred under the arrangement and fair value
for maintenance services does not exist, we use a zero margin
approach of applying
percentage-of-completion
accounting until software customization services are completed.
We exclude revenues due on extended payment terms from our
current
percentage-of-completion
computation until such time that collection of the fees becomes
probable.
Certain of our arrangements are through unrelated distributors
or sales agents. In these situations, we evaluate additional
factors such as the financial capabilities, the distribution
capabilities, and risks of rebates, returns, or credits in
determining whether revenue should be recognized upon sale to
the distributor or sales agent (sell-in) or upon
distribution to an end-customer (sell-through).
Judgment is required in evaluating the facts and circumstances
of our relationship with the distributor or sales agent as well
as our operating history and practices that can impact the
timing of revenue recognition related to these arrangements.
51
We may execute more than one contract or agreement with a single
customer. The separate contracts or agreements may be viewed as
one multiple-element arrangement or separate arrangements for
revenue recognition purposes. Judgment is required when
evaluating the facts and circumstances related to each situation
in order to reach appropriate conclusions regarding whether such
arrangements are related or separate. Those conclusions can
impact the timing of revenue recognition related to those
arrangements.
Allowance
for Doubtful Accounts
We maintain a general allowance for doubtful accounts based on
our historical experience, along with additional
customer-specific allowances. We regularly monitor credit risk
exposures in our accounts receivable. In estimating the
necessary level of our allowance for doubtful accounts,
management considers the aging of our accounts receivable, the
creditworthiness of our customers, economic conditions within
the customers industry, and general economic conditions,
among other factors. Should any of these factors change, the
estimates made by management would also change, which in turn
would impact the level of our future provision for doubtful
accounts. Specifically, if the financial condition of our
customers were to deteriorate, affecting their ability to make
payments, additional customer-specific provisions for doubtful
accounts may be required. Also, should deterioration occur in
general economic conditions, or within a particular industry or
region in which we have a number of customers, additional
provisions for doubtful accounts may be recorded to reserve for
potential future losses. Any such additional provisions would
reduce operating income in the periods in which they were
recorded.
Intangible
Assets and Goodwill
Our business acquisitions typically result in the recording of
intangible assets, and the recorded values of those assets may
become impaired in the future. As of December 31, 2009 and
December 31, 2008 our intangible assets, excluding
goodwill, net of accumulated amortization, were $26.9 and
$30.3 million, respectively. The determination of the value
of such intangible assets requires management to make estimates
and assumptions that affect the consolidated financial
statements. We assess potential impairments to intangible assets
when there is evidence that events or changes in circumstances
indicate that the carrying amount of an asset may not be
recovered. Judgments regarding the existence of impairment
indicators and future cash flows related to intangible assets
are based on operational performance of our businesses, market
conditions and other factors. Although there are inherent
uncertainties in this assessment process, the estimates and
assumptions used, including estimates of future cash flows,
volumes, market penetration and discount rates, are consistent
with our internal planning. If these estimates or their related
assumptions change in the future, we may be required to record
an impairment charge on all or a portion of our intangible
assets. Furthermore, we cannot predict the occurrence of future
impairment-triggering events nor the impact such events might
have on our reported asset values. Future events could cause us
to conclude that impairment indicators exist and that intangible
assets associated with acquired businesses is impaired. Any
resulting impairment loss could have an adverse impact on our
results of operations.
Other intangible assets are amortized using the straight-line
method over periods ranging from 18 months to 12 years.
As of December 31, 2009 and 2008, our goodwill was $204.9,
and $200.0 million, respectively. In accordance with ASC
350, Intangibles Goodwill and Other,
(previous GAAP guidance was
SFAS No. 142), we assess goodwill for
impairment annually during the fourth quarter of our fiscal year
using October 1 balances or when there is evidence that events
or changes in circumstances indicate that the carrying amount of
the asset may not be recovered. We evaluate goodwill at the
reporting unit level and have identified our reportable
segments, Americas, EMEA, and Asia/Pacific, as our reporting
units. Recoverability of goodwill is measured using a discounted
cash flow model incorporating discount rates commensurate with
the risks involved. Use of a discounted cash flow model is
common practice in impairment testing in the absence of
available transactional market evidence to determine the fair
value.
The key assumptions used in the discounted cash flow valuation
model include discount rates, growth rates, cash flow
projections and terminal value rates. Discount rates, growth
rates and cash flow projections are the most sensitive and
susceptible to change as they require significant management
judgment. Discount rates are determined by using a weighted
average cost of capital (WACC). The WACC considers
market and industry data as well as
52
Company-specific risk factors. Operational management,
considering industry and Company-specific historical and
projected data, develops growth rates and cash flow projections
for each reporting unit. Terminal value rate determination
follows common methodology of capturing the present value of
perpetual cash flow estimates beyond the last projected period
assuming a constant WACC and low long-term growth rates. If the
calculated fair value is less than the current carrying value,
impairment of the reporting unit may exist. If the
recoverability test indicates potential impairment, we calculate
an implied fair value of goodwill for the reporting unit. The
implied fair value of goodwill is determined in a manner similar
to how goodwill is calculated in a business combination. If the
implied fair value of goodwill exceeds the carrying value of
goodwill assigned to the reporting unit, there is no impairment.
If the carrying value of goodwill assigned to a reporting unit
exceeds the implied fair value of the goodwill, an impairment
charge is recorded to write down the carrying value. The
calculated fair value was in excess of the current carrying
value for all reporting units.
Stock-Based
Compensation
Under the provisions of ASC 718
(SFAS No. 123(R)), stock-based compensation
cost for stock option awards is estimated at the grant date
based on the awards fair value as calculated by the
Black-Scholes option-pricing model and is recognized as expense
ratably over the requisite service period. We recognize
stock-based compensation costs for only those shares that are
expected to vest. The impact of forfeitures that may occur prior
to vesting is estimated and considered in the amount of expense
recognized. Forfeiture estimates are revised in subsequent
periods when actual forfeitures differ from those estimates. The
Black-Scholes option-pricing model requires various highly
judgmental assumptions including volatility and expected option
life. If any of the assumptions used in the Black-Scholes model
change significantly, stock-based compensation expense may
differ materially for future awards from that recorded for
existing awards.
We also have stock options outstanding that vest upon attainment
by the Company of certain market conditions. In order to
determine the grant date fair value of these stock options that
vest based on the achievement of certain market conditions, a
Monte Carlo simulation model is used to estimate (i) the
probability that the performance goal will be achieved and
(ii) the length of time required to attain the target
market price.
Long term incentive program performance share awards (LTIP
Performance Shares) were granted during the years ended
December 31, 2009 and September 30, 2007. These awards
are earned based on the achievement over a specified period of
performance goals related to certain performance metrics. In
order to determine compensation expense to be recorded for these
LTIP Performance Shares, each quarter management evaluates the
probability that the target performance goals will be achieved,
if at all, and the anticipated level of attainment.
During the year ended December 31, 2009 and 2008, pursuant
to our 2005 Incentive Plan, we granted restricted share awards
(RSAs). These awards have requisite service periods
of four years and vest in increments of 25% on the anniversary
dates of the grants. Under each arrangement, stock is issued
without direct cost to the employee. We estimate the fair value
of the RSAs based upon the market price of our stock at the date
of grant. The RSA grants provide for the payment of dividends on
our common stock, if any, to the participant during the
requisite service period (vesting period) and the participant
has voting rights for each share of common stock.
The assumptions utilized in the Black-Scholes option-pricing
model as well as the description of the plans the stock-based
awards are granted under are described in further detail in
Note 13, Stock-Based Compensation Plans, in the
Notes to Consolidated Financial Statements.
Accounting
for Income Taxes
Accounting for income taxes requires significant judgments in
the development of estimates used in income tax calculations.
Such judgments include, but are not limited to, the likelihood
we would realize the benefits of net operating loss
carryforwards
and/or
foreign tax credit carryforwards, the adequacy of valuation
allowances, and the rates used to measure transactions with
foreign subsidiaries. As part of the process of preparing our
consolidated financial statements, we are required to estimate
our income taxes in each of the jurisdictions in which the
Company operates. The judgments and estimates used are subject
to challenge by domestic and foreign taxing authorities.
53
We account for income taxes in accordance with FASB Statement
109 (now codified as ASC 740) and have adopted the
provisions of FIN 48, Accounting for Uncertainty in
Income Taxes, an Interpretation of FASB Statement No. 109
(now codified as ASC 740). As part of our process of
determining current tax liability, we exercise judgment in
evaluating positions we have taken in our tax returns. We
periodically assess our tax exposures and establish, or adjust,
estimated unrecognized benefits for probable assessments by
taxing authorities, including the IRS, and various foreign and
state authorities. Such unrecognized tax benefits represent the
estimated provision for income taxes expected to ultimately be
paid. It is possible that either domestic or foreign taxing
authorities could challenge those judgments or positions and
draw conclusions that would cause us to incur tax liabilities in
excess of, or realize benefits less than, those currently
recorded. In addition, changes in the geographical mix or
estimated amount of annual pretax income could impact our
overall effective tax rate.
To the extent recovery of deferred tax assets is not likely, we
record a valuation allowance to reduce our deferred tax assets
to the amount that is more likely than not to be realized.
Although we have considered future taxable income along with
prudent and feasible tax planning strategies in assessing the
need for a valuation allowance, if we should determine that we
would not be able to realize all or part of our deferred tax
assets in the future, an adjustment to deferred tax assets would
be charged to income in the period any such determination was
made. Likewise, in the event we are able to realize our deferred
tax assets in the future in excess of the net recorded amount,
an adjustment to deferred tax assets would increase income in
the period any such determination was made.
Recently
Issued Accounting Standards
In September 2009, the FASB required that the Codification be
the single source of authoritative non-governmental guidance.
The Codification is a topical based reorganization of the US
GAAP guidance that replaces the previous four-tiered GAAP
hierarchy with a two-tiered hierarchy consisting of
authoritative and non-authoritative guidance. This
reorganization does not change current GAAP guidance, rather
only changes the way it is organized. We adopted the
Codification as of September 30, 2009.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations (SFAS 141(R))
(codified as ASC 805), which replaced SFAS 141. We
adopted SFAS 141(R) as of January 1, 2009 and there
was no material impact on our consolidated financial statements
as of December 31, 2009.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS 160) (codified as ASC 810). We
adopted this revision as of January 1, 2009 and there was
no impact on our consolidated financial statements as our
non-controlling interests were not material.
On March 19, 2008, the FASB issued
SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities,
(SFAS 161) (codified by ASC 815).
