Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
Commission File Number 0-25346
ACI WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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47-0772104
(I.R.S. Employer
Identification No.) |
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120 Broadway, Suite 3350
New York, New York 10271
(Address of principal executive offices,
including zip code)
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(646) 348-6700
(Registrants telephone number,
including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of the Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
As of April 27, 2011, there were 33,416,569 shares of the registrants common stock outstanding.
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited and in thousands, except share and per share amounts)
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March 31, |
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December 31, |
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2011 |
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2010 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
168,882 |
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$ |
171,310 |
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Billed receivables, net of allowances of $5,533 and $5,738, respectively |
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71,260 |
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|
77,773 |
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Accrued receivables |
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|
8,043 |
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|
|
9,578 |
|
Deferred income taxes, net |
|
|
10,087 |
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|
|
12,317 |
|
Prepaid expenses |
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|
15,587 |
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|
13,369 |
|
Other current assets |
|
|
11,741 |
|
|
|
10,462 |
|
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|
|
|
|
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Total current assets |
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285,600 |
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|
294,809 |
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|
|
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Property and equipment, net |
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22,112 |
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18,539 |
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Software, net |
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26,271 |
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25,366 |
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Goodwill |
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218,403 |
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203,935 |
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Other intangible assets, net |
|
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23,428 |
|
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|
20,448 |
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Deferred income taxes, net |
|
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30,932 |
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|
28,143 |
|
Other noncurrent assets |
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8,707 |
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|
10,289 |
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TOTAL ASSETS |
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$ |
615,453 |
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$ |
601,529 |
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|
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities |
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Accounts payable |
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$ |
14,506 |
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$ |
15,263 |
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Accrued employee compensation |
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16,626 |
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|
26,174 |
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Deferred revenue |
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141,433 |
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|
121,936 |
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Income taxes payable |
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2,482 |
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|
6,181 |
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Alliance agreement liability |
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1,600 |
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1,917 |
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Note payable under credit facility |
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75,000 |
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75,000 |
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Accrued and other current liabilities |
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21,730 |
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24,293 |
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Total current liabilities |
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273,377 |
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270,764 |
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Deferred revenue |
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33,239 |
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31,045 |
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Alliance agreement noncurrent liability |
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20,667 |
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20,667 |
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Other noncurrent liabilities |
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22,512 |
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23,430 |
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|
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|
|
|
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Total liabilities |
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349,795 |
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345,906 |
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Commitments and contingencies (Note 11) |
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Stockholders equity |
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Preferred stock, $0.01 par value; 5,000,000 shares authorized; no shares
issued and
outstanding at March 31, 2011 and December 31, 2010 |
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Common stock, $0.005 par value; 70,000,000 shares authorized; 40,821,516
shares issued at March 31, 2011 and December 31, 2010 |
|
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204 |
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|
204 |
|
Common stock warrants |
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24,003 |
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|
24,003 |
