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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, 2010
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 þ 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 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 on June 30, 2010 (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 $19.47 was $640,293,418. 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 16, 2011, there were 33,272,549 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 15, 2011,
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 forward-looking statements in this report 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 and the continuing decline in the global
economy, restrictions and other financial covenants in our
credit facility, volatility and disruption of the capital and
credit markets and adverse changes in the global economy, the
maturation of our current credit facility, the restatement of
our financial statements, consolidations and failures in the
financial services industry, the accuracy of managements
backlog estimates, the cyclical nature of our revenue and
earnings and the accuracy of forecasts due to the concentration
of revenue generating activity during the final weeks of each
quarter, impairment of our goodwill or intangible assets,
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, customer
reluctance to switch to a new vendor, 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
legislation, governmental regulations and industry standards,
our compliance with privacy regulations, the protection of our
intellectual property in intellectual property litigation,
future acquisitions, strategic partnerships 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 Payment Systems, ACI Payment
Systems Trusted Globally, Agile Payment Systems, 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 and ACI Payment Systems brands.
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.
Acquisitions
On November 17, 2009, we 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. There was no additional activity
related to this transaction during the year ended
December 31, 2010.
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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 our 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 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.
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. In 2010, the
functionality was extended to include mobile banking services
solutions.
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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
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required to interact with dozens of devices, switch interchanges
and communication protocols around the world. We currently offer
two 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 ATMs and five different
types of point of sale (POS) terminals, 48
interchange interfaces, and various authentication,
authorization and reporting options 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 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 actively marketed to new
customers.
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BASE24 is an integrated family of software products
previously 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
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processing capabilities for financial institutions and
electronic payment processors in Germany and Switzerland.
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During the years ended December 31, 2010, 2009 and 2008,
approximately 46%, 46% and 47%, 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, and 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 lifecycle 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 a suite of products from
ACIs partner Bell Identification B.V. The Smart
Card & Application Management System provides for
central lifecycle management of smart cards and other tokens as
well as the management of the applications activated within the
scheme. The Key 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 such
as:
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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.
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Our wholesale payments solution, ACI Money Transfer System
provides high value payments processing, bulk payments
processing and global messaging. The high value payments
processing function, which produces the majority of revenues for
the ACI Money Transfer System, is 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 Case Manager (formerly ACI Automated Case Management
System). ACI Case Manager 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 or money laundering. The solution is a basic
framework that defines processes for researching and resolving
cases, including investigation resources, timeframes, escalation
paths and alerts. The ACI Case Manager also acts as a central
repository for case histories and resource activities to provide
organizations with centralized auditing capabilities.
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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 provides a range of
communication services to enable message exchange on multiple
platforms in particular enabling 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 runs on HP NonStop, IBM
System z and Unix platforms.
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ACI Enterprise Security Services 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 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 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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ACI Payment Service Management powered by
Prognosis. In 2010, we formed a partnership with
Integrated Research Limited (Integrated Research) to
resell their Prognosis product. This provides intelligent
payment service management through in-depth monitoring and
analysis of transactions,
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applications, supporting IT infrastructure, and payments
devices. Prognosis is available for use with BASE24 and
BASE24-eps.
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Partnerships
and Industry Participation
We have two major types of third-party partners: Technology
Partners, where we work closely with industry leaders who drive
key industry trends and mandates, and Business Partners, where
we either embed technology in ACI products or jointly market
solutions that include the products of other companies.
Technology partners help us add value to our solutions, stay
abreast of current market conditions and industry developments
such as standards. Technology partner organizations include
Diebold, NCR, Wincor-Nixdorf, VISA, MasterCard and S.W.I.F.T. In
addition ACI has membership in or participates in the relevant
committees of a number of industry associations, such as the
International Organization for Standardization
(ISO), Interactive Financial eXchange Forum
(IFX), UK Cards Association and the PCI Security
Standards Council.
Business 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 business partners based on a number of
factors related to overall value contribution in the delivery of
our joint solution. The agreements with business partners
include joint marketing and traditional OEM relationships. These
agreements generally grant ACI the right to create an integrated
solution that we distribute or represent on a worldwide basis
and have a term of several years.
We have strategic alliances with our business partners HP, IBM
and Oracle, whose industry leading 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.
The following is a list of currently active business partners:
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Accuity, Inc.
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ACE Software Solutions Inc.
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Bell ID
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DataOne Asia Co (Thailand)
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FairCom Corporation
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HP
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IBM
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Integrated Research
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Intuit, Inc.
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iPay Technologies, LLC
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MShift,Inc.
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Opera Solutions, LLC
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Oracle USA, Inc.
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RSA, The Security Division of EMC Corporation
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Verisign, Inc.
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TeraSystem Inc (Philippines)
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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
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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 lifecycle. Implementation
services are typically priced on a weekly basis according to the
level of technical expertise required.
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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.
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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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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 group 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 product support 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 Clear2Pay
NV/SA (Clear2Pay), Intuit Corporation, Fundtech Ltd,
and S1 Corporation, as well as payment processing companies
First Data Corporation, Fidelity National Information Services,
Inc, and Fiserv, Inc.
Manage
Domain
The third-party software competitors for the products in the
retail banking aspect of the manage domain are Clear2Pay,
Computer Sciences Corporation, Fidelity National Information
Services, Inc., OpenWay Group, S1 Corporation, and Total
System Services, Inc. (TSYS), as well as small,
regionally-focused companies such as Alaric Technology Inc., BPC
Banking Technologies, Distra Pty. Ltd., PayEx Solutions AS,
Lusis Payments Ltd., and Opus Software Solutions Private
Limited. Primary electronic payment processing competitors in
this area include global entities such as Atos Origin S.A.,
Fidelity National Information Services, Inc., First Data
Corporation, SiNSYS, TSYS, VISA and MasterCard, as well as
regional or country-specific processors.
In the wholesale banking side of the manage domain, the
principal competitors are Bankserv, Clear2Pay, Dovetail
Software, Fundtech Ltd, IBM, Logica Plc and Tieto Corporation.
Secure
Domain
Principal competitors for the products in the secure domain are
Actimize, Inc., Fair Isaac Corporation, Fidelity National
Information Services, Inc., Fiserv, Inc., Memento Inc., Norkom
Technologies, and SAS Institute, Inc., as well as dozens of
smaller companies focused on niches of this segment such as
anti-money laundering.
Operate
Domain
The principal competitors for the operate domain products are CA
Technologies, HP, IBM and Oracle USA, Inc., as well as dozens of
small, niche-focused competitors.
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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 we offer.
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 network vendors, such as MasterCard, VISA and S.W.I.F.T, to
ensure compliance with new regulations or processing mandates.
We work with computer hardware and software manufacturers, such
as HP, IBM, Microsoft Corporation, Oracle 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, 2010, 2009 and 2008 were
$74.1 million, $77.5 million and $75.9 million,
or 17.7%, 19.1%, and 18.2%, 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, 2010, our customers include 19 of the top 20
banks worldwide, as measured by asset size, five of the top 10
retailers in the United States, as measured by revenue, and six
of the leading 25 global retailers. As of December 31,
2010, we had 709 customers in 81 countries on six continents. Of
this total, 332 are in the Americas reportable segment, 237 are
in the EMEA reportable segment and 140 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, 2010, 2009 and 2008.
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, 2010 included:
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DataOne Asia Co (Thailand)
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ITD A.S. (Turkey)
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Korea Computer Inc (Korea)
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North Data S.A. (Uruguay)
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Optimisa (Chile)
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P.T. Abhimata Persada (Indonesia)
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Payment Systems & Technology (Russia and CIS countries)
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PTESA (Columbia)
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PTESAVEN C.A. (Venezuela)
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Simba Technology (Kenya)
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Syscom Computer Engineering (Taiwan)
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Syscom Computer (Shenzhen) (China)
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Systems Builder (Saudi Arabia)
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TeraSystem Inc (Philippines)
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We distribute the products of other vendors where they
complement 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, Bangkok, 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 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.
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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, 2010, we had a total of approximately
2,134 employees of whom 1,124 were in the Americas
reportable segment, 591 were in the EMEA reportable segment and
419 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.
Executive
Officers of the Registrant
As of February 18, 2011, 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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President, Chief Executive Officer and Director
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Scott W. Behrens
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Senior Vice President, Chief Financial Officer
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Craig A. Maki
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Senior Vice President, Treasurer and Chief Corporate Development
Officer
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Dennis P. Byrnes
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Senior Vice President, Chief Administrative Officer, General
Counsel and Secretary
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David N. Morem
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Senior Vice President, Global Business Operations
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Charles H. Linberg
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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 and Chief Accounting Officer. Mr. Behrens
joined ACI in June 2007 as our Corporate 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
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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. 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 to 2003. 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.
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.
Mr. Linberg joined the Company 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.
Mr. Linberg holds a Bachelor of Science in Business
Administration from the University of Delaware.
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
continuing global financial crisis affecting the banking and
financial markets and the continuing decline in 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 continuing global financial crisis and downturn in global
economic conditions have reached unprecedented levels over the
past few years. As a result of these conditions, including, the
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, the global banking and
financial markets have suffered substantial stress, volatility,
illiquidity and disruption. 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
global electronic payments industry and the banking and
financial services industries depend heavily upon the
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overall levels of consumer, business and government spending.
The current economic conditions and the potential for increased
or continuing disruptions in these industries as well as the
general software sector could result in a decrease in
consumers use of banking services and financial service
providers resulting in significant decreases in the demand for
our products and services which could adversely affect our
business and operating results. A lessening demand in either the
overall economy, the banking and financial services industry or
the software sector could also result in the implementation by
banks and related financial service providers of cost reduction
measures or reduced capital spending resulting in 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.
The current financial crisis has also resulted in the
bankruptcy, closure, acquisition of, or government assistance
to, many domestic and international financial institutions as
well as the credit deterioration of many financial institutions.
As the industry continues to experience contraction in the
number of participating institutions, our existing customers may
be acquired by or merged with other financial institutions that
have their own electronic payment solutions or be closed by
regulators which reduces the number of our customers and
potential customers which could result in fewer opportunities
for revenue growth, decreased sales and adversely impact our
operating results. Moreover, to the degree that the financial
crisis and the volatility in the credit markets continues to
deteriorate the credit of financial institutions and 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 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
there can be no assurance 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
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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. There can be no
assurance that alternative financing on acceptable terms would
be available to replace any defaulted commitments.
Our
current credit facility matures in September 2011 and there can
be no assurance that a new credit facility will be available to
us or on terms acceptable to us which may negatively impact our
liquidity.
Our current credit facility matures on September 29, 2011.
At the scheduled maturity date, the entire outstanding principal
amount of the indebtedness under the facility, together with all
other amounts payable thereunder, if any, will become
immediately due and payable. Accordingly, we must either obtain
replacement financing or upon the maturity date, we must pay all
outstanding amounts then due and payable. There can be no
assurance that a new credit facility will be available to us or
that we will be able to enter into a new credit facility on
substantially similar terms or otherwise on terms favorable to
us. In the event we are unable to obtain a new credit facility,
all outstanding amounts under the existing credit facility will
become immediately due and payable which may have an adverse
impact on our liquidity.
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 reflecting the adjustments made in the restated
consolidated financial statements for the quarter ended
March 31, 2008.
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.
Consolidations
and failures 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 consolidation in, or contraction of the
number of participating institutions within, that industry.
Consolidation activity among financial institutions has
increased in recent years and the current financial crisis has
resulted in even further consolidation and contraction as
financial institutions have failed or have been acquired by or
merged with other financial institutions. There are several
potential negative effects of increased consolidation activity.
Continuing consolidation and failure 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.
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
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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 or
60-month
period. Additionally, because backlog estimates are operating
metrics, the estimates are not required to be 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, our quarterly results
fluctuate significantly and we have revenue-generating
transactions concentrated in the final weeks of a quarter which
may prevent accurate forecasting of our financial results and
cause our stock price to decline.
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).
In addition, large portions of our customer contracts are
consummated in the final weeks of each quarter. Before these
contracts are consummated, we create and rely on forecasted
revenues for planning, modeling and earnings guidance.
Forecasts, however, are only estimates and actual results may
vary for a particular quarter or longer periods of time.
Consequently, significant discrepancies between actual and
forecasted results could limit our ability to plan, budget or
provide accurate guidance, which could adversely affect our
stock price. Any publicly-stated revenue or earnings projections
are subject to this risk.
Our
balance sheet includes significant amounts of goodwill and
intangible assets. The impairment of a significant portion of
these assets could negatively affect our financial
results.
Our balance sheet includes goodwill and intangible assets that
represent a significant portion of our total assets at
December 31, 2010. On at least an annual basis, we assess
whether there have been impairments in the carrying value of
goodwill and intangible assets. If the carrying value of the
asset is determined to be impaired, then it is written down to
fair value by a charge to operating earnings. An impairment of a
significant portion of goodwill or intangible assets could
materially negatively affect our results of operations.
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.
Two of our foreign subsidiaries are 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.
