SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended December 31, 2003
Commission File Number 1-14840
AMDOCS LIMITED
Suite 5, Tower Hill House Le Bordage
St. Peter Port, Island of Guernsey, GY1 3QT Channel Islands
Amdocs, Inc.
1390 Timberlake Manor Parkway, Chesterfield, Missouri 63017
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F:
FORM 20-F [X] FORM 40-F [ ]
Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to rule 12g3-2(b) under the Securities Exchange Act of 1934:
YES [ ] NO [X]
AMDOCS LIMITED
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
FOR THE QUARTER ENDED DECEMBER 31, 2003
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statement of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Unaudited Consolidated Financial Statements
Item 2. Operating and Financial Review and Prospects
PART II OTHER INFORMATION
Item 1. Submission of Matters to a Vote of Security Holders
Item 2. Reports on Form 6-K
SIGNATURES
1
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMDOCS LIMITED
CONSOLIDATED BALANCE SHEETS
(in U.S. dollars, unless otherwise stated)
(in thousands, except per share data)
AS OF
-------------------------------
DECEMBER 31, SEPTEMBER 30,
2003 2003
------------ -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 552,213 $ 847,600
Short-term interest-bearing investments 676,529 443,292
Accounts receivable, net 210,022 198,274
Deferred income taxes and taxes receivable 82,453 60,868
Prepaid expenses and other current assets 74,274 85,902
----------- -----------
Total current assets 1,595,491 1,635,936
Equipment, vehicles and leasehold improvements, net 188,675 203,467
Deferred income taxes 104,063 105,943
Goodwill and other intangible assets, net 850,388 855,975
Other noncurrent assets 87,434 76,196
----------- -----------
Total assets $ 2,826,051 $ 2,877,517
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 77,116 $ 101,116
Accrued expenses and other current liabilities 130,571 123,223
Accrued personnel costs 122,201 106,857
Convertible notes 395,454 400,454
Short-term portion of financing arrangement 2,366 2,179
Deferred revenue 182,925 174,616
Short-term portion of capital lease obligations 26,640 27,140
Deferred income taxes and taxes payable 150,274 133,002
----------- -----------
Total current liabilities 1,087,547 1,068,587
Deferred income taxes 46,521 44,835
Noncurrent liabilities and other 168,448 172,495
----------- -----------
Total liabilities 1,302,516 1,285,917
----------- -----------
Shareholders' equity:
Preferred Shares - Authorized 25,000 shares;(pound)0.01 par value; 0 shares
issued and outstanding - -
Ordinary Shares - Authorized 550,000 shares;(pound)0.01 par value; 224,318 and
223,790 issued and 211,596 and 216,058 outstanding, respectively 3,589 3,580
Additional paid-in capital 1,827,471 1,820,956
Treasury stock, at cost - 12,722 and 7,732 Ordinary Shares, respectively (233,274) (109,281)
Accumulated other comprehensive income 51 3,715
Accumulated deficit (74,302) (127,370)
----------- -----------
Total shareholders' equity 1,523,535 1,591,600
----------- -----------
Total liabilities and shareholders' equity $ 2,826,051 $ 2,877,517
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
2
AMDOCS LIMITED
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share data)
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
2003 2002
----------- ------------
Revenue:
License (*) $ 16,621 $ 20,526
Service (*) 411,674 318,860
----------- ------------
428,295 339,386
----------- ------------
Operating expenses:
Cost of license 1,132 1,136
Cost of service 272,103 203,986
Research and development 30,498 29,619
Selling, general and administrative 52,497 51,580
Amortization of purchased intangible assets 5,096 5,154
Restructuring charges - 9,956
----------- ------------
361,326 301,431
----------- ------------
Operating income 66,969 37,955
Interest income and other, net (*) 1,067 4,977
----------- ------------
Income before income taxes 68,036 42,932
Income taxes 14,968 10,733
----------- ------------
Net income $ 53,068 $ 32,199
=========== ============
Basic earnings per share $ 0.25 $ 0.15
=========== ============
Diluted earnings per share $ 0.24 $ 0.15
=========== ============
Basic weighted average number of shares outstanding 215,106 215,626
=========== ============
Diluted weighted average number of shares outstanding 220,594 217,139
=========== ============
(*) See Note 4.
The accompanying notes are an integral part of these consolidated financial
statements.
3
AMDOCS LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
(in thousands)
Accumulated
Ordinary Shares Additional Other Total
-------------------- Paid-in Treasury Comprehensive Accumulated Shareholders'
Shares Amount Capital Stock Income (Loss) Deficit Equity
------- ------- ---------- --------- ------------- ------------ -------------
BALANCE AS OF SEPTEMBER 30, 2003 216,058 $ 3,580 $1,820,956 $(109,281) $ 3,715 $(127,370) $ 1,591,600
Comprehensive income:
Net income - - - - - 53,068 53,068
Unrealized loss on foreign
currency hedging contracts,
net of $(1,091) tax - - - - (3,199) - (3,199)
Unrealized loss on cash
equivalents and short-term
interest-bearing
investments, net of $(133)
tax - - - - (465) - (465)
-----------
Comprehensive income 49,404
-----------
Employee stock options exercised 528 9 4,837 - - - 4,846
Tax benefit of stock options
exercised - - 1,672 - - - 1,672
Repurchase of ordinary shares (4,990) - - (123,993) - (123,993)
Expense related to vesting of
stock options - - 6 - - - 6
------- ------- ---------- --------- ----------- --------- -----------
BALANCE AS OF DECEMBER 31, 2003 211,596 $ 3,589 $1,827,471 $(233,274) $ 51 $ (74,302) $ 1,523,535
======= ======= ========== ========= =========== ========= ===========
As of December 31, 2003 and September 30, 2003, accumulated other comprehensive
income (loss) is comprised of unrealized gain on derivatives, net of tax, of
$484 and $3,683, respectively, and unrealized (loss) gain on cash equivalents
and short-term interest-bearing investments, net of tax, of $(433) and $32,
respectively.
The accompanying notes are an integral part of these consolidated financial
statements.