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Treasury stock, at cost, 7,399,387 and 7,548,752 shares outstanding
at March 31, 2011 and December 31, 2010, respectively |
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|
(168,343 |
) |
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(171,676 |
) |
Additional paid-in capital |
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314,576 |
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|
312,947 |
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Retained earnings |
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|
106,911 |
|
|
|
105,289 |
|
Accumulated other comprehensive loss |
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|
(11,693 |
) |
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|
(15,144 |
) |
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Total stockholders equity |
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|
265,658 |
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|
255,623 |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
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$ |
615,453 |
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|
$ |
601,529 |
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|
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share amounts)
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Three Months Ended March 31, |
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2011 |
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2010 |
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Revenues: |
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Software license fees |
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$ |
43,724 |
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$ |
29,317 |
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Maintenance fees |
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35,070 |
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33,422 |
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Services |
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15,371 |
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14,618 |
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Software hosting fees |
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|
10,378 |
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|
10,386 |
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Total revenues |
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104,543 |
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87,743 |
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|
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Expenses: |
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Cost of software license fees (1) |
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3,442 |
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|
3,074 |
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Cost of maintenance, services, and hosting fees
(1) |
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29,607 |
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27,892 |
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Research and development |
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23,130 |
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18,396 |
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Selling and marketing |
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19,294 |
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16,845 |
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General and administrative |
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16,362 |
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17,462 |
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Depreciation and amortization |
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5,210 |
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4,979 |
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Total expenses |
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97,045 |
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88,648 |
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Operating income (loss) |
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7,498 |
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|
(905 |
) |
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Other income (expense): |
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|
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Interest income |
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238 |
|
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|
124 |
|
Interest expense |
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(643 |
) |
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|
(523 |
) |
Other, net |
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|
(302 |
) |
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|
(214 |
) |
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|
|
|
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Total other income (expense) |
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|
(707 |
) |
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|
(613 |
) |
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|
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|
|
|
|
|
|
|
|
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Income (loss) before income taxes |
|
|
6,791 |
|
|
|
(1,518 |
) |
Income tax expense |
|
|
5,169 |
|
|
|
571 |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1,622 |
|
|
$ |
(2,089 |
) |
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|
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|
|
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Income (loss) per share information |
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Weighted average shares outstanding |
|
|
|
|
|
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|
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Basic |
|
|
33,318 |
|
|
|
33,725 |
|
Diluted |
|
|
33,983 |
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|
|
33,725 |
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|
|
|
|
|
|
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Income (loss) per share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.05 |
|
|
$ |
(0.06 |
) |
Diluted |
|
$ |
0.05 |
|
|
$ |
(0.06 |
) |
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|
(1) |
|
The cost of software license fees excludes charges for depreciation but includes
amortization of purchased and developed software for resale. The cost of maintenance, services,
and hosting fees excludes charges for depreciation. |
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY AND
COMPREHENSIVE INCOME (LOSS)
(unaudited and in thousands)
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|
|
|
|
|
|
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Accumulated |
|
|
|
|
|
|
|
|
|
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Common |
|
|
|
|
|
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Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Common |
|
|
Stock |
|
|
Treasury |
|
|
Paid-in |
|
|
Retained |
|