SFAS 161 amends FASB Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities,
(SFAS 133) and was issued in response to
concerns and criticisms about the lack of adequate disclosure of
derivative instruments and hedging activities. We adopted
SFAS 161 as of January 1, 2009 and there was no impact
on our consolidated financial statements.
In June 2008, the FASB issued FASB Staff Position
(FSP) Emerging Issues Task Force (EITF)
03-6-1,
Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities (FSP
EITF 03-6-1)
(codified by ASC 260). We adopted this standard as of
January 1, 2009 and it did not have a material impact on
our consolidated financial statements.
In April 2009, the FASB issued FSP
FAS 157-4,
Determining Fair Value When the Volume and Level of Activity for
the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly (codified by
ASC 820). This FSP provides additional guidance for estimating
fair value in accordance with SFAS No. 157, Fair
Value Measurements, when the volume and level of activity
for the asset or liability have significantly decreased. This
FSP also includes guidance on identifying circumstances that
indicate a transaction is not orderly. This update is effective
for interim and annual reporting periods ending after
June 15, 2009. The adoption of this FSP did not have a
material effect on our consolidated financial statements.
In April 2009, the FASB issued FSP
FAS 107-1
and APB
28-1,
Interim Disclosures about Fair Value of Financial Instruments
(FSP
FAS 107-1)
and (APB
28-1)
(codified as ASC 825). FSP
FAS 107-1
and APB 28-1
54
amends FASB Statement No. 107, Disclosures about Fair
Value of Financial Instruments, to require disclosures about
fair value of financial instruments in interim as well as in
annual financial statements and amends guidance previously
referenced as APB Opinion No. 28, Interim Financial
Reporting, to require those disclosures in interim financial
statements. FSP
FAS 107-1
and APB 28-1
were adopted as of June 30, 2009 and did not have a
material impact on our consolidated financial statement
disclosures.
In September 2009, the FASB issued FASB Accounting Standards
Update (ASU)
2009-12,
Fair Value Measurements and Disclosures (Topic 820),
Investments in Certain Entities That Calculate Net Asset Value
Per Share. We adopted this standard as of December 31,
2009 and it did not have a material impact on our consolidated
financial statements.
In September 2009, the FASB issued ASU
2009-13 and
ASU 2009-14,
Revenue Recognition (Topic 605), Multiple Deliverable Revenue
Arrangements relating to revenue recognition for
arrangements with multiple deliverables that do not fall under
ASC 605-985.
This guidance eliminates the requirement that all undelivered
elements must have objective and reliable evidence of fair value
before a company can recognize the portion of the overall
arrangement fee that is attributable to items that already have
been delivered. As a result, the new guidance may allow some
companies to recognize revenue on transactions that involve
multiple deliverables earlier than under current requirements.
This guidance is effective for us January 1, 2011. We are
currently assessing the impact this Statement will have on our
financial statements.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Excluding the impact of changes in interest rates and the
uncertainty in the global financial markets, there have been no
material changes to our market risk for the year ended
December 31, 2009. We conduct business in all parts of the
world and are thereby exposed to market risks related to
fluctuations in foreign currency exchange rates. The
U.S. dollar is the single largest currency in which our
revenue contracts are denominated. Thus, any decline in the
value of local foreign currencies against the U.S. dollar
results in our products and services being more expensive to a
potential foreign customer, and in those instances where our
goods and services have already been sold, may result in the
receivables being more difficult to collect. Additionally, any
decline in the value of the U.S. dollar in jurisdictions
where the revenue contracts are denominated in U.S. dollars
and operating expenses are incurred in local currency will have
an unfavorable impact to operating margins. We at times enter
into revenue contracts that are denominated in the
countrys local currency, principally in Australia, Canada,
the United Kingdom and other European countries. This practice
serves as a natural hedge to finance the local currency expenses
incurred in those locations. We have not entered into any
foreign currency hedging transactions. We do not purchase or
hold any derivative financial instruments for the purpose of
speculation or arbitrage.
The primary objective of our cash investment policy is to
preserve principal without significantly increasing risk. Based
on our cash investments and interest rates on these investments
at December 31, 2009, and if we maintained this level of
similar cash investments for a period of one year, a
hypothetical ten percent increase or decrease in effective
interest rates would increase or decrease interest income by
less than $0.1 million annually.
During the fiscal year ended September 30, 2007, we entered
into two interest rate swaps, including a forward starting swap,
with a commercial bank whereby we pay a fixed rate of 5.375% and
4.90% and receive a floating rate indexed to the
3-month
LIBOR from the counterparty on a notional amount of
$75 million and $50 million, respectively. During the
fiscal year ended December 31, 2009, we amended our
interest rate swap on the $75 million notional amount from
3-month
LIBOR to
1-month
LIBOR. This basis swap did not impact the maturity date of the
interest rate swap or the accounting. As of December 31,
2009, the fair value liability of the interest rate swaps was
approximately $5.3 million, all of which was included in
other current liabilities on the consolidated balance sheet. The
potential loss in fair value liability of the interest rate
swaps resulting from a hypothetical 10 percent adverse
change in interest rates was less than $0.1 million at
December 31, 2009. Because our interest rate swaps do not
qualify for hedge accounting, changes in the fair value of the
interest rate swaps are recognized in the consolidated statement
of operations, along with the related income tax effects.
55
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The required consolidated financial statements and notes thereto
are included in this Annual Report and are listed in
Part IV, Item 15.
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
On May 21, 2009, the Audit Committee approved the
engagement of Deloitte & Touche LLP as the
Companys Independent Registered Public Accounting Firm for
the year ending December 31, 2009.
During the 2007 and 2008 fiscal years, there were no
disagreements with KPMG LLP on any matter of accounting
principle or practice, financial statement disclosure, or
auditing scope or procedure which, if not resolved to KPMG
LLPs satisfaction, would have caused KPMG LLP to make
reference to the subject matter of the disagreement in
connection with its report on the Companys consolidated
financial statements for such years. There were no reportable
events as defined in Item 304(a)(1)(v) of
Regulation S-K
except for a material weakness in internal control with respect
to accounting for software implementation services and licenses
agreements in the Asia/Pacific region as reported by the Company
in its Annual Report to Stockholders for the year ended
December 31, 2008.
In connection with the selection of Deloitte & Touche
LLP, on May 21, 2009 the Audit Committee determined to
dismiss KPMG LLP as the Companys independent registered
public accounting firm.
No other items were noted during 2009.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
|
|
a)
|
Evaluation
of Disclosure Controls and Procedures
|
Our management, under the supervision of and with the
participation of the Chief Executive Officer and Chief Financial
Officer, performed an evaluation of the effectiveness of our
disclosure controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934 (the Exchange
Act)) as of the end of the period covered by this report,
December 31, 2009.
In connection with our evaluation of disclosure controls and
procedures, we have concluded that the Companys disclosure
controls and procedures are effective as of December 31,
2009.
|
|
b)
|
Managements
Report on Internal Control over Financial Reporting
|
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting to provide
reasonable assurance regarding the reliability of our financial
reporting and the preparation of our consolidated financial
statements for external purposes in accordance with United
States Generally Accepted Accounting Principles (US
GAAP). Under the supervision of, and with the
participation of our Chief Executive Officer and Chief Financial
Officer, management assessed the effectiveness of internal
control over financial reporting as of December 31, 2009.
Management based its assessment on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on this evaluation, management
concluded that that its internal control over financial
reporting was effective as of December 31, 2009.
The effectiveness of internal control over financial reporting
as of December 31, 2009 has been audited by
Deloitte & Touche, LLP, an independent registered
public accounting firm, and Deloitte and Touche, LLP has issued
an attestation report on our internal control over financial
reporting.
|
|
c)
|
Changes
in Internal Control over Financial Reporting
|
As previously disclosed, management has implemented remediation
activities, described below, related to a material weakness
identified in our assessment of internal control over financial
reporting as of December 31, 2008. The material weakness as
of December 31, 2008 related to accounting for software
implementation service and
56
license arrangements in the Asia Pacific region. As of
December 31, 2009, management has concluded that the
remediation activities are properly designed and have been in
place for a sufficient amount of time to conclude that controls
were operating effectively as of December 31, 2009.
Therefore, management has determined that this material weakness
has been remediated during the fourth quarter of 2009.
Remedial actions for the material weakness identified as of
December 31, 2008 related to accounting for software
implementation services and licenses arrangements in the Asia
Pacific region
1) Created an Implementation Services Methodology which
sets forth the processes, methodology, tools, roles and
responsibilities in managing our implementation projects on a
global basis inclusive of a global Project Completion Policy.
2) Established a Corporate Management Office to provide a
standard methodology on how to manage, coordinate, report and
escalate projects during implementation.
3) Established a Deal Review Committee to review and
coordinate the closing of a contract and subsequently create
detailed project plans for implementation.
4) Created a disciplined process to account for all service
hours.
5) Implemented regular meetings to increase corporate
oversight of implementation service and license arrangements
across the channels.
6) Developed a formal communication strategy and plan to
educate and train personnel on ACIs Implementation
Services Methodology, Corporate Management Office and Deal
Review Committee processes.
Except for the changes described above, there have been no
changes during the Companys quarter ended
December 31, 2009 in our internal control over financial
reporting (as defined in
Rules 13a-15(f)
under the Exchange Act) that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
57
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
ACI Worldwide, Inc.
Omaha, Nebraska
We have audited the internal control over financial reporting of
ACI Worldwide, Inc. and subsidiaries (the Company)
as of December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. The Companys 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 by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel 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 the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the 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, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended
December 31, 2009 of the Company and our report dated
February 26, 2010 expressed an unqualified opinion on those
financial statements.
/s/ DELOITTE & TOUCHE LLP
Omaha, Nebraska
February 26, 2010
58
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information under the heading Executive Officers of
the Registrant in Part 1, Item 1 of this
Form 10-K
is incorporated herein by reference.
The information required by this item with respect to our
directors is included in the section entitled
Nominees under Proposal 1
Election of Directors in our Proxy Statement for the
Annual Meeting of Stockholders to be held on June 9, 2010
(the 2010 Proxy Statement) and is incorporated
herein by reference.
Information included in the section entitled
Section 16(a) Beneficial Ownership Reporting
Compliance in our 2010 Proxy Statement is incorporated
herein by reference.
Information related to the audit committee and the audit
committee financial expert is included in the section entitled
Report of Audit Committee in our 2010 Proxy
Statement is incorporated herein by reference. In addition, the
information included in the section entitled Corporate
Governance in our 2010 Proxy Statement is incorporated
herein by reference.