4
AMDOCS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
THREE MONTHS ENDED DECEMBER 31,
---------------------------------
2003 2002
----------- -------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 53,068 $ 32,199
Reconciliation of net income to net cash provided by
operating activities:
Depreciation and amortization 25,402 24,018
(Gain) loss on sale of equipment (45) 241
Gain on repurchase of convertible notes (13) -
Deferred income taxes (4,542) (2,188)
Tax benefit of stock options exercised 1,672 8
Realized (gain) loss from short-term
interest-bearing investments (388) 779
Net changes in operating assets and liabilities, net of
amounts acquired:
Accounts receivable (11,747) 55,532
Prepaid expenses and other current assets 10,515 (21,356)
Other noncurrent assets (12,059) (2,477)
Accounts payable and accrued expenses 3,202 (5,591)
Deferred revenue 8,309 254
Income taxes payable 5,066 2,659
Noncurrent liabilities and other 4,211 949
----------- -------------
Net cash provided by operating activities 82,651 85,027
----------- -------------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment, vehicles and leasehold
improvements 220 496
Payments for purchase of equipment, vehicles, leasehold
improvements and other (14,049) (13,251)
Proceeds from sale of short-term interest-bearing
investments 311,995 182,790
Purchase of short-term interest-bearing investments (545,442) (158,171)
Reimbursement of cash in acquisition - 11,111
----------- -------------
Net cash (used in) provided by investing activities (247,276) 22,975
----------- -------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from employee stock options exercised 4,846 607
Repurchase of ordinary shares (123,993) -
Repurchase of convertible notes (4,987) -
Principal payments under financing arrangement (546) -
Principal payments on capital lease obligations (6,082) (2,995)
----------- -------------
Net cash used in financing activities (130,762) (2,388)
----------- -------------
Net (decrease) increase in cash and cash equivalents (295,387) 105,614
Cash and cash equivalents at beginning of period 847,600 466,655
----------- -------------
Cash and cash equivalents at end of period $ 552,213 $ 572,269
=========== =============
SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for:
Income taxes, net of refunds $ 9,125 $ 10,195
Interest 4,575 5,044
The accompanying notes are an integral part of these consolidated financial
statements.
5
AMDOCS LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
1. BASIS OF PRESENTATION
Amdocs Limited (the "Company") is a leading provider of software
products and services to the communications industry. The Company and its
subsidiaries operate in one operating segment, providing integrated customer
management systems and related services primarily for the communications
industry. The Company designs, develops, markets, supports, operates and
provides Managed Services for information system solutions primarily to leading
communications companies throughout the world.
The unaudited consolidated financial statements of the Company have
been prepared in accordance with accounting principles generally accepted in the
United States ("GAAP"). In the opinion of the Company's management, all
adjustments considered necessary for a fair presentation of the unaudited
interim consolidated financial statements have been included herein and are of a
normal recurring nature.
The preparation of financial statements during interim periods requires
management to make numerous estimates and assumptions that impact the reported
amounts of assets, liabilities, revenue and expenses. Estimates and assumptions
are reviewed periodically and the effect of revisions is reflected in the
results of operations of the interim periods in which changes are determined to
be necessary.
The results of operations for the interim periods presented herein are
not necessarily indicative of the results to be expected for the full fiscal
year. These statements do not include all information and footnotes necessary
for a complete presentation of financial position, results of operations and
cash flows in conformity with GAAP. These statements should be read in
conjunction with the Company's consolidated financial statements for the fiscal
year ended September 30, 2003, set forth in the Company's Annual Report on Form
20-F filed on December 24, 2003 with the Securities and Exchange Commission.
2. SIGNIFICANT ACCOUNTING POLICY
Accounting for Stock-Based Compensation
The Company follows Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees" in accounting for its employee stock
options. Pursuant to this accounting standard, the Company records deferred
compensation for share options granted to employees at the date of grant based
on the difference between the exercise price of the options and the market value
of the underlying shares at that date. Deferred compensation is amortized to
compensation expense over the vesting period of the underlying options. No
employee stock-based compensation cost is reflected in net income for the three
months ended December 31, 2003 and 2002, as all options granted were at an
exercise price equal to the market value of the underlying shares at the grant
date.
As presented below, the Company determined net income (loss) and
earnings (loss) per share information as if the fair value method described in
Statements of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation", as amended by SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an Amendment of Financial
Accounting Standards Board Statement No. 123", had been applied to its employee
stock-based compensation. The Company utilized the Black-Scholes option-pricing
model to estimate fair value, which is one of several methods that can be used
under SFAS No. 123. The Black-Scholes option valuation model was developed for
use in estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. Option valuation models require the
input of highly subjective assumptions, including the expected share price
volatility. The Company's options have characteristics significantly different
from those of traded options, and changes in the subjective input assumptions
can materially affect the fair value estimates.
6
AMDOCS LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(in thousands, except per share data)
The fair value of options granted was estimated at the date of grant
using the Black-Scholes pricing model with the following assumptions for the
presented periods (all in weighted averages):
THREE MONTHS ENDED
DECEMBER 31,
-------------------------
2003 2002
--------- --------
Risk-free interest rate 2.09% 2.72%
Expected life of options 3.00 2.93
Expected annual volatility 0.435 0.604
Expected dividend yield None None
Fair value per option $ 6.854 $ 3.125
The following table sets forth the pro forma effect on net income and
earnings per share for the three months ended December 31, 2003 and 2002:
THREE MONTHS ENDED
DECEMBER 31,
-----------------------------
2003 2002
------------ ------------
Net income, as reported $ 53,068 $ 32,199
Less: Total stock-based employee
compensation expense
determined under fair value
method for all awards, net
of related tax effects 6,707 12,935
------------ ------------
Pro forma net income $ 46,361 $ 19,264
============ ============
Basic earnings per share:
As reported $ 0.25 $ 0.15
============ ============
Pro forma $ 0.22 $ 0.09
============ ============
Diluted earnings per share:
As reported $ 0.24 $ 0.15
============ ============
Pro forma $ 0.21 $ 0.09
============ ============
3. ADOPTION OF NEW ACCOUNTING STANDARDS
Non-Software Elements in an Arrangement Containing Software
In July 2003, the Emerging Issues Task Force ("EITF") reached a
consensus on EITF Issue No. 03-05, "Applicability of AICPA Statement of Position
97-2, Software Revenue Recognition, to Non-Software Deliverables in an
Arrangement Containing More-Than Incidental Software" ("Issue 03-05"). Issue
03-05 addresses whether non-software deliverables (e.g., non-software related
equipment or services) included in an arrangement that contains software that is
more than incidental to the products or services as a whole are included within
the scope of Statement of Position 97-2, "Software Revenue Recognition".