17
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, variability in demand from
our existing customers, failure to meet the expectations of
market analysts, the level of our operating expenses and
changing market conditions in the software industry. In
addition, the financial markets have experienced significant
price and volume fluctuations that have particularly affected
the stock prices of many technology companies and financial
services companies, and these fluctuations sometimes are
unrelated to the operating performance of these companies. Broad
market fluctuations, as well as industry-specific and general
economic conditions may adversely affect the market price of our
common stock.
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.
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, effects of a variety of foreign laws and
regulations, including restrictions on access to personal
information, 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. There can be no
assurance that we will be able to successfully address these
challenges.
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.
18
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, we utilize our Irish
subsidiary 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. In additional we manage certain
offshore development activities in India. 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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Potential
customers may be reluctant to switch to a new vendor, which may
adversely affect our growth, both in the U.S. and
internationally.
For banks, financial institutions and other potential customers
of our products, switching from one vendor of core financial
services software (or from an internally-developed legacy
system) to a new vendor is a significant endeavor. Many
potential customers believe switching vendors involves too many
potential disadvantages such as disruption of business
operations, loss of accustomed functionality, and increased
costs (including conversion and transition costs). As a result,
potential customers may resist change. We seek to overcome this
resistance through value enhancing strategies such as a defined
conversion/migration process, continued investment in the
enhanced functionality of our software and system integration
expertise. However, there can be no assurance that our
strategies for overcoming potential customers reluctance
to change vendors will be successful, and this resistance may
adversely affect our growth, both in the U.S. and
internationally.
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
19
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.
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
affect 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
20
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 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.
21
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 legislation,
government regulations and industry standards to which our
customers are subject, it could result in a loss of customers
and decreased revenue.
Legislation, governmental regulation and industry standards
affect how our business is conducted, and in some cases, could
subject us to the possibility of future lawsuits arising from
our products and services. Globally, legislation, governmental
regulation and industry standards may directly or indirectly
impact our current and prospective customers activities,
as well as their expectations and needs in relation to our
products and services. For example, our products are affected by
VISA and MasterCard electronic payment standards that are
generally updated twice annually. In addition, action by
government and regulatory authorities such as the Dodd-Frank
Wall Street Reform and Consumer Protection Act relating to
financial regulatory reform, as well as legislation and
regulation related 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 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.
22
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.
If we
engage in acquisitions, strategic partnerships or significant
investments in new business, we will be exposed to risks which
could materially adversely affect our business.
As part of our business strategy, we anticipate that 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, or
strategic partnerships with, other companies. Any acquisition,
investment or partnership, including our previously completed
acquisition of the Essentis assets in 2009, is subject to a
number of risks. Such risks include the diversion of management
time and resources, disruption of our ongoing business,
potential overpayment for the acquired company or assets,
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 which may increase our interest expense and leverage
significantly, lack of familiarity with new markets, and
difficulties in supporting new product lines.
Further, even if we successfully complete acquisitions, we may
encounter issues not discovered during our due diligence
process, including product or service quality issues,
intellectual property issues and legal contingencies, the
internal control environment of the acquired entity may not be
consistent with our standards and may require significant time
and resources to improve and we may impair relationships with
employees and customers as a result of migrating a business or
product line to a new owner. We will also face challenges in
integrating any acquired business. These challenges include
eliminating redundant operations, facilities and systems,
coordinating management and personnel, retaining key employees,
customers and business partners, 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,
realize synergies expected to result from the acquisition,
advance our business strategy or fully realize the potential
benefits of bringing the businesses together, and the process of
integrating these acquisitions may further disrupt our business
and divert our resources.
23
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 acquisition, 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 2014. 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. 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
statements.
PART II
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ITEM 5.
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MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
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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:
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Year Ended
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Year Ended
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December 31, 2010
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December 31, 2009
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High
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Low
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High
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Low
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Fourth quarter
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$
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28.15
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$
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22.28
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$
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17.97
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$
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14.39
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Third quarter
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$
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22.39
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$
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18.31
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$
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15.98
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$
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13.20
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Second quarter
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$
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21.03
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$
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17.79
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$
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20.32
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$
|
13.28
|
|
First quarter
|
|
$
|
21.59
|
|
|
$
|
15.32
|
|
|
$
|
19.14
|
|
|
$
|
15.90
|
|
24
As of February 16, 2011, there were 215 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
The following table provides information regarding the
Companys repurchases of its common stock during the three
months ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Approximate
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Dollar Value of
|
|
|
|
|
|
|
|
|
|
Purchased as
|
|
|
Shares that
|
|
|
|
|
|
|
|
|
|
Part of
|
|
|
May Yet Be
|
|
|
|
Total Number of
|
|
|
|
|
|
Publicly
|
|
|
Purchased
|
|
|
|
Shares
|
|
|
Average Price
|
|
|
Announced
|
|
|
Under the
|
|
Period
|
|
Purchased
|
|
|
Paid per Share
|
|
|
Program
|
|
|
Program
|
|
|
October 1 through October 31, 2010
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
22,920,000
|
|
November 1 through November 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,920,000
|
|
December 1 through December 31, 2010
|
|
|
1,672
|
(1)
|
|
|
27.48
|
|
|
|
|
|
|
$
|
22,920,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,672
|
|
|
$
|
27.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Pursuant to our 2005 Equity and Performance Incentive Plan, as
amended (the 2005 Incentive Plan), we granted
restricted share awards (RSAs). These awards have
requisite service periods of either three or four years and vest
in increments of either 33% or 25% on the anniversary of the
grant date. Under each arrangement, stock is issued without
direct cost to the employee. During the three months ended
December 31, 2010, 5,250 shares of the RSAs vested. We
withheld 1,672 of those shares to pay the employees
portion of applicable withholding taxes. |
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, and that we intend to use
existing cash and cash equivalents to fund these repurchases. 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 $22.9 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. We did not repurchase any shares under this program
during the three months ended December 31, 2010.
25
Stock
Performance Graph and Cumulative Total Return
The following table shows a line-graph presentation comparing
cumulative stockholder return on an indexed basis with a broad
equity market index and either a nationally-recognized industry
standard or an index of peer companies selected by us. We
selected the S&P 500 Index and the NASDAQ Electronic
Components Index for comparison.
The graph above assumes that a $100 investment was made in our
common stock and each index on December 31, 2005, and that
all dividends were reinvested. Also included are the respective
investment returns based upon the stock and index values as of
the end of each year during such five-year period. The
information was provided by Zacks Investment Research, Inc. of
Chicago, Illinois.
The stock performance graph disclosure above is not considered
filed with the SEC under the Securities and Exchange
Act of 1934, as amended, and is not incorporated by reference in
any past or future filing by us under the Securities Exchange
Act of 1934, as amended, or the Securities Act of 1933, as
amended, unless specifically referenced.
26
|
|
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
|
|
|
|
|
|
|
Ended
|
|
Years Ended
|
|
|
Years Ended December 31,
|
|
December 31,(3)
|
|
September 30,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2007
|
|
2006
|
|
|
(In thousands, except per share data)
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
418,424
|
|
|
$
|
405,755
|
|
|
$
|
417,653
|
|
|
$
|
101,282
|
|
|
$
|
366,218
|
|
|
$
|
347,902
|
|
Net income (loss)
|
|
$
|
27,195
|
|
|
$
|
19,626
|
|
|
$
|
10,582
|
|
|
$
|
(2,016
|
)
|
|
$
|
(9,131
|
)
|
|
$
|
55,365
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.81
|
|
|
$
|
0.57
|
|
|
$
|
0.31
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
1.48
|
|
Diluted
|
|
$
|
0.80
|
|
|
$
|
0.57
|
|
|
$
|
0.30
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
1.45
|
|
Shares used in computing earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
33,560
|
|
|
|
34,368
|
|
|
|
34,498
|
|
|
|
35,700
|
|
|
|
36,933
|
|
|
|
37,369
|
|
Diluted
|
|
|
33,870
|
|
|
|
34,554
|
|
|
|
34,795
|
|
|
|
35,700
|
|
|
|
36,933
|
|
|
|
38,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,(3)
|
|
As of September 30,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2007
|
|
2006
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital(2)
|
|
$
|
24,045
|
|
|
$
|
78,662
|
|
|
$
|
80,280
|
|
|
$
|
39,585
|
|
|
$
|
17,358
|
|
|
$
|
67,932
|
|
Total assets
|
|
|
601,529
|
|
|
|
590,043
|
|
|
|
552,842
|
|
|
|
570,458
|
|
|
|
506,741
|
|
|
|
539,365
|
|
Current portion of debt(2)
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt (long-term portion)(1)(2)
|
|
|
2,790
|
|
|
|
77,408
|
|
|
|
76,014
|
|
|
|
75,911
|
|
|
|
76,546
|
|
|
|
78,093
|
|
Stockholders equity
|
|
|
255,623
|
|
|
|
236,063
|
|
|
|
213,841
|
|
|
|
241,039
|
|
|
|
225,012
|
|
|
|
267,212
|
|
|
|
|
(1) |
|
Debt (long-term portion) includes long-term capital lease
obligations of $1.8 million, $1.5 million,
$1.0 million, $0.9 million, $1.5 million, and
$3.1 million as of December 31, 2010, 2009, 2008 and
2007, and September 30, 2007 and 2006, respectively, which
is included in other noncurrent liabilities in the consolidated
balance sheets. |
|
(2) |
|
Our revolving credit facility has a maturity date of
September 29, 2011; therefore, it has moved to current from
long-term. We are currently in discussions with various lenders,
including our current lenders, for a new credit facility and
anticipate closing on the new facility prior to the expiration
of the current facility. |
|
(3) |
|
On February 27, 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. |
|
|
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
27
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 and ACI Payment Systems brands.
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. We utilize our Irish subsidiaries to manage certain of our
intellectual property rights and to oversee and manage certain
international product development and commercialization efforts.
We also continue to grow low-cost centers of expertise in
Timisoara in Romania and Bangalore in India.
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 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. In May 2010, Tower Group noted that
global noncash payment transactions are expected to grow in
volume at 4.95% per year through 2012 to a total of
299 billion items, 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.
|
28
|
|
|
|
|
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 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 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.
|
29
The banking, financial services and payments industries have
come under increased scrutiny from federal, state and foreign
lawmakers and regulators in response to the crises in the
financial markets and the global recession. In particular, the
Dodd-Frank Wall Street Reform and Consumer Protection Act (the
Dodd-Frank Act), which was signed into law
July 21, 2010, represents a comprehensive overhaul of the
U.S. financial services industry and requires the
implementation of many new regulations that will have a direct
impact on our customers and potential customers. These
regulatory changes may create both opportunities and challenges
for us. The application of the new regulations on our customers
could create an opportunity for us to market our product
capabilities and the flexibility of our solutions to assist our
customers in addressing these regulations. At the same time,
these regulatory changes may have an adverse impact on our
operations and our financial results as we adjust our activities
in light of increased compliance costs and customer
requirements. It is currently too difficult to predict the
actual extent to which the Dodd-Frank Act or the resulting
regulations will impact our business and the businesses of our
current and potential customers.
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.
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 a Master Alliance
Agreement (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 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, 2010. 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, 2010, $20.7 million
is refundable subject to achievement of future milestones. No
additional payments were received in 2009 and 2010 relating to
Amendment No. 1 of this agreement.
30
ACQUISITIONS
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, 2010, backlog results for all reported
periods have been updated to reflect our most current customer
renewal experience.
The following table sets forth our
60-month
backlog estimate, by geographic region, as of December 31,
2010, September 30, 2010, June 30, 2010,
March 31, 2010, and December 31, 2009 (in millions).
Dollar amounts reflect foreign currency exchange rates as of
each period end.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
Americas
|
|
$
|
871
|
|
|
$
|
887
|
|
|
$
|
860
|
|
|
$
|
846
|
|
|
$
|
845
|
|
EMEA
|
|
|
506
|
|
|
|
525
|
|
|
|
475
|
|
|
|
480
|
|
|
|
510
|
|
Asia/Pacific
|
|
|
189
|
|
|
|
180
|
|
|
|
176
|
|
|
|
176
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,566
|
|
|
$
|
1,592
|
|
|
$
|
1,511
|
|
|
$
|
1,502
|
|
|
$
|
1,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
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 Backlog
estimates as of December 31, 2010 are $857 million and
$709 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,
2010 and 2009 (in millions). Dollar amounts reflect currency
exchange rates as of each period end.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
Monthly
|
|
|
Non-
|
|
|
|
|
|
Monthly
|
|
|
Non-
|
|
|
|
|
|
|
Recurring
|
|
|
Recurring
|
|
|
Total
|
|
|
Recurring
|
|
|
Recurring
|
|
|
Total
|
|
|
Americas
|
|
$
|
164
|
|
|
$
|
43
|
|
|
$
|
207
|
|
|
$
|
149
|
|
|
$
|
40
|
|
|
$
|
189
|
|
EMEA
|
|
|
103
|
|
|
|
27
|
|
|
|
130
|
|
|
|
89
|
|
|
|
37
|
|
|
|
126
|
|
Asia/Pacific
|
|
|
34
|
|
|
|
10
|
|
|
|
44
|
|
|
|
29
|
|
|
|
11
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
301
|
|
|
$
|
80
|
|
|
$
|
381
|
|
|
$
|
267
|
|
|
$
|
88
|
|
|
$
|
355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 required to be subject to the
same level of internal review or controls as a GAAP financial
measure.