Code of
Business Conduct and Code of Ethics
We have adopted a Code of Business Conduct and Ethics for our
directors, officers (including our principal executive officer,
principal financial officer, principle accounting officer and
controller) and employees. We have also adopted a Code of Ethics
for the Chief Executive Officer and Senior Financial Officers
(the Code of Ethics), which applies to our Chief
Executive Officer, our Chief Financial Officer, our Chief
Accounting Officer, Controller, and persons performing similar
functions. The full text of both the Code of Business Conduct
and Ethics and Code of Ethics is published on our website at
www.aciworldwide.com in the Investors
Corporate Governance section. We intend to disclose future
amendments to, or waivers from, certain provisions of the Code
of Business Conduct and Ethics and the Code of Ethics on our
website promptly following the adoption of such amendment or
waiver.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
Information included in the sections entitled Director
Compensation, Compensation Discussion and
Analysis, Compensation Committee Report and
Executive Compensation in our 2010 Proxy Statement
is incorporated herein by reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Information included in the sections entitled Information
Regarding Stock Ownership in our 2010 Proxy Statement is
incorporated herein by reference.
Information included in the section entitled Information
Regarding Equity Compensation Plans in our 2010 Proxy
Statement is incorporated herein by reference.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
|
Information included in the section entitled Certain
Relationships and Related Transactions, if any, in our
2010 Proxy Statement is incorporated herein by reference.
59
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
Information included in the sections entitled Report of
Audit Committee and Proposal 2
Ratification of Appointment of the Companys Independent
Registered Public Accounting Firm in our 2010 Proxy
Statement is incorporated herein by reference.
PART IV
|
|
ITEM 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
Documents
filed as part of this annual report on
Form 10-K:
(1) Financial Statements. The following
index lists consolidated financial statements and notes thereto
filed as part of this annual report on
Form 10-K:
|
|
|
|
|
|
|
Page
|
|
|
|
|
64
|
|
|
|
|
65
|
|
|
|
|
66
|
|
|
|
|
67
|
|
|
|
|
68
|
|
|
|
|
69
|
|
|
|
|
70
|
|
(2) Financial Statement Schedules. All
schedules have been omitted because they are not applicable or
the required information is included in the consolidated
financial statements or notes thereto.
(3) Exhibits. The following exhibit index
lists exhibits incorporated herein by reference, filed as part
of this annual report on
Form 10-K,
or furnished as part of this annual report on
Form 10-K:
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
3
|
.01(1)
|
|
Amended and Restated Certificate of Incorporation of the Company
|
|
3
|
.02(2)
|
|
Amended and Restated Bylaws of the Company
|
|
4
|
.01(3)
|
|
Form of Common Stock Certificate
|
|
10
|
.01(4)*
|
|
Stock and Warrant Holders Agreement, dated as of
December 30, 1993
|
|
10
|
.02(5)*
|
|
ACI Holding, Inc. 1994 Stock Option Plan, as amended
|
|
10
|
.03(6)*
|
|
Transaction Systems Architects, Inc. 1996 Stock Option Plan, as
amended
|
|
10
|
.04(7)*
|
|
ACI Worldwide, Inc. 1999 Stock Option Plan, as amended
|
|
10
|
.05(8)*
|
|
ACI Worldwide, Inc. 1999 Employee Stock Purchase Plan, as amended
|
|
10
|
.06(9)*
|
|
Transaction Systems Architects, Inc. 2000 Non-Employee Director
Stock Option Plan, as amended
|
|
10
|
.07(10)*
|
|
Transaction Systems Architects, Inc. 2002 Non-Employee Director
Stock Option Plan, as amended
|
|
10
|
.8(11)*
|
|
ACI Worldwide, Inc. 2005 Equity and Performance Incentive Plan,
as amended
|
|
10
|
.9*
|
|
Form of Severance Compensation Agreement
(Change-in-Control)
between the Company and certain officers, including executive
officers (filed herewith)
|
|
10
|
.10*
|
|
Form of Indemnification Agreement between the Company and
certain officers, including executive officers (filed herewith)
|
60
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.11(12)
|
|
Asset Purchase Agreement by and between S2 Systems, Inc. and the
Company dated June 29, 2005
|
|
10
|
.12(13)*
|
|
Form of Stock Option Agreement for the Companys 1994 Stock
Option Plan
|
|
10
|
.13(14)*
|
|
Form of Stock Option Agreement for the Companys 1996 Stock
Option Plan
|
|
10
|
.14(15)*
|
|
Form of Stock Option Agreement for the Companys 1999 Stock
Option Plan
|
|
10
|
.15(16)*
|
|
Form of Stock Option Agreement for the Companys 2000
Non-Employee Director Plan
|
|
10
|
.16(17)*
|
|
Form of Stock Option Agreement for the Companys 2002
Non-Employee Director Plan
|
|
10
|
.17*
|
|
Form of Nonqualified Stock Option Agreement
Non-Employee Director for the Companys 2005 Equity and
Performance Incentive Plan, as amended (filed herewith)
|
|
10
|
.18*
|
|
Form of Nonqualified Stock Option Agreement Employee
for the Companys 2005 Equity and Performance Incentive
Plan, as amended (filed herewith)
|
|
10
|
.19(18)*
|
|
Form of LTIP Performance Shares Agreement for the
Companys 2005 Equity and Performance Incentive Plan, as
amended
|
|
10
|
.20(19)*
|
|
Amended and Restated Employment Agreement by and between the
Company and Philip G. Heasley, dated January 7, 2009
|
|
10
|
.21(20)*
|
|
Stock Option Agreement by and between the Company and Philip G.
Heasley, dated March 9, 2005
|
|
10
|
.22(21)
|
|
Share Purchase Agreement dated as of May 11, 2006 by and
between Transaction Systems Architects, Inc.; PREIPO Bating- und
Beteiligungsgesellschaft mbH; RP Vermögensverwaltung GmbH;
Mr. Christian Jaron; Mr. Johann Praschinger; and eps
Electronic Payment Systems AG
|
|
10
|
.23(22)
|
|
Agreement and Plan of Merger dated August 28, 2006 by and
among Transaction Systems Architects, Inc., Parakeet MergerSub
Corp., and P&H Solutions, Inc.
|
|
10
|
.24(23)
|
|
Credit Agreement by and among Transaction Systems Architects,
Inc. and Wachovia Bank, National Association
|
|
10
|
.25(24)*
|
|
Separation, Non-Compete, Non-Solicitation and Non-Disclosure
Agreement and General Release with Anthony J. Parkinson dated
May 10, 2007
|
|
10
|
.26(25)*
|
|
Separation, Non-Compete, Nonsolicitation and Non-Disclosure
Agreement and General Release with Mark R. Vipond dated
August 11, 2008
|
|
10
|
.27(26)*
|
|
2008 Executive Management Incentive Compensation Plan
|
|
10
|
.28(27)*
|
|
2008 Form of
Change-in-Control
Employment Agreement between the Company and certain officers,
including executive officers
|
|
10
|
.29*
|
|
Form of Restricted Share Award Agreement for the Companys
2005 Equity and Performance Incentive Plan, as amended (filed
herewith)
|
|
10
|
.30(28)***
|
|
Master Alliance Agreement between ACI Worldwide, Inc. and
International Business Machines Corporation
|
|
10
|
.31(29)
|
|
Warrant Agreement between ACI Worldwide, Inc. and International
Business Machines Corporation
|
|
10
|
.32(30)
|
|
Warrant Agreement between ACI Worldwide, Inc. and International
Business Machines Corporation
|
|
10
|
.33(31)***
|
|
Master Services Agreement by and between ACI Worldwide, Inc. and
International Business Machines Corporation
|
|
21
|
.01
|
|
Subsidiaries of the Registrant (filed herewith)
|
|
23
|
.01
|
|
Consent of Independent Registered Public Accounting Firm (filed
herewith) - Deloitte & Touche LLP
|
|
23
|
.02
|
|
Consent of Independent Registered Public Accounting Firm (filed
herewith) KPMG LLP
|
|
31
|
.01
|
|
Certification of Chief Executive Officer pursuant to S.E.C.
Rule 13a-14,
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (filed herewith)
|
|
31
|
.02
|
|
Certification of Chief Financial Officer pursuant to S.E.C.