Software-related elements include software products, upgrades/enhancements,
post-contract customer support and services, as well as any non-software
deliverables for which a software deliverable is essential to its functionality.
Under Issue 03-05, in an arrangement that includes software, computer hardware
that will contain the software, and additional unrelated equipment, if the
software is essential to the functionality of the hardware, the hardware would
be considered software-related and, therefore, included within the scope of SOP
97-2. Issue 03-05 is effective for arrangements entered into in the first
reporting period (annual or interim) beginning after August 13, 2003. The
Company adopted Issue 03-05 on October 1, 2003. Issue 03-05 currently has no
effect on the Company's consolidated financial position and results of
operations.
7
AMDOCS LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(in thousands, except per share data)
4. RELATED PARTY TRANSACTIONS
The Company had licensed software and provided computer systems
integration and related services to Certen Inc. ("Certen") prior to its
acquisition by the Company in July 2003 (see Note 10). The following related
party revenue is included in the statement of income for the three months ended
December 31, 2002:
Revenue:
License $ 2,052
Service 25,046
The following related party expense is included in the statement of
income for the three months ended December 31, 2002:
Interest income and other, net (1) $ 639
(1) Represents interest and exchange rate differences, net of
hedging, on the convertible debentures of Certen. Absent
hedging, this amount would be $1,009.
5. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
AS OF
---------------------------------
DECEMBER 31, SEPTEMBER 30,
2003 2003
------------- -------------
Accounts receivable - billed $ 200,518 $ 200,220
Accounts receivable - unbilled 26,038 16,072
Less - allowances (16,534) (18,018)
------------- -------------
Accounts receivable, net $ 210,022 $ 198,274
============= =============
8
AMDOCS LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(in thousands, except per share data)
6. COMPREHENSIVE INCOME
Comprehensive income represents the change in shareholders' equity
during a period from transactions and other events and circumstances from
nonowner sources. It includes all changes in equity except those resulting from
investments by owners and distributions to owners.
The following table sets forth the reconciliation from net income to
comprehensive income for the following periods:
THREE MONTHS ENDED
DECEMBER 31,
--------------------------
2003 2002
------------ ----------
Net income $ 53,068 $ 32,199
Other comprehensive income:
Unrealized (loss) income on foreign
currency hedging contracts, net of
tax (3,199) 5,468
Unrealized loss on short-term
interest-bearing investments, net of
tax (465) (106)
------------ ----------
Comprehensive income $ 49,404 $ 37,561
============ ==========
7. INCOME TAXES
The provision for income taxes for the following periods consisted of:
THREE MONTHS ENDED
DECEMBER 31,
----------------------------
2003 2002
------------ ------------
Current $ 19,510 $ 12,921
Deferred (4,542) (2,188)
------------ ------------
$ 14,968 $ 10,733
============ ============
The effective income tax rate from continuing operations varied from
the statutory Guernsey tax rate as follows for the following periods:
THREE MONTHS ENDED
DECEMBER 31,
------------------
2003 2002
---- ----
Statutory Guernsey tax rate 20% 20%
Guernsey tax-exempt status (20) (20)
Foreign taxes 22 25
---- ----
Effective income tax rate 22% 25%
==== ====
As a Guernsey corporation with tax-exempt status, the Company's overall
effective tax rate is attributable solely to foreign taxes and for fiscal year
2004 is expected to approximate 22%. Effective October 1, 2002, following the
adoption of SFAS No. 142, the Company no longer amortizes goodwill resulting
from acquisitions. As a result, goodwill amortization that is not tax-deductible
no longer affects the Company's effective tax rate.
9
AMDOCS LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(in thousands, except per share data)
8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
THREE MONTHS ENDED
DECEMBER 31,
--------------------------
2003 2002
---------- ------------
Numerator:
Net income $ 53,068 $ 32,199
========== ============
Denominator:
Denominator for basic earnings per share -
weighted average number of shares
outstanding (1) 215,106 215,626
Effect of dilutive stock options granted 5,488 1,513
---------- ------------
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed conversions (1) 220,594 217,139
========== ============
Basic earnings per share $ 0.25 $ 0.15
========== ============
Diluted earnings per share $ 0.24 $ 0.15
========== ============
(1) The weighted average number of shares outstanding during the
three months ended December 31, 2002 includes exchangeable
shares held by shareholders of Amdocs Canada, Inc. (formerly
Solect Technology Group Inc. ("Solect")) pursuant to the
Company's acquisition of Solect in April 2000, which were
exchangeable for the Company's ordinary shares on a
one-for-one basis. As of August 2003, none of the exchangeable
shares remained outstanding.
The effect of the 2% Convertible Notes due June 1, 2008 issued by the
Company in May, 2001 (the "Notes") on diluted earnings per share was
anti-dilutive for the three months ended December 31, 2003 and 2002, and,
therefore, was not included in the above calculation. The weighted average
effect of the repurchase of ordinary shares by the Company has been included in
the calculation of basic earnings per share.
9. REPURCHASE OF SECURITIES
On November 5, 2003, the Company announced that its board of directors
had authorized a share repurchase program of up to 5,000 ordinary shares during
fiscal 2004. The authorization permits the Company to purchase ordinary shares
in open market or privately negotiated transactions and at prices the Company
deems appropriate. The Company stated that one of the main purposes of the
repurchase program was to offset the dilutive effect of any future share
issuances, including issuances pursuant to employee equity plans or in
connection with acquisitions. During the three months ended December 31, 2003
the Company repurchased 4,990 ordinary shares, for an aggregate purchase price
of $123,993. Pursuant to a previous share repurchase program in fiscal 2002, the
Company repurchased 7,732 ordinary shares, for an aggregate purchase price of
$109,281. Any share repurchases that the Company may make to offset the dilutive
effect of share issuances in the XACCT acquisition (see Note 10), would be in
addition to the 5,000 share buyback program previously authorized by its board
of directors.
In July 2002, the board of directors authorized the Company to
repurchase outstanding Notes, in such amounts, at such prices and at such times
considered appropriate by the Company. During the three months ended December
31, 2003, the Company repurchased $5,000 aggregate principal amount of the
10
AMDOCS LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(in thousands, except per share data)
Notes for an aggregate purchase price of $4,987. During fiscal 2003 and 2002,
the Company repurchased $99,546 aggregate principal amount of the Notes for an
aggregate purchase price of $93,087. The Company funded these repurchases, and
intends to fund any future repurchases, with available funds.