RESULTS
OF OPERATIONS
During the year ended December 31, 2010, we refined the
classification of our revenues in order to better conform to
industry practice and to better reflect the results of our
on-demand business. Our presentation of revenues has been
revised to separately disclose software hosting fees, which
includes all revenues from hosting and on-demand arrangements.
Previously, these revenues were primarily included in services
revenue with a smaller portion included in maintenance fees and
software license fees. As a result of this change in
classification of revenues, we reclassified $2.0 million,
$5.8 million and $32.4 million from software license
fees, maintenance fees, and services, respectively, to software
hosting fees in the accompanying consolidated statement of
operations for the year ended December 31, 2009. We
reclassified $1.1 million, $4.9 million and
$32.5 million from software license fees, maintenance fees,
and services, respectively, to software hosting fees in the
accompanying consolidated statement of operations for the year
ended December 31, 2008.
These reclassifications have been made to prior periods to
conform to the current period presentation. These
reclassifications did not impact total revenues or net income
for the prior periods presented.
32
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
% of Total
|
|
|
|
|
|
% of Total
|
|
|
|
|
|
% of Total
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial license fees (ILFs)
|
|
$
|
61,748
|
|
|
|
14.8
|
%
|
|
$
|
83,236
|
|
|
|
20.5
|
%
|
|
$
|
94,974
|
|
|
|
22.7
|
%
|
Monthly license fees (MLFs)
|
|
|
102,811
|
|
|
|
24.6
|
%
|
|
|
71,281
|
|
|
|
17.6
|
%
|
|
|
73,184
|
|
|
|
17.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software license fees
|
|
|
164,559
|
|
|
|
39.3
|
%
|
|
|
154,517
|
|
|
|
38.1
|
%
|
|
|
168,158
|
|
|
|
40.3
|
%
|
Maintenance fees
|
|
|
135,523
|
|
|
|
32.4
|
%
|
|
|
130,922
|
|
|
|
32.3
|
%
|
|
|
125,117
|
|
|
|
30.0
|
%
|
Services
|
|
|
73,989
|
|
|
|
17.7
|
%
|
|
|
80,146
|
|
|
|
19.8
|
%
|
|
|
85,901
|
|
|
|
20.6
|
%
|
Software hosting fees
|
|
|
44,353
|
|
|
|
10.6
|
%
|
|
|
40,170
|
|
|
|
9.9
|
%
|
|
|
38,477
|
|
|
|
9.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
418,424
|
|
|
|
100.0
|
%
|
|
|
405,755
|
|
|
|
100.0
|
%
|
|
|
417,653
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of software license fees
|
|
|
12,591
|
|
|
|
3.0
|
%
|
|
|
14,754
|
|
|
|
3.6
|
%
|
|
|
12,846
|
|
|
|
3.1
|
%
|
Cost of maintenance and services
|
|
|
117,132
|
|
|
|
28.0
|
%
|
|
|
112,893
|
|
|
|
27.8
|
%
|
|
|
117,087
|
|
|
|
28.0
|
%
|
Research and development
|
|
|
74,076
|
|
|
|
17.7
|
%
|
|
|
77,506
|
|
|
|
19.1
|
%
|
|
|
75,850
|
|
|
|
18.2
|
%
|
Selling and marketing
|
|
|
70,553
|
|
|
|
16.9
|
%
|
|
|
61,799
|
|
|
|
15.2
|
%
|
|
|
73,236
|
|
|
|
17.5
|
%
|
General and administrative
|
|
|
70,096
|
|
|
|
16.8
|
%
|
|
|
79,244
|
|
|
|
19.5
|
%
|
|
|
100,272
|
|
|
|
24.0
|
%
|
Depreciation and amortization
|
|
|
20,328
|
|
|
|
4.9
|
%
|
|
|
17,989
|
|
|
|
4.4
|
%
|
|
|
16,649
|
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
364,776
|
|
|
|
87.2
|
%
|
|
|
364,185
|
|
|
|
89.8
|
%
|
|
|
395,940
|
|
|
|
94.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
53,648
|
|
|
|
12.8
|
%
|
|
|
41,570
|
|
|
|
10.2
|
%
|
|
|
21,713
|
|
|
|
5.2
|
%
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
665
|
|
|
|
0.2
|
%
|
|
|
1,042
|
|
|
|
0.3
|
%
|
|
|
2,609
|
|
|
|
0.6
|
%
|
Interest expense
|
|
|
(1,996
|
)
|
|
|
(0.5
|
)%
|
|
|
(2,856
|
)
|
|
|
(0.7
|
)%
|
|
|
(5,013
|
)
|
|
|
(1.2
|
)%
|
Other, net
|
|
|
(3,615
|
)
|
|
|
(0.9
|
)%
|
|
|
(6,648
|
)
|
|
|
(1.6
|
)%
|
|
|
8,247
|
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(4,946
|
)
|
|
|
(1.2
|
)%
|
|
|
(8,462
|
)
|
|
|
(2.1
|
)%
|
|
|
5,843
|
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
48,702
|
|
|
|
11.6
|
%
|
|
|
33,108
|
|
|
|
8.2
|
%
|
|
|
27,556
|
|
|
|
6.6
|
%
|
Income tax expense
|
|
|
21,507
|
|
|
|
5.1
|
%
|
|
|
13,482
|
|
|
|
3.3
|
%
|
|
|
16,974
|
|
|
|
4.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
27,195
|
|
|
|
6.5
|
%
|
|
$
|
19,626
|
|
|
|
4.8
|
%
|
|
$
|
10,582
|
|
|
|
2.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
Compared to 2009
The following discussion of the results of operations compares
the year ended December 31, 2010 to the year ended
December 31, 2009.
Revenues
Total revenues for the year ended December 31, 2010
increased $12.7 million, or 3.1%, as compared to the same
period in 2009. The increase is the result of a
$10.0 million, or 6.5%, increase in software license fee
revenue, a $4.6 million, or 3.5%, increase in maintenance
fee revenue and a $4.2 million, or 10.4%, increase in
software hosting fee revenues, partially offset by a
$6.2 million, or 7.7%, decrease in services revenue.
The increase in total revenues for the year ended
December 31, 2010 as compared to the year ended
December 31, 2009 was due to a $13.5 million increase,
or 9.8%, in the EMEA reportable segment and a $0.6 million
increase, or 1.3%, in the Asia/Pacific reportable segment,
partially offset by a $1.4 million, or 0.6%, decrease in
the Americas reportable segment. The increase in total revenues
is primarily due to increased sales and an increase in the
number and size of projects that were completed and recognized
during the year ended December 31, 2010 as compared to the
same period in 2009. The decline in the Americas reportable
segment is
33
primarily due to a decline in software license fee revenue
recognized in the year ended December 31, 2010 as compared
to the same period in 2009.
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 customer 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.
As a result of the maturation of certain retail payment engine
products, a higher percentage of our initial license fees are
being recognized ratably over an extended period. Initial
license and capacity fees that are recognized as revenue ratably
over an extended period are included in our monthly license fee
revenues. As a result, our ILF revenues have declined while our
MLF revenues have increased during the year ended
December 31, 2010 as compared to the same period in 2009.
This shift of software license fees from ILF revenues to MLF
revenues is expected to continue in future periods.
Initial
License Fee (ILF) Revenue
ILF revenue includes license and capacity revenues that do not
recur on a monthly or quarterly basis. Included in ILF revenues
are license and capacity fees that are recognizable at the
inception of the agreement and license and capacity fees that
are recognizable at interim points during the term of the
agreement, including those that are recognizable annually due to
negotiated customer payment terms. ILF revenues during the year
ended December 31, 2010 compared to the same period in
2009, declined by $21.5 million, or 25.8%. All reportable
operating segments experienced declines in ILF revenues with the
Americas, EMEA and Asia/Pacific reportable operating segments
declining by $16.5 million, $0.9 million and
$4.1 million, respectively. The decline in the Americas and
EMEA reportable operating segments is primarily due to initial
license fees that are required to be recognized ratably as MLF
revenue as a result of the maturation of certain retail payment
engine products. The decline in ILF revenues in the Asia/Pacific
reportable operating segment is largely attributable to fewer
customer go-live events that contributed to ILF revenue being
recognized during the year ended December 31, 2010 as
compared to the same period in 2009. Included in the above are
capacity related revenue declines of $12.2 million and
$0.6 million in the Americas and Asia/Pacific reportable
operating segments, respectively, offset by an increase of
$3.9 million in the EMEA reportable operating segment
within the year ended December 31, 2010 as compared to the
same period in 2009.
Monthly
License Fee (MLF) Revenue
MLF revenues are license and capacity revenues that are paid
monthly or quarterly due to negotiated customer payment terms as
well as initial license and capacity fees that are recognized as
revenue ratably over an extended period as MLF revenue. MLF
revenues increased $31.5 million, or 44.2%, during the year
ended December 31, 2010, as compared to the same period in
2009 with the Americas, EMEA and Asia/Pacific reportable
operating segments increasing by $11.3 million,
$19.8 million and $0.4 million, respectively. The
increase in MLF revenues is primarily due to an increase in the
amount of ILF revenue that is being recognized ratably over an
extended period as a result of the maturation of certain retail
payment engine products.
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 $4.6 million, or 3.5%,
during the year ended December 31, 2010, as compared to the
same period in 2009. Maintenance fee revenue increased in the
EMEA and Asia/Pacific reportable segments by $5.1 million
and $2.3 million, respectively, while the Americas
reportable segment declined by $2.8 million. Increases in
34
maintenance fee revenues are primarily driven by an increase in
the customer installation base as well as expanded product
usage. The decline in the Americas reportable segment is
primarily due to cumulative maintenance revenue recognition
related to customer go-lives during the year ended
December 31, 2009 that were not experienced during 2010.
Services
Revenue
Services revenue includes fees earned through implementation
services, professional services and facilities management
services. Implementation services include product installations,
product configurations, and retrofit custom software
modifications (CSMs). Professional services
include business consultancy, technical consultancy,
on-site
support services, CSMs, product education, and testing
services. These services include new customer implementations as
well as existing customer migrations to new products or new
releases of existing products. During the period in which
non-essential services revenue is being deferred, direct and
incremental costs related to the performance of these services
are also being deferred. During the period in which essential
services revenue is being deferred, direct and indirect costs
related to the performance of these services are also being
deferred.
Services revenue declined by $6.2 million, or 7.7%, for the
year ended December 31, 2010, as compared to the same
period in 2009. Implementation and professional services
declined in the EMEA reportable segment by $9.7 million,
offset by increases of $1.5 million and $2.0 million
in the Americas and Asia/Pacific reportable segments,
respectively. The decline in the EMEA reportable segment was
primarily due to a decline in the number and size of service
engagements with various customers after the initial
implementation project was complete.
Software
Hosting Fee Revenue
Software hosting fee revenue includes fees earned through
hosting and on-demand arrangements. All revenues from hosting
and on-demand arrangements that do not qualify for treatment as
separate units of accounting, which may include
set-up fees,
implementation or customization services, and product support
services, are included in software hosting fee revenue.
Software hosting fee revenue increased $4.2 million, or
10.4%, for the year ended December 31, 2010 as compared to
the same period in 2009. The increase is primarily in the
Americas operating segment and can be attributed to new
customers adopting our on-demand or hosted offerings and
existing customers adding new functionality or services.
Expenses
Total operating expenses for the year ended December 31,
2010 increased $0.6 million, or 0.2%, as compared to the
same period in 2009. Total expenses increased primarily as a
result of a $8.8 million, or 14.2%, increase in selling and
marketing, a $4.2 million, or 3.8%, increase in the cost of
maintenance, services and hosting fees, and a $2.3 million,
or 13.0%, increase in depreciation and amortization, partially
offset by a $9.1 million, or 11.5%, decrease in general and
administrative expenses, a $3.4 million, or 4.4%, decrease
in research and development, and a $2.2 million, or 14.7%,
decrease in cost of software license fees.
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 as technological feasibility coincides with general
availability of the software components.
Cost of software licenses fees decreased $2.2 million, or
14.7%, for the year ended December 31, 2010 compared to the
same period in 2009. Third-party software royalty expense
decreased $2.5 million as a result of a decrease in license
revenue associated with certain products that include a
corresponding royalty expense.
35
Purchased or developed technology for resale amortization
increased $0.3 million in the year ended December 31,
2010.
Cost of
Maintenance, Services and Hosting Fees
Cost of maintenance, services and hosting fees includes costs to
provide hosting services and both the costs of maintaining our
software products 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 help
desk, 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, services, and hosting fees for the year
ended December 31, 2010 increased $4.2 million, or
3.8%, compared to the same period in 2009 primarily due to
$2.5 million higher personnel and related expenses, a
$0.7 million decrease in net deferred expenses associated
with project implementations, a $0.5 million increase in
third-party maintenance and services related fees and
$0.5 million higher professional fees.