Rule 13a-14,
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (filed herewith)
|
61
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
32
|
.01**
|
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (furnished
herewith)
|
|
32
|
.02**
|
|
Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (furnished
herewith)
|
|
|
|
(1) |
|
Incorporated herein by reference to registrants current
report on
Form 8-K
filed July 30, 2007. |
|
(2) |
|
Incorporated herein by reference to Exhibit 3.02 to the
registrants current report on
Form 8-K
filed December 18, 2008. |
|
(3) |
|
Incorporated herein by reference to Exhibit 4.01 to the
registrants Registration Statement
No. 33-88292
on
Form S-1. |
|
(4) |
|
Incorporated herein by reference to Exhibit 10.9 to the
registrants Registration Statement
No. 33-88292
on
Form S-1. |
|
(5) |
|
Incorporated herein by reference to Exhibit 10.1 to the
registrants quarterly report on
Form 10-Q
for the period ended March 31, 2006. |
|
(6) |
|
Incorporated herein by reference to Exhibit 10.2 to the
registrants quarterly report on
Form 10-Q
for the period ended March 31, 2006. |
|
(7) |
|
Incorporated herein by reference to Exhibit 10.4 to the
registrants quarterly report on
Form 10-Q
for the period ended March 31, 2006. |
|
(8) |
|
Incorporated herein by reference to Exhibit 4.1 to the
registrants Post-Effective Amendment No. 2 to
Registration Statement
No. 333-113550
on
Form S-8
filed June 11, 2008. |
|
(9) |
|
Incorporated herein by reference to Exhibit 10.6 to the
registrants quarterly report on
Form 10-Q
for the period ended March 31, 2006. |
|
(10) |
|
Incorporated herein by reference to Exhibit 10.7 to the
registrants quarterly report on
Form 10-Q
for the period ended March 31, 2006. |
|
(11) |
|
Incorporated herein by reference to Exhibit 10.2 to the
registrants quarterly report on
Form 10-Q
for the period ended March 31, 2007. |
|
(12) |
|
Incorporated herein by reference to Exhibit 2.1 to the
registrants current report on
Form 8-K
filed on July 1, 2005. |
|
(13) |
|
Incorporated herein by reference to Exhibit 10.18 to the
registrants annual report on
Form 10-K
for the fiscal year ended September 30, 2004. |
|
(14) |
|
Incorporated herein by reference to Exhibit 10.19 to the
registrants annual report on
Form 10-K
for the fiscal year ended September 30, 2004. |
|
(15) |
|
Incorporated herein by reference to Exhibit 10.2 to the
registrants quarterly report on
Form 10-Q
for the period ended June 30, 2007. |
|
(16) |
|
Incorporated herein by reference to Exhibit 10.22 to the
registrants annual report on
Form 10-K
for the fiscal year ended September 30, 2004. |
|
(17) |
|
Incorporated herein by reference to Exhibit 10.23 to the
registrants annual report on
Form 10-K
for the fiscal year ended September 30, 2004. |
|
(18) |
|
Incorporated herein by reference to Exhibit 10.1 to the
registrants current report on
Form 8-K
filed December 16, 2009. |
|
(19) |
|
Incorporated herein by reference to Exhibit 10.1 to the
registrants current report on
Form 8-K
filed on January 7, 2009. |
|
(20) |
|
Incorporated herein by reference to Exhibit 10.2 to the
registrants current report on
Form 8-K
filed on March 10, 2005. |
|
(21) |
|
Incorporated herein by reference to Exhibit 2.1 to the
registrants quarterly report on
Form 10-Q
for the period ended June 30, 2006. |
62
|
|
|
(22) |
|
Incorporated herein by reference to Exhibit 2.1 to the
registrants current report on
Form 8-K
filed on September 1, 2006. |
|
(23) |
|
Incorporated herein by reference to Exhibit 10.33 to the
registrants annual report on
Form 10-K
for the fiscal year ended September 30, 2006. |
|
(24) |
|
Incorporated herein by reference to Exhibit 10.1 to the
registrants current report on
Form 8-K
filed May 16, 2007. |
|
(25) |
|
Incorporated herein by reference to Exhibit 10.1 the
registrants current report on
Form 8-K
filed August 15, 2008. |
|
(26) |
|
Incorporated herein by reference to Annex A to the
registrants Proxy Statement for its 2008 Annual Meeting
(File
No. 000-25346)
filed on April 21, 2008. |
|
(27) |
|
Incorporated herein by reference to Exhibit 10.1 the
registrants current report on
Form 8-K
filed January 7, 2009. |
|
(28) |
|
Incorporated herein by reference to Exhibit 10.1 to the
registrants quarterly report on
Form 10-Q
for the period ended June 30, 2009. |
|
(29) |
|
Incorporated herein by reference to Exhibit 10.2 to the
registrants quarterly report on
Form 10-Q
for the period ended December 31, 2007. |
|
(30) |
|
Incorporated herein by reference to Exhibit 10.3 to the
registrants quarterly report on
Form 10-Q
for the period ended December 31, 2007. |
|
(31) |
|
Incorporated herein by reference to Exhibit 10.2 to the
registrants quarterly report on
Form 10-Q
for the period ended June 30, 2009. |
|
* |
|
Denotes exhibit that constitutes a management contract, or
compensatory plan or arrangement. |
|
** |
|
This certification is not deemed filed for purposes
of Section 18 of the Securities Exchange Act of 1934, or
otherwise subject to the liability of that section. Such
certification will not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent that the
Company specifically incorporates it by reference. |
|
*** |
|
Material has been omitted from this exhibit pursuant to a
request for confidential treatment pursuant to
Rule 24b-2
promulgated under the Securities and Exchange Act of 1934 and
such material has been filed separately with the Securities and
Exchange Commission. |
63
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
ACI Worldwide, Inc.
Omaha, Nebraska
We have audited the accompanying consolidated balance sheet of
ACI Worldwide, Inc. and subsidiaries (the Company)
as of December 31, 2009 and the related consolidated
statements of operations, of stockholders equity and
comprehensive income (loss), and of cash flows for the year
ended December 31, 2009. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements 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 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 audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of ACI
Worldwide, Inc. and subsidiaries as of December 31, 2009
and the results of their operations and their cash flows for the
year ended December 31, 2009, in conformity with accounting
principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2009, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 26, 2010,
expressed an unqualified opinion on the Companys internal
control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Omaha, Nebraska
February 26, 2010
64
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
ACI Worldwide, Inc.:
We have audited the accompanying consolidated balance sheet of
ACI Worldwide, Inc. and subsidiaries (the Company) as of
December 31, 2008, and the related consolidated statements
of operations, stockholders equity and comprehensive
income (loss), and cash flows for the year ended
December 31, 2008, the three month period ended
December 31, 2007 and the year ended September 30,
2007. These consolidated financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements 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 consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of ACI Worldwide, Inc. and subsidiaries as of
December 31, 2008, and the results of their operations and
their cash flows for the year ended December 31, 2008, the
three month period ended December 31, 2007 and the year
ended September 30, 2007, in conformity with
U.S. generally accepted accounting principles.
As discussed in note 15 to the consolidated financial
statements, the Company adopted Financial Accounting Standards
(FASB) Interpretation No. 48, Accounting for Uncertainty
in Income Taxes an interpretation of FASB Statement
No. 109 (now codified as Accounting Standards
Codification (ASC) 740, Income Taxes, as of
October 1, 2007).
/s/ KPMG LLP
Omaha, Nebraska
March 3, 2009
65
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except share and per share amounts)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
125,917
|
|
|
$
|
112,966
|
|
Billed receivables, net of allowances of $2,732 and $1,920,
respectively
|
|
|
98,915
|
|
|
|
77,738
|
|
Accrued receivables
|
|
|
9,468
|
|
|
|
17,412
|
|
Deferred income taxes, net
|
|
|
17,459
|
|
|
|
17,005
|
|
Recoverable income taxes
|
|
|
|
|
|
|
3,140
|
|
Prepaid expenses
|
|
|
12,079
|
|
|
|
9,483
|
|
Other current assets
|
|
|
10,224
|
|
|
|
8,800
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
274,062
|
|
|
|
246,544
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
17,570
|
|
|
|
19,421
|
|
Software, net
|
|
|
30,037
|
|
|
|
29,438
|
|
Goodwill
|
|
|
204,850
|
|
|
|
199,986
|
|
Other intangible assets, net
|
|
|
26,906
|
|
|
|
30,347
|
|
Deferred income taxes, net
|
|
|
26,024
|
|
|
|
12,899
|
|
Other assets
|
|
|
10,594
|
|
|
|
14,207
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
590,043
|
|
|
$
|
552,842
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
17,591
|
|
|
$
|
16,047
|
|
Accrued employee compensation
|
|
|
24,492
|
|
|
|
19,955
|
|
Deferred revenue
|
|
|
106,349
|
|
|
|
99,921
|
|
Income taxes payable
|
|
|
10,681
|
|
|
|
78
|
|
Alliance agreement liability
|
|
|
10,507
|
|
|
|
6,195
|
|
Accrued and other current liabilities
|
|
|
25,780
|
|
|
|
24,068
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
195,400
|
|
|
|
166,264
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
31,533
|
|
|
|
24,296
|
|
Note payable under credit facility
|
|
|
75,000
|
|
|
|
75,000
|
|
Deferred income taxes, net
|
|
|
|
|
|
|
2,091
|
|
Alliance agreement noncurrent liability
|
|
|
21,980
|
|
|
|
37,327
|
|
Other noncurrent liabilities
|
|
|
30,067
|
|
|
|
34,023
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
353,980
|
|
|
|
339,001
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 17)
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Preferred stock; $0.01 par value; 5,000,000 shares
authorized; no shares issued
|
|
|
|
|
|
|
|
|
and outstanding at December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
Common stock; $0.005 par value; 70,000,000 shares
authorized; 40,821,516
|
|
|
|
|
|
|
|
|
shares issued at December 31, 2009 and 2008
|
|
|
204
|
|
|
|
204
|
|
Common stock warrants
|
|
|
24,003
|
|
|
|
24,003
|
|
Treasury stock, at cost, 6,784,932 and 5,909,000 shares
outstanding at
|
|
|
|
|
|
|
|
|
December 31, 2009 and 2008
|
|
|
(158,652
|
)
|
|
|
(147,808
|
)
|
Additional paid-in capital
|
|
|
307,279
|
|
|
|
302,237
|
|
Retained earnings
|
|
|
78,094
|
|
|
|
58,468
|
|
Accumulated other comprehensive loss
|
|
|
(14,865
|
)
|
|
|
(23,263
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
236,063
|
|
|
|
213,841
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
590,043
|
|
|
$
|
552,842
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
66
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years
|
|
|
For the Three
|
|
|
|
|
|
|
Ended
|
|
|
Months Ended
|
|
|
For the Year
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software license fees
|
|
$
|
156,469
|
|
|
$
|
169,210
|
|
|
$
|
46,266
|
|
|
$
|
149,485
|
|
Maintenance fees
|
|
|
136,737
|
|
|
|
130,015
|
|
|
|
32,167
|
|
|
|
121,233
|
|
Services
|
|
|
112,549
|
|
|
|
118,428
|
|
|
|
22,849
|
|
|
|
95,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
405,755
|
|
|
|
417,653
|
|
|
|
101,282
|
|
|
|
366,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of software license fees(1)
|
|
|
14,754
|
|
|
|
12,846
|
|
|
|
2,483
|
|
|
|
9,145
|
|
Cost of maintenance and services(1)
|
|
|
112,893
|
|
|
|
117,087
|
|
|
|
23,530
|
|
|
|
95,691
|
|
Research and development
|
|
|
77,506
|
|
|
|
75,850
|
|
|
|
22,945
|
|
|
|
78,950
|
|
Selling and marketing
|
|
|
61,799
|
|
|
|
73,236
|
|
|
|
20,587
|
|
|
|
69,957
|
|
General and administrative
|
|
|
79,244
|
|
|
|
100,272
|
|
|
|
25,011
|
|
|
|
94,762
|
|
Depreciation and amortization
|
|
|
17,989
|
|
|
|
16,649
|
|
|
|
3,874
|
|
|
|
15,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
364,185
|
|
|
|
395,940
|
|
|
|
98,430
|
|
|
|
363,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
41,570
|
|
|
|
21,713
|
|
|
|
2,852
|
|
|
|
2,419
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,042
|
|
|
|
2,609
|
|
|
|
763
|
|
|
|
4,082
|
|
Interest expense
|
|
|
(2,856
|
)
|
|
|
(5,013
|
)
|
|
|
(1,389
|
)
|
|
|
(6,644
|
)
|
Other, net
|
|
|
(6,648
|
)
|
|
|
8,247
|
|
|
|
(334
|
)
|
|
|
(3,740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(8,462
|
)
|
|
|
5,843
|
|
|
|
(960
|
)
|
|
|
(6,302
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
33,108
|
|
|
|
27,556
|
|
|
|
1,892
|
|
|
|
(3,883
|
)
|
Income tax expense
|
|
|
13,482
|
|
|
|
16,974
|
|
|
|
3,908
|
|
|
|
5,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
19,626
|
|
|
$
|
10,582
|
|
|
$
|
(2,016
|
)
|
|
$
|
(9,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
34,368
|
|
|
|
34,498
|
|
|
|
35,700
|
|
|
|
36,933
|
|
Diluted
|
|
|
34,554
|
|
|
|
34,795
|
|
|
|
35,700
|
|
|
|
36,933
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.57
|
|
|
$
|
0.31
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.25
|
)
|
Diluted
|
|
$
|
0.57
|
|
|
$
|
0.30
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.25
|
)
|
|
|
|
(1) |
|
The cost of software license fees excludes charges for
depreciation but includes amortization of purchased and
developed software for resale. The cost of maintenance and
services excludes charges for depreciation. |
The accompanying notes are an integral part of the consolidated
financial statements.