10. ACQUISITIONS
CERTEN INC.
On July 2, 2003, the Company acquired from Bell Canada ("Bell") its 90%
ownership interest in Certen (renamed Amdocs Canada Managed Services, Inc.) for
approximately $66,000 in cash. In addition, the Company had related transaction
costs of approximately $5,000. The Company and Bell formed Certen in January
2001 to provide customer care and billing solutions to Bell and a number of
Bell's affiliated companies. As a result of the acquisition, Certen is now a
wholly owned subsidiary of the Company. This acquisition expanded the Company's
Managed Services operation and positioned it as a major provider of Managed
Services to the communications industry.
The following is the revised preliminary allocation of the purchase
price and deferred tax liability:
Purchase price $ 65,887
Estimated transaction costs 5,000
-----------
Total purchase price 70,887
Write-off of deferred revenue and allowance on Amdocs books, net of
tax (33,666)
-----------
Net amount for purchase price allocation $ 37,221
===========
Allocation of purchase price:
90% tangible assets acquired, net of capitalized Amdocs system on
Certen's books $ 80,875
90% liabilities assumed (241,330)
-----------
Net tangible assets (160,455)
Customer arrangement 36,385
Adjustment to fair value of pension and other post-employment benefit
liabilities (10,534)
EITF 95-3 and other liabilities (4,936)
Deferred taxes resulting from the difference between the assigned
value of certain assets and liabilities and their respective tax
bases 74,307
-----------
Net fair value of tangible assets acquired (65,233)
Goodwill 102,454
-----------
$ 37,221
===========
11
AMDOCS LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(in thousands, except per share data)
The following table sets forth the unaudited pro forma revenue,
operating income, net income and per share figures for the three months ended
December 31, 2002, as if Certen had been acquired as of October 1, 2001:
THREE MONTHS ENDED
DECEMBER 31, 2002
------------------
Revenue $ 382,790
Operating income 31,006
Net income 25,551
Basic earnings per share 0.12
Diluted earnings per share 0.12
XACCT TECHNOLOGIES LIMITED
On December 22, 2003, the Company announced that it had reached an
agreement to acquire XACCT Technologies Limited ("XACCT"), a privately-held
provider of mediation software to communications service providers. The Company
will acquire XACCT's outstanding shares for approximately $29,500, subject to
certain adjustments, of which approximately $13,500 will be paid in cash and the
balance in the Company's ordinary shares. This acquisition further expands the
scope of the Company's billing capabilities in the network mediation space,
enabling the collection, formatting and distribution of network usage events.
With this acquisition, the Company achieves the capability to support end-to-end
event processing, from network mediation through billing, for voice, data,
content and commerce prepaid and postpaid transactions. The Company expects to
complete the acquisition during the second quarter of fiscal 2004.
The Company's ordinary shares to be issued in the acquisition will be
issued in a private placement and will not be registered under the U.S.
Securities Act of 1933, as amended, and may not be offered or sold in the United
States absent registration or an applicable exemption from registration
requirements. The Company may use authorized and unissued or treasury shares to
effect the acquisition or, if market conditions are favorable, may purchase the
shares needed for the transaction in open market or privately negotiated
transactions. Any share repurchases by the Company would be in addition to the
5,000 share buyback program previously authorized by its board of directors.
11. OPERATIONAL EFFICIENCY AND COST REDUCTION PROGRAM
In the first quarter of fiscal 2003 the Company announced a series of
measures designed to reduce costs and improve productivity and recorded a charge
of $9,956, consisting primarily of employee separation costs in connection with
the termination of the employment of approximately four hundred software and
information technology specialists and administrative professionals and for the
write-off of leasehold improvements and rent obligations. Except for certain
lease termination costs that will be paid over the respective lease terms, to
date the Company has paid most of the costs associated with the cost reduction
program. The employee terminations occurred at various locations around the
world. In addition, the Company implemented other cost reduction measures,
including travel cuts and reductions in other discretionary costs. This charge
is included in "restructuring charges".
As of December 31, 2003, the remaining accrual balances for all cost
reduction programs were $7,655, consisting primarily of facility-related costs
that are expected to be paid through April 2012. During the three months ended
December 31, 2003 the Company paid $1,637 related to the cost reduction programs
accrual. Actual future cash requirements may differ materially from the accrual
as of December 31, 2003, particularly if actual sublease income is significantly
different from current estimates.
12
AMDOCS LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(in thousands, except per share data)
12. CONTINGENCIES
Legal Proceedings
On December 2, 2003 the Company announced that the United States
District Court for the Eastern District of Missouri had issued an order granting
the Company's motion to dismiss the securities class action lawsuits that had
been pending against the Company and certain of its directors and officers since
June 2002. The court's order also directed that judgment be entered in favor of
the defendants. The consolidated complaint filed in the action alleged that the
Company and the individual defendants had made false or misleading statements
about the Company's business and future prospects during a putative class period
between July 18, 2000 and June 20, 2002. On December 29, 2003 the lead
plaintiffs appealed to the United States Court of Appeals for the Eight Circuit
from the final judgment entered on December 1, 2003.
The Company is involved in various other legal proceedings arising in
the normal course of its business. Based upon the advice of counsel, the Company
does not believe that the ultimate resolution of these matters will have a
material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.
Securities and Exchange Commission Investigation
The Company has been informed that the Midwest Regional Office of the
SEC is conducting a private investigation into the events leading up to the
Company's announcement in June 2002 of revised projected revenue for the third
and fourth quarters of fiscal 2002. The investigation appears to be focused on,
but is not explicitly limited to, the Company's forecasting beginning with its
April 23, 2002 press release. Although the Company believes that it will be able
to satisfy any concerns the SEC staff may have in this regard, the Company is
unable to predict the duration, scope, or outcome of the investigation. The
Company is cooperating fully with the SEC staff.
Guarantor's Accounting and Disclosure Requirements for Guarantees
The Company is a party to an agreement entered into prior to December
31, 2002 that includes an indemnification of one of its customers for any
withholding tax that might be required under the customer's local tax laws from
certain payments made to the Company under this agreement. The indemnification
under this agreement expires in December 2005. As of December 31, 2003 and
September 30, 2003, the maximum potential amount of the Company's future
exposure under this guarantee pursuant to Financial Accounting Standards Board
Interpretation No. 45 "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" was $4,717.
