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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-Q
___________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2000
Commission File Number 0-25346
___________________
TRANSACTION SYSTEMS ARCHITECTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 47-0772104
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
224 South 108th Avenue (402) 334-5101
Omaha, Nebraska 68154 (Registrant's telephone number,
(Address of principal executive offices, including area code)
including zip code)
___________________
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 _x_ No ___
The number of shares of the issuer's Class A Common Stock, par value
$.005 per share, outstanding as of February 12, 2001 was 34,916,532 (including
1,410,942 Exchangeable Shares of TSA Exchangeco Limited which can be exchanged
on a one-for-one basis for shares of the issuer's Class A Common Stock).
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TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets as of December 31, 2000 and September 30, 2000.................. 3
Condensed Consolidated Statements of Income for the three months ended December 31, 2000 and 1999..... 4
Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2000 and 1999. 5
Notes to Condensed Consolidated Financial Statements.................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................. 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................................ 16
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................................................... 17
Signature....................................................................................................... 17
Index to Exhibits............................................................................................... 18
TRANSACTION SYSTEMS ARCHITECTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited and in thousands)
December 31, September 30,
2000 2000
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 20,581 $ 23,400
Marketable securities 1,857 8,106
Billed receivables, net 65,645 63,556
Accrued receivables 55,591 51,659
Prepaid income taxes 3,087 2,710
Deferred income taxes 16,932 11,208
Other 9,588 13,134
----------- ------------
Total current assets 173,281 173,773
Property and equipment, net 18,499 19,614
Software, net 26,250 26,757
Intangible assets, net 62,943 65,254
Long-term accrued receivables 33,313 27,018
Investments and notes receivable 2,635 6,146
Note receivable from executive officer 3,000 2,000
Deferred income taxes 2,149 2,958
Other 6,129 6,632
----------- ------------
Total assets $ 328,199 $ 330,152
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 29,035 $ 18,396
Accounts payable 11,306 16,023
Accrued employee compensation 6,997 7,472
Accrued liabilities 22,280 20,003
Deferred revenue 44,938 43,373
----------- ------------
Total current liabilities 114,556 105,267
Long-term debt 477 532
Long-term deferred revenue 14,218 13,993
----------- ------------
Total liabilities 129,251 119,792
----------- ------------
Stockholders' equity:
Class A Common Stock 166 165
Additional paid-in capital 171,542 170,946
Retained earnings 70,682 85,033
Treasury stock, at cost (35,258) (35,258)
Accumulated other comprehensive income (8,184) (10,526)
----------- ------------
Total stockholders' equity 198,948 210,360
----------- ------------
Total liabilities and stockholders' equity $ 328,199 $ 330,152
=========== ============
See notes to condensed consolidated financial statements.
TRANSACTION SYSTEMS ARCHITECTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited and in thousands, except per share amounts)
Three Months Ended December 31,
-------------------------------------
2000 1999
-------------- --------------
Revenues:
Software license fees $ 42,467 $ 35,253
Maintenance fees 15,965 16,685
Services 16,204 15,179
------------ ------------
Total revenues 74,636 67,117
------------ ------------
Expenses:
Cost of software license fees 11,591 10,825
Cost of maintenance and services 18,711 16,792
Research and development 10,069 8,460
Selling and marketing 19,695 17,561
General and administrative costs 16,127 14,638
Amortization of goodwill and purchased intangibles 2,367 2,177
------------ ------------
Total expenses 78,560 70,453
------------ ------------
Operating income (loss) (3,924) (3,336)
------------ ------------
Other income (expense):
Interest income 824 947
Interest expense (619) (63)
Other 273 183
Non-recurring items (14,311) -
------------ ------------
Total other income (expense) (13,833) 1,067
------------ ------------
Income (loss) before income taxes (17,757) (2,269)
Income tax benefit 3,405 886
------------ ------------
Net income (loss) $ (14,352) $ (1,383)
============ ============
Earnings per share information:
Weighted average shares outstanding:
Basic 31,654 32,039
============ ============
Diluted 31,654 32,039
============ ============
Earnings per share:
Basic $ (0.45) $ (0.04)
============ ============
Diluted $ (0.45) $ (0.04)
============ ============
See notes to condensed consolidated financial statements.
TRANSACTION SYSTEMS ARCHITECTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
Three Months Ended December 31,
-------------------------------------
2000 1999
-------------- --------------
Cash flows from operating activities:
Net income (loss) $ (14,352) $ (1,383)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 2,088 2,053
Amortization 5,430 5,130
Non-recurring items 14,311 -
Changes in operating assets and liabilities:
Billed and accrued receivables (12,316) (7,683)
Other current and noncurrent assets (3,250) (2,961)
Accounts payable (4,717) (1,200)
Deferred revenue 1,790 3,898
Other current liabilities 2,041 (6,214)
------------ ------------
Net cash used in operating activities (8,975) (8,360)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (853) (1,104)
Additions to software (2,372) (1,581)
Acquisition of business, net of cash received - (3,053)
Additions to investments and notes receivable (820) (420)
Note receivable from executive officer (1,000) -
------------ ------------
Net cash used in investing activities (5,045) (6,158)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of Class A Common Stock 435 461
Proceeds from exercise of stock options 94 375
Purchases of Class A Common Stock - (13,343)
Net borrowings on lines of credit 10,755 -
Payments of long-term debt (171) 357
------------ ------------
Net cash provided by (used in) financing activities 11,113 (12,150)
------------ ------------
Effect of exchange rate fluctuations on cash 88 181
------------ ------------
Decrease in cash and cash equivalents (2,819) (26,487)
Cash and cash equivalents, beginning of period 23,400 70,482
------------ ------------
Cash and cash equivalents, end of period $ 20,581 $ 43,995
============ ============
See notes to condensed consolidated financial statements.
TRANSACTION SYSTEMS ARCHITECTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Consolidated Financial Statements
Transaction Systems Architects, Inc. ("TSA" or the "Company"), a Delaware
corporation, develops, markets, installs and supports a broad line of software
products and services primarily focused on facilitating electronic payments
and electronic commerce. In addition to its own products, the Company
distributes or acts as a sales agent for software developed by third parties.
The products and services are used principally by financial institutions,
retailers and e-payment processors, both in domestic and international
markets.
The condensed consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated. The condensed consolidated
financial statements at December 31, 2000, and for the three months ended
December 31, 2000 and 1999, are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim periods. The condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto, together with management's discussion
and analysis of financial condition and results of operations, contained in
the Company's Annual Report on Form 10-K for the fiscal year ended September
30, 2000. The results of operations for the three months ended December 31,
2000 are not necessarily indicative of the results for the entire fiscal year
ending September 30, 2001.
2. Revenue Recognition
The Company generates revenues from licensing software and providing
postcontract customer support (maintenance or "PCS") and other professional
services. The Company uses written contracts to document the elements and
obligations of arrangements with its customers. Arrangements that include the
licensing of software typically include PCS, and at times, include other
professional services. PCS includes the right to unspecified upgrades on a
when-and-if-available basis and ongoing technical support. The other
professional services may include training, installation or consulting. The
Company also performs services for customers under arrangements that do not
include the licensing of software. Revenues under multiple-element
arrangements, which may include several software products or services sold
together, are allocated to each element based upon the residual method in
accordance with American Institute of Certified Public Accountants Statement
of Position ("SOP") 98-9, "Software Revenue Recognition, With Respect to
Certain Arrangements."
Under the residual method, the fair value of the undelivered elements is
deferred and subsequently recognized. The Company has established sufficient
vendor specific objective evidence of fair value for PCS and other
professional services based upon the price charged when these elements are
sold separately. Accordingly, software license fees revenues are recognized
under the residual method in arrangements in which the software is licensed
with PCS and/or other professional services, and the undelivered elements of
the arrangement are not essential to the functionality of the delivered
software.