67
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
COMPREHENSIVE
INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
Common
|
|
|
Stock
|
|
|
Treasury
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Income
|
|
|
|
|
|
|
Stock
|
|
|
Warrants
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
(Loss)
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balance at September 30, 2006
|
|
$
|
204
|
|
|
$
|
|
|
|
$
|
(94,313
|
)
|
|
$
|
307,553
|
|
|
$
|
62,357
|
|
|
$
|
(8,589
|
)
|
|
$
|
267,212
|
|
Comprehensive income (loss) information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,131
|
)
|
|
|
|
|
|
|
(9,131
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,869
|
|
|
|
7,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,262
|
)
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
(46,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,187
|
)
|
Exercises of stock options
|
|
|
|
|
|
|
|
|
|
|
160
|
|
|
|
(155
|
)
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Stock option settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,399
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,399
|
)
|
Tax benefit of stock options exercised and settled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,074
|
|
|
|
|
|
|
|
|
|
|
|
1,074
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,311
|
|
|
|
|
|
|
|
|
|
|
|
7,311
|
|
Employee Stock Purchase Plan compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258
|
|
|
|
|
|
|
|
|
|
|
|
258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2007
|
|
|
204
|
|
|
|
|
|
|
|
(140,340
|
)
|
|
|
312,642
|
|
|
|
53,226
|
|
|
|
(720
|
)
|
|
|
225,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,016
|
)
|
|
|
|
|
|
|
(2,016
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,122
|
)
|
|
|
(1,122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,138
|
)
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
(3,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,708
|
)
|
Issuance of common stock pursuant to Employee Stock Purchase Plan
|
|
|
|
|
|
|
|
|
|
|
2,165
|
|
|
|
(631
|
)
|
|
|
|
|
|
|
|
|
|
|
1,534
|
|
Exercises of stock options
|
|
|
|
|
|
|
|
|
|
|
1,563
|
|
|
|
(953
|
)
|
|
|
|
|
|
|
|
|
|
|
610
|
|
Stock option settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(151
|
)
|
|
|
|
|
|
|
|
|
|
|
(151
|
)
|
Tax benefit of stock options exercised and cash settled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
206
|
|
|
|
|
|
|
|
|
|
|
|
206
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
Issuance of common stock warrants
|
|
|
|
|
|
|
24,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,003
|
|
Cumulative effect of a change in income tax accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,324
|
)
|
|
|
|
|
|
|
(3,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
204
|
|
|
$
|
24,003
|
|
|
$
|
(140,320
|
)
|
|
$
|
311,108
|
|
|
$
|
47,886
|
|
|
$
|
(1,842
|
)
|
|
$
|
241,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,582
|
|
|
|
|
|
|
|
10,582
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,421
|
)
|
|
|
(21,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,839
|
)
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
(30,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,063
|
)
|
Issuance of common stock pursuant to Employee Stock Purchase Plan
|
|
|
|
|
|
|
|
|
|
|
2,618
|
|
|
|
(1,141
|
)
|
|
|
|
|
|
|
|
|
|
|
1,477
|
|
Exercises of stock options
|
|
|
|
|
|
|
|
|
|
|
7,854
|
|
|
|
(4,013
|
)
|
|
|
|
|
|
|
|
|
|
|
3,841
|
|
Tax benefit of stock options exercised and cash settled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
498
|
|
|
|
|
|
|
|
|
|
|
|
498
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,888
|
|
|
|
|
|
|
|
|
|
|
|
7,888
|
|
Non-vested restricted share awards subject to redemption
|
|
|
|
|
|
|
|
|
|
|
12,328
|
|
|
|
(12,328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of non-vested restricted share awards
|
|
|
|
|
|
|
|
|
|
|
(225
|
)
|
|
|
225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
204
|
|
|
$
|
24,003
|
|
|
$
|
(147,808
|
)
|
|
$
|
302,237
|
|
|
$
|
58,468
|
|
|
$
|
(23,263
|
)
|
|
$
|
213,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,626
|
|
|
|
|
|
|
|
19,626
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,398
|
|
|
|
8,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,024
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
(15,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,000
|
)
|
Issuance of common stock pursuant to Employee Stock Purchase Plan
|
|
|
|
|
|
|
|
|
|
|
1,862
|
|
|
|
(793
|
)
|
|
|
|
|
|
|
|
|
|
|
1,069
|
|
Exercises of stock options
|
|
|
|
|
|
|
|
|
|
|
3,688
|
|
|
|
(1,877
|
)
|
|
|
|
|
|
|
|
|
|
|
1,811
|
|
Tax benefit of stock options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(705
|
)
|
|
|
|
|
|
|
|
|
|
|
(705
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,645
|
|
|
|
|
|
|
|
|
|
|
|
7,645
|
|
Non-vested restricted share awards subject to redemption
|
|
|
|
|
|
|
|
|
|
|
554
|
|
|
|
(554
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of non-vested restricted share awards
|
|
|
|
|
|
|
|
|
|
|
(1,326
|
)
|
|
|
1,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of restricted stock for tax withholdings
|
|
|
|
|
|
|
|
|
|
|
(622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
204
|
|
|
$
|
24,003
|
|
|
$
|
(158,652
|
)
|
|
$
|
307,279
|
|
|
$
|
78,094
|
|
|
$
|
(14,865
|
)
|
|
$
|
236,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
68
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years
|
|
|
For the Three
|
|
|
For the Year
|
|
|
|
Ended
|
|
|
Months Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
19,626
|
|
|
$
|
10,582
|
|
|
$
|
(2,016
|
)
|
|
$
|
(9,131
|
)
|
Adjustments to reconcile net income (loss) to net cash flows
from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
6,338
|
|
|
|
6,506
|
|
|
|
1,496
|
|
|
|
5,900
|
|
Amortization
|
|
|
17,389
|
|
|
|
15,544
|
|
|
|
3,724
|
|
|
|
14,603
|
|
Tax expense of intellectual property shift
|
|
|
2,199
|
|
|
|
1,942
|
|
|
|
591
|
|
|
|
1,912
|
|
Deferred income taxes
|
|
|
(6,562
|
)
|
|
|
4,739
|
|
|
|
(741
|
)
|
|
|
(6,832
|
)
|
Amortization of debt financing costs
|
|
|
336
|
|
|
|
336
|
|
|
|
84
|
|
|
|
336
|
|
Gain on reversal of asset retirement obligation
|
|
|
(40
|
)
|
|
|
(949
|
)
|
|
|
|
|
|
|
|
|
Gain on transfer of assets under contractual obligations
|
|
|
(1,049
|
)
|
|
|
(219
|
)
|
|
|
(386
|
)
|
|
|
(404
|
)
|
(Gain) loss on disposal of assets
|
|
|
56
|
|
|
|
290
|
|
|
|
17
|
|
|
|
(28
|
)
|
Decrease in fair value of interest rate swaps
|
|
|
1,640
|
|
|
|
5,800
|
|
|
|
2,475
|
|
|
|
2,077
|
|
Stock-based compensation expense (recovery)
|
|
|
7,645
|
|
|
|
7,888
|
|
|
|
(5
|
)
|
|
|
7,569
|
|
Tax benefit of stock options exercised and cash settled
|
|
|
114
|
|
|
|
357
|
|
|
|
97
|
|
|
|
1,043
|
|
Changes in operating assets and liabilities, net of impact of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Billed and accrued receivables, net
|
|
|
(10,365
|
)
|
|
|
(5,401
|
)
|
|
|
(17,552
|
)
|
|
|
11,145
|
|
Other current assets
|
|
|
68
|
|
|
|
(187
|
)
|
|
|
(384
|
)
|
|
|
(1,659
|
)
|
Other assets
|
|
|
1,387
|
|
|
|
617
|
|
|
|
(702
|
)
|
|
|
(2,293
|
)
|
Accounts payable
|
|
|
(1,680
|
)
|
|
|
(2,494
|
)
|
|
|
2,799
|
|
|
|
(3,343
|
)
|
Accrued employee compensation
|
|
|
3,492
|
|
|
|
51
|
|
|
|
(73
|
)
|
|
|
(12,162
|
)
|
Proceeds from alliance agreement
|
|
|
|
|
|
|
40,935
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
|
(8,412
|
)
|
|
|
(2,609
|
)
|
|
|
3,982
|
|
|
|
2,949
|
|
Accrued settlement for class action litigation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,450
|
)
|
Current income taxes
|
|
|
6,029
|
|
|
|
2,130
|
|
|
|
2,443
|
|
|
|
(1,122
|
)
|
Deferred revenue
|
|
|
8,412
|
|
|
|
(7,012
|
)
|
|
|
16,171
|
|
|
|
20,738
|
|
Other current and noncurrent liabilities
|
|
|
(2,406
|
)
|
|
|
(1,020
|
)
|
|
|
103
|
|
|
|
1,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating activities
|
|
|
44,217
|
|
|
|
77,826
|
|
|
|
12,123
|
|
|
|
24,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(2,942
|
)
|
|
|
(7,021
|
)
|
|
|
(2,227
|
)
|
|
|
(7,784
|
)
|
Purchases of software and distribution rights
|
|
|
(7,529
|
)
|
|
|
(4,936
|
)
|
|
|
(1,658
|
)
|
|
|
(1,107
|
)
|
Purchases of marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,500
|
)
|
Sales of marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
Alliance technical enablement expenditures
|
|
|
(6,899
|
)
|
|
|
(6,328
|
)
|
|
|
|
|
|
|
|
|
Proceeds from alliance agreement, net of common stock warrants
|
|
|
|
|
|
|
1,498
|
|
|
|
9,330
|
|
|
|
|
|
Proceeds from transfer of assets under contractual arrangements
|
|
|
1,050
|
|
|
|
|
|
|
|
500
|
|
|
|
500
|
|
Acquisition of businesses, net of cash acquired
|
|
|
(7,047
|
)
|
|
|
(169
|
)
|
|
|
(47
|
)
|
|
|
(17,579
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activities
|
|
|
(23,367
|
)
|
|
|
(16,956
|
)
|
|
|
5,898
|
|
|
|
(25,964
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
1,243
|
|
|
|
1,704
|
|
|
|
279
|
|
|
|
|
|
Proceeds from issuance of common stock warrants
|
|
|
|
|
|
|
|
|
|
|
24,003
|
|
|
|
|
|
Proceeds from exercises of stock options
|
|
|
1,811
|
|
|
|
3,841
|
|
|
|
610
|
|
|
|
40
|
|
Excess tax benefit of stock options exercised
|
|
|
88
|
|
|
|
142
|
|
|
|
109
|
|
|
|
31
|
|
Repurchases of common stock
|
|
|
(15,000
|
)
|
|
|
(30,063
|
)
|
|
|
(3,994
|
)
|
|
|
(46,707
|
)
|
Repurchase of restricted stock for tax withholdings
|
|
|
(622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on debt and capital leases
|
|
|
(1,576
|
)
|
|
|
(3,311
|
)
|
|
|
(625
|
)
|
|
|
(3,369
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing activities
|
|
|
(14,056
|
)
|
|
|
(27,687
|
)
|
|
|
20,382
|
|
|
|
(50,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate fluctuations on cash
|
|
|
6,157
|
|
|
|
(17,228
|
)
|
|
|
(2,186
|
)
|
|
|
1,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
12,951
|
|
|
|
15,955
|
|
|
|
36,217
|
|
|
|
(49,354
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
112,966
|
|
|
|
97,011
|
|
|
|
60,794
|
|
|
|
110,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
125,917
|
|
|
$
|
112,966
|
|
|
$
|
97,011
|
|
|
$
|
60,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid, net
|
|
$
|
15,202
|
|
|
$
|
9,940
|
|
|
$
|
243
|
|
|
$
|
14,450
|
|
Interest paid
|
|
$
|
3,564
|
|
|
$
|
4,392
|
|
|
$
|
1,271
|
|
|
$
|
3,573
|
|
Supplemental noncash investing activities costs accrued in
connection with acquisitions
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
47
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
69
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
|
|
1.