The Company generally sells its ClarifyCRM products with a limited
warranty for a period of 90 days. The Company's policy is to accrue for warranty
costs, if needed, based on historical trends in product failure. Based on the
Company's experience, only minimal warranty services have been required and, as
a result, the Company did not accrue any amounts for product warranty liability
during the three months ended December 31, 2003 and 2002.
The Company generally indemnifies its customers against claims of
intellectual property infringement made by third parties arising from the use of
the Company's software. To date, the Company has incurred only minimal costs as
a result of such obligations and has not accrued any liabilities related to such
indemnification in its financial statements.
13
ITEM 2. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
FORWARD LOOKING STATEMENTS
This section contains forward-looking statements (within the meaning of
the United States federal securities laws) that involve substantial risks and
uncertainties. You can identify these forward-looking statements by words such
as "expect", "anticipate", "believe", "seek", "estimate", "project", "forecast",
"continue", "potential", "should", "would", "could" and "may", and other words
that convey uncertainty of future events or outcome. Statements that we make in
this section that are not statements of historical fact also may be
forward-looking statements. Forward-looking statements are not guarantees of
future performance, and involve risks, uncertainties and assumptions that may
cause our actual results to differ materially from the expectations that we
describe in our forward-looking statements. There may be events in the future
that we are not accurately able to predict, or over which we have no control.
You should not place undue reliance on forward-looking statements. We do not
promise to notify you if we learn that our assumptions or projections are wrong
for any reason. We disclaim any obligation to update our forward-looking
statements, except where applicable law may otherwise require us to do so.
Important factors that may affect these projections or expectations
include, but are not limited to: changes in the overall economy; changes in
competition in markets in which we operate; changes in the demand for our
products and services; consolidation within the industries in which our
customers operate; the loss of a significant customer; changes in the
telecommunications regulatory environment; changes in technology that impact
both the markets we serve and the types of products and services we offer;
financial difficulties of our customers; losses of key personnel; difficulties
in completing or integrating acquisitions; litigation and regulatory
proceedings; and acts of war or terrorism. For a discussion of these important
factors, please read the information set forth under the caption "Risk Factors"
in the Form 20-F for fiscal 2003 that we have filed with the United States
Securities and Exchange Commission ("SEC").
INTRODUCTION
In this section, we discuss the general financial condition and the
results of operations for Amdocs and its subsidiaries including:
- the factors that affect our business,
- our revenue and costs for the three months ended December 31, 2003
and 2002,
- the reasons why such revenue and costs were different from period
to period,
- the sources of our revenue,
- how all of this affects our overall financial condition,
- our expenditures for the three months ended December 31, 2003 and
2002, and
- the sources of our cash to pay for future capital expenditures and
possible acquisitions.
In this section, we also analyze and explain the changes in the
specific line items in our consolidated statements of income between the
three-month periods ended December 31, 2003 and 2002. You should read this
section in conjunction with our consolidated financial statements.
14
OVERVIEW OF BUSINESS AND TREND INFORMATION
Our market focus is primarily the communications industry, and we are a
leading provider of software products and services to major communications
companies in North America, Europe and the rest of the world. The products and
services that we provide are known as integrated customer management systems,
which we refer to as "Integrated Customer Management". Our Integrated Customer
Management product offerings consist primarily of billing and customer
relationship management systems, which we refer to, collectively, as "Customer
Care and Billing Systems", or "CC&B Systems". We refer to customer relationship
management products included within CC&B Systems as "CRM" products. Our
portfolio of products also includes a full range of directory sales and
publishing systems, which we refer to as "Directory Systems", for publishers of
both traditional printed yellow page and white page directories and electronic
Internet directories.
Our Integrated Customer Management systems are designed to meet the
mission-critical needs of leading communications service providers. We support a
wide range of communications services, including wireline, wireless, voice,
data, broadband, content, electronic and mobile commerce and Internet Protocol
("IP") based services. We also support companies that offer bundled or
convergent service packages. Due to the complexity of our customers' projects
and the expertise required for system support, we also provide extensive
implementation, system integration, system modification, ongoing support, system
enhancement and maintenance services. In addition, we offer Managed Services,
which include a combination of services, such as system modernization and
consolidation, management and operation of data centers, purchase and management
of related hardware assets, billing operations and application support, in all
cases on either or a combination of a fixed or unit charge basis to our
customers.
As part of our strategy, we may pursue acquisitions and other
initiatives in order to offer new products or services or otherwise enhance our
market position or strategic strengths.
We derive our revenue principally from:
- the initial sales of our products and related services, including
license fees and modification, implementation and integration
services,
- providing Managed Services and other related services for our
solutions, and
- recurring revenue from ongoing support and maintenance provided to
our customers, and from incremental license fees resulting from
increases in a customer's business volume.
We usually sell our software as part of an overall solution offered to
a customer, in which significant modification is normally required. As a result,
we generally recognize revenue over the course of these long-term projects.
Initial license fee revenue is recognized as work is performed, using the
percentage of completion method of accounting. Subsequent license fee revenue is
recognized upon completion of specified conditions in each contract. Service
revenue that involves significant ongoing obligations, including fees for
software customization, implementation and modification, also is recognized as
work is performed, under the percentage of completion method of accounting.
Revenue from software solutions that do not require significant customization
and modification is recognized upon delivery. In Managed Services contracts, we
typically recognize revenue from the operation of a customer's system either
ratably over the service period or as services are performed. Revenue from
ongoing support services is recognized as work is performed. Revenue from
third-party hardware and software sales is recognized upon installation and
delivery, respectively. Maintenance revenue is recognized ratably over the term
of the maintenance agreement. As a result of a significant portion of our
revenue being subject to the percentage of completion accounting method, the
size and timing of customer projects and our progress in completing such
projects may significantly affect our annual and quarterly operating results.
15
Our business is subject to the effects of general global economic
conditions and, in particular, market conditions in the communications industry.
As a result of the slowdown in the communications industry during the last two
years, the market value, financial results and prospects, and capital spending
levels of communications companies declined or degraded. The challenging
environment in the communications industry significantly impacted our business.