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Comprehensive |
|
|
|
|
|
|
Stock |
|
|
Warrants |
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Total |
|
Balance at December 31, 2010 |
|
$ |
204 |
|
|
$ |
24,003 |
|
|
$ |
(171,676 |
) |
|
$ |
312,947 |
|
|
$ |
105,289 |
|
|
$ |
(15,144 |
) |
|
$ |
255,623 |
|
Comprehensive income information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,622 |
|
|
|
|
|
|
|
1,622 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,451 |
|
|
|
3,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,073 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,369 |
|
|
|
|
|
|
|
|
|
|
|
2,369 |
|
Shares issued and forfeited, net, under
stock plans
including income tax benefits |
|
|
|
|
|
|
|
|
|
|
3,679 |
|
|
|
(740 |
) |
|
|
|
|
|
|
|
|
|
|
2,939 |
|
Repurchase of restricted stock for tax
withholdings |
|
|
|
|
|
|
|
|
|
|
(346 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(346 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2011 |
|
$ |
204 |
|
|
$ |
24,003 |
|
|
$ |
(168,343 |
) |
|
$ |
314,576 |
|
|
$ |
106,911 |
|
|
$ |
(11,693 |
) |
|
$ |
265,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
|
|
|
|
|
|
|
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|
|
|
For the Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1,622 |
|
|
$ |
(2,089 |
) |
Adjustments to reconcile net income (loss) to net cash flows from operating
activities |
|
|
|
|
|
|
|
|
Depreciation |
|
|
1,683 |
|
|
|
1,617 |
|
Amortization |
|
|
5,136 |
|
|
|
4,874 |
|
Tax expense of intellectual property shift |
|
|
550 |
|
|
|
549 |
|
Deferred income taxes |
|
|
2,318 |
|
|
|
4,589 |
|
Stock-based compensation expense |
|
|
2,369 |
|
|
|
1,806 |
|
Excess tax benefit of stock options exercised |
|
|
(895 |
) |
|
|
146 |
|
Other |
|
|
72 |
|
|
|
262 |
|
Changes in operating assets and liabilities, net of impact of acquisitions: |
|
|
|
|
|
|
|
|
Billed and accrued receivables, net |
|
|
9,422 |
|
|
|
28,821 |
|
Other current and noncurrent assets |
|
|
(2,420 |
) |
|
|
(3,053 |
) |
Accounts payable |
|
|
(2,921 |
) |
|
|
(3,315 |
) |
Accrued employee compensation |
|
|
(10,564 |
) |
|
|
(8,920 |
) |
Accrued liabilities |
|
|
(2,995 |
) |
|
|
(4,432 |
) |
Current income taxes |
|
|
(2,746 |
) |
|
|
(14,837 |
) |
Deferred revenue |
|
|
17,894 |
|
|
|
8,058 |
|
Other current and noncurrent liabilities |
|
|
(582 |
) |
|
|
(498 |
) |
|
|
|
|
|
|
|
Net cash flows from operating activities |
|
|
17,943 |
|
|
|
13,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(5,188 |
) |
|
|
(1,179 |
) |
Purchases of software and distribution rights |
|
|
(1,844 |
) |
|
|
(2,763 |
) |
Alliance technical enablement expenditures |
|
|
(256 |
) |
|
|
(1,707 |
) |
Acquisition of business, net of cash acquired |
|
|
(16,729 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activities |
|
|
(24,017 |
) |
|
|
(5,649 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock |
|
|
300 |
|
|
|
257 |
|
Proceeds from exercises of stock options |
|
|
1,782 |
|
|
|
1,356 |
|
Excess tax benefit of stock options exercised |
|
|
895 |
|
|
|
73 |
|
Repurchases of common stock |
|
|
|
|
|
|
(2,998 |
) |
Repurchase of restricted stock for tax withholdings |
|
|
(346 |
) |
|
|
(255 |
) |
Payments on debt and capital leases |
|
|
(524 |
) |
|
|
(325 |
) |
|
|
|
|
|
|
|
Net cash flows from financing activities |
|
|
2,107 |
|
|
|
(1,892 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate fluctuations on cash |
|
|
1,539 |
|
|
|
(1,408 |
) |
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(2,428 |
) |
|
|
4,629 |
|
Cash and cash equivalents, beginning of period |
|
|
171,310 |
|
|
|
125,917 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
168,882 |
|
|
$ |
130,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
Income taxes paid, net |
|
$ |
7,845 |
|
|
$ |
13,460 |
|
Interest paid |
|
$ |
562 |
|
|
$ |
442 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
6
ACI WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Condensed Consolidated Financial Statements
The unaudited condensed consolidated financial statements include the accounts of ACI Worldwide,
Inc. and its wholly-owned subsidiaries (collectively, the Company). All intercompany balances and
transactions have been eliminated. The condensed consolidated financial statements as of March 31,
2011, and for the three months ended March 31, 2011 and 2010, are unaudited and reflect all
adjustments of a normal recurring nature, except as otherwise disclosed herein, which are, in the
opinion of management, necessary for a fair presentation, in all material respects, of the
financial position and operating results for the interim periods. The condensed consolidated
balance sheet as of December 31, 2010 is derived from the audited financial statements.
The condensed consolidated financial statements contained herein should be read in conjunction with
the consolidated financial statements and notes thereto contained in the Companys annual report on
Form 10-K for the fiscal year ended December 31, 2010, filed on February 18, 2011. Results for the
three months ended March 31, 2011, are not necessarily indicative of results that may be attained
in the future.
The preparation of condensed consolidated financial statements in conformity with accounting
principles generally accepted in the United States (U.S. GAAP) requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the condensed consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Comprehensive Income (loss)
The Companys comprehensive income for the three months ended March 31, 2011 was $5.1 million
compared to a $5.8 million loss for the same period in 2010. The two components of comprehensive
income (loss) are net income (loss) and foreign currency translation adjustments. The foreign
currency translation adjustments for the three months ended March 31, 2011 and March 31, 2010 were
$3.5 million and $(3.7) million, respectively. Accumulated other comprehensive loss included in
the Companys condensed consolidated balance sheet represents the accumulated foreign currency
translation adjustment. Since the undistributed earnings of the Companys foreign subsidiaries are
considered to be indefinitely reinvested, the components of accumulated other comprehensive loss
have not been tax effected.
Note Payable Under Credit Facility
On September 29, 2006, the Company entered into a five year revolving credit facility with a
syndicate of financial institutions, as lenders, providing for revolving loans and letters of
credit in an aggregate principal amount not to exceed $150 million. The facility has a maturity
date of September 29, 2011, at which time any principal amounts outstanding are due. Obligations
under the facility are unsecured and uncollateralized, but are jointly and severally guaranteed by
certain domestic subsidiaries of the Company. As of March 31, 2011, the revolving credit facility
is classified as current due to the maturity date being within 12 months. The Company is currently
in discussions with various lenders, including its current lenders, for a new credit facility and
anticipates closing on the new facility prior to the maturation of the current facility.