The Company recognizes software license fees upon execution of the signed
contract, delivery of the software to the customer, determination that the
software license fees are fixed or determinable, and determination that the
collection of the software license fees is probable. The software license is
typically for a term of up to 60 months and does not include a right of
return. The term for the PCS element of a software arrangement is typically
for a period shorter than the term of the software license, and can be renewed
by the customer over the remaining term of the software license. PCS or
maintenance revenues are recognized ratably over the term of the arrangement
on a straight-line basis. The other professional services element of a
software arrangement is typically accounted for separately as the services are
performed for time-and-materials contracts or on a percentage-of-completion
basis for fixed-price contracts. In those instances where the services are
essential to the functionality of any other element of the arrangement,
contract accounting is applied to both the software and services elements of
the arrangement.
The Company follows two methods for pricing its software licenses. Under
the first method, the software license is priced based upon the number of
transactions processed by the customer ("transaction-based pricing"). Under
transaction-based pricing, the customer is allowed to process a contractually
predetermined maximum volume of transactions per month for a specified period
of time. Once the customer's transaction volume exceeds this maximum volume
level, the customer is required to pay additional license fees for each
incremental volume level. Under the second method, the software license is
priced on a per copy basis and tiered to recognize different performance
levels of the customer's processing hardware ("designated-equipment-group
pricing"). Under designated-equipment-group pricing, the customer pays a
license fee for each copy of the software for a specified period of time.
Licensees are typically given two payment options. Under the first
payment option, the licensee can pay a combination of an Initial License Fee
("ILF"), where the licensee pays a portion of the total software license fees
at the beginning of the software license term, and a Monthly License Fee
("MLF"), where the licensee pays the remaining portion of the software license
fees over the software license term. In certain arrangements, the customer is
contractually committed to making MLF payments for a minimum number of months.
If the customer decides to terminate the arrangement prior to paying the
minimum MLF payments, the remaining minimum MLF payments become due and
payable. Under the second payment option, the Company offers a Paid-Up-Front
("PUF") payment option, whereby the total software license fees are due at the
beginning of the software license term. Under either payment option, the
Company is not obligated to refund any payments received from the customer. In
the combination ILF and MLF payment option, the Company recognizes the ILF
portion of the software license fees upon delivery of the software, assuming
all other revenue recognition criteria were met. In the PUF payment option,
the Company recognizes the total software license fees upon delivery of the
software, assuming all other revenue recognition criteria were met.
In addition to SOP 98-9, the Company accounts for its software
arrangements in accordance with SOP 97-2, "Software Revenue Recognition." The
primary software revenue recognition criteria outlined in SOP 97-2 include:
evidence of an arrangement; delivery; fixed or determinable fees; and
collectibility. SOP 97-2 specifies that extended payment terms in a software
licensing arrangement may indicate that the software license fees are not
deemed to be fixed or determinable. In addition, if payment of a significant
portion of the software license fees is not due until more than twelve months
after delivery, the software license fees should be presumed not to be fixed
or determinable, and thus should be recognized as the payments become due.
However, SOP 97-2 specifies that if the Company has a standard business
practice of using extended payment terms in software licensing arrangements
and has a history of successfully collecting the software license fees under
the original terms of the software licensing arrangement without making
concessions, the Company can overcome the presumption that the software
license fees are not fixed or determinable. If the presumption is overcome,
the Company should recognize the software license fees when all other SOP 97-2
revenue recognition criteria are met.
The Company has concluded that for certain software arrangements where
the customer is contractually committed to make MLF payments that extend
beyond twelve months, the "fixed or determinable" presumption has been
overcome and software license fees revenue should be recognized upon meeting
the other SOP 97-2 revenue recognition criteria. In making this determination,
the Company considered the characteristics of the software product, the
customer purchasing the software, the similarity of the economics of the
software arrangements with previous software arrangements and the actual
history of successfully collecting under the original terms without providing
concessions. The software license fees recognized under these arrangements are
referred to as "Recognized-Up-Front MLFs." The present value of
Recognized-Up-Front MLFs, net of third party royalties, recognized during the
three months ended December 31, 2000 and 1999 totaled approximately $9.1
million and $5.1 million, respectively. The discount rates used to determine
the present value of these software license fees, representing the Company's
incremental borrowing rates, ranged from 9.50% to 11.00% during the three
months ended December 31, 2000, and from 10.25% to 11.00% during the three
months ended December 31, 1999. Recognized-Up-Front MLFs that have been
recognized in software license fees revenues by the Company, but not yet
billed, are reflected in accrued receivables in the accompanying condensed
consolidated balance sheets.
3. Non-Recurring Items
The Company continually evaluates its investment holdings and long-lived
assets for evidence of impairment. During the three months ended December 31,
2000, after considering current market conditions for technology companies and
specific information regarding those companies in which the Company has an
ownership interest, the Company determined that the declines in market value
for certain of its investment holdings were "other than temporary" and a
charge to earnings for the declines in market value was required. Therefore,
the Company recorded a non-cash charge of $12.4 million in the three months
ended December 31, 2000.
In addition, due to unfavorable market conditions in the fourth quarter
of fiscal 2000, the Company postponed its planned initial public offering
("IPO") of its wholly-owned subsidiary, Insession Technologies, Inc. Due to the
time period which had elapsed without proceeding with this transaction and
continuing uncertainty in market conditions, the Company expensed costs
associated with the planned IPO totaling $1.9 million in the three months
ended December 31, 2000.
4. Earnings Per Share
Earnings per share ("EPS") has been computed in accordance with SFAS No.
128, "Earnings Per Share." Basic EPS is calculated by dividing net income
available to common stockholders (the numerator) by the weighted average
number of common shares outstanding during the period (the denominator).
Diluted EPS is computed by dividing net income available to common
stockholders, adjusted for the effect of any outstanding dilutive securities
(the numerator), by the weighted average number of common shares outstanding,
adjusted for the dilutive effect of outstanding dilutive securities (the
denominator). For the three months ended December 31, 2000 and 1999, basic and
diluted EPS are the same, as any outstanding dilutive securities were
antidilutive due to the net loss in both periods.
If the Company had reflected net income for the three months ended
December 31, 2000 and 1999, weighted average shares from stock options of
3,590,098 and 1,353,510, respectively, would have been excluded from the
computation of diluted EPS because the exercise prices of the stock options
were greater than the average market price of the Company's common shares.
5. Comprehensive Income
The Company's components of other comprehensive income were as follows
(in thousands):
Three Months Ended December 31,
-----------------------------------
2000 1999
--------------- ---------------
Net loss $ (14,352) $ (1,383)
Other comprehensive income:
Foreign currency translation adjustments 539 (1,123)
Unrealized investment holding gain (loss) 1,803 4,687
--------------- ---------------
Comprehensive income (loss) $ (12,010) $ 2,181
=============== ===============
The Company's components of accumulated other comprehensive income at each
balance sheet date were as follows (in thousands):
Foreign Unrealized Accumulated
Currency Investment Other
Translation Holding Comprehensive
Adjustments Gain (Loss) Loss
--------------- --------------- ---------------
Balance, September 30, 2000 $ (4,723) $ (5,803) $ (10,526)
Fiscal 2001 year-to-date activity 539 (6,249) (5,710)
Reclassification adjustment for loss included in net income(loss) - 8,052 8,052
--------------- --------------- ---------------
Balance, December 31, 2000 $ (4,184) $ (4,000) $ (8,184)
=============== =============== ===============
6. Line-of-Credit Facilities
The Company has a $30 million bank line-of-credit with a large United
States bank. This line is secured by certain trade receivables of TSA. Among
other restrictions, the Company must maintain a minimum accounts receivable
balance, minimum tangible net worth and minimum working capital levels at each
reporting date. After obtaining a waiver from the U.S. bank, the Company is in
compliance with all debt covenants as of December 31, 2000. The Company also
has a line-of-credit with a large foreign bank in the amount of 3 million
British Pounds, which translates to approximately $4.5 million. The foreign
line requires the Company to maintain minimum tangible net worth within the
Company's wholly-owned subsidiary, ACI Worldwide (EMEA) Ltd.