|
Nature of
Business and Summary of Significant Accounting
Policies
|
Nature
of Business
ACI Worldwide, Inc., a Delaware corporation, and its
subsidiaries (collectively referred to as ACI or the
Company), develop, market, install, and support a
broad line of software products and services primarily focused
on facilitating electronic payments. In addition to its own
products, the Company distributes, or acts as a sales agent for
software developed by third parties. These products and services
are used principally by financial institutions, retailers, and
electronic-payment processors, both in domestic and
international markets.
The Company derives a substantial portion of its total revenues
from licensing its BASE24 family of software products and
providing services and maintenance related to those products.
During the years ended December 31, 2009 and 2008, the
three month period ended December 31, 2007, and the year
ended September 30, 2007, approximately 46%, 47%, 51%, and
49%, respectively, of the Companys total revenues were
derived from licensing the BASE24 product line, which does not
include the BASE24-eps product, and providing related services
and maintenance. A substantial majority of the Companys
licenses are time-based (term) licenses.
Effective January 1, 2008, the Company changed its fiscal
year end from September 30 to December 31. The
Companys new fiscal year commenced January 1, 2008
and ended on December 31, 2008. This Annual Report on
Form 10-K
presents the Companys financial position as of
December 31, 2009 and December 31, 2008. This Annual
Report on
Form 10-K
also presents the results of operations for the years ended
December 31, 2009 and 2008, the three months ended
December 31, 2007 and the year ended September 30,
2007. The Company changed its fiscal year end to align its sales
contracting and delivery processes with its customers and to
allow for more effective communication with the capital markets
and investment community by being consistent with its peer group.
Consolidated
Financial Statements
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. Recently acquired
subsidiaries that are included in the Companys
consolidated financial statements as of the date of acquisition
include: Euronet Essentis Limited (Euronet or
Essentis) acquired during the year ended
December 31, 2009; Visual Web Solutions, Inc. (Visual
Web) and Stratasoft Sdn Bhd (Stratasoft)
acquired during the year ended September 30, 2007. All
intercompany balances and transactions have been eliminated.
Capital
Stock
Our outstanding capital stock consists of a single class of
common stock. Each share of common stock is entitled to one vote
upon each matter subject to a stockholders vote and to dividends
if and when declared by the Board of Directors.
Use of
Estimates and Risk and Uncertainties
The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the
United States 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 date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Our financial condition, results of operations, and cash flows
are subject to various risks and uncertainties. Factors that
could affect our future financial statements and cause actual
results to vary materially from expectations include, but are
not limited to, risks related to the global financial crisis,
restrictions and other financial covenants in our credit
facility, volatility and disruption of the capital and credit
markets, our restructuring efforts, the restatement of our
financial statements, consolidation in the financial services
industry, changes in the financial
70
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
services industry, the accuracy of backlog estimates, the
cyclical nature of our revenue and earnings, exposure to unknown
tax liabilities, volatility in our stock price, risks from
operating internationally, including fluctuations in currency
exchange rates, increased competition, our offshore software
development activities, the performance of our strategic
product, BASE24-eps, the maturity of certain products, our
strategy to migrate customers to our next generation products,
ratable or deferred recognition of certain revenue associated
with customer migrations and the maturity of certain of our
products, demand for our products, failure to obtain renewals of
customer contracts or to obtain such renewals on favorable
terms, delay or cancellation of customer projects or inaccurate
project completion estimates, business interruptions or failure
of our information technology and communication systems, our
alliance with International Business Machines Corporation
(IBM), our outsourcing agreement with IBM, the
complexity of our products and services and the risk that they
may contain hidden defects or be subjected to security breaches
or viruses, compliance of our products with applicable
governmental regulations and industry standards, our compliance
with privacy regulations, the protection of our intellectual
property in intellectual property litigation, future
acquisitions and investments and litigation.
Revenue
Recognition, Accrued Receivables and Deferred
Revenue
Software License Fees. The Company recognizes
software license fee revenue in accordance with the Financial
Accounting Standards Board (FASB) Accounting
Standards Codification (the Codification or
ASC)
605-985,
Revenue Recognition: Software (previous Generally
Accepted Accounting Principle (GAAP) reference was
American Institute of Certified Public Accountants
(AICPA) Statement of Position (SOP)
97-2,
Software Revenue Recognition
(SOP 97-2),
SOP 98-9,
Modification of
SOP 97-2,
Software Revenue Recognition With Respect to Certain
Transactions
(SOP 98-9)),
and ASC 605, Revenue Recognition, (previous GAAP
reference was Securities and Exchange Commission
(SEC) Staff Accounting Bulletin (SAB)
101, Revenue Recognition in Financial Statements, as codified by
SAB 104, Revenue Recognition). For software license
arrangements for which services rendered are not considered
essential to the functionality of the software, the Company
recognizes revenue upon delivery, provided (i) there is
persuasive evidence of an arrangement, (ii) collection of
the fee is considered probable and (iii) the fee is fixed
or determinable. In most arrangements, vendor-specific objective
evidence (VSOE) of fair value does not exist for the
license element; therefore, the Company uses the residual method
under ASC
605-985
(SOP 98-9)
to determine the amount of revenue to be allocated to the
license element. Under ASC
605-985
(SOP 98-9),
the fair value of all undelivered elements, such as post
contract customer support (maintenance or PCS) or
other products or services, is deferred and subsequently
recognized as the products are delivered or the services are
performed, with the residual difference between the total
arrangement fee and revenues allocated to undelivered elements
being allocated to the delivered element.
When a software license arrangement includes services to provide
significant modification or customization of software, those
services are not separable from the software and are accounted
for in accordance with ASC
605-35,
Revenue Recognition: Long Term Construction Type Contracts
(previous GAAP reference was Accounting Research Bulletin
(ARB) No. 45, Long-Term Construction-Type
Contracts (ARB No. 45), and the relevant
guidance provided by
SOP 81-1,
Accounting for Performance of Construction-Type and Certain
Production-Type Contracts
(SOP 81-1)).
Accounting for services delivered over time (generally in
excess of twelve months) under ASC
605-35
(ARB No. 45 and
SOP 81-1)
is referred to as contract accounting. Under contract
accounting, the Company generally uses the
percentage-of-completion
method. Under the
percentage-of-completion
method, the Company records revenue for the software license fee
and services over the development and implementation period,
with the percentage of completion generally measured by the
percentage of labor hours incurred to-date to estimated total
labor hours for each contract. For those contracts subject to
percentage-of-completion
contract accounting, estimates of total revenue and
profitability under the contract consider amounts due under
extended payment terms. In certain cases, the Company provides
its customers with extended payment terms whereby payment is
deferred beyond when the services are rendered. In other
projects, the Company provides its customer with extended
payment terms that are refundable in the event certain
milestones are not achieved or the project scope changes. The
Company excludes revenues due on extended payment terms from its
current
71
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
percentage-of-completion
computation until such time that collection of the fees becomes
probable. In the event project profitability is assured and
estimable within a range,
percentage-of-completion
revenue recognition is computed using the lowest level of
profitability in the range. If the range of profitability is not
estimable but some level of profit is assured, revenues are
recognized to the extent direct and incremental costs are
incurred until such time that project profitability can be
estimated. In the event some level of profitability cannot be
reasonably assured, completed-contract accounting is applied. If
it is determined that a loss will result from the performance of
a contract, the entire amount of the loss is recognized in the
period in which it is determined that a loss will result.
For software license arrangements in which a significant portion
of the fee is due more than 12 months after delivery or
when payment terms are significantly beyond the Companys
standard business practice, the software license fee is deemed
not to be fixed or determinable. For software license
arrangements in which the fee is not considered fixed or
determinable, the software license fee is recognized as revenue
as payments become due and payable, provided all other
conditions for revenue recognition have been met. For software
license arrangements in which the Company has concluded that
collection of the fees is not probable, revenue is recognized as
cash is collected, provided all other conditions for revenue
recognition have been met. In making the determination of
collectibility, the Company considers the creditworthiness of
the customer, economic conditions in the customers
industry and geographic location, and general economic
conditions.