Revenue
Update to Revenue Accounting Policies. With the exception of the adoption of the new accounting
pronouncements related to revenue recognition, which are discussed below, there have been no
material changes to the Companys significant accounting policies, as compared to the significant
accounting policies described in its annual report on Form 10-K for the fiscal year ended December
31, 2010.
Revenue Recognition for Arrangements with Multiple Deliverables.
Effective January 1, 2011 the Company adopted on a prospective basis for all new or materially
modified arrangements entered into on or after that date, the amended accounting guidance for
multiple-deliverable revenue arrangements and the amended guidance related to the scope of existing
software revenue recognition guidance. The adoption of this guidance did not have a material impact
on the Companys condensed consolidated financial statements for the three months ended
March 31, 2011, nor does the Company expect it to have a material impact on its future financial statements.
7
A multiple-deliverable arrangement is separated into more than one unit of accounting if the
delivered item(s) has value to the customer on a stand-alone basis; if the arrangement includes a
general right of return relative to the delivered item(s); and if delivery or performance of the
undelivered item(s) is considered probable and substantially in the control of the Company. If
these criteria are not met, the arrangement is accounted for as a single unit of accounting which
would result in revenue being recognized ratably over the contract term or being deferred until the
earlier of when such criteria are met or when the last undelivered element is delivered. If these
criteria are met for each, the arrangement consideration is allocated to the separate units of
accounting based on each units relative selling price. The selling price for each element is based
upon the following selling price hierarchy: vendor-specific objective evidence (VSOE) if
available, third party evidence (TPE) if VSOE is not available, or estimated selling price if
neither VSOE nor TPE is available.
The Company enters into
hosting-related arrangements that may consist of multiple service deliverables including initial
implementation and setup services; on-going support services; and other services. The Companys hosted
products operate in a highly regulated and controlled environment which requires a highly
specialized and unique set of initial implementation and setup services prior to the commencement
of hosting-related services. Due to the essential and specialized nature of the implementation
and setup services, these services do not qualify as separate units of accounting separate from
the hosting service as the delivered services do not have value to the client on a stand-alone
basis. The on-going support and other services are considered as separate units of accounting.
The total arrangement consideration is allocated to each of the separate units of accounting based
on their relative selling price and revenue is recognized over their respective service periods.
As the support and other services periods are the same as the hosting service period, the
recognition pattern is similar to what was experienced prior to adopting the amended accounting
guidance for multiple-deliverable revenue arrangements.
Vendor-Specific Objective Evidence
Certain of the Companys software license arrangements include post contract customer support
(maintenance or PCS) terms that fail to achieve VSOE of fair value due to non-substantive renewal
periods, or contain a range of possible non-substantive PCS renewal amounts. As a result of the
maturation of certain retail payment engine products, including BASE24, a higher number of software
license arrangements fail to achieve VSOE of fair value for PCS due to non-substantive renewal
periods, or contain a range of possible PCS renewal amounts. For these arrangements, VSOE of fair
value of PCS does not exist and revenues for the software license, PCS and services, if applicable,
are considered to be one accounting unit and are therefore recognized ratably over the longer of
the contractual service term or the initial PCS term once the delivery of both services has
commenced. The Company typically classifies revenues associated with these arrangements in
accordance with the contractually specified amounts, which approximate fair value assigned to the
various elements, including software license fees, maintenance fees and services, if applicable.
This allocation methodology has been applied to the following amounts included in revenues in the
consolidated statements of operations from arrangements for which VSOE of fair value does not exist
for each undelivered element (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Software license fees |
|
$ |
22,918 |
|
|
$ |
5,165 |
|
Maintenance fees |
|
|
5,265 |
|
|
|
1,143 |
|
Services |
|
|
123 |
|
|
|
1,380 |
|
|
|
|
|
|
|
|
Total |
|
$ |
28,306 |
|
|
$ |
7,688 |
|
|
|
|
|
|
|
|
2. Acquisitions
ISD Holdings, Inc.
On March 18, 2011, the Company closed the acquisition of ISD Holdings, Inc. and its 100% owned
subsidiary ISD Corporation (collectively ISD). ISDs suite of products enables retailers to
consolidate, manage, secure and route all electronic transactions from their point-of-sale systems
to third party processors for authorization and settlement.