Interest on the U.S. line-of-credit accrues at an annual rate equal to
either the bank's "base rate" less .75% or the LIBOR rate plus 1.75% and is
payable at the end of each month. Interest on the foreign line-of-credit
accrues at an annual rate of 1% above the bank's "base rate." During the three
months ended December 31, 2000, the Company recorded interest expense of
$481,000 related to the two line-of-credit facilities. Current borrowings
outstanding as of December 31, 2000 amount to approximately $29 million. The
U.S. bank line-of-credit expires on May 31, 2001, and the foreign bank
line-of-credit expires on August 9, 2001.
The carrying amounts of the Company's line-of-credit facilities
approximate fair value due to their variable interest rates.
7. Segment Information
In fiscal 2000, the Company reorganized its business into four business
units or segments: Consumer e-Payments, Electronic Business Infrastructure,
Corporate Banking e-Payments and Health Payment Systems. Prior period segment
information has been restated to reflect these reorganizations. The Company's
chief operating decision makers review business unit financial information,
presented on a consolidated basis, accompanied by disaggregated information
about revenues and operating income by business unit. The Company does not
track assets by business unit.
The Company plans to direct the majority of its focus on the Consumer
e-Payments business unit. The Company is considering various alternatives for
the Electronic Business Infrastructure, Corporate Banking e-Payments and
Health Payments Systems business units, including possible sales, spin-offs,
strategic alliances, partnerships, third-party investors and initial public
offerings.
Consumer e-Payments products represent the Company's largest product line
and include its most mature and well-established applications which are used
primarily by financial institutions, retailers and e-payment processors. Its
products are used to route and process transactions for automated teller
machine networks; process transactions from traditional point of sale devices,
wireless devices and the Internet; handle PC and phone banking transactions;
control fraud and money laundering; process electronic benefit transfer
transactions; authorize checks; establish frequent shopper programs; automate
settlement, card management and claims processing; and issue and manage
multi-functional applications on smart cards. Electronic Business
Infrastructure products facilitate communication, data movement, monitoring of
systems and business process automation across computing systems, involving
mainframes, distributed computing networks and the Internet. Corporate Banking
e-Payments products offer high-value payments processing, bulk/recurring
payments processing, wire room processing, global messaging, integration
payments management and continuous link settlement processing. Health Payment
Systems products allow large corporations and health-care payment processors
to automate claims eligibility determination, claims capture and claims
payments.
No single customer accounted for more than 10% of the Company's
consolidated revenue during the three months ended December 31, 2000 and 1999.
The following are revenues and operating income (loss) for the Company's
business unit segments for the three months ended December 31, 2000 and 1999
(in thousands):
Three Months Ended
December 31,
---------------------------------
2000 1999
------------- -------------
Revenues:
Consumer e-Payments $ 57,552 $ 47,715
Electronic Business Infrastructure 9,284 10,876
Corporate Banking e-Payments 6,608 7,642
Health Payment Systems 1,192 884
------------- -------------
$ 74,636 $ 67,117
============= =============
Operating loss:
Consumer e-Payments $ 844 $ (5,135)
Electronic Business Infrastructure (705) 1,782
Corporate Banking e-Payments (2,897) (22)
Health Payment Systems (1,166) 39
------------- -------------
Operating loss $ (3,924) $ (3,336)
============= =============
The Company's products are sold and supported through distribution
networks covering the geographic regions of the Americas, Europe/Middle
East/Africa ("EMEA") and Asia/Pacific. The following are revenues and
long-lived assets for these geographic regions (in thousands):
Three Months Ended
December 31,
---------------------------------
2000 1999
------------- -------------
Revenues:
United States $ 32,005 $ 30,822
Americas - other 8,986 8,866
------------- -------------
Total Americas 40,991 39,688
EMEA 26,990 20,222
Asia/Pacific 6,655 7,207
------------- -------------
$ 74,636 $ 67,117
============= =============
December 31, September 30,
2000 2000
------------- -------------
Long-lived assets:
United States $ 101,888 $ 107,925
Americas - other 4,753 5,337
------------- -------------
Total Americas 106,641 113,262
EMEA 11,332 11,659
Asia/Pacific 1,233 1,482
------------- -------------
$ 119,206 $ 126,403
============= =============
8. Accounting Pronouncements Issued But Not Yet Effective
In December 1999, the Securities and Exchange Commission (the "SEC")
released Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements," which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements filed with the
SEC. SAB No. 101 requires, among other things, that license and other up-front
fees be recognized over the term of the agreement, unless the fees are in
exchange for products delivered or services performed that represent the
culmination of a separate earnings process. The Company is required to be in
conformity with the provisions of SAB No. 101 no later than the fourth quarter
of fiscal 2001. The adoption of SAB No. 101 is not expected to have a material
impact on the Company's financial position or results of operations.
In September 2000, the Financial Accounting Standards Board issued SFAS
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS No. 140, which replaced SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires certain
disclosures, but carries over most of SFAS No. 125's provisions without
reconsideration. SFAS No. 140 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001. The Company currently conforms to the requirements of SFAS No. 125 and
the adoption of SFAS No. 140 is not expected to have a material impact on the
Company's financial position or results of operations.
9. Subsequent Event
In October 2000, the Company reached an agreement to acquire all of the
issued and outstanding securities of MessagingDirect Ltd. ("MDL") for
approximately 3.3 million shares of TSA Class A Common Stock with a fair
market value at that time of approximately $50.0 million. MDL provides
software applications to facilitate the secure delivery and e-processing of
electronic statements and bills. This transaction subsequently closed in
January 2001. The share exchange will be accounted for using the purchase
method of accounting. Accordingly, the amount of purchase price in excess of
the sum of the fair values of the tangible and intangible assets acquired less
liabilities assumed will be allocated to goodwill, which will be amortized
using the straight-line method over five years. The Company estimates that the
allocation of the purchase price attributable to intangible assets to be
approximately $29.0 million to goodwill and $15.0 million to software. These
amounts are preliminary and are subject to the completion of an appraisal of
MDL.
TRANSACTION SYSTEMS ARCHITECTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The Company develops, markets, installs and supports a broad line of
software products and services primarily focused on facilitating electronic
payments and electronic commerce. In addition to its own products, TSA
distributes software developed by third parties. The products and services are
used principally by financial institutions, retailers and e-payment
processors, both in domestic and international markets.
The Company's products and services are organized into four business
units - Consumer e-Payments, Electronic Business Infrastructure, Corporate
Banking e-Payments and Health Payment Systems. The Company plans to direct the
majority of its focus on the Consumer e-Payments business unit. Products in
this business unit represent the Company's largest product line and include
its most mature and well-established applications. Products and services
offered by this business unit, except community banking products, are marketed
and supported through ACI Worldwide Inc ("ACI"), a wholly-owned subsidiary of
the Company. ACI sells and supports the products and services through three
distribution networks: the Americas, Europe/Middle East/Africa ("EMEA") and
Asia/Pacific. Each distribution network primarily has its own sales force and
supplements this with reseller and/or distributor networks. The community
banking products are marketed and supported by Regency Systems, Inc., a
wholly-owned subsidiary of the Company. Products and services offered by the
other three business units are marketed and supported primarily through their
own sales and support organizations.