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
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, 2010
decreased $3.4 million, or 4.4%, as compared to the same
period in 2009. This decrease is largely due to lower
third-party contractor costs of $3.6 million and
$0.4 million of lower personnel and related expenses,
partially offset by $0.6 million higher professional fees.
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, 2010 increased $8.8 million, or 14.2%,
compared to the same period in 2009 due to $5.4 million
higher personnel and related costs, $2.9 million higher
external professional, advertising and promotional expenses, and
$0.5 million higher costs resulting from our outsourced
information technology services.
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, 2010 decreased $9.1 million, or 11.5%,
compared to the same period in 2009. General and administrative
expenses for the year ended December 31, 2009, with no
corresponding expenses in the year ended December 31, 2010,
included $1.0 million of professional fees associated with
the restatement of our 2008 quarterly financial statements,
$1.4 million of consulting fees related to
36
business reinvestment initiatives and $0.2 million of
transition costs related to our outsourced technology services.
In addition, general and administrative expenses decreased
$7.4 million as a result of lower personnel and related
expenses, $1.8 million as a result of lower severance
expenses and, $0.9 million as a result of lower
professional and other external fees. These amounts were
partially offset by $1.9 million of higher bad debt expense
and $1.6 million of higher costs related to facility rent
and move expenses associated with various office and data center
relocations.
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, 2010 increased
$2.3 million, or 13.0%, compared to the same period in 2009
as a result of higher capital expenditures.
Other
Income and Expense
Interest income for the year ended December 31, 2010
decreased $0.4 million, or 36.2%, as compared to the same
period in 2009. The decrease in interest income is primarily due
to a decrease in interest received along with associated tax
refunds during the year ended December 31, 2010 as compared
to the same period in 2009.
Interest expense for the year ended December 31, 2010
decreased $0.9 million, or 30.1%, as compared to the same
period in 2009 due to lower interest rates and reduced interest
associated with tax payments.
Other expense consists of foreign currency losses and other
non-operating items. Other expense for the years ended
December 31, 2010 and 2009 were $3.6 million and
$6.6 million, respectively. Comparative changes in other
expense amounts were attributable to fluctuating currency rates
which impacted the amounts of foreign currency losses recognized
by us during the respective fiscal years and the loss on the
change in fair value of our interest rate swaps which expired on
October 4, 2010. We realized net foreign currency losses of
$3.2 million and $5.3 million during the years ended
December 31, 2010 and 2009, respectively. We realized
losses on the change in the fair value of interest rate swaps of
$0.2 million and $1.6 million for the years ended
December 31, 2010 and December 31, 2009, respectively.
The losses for the year ended December 31, 2009 were
partially offset by a $1.0 million gain under a contractual
arrangement.
Income
Taxes
The effective tax rates for the years ended December 31,
2010 and 2009 were approximately 44.2% and 40.7%, 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.
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.
37
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
$13.6 million, or 8.1%, decrease in software license fee
revenue and a $5.8 million, or 6.7%, decrease in services
revenues, partially offset by a $5.8 million, or 4.6%,
increase in maintenance fee revenue and a $1.7 million, or
4.4%, increase in software hosting 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 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.
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 $1.9 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 $2.9 million decline in
the Americas reportable segment offset by increases in the EMEA
and Asia/Pacific reportable segments of $0.2 million and
$0.8 million, respectively. Within this decrease is a
$5.9 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 revenues increased $5.8 million, or 4.6%,
during the year ended December 31, 2009, as compared to the
same period in 2008.
38
Maintenance fee revenue increased in all reportable segments as
compared to the year ended December 31, 2008 with increases
of $3.9 million in the Americas reportable segment,
$1.1 million in the EMEA reportable 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 revenues declined by $5.8 million, or 6.7%, for
the year ended December 31, 2009, as compared to the same
period in 2008. Implementation and professional services
declined in the Americas and EMEA reportable segments by
$0.5 million and $7.5 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 not recur in the year ended
December 31, 2009.
Software
Hosting Fee Revenue
Software hosting fees revenue increased $1.7 million, or
4.4%, for the year ended December 31, 2009 as compared to
the same period in 2008. The increase is primarily in the
Americas operating segment and can be attributed to new
customers adopting our on-demand or hosted offerings and
existing customers adding new functionality or services.
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
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, Services and Hosting Fees
Cost of maintenance, services and hosting fees 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 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
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
39
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 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 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 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 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
40
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.
Segment
Results
The following table presents revenues and operating income
(loss) for the periods indicated by geographic region (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
221,560
|
|
|
$
|
222,952
|
|
|
$
|
207,350
|
|
EMEA
|
|
|
150,525
|
|
|
|
137,061
|
|
|
|
169,046
|
|
Asia/Pacific
|
|
|
46,339
|
|
|
|
45,742
|
|
|
|
41,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
418,424
|
|
|
$
|
405,755
|
|
|
$
|
417,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
49,195
|
|
|
$
|
42,344
|
|
|
$
|
21,714
|
|
EMEA
|
|
|
21,310
|
|
|
|
6,963
|
|
|
|
2,140
|
|
Asia/Pacific
|
|
|
(16,857
|
)
|
|
|
(7,737
|
)
|
|
|
(2,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
53,648
|
|
|
$
|
41,570
|
|
|
$
|
21,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable segment results are impacted by both direct expenses
and allocated shared function costs such as Global Product
Delivery and Development, Global Customer Operations, Global
Product Management and Corporate overhead costs. Shared function
costs are allocated to the reportable segments as a percentage
of revenue or as a percentage of headcount.
Operating income in the Americas reportable segment increased
for the year ended December 31, 2010 as compared to the
same period in 2009 primarily due to increased operating
efficiencies. Operating Income in the EMEA reportable segment
increased for the year ended December 31, 2010 as compared
to the same period in 2009 primarily due to increased revenue as
a result of various customer go-lives in the year ended
December 31, 2010 as compared to the same period in 2009.
Operating income in the Asia/Pacific reportable segment declined
for the year ended December 31, 2010 as compared to the
same period in 2009 primarily due to increased direct costs as
we invest in personnel and related costs and increased allocated
costs as a result of the headcount growth relative to the other
reportable segments.
LIQUIDITY
AND CAPITAL RESOURCES
As of December 31, 2010, our principal sources of liquidity
consisted of $171.3 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. The current credit facility will mature on
September 29, 2011, at which time any principal amounts
outstanding are due. We are currently in discussions with
various lenders, including our current lenders, for a new credit
facility and anticipate closing on the new facility prior to the
maturation of the current facility. The revolving credit
facility contains certain affirmative and negative covenants,
including limitations on the incurrence of indebtedness, asset
dispositions, acquisitions, investments, dividends and other
restricted payments, liens and transactions with affiliates. The
revolving credit facility also contains financial covenants
relating to maximum permitted leverage ratio and the minimum
interest coverage ratio. The facility does not contain any
subjective acceleration features and does not have any required
payment or principal reduction
41
schedule and is included as a current liability in our
consolidated balance sheet. At December 31, 2010 and
December 31, 2009, (and at all times during these periods)
we were in compliance with our debt covenants. The interest rate
in effect at December 31, 2010 was 1.02%.
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. 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. The existing uncertainty in the capital and credit
markets and the current economic crisis may also impact our
ability to successfully negotiate a new credit facility with our
existing lenders or alternative lenders. We cannot guarantee
that a new credit facility will be available to us or that we
will be able to negotiate terms and conditions acceptable to us.
In the event we are unable to successfully negotiate a new
credit facility, all outstanding amounts under the existing
credit facility will become due and payable.
We believe that our existing sources of liquidity, including
cash on hand and cash provided by operating activities, will
satisfy our projected liquidity requirements, which primarily
consists of working capital requirements, for the next twelve
months, even in the unlikely event that we are unable to
successfully negotiate a new credit facility and all outstanding
amounts under the existing credit facility become due and
payable.
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 $22.9 million
remains available at December 31, 2010. 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, 2010, we
purchased 1.0 million shares of common stock under this
repurchase plan for $18.6 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.
42
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).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
81,308
|
|
|
$
|
44,217
|
|
|
$
|
77,826
|
|
Investing activities
|
|
|
(19,349
|
)
|
|
|
(23,367
|
)
|
|
|
(16,956
|
)
|
Financing activities
|
|
|
(17,575
|
)
|
|
|
(14,056
|
)
|
|
|
(27,687
|
)
|
2010
compared to 2009
Net cash flows provided by operating activities during the year
ended December 31, 2010 amounted to $81.3 million
compared to $44.2 million during the same period in 2009.
Stronger receivables collections of $24.7 million and an
increase in net income of $7.6 million were the primary
drivers of the $37.1 million increase in 2010 cash flows
from operating activities compared to the same period in 2009.
These increases were partially offset by an increase in taxes
paid of $9.7 million during the year ended
December 31, 2010 compared to the same period in 2009.
Net cash flows used in investing activities totaled
$19.3 million during the year ended December 31, 2010
compared to $23.4 million used during the same period in
2009. This $4.0 million decrease 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. We
used $5.0 million for purchases of property and equipment
during the year ended December 31, 2010 compared to
$2.9 million during the same period in 2009. In addition,
we used $8.2 million for purchases of software and
distribution rights during the year ended December 31, 2010
compared to $7.5 million during the same period in 2009.
Net cash flows used in financing activities totaled
$17.6 million during the year ended December 31, 2010
compared to net cash flows used of $14.1 million during the
same period in 2009. In the years ended December 31, 2010
and 2009, we used cash of $18.6 million and
$15.0 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
during the years ended December 31, 2010 and 2009. During
the years ended December 31, 2010 and 2009, we received
proceeds of $3.3 million and $1.9 million,
respectively, including corresponding excess tax benefits, from
the exercises of stock options. We distributed $1.2 million
in cash to noncontrolling interests during the year ended
December 31, 2010.
During the years ended December 31, 2010 and 2009, we
realized an increase in cash of $1.0 million and
$6.2 million, respectively, related to foreign exchange
rate variances.
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
43
for purchases of property and equipment during the year ended
December 31, 2009 compared to same period in 2008.
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.
Contractual
Obligations and Commercial Commitments
We lease office space and equipment under operating leases that
run through October 2028, and also lease certain property under
capital lease agreements that expire in various years through
2014. Additionally, we have entered into a credit facility
agreement that matures in 2011. Under the Outsourcing Agreement
with IBM, we pay IBM for IT services through a combination of
fixed and variable charges subject to actual services 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, 2010 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
|
|
$
|
78,336
|
|
|
$
|
9,895
|
|
|
$
|
17,516
|
|
|
$
|
13,526
|
|
|
$
|
37,399
|
|
Capital leases
|
|
|
3,200
|
|
|
|
1,223
|
|
|
|
1,840
|
|
|
|
137
|
|
|
|
|
|
Credit facility
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit facility interest(1)
|
|
|
574
|
|
|
|
574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IBM Outsourcing Minimum Commitment
|
|
|
32,954
|
|
|
|
8,134
|
|
|
|
15,742
|
|
|
|
9,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
190,064
|
|
|
$
|
94,826
|
|
|
$
|
35,098
|
|
|
$
|
22,741
|
|
|
$
|
37,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Based upon the interest rate in effect at December 31, 2010
of 1.02%. |
We are unable to reasonably estimate the ultimate amount or
timing of settlement of our reserves for income taxes under
ASC 740, Income Taxes. The liability for
unrecognized tax benefits at December 31, 2010 is
$8.4 million.
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 Policies and 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,
Nature of Business and Summary of
44
Significant Accounting Policies in the Notes to
Consolidated Financial Statements for a further discussion of
revenue recognition and other significant accounting policies.
Revenue
Recognition
For software license arrangements for which services rendered
are primarily related to installation of core software and 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 more complex arrangements
involving our newer products are typically recognized upon
acceptance or first production use by the customer or are
recognized over an extended period 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.
When a software license arrangement includes services to provide
significant modification or customization of software, those
services are considered essential to the functionality of the
software and 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.
We recognize revenue under these arrangements based on the
lesser of payments that become due or the revenue calculated
under the
percentage-of-completion
method based on progress toward completion in a given reporting
period. For arrangements where we believe it is assured that no
loss will be incurred under the arrangement and fair value for
maintenance services does not exist, all revenue is deferred
until services are completed.
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
45
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.
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. 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. 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, 2010 and
December 31, 2009 our intangible assets, excluding
goodwill, net of accumulated amortization, were
$20.4 million and $26.9 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 are 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, 2010 and 2009, our goodwill was
$203.9 million and $204.9 million, respectively. In
accordance with ASC 350, Intangibles
Goodwill and Other, 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.
46
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. No reporting
units were deemed to be at risk of failing Step 1 of the
goodwill impairment test under ASC No. 350.
Stock-Based
Compensation
Under the provisions of ASC 718, 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, 2010 and 2009 pursuant to our 2005 Incentive
Plan. These awards are earned, if at all, 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 years ended December 31, 2010, 2009 and 2008,
pursuant to our 2005 Incentive Plan, we granted restricted share
awards (RSAs). The awards granted during the year
ended December 31, 2010 have requisite service periods of
three years and vest in increments of 33% on the anniversary
dates of grants. The awards granted during the years ended
December 31, 2009 and 2008, 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.