During the last two years, delays in customer buying decisions stemming from
rigorous management of operating expenses and overall reductions in the capital
investment budgets of many communications service providers led to fewer new
contracts, as well as smaller initial spending commitments and reduced
discretionary spending under contracts with some of our customers. As a result
of the market conditions during fiscal 2002 mentioned above, our revenue in the
fiscal 2002 third quarter decreased by more than $75 million from the previous
quarter. Revenue continued to decline in the fourth quarter of fiscal 2002 and
the first quarter of fiscal 2003. During calendar 2003, the market began to
stabilize. As a result, we resumed sequential revenue growth in the second
quarter of fiscal 2003, although revenue for the first quarter of fiscal 2004 is
still below the level achieved in the second quarter of fiscal 2002. During the
three months ended December 31, 2003, communications service providers
demonstrated a greater readiness to commit to new projects. While difficulties
remain in the communications industry, we believe that, with the overall
improvement of market conditions, we will be able to achieve modest sequential
growth in revenues and earnings in the coming quarters.
Our quarterly revenue for fiscal 2003 and 2002 are summarized below (in
millions):
Q1 Q2 Q3 Q4
----------- ----------- ----------- -----------
Fiscal 2003 $ 339.4 $ 355.0 $ 377.2 $ 411.7
Fiscal 2002 $ 422.6 $ 455.3 $ 380.2 $ 355.5
Due to our heavy dependence on the communications industry and a
limited number of significant customers, we can be adversely affected by
consolidations of service providers and by bankruptcies or other business
failures in that industry. The potential loss of a customer due to consolidation
or failures in the communications industry could harm our business and might
have a material adverse effect on our consolidated operating results and
financial condition.
Our total revenue in the three months ended December 31, 2003 increased
by $88.9 million, or 26.2%, from the three months ended December 31, 2002, as
set forth below (in millions):
THREE MONTHS PERCENTAGE
ENDED DECEMBER 31, INCREASE
-------------------------- ----------
2003 2002
------- ---------
Total revenue $ 428.3 $ 339.4 26.2%
The increase in total revenue was primarily as a result of new Managed
Services agreements and additional revenue resulting from our acquisition of
Certen in the fourth quarter of fiscal 2003.
License and service revenue from the sale of CC&B Systems was $375.4
million and $298.7 million in the three months ended December 31, 2003 and 2002,
respectively, representing 87.7% and 88.0%, respectively, of our total revenue
for such periods.
We believe that we are a leading global provider of CC&B Systems. We
provide a broad set of billing and CRM products, with proven functionality and
scalability, accompanied by a comprehensive range of support services.
We believe that demand for our CC&B Systems is driven by, among other
key factors:
- the global penetration of communications service providers,
16
- the emergence of new communications products and services,
especially IP, data and content services,
- technological changes, such as the introduction of wireless
Internet services via GPRS (General Packet Radio Services) and
UMTS (Universal Mobile Telecommunications System) technology,
- the ongoing consolidation within the communications industry,
- the business needs of communications service providers to reduce
costs and retain high value customers, and
- a shift from in-house management to vendor solutions.
We also believe that additional drivers of demand are the continuing
trend for communications service providers to offer their subscribers multiple
service packages, commonly referred to as bundled or convergent services
(combinations of voice, broadband, electronic and mobile commerce and IP
services), and the ability of our CC&B Systems to improve productivity.
License and service revenue from the sale of Directory Systems totaled
$52.9 million and $40.7 million in the three months ended December 31, 2003 and
2002, respectively, accounting for 12.3% and 12.0%, respectively, of our total
revenue for such periods.
We believe that we are a leading provider of Directory Systems in most
of the markets that we serve. As a result of new agreements announced in 2003,
we expect that our revenue from Directory Systems will remain relatively stable
in fiscal 2004.
License and service revenue from the sale of CC&B Systems and Directory
Systems includes revenue from Managed Services arrangements. Managed Services
projects are a significant part of our business, and generate substantial,
long-term revenue streams, cash flow and operating income. In the initial period
of our Managed Services projects, we generally invest in modernization and
consolidation of the customer's systems. Invoices are usually structured on a
periodic fixed or unit charge basis. As a result, Managed Services projects can
be less profitable in the initial period. Margins tend to improve over time as
we benefit from the operational efficiencies provided by system modernization
and consolidation. We expect that our Managed Services relationships will
generate margins comparable to sales of our other products and related license
and services over the entire relationships.
17
RESULTS OF OPERATIONS
The following table sets forth for the three months ended December 31,
2003 and 2002 certain items in our consolidated statements of income reflected
as a percentage of total revenue:
THREE MONTHS ENDED
DECEMBER 31,
----------------------
2003 2002
----- -----
Revenue:
License............................................................. 3.9% 6.0%
Service............................................................. 96.1 94.0
----- -----
100.0 100.0
----- -----
Operating expenses:
Cost of license..................................................... 0.3 0.3
Cost of service..................................................... 63.5 60.2
Research and development............................................ 7.1 8.7
Selling, general and administrative................................. 12.3 15.2
Amortization of purchased intangible assets......................... 1.2 1.5
Restructuring charges............................................... - 2.9
----- -----
84.4 88.8
----- -----
Operating income...................................................... 15.6 11.2
Interest income and other, net........................................ 0.3 1.5
----- -----
Income before income taxes............................................ 15.9 12.7
Income taxes.......................................................... 3.5 3.2
----- -----
Net income............................................................ 12.4% 9.5%
===== =====
The following is a tabular presentation of our results of operations
for the three months ended December 31, 2003 compared to the three months ended
December 31, 2002. Following the table is a discussion and analysis of our
business and results of operations for such periods.