Results of Operations
The following table sets forth certain financial data and the percentage
of total revenues of the Company for the periods indicated (amounts in
thousands):
Three Months Ended December 31,
-----------------------------------------------------
2000 1999
----------------------- -----------------------
% of % of
Amount Revenue Amount Revenue
--------- ---------- ---------- ----------
Revenues:
ILFs and PUFs $ 20,099 26.9 % $ 15,404 23.0 %
MLFs (other than Recognized-
Up-Front MLFs) 13,244 17.8 14,720 21.9
Recognized-Up-Front MLFs 9,124 12.2 5,129 7.6
--------- ---------- ---------- ----------
Software license fees 42,467 56.9 35,253 52.5
Maintenance fees 15,965 21.4 16,685 24.9
Services 16,204 21.7 15,179 22.6
--------- ---------- ---------- ----------
Total revenues 74,636 100.0 67,117 100.0
--------- ---------- ---------- ----------
Expenses:
Cost of software license fees 11,591 15.5 10,825 16.1
Cost of maintenance and services 18,711 25.1 16,792 25.0
Research and development 10,069 13.5 8,460 12.6
Selling and marketing 19,695 26.4 17,561 26.2
General and administrative costs 16,127 21.6 14,638 21.8
Amortization of goodwill and
purchased intangibles 2,367 3.2 2,177 3.3
--------- ---------- ---------- ----------
Total expenses 78,560 105.3 70,453 105.0
--------- ---------- ---------- ----------
Operating income (loss) (3,924) (5.3) (3,336) (5.0)
--------- ---------- ---------- ----------
Other income (expense):
Interest income 824 1.1 947 1.4
Interest expense (619) (0.8) (63) (0.1)
Other 273 0.4 183 0.3
Non-recurring items (14,311) (19.2) - -
--------- ---------- ---------- ----------
Total other income (expense) (13,833) (18.5) 1,067 1.6
--------- ---------- ---------- ----------
Income (loss) before income taxes (17,757) (23.8) (2,269) (3.4)
Income tax benefit 3,405 4.6 886 1.3
--------- ---------- ---------- ----------
Net income (loss) $ (14,352) (19.2)% $ (1,383) (2.1) %
========= ========== ========== ==========
The following table sets forth total revenues and operating income (loss)
for the Company's four business unit segments for the periods indicated (in
thousands):
Three Months Ended
December 31,
---------------------------------
2000 1999
------------- -------------
Revenues:
Consumer e-Payments $ 57,552 $ 47,715
Electronic Business Infrastructure 9,284 10,876
Corporate Banking e-Payments 6,608 7,642
Health Payment Systems 1,192 884
------------- -------------
$ 74,636 $ 67,117
============= =============
Operating loss:
Consumer e-Payments $ 844 $ (5,135)
Electronic Business Infrastructure (705) 1,782
Corporate Banking e-Payments (2,897) (22)
Health Payment Systems (1,166) 39
------------- -------------
Operating loss $ (3,924) $ (3,336)
============= =============
Revenues. Total revenues for the first quarter of fiscal 2001 increased
11.1%, or $7.5 million, from the comparable period in fiscal 2000. The
increase is the result of a $7.2 million, or 20.4%, increase in software
license fees revenue and a $942,000, or 6.2%, increase in services revenue.
These increases were offset by a $720,000, or 4.3%, decrease in maintenance
fee revenue.
During the first quarter of fiscal 2000, the Company's large bank and
merchant customers and potential new customers, in effect, locked down their
systems in preparation for the Year 2000. This Year 2000 lock-down had a
negative impact on the Company's Consumer e-Payments software license fees and
services revenues due to the less than expected demand by customers and
potential new customers to upgrade and enhance their current systems. In
addition, since the Year 2000 cutover, the Company has found its customers
increasingly scrutinizing their information technology purchases, which has
led to further delays in software and services purchases. The Company believes
overall demand for its products and services is increasing at a gradual pace.
However, the Company believes that customer demand for its products and
services will be slow to return to growth levels experienced prior to fiscal
2000.
The increase in ILF and PUF revenue for the first quarter of fiscal 2001
is a result of an increased demand for the Company's Consumer e-Payments
products, offset by a decrease in demand for the Company's Electronic Business
Infrastructure ICE product and a decrease in revenue associated with a
significant Corporate Banking e-Payment customer project. In addition, the
Company changed its sales compensation plans in fiscal 2001 for its Consumer
e-Payments sales force to emphasize PUF contracts for both customer renewals
and new customers rather than emphasizing ILF/MLF contracts. This change
resulted in an increase in PUF revenue and a decrease in MLF revenue in the
first quarter of fiscal 2001.
The decrease in maintenance fee revenue for the first quarter of fiscal
2001 is due to a decrease in customer demand for the Company's enhanced
maintenance support.
The growth in services revenue is the result of increased demand for
technical and project management services, which is primarily the result of an
increased installed base of the Company's Consumer e-Payments products.
Expenses. Total operating expenses for the first quarter fiscal 2001
increased $8.1 million, or 11.5%, over the comparable period of fiscal 2000.
Cost of software license fees for the first quarter of fiscal 2001
increased $0.8 million, or 7.1%, over the comparable period in fiscal 2000.
This increase is due primarily to an increase in the sale of third-party
products and thus a corresponding increase in royalties owed to the owners of
these products.
Cost of maintenance and services for the first quarter of fiscal 2001
increased $1.9 million, or 11.4%, over the comparable period in fiscal 2000.
This increase is the result of personnel-related expenses.
Research and development ("R&D") consists primarily of compensation and
related costs for R&D employees and contractors. R&D costs as a percentage of
total revenues were 13.5% in the first quarter of fiscal 2001 as compared to
12.6% in the first quarter of fiscal 2000. In addition to R&D costs which are
expensed, the Company capitalizes costs related to certain
internally-developed software when the resulting products reach technological
feasibility. Software development costs capitalized in the first quarter of
fiscal 2001 and 2000 totaled approximately $1.5 million and $1.2 million,
respectively.
Selling and marketing costs as a percentage of total revenues were 26.4%
in the first quarter of fiscal 2001 as compared to 26.2% in the first quarter
of fiscal 2000. The increase in fiscal 2001 is due to an increase in sales
personnel and marketing activities in each of the four business units.
General and administrative costs for the first quarter of fiscal 2001
increased $1.5 million, or 10.2%, over the comparable period in fiscal 2000.
The increase is attributable to an increase in bad debts expense and occupancy
costs, offset by a decrease in personnel-related expenses. The decrease in
personnel-related expenses is due to the consolidation of the Company's
Consumer Banking, Electronic Commerce and Internet Banking operating units
into the Consumer e-Payments business unit during the fourth quarter of fiscal
2000.
Other Income and Expenses. The increase in interest expense is due to
an increase in borrowings on the Company's line-of-credit facilities.
The Company continually evaluates the carrying value of its investment
holdings and long-lived assets for evidence of impairment. During the first
quarter of fiscal 2001, after considering current market conditions for
technology companies and specific information regarding those companies in
which the Company has an ownership interest, the Company determined that the
declines in market value for certain of its investment holdings were "other
than temporary" and a charge to earnings for the declines in market value was
required. Therefore, the Company recorded a non-cash charge of $12.4 million
in the first quarter of fiscal 2001. In addition, due to unfavorable market
conditions in the fourth quarter of fiscal 2000, the Company postponed its
planned initial public offering ("IPO") of its wholly-owned subsidiary,
Insession Technologies, Inc. Due to the time period which had elapsed without
proceeding with this transaction and continuing uncertainty in market
conditions, the Company expensed costs associated with the planned IPO
totaling $1.9 million in the first quarter of fiscal 2001.
Income Taxes. The effective tax rate for the first quarter of fiscal
2001 was approximately 20% as compared to 41% for all of fiscal 2000. The tax
benefit for the first quarter of fiscal 2001 was less than expected primarily
due to non-deductible amortization expense associated with acquisitions
accounted for as purchases and non-recognition of tax benefits for operating
losses in certain foreign locations.
As of December 31, 2000, the Company has deferred tax assets of $31.3
million and deferred tax liabilities of $2.9 million. Each quarter, the
Company evaluates its historical operating results as well as its projections
for the future to determine the realizability of the deferred tax assets. This
analysis indicated that $19.1 million of the net deferred tax assets were more
likely than not to be realized. Accordingly, the Company has recorded a
valuation allowance of $9.3 million as of December 31, 2000.
The Company intends to analyze the realizability of the net deferred tax
assets at each future reporting period. Such analysis may indicate that the
realization of various deferred tax benefits is more likely than not and,
therefore, the valuation reserve may be adjusted accordingly.