ASC 605-985
(SOP 97-2)
requires the seller of software that includes PCS to establish
VSOE of fair value of the undelivered element of the contract in
order to account separately for the PCS revenue. The Company
establishes VSOE of the fair value of PCS by reference to stated
renewals or separate sales with consistent pricing of PCS,
expressed in either dollar or percentage terms. In determining
whether a stated renewal is substantive, the Company considers
factors such as whether the period of the initial PCS term is
relatively long when compared to the term of the software
license or whether the PCS renewal rate is significantly below
the Companys normal pricing practices. In determining
whether PCS pricing is consistent, the Company considers the
population of separate sales that are within a reasonably narrow
range of the median within the identified market segment over
the trailing twelve month period.
ASC 605-985
(SOP 97-2)
also requires the seller of software that includes services to
establish VSOE of fair value of the undelivered element of the
contract in order to account separately for the services
revenue. The Company establishes VSOE of the fair value of
services by reference to separate sales of comparable services
with consistent pricing. In determining whether services pricing
is consistent, the Company considers the population of separate
sales that are within a reasonably narrow range of the median
within the identified market segment over the trailing twelve
month period.
For those software license arrangements that include
customer-specific acceptance provisions, such provisions are
generally presumed to be substantive and the Company does not
recognize revenue until the earlier of the receipt of a written
customer acceptance, objective demonstration that the delivered
product meets the customer-specific acceptance criteria or the
expiration of the acceptance period. The Company also defers the
recognition of revenue on transactions involving
less-established or newly released software products that do not
have a history of successful implementation. The Company
recognizes revenues on such arrangements upon the earlier of
receipt of written acceptance or the first production use of the
software by the customer. In the absence of customer-specific
acceptance provisions, software license arrangements generally
grant customers a right of refund or replacement only if the
licensed software does not perform in accordance with its
published specifications. If the Companys product history
supports an assessment by management that the likelihood of
non-acceptance is remote, the Company recognizes revenue when
all other criteria of revenue recognition are met.
For software license arrangements in which the Company acts as a
sales agent for another companys products, revenues are
recorded on a net basis. These include arrangements in which the
Company does not take title to the products, is not responsible
for providing the product or service, earns a fixed commission,
and assumes credit risk only to the extent of its commission.
For software license arrangements in which the Company acts as a
distributor of another companys product, and in certain
circumstances, modifies or enhances the product, revenues are
72
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recorded on a gross basis. These include arrangements in which
the Company takes title to the products and is responsible for
providing the product or service.
For software license arrangements in which the Company utilizes
a third party distributor or sales agent, the Company recognizes
revenue on a sell-in basis in accordance with contractual terms
when business practices and operating history indicate that
there is no risk of returns, rebates, or credits and there are
no other risks related to the distributor or sales agents
ability to honor payment or distribution commitments. For other
arrangements in which any of the above factors indicate that
there are risks of returns, rebates, or credits or any other
risks related to the distributor or sales agents ability to
honor payment or distribution commitments, the Company
recognizes revenue on a sell-through basis.
For software license arrangements in which the Company permits
the customer to receive unspecified future software products
during the software license term, the Company recognizes revenue
ratably over the license term, provided all other revenue
recognition criteria have been met. For software license
arrangements in which the Company grants the customer a right to
exchange the original software product for specified future
software products with more than minimal differences in
features, functionality,
and/or
price, during the license term, revenue is recognized upon the
earlier of delivery of the additional software products or at
the time the exchange right lapses. For customers granted a
right to exchange the original software product for specified
future software products where the Company has determined price,
features, and functionality differences are minimal, the
exchange right is accounted for as a like-kind exchange and
revenue is recognized upon delivery of the currently licensed
product. For software license arrangements in which the customer
has the right to change or alternate its use of currently
licensed products, revenue is recognized upon delivery of the
first copy of all of the licensed products, provided all other
revenue recognition criteria have been met. For software license
arrangements in which the customer is charged variable software
license fees based on usage of the product, the Company
recognizes revenue as usage occurs over the term of the
licenses, provided all other revenue recognition criteria have
been met.
Certain of the Companys software license arrangements
include PCS terms that fail to achieve VSOE of fair value due to
non-substantive renewal periods, or contain a range of possible
non-substantive PCS renewal amounts. For these arrangements,
VSOE of fair value of PCS does not exist and revenues for the
software license, PCS and services, if applicable, are
considered to be one accounting unit and are therefore
recognized ratably over the longer of the contractual service
term or PCS term once the delivery of both services has
commenced. The Company typically classifies revenues associated
with these arrangements in accordance with the contractually
specified amounts, which approximate fair value assigned to the
various elements, including software license fees, maintenance
fees and services, if applicable. This allocation methodology
has been applied to the following amounts included in revenues
in the consolidated statements of operations from arrangements
for which VSOE of fair value does not exist for each undelivered
element (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
Years Ended December 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
Software license fees
|
|
$
|
13,905
|
|
|
$
|
18,212
|
|
|
$
|
2,576
|
|
|
$
|
9,792
|
|
Maintenance fees
|
|
|
5,273
|
|
|
|
6,494
|
|
|
|
1,101
|
|
|
|
4,440
|
|
Services
|
|
|
6,513
|
|
|
|
11,131
|
|
|
|
1,317
|
|
|
|
4,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25,691
|
|
|
$
|
35,837
|
|
|
$
|
4,994
|
|
|
$
|
18,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance Fees. The Company typically enters
into multi-year time-based software license arrangements that
vary in length but are generally five years. These arrangements
include an initial (bundled) PCS term of one year with
subsequent renewals for additional years within the initial
license period. For arrangements in which the Company looks to
substantive renewal rates or separate sales with consistent
pricing to evidence VSOE of fair value of PCS and in which the
PCS renewal rate and term are substantive, VSOE of fair value of
PCS is determined by
73
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
reference to the stated renewal rate or by reference to the
population of separate sales with consistent pricing. For these
arrangements, PCS revenues are recognized ratably over the PCS
term specified in the contract. In arrangements where VSOE of
fair value of PCS cannot be determined (for example, a
time-based software license with a duration of one year or less
or when the range of possible PCS renewal amounts is not
sufficiently narrow or significantly below the Companys
normal pricing practices), the Company recognizes revenue for
the entire arrangement ratably over the PCS term.
For those arrangements that meet the criteria to be accounted
for under contract accounting, the Company determines whether
VSOE of fair value exists for the PCS element. For those
situations in which VSOE of fair value exists for the PCS
element, PCS is accounted for separately and the balance of the
arrangement is accounted for under ASC
605-985
(ARB No. 45 and
SOP 81-1).
For those arrangements in which VSOE of fair value does not
exist for the PCS element, revenue is recognized to the extent
direct and incremental costs are incurred until such time as the
services are complete. Once services are complete, all remaining
revenue is then recognized ratably over the remaining PCS period.
Services. The Company provides various
professional services to customers, primarily project
management, software implementation and software modification
services. Revenues from arrangements to provide professional
services are generally recognized as the related services are
performed. For those arrangements in which services revenue is
deferred and the Company determines that the direct costs of
services are recoverable, such costs are deferred and
subsequently expensed in proportion to the services revenue as
it is recognized.
Hosting. The Companys hosting-related
arrangements contain multiple products and services. As these
arrangements generally do not contain a contractual right to
take possession of the software at anytime during the hosting
period without significant penalty, the Company applies the
separation provisions of ASC
605-25,
Revenue Recognition: Multiple Arrangements (previous GAAP
reference was EITF
00-21,
Revenue Arrangements with Multiple Deliverables). In
applying the separation provisions of ASC
605-25
(EITF
No. 00-21),
the Company determines whether stand alone value exists for
the delivered elements and whether reliable evidence of fair
value exists for the undelivered elements of its hosting-related
arrangements. For arrangements in which either of these criteria
are not met, the elements within its multiple-element sales
agreements do not qualify for treatment as separate units of
accounting. Accordingly, the Company accounts for fees received
under these arrangements as a single unit of accounting and
recognizes the entire arrangement fee ratably over the term of
the related agreement, generally commencing upon the hosting
environment being made available to the customer. If both of
these criteria are met, the Company uses the relative fair value
method of revenue recognition to allocate the total
consideration derived from the arrangement to each of the
elements and revenue is then recognized as the service is
performed.
The Company may execute more than one contract or agreement with
a single customer. The separate contracts or agreements may be
viewed as one multiple-element arrangement or separate
agreements for revenue recognition purposes. The Company
evaluates whether the agreements were negotiated as part of a
single project, whether the products or services are
interrelated or interdependent, whether fees in one arrangement
are tied to performance in another arrangement, and whether
elements in one arrangement are essential to the functionality
in another arrangement in order to reach appropriate conclusions
regarding whether such arrangements are related or separate. The
conclusions reached can impact the timing of revenue recognition
related to those arrangements.
Accrued Receivables Accrued receivables represent amounts
to be billed in the near future (less than 12 months).
Deferred Revenue. Deferred revenue includes
amounts currently due and payable from customers, and payments
received from customers, for software licenses, maintenance
and/or
services in advance of recording the related revenue.
74
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cash
and Cash Equivalents
The Company considers all highly liquid investments with
original maturities of three months or less to be cash
equivalents. The Companys cash and cash equivalents
includes holdings in checking, savings, money market and
overnight sweep accounts, all of which have daily maturities, as
well as time deposits with maturities of three months or less at
the date of purchase. The carrying amounts of cash and cash
equivalents on the consolidated balance sheets approximate fair
value.
Concentrations
of Credit Risk
In the normal course of business, the Company is exposed to
credit risk resulting from the possibility that a loss may occur
from the failure of another party to perform according to the
terms of a contract. The Company regularly monitors credit risk
exposures. Potential concentration of credit risk in the
Companys receivables with respect to the banking, other
financial services and telecommunications industries, as well as
with retailers, processors, and networks is mitigated by the
Companys credit evaluation procedures and geographical
dispersion of sales transactions. The Company generally does not
require collateral or other security to support accounts
receivable.
The Company maintains a general allowance for doubtful accounts
based on historical experience, along with additional
customer-specific allowances. The Company regularly monitors
credit risk exposures in accounts receivable. In estimating the
necessary level of our allowance for doubtful accounts,
management considers the aging of accounts receivable, the
creditworthiness of customers, economic conditions within the
customers industry, and general economic conditions, among
other factors.