47
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.
We account for income taxes in accordance with 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 Financial Accounting Standards Board
(FASB) issued Accounting Standards Update
(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
Accounting Standards Codification (ASC)
605-985.
This guidance eliminates the requirement, for multiple element
arrangements not subject to software accounting guidance 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 the
Company on January 1, 2011. We do not expect this guidance
will have a material impact on our financial statements.
In April 2010, the FASB issued ASU
2010-17,
Revenue
Recognition-Milestone
Method (Topic 605), that designates the milestone method and
acceptable attribution method for revenue recognition. This
further clarifies the conditions in which a company can
recognize revenue under this method. We do not expect this
guidance will have a material effect 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, 2010. 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
48
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, 2010, 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.
|
|
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
|
None
|
|
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, 2010.
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,
2010.
|
|
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, 2010.
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 the Companys internal control over
financial reporting was effective as of December 31, 2010.
The effectiveness of the Companys internal control over
financial reporting as of December 31, 2010 has been
audited by Deloitte & Touche, LLP, an independent
registered public accounting firm, and Deloitte &
Touche, LLP has issued an attestation report on our internal
control over financial reporting.
|
|
c)
|
Changes
in Internal Control over Financial Reporting
|
There have been no changes during the Companys quarter
ended December 31, 2010 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.
49
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, 2010, 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, 2010, 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, 2010 of the Company and our report dated
February 18, 2011 expressed an unqualified opinion on those
financial statements.
/s/ DELOITTE & TOUCHE LLP
Omaha, Nebraska
February 18, 2011
50
|
|
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 15, 2011
(the 2011 Proxy Statement) and is incorporated
herein by reference.
Information included in the section entitled
Section 16(a) Beneficial Ownership Reporting
Compliance in our 2011 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 2011 Proxy
Statement is incorporated herein by reference. In addition, the
information included in the sections entitled Board
Committees and Committee Meetings, Shareholder
Recommendations for Director Nominees and
Shareholder Nomination Process within the
Corporate Governance section of our 2011 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,
Executive Compensation and Compensation
Committee Interlocks and Insider Participation in our 2011 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 Security Ownership in our 2011 Proxy Statement
is incorporated herein by reference.
Information included in the section entitled Information
Regarding Equity Compensation Plans in our 2011 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, in our 2011 Proxy
Statement is incorporated herein by reference.
51
Information included in the sections entitled Director
Independence and Board Committees and Committee
Meetings in the Corporate Governance section
of our 2011 Proxy Statement is incorporated by reference.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
Information included in the sections entitled Independent
Registered Public Accounting Firm Fees and
Pre-Approval of Audit and Non-Audit Services under
Proposal 2 Ratification of Appointment of
the Companys Independent Registered Public Accounting
Firm in our 2011 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
|
|
|
|
|
53
|
|
|
|
|
54
|
|
|
|
|
55
|
|
|
|
|
56
|
|
|
|
|
57
|
|
|
|
|
58
|
|
|
|
|
59
|
|
(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. A list of exhibits filed or
furnished with this report on
Form 10-K
(or incorporated by reference to exhibits previously filed by
ACI) is provided in the accompanying Exhibit Index.
52
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 sheets of
ACI Worldwide, Inc. and subsidiaries (the Company)
as of December 31, 2010 and 2009 and the related
consolidated statements of operations, of stockholders
equity and comprehensive income (loss), and of cash flows for
the years ended December 31, 2010 and 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 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, such consolidated financial statements present
fairly, in all material respects, the financial position of ACI
Worldwide, Inc. and subsidiaries as of December 31, 2010
and 2009 and the results of their operations and their cash
flows for the years ended December 31, 2010 and 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, 2010, 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 18, 2011,
expressed an unqualified opinion on the Companys internal
control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Omaha, Nebraska
February 18, 2011
53
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
ACI Worldwide, Inc.:
We have audited the accompanying consolidated statements of
operations, stockholders equity and comprehensive income
(loss), and cash flows of ACI Worldwide, Inc. and subsidiaries
for the year ended December 31, 2008. 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
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, the consolidated financial statements referred
to above present fairly, in all material respects, the results
of operations and cash flows of ACI Worldwide, Inc. and
subsidiaries for the year ended December 31, 2008, in
conformity with U.S. generally accepted accounting
principles.
/s/ KPMG LLP
Omaha, Nebraska
March 3, 2009
54
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except share and per share amounts)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
171,310
|
|
|
$
|
125,917
|
|
Billed receivables, net of allowances of $5,738 and $2,732,
respectively
|
|
|
77,773
|
|
|
|
98,915
|
|
Accrued receivables
|
|
|
9,578
|
|
|
|
9,468
|
|
Deferred income taxes, net
|
|
|
12,317
|
|
|
|
17,459
|
|
Prepaid expenses
|
|
|
13,369
|
|
|
|
12,079
|
|
Other current assets
|
|
|
10,462
|
|
|
|
10,224
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
294,809
|
|
|
|
274,062
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
18,539
|
|
|
|
17,570
|
|
Software, net
|
|
|
25,366
|
|
|
|
30,037
|
|
Goodwill
|
|
|
203,935
|
|
|
|
204,850
|
|
Other intangible assets, net
|
|
|
20,448
|
|
|
|
26,906
|
|
Deferred income taxes, net
|
|
|
28,143
|
|
|
|
26,024
|
|
Other noncurrent assets
|
|
|
10,289
|
|
|
|
10,594
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
601,529
|
|
|
$
|
590,043
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
15,263
|
|
|
$
|
17,591
|
|
Accrued employee compensation
|
|
|
26,174
|
|
|
|
24,492
|
|
Deferred revenue
|
|
|
121,936
|
|
|
|
106,349
|
|
Income taxes payable
|
|
|
6,181
|
|
|
|
10,681
|
|
Alliance agreement liability
|
|
|
1,917
|
|
|
|
10,507
|
|
Note payable under credit facility
|
|
|
75,000
|
|
|
|
|
|
Accrued and other current liabilities
|
|
|
24,293
|
|
|
|
25,780
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
270,764
|
|
|
|
195,400
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
31,045
|
|
|
|
31,533
|
|
Note payable under credit facility
|
|
|
|
|
|
|
75,000
|
|
Alliance agreement noncurrent liability
|
|
|
20,667
|
|
|
|
21,980
|
|
Other noncurrent liabilities
|
|
|
23,430
|
|
|
|
30,067
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
345,906
|
|
|
|
353,980
|
|
|
|
|
|
|
|
|
|
|
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, 2010 and 2009
|
|
|
|
|
|
|
|
|
Common stock; $0.005 par value; 70,000,000 shares
authorized; 40,821,516 shares issued at December 31,
2010 and 2009
|
|
|
204
|
|
|
|
204
|
|
Common stock warrants
|
|
|
24,003
|
|
|
|
24,003
|
|
Treasury stock, at cost, 7,548,752 and 6,784,932 shares
outstanding at December 31, 2010 and 2009
|
|
|
(171,676
|
)
|
|
|
(158,652
|
)
|
Additional paid-in capital
|
|
|
312,947
|
|
|
|
307,279
|
|
Retained earnings
|
|
|
105,289
|
|
|
|
78,094
|
|
Accumulated other comprehensive loss
|
|
|
(15,144
|
)
|
|
|
(14,865
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
255,623
|
|
|
|
236,063
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
601,529
|
|
|
$
|
590,043
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
55
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Software license fees
|
|
$
|
164,559
|
|
|
$
|
154,517
|
|
|
$
|
168,158
|
|
Maintenance fees
|
|
|
135,523
|
|
|
|
130,922
|
|
|
|
125,117
|
|
Services
|
|
|
73,989
|
|
|
|
80,146
|
|
|
|
85,901
|
|
Software hosting fees
|
|
|
44,353
|
|
|
|
40,170
|
|
|
|
38,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
418,424
|
|
|
|
405,755
|
|
|
|
417,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of software license fees(1)
|
|
|
12,591
|
|
|
|
14,754
|
|
|
|
12,846
|
|
Cost of maintenance, services and hosting fees(1)
|
|
|
117,132
|
|
|
|
112,893
|
|
|
|
117,087
|
|
Research and development
|
|
|
74,076
|
|
|
|
77,506
|
|
|
|
75,850
|
|
Selling and marketing
|
|
|
70,553
|
|
|
|
61,799
|
|
|
|
73,236
|
|
General and administrative
|
|
|
70,096
|
|
|
|
79,244
|
|
|
|
100,272
|
|
Depreciation and amortization
|
|
|
20,328
|
|
|
|
17,989
|
|
|
|
16,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
364,776
|
|
|
|
364,185
|
|
|
|
395,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
53,648
|
|
|
|
41,570
|
|
|
|
21,713
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
665
|
|
|
|
1,042
|
|
|
|
2,609
|
|
Interest expense
|
|
|
(1,996
|
)
|
|
|
(2,856
|
)
|
|
|
(5,013
|
)
|
Other, net
|
|
|
(3,615
|
)
|
|
|
(6,648
|
)
|
|
|
8,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(4,946
|
)
|
|
|
(8,462
|
)
|
|
|
5,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
48,702
|
|
|
|
33,108
|
|
|
|
27,556
|
|
Income tax expense
|
|
|
21,507
|
|
|
|
13,482
|
|
|
|
16,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
27,195
|
|
|
$
|
19,626
|
|
|
$
|
10,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share information
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
33,560
|
|
|
|
34,368
|
|
|
|
34,498
|
|
Diluted
|
|
|
33,870
|
|
|
|
34,554
|
|
|
|
34,795
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.81
|
|
|
$
|
0.57
|
|
|
$
|
0.31
|
|
Diluted
|
|
$
|
0.80
|
|
|
$
|
0.57
|
|
|
$
|
0.30
|
|
|
|
|
(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, services
and hosting fees excludes charges for depreciation. |
The accompanying notes are an integral part of the consolidated
financial statements.
56
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY AND
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 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 effect of stock plans, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,195
|
|
|
|
|
|
|
|
27,195
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(279
|
)
|
|
|
(279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,916
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
(18,624
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,624
|
)
|
Issuance of common stock pursuant to Employee Stock Purchase Plan
|
|
|
|
|
|
|
|
|
|
|
1,332
|
|
|
|
(383
|
)
|
|
|
|
|
|
|
|
|
|
|
949
|
|
Exercises of stock options
|
|
|
|
|
|
|
|
|
|
|
5,453
|
|
|
|
(2,306
|
)
|
|
|
|
|
|
|
|
|
|
|
3,147
|
|
Tax effect of stock plans, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
|
(56
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,790
|
|
|
|
|
|
|
|
|
|
|
|
7,790
|
|
Non-vested restricted share awards subject to redemption
|
|
|
|
|
|
|
|
|
|
|
598
|
|
|
|
(598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of non-vested restricted share awards
|
|
|
|
|
|
|
|
|
|
|
(1,221
|
)
|
|
|
1,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of restricted stock for tax withholdings
|
|
|
|
|
|
|
|
|
|
|
(562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
204
|
|
|
$
|
24,003
|
|
|
$
|
(171,676
|
)
|
|
$
|
312,947
|
|
|
$
|
105,289
|
|
|
$
|
(15,144
|
)
|
|
$
|
255,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
57
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
27,195
|
|
|
$
|
19,626
|
|
|
$
|
10,582
|
|
Adjustments to reconcile net income to net cash flows from
operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
6,651
|
|
|
|
6,338
|
|
|
|
6,506
|
|
Amortization
|
|
|
19,696
|
|
|
|
17,389
|
|
|
|
15,544
|
|
Tax expense of intellectual property shift
|
|
|
2,200
|
|
|
|
2,199
|
|
|
|
1,942
|
|
Deferred income taxes
|
|
|
9,444
|
|
|
|
(6,562
|
)
|
|
|
4,739
|
|
Stock-based compensation expense
|
|
|
7,790
|
|
|
|
7,645
|
|
|
|
7,888
|
|
Excess tax benefit of stock options exercised and cash settled
|
|
|
(140
|
)
|
|
|
114
|
|
|
|
357
|
|
Other
|
|
|
909
|
|
|
|
943
|
|
|
|
5,258
|
|
Changes in operating assets and liabilities, net of impact of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Billed and accrued receivables, net
|
|
|
14,330
|
|
|
|
(10,365
|
)
|
|
|
(5,401
|
)
|
Other current assets
|
|
|
(818
|
)
|
|
|
68
|
|
|
|
(187
|
)
|
Other assets
|
|
|
(2,259
|
)
|
|
|
1,387
|
|
|
|
617
|
|
Accounts payable
|
|
|
(2,318
|
)
|
|
|
(1,680
|
)
|
|
|
(2,494
|
)
|
Accrued employee compensation
|
|
|
1,483
|
|
|
|
3,492
|
|
|
|
51
|
|
Proceeds from alliance agreement
|
|
|
|
|
|
|
|
|
|
|
40,935
|
|
Accrued liabilities
|
|
|
(7,766
|
)
|
|
|
(8,412
|
)
|
|
|
(2,609
|
)
|
Current income taxes
|
|
|
(4,224
|
)
|
|
|
6,029
|
|
|
|
2,130
|
|
Deferred revenue
|
|
|
14,715
|
|
|
|
8,412
|
|
|
|
(7,012
|
)
|
Other current and noncurrent liabilities
|
|
|
(5,580
|
)
|
|
|
(2,406
|
)
|
|
|
(1,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating activities
|
|
|
81,308
|
|
|
|
44,217
|
|
|
|
77,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(4,957
|
)
|
|
|
(2,942
|
)
|
|
|
(7,021
|
)
|
Purchases of software and distribution rights
|
|
|
(8,209
|
)
|
|
|
(7,529
|
)
|
|
|
(4,936
|
)
|
Alliance technical enablement expenditures
|
|
|
(6,183
|
)
|
|
|
(6,899
|
)
|
|
|
(6,328
|
)
|
Proceeds from alliance agreement, net of common stock warrants
|
|
|
|
|
|
|
|
|
|
|
1,498
|
|
Proceeds from transfer of assets under contractual arrangements
|
|
|
|
|
|
|
1,050
|
|
|
|
|
|
Acquisition of businesses, net of cash acquired
|
|
|
|
|
|
|
(7,047
|
)
|
|
|
(169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activities
|
|
|
(19,349
|
)
|
|
|
(23,367
|
)
|
|
|
(16,956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
1,132
|
|
|
|
1,243
|
|
|
|
1,704
|
|
Proceeds from exercises of stock options
|
|
|
3,147
|
|
|
|
1,811
|
|
|
|
3,841
|
|
Excess tax benefit of stock options exercised
|
|
|
140
|
|
|
|
88
|
|
|
|
142
|
|
Repurchases of common stock
|
|
|
(18,624
|
)
|
|
|
(15,000
|
)
|
|
|
(30,063
|
)
|
Repurchase of restricted stock for tax withholdings
|
|
|
(562
|
)
|
|
|
(622
|
)
|
|
|
|
|
Payments on debt and capital leases
|
|
|
(1,576
|
)
|
|
|
(1,576
|
)
|
|
|
(3,311
|
)
|
Distribution to noncontrolling interest
|
|
|
(1,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing activities
|
|
|
(17,575
|
)
|
|
|
(14,056
|
)
|
|
|
(27,687
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate fluctuations on cash
|
|
|
1,009
|
|
|
|
6,157
|
|
|
|
(17,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
45,393
|
|
|
|
12,951
|
|
|
|
15,955
|
|
Cash and cash equivalents, beginning of period
|
|
|
125,917
|
|
|
|
112,966
|
|
|
|
97,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
171,310
|
|
|
$
|
125,917
|
|
|
$
|
112,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid, net
|
|
$
|
24,928
|
|
|
$
|
15,202
|
|
|
$
|
9,940
|
|
Interest paid
|
|
$
|
1,663
|
|
|
$
|
3,564
|
|
|
$
|
4,392
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
58
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
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, 2010 and 2009 and 2008,
approximately 46%, 46%, and 47%, 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.