Backlog
As of December 31, 2000, the Company had recurring revenue backlog
totaling $135.8 million, of which $96.6 million was in the Consumer e-Payments
business unit, $18.0 million in the Electronic Business Infrastructure
business unit, $16.4 million in the Corporate Banking e-Payments business unit
and $4.8 million in the Health Payment Systems business unit. The Company
defines recurring revenue backlog to be all monthly license fees, maintenance
fees and facilities management fees specified in executed contracts to the
extent that the Company contemplates recognition of the related revenue within
one year.
As of December 31, 2000, the Company had non-recurring software license
fees revenue backlog of $12.3 million and non-recurring services revenue
backlog of $36.0 million; $9.8 million and $26.0 million, respectively, in the
Consumer e-Payments business unit; $0.2 million and $3.0 million,
respectively, in the Electronic Business Infrastructure business unit; $2.3
million and $6.8 million, respectively, in the Corporate Banking e-Payments
business unit; and $0.0 million and $0.2 million, respectively, in the Health
Payment Systems business unit. The Company includes in its non-recurring
revenue backlog all fees specified in executed contracts to the extent that
the Company contemplates recognition of the related revenue within one year.
There can be no assurance that contracts included in recurring or
non-recurring revenue backlog will actually generate the specified revenues or
that the actual revenues will be generated within the one-year period.
Liquidity and Capital Resources
As of December 31, 2000, the Company's principal sources of liquidity
consisted of $20.6 million in cash and cash equivalents, and bank lines of
credit totaling approximately $34.5 million, with outstanding borrowings of
approximately $29.0 million. The bank lines are subject to maintenance of
certain covenants.
The Company's net cash flows used in operating activities for the first
quarter of fiscal 2001 amounted to $9.0 million as compared to $8.4 million
used during the first quarter of fiscal 2000. The growth of the Company's
billed and accrued receivables during the first quarter of fiscal 2001 and
2000 are the primary reasons for the negative operating cash flows in the
first quarter of fiscal 2001 and 2000.
A contributor to the Company's cash management program is the factoring
of accrued receivables, whereby interest in Company receivables is transferred
on a non-recourse basis to third-party financial institutions in exchange for
cash. During the first quarter of fiscal 2001 and 2000, the Company generated
operating cash flows from the factoring of accrued receivables of $3.1 million
and $4.5 million, respectively. The Company has approximately $20 million of
accrued receivables that may be sold in the future to third-party financial
institutions under this program. The Company is actively pursuing the sale of
a portion of these receivables as a means to generate cash, but there can be
no assurance that the Company will be successful in its efforts to sell any of
these receivables.
The Company's net cash flows used in investing activities totaled $5.0
million and $6.2 million in the first quarter of fiscal 2001 and 2000,
respectively. This decrease in cash used in investing activities is due to a
decrease in acquisition-related expenditures, offset by an increase in the
note receivable from executive officer. The acquisition of business amount in
fiscal 2000 consists of the final payment of $3.1 million related to the
acquisition of Insession Inc. The note receivable from executive officer in
fiscal 2001 consists of an additional advance in the amount of $1.0 million to
Mr. William E. Fisher, Chief Executive Officer, as part of his employment and
incentive compensation package.
The Company's net cash flows provided by financing activities was $11.1
million in the first quarter of fiscal 2001 as compared to net cash flows used
in financing activities of $12.1 million in the first quarter of fiscal 2000.
During the first quarter of 2001, the Company had net borrowings on its bank
line-of-credit facilities of $10.8 million. During the first quarter of fiscal
2000, pursuant to a stock repurchase program approved by the Company's Board
of Directors, the Company acquired 500,300 shares at an average cost of $26.67
per share, totaling approximately $13.3 million. The Company used cash flow
from operations to fund the common stock repurchases.
The Company is considering various alternatives for the Electronic
Business Infrastructure, Corporate Banking e-Payments and Health Payments
Systems business units, including possible sales, spin-offs, strategic
alliances, partnerships, third-party investors and initial public offerings.
The Company believes that its existing sources of liquidity, which includes
cash provided by operating activities, including its factoring program and
borrowings available under its line-of-credit facilities, along with potential
sources of cash upon successful divestiture of any or all of these business
units described above, will satisfy the Company's projected working capital
and other cash requirements for the foreseeable future.
Forward-Looking Statements
The statements in this report regarding future results are preliminary
and "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. In addition, this report contains other
forward-looking statements including statements regarding the Company's or
third parties' expectations, predictions, views, opportunities, plans,
strategies, beliefs and statements of similar effect. The forward-looking
statements in this report are subject to a variety of risks and uncertainties.
Actual results could differ materially. Factors that could cause actual
results to differ include but are not limited to the following:
o The corporate divestiture strategy is subject to numerous factors,
including market conditions and perception, demand for the other
businesses by potential investors or potential acquirers, personnel,
tax, business, general economic conditions, viability of businesses
as stand-alone operations, and other factors that could affect the
Company's decisions and ability to separate businesses, to divest,
raise capital, or implement other alternatives for such businesses,
and to implement other aspects of the Company's corporate strategy.
There can be no assurance that the Company will implement any aspect
of the corporate strategy or that if implemented the strategy will be
successful.
o The Year 2000 lock-down has interrupted the Company's normal sales
cycle and therefore is likely to have a negative impact on the
Company's revenues and net income beyond fiscal 2000. The Company also
believes customer demand for system upgrades and enhancements will be
slow to return to normal growth levels, as many of the Company's
customers upgraded and enhanced their systems prior to the Year 2000.
There can be no assurance that the Company's growth rates will return
to historical levels.
o The acquisition of MessagingDirect is subject to numerous risks,
including the following: (i) MessagingDirect is in a highly
competitive industry, (ii) MessagingDirect does not have a
significant market presence, significant revenues, or widespread
acceptance or prolonged use of its products, (iii) MessagingDirect
has not been profitable, (iv) the electronic statement presentation
and electronic bill presentment and payment markets may not achieve
the predicted growth rates, (v) MessagingDirect's products,
personnel, and operations may be difficult to combine with those of
the Company, the products may not be accepted by the Company's
customer base, and there will be significant integration costs of
combining the business, and (vi) the acquisition will have a dilutive
impact on earnings per share and amortization of intangible assets
will have an adverse effect on earnings.
o The Company is subject to risks of conducting international
operations including difficulties in staffing and management,
reliance on independent distributors, fluctuations in foreign
currency exchange rates, compliance with foreign regulatory
requirements, variability of foreign economic conditions, and
changing restrictions imposed by U.S. export laws.
o The Company will continue to derive a substantial majority of its
total revenue from licensing its BASE24 family of software products
and providing services and maintenance related to those products. Any
reduction in demand for, or increase in competition with respect to,
BASE24 products would have a material adverse effect on the Company's
financial condition and results of operations.
o The Company's business is concentrated in the banking industry,
making it susceptible to a downturn in that industry.
o Fluctuations in quarterly operating results may result in volatility
in the Company's stock price. No assurance can be given that
operating results will not vary. The Company's stock price may also
be volatile, in part, due to external factors such as announcements
by third parties or competitors, inherent volatility in the
high-technology sector and changing market conditions in the industry.
For a detailed discussion of these and other risk factors, interested
parties should review the Company's filings with the Securities and Exchange
Commission, including Exhibit 99.01 to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 2000.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the Company's market risk for the
three months ended December 31, 2000. See the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 2000 for additional discussions
regarding quantitative and qualitative disclosures about market risk.
PART II
EXHIBITS AND REPORTS OF FORM 8-K
(a) Exhibits
10.26a Amendment to Credit Facility Letter Agreement & Interim Promissory
Note with Wells Fargo Bank Nebraska, N.A.
10.34 Advice of Borrowing Terms for ACI Worldwide (EMEA) Ltd
(b) Reports on Form 8-K
The Company furnished a Current Report on Form 8-K on December 14, 2000,
pursuant to Item 9 of Form 8-K with respect to certain information disclosed in
connection with the Company's acquisition of MessagingDirect Ltd.
SIGNATURE
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.