THREE MONTHS ENDED
DECEMBER 31, INCREASE (DECREASE)
---------------------------- ------------------------
2003 2002 AMOUNT %
----------- ----------- --------- -----
Revenue:
License............................ $ 16,621 $ 20,526 $ (3,905) (19.0)%
Service............................ 411,674 318,860 92,814 29.1
----------- ----------- ---------
428,295 339,386 88,909 26.2
----------- ----------- ---------
Operating expenses:
Cost of license.................... 1,132 1,136 (4) (0.4)
Cost of service.................... 272,103 203,986 68,117 33.4
Research and development........... 30,498 29,619 879 3.0
Selling, general and
administrative................... 52,497 51,580 917 1.8
Amortization of purchased
intangible assets................ 5,096 5,154 (58) (1.1)
Restructuring charges.............. - 9,956 (9,956) (100.0)
----------- ----------- ---------
361,326 301,431 59,895 19.9
----------- ----------- ---------
Operating income...................... 66,969 37,955 29,014 76.4
Interest income and other, net........ 1,067 4,977 (3,910) (78.6)
----------- ----------- ---------
Income before income taxes............ 68,036 42,932 25,104 58.5
Income taxes.......................... 14,968 10,733 4,235 39.5
----------- ----------- ---------
Net income............................ $ 53,068 $ 32,199 $ 20,869 64.8%
=========== =========== =========
18
THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002
REVENUE. The increase in total revenue in the three months ended
December 31, 2003 is primarily due to an increase in service revenue as a result
of new Managed Services agreements signed during fiscal 2003 and additional
revenue resulting from our acquisition of Certen in the fourth quarter of fiscal
2003.
The significant new contracts that we obtained during fiscal 2003 were
for Managed Services arrangements, which contain only a small license revenue
component. In addition, the current communications market environment has
resulted in pricing pressure, particularly with respect to license fees. As a
result, license revenue in the three months ended December 31, 2003 decreased
from the three months ended December 31, 2002.
Total CC&B Systems revenue was $375.4 million for the three months
ended December 31, 2003, an increase of $76.7 million, or 25.7%, over the three
months ended December 31, 2002. The increase is attributable primarily to our
acquisition of Certen in the fourth quarter of fiscal 2003.The demand for our
CC&B Systems is primarily driven by the need for communications companies to
continue to upgrade their billing, CRM and order management systems. In fiscal
2003, many communications companies reduced or delayed expenditures on system
upgrades as a result of the slowdown in the communications industry. Recently,
however, there has been an improvement in market conditions, accounting in part
for the increase in revenue in the first quarter of fiscal 2004.
Revenue from Directory Systems was $52.9 million for the three months
ended December 31, 2003, an increase of $12.2 million, or 29.9%, over the three
months ended December 31, 2002. The increase is attributable primarily to the
new Managed Services agreements as well as extensions of agreements with, and
additional services rendered to, existing customers.
In the three months ended December 31, 2003, revenue from customers in
North America, Europe and the rest of the world accounted for 66.4%, 26.7% and
6.9%, respectively, compared to 62.0%, 30.1% and 7.9%, respectively, for the
three months ended December 31, 2002. The increase in revenue from customers in
North America is attributable primarily to the acquisition of Certen, which
expanded our activity and revenue from customers in North America, and by
forming relationships with new customers and expanding relationships with
existing customers in North America. The decreased contribution to revenue from
customers in Europe and rest of the world relative to customers in North
America, as a percentage of revenue, was attributable primarily to a relatively
greater growth in activity from customers in North America than in Europe and
the rest of the world during the first quarter of fiscal 2004.
COST OF LICENSE. Cost of license mainly includes amortization of
purchased computer software and intellectual property rights.
COST OF SERVICE. The increase in cost of service in the three months
ended December 31, 2003 was higher than the increase in our revenue in the three
months ended December 31, 2003, and resulted in a decrease in our gross margin.
Our gross margin was affected by the new Managed Services projects, which we
expect to be less profitable in their initial period, and to a lesser extent, by
the decrease in our license revenue.
RESEARCH AND DEVELOPMENT. Research and development expense was
primarily comprised of compensation expense attributed to research and
development activities, which involve the development of new software modules
and product offerings, either in conjunction with customer projects or as part
of our internal product development program. The increase in research and
development expense was proportionally less than the increase in our total
revenue. Although we intend to continue to devote resources to research and
development, our research and development budget, like all of our costs, is
sensitive to our overall financial condition but to a lesser extent. We believe
that our research and development efforts are a key element of our strategy and
are essential to our success. However, an increase or a decrease in our total
revenue would not necessarily result in a proportional increase or decrease in
the levels of our research and development expenditures, which could affect our
operating margin.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expense is primarily comprised of compensation expense. The
increase in selling, general and administrative expense in the first quarter of
19
fiscal 2004 was primarily due to the overall increase in our operations and was
proportionally less than the increase in our total revenue.
RESTRUCTURING CHARGE. The restructuring charge in the three months
ended December 31, 2002 consisted of the cost reduction program we implemented
during the first quarter of fiscal 2003.
OPERATING INCOME. The increase in operating income in the three months
ended December 31, 2003 is attributable primarily to the increase in our total
revenue, which was partially offset by relative low gross margin of our new
Managed Services projects in their early stages of implementation in the three
months ended December 31, 2003.
Operating income for the three months ended December 31, 2003 included
amortization of purchased intangible assets of $5.1 million. Excluding this
charge, operating income in the three months ended December 31, 2003 was $72.1
million, or 16.8% of revenue, an increase of 67.2% from prior year. Operating
income for the three months ended December 31, 2002 included amortization of
purchased intangible assets of $5.2 million and restructuring charges of $10.0.
Excluding amortization of purchased intangible assets, operating income for the
three months ended December 31, 2002 was $43.1 million, or 12.7% of revenue.
INTEREST INCOME AND OTHER, NET. The decrease in interest income and
other, net, in the first quarter of fiscal 2004 is primarily attributable to the
decline in interest rates on our short-term interest-bearing investments as a
result of our decision to shorten the duration of our investments due to
volatility in the interest rate environment, to the increase in our interest
expenses due to the capital lease obligations acquired in the Certen acquisition
and due to changes in exchange rates of currencies other than the dollar.
Although we hedge significant exposures in currencies other than the dollar,
currency fluctuations partially affect our interest income and other, net.
INCOME TAXES. Our effective tax rate in the three months ended December
31, 2003 was 22% compared to 25% in the three months ended December 31, 2002.
Our effective tax rate for fiscal year 2004 is expected to be approximately 22%
due to the corporate income tax rates in the various countries in which we
operate and the relative magnitude of our business in those countries. The
reduction in our effective tax rate is due to our continued expansion into
countries with lower effective tax rates.
NET INCOME. The increase in net income is attributable primarily to the
increase in our total revenue, which was partially offset by relative low gross
margin of our new Managed Services projects in their early stages of
implementation in the first quarter of fiscal 2004.