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. All intercompany balances and
transactions have been eliminated.
On September 21, 2010, the Company dissolved its
partnership in Madrid, Spain with Sistema 4B, S.A.
(Sistema). As a result, the Company paid Sistema
1.0 million Euros (approximately $1.2 million) during
the year ended December 31, 2010. Noncontrolling interest
in this partnership of $1.4 million was included in other
long-term liabilities as of December 31, 2009.
Capital
Stock
The Companys 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.
The Companys financial condition, results of operations,
and cash flows are subject to various risks and uncertainties.
Factors that could affect its 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 and the continuing decline in the global
economy, restrictions and other financial covenants in the
Companys credit facility, volatility and disruption of the
capital and credit markets and adverse changes in the global
economy, the maturation of the Companys current credit
facility, consolidations and failures in the financial services
industry, the accuracy of managements backlog estimates,
the cyclical nature of the Companys revenue and earnings
and the accuracy of forecasts due to the concentration of
revenue generating activity during the final weeks of each
quarter, impairment of our goodwill or intangible assets,
exposure to unknown tax liabilities, volatility in the
Companys stock price, risks from operating
internationally, including fluctuations in currency exchange
rates, increased competition, the
59
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Companys offshore software development activities,
customer reluctance to switch to a new vendor, the performance
of the Companys strategic product, BASE24-eps, the
maturity of certain products, the Companys strategy to
migrate customers to its next generation products, ratable or
deferred recognition of certain revenue associated with customer
migrations and the maturity of certain of the Companys
products, demand for the Companys 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), the Companys
outsourcing agreement with IBM, the complexity of its products
and services and the risk that they may contain hidden defects
or be subjected to security breaches or viruses, compliance of
the Companys products with applicable legislation,
governmental regulations and industry standards, the
Companys compliance with privacy regulations, the
protection of the Companys intellectual property in
intellectual property litigation, future acquisitions, strategic
partnerships and investments and litigation.
Revenue
Recognition, Accrued Receivables and Deferred
Revenue
Software License Fees. The Company recognizes
software license fee revenue in accordance with
ASC 605-985,
Revenue Recognition: Software. For software license
arrangements for which services rendered are primarily related
to installation of core software and 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
to determine the amount of revenue to be allocated to the
license element. Under
ASC 605-985,
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 considered essential to the functionality of the
software and are not separable from the software. These
arrangements are accounted for in accordance with
ASC 605-35,
Revenue Recognition: Long Term Construction Type Contracts
generally referred to as contract accounting. Under contract
accounting, the Company generally uses the
percentage-of-completion
method. 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. The Company recognizes revenue under
these arrangements based on the lesser of payments that become
due or the revenue calculated under 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. 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 indirect costs are incurred
until such time that project profitability can be estimated. In
the event some level of profitability cannot be 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
60
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
collected, provided all other conditions for revenue recognition
have been met. In making the determination of collectability,
the Company considers the creditworthiness of the customer,
economic conditions in the customers industry and
geographic location, and general economic conditions.
ASC 605-985
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, expressed in dollar terms, or separate sales with
consistent pricing of PCS expressed in percentage terms. In
determining whether a stated renewal is not 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 12 month period.
ASC 605-985
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
12 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,
or 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
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 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
61
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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,
feature, 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. As a result of the
maturation of certain retail payment engine products, including
BASE24, a higher number of software license arrangements fail to
achieve VSOE of fair value for PCS 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 of 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Software license fees
|
|
$
|
47,095
|
|
|
$
|
13,905
|
|
|
$
|
18,212
|
|
Maintenance fees
|
|
|
10,261
|
|
|
|
5,273
|
|
|
|
6,494
|
|
Services
|
|
|
4,118
|
|
|
|
6,513
|
|
|
|
11,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
61,474
|
|
|
$
|
25,691
|
|
|
$
|
35,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 is 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
arrangements 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.
For those arrangements in which VSOE of fair value does not
exist for the PCS element all revenue is deferred until such
time as the services are complete. Once services are complete,
revenue is then recognized ratably over the remaining PCS period.
62
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 related services revenue as it is
recognized. For those arrangements that are accounted for under
contract accounting, the Company accumulates and defers all
direct and indirect costs allocable to the arrangement. For
those arrangements that are not accounted for under contract
accounting, the Company accumulates and defers all direct and
incremental costs attributable to the arrangement.
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. 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 is not met,
the elements do not qualify for treatment as separate units of
accounting. These arrangements are considered to be one
accounting unit and recognized under the proportional
performance method, recognizing the slower of the proportional
performance of all deliverables in the period.
Multiple Arrangements, 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 earned that are to be billed in the near
future. Included in accrued receivables are services and
software hosting revenues earned in the current period but
billed in the following period as well as software license fee
revenues that are determined to be fixed and determinable that
are to be billed in future periods.
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.
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
63
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Balance, beginning of period
|
|
$
|
2,732
|
|
|
$
|
1,920
|
|
|
$
|
1,723
|
|
Provision charged to general and administrative expense
|
|
|
3,116
|
|
|
|
1,171
|
|
|
|
564
|
|
Amounts written off, net of recoveries
|
|
|
(110
|
)
|
|
|
(359
|
)
|
|
|
(367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
5,738
|
|
|
$
|
2,732
|
|
|
$
|
1,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts charged to general and administrative expenses during
the years ended December 31, 2010, 2009 and 2008 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.
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, 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. The Company does not
typically capitalize costs related to software available for
sale as technological feasibility generally coincides with
general availability of the software. Software for internal use
is capitalized in accordance with
ASC 605-985.
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 of 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
64
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, 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, 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.
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, the Company calculates 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 outstanding and forecasted floating rate bank
borrowings due to changes in interest rates. The Company
assesses interest rate cash flow risk by
65
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 changed the variable-rate cash flow
exposure on the debt obligations to fixed cash flows. Under the
terms of the interest rate swaps, the Company received variable
interest rate payments and made fixed interest rate payments,
thereby creating the equivalent of fixed-rate debt. As of
December 31, 2010, both swap agreements had terminated.
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 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, 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 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, as amended (the 2005 Incentive Plan)
during the years ended December 31, 2010 and 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
sales growth or cumulative operating income is below a
predetermined minimum threshold level at the conclusion of the
Performance Period. Assuming achievement of the predetermined
sales growth and cumulative operating income 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.
66
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pursuant to the Companys 2005 Incentive Plan, the Company
granted restricted share awards (RSAs). The awards
granted during the year ended December 31, 2010 have
requisite service periods of three years and vest in increments
of 33% on the anniversary of the grant date. The awards granted
during the years ended December 31, 2009 and 2008, have
requisite service periods of four years and vest in increments
of 25% on the anniversary of the grant date. 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. Revenues and expenses are translated at
the average exchange rates during the period. Translation gains
and losses are reflected in the consolidated financial
statements as a component of accumulated other comprehensive
income (loss). Transaction gains and losses, including those
related to intercompany accounts, that are not considered to be
of a long-term investment nature are included in the
determination of net income. Transaction gains and losses,
including those related to intercompany accounts, that are
considered to be of a long-term investment nature are reflected
in the consolidated financial statements as a component of
accumulated other comprehensive income (loss).
Since the undistributed earnings of the Companys foreign
subsidiaries are considered to be indefinitely reinvested, the
components of accumulated other comprehensive income (loss) have
not been tax effected.
Income
Taxes
The provision for income taxes is computed using the asset and
liability method, under which deferred tax assets and
liabilities are recognized for the expected future tax
consequences of temporary differences between the financial
reporting and tax bases of assets and liabilities. Deferred tax
assets are reduced by a valuation allowance when it is more
likely than not that some portion or all of the deferred tax
assets will not be realized.
The Company periodically assesses its tax exposures and
establishes, or adjusts, estimated unrecognized tax benefits for
probable assessments by taxing authorities, including the
Internal Revenue Service (IRS), and various foreign
and state authorities. Such unrecognized tax benefits represent
the estimated provision for income taxes expected to ultimately
be paid.
Recently
Issued Accounting Standards
In September 2009, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update
(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, for multiple element
arrangements not subject to software accounting guidance, 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 the
Company on January 1, 2011. The Company does not expect
this guidance will have a material impact on its financial
statements.
In April 2010, the FASB issued ASU
2010-17,
Revenue
Recognition-Milestone
method (Topic 605), that designates the milestone method and
acceptable attribution method for revenue recognition. This
further clarifies
67
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the conditions in which a company can recognize revenue under
this method. The Company is does not expect this guidance to
have a material impact on its financial statements.
Reclassifications
During the year ended December 31, 2010, the Company
refined the classification of its revenues in order to better
conform to industry practice and to better reflect the results
of the Companys on-demand business. The Companys
presentation of revenues has been revised to separately disclose
software hosting fees, which includes all revenues from hosting
and on-demand arrangements. Previously, these revenues were
primarily included in services revenue with a smaller portion
included in maintenance fees and software license fees. As a
result of this change in classification of revenues, the Company
reclassified $2.0 million, $5.8 million and
$32.4 million from software license fees, maintenance fees,
and services, respectively, to software hosting fees in the
accompanying consolidated statement of operations for the year
ended December 31, 2009. The Company reclassified
$1.1 million, $4.9 million and $32.5 million from
software license fees, maintenance fees, and services,
respectively, to software hosting fees in the accompanying
consolidated statement of operations for the year ended
December 31, 2008.
These reclassifications have been made to prior periods to
conform to the current period presentation. These
reclassifications did not impact total revenue or net income for
the prior years presented.
Fiscal
2009 Acquisition
Euronet
Essentis Limited
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), after
working capital adjustments as outlined in the purchase
agreement. The allocation of the purchase price to specific
assets and liabilities was based on the fair value of certain
assets.