Dated: February 14, 2001 TRANSACTION SYSTEMS ARCHITECTS, INC.
(Registrant)
By:/s/ EDWARD C. FUXA
-------------------------------------
Edward C. Fuxa
Principal Accounting Officer
and Controller
TRANSACTION SYSTEMS ARCHITECTS, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------------
10.26a Amendment to Credit Facility Letter Agreement & Interim
Promissory Note with Wells Fargo Bank Nebraska, N.A.
10.34 Advice of Borrowing Terms for ACI Worldwide (EMEA) Ltd.
December 28, 2000
Transaction Systems Architects, Inc.
330 South 108th Avenue
Omaha, Nebraska 68154-2684
Attention: Mr. Edward Fuxa
Controller
Re: Amendment to Facility Letter dated June 16, 2000 between
Wells Fargo Bank Nebraska, National Association, formerly
known as Norwest Bank Nebraska, N.A. (the "Bank"), and
Transaction Systems Architects, Inc. ("TSA") and ACI
Worldwide Inc. ("ACI") (hereinafter referred to individually
and collectively as the "Joint Borrowers")
Dear Mr. Fuxa:
Pursuant to our recent discussions, the Joint Borrowers and the Bank
agree to amend the Facility Letter to provide an interim, secured, committed
credit facility ("Interim Credit Facility"), the terms of the Interim Credit
Facility and the amendments to the Facility Letter are as follows:
1) Amount: The aggregate amount outstanding on the Interim Credit
Facility shall not exceed Five Million and
00/100 United States Dollars (USD)
($5,000,000.00) (hereinafter referred to as the
"Interim Credit Facility Amount") at any time,
which shall be available to the Joint Borrowers
in the form of loans (hereinafter referred to
as "Advance(s)").
2) Purpose: General corporate purposes, provided that the Joint
Borrowers will not use the proceeds of any
Advances extended under the Interim Credit
Facility for the purpose of purchasing or
carrying "margin stock" as defined in
Regulation U of the Board of Governors of the
Federal Reserve System.
3) Evidence of
Indebtedness: An Interim Promissory Note in the form of
Exhibit B attached hereto to be signed by the
Joint Borrowers (hereinafter referred to as the
"Interim Note"). The Interim Note and the
Promissory Note described in the Facility
Letter are individually and collectively
referred to herein and in the Facility Letter
as the "Note"). The indebtedness shall be the
joint and several obligation of TSA and ACI.
4) Expiration Date: The Interim Credit Facility shall expire on
March 31, 2001, upon which date the total
unpaid principal balance and all accrued but
unpaid interest shall be paid in full.
14) Representations: (k) Except for a portion of their
receivables which are factored
from time to time in the ordinary
course of business, none of the
assets of the Joint Borrowers are
subject to any mortgage, pledge,
title retention lien, or other
lien, encumbrance or security
interest, except for: (a) current
taxes not delinquent or taxes
being contested as provided by law
in good faith and by appropriate
legal proceedings; (b) liens
arising in the ordinary course of
business for sums not due or sums
being contested in good faith and
by appropriate legal proceedings,
but not involving any deposits or
advances of borrowed money or the
deferred purchase price of
property or services; and (c) to
the extent specifically shown in
the financial statement referred
to above. The Bank acknowledges
(i) that the Joint Borrowers and
Domestic Guarantors have
previously factored a portion of
their receivables, (ii) that the
Joint Borrowers and Domestic
Guarantors will factor a portion
of their receivables in the
future, and (iii) that the
foregoing actions will not
constitute a breach of any
representation, covenant or other
provision of this Facility Letter;
provided that the Joint Borrowers
shall be in compliance with the
covenant requiring a minimum
balance of eligible receivables
both before and after any such
factoring of $40,000,000 from the
date of this amendment to March
31, 2001, and thereafter of
$35,000,000, as set forth in
Section 15(j).
15) Covenants: (c) (vii) As soon as available and
in any event within 30
days after the end of
each month, an accounts
receivable report in form
and substance
satisfactory to the Bank,
containing sufficient
information to enable the
Bank to test compliance
by the Joint Borrowers
with Section 15(j).
(j) The Joint Borrowers shall maintain
a balance of eligible accounts
receivable (accounts receivable
that remain unpaid 90 days or less
after the date of invoice) at all
times of not less than Forty
Million and No/100 United States
Dollars (USD) ($40,000,000) in the
aggregate from the date of this
amendment to March 31, 2001, and
thereafter of not less than Thirty
Five Million and No/100 United
States Dollars (USD)
($35,000,000.00) in the aggregate.
Except as specifically amended herein, all of the terms of the
Facility Letter shall continue in full force and effect according to its
original terms, and are hereby ratified and confirmed in all respects.
Without limiting the generality of the preceding sentence, the Joint Borrowers
specifically ratify and confirm the security interest and first lien on the
accounts of the Joint Borrowers and the Domestic Guarantors given to the Bank
to secure the Obligations, including, without limitation, the Interim Note.
By their execution of this amendment to the Facility Letter, Joint Borrowers
hereby certify and warrant that each of the representations set forth in the
Facility Letter is true and correct as of the date hereof, and that the Joint
Borrowers are in full compliance with all of the terms and conditions of the
Facility Letter, as amended hereby, and no Event of Default, or any event or
condition, which, with the lapse of time, or giving of notice, or both, would
constitute an Event of Default, has occurred or is continuing. Capitalized
terms used herein and not otherwise defined shall have the meanings set forth
in the Facility Letter.
A credit agreement must be in writing to be enforceable under
Nebraska law. To protect you and us from any misunderstandings or
disappointments, any contract, promise, undertaking or offer to forbear
repayment of money or to make any other financial accommodation in connection
with this loan of money or grant or extension of credit, or of any amendment
of, cancellation of, waiver of, or substitution for any or all of the terms or
provisions of any instrument or document executed in connection with this loan
of money or grant or extension of credit, must be in writing to be effective.
This amendment to the Facility Letter shall become effective as of
the date set forth above when this letter amendment has been executed and
delivered by the Joint Borrowers and the Bank, the Joint Borrowers have
executed and delivered the Interim Promissory Note to the Bank and the
Guarantors have executed and delivered Guarantor's Consents to the Bank.
Furthermore, prior to borrowing under the Interim Credit Facility, the Joint
Borrowers and the Guarantors shall provide the Bank with satisfactory
corporate resolutions and incumbency certificates authorizing the execution
and delivery of this letter amendment, the Interim Promissory Note and the
Guarantor's Consents to the Bank.
Sincerely,
Craig Strutzel
Vice President
Corporate Banking
Acknowledged and Agreed
as of December 28, 2000
TRANSACTION SYSTEMS ARCHITECTS, INC.
By: /s/ Dwight G. Hanson
----------------------------
Dwight G. Hanson
Title: Chief Financial Officer
By:
----------------------------
Title:
-------------------------
ACI WORLD WIDE INC.
By: /s/ Dwight G. Hanson
----------------------------
Dwight G. Hanson
Title: Chief Financial Officer
By:
---------------------------
Title:
------------------------
INTERIM PROMISSORY NOTE
USD $5,000,000.00 Dated: December 28, 2000
TRANSACTION SYSTEMS ARCHITECTS, INC. and ACI WORLDWIDE INC. (the
"Joint Borrowers"), jointly and severally, for value received, promise to pay
to the order of Wells Fargo Bank Nebraska, National Association, formerly
known as Norwest Bank Nebraska, National Association (the "Bank"), in lawful
money of the United States at the principal office of the Bank in Omaha,
Nebraska, or as the Bank may otherwise direct, the lesser of the principal sum
of Five Million and 00/100 United States Dollars or the principal amount
outstanding, if any, under the letter agreement dated June 16, 2000, as
amended, between the Joint Borrowers and the Bank (the "Facility Letter"),
with interest (computed on actual days elapsed on the basis of a 360 day year)
on the principal amount outstanding hereunder as hereinafter set forth,
together with all costs of collection, including reasonable attorneys' fees,
upon default.