Net income for the first quarter of fiscal 2004 included amortization
of purchased intangible assets. Excluding this charge, net income for the first
quarter of fiscal 2004 was $57.0 million, or 13.3% of revenue, an increase of
58.2% from the first quarter of fiscal 2003. Net income in the three months
ended December 31, 2002 included amortization of purchased intangible assets and
restructuring charges. Excluding amortization of purchased intangible assets,
net income was $36.1 million, representing 10.6% of revenue.
DILUTED EARNINGS PER SHARE. Diluted earnings per share were $0.24 for
the three months ended December 31, 2003, compared to $0.15 in the three months
ended December 31, 2002. Diluted earnings per share, excluding amortization of
purchased intangible assets, in the three months ended December 31, 2003,
increased by 55.7% from $0.17 in the three months ended December 31, 2002, to
$0.26 per diluted share.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term interest-bearing investments
totaled $1,229 million as of December 31, 2003, compared to $1,291 million as of
September 30, 2003. The decrease is attributable primarily to the use of $124.0
million to repurchase our shares, which was partially offset by positive cash
flows from operations. Net cash provided by operating activities amounted to
$82.7 million and $85.0 million for the three months ended December 31, 2003 and
2002, respectively. Although net income before depreciation and amortization
increased in the first quarter of fiscal 2004, cash flows from operations
decreased slightly, due primarily to increases in accounts receivable resulting
from the sequential increase in our revenue. We currently intend to retain our
future operating cash flows to support the further expansion of our business,
including investments related to new Managed Services projects and acquisitions.
We may also use a portion
20
of our cash balances for future repurchases of our outstanding securities and
for the redemption of our 2% Convertible Notes due June 1, 2008 (the "Notes"),
as described below.
Our policy is to retain substantial cash balances in order to support
the growth of the Company. We believe that our current cash balances, cash
generated from operations and our current lines of credit will provide
sufficient resources to meet our liquidity needs for at least the next fiscal
year.
As of December 31, 2003, $395.5 million aggregate principal amount of
our Notes was outstanding. In July 2002, our board of directors authorized us to
repurchase outstanding Notes, in such amounts, at such prices and at such times
considered appropriate by us. During the three months ended December 31, 2003,
we repurchased $5.0 million aggregate principal amount of the Notes. During
fiscal 2002 and 2003, the Company repurchased $100.0 million aggregate principal
amount of the Notes. We funded these repurchases, and intend to fund any future
repurchases, with available funds. On June 1, 2004, the holders of our Notes may
require us to redeem their Notes at 100% of their principal amount plus accrued
interest to the redemption date. Due to the high conversion price for the Notes,
it is likely that the holders of the Notes will require us to redeem their
Notes. We may choose to redeem the Notes in cash, in ordinary shares, or in a
combination of cash and ordinary shares.
As of December 31, 2003, we had an available short-term general
revolving line of credit totaling $30.0 million, none of which had been used as
of such date. In addition, as of December 31, 2003 we had credit facilities
totaling $35.8 million, limited for the use of letters of credit and bank
guarantees from various banks. Outstanding letters of credit and bank guarantees
as of December 31, 2003 totaled $24.1 million. These were mostly supported by a
combination of the credit facilities described above and compensating cash
balances that we maintain with the issuing banks.
As of December 31, 2003, we had outstanding long-term obligations of
$43.6 million in connection with leasing arrangements.
Our capital expenditures were approximately $14.0 million in the three
months ended December 31, 2003. These expenditures consisted primarily of
purchases of computer equipment and, to a lesser degree, leasehold improvements.
We funded our capital expenditures principally from operating cash flows. We do
not anticipate any changes to this policy in the foreseeable future.
CURRENCY FLUCTUATIONS
The U.S. dollar is our functional currency. In the three months ended
December 31, 2003, approximately 70% of our revenue was in U.S. dollars or
linked to the U.S. dollar, and approximately 50% of our operating expenses
(excluding acquisition-related charges) were paid in dollars or linked to
dollars. As a result of long-term contracts in currencies other than the U.S.
dollar and more customers seeking contracts that are denominated in currencies
such as the euro and not the U.S. dollar, we expect that the percentage of our
revenue and operating expenses in U.S. dollar will decrease slightly over time.
Historically, the effect of fluctuations in currency exchange rates has had a
minimal impact on our consolidated operations. As more of our customers seek
contracts that are denominated in currencies other than the U.S. dollar, our
exposure to fluctuations in currency exchange rates could increase. In managing
our foreign exchange risk, we enter from time to time into various foreign
exchange contracts. As of December 31, 2003, we had partially hedged our
exposures in currencies other than the U.S. dollar.
21
PART II OTHER INFORMATION
ITEM 1. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held our Annual General Meeting of Shareholders on Thursday, January
22, 2004, to consider and act upon the following matters, all of which were
approved and adopted by the requisite votes of our shareholders:
1. The election of twelve (12) directors to serve until the next annual
general meeting of shareholders or until their earlier resignation or removal or
successors are elected and qualified: Bruce K. Anderson, Avinoam Naor, Adrian
Gardner, Dov Baharav, Julian A. Brodsky, Charles E. Foster, Eli Gelman, James S.
Kahan, Nehemia Lemelbaum, John T. McLennan, Robert A. Minicucci and Mario Segal.
2. The approval of our Consolidated Financial Statements for the fiscal
year ended September 30, 2003.
3. The approval of an amendment to our 1998 Stock Option and Incentive
Plan, as amended, to increase by 6 million shares the number of ordinary shares
available for issuance and to eliminate the Company's ability to conduct option
repricing programs in which options are surrendered to the Company in exchange
for new options and/or restricted stock.
4. The ratification and approval of the appointment of Ernst & Young
LLP as our independent auditors for the fiscal year ending September 30, 2004,
and until the next annual general meeting, and to authorize the Audit Committee
of the Board of Directors to fix the remuneration of such independent auditors
in accordance with the nature and extent of their services.
ITEM 2. REPORTS ON FORM 6-K
(a) Reports on Form 6-K
The Company filed the following reports on Form 6-K during the three
months ended December 31, 2003:
(1) Form 6-K dated December 24, 2003.
(2) Form 6-K dated December 29, 2003.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMDOCS LIMITED
/s/ Thomas G. O'Brien
------------------------------------
Thomas G. O'Brien
Treasurer and Secretary
Authorized U.S. Representative
Date: February 17, 2004
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- ----------------------------------------------------
99.1 Amdocs Limited Press Release dated January 21, 2004.