In connection with the acquisition, the Company recorded the
following amounts based upon its purchase price allocation
during the fourth quarter of 2009 (in thousands, except
weighted-average useful lives):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
Amount
|
|
|
Useful Lives
|
|
|
Current assets
|
|
$
|
668
|
|
|
|
|
|
Noncurrent assets:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
302
|
|
|
|
|
|
Goodwill
|
|
|
1,539
|
|
|
|
|
|
Intellectual property rights
|
|
|
2,758
|
|
|
|
5 years
|
|
Customer contracts
|
|
|
1,999
|
|
|
|
9 years
|
|
Trade name
|
|
|
276
|
|
|
|
5 years
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
7,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities acquired
|
|
|
(968
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
6,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Factors contributing to the purchase price which resulted in the
goodwill (which is tax deductible) include the acquisition of
management, sales, and technology personnel with the skills to
market new and existing products of the company. Pro forma
results are not presented because they are not material.
|
|
3.
|
Property
and Equipment
|
As of December 31, 2010 and 2009, net property and
equipment, which includes assets under capital leases primarily
in computer and office equipment, consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Computer and office equipment(1)
|
|
$
|
34,788
|
|
|
$
|
32,633
|
|
Furniture and fixtures
|
|
|
10,803
|
|
|
|
10,558
|
|
Leasehold improvements
|
|
|
6,708
|
|
|
|
6,624
|
|
Vehicles and other
|
|
|
306
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,605
|
|
|
|
49,950
|
|
Less: accumulated depreciation and amortization
|
|
|
(34,066
|
)
|
|
|
(32,380
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
18,539
|
|
|
$
|
17,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes $4.2 million and $2.6 million of computer and
office equipment under capital lease for the years ended
December 31, 2010 and 2009, respectively. |
Asset
Retirement Obligations
We have contractual obligations with respect to the retirement
of certain leasehold improvements at maturity of facility leases
and the restoration of facilities back to their original state
at the end of the lease term. Accruals are made based on
managements estimates of current market restoration costs,
inflation rates, and discount rates. At the inception of a
lease, the present value of the expected cash payment is
recognized as an asset retirement obligation with a
corresponding amount recognized in property assets. The property
asset amount is amortized, and the liability is accreted, over
the period from lease inception to the time we expect to vacate
the premises resulting in both depreciation and interest charges
in the consolidated statement of operations. Discount rates used
are based on credit-adjusted risk-free interest rates. Based on
our current lease commitments, obligations are required to be
settled commencing during fiscal year 2011 and ending during
fiscal year 2016. Revisions to these obligations may be required
if our estimates of restoration costs change. At
December 31, 2010 and 2009, we had obligations of
$1.8 million and $1.7 million, respectively, recorded
in other non-current liabilities in the accompanying
consolidated balance sheet.
69
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Changes in the carrying amount of goodwill attributable to each
reporting unit with goodwill balances during the years ended
December 31, 2010 and 2009, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
EMEA
|
|
|
Asia/Pacific
|
|
|
Total
|
|
|
Gross Balance prior to December 31, 2008
|
|
$
|
186,762
|
|
|
$
|
43,383
|
|
|
$
|
17,273
|
|
|
$
|
247,418
|
|
Total impairment prior to December 31, 2008
|
|
|
(47,432
|
)
|
|
|
|
|
|
|
|
|
|
|
(47,432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
139,330
|
|
|
|
43,383
|
|
|
|
17,273
|
|
|
|
199,986
|
|
Foreign currency translation adjustments
|
|
|
479
|
|
|
|
1,924
|
|
|
|
449
|
|
|
|
2,852
|
|
Additions Stratasoft(1)
|
|
|
|
|
|
|
|
|
|
|
473
|
|
|
|
473
|
|
Additions acquisition of Essentis(2)
|
|
|
|
|
|
|
1,539
|
|
|
|
|
|
|
|
1,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
139,809
|
|
|
|
46,846
|
|
|
|
18,195
|
|
|
|
204,850
|
|
Foreign currency translation adjustments
|
|
|
121
|
|
|
|
(2,596
|
)
|
|
|
1,560
|
|
|
|
(915
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
$
|
139,930
|
|
|
$
|
44,250
|
|
|
$
|
19,755
|
|
|
$
|
203,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Adjustment to Stratasoft Sdn Bhd acquisition relates to earn out
payment made in accordance with the purchase agreement. There
are no remaining earn out provisions. |
|
(2) |
|
Addition relates to goodwill acquired during the acquisition of
Essentis. |
During the years ended December 31, 2010 and 2009, the
Company performed an impairment test for each reporting unit. No
impairment losses were recognized for the years reported.
|
|
5.
|
Software
and Other Intangible Assets
|
At December 31, 2010, software net book value totaled
$25.4 million, net of $48.1 million of accumulated
amortization. Included in this amount is software marketed for
external sale of $13.5 million. The remaining software net
book value of $11.9 million is comprised of various
software that has been acquired or developed for internal use.
Amortization of acquired software marketed for external sale is
computed using the greater of the ratio of current revenues to
total current and anticipated revenues expected to be derived
from the software or the straight-line method over an estimated
useful life of generally three to six years. Software for resale
amortization expense recorded during the years ended
December 31, 2010, 2009 and 2008 totaled $6.0 million,
$5.7 million, and $5.4 million, respectively. These
software amortization expense amounts are reflected in cost of
software license fees in the consolidated statements of
operations. Amortization of software for internal use recorded
during the years ended December 31, 2010, 2009 and 2008
totaled $7.4 million, $5.5 million, and
$3.7 million, respectively. These software amortization
expense amounts are reflected in depreciation and amortization
in the consolidated statements of operations.
70
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The carrying amount and accumulated amortization of the
Companys other intangible assets that were subject to
amortization at each balance sheet date are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Balance
|
|
|
Amount
|
|
|
Amortization
|
|
|
Balance
|
|
|
Customer relationships
|
|
$
|
36,393
|
|
|
$
|
(18,855
|
)
|
|
$
|
17,538
|
|
|
$
|
41,636
|
|
|
$
|
(19,727
|
)
|
|
$
|
21,909
|
|
Purchased contracts
|
|
|
10,753
|
|
|
|
(8,504
|
)
|
|
|
2,249
|
|
|
|
11,179
|
|
|
|
(7,030
|
)
|
|
|
4,149
|
|
Trademarks and tradenames
|
|
|
1,062
|
|
|
|
(422
|
)
|
|
|
640
|
|
|
|
2,526
|
|
|
|
(1,711
|
)
|
|
|
815
|
|
Covenant not to compete
|
|
|
83
|
|
|
|
(62
|
)
|
|
|
21
|
|
|
|
74
|
|
|
|
(41
|
)
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
48,291
|
|
|
$
|
(27,843
|
)
|
|
$
|
20,448
|
|
|
$
|
55,415
|
|
|
$
|
(28,509
|
)
|
|
$
|
26,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets amortization expense recorded during the
years ended December 31, 2010, 2009 and 2008 totaled
$6.3 million, $6.1 million, and $6.4 million,
respectively. Based on capitalized intangible assets at
December 31, 2010, and assuming no impairment of these
intangible assets, estimated amortization expense amounts in
future fiscal years are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
Other Intangible
|
|
Fiscal Year Ending December 31,
|
|
Amortization
|
|
|
Assets Amortization
|
|
|
2011
|
|
$
|
12,303
|
|
|
$
|
5,962
|
|
2012
|
|
|
8,785
|
|
|
|
4,889
|
|
2013
|
|
|
2,734
|
|
|
|
4,642
|
|
2014
|
|
|
1,421
|
|
|
|
2,869
|
|
2015
|
|
|
123
|
|
|
|
965
|
|
Thereafter
|
|
|
|
|
|
|
1,121
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25,366
|
|
|
$
|
20,448
|
|
|
|
|
|
|
|
|
|
|
Credit
Facility
On September 29, 2006, the Company 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. The Company has the option to increase the
aggregate principal amount to $200 million. The facility
has a maturity date of September 29, 2011, at which time
any principal amounts outstanding are due. Obligations under the
facility are unsecured and uncollateralized, but are jointly and
severally guaranteed by certain domestic subsidiaries of the
Company. As of December 31, 2010, the revolving credit
facility has been classified as current due to the maturity date
being with 12 months.
The Company 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 the Companys total leverage ratio at the end of each
quarter. The initial borrowing rate on September 29, 2006
was set using the base rate option, effecting a rate of 8.25%.
Interest is due and payable monthly.
On October 5, 2006, the Company exercised its right to
convert the rate on its initial borrowing to the LIBOR based
option, thereby reducing the effective interest rate to 6.12%.
The interest rate in effect at December 31, 2010 was 1.02%.
On July 18, 2007 the Company entered into an interest rate
swap with a commercial bank to fix the interest rate. See
Note 7, Derivative Instruments and Hedging
Activities, for details. There is also an unused
commitment fee to be paid annually of 0.15% to 0.3% based on the
Companys leverage ratio. The initial principal
71
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
borrowings of $75 million were outstanding at
December 31, 2010. The amount of unused borrowings actually
available under the revolving credit facility varies in
accordance with the terms of the agreement. In connection with
the borrowing, the Company incurred debt issue costs of
$1.7 million.
The credit facility contains certain affirmative and negative
covenants including certain financial measurements. The facility
also provides for certain events of default. At
December 31, 2010 and December 31, 2009, (and at all
times during these periods) the Company was in compliance with
its debt covenants. The facility does not contain any subjective
acceleration features and does not have any required payment or
principal reduction schedule and is included as current in the
accompanying consolidated balance sheet.
On August 27, 2007, the Company entered into an amendment
to its credit agreement with its lenders, which amended the
definition of consolidated EBITDA, as it relates to the
calculation for the Companys debt covenants, to exclude
certain non-recurring items, and to incorporate the change in
the Companys fiscal year end to a calendar year, effective
January 1, 2008.
|
|
7.
|
Derivative
Instruments and Hedging Activities
|
The Company had two interest rate swaps that terminated on
October 4, 2010, neither swap qualified for hedge
accounting. Accordingly, the loss resulting from the change in
the fair value of the interest rate swaps of $0.2 million,
$1.6 million, and $5.8 million for the years ended
December 31, 2010, 2009 and 2008, respectively, is
reflected as expense in other income (expense), net in the
accompanying consolidated statements of operations.
Changes in the fair value of the interest rate swaps were as
follows (in thousands):
|
|
|
|
|
|
|
Asset
|
|
|
|
(Liability)
|
|
|
Fair value, December 31, 2008
|
|
$
|
(8,624
|
)
|
Net settlement payments
|
|
|
4,993
|
|
Loss recognized in earnings
|
|
|
(1,640
|
)
|
|
|
|
|
|
Fair value, December 31, 2009
|
|
|
(5,271
|
)
|
Net settlement payments
|
|
|
5,424
|
|
Loss recognized in earnings
|
|
|
(153
|
)
|
|
|
|
|
|
Fair value, December 31, 2010
|
|
$
|
|
|
|
|
|
|
|
As both interest rate swaps terminated on October 4, 2010,
as of December 31, 2010, there was no liability reported in
the accompanying consolidated balance sheet.
|
|
8.
|
Fair
Value of Financial Instruments
|
Effective January 1, 2008, the Company adopted the
provisions of ASC 820, Fair Value Measurements and
Disclosures, for financial assets and financial liabilities.
ASC 820 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value
measurements.
ASC 820 defines fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. ASC 820
establishes a fair value hierarchy for valuation inputs that
gives the highest priority to quoted prices in active markets
for identical assets or liabilities and the lowest priority to
unobservable inputs. The fair value hierarchy is as follows:
|
|
|
|
|
Level 1 Inputs Unadjusted quoted prices
in active markets for identical assets or liabilities that the
reporting entity has the ability to access at the measurement
date.
|
72
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Level 2 Inputs Inputs other than quoted
prices included in Level 1 that are observable for the
asset or liability, either directly or indirectly. These might
include quoted prices for similar assets or liabilities in
active markets, quoted prices for identical or similar assets or
liabilities in markets that are not active, inputs other than
quoted prices that are observable for the asset or liability
(such as interest rates, volatilities, prepayment speeds, credit
risks, etc.) or inputs that are derived principally from or
corroborated by market data by correlation or other means.
|
|
|
|
Level 3 Inputs Unobservable inputs for
determining the fair values of assets or liabilities that
reflect an entitys own assumptions about the assumptions
that market participants would use in pricing the assets or
liabilities.
|
Derivatives. Derivatives are reported at fair
value utilizing Level 2 inputs. The Company utilizes
valuation models prepared by a third-party with observable
market data inputs to assist management in estimating the fair
value of its interest rate swaps.
The following table summarizes financial assets and financial
liabilities measured at fair value on a recurring basis,
segregated by the level of the valuation inputs within the fair
value hierarchy utilized to measure fair value (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
|
|
|
|
Reporting Date Using
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Derivative liabilities
|
|
$
|
|
|
|
$
|
5,271
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities as of December 31, 2009
|
|
$
|
|
|
|
$
|
5,271
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities as of December 31, 2010
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As discussed in Note 7, Derivative Instruments and
Hedging Activities, the Companys interest rate swaps
terminated on October 4, 2010. The Company has no other
derivatives.
Certain non-financial assets and non-financial liabilities
measured at fair value on a recurring basis include reporting
units measured at fair value in the first step of a goodwill
impairment test. Certain non-financial assets measured at fair
value on a non-recurring basis include non-financial assets and
non-financial liabilities measured at fair value in the second
step of a goodwill impairment test, as well as intangible assets
and other non-financial long-lived assets measured at fair value
for impairment assessment.