The unpaid principal balance of all loans ("Advances") hereunder
shall bear interest as follows:
(a) Base Rate: Before maturity of this Note,
and except for LIBOR Rate Advances, as hereafter defined,
at an annual rate equal to 0.75% below the Base Rate
adjusted at the time of changes in the Base Rate. "Base
Rate" shall mean the rate of interest established by Wells
Fargo Bank Nebraska, National Association from time to time
as its "base" or "prime" or "Wells Fargo Money Market
Rate." Interest shall be paid monthly at the end of each
month on any Advances made at the Base Rate. Advances made
at the Base Rate shall be made in the minimum principal
amount of $10,000.
(b) LIBOR Rate: LIBOR Rate is the rate at
which deposits in U.S. dollars in the amount and for a
maturity corresponding to that of any Advances made at the
LIBOR Rate ("LIBOR Rate Advances") are offered to the Bank
in the offshore inter-bank market at approximately 10:00
a.m., (London, England time), two business days prior to the
date on which such LIBOR Rate Advance is made, adjusted for
maximum statutory reserve requirements, plus 175 basis
points (1.75%) per annum.
LIBOR Rate Advances shall be for periods, at the
Joint Borrowers' option, of one (1), two(2) or three (3)
months (each, an "Interest Period"); provided, that the
Interest Period shall not extend beyond the Expiration
Date. Interest shall be payable at the maturity of each
Interest Period and shall be calculated on actual days
elapsed on a 360 day year.
With respect to the renewal of any LIBOR Rate Advance, or
any new borrowing hereunder, in the event that deposits in
the amount and for the term of the selected Interest Period
are unavailable to Bank, or that by reason or circumstances
affecting the inter-bank markets generally, adequate and
reasonable means do not exist for ascertaining the interest
rate applicable to such LIBOR Rate Advance for the selected
Interest Period, Joint Borrowers shall either repay such
LIBOR Rate Advance or direct Bank to convert such LIBOR Rate
Advance into an Advance of a type which is available on the
last day of the then current Interest Period, said choice
between repayment or conversion to be solely at Joint
Borrowers' option.
If it shall become unlawful (or contrary to any
direction from or requirement of any governmental authority
having jurisdiction over Bank) for Bank to continue to fund
or maintain any LIBOR Rate Advance or to perform its
obligations hereunder, then upon demand by Bank to Joint
Borrowers, such LIBOR Rate Advance or other obligation shall
thereupon be canceled and, if it is unlawful for Bank to
continue to fund or maintain any LIBOR Rate Advance, Joint
Borrowers shall prepay such LIBOR Rate Advance without
premium or penalty, together with accrued interest thereon,
on the last day of the then current Interest Period or on
such earlier date as may be required by law.
The Joint Borrowers may obtain multiple LIBOR Rate
Advances hereunder; provided, that each LIBOR Rate Advance
shall be in the minimum principal amount of $1,000,000 and
shall be payable in full, with interest thereon, at the
maturity of each LIBOR Rate Advance.
(c) Default Rate: After maturity, whether by
lapse of time, default, acceleration or otherwise, at a rate
equal to the Base Rate plus three percent (3%) per annum
(the "Default Rate").
Requests for Advances by the Joint Borrowers shall
be made by telephonic, telecopier or telex notice to the
Bank (which notice shall be promptly confirmed in writing)
by Edward Fuxa, Controller, or James Walker, Senior
Financial Analyst, both of TSA, or such other person or
persons subsequently designated by the Joint Borrowers in
writing. Each request by Joint Borrowers for an Advance at
the Base Rate must be received by the Bank no later than
12:00 p.m. Omaha, Nebraska time, on the day on which it is
to be funded. Each request by Joint Borrowers for a LIBOR
Rate Advance must be received by the Bank no later than
11:00 a.m. Omaha, Nebraska time, on the day which is three
(3) business days prior to the day on which it is to be
funded. The Joint Borrowers agree that the Bank may rely on
any such telephonic, telecopier or telex notice given by any
person it in good faith believes is authorized to give such
notice without the necessity of independent investigation,
and in the event any notice by such means conflicts with the
written confirmation, such notice shall govern if the Bank
has acted in reliance thereon.
The principal balance of the LIBOR Rate Advances
may not be prepaid, in whole or in part, before the end of
any Interest Period. If, for any reason, a LIBOR Rate
Advance is paid prior to the last business day of any
Interest Period, the Joint Borrowers agree to indemnify the
Bank against any loss (including any loss on redeployment of
the funds repaid), cost or expense incurred by the Bank as a
result of such prepayment.
The total unpaid principal balance and all accrued
but unpaid interest on this Note shall be due and payable at
maturity on March 31, 2001 (the "Expiration Date").
The Bank, on the occurrence of any Event of Default under the
Facility Letter may, without notice, appropriate and apply toward the payment
of the outstanding balance of the Note, if not paid when due, or toward the
payment of outstanding sums due to the Bank under the Facility Letter, any
indebtedness of the Bank to the Joint Borrowers howsoever created or arising,
including, without limitation, any and all balances, credits, deposits,
accounts or monies of the Joint Borrowers.
All amounts outstanding under this Note shall become immediately due
and payable at the option of the Bank, without any demand or notice
whatsoever, in the event that (i) the Joint Borrowers shall fail to make any
payment when due of principal or interest on this Note or on any other
obligation of the Joint Borrowers to the Bank or (ii) any other Event of
Default shall occur under the Facility Letter. In addition, this and all
other obligations of the Joint Borrowers to the Bank shall be and become due
and payable immediately without any demand or notice whatsoever: (a) in the
event of any assignment for the benefit of creditors of the Joint Borrowers,
or the commencement of any bankruptcy, receivership, insolvency
reorganization, or liquidation proceedings by or against the Joint Borrowers;
or (b) the event of any garnishment, attachment, levy or lien being asserted
against any deposit balance maintained (or any property deposited) by the
Joint Borrowers with the Bank.
All Advances made by the Bank and all payments made by the Joint
Borrowers hereunder shall be recorded on the books and records of the Bank.
The Joint Borrowers agree that in any action or proceeding instituted to
collect or enforce collection of this Note, the amount endorsed on the
Schedule attached to this Note at that time or inscribed in such other records
of the Bank shall be prima-facie evidence of the unpaid principal balance of
this Note.
If any payment to be made by the Joint Borrowers hereunder shall
become due on a Saturday, Sunday or business holiday under Federal law or the
laws of the State of Nebraska, such payment shall be made on the next
succeeding business day and such extension of time shall be included in
computing any interest in respect of such payment.
If any change in any law, rule, regulation or directive (including,
without limitation, Regulation D of the Board of Governors of the Federal
Reserve System) imposes any condition the result of which is to increase the
cost to the Bank of making, funding or maintaining any LIBOR Rate Advance or
reduces any amount receivable by the Bank hereunder in connection with a LIBOR
Rate Advance, the Joint Borrowers shall pay the Bank the amount of such
increased expense incurred or the reduction in any amount received which the
Bank determines is attributable to making, funding and maintaining the LIBOR
Rate Advances.
The Bank may elect to sell participations in or assign its rights
under Advances. The Joint Borrowers agree that if they fail to pay any
Advance when due, any purchaser of an interest in such Advance shall be
entitled to seek enforcement of this Note if the purchaser is permitted to do
so pursuant to the terms of the participation agreement between the Bank and
such purchaser.
The Joint Borrowers hereby authorize the Bank and any other holder of
an interest in this Note (a "holder") to disclose confidential information
relating to the financial condition or operations of the Joint Borrowers (i)
to any affiliate of the Bank or any holder, (ii) to any purchaser or
prospective purchaser of an interest in any Advance, (iii) to legal counsel,
accountants, and other professional advisors to the Bank or any holder, (iv)
to regulatory officials, (v) as requested or required by law, regulation, or
legal process or (vi) in connection with any legal proceeding to which the
Bank or any other holder is a party; provided:
(A) in the case of disclosures pursuant to (i), (ii) and (iii)
above, the Bank shall have first received from each such
disclosee, a written agreement to maintain such confidential
information in strict confidence and;
(B) in the case of disclosures pursuant to (iv), (v) and (vi)
above, the Bank shall have given TSA reasonable notice so as
to afford TSA an opportunity to secure protection of the
confidential information.