The following reflects activity in the Companys allowance
for doubtful accounts receivable (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
Years Ended December 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
Balance, beginning of period
|
|
$
|
1,920
|
|
|
$
|
1,723
|
|
|
$
|
2,041
|
|
|
$
|
2,110
|
|
Additions related to acquisition of Stratasoft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
339
|
|
Provision charged to general and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative expense
|
|
|
1,171
|
|
|
|
564
|
|
|
|
215
|
|
|
|
373
|
|
Amounts written off, net of recoveries
|
|
|
(359
|
)
|
|
|
(367
|
)
|
|
|
(533
|
)
|
|
|
(781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
2,732
|
|
|
$
|
1,920
|
|
|
$
|
1,723
|
|
|
$
|
2,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts charged to general and administrative expenses during
the years ended December 31, 2009 and 2008, the three month
period ended December 31, 2007, and the year ended
September 30, 2007 reflect increases in the allowance for
doubtful accounts based upon collection experience in the
geographic regions in which the Company conducts business, net
of collection of customer-specific receivables which were
previously reserved for as doubtful of collection.
75
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Property
and Equipment
Property and equipment are stated at cost. Depreciation of these
assets is generally computed using the straight-line method over
the following estimated useful lives:
|
|
|
Computer and office equipment
|
|
3-5 years
|
Furniture and fixtures
|
|
7 years
|
Leasehold improvements
|
|
Lesser of useful life of improvement or remaining term of lease
|
Vehicles and other
|
|
4-5 years
|
Assets under capital leases are amortized over the shorter of
the asset life or the lease term.
Software
Software may be for internal use or available for sale. Costs
related to certain software, which is available for sale, are
capitalized in accordance with ASC
985-20,
Costs of Software to be Sold, Leased, or Marketed
(previous GAAP reference was Statement of Financial
Accounting Standard No. 86, Accounting for Costs of
Computer Software to be Sold, Leased, or Otherwise
Marketed), when the resulting product reaches technological
feasibility. The Company generally determines technological
feasibility when it has a detailed program design that takes
product function, feature and technical requirements to their
most detailed, logical form and is ready for coding. Software
for internal use is capitalized in accordance with ASC
605-985
(previous GAAP reference was AICPA
SOP 98-1,
Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use).
Amortization of software costs to be sold or marketed
externally, begins when the product is available for licensing
to customers and is determined on a
product-by-product
basis. The annual amortization shall be the greater of the
amount computed using (a) the ratio that current gross
revenues for a product to the total of current and anticipated
future gross revenues for that product or (b) the
straight-line method over the remaining estimated economic life
of the product, including the period being reported on. Due to
competitive pressures, it may be possible that the estimates of
anticipated future gross revenue or remaining estimated economic
life of the software product will be reduced significantly. As a
result, the carrying amount of the software product may be
reduced accordingly. Amortization of internal-use software, is
generally computed using the straight-line method over estimated
useful lives of three years.
Goodwill
and Other Intangibles
In accordance with ASC 350, Intangibles Goodwill
and Other (previous GAAP reference was
SFAS No. 142, Goodwill and Other Intangible
Assets), the Company assesses goodwill for impairment at
least annually. During this assessment management relies on a
number of factors, including operating results, business plans
and anticipated future cash flows. The Company assesses
potential impairments to other intangible assets when there is
evidence that events or changes in circumstances indicate that
the carrying amount of an asset may not be recovered.
In accordance with ASC 350, (SFAS No. 142), the
Company assesses goodwill for impairment annually during the
fourth quarter of its fiscal year using October 1 balances or
when there is evidence that events or changes in circumstances
indicate that the carrying amount of the asset may not be
recovered. The Company evaluates goodwill at the reporting unit
level and has identified its reportable segments, Americas,
Europe/Middle East/Africa (EMEA), and Asia/Pacific,
as its reporting units. Recoverability of goodwill is measured
using a discounted cash flow model incorporating discount rates
commensurate with the risks involved. Use of a discounted cash
flow model is common practice in impairment testing in the
absence of available transactional market evidence to determine
the fair value.
76
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The key assumptions used in the discounted cash flow valuation
model include discount rates, growth rates, cash flow
projections and terminal value rates. Discount rates, growth
rates and cash flow projections are the most sensitive and
susceptible to change as they require significant management
judgment. Discount rates are determined by using a weighted
average cost of capital (WACC). The WACC considers
market and industry data as well as Company-specific risk
factors. Operational management, considering industry and
Company-specific historical and projected data, develops growth
rates and cash flow projections for each reporting unit.
Terminal value rate determination follows common methodology of
capturing the present value of perpetual cash flow estimates
beyond the last projected period assuming a constant WACC and
low long-term growth rates. If the calculated fair value is less
than the current carrying value, impairment of the reporting
unit may exist. If the recoverability test indicates potential
impairment, we calculate an implied fair value of goodwill for
the reporting unit. The implied fair value of goodwill is
determined in a manner similar to how goodwill is calculated in
a business combination. If the implied fair value of goodwill
exceeds the carrying value of goodwill assigned to the reporting
unit, there is no impairment. If the carrying value of goodwill
assigned to a reporting unit exceeds the implied fair value of
the goodwill, an impairment charge is recorded to write down the
carrying value. The calculated fair value was in excess of the
current carrying value for all reporting units.
Other intangible assets are amortized using the straight-line
method over periods ranging from 18 months to 12 years.
Impairment
of Long-Lived Assets
The Company reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount of a long-lived asset group may not be
recoverable. An impairment loss is recorded if the sum of the
future cash flows expected to result from the use of the asset
(undiscounted and without interest charges) is less than the
carrying amount of the asset. The amount of the impairment
charge is measured based upon the fair value of the asset group.
Interest
Rate Swap Agreements
The Company maintains an interest-rate risk-management strategy
that uses interest rate swaps to mitigate the risk of
variability in future cash flows (and related interest expense)
associated with currently outstanding and forecasted floating
rate bank borrowings due to changes in interest rates. The
Company assesses interest rate cash flow risk by identifying and
monitoring changes in interest rate exposures that may adversely
impact expected future cash flows and by evaluating hedging
opportunities. The Company monitors interest rate cash flow risk
attributable to both the Companys outstanding and
forecasted debt obligations. The risk management involves the
use of analytical techniques, including cash flow sensitivity
analysis, to estimate the expected impact of changes in interest
rates on the Companys future cash flows.
The variable-rate debt obligations expose the Company to
variability in interest payments due to changes in interest
rates. To limit the variability of a portion of its interest
payments, the Company entered into interest rate swap agreements
to manage fluctuations in cash flows resulting from interest
rate risk. These swaps change the variable-rate cash flow
exposure on the debt obligations to fixed cash flows. Under the
terms of the interest rate swaps, the Company receives variable
interest rate payments and makes fixed interest rate payments,
thereby creating the equivalent of fixed-rate debt. As of
December 31, 2009, the Company had two interest rate swap
agreements with a combined notional amount of $125 million.
These interest rate swap agreements did not qualify as
accounting hedges under ASC 815, Derivatives and Hedging
(previous GAAP reference was SFAS No. 133,
Accounting for Derivate Instruments and Certain Hedging
Activities).
Treasury
Stock
The Company accounts for shares of its common stock that are
repurchased without intent to retire as treasury stock. Such
shares are recorded at cost and reflected separately on the
consolidated balance sheets as a reduction of
77
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
stockholders equity. The Company issues shares of treasury
stock upon exercise of stock options, payment of earned
performance shares, and for issuances of common stock pursuant
to the Companys employee stock purchase plan. For purposes
of determining the cost of the treasury shares re-issued, the
Company uses the average cost method.
Stock-Based
Compensation Plans
In accordance with ASC 718 Compensation Stock
Compensation, (previously GAAP guidance was
SFAS No. 123(R), Share Based Payment), the
Company recognizes stock-based compensation costs for only those
shares expected to vest, on a straight-line basis over the
requisite service period of the award, which is generally the
option vesting term. The impact of forfeitures that may occur
prior to vesting is also estimated and considered in the amount
of expense recognized. Forfeiture estimates are revised, if
necessary, in subsequent periods when actual forfeitures differ
from those estimates. Share based compensation expense is
recorded in operating expenses depending on where the respective
individuals compensation is recorded. The Company
generally utilizes the Black-Scholes option-pricing model to
determine the fair value of stock options on the date of grant.
The assumptions utilized in the Black-Scholes option-pricing
model, as well as the description of the plans the stock-based
awards are granted under, are described in further detail in
Note 13, Stock-Based Compensation Plans.
Pursuant to the Companys 2005 Equity and Performance
Incentive Plan, during the year ended December 31, 2009,
the Company granted long-term incentive program performance
share awards (LTIP Performance Shares) to key
employees of the Company including named executive officers.
These LTIP Performance Shares are earned, if at all, based upon
the achievement, over a specified period that must not be less
than one year and is typically a three-year period (the
Performance Period), of performance goals related to
(i) the compound annual growth over the Performance Period
in the sales for the Company, as determined by the Company, and
(ii) the cumulative operating income over the Performance
Period as determined by the Company. In no event will any of the
LTIP Performance Shares become earned if the Companys
revenue growth or contribution margin is below a predetermined
minimum threshold level at the conclusion of the Performance
Period. Assuming achievement of the predetermined revenue growth
and contribution margin threshold levels, up to 200% of the LTIP
Performance Shares may be earned upon achievement of performance
goals equal to or exceeding the maximum target levels for the
performance goals over the Performance Period. Management must
evaluate, on a quarterly basis, the probability that the
threshold performance goals will be achieved, if at all, and the
anticipated level of attainment in order to determine the amount
of compensation costs to record in the consolidated financial
statements.
Pursuant to the Companys 2005 Incentive Plan, the Company
granted restricted share awards (RSAs). These awards
have requisite service periods of four years and vest in
increments of 25% on the anniversary dates of the grants. Under
each arrangement, stock is issued without direct cost to the
employee. The Company estimates the fair value of the RSAs based
upon the market price of the Companys stock at the date of
grant. The RSA grants provide for the payment of dividends on
the Companys common stock, if any, to the participant
during the requisite service period (vesting period) and the
participant has voting rights for each share of common stock.
The Company recognizes compensation expense for RSAs on a
straight-line basis over the requisite service period.
Translation
of Foreign Currencies
The Companys foreign subsidiaries typically use the local
currency of the countries in which they are located as their
functional currency. Their assets and liabilities are translated
into United States dollars at the exchange rates in effect at
the balance sheet date. Revenu