The Company pays interest quarterly on its revolving credit
facility based upon the LIBOR rate plus a margin ranging from
0.625% to 1.375%, the margin being dependent upon the
Companys total leverage ratio at the end of the quarter.
At December 31, 2010, the fair value of the Companys
revolving credit facility approximates its carrying value.
73
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Corporate
Restructuring and Other Reorganization Charges
|
The Company summarizes the components of corporate restructuring
and other reorganization charges in the following table (amounts
in thousands):
|
|
|
|
|
|
|
Termination
|
|
|
|
Benefits
|
|
|
Balance, December 31, 2008
|
|
$
|
2,547
|
|
Additional restructuring charges incurred
|
|
|
2,870
|
|
Adjustments to recognized liabilities
|
|
|
181
|
|
Amounts paid during the period
|
|
|
(5,155
|
)
|
Other(1)
|
|
|
(131
|
)
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
312
|
|
Amounts paid during the period
|
|
|
(312
|
)
|
|
|
|
|
|
Balance, December 31, 2010
|
|
$
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other includes the impact of foreign currency translation. |
See Note 19, International Business Machines
Corporation Information Technology Outsourcing Agreement
for additional severance charges incurred.
2010
During the year ended December 31, 2010, the Company paid
the remaining restructuring liability of $0.3 million
outstanding at December 31, 2009.
2009
During the year ended December 31, 2009, the Company
reduced its headcount by 120 employees as a part of its
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 segment, were as follows for the year ended December 31,
2009: $1.5 million in the Americas segment,
$1.1 million in the EMEA segment, and $0.3 million in
the Asia/Pacific segment. Approximately $2.6 million of
these termination costs were paid during the year ended
December 31, 2009.
|
|
10.
|
Common
Stock, Treasury Stock and Earnings Per Share
|
The Companys board of directors has approved a stock
repurchase program authorizing the Company, from time to time as
market and business conditions warrant, to acquire up to
$210 million of its common stock. Under the program to
date, the Company has purchased approximately
8,082,180 shares for approximately $187.1 million.
During the year ended December 31, 2010, the Company
purchased 1.0 million shares of common stock under this
repurchase plan for approximately $18.6 million. The
maximum remaining dollar value of shares authorized for purchase
under the stock repurchase program was approximately
$22.9 million as of December 31, 2010.
During the year ended September 30, 2006, the Company began
to issue shares of treasury stock upon exercise of stock
options, payment of earned performance shares, issuance of
restricted stock awards and for issuances of common stock
pursuant to the Companys employee stock purchase plan.
Treasury shares issued during the year ended December 31,
2008 included 311,640 and 471,400 shares issued pursuant to
stock option exercises and restricted share award grants,
respectively. Treasury shares issued during the year ended
December 31, 2009 included 150,134 and 23,500 shares
issued pursuant to stock option exercises and restricted share
award grants,
74
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
respectively. Treasury shares issued during the year ended
December 31, 2010 included 235,986 and 25,950 shares
issued pursuant to stock option exercises and restricted share
award grants, respectively.
Earnings per share is computed in accordance with ASC 260,
Earnings per Share. Basic earnings per share is computed
on the basis of weighted average outstanding common shares.
Diluted earnings per share is computed on the basis of basic
weighted average outstanding common shares adjusted for the
dilutive effect of stock options and other outstanding dilutive
securities.
The following table reconciles the average share amounts used to
compute both basic and diluted earnings (loss) per share (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Weighted average share outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
33,560
|
|
|
|
34,368
|
|
|
|
34,498
|
|
Add: Dilutive effect of stock options, restricted stock awards
and other dilutive securities
|
|
|
310
|
|
|
|
186
|
|
|
|
297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
33,870
|
|
|
|
34,554
|
|
|
|
34,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2010, 5.4 million
options to purchase shares, contingently issuable shares, and
common stock warrants were excluded from the diluted net income
per share computation as their effect would be anti-dilutive.
For the year ended December 31, 2009, 5.6 million
options to purchase shares, contingently issuable shares, and
common stock warrants were excluded from the diluted net income
per share computation as their effect would be anti-dilutive.
For the year ended December 31, 2008, 5.8 million
options to purchase shares and contingently issuable shares and
common stock warrants were excluded from the diluted net income
as their effect would be anti-dilutive.
Other income (expense) is comprised of the following items (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Foreign currency transaction gains (losses)
|
|
$
|
(3,216
|
)
|
|
$
|
(5,275
|
)
|
|
$
|
13,814
|
|
Loss on interest rate swaps
|
|
|
(153
|
)
|
|
|
(1,640
|
)
|
|
|
(5,800
|
)
|
Gain on transfer of assets under under contractual obligations
(Note 16)
|
|
|
|
|
|
|
1,049
|
|
|
|
219
|
|
Other
|
|
|
(246
|
)
|
|
|
(782
|
)
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(3,615
|
)
|
|
$
|
(6,648
|
)
|
|
$
|
8,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys chief operating decision maker, together with
other senior management personnel, currently focus their review
of consolidated financial information and the allocation of
resources based on reporting of operating results, including
revenues and operating income, for the geographic regions of the
Americas, EMEA and Asia/Pacific. The Companys products are
sold and supported through distribution networks covering these
three geographic regions, with each distribution network having
its own sales force. The Company supplements its distribution
networks with independent reseller
and/or
distributor arrangements. As such, the Company has concluded
that its three geographic regions are its reportable operating
segments.
75
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys chief operating decision makers review
financial information presented on a consolidated basis,
accompanied by disaggregated information about revenues and
operating income by geographical region.
The Company allocated segment support expenses such as global
product delivery, business operations, and management based upon
percentage of revenue per segment. Corporate costs are allocated
as a percentage of the headcount by segment. The following is
selected segment financial data for the periods indicated (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
221,560
|
|
|
$
|
222,952
|
|
|
$
|
207,350
|
|
EMEA
|
|
|
150,525
|
|
|
|
137,061
|
|
|
|
169,046
|
|
Asia/Pacific
|
|
|
46,339
|
|
|
|
45,742
|
|
|
|
41,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
418,424
|
|
|
$
|
405,755
|
|
|
$
|
417,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
13,804
|
|
|
$
|
15,759
|
|
|
$
|
15,705
|
|
EMEA
|
|
|
7,067
|
|
|
|
4,986
|
|
|
|
4,566
|
|
Asia/Pacific
|
|
|
5,476
|
|
|
|
2,982
|
|
|
|
1,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,347
|
|
|
$
|
23,727
|
|
|
$
|
22,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
3,828
|
|
|
$
|
3,804
|
|
|
$
|
3,895
|
|
EMEA
|
|
|
1,991
|
|
|
|
2,165
|
|
|
|
2,689
|
|
Asia/Pacific
|
|
|
1,971
|
|
|
|
1,676
|
|
|
|
1,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,790
|
|
|
$
|
7,645
|
|
|
$
|
7,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
49,195
|
|
|
$
|
42,344
|
|
|
$
|
21,714
|
|
EMEA
|
|
|
21,310
|
|
|
|
6,963
|
|
|
|
2,140
|
|
Asia/Pacific
|
|
|
(16,857
|
)
|
|
|
(7,737
|
)
|
|
|
(2,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
53,648
|
|
|
$
|
41,570
|
|
|
$
|
21,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
Americas United States
|
|
$
|
189,389
|
|
|
$
|
184,295
|
|
Americas Other
|
|
|
4,547
|
|
|
|
4,306
|
|
EMEA
|
|
|
59,494
|
|
|
|
79,491
|
|
Asia/Pacific
|
|
|
25,147
|
|
|
|
21,865
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
278,577
|
|
|
$
|
289,957
|
|
|
|
|
|
|
|
|
|
|
76
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Total assets:
|
|
|
|
|
|
|
|
|
Americas United States
|
|
$
|
335,457
|
|
|
$
|
345,304
|
|
Americas Other
|
|
|
21,254
|
|
|
|
15,718
|
|
EMEA
|
|
|
186,209
|
|
|
|
187,356
|
|
Asia/Pacific
|
|
|
58,609
|
|
|
|
41,665
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
601,529
|
|
|
$
|
590,043
|
|
|
|
|
|
|
|
|
|
|
Additionally, the Company offers five primary software product
lines that are sold in each of the geographic regions listed
above. Following are revenues, by product line (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Retail payment engines
|
|
$
|
255,536
|
|
|
$
|
255,193
|
|
|
$
|
263,641
|
|
Wholesale payments
|
|
|
86,524
|
|
|
|
72,608
|
|
|
|
78,857
|
|
Risk management
|
|
|
22,039
|
|
|
|
25,521
|
|
|
|
17,058
|
|
Payments management/Back Office
|
|
|
19,240
|
|
|
|
15,272
|
|
|
|
18,871
|
|
Application services solutions
|
|
|
35,085
|
|
|
|
37,161
|
|
|
|
39,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
418,424
|
|
|
$
|
405,755
|
|
|
$
|
417,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2010 and 2009 and 2008,
approximately 46%, 46%, and 47%, 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.
No country outside of the United States accounted for more than
10% of the Companys consolidated revenues during the year
ended December 31, 2010 and 2009. Aggregate revenues
attributable to customers in the United Kingdom accounted for
12.7% of the Companys consolidated revenues during the
year ended December 31, 2008. No single customer accounted
for more than 10% of the Companys consolidated revenues
during the years ended December 31, 2010, 2009 and 2008.
During the years ended December 31, 2010, 2009 and 2008,
revenues in the United States were approximately
$163.1 million, $172.7 million and
$156.6 million, respectively.
|
|
13.
|
Stock-Based
Compensation Plans
|
Employee
Stock Purchase Plan
Under the Companys 1999 Employee Stock Purchase Plan (the
ESPP), a total of 1,500,000 shares of the
Companys common stock have been reserved for issuance to
eligible employees. Participating employees are permitted to
designate up to the lesser of $25,000, or 10% of their annual
base compensation, for the purchase of common stock under the
ESPP. Purchases under the ESPP are made one calendar month after
the end of each fiscal quarter. The price for shares of common
stock purchased under the ESPP is 85% of the stocks fair
market value on the last business day of the three-month
participation period. Shares issued under the ESPP during the
years ended December 31, 2010, 2009 and 2008, totaled
57,734, 77,011, and 101,671, respectively.
Additionally, the discount offered pursuant to the
Companys ESPP discussed above is 15%, which exceeds the 5%
non-compensatory guideline in ASC 718 and exceeds the
Companys estimated cost of raising capital. Consequently,
the entire 15% discount to employees is deemed to be
compensatory for purposes of calculating
77
ACI
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
expense using a fair value method. Compensation cost related to
the ESPP for each of the years ended December 31, 2010,
2009 and 2008 was approximately $0.2 million.
On July 24, 2007, the Companys stockholders approved
a proposal to amend the ESPP to extend the term of the ESPP by
ten years to April 30, 2018. The term of the amended ESPP
commenced May 1, 2008 and continues until April 30,
2018 subject to earlier termination by the Companys board
of directors.
Stock
Incentive Plans Active Plans
The Company has a 2005 Equity and Performance Incentive Plan, as
amended (the 2005 Incentive Plan), under which
shares of the Companys common stock have been reserved for
issuance to eligible employees or non-employee directors of the
Company. The 2005 Incentive Plan provides for the grant of
incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock awards, performance awards
and other awards. The maximum number of shares of the
Companys common stock that may be issued or transferred in
connection with awards granted under the 2005 Incentive Plan is
the sum of (i) 5,000,000 shares and (ii) any
shares represented by outstanding options that had been granted
under designated terminated stock option plans that are
subsequently forfeited, expire or are canceled without delivery
of the Companys common stock.
On July 24, 2007, the stockholders of the Company approved
the First Amendment to the 2005 Incentive Plan which increased
the number of shares authorized for issuance under the plan from
3,000,000 to 5,000,000 and contained certain other amendments,
including an amendment to provide that the exercise price for
any options granted under the 2005 Incentive Plan, as amended,
may not be less than the market value per share of common stock
on the date of grant.
Stock options granted pursuant to the 2005 Incentive Plan are
granted at an exercise price not less than the market value per
share of the Companys common stock on the date of the
grant. Prior to the adoption of the First Amendment to the 2005
Incentive Plan, stock options granted under the 2005 Incentive
Plan were granted with an exercise price not less than the
market value per share of common stock on the date immediately
preceding the date of grant. Under the 2005 Incentive Plan, the
term of the outstanding options may not exceed ten years.
Vesting of options is determined by the Compensation Committee
of the Board of Directors, the administrator of the 2005
Incentive Plan, and can vary based upon the individual award
agreements.
Performance awards granted pursuant to the 2005 Incentive Plan
become payable upon the achievement of specified management
objectives. Each performance award specifies: (i) the
number of performance shares or units granted, (ii) the
period of time established to achieve the management objectives,
which may not be less than one year from the grant date,
(iii) the management objectives and a minimum acceptable
level of achievement as well as a formula for determining the
number of performance shares or units earned if performance is
at or above the minimum level but short of full achievement of
the management objectives, and (iv) any other terms deemed
appropriate.