The Joint Borrowers hereby indemnify the Bank against any loss
(including any loss on redeployment of funds prepaid), cost or expense
incurred by the Bank as a result of a default hereunder or under the Facility
Letter or acceleration of this Note and all Advances evidenced hereby,
including, without limitation, all court costs, reasonable attorneys' fees and
other costs of collection.
This Note is executed in conjunction with the Facility Letter and is subject
to all of the terms and conditions contained therein. THIS NOTE SHALL BE
GOVERNED BY THE INTERNAL LAW (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF
NEBRASKA, GIVING EFFECT, HOWEVER, TO FEDERAL LAWS APPLICABLE TO NATIONAL
BANKS. THE JOINT BORROWERS AND THE BANK EACH HEREBY WAIVE TRIAL BY JURY IN ANY
JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER
SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF RELATED TO,
OR CONNECTED WITH THIS NOTE OR THE RELATIONSHIP ESTABLISHED HEREUNDER.
TRANSACTION SYSTEMS ARCHITECTS, INC.
By: /s/ Dwight G. Hanson
----------------------------
Dwight G. Hanson
Its: Chief Financial Officer
By:
----------------------------
Its:
-------------------------
ACI WORLDWIDE INC.
By: /s/ Dwight G. Hanson
---------------------------
Dwight G. Hanson
Its: Chief Financial Officer
By:
---------------------------
Its:
------------------------
SCHEDULE
to be attached and become a part of the Interim Promissory Note
dated December 28, 2000 executed by Transaction Systems Architects Inc.
and ACI Worldwide Inc. as "Joint Borrowers" and payable to
Wells Fargo Bank Nebraska, National Association
Unpaid Initials
Amount Principal of
Date Amount of Balance Person
of of Interest Principal of Making
Transaction Loan Maturity Rate Payment Note Notation
- ----------- ------ -------- -------- --------- --------- --------
Corporate
Banking
Services
- --------------------------------------------------------------------------------
Advice of Borrowing Terms
for
ACI Worldwide (EMEA) Ltd
- --------------------------------------------------------------------------------
From:
Northern Home Counties
Corporate Business Centre
14 August 2000
Advice of Borrowing Terms
Relationship Office: Northern Home Counties Date: 14 August 2000
Office: Corporate Business Centre
Borrower(s) Registered Number:
ACI Worldwide (EMEA) Ltd 2310474
We intend that the facilities listed in Part 1 of the attached Facility
Schedule (the "on-demand facilities") should remain available to the
borrower(s) until 09 August 2001 and all facilities should be reviewed on or
before that date. The facilities are, however, subject to the following:-
o the terms and conditions below,
o the specific conditions applicable to an individual facility as
detailed in the Facility Schedule,
o the Security detailed in the attached Security Schedule, and
o the attached General Terms.
All amounts outstanding are repayable on demand which may be made by us at our
discretion at any time and the facilities may be withdrawn, reduced, made
subject to further conditions or otherwise varied by us giving notice in
writing.
Preconditions:
Preconditions which must be satisfied before facilities can be utilised:
o A signed copy of this Advice of Borrowing Terms to be returned to us.
o Receipt of an amended Letter of Comfort from Transaction Systems
Architects reflecting the date of this Advice of Borrowing Terms.
Conditions:
The following conditions must be satisfied at all times while the facilities
are outstanding, but this will not affect our right to demand repayment at any
time:
o Audited accounts to be provided to us within 9 months of the
financial year end to which they relate for:
ACI Worldwide (EMEA) Ltd
Applied Communications UK Inc Holding Ltd
T.S.A. Inc.
o Quarterly Management Information pack to be forwarded within 21 days of
the end of the period to which they relate. To include Profit & Loss,
Balance Sheet, Actual out turn Vs Projected Forecasts with brief
commentary per any significant divergence.
o Tangible Net Worth (T.N.W.) of ACI Worldwide (EMEA) Ltd maintained in
excess of GBP6,000,000.[T.N.W. defined as the amount for the time being
paid up or credited as paid up on your issued share capital plus all
reserves of the Company which would, in accordance with generally
accepted United Kingdom accounting principles (consistently applied) be
classified as shareholders capital plus retained earnings of the
Company but deducting assets of the Company which would, in accordance
with such principles, be classified as intangible assets).
M S Yates
Corporate Manager
For and on behalf of
National Westminster Bank Plc
Acceptance:
To signify your agreement to the terms and conditions outlined above please
sign and return the enclosed copy of this Advice of Borrowing Terms within 14
days.
Form of Acceptance
I accept the facility/facilities on the above terms and conditions and confirm
that I have been authorised by the Board(s) of Directors of the Borrower(s) to
sign this Form of Acceptance on behalf of the Borrower(s).
By (name and title): .......................... Date
For and on behalf of: ACI Worldwide (EMEA) Ltd
Facility Schedule
Part 1 - Facilities Repayable on Demand:
---------------------------------
Composite Overdraft
:-
Base rate
---------------------------------
- --------------------------------- ----------------------------------------------
Account Numbers: 49011413 /140-01-03353257 / 550-00-06850871
Name of Borrower ACI Worldwide (EMEA) Ltd
Limit: Sterling Equivalent GBP3,000,000
Purpose: To finance working capital
- --------------------------------- ----------------------------------------------
Repayment: Fully fluctuating
- --------------------------------- ----------------------------------------------
1st Debit Interest Rate: 1% above the Bank's Base rate
- --------------------------------- ----------------------------------------------
2nd Debit Interest Rate: 4% above the Bank's Base rate on borrowing
in excess of agreed facilities
- --------------------------------- ----------------------------------------------
Interest Payable: Quarterly
Arrangement Fee: Non utilisation fee - 0.25% (GBP7,500) will
be debited on receipt of the signed copy of
this advice
Excess Fees: We will be entitled to charge an excess fee
at the Bank's published rate for each day
any agreed limit is exceeded (see our
"Services & Charges for Business Customers"
brochure for details).
- --------------------------------- ----------------------------------------------
--------------------------------
Terminable
Indemnities
--------------------------------
- --------------------------------- ----------------------------------------------
Name of Borrower: ACI Worldwide (EMEA) Ltd
Limit: US$120,000
Type and Purpose: Guarantee in favour of Bank Dhofar Al-Omani
Al-Fransi
Basis of Expiry: Expiry on return of original Guarantee
documentation
Indemnity Fee: 1% p.a. payable quarterly in advance, to be
debited to account number 49011413
quarterly
- --------------------------------- ----------------------------------------------
-----------------------------
Forward
Exchange
-----------------------------
- --------------------------------- ----------------------------------------------
Name of Borrower: ACI Worldwide (EMEA) Ltd
Notional Limit: GBP300,000 where utilisation is calculated
in accordance with the Bank's Forward
Exchange Matrix from time to time.
- --------------------------------- ----------------------------------------------
-----------------------------
Settlement Risk
-----------------------------
- --------------------------------- ----------------------------------------------
Name of Borrower: ACI Worldwide (EMEA) Ltd
Limit/Frequency: GBP750,000 per month
Type and Purpose: BACS submissions
- --------------------------------- ----------------------------------------------
Security Schedule
We rely on the security detailed below (and require additional security where
specified) to repay, on demand, all your current and future liabilities (both
actual and contingent) to us. These liabilities include, without limitation,
those incurred by you under the facility(ies) specified in the Facility
Schedule.
- --------------- -------------------------------------- -------------------------
Date
Executed/New: Security: Given/to be given by:
- --------------- -------------------------------------- -------------------------
New Letter of Comfort Transaction Systems
Architects INC.
- --------------- -------------------------------------- -------------------------
N/A Informal deposit of credit balance ACI Worldwide (EMEA) Ltd
US$120,000