8
The aggregate purchase price of ISD was $19.1 million, after working capital adjustments in
accordance with the terms of the purchase agreement, which included cash acquired of $2.4 million.
The allocation of the purchase price to specific assets and liabilities was based on the relative
fair value of all assets and liabilities.
In connection with the acquisition, the Company recorded the following amounts based upon its
preliminary purchase price allocation during the three months ended March 31, 2011 (in thousands,
except weighted-average useful lives):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average Useful |
|
|
|
Amount |
|
|
Lives |
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
2,375 |
|
|
|
|
|
Accounts Receivable |
|
|
2,030 |
|
|
|
|
|
Other current assets |
|
|
175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets acquired |
|
|
4,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets: |
|
|
|
|
|
|
|
|
Property and equipment |
|
|
519 |
|
|
|
|
|
Goodwill |
|
|
11,569 |
|
|
|
|
|
Intellectual property rights |
|
|
2,338 |
|
|
5 years |
Customer relationships |
|
|
4,059 |
|
|
9 years |
Trade name |
|
|
247 |
|
|
5 years |
Other non-current assets |
|
|
375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired |
|
|
23,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities acquired |
|
|
(4,583 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired |
|
$ |
19,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Factors contributing to the purchase price which resulted in the goodwill (which is not tax
deductible) include the acquisition of management, sales, and technology personnel with the skills
to market new and existing products of the Company. Pro forma results are not presented because
they are not material.
3. Stock-Based Compensation Plans
Employee Stock Purchase Plan
Under the Companys 1999 Employee Stock Purchase Plan, as amended (the ESPP), a total of
1,500,000 shares of the Companys common stock have been reserved for issuance to eligible
employees. Participating employees are permitted to designate up to the lesser of $25,000 or 10% of
their annual base compensation for the purchase of common stock under the ESPP. Purchases under the
ESPP are made one calendar month after the end of each fiscal quarter. The price for shares of
common stock purchased under the ESPP is 85% of the stocks fair market value on the last business
day of the three-month participation period. Shares issued under the ESPP during the three months
ended March 31, 2011 and 2010 totaled 11,373 and 16,709, respectively.
9
Stock-Based Payments
A summary of stock options issued pursuant to the Companys stock incentive plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
Average |
|
|
Contractual |
|
|
Intrinsic Value of |
|
|
|
Number of |
|
|
Exercise |
|
|
Term |
|
|
In-the-Money |
|
|
|
Shares |
|
|
Price |
|
|
(Years) |
|
|
Options |
|
Outstanding as of December 31,
2010 |
|
|
3,510,538 |
|
|
$ |
21.55 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(150,353 |
) |
|
|
11.85 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(2,134 |
) |
|
|
16.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of March 31, 2011 |
|
|
3,358,051 |
|
|
$ |
21.98 |
|
|
|
5.49 |
|
|
$ |
37,154,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of March 31, 2011 |
|
|
2,168,534 |
|
|
$ |
21.99 |
|
|
|
4.72 |
|
|
$ |
24,225,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011, the Company expects that 94.8% of the options will vest over the vesting
period.
No options were granted during the three months ended March 31, 2011. The weighted-average grant
date fair value of stock options granted during the three months ended March 31, 2010 was $10.77.
The Company issued treasury shares for the exercise of stock options during the three months ended
March 31, 2011 and 2010. The total intrinsic value of stock options exercised during the three
months ended March 31, 2011 and 2010 was $2.8 million and $0.6 million, respectively.
The fair value of options granted during the three months ended March 31, 2010 was estimated on the
date of grant using the Black-Scholes option-pricing model, a pricing model acceptable under U.S.
GAAP, with the following weighted-average assumptions:
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, 2010 |
|
|
|
|
|
|
Expected life (years) |
|
|
6.00 |
|
Interest rate |
|
|
3.1 |
% |
Volatility |
|
|
51.4 |
% |
Dividend yield |
|
|
|
|
Expected volatilities are based on the Companys historical common stock volatility derived from
historical stock price data for historical periods commensurate with the options expected life.
The expected life of options granted represents the period of time that options granted are
expected to be outstanding. The Company used the simplified method for determining the expected
life. The simplified method was used as the historical data did not provide a reasonable basis upon
which to estimate the expected term due to the extended period during which individuals were unable
to exercise options while the Company was not current with its filings with the Securities and
Exchange Commission (SEC). The risk-free interest rate is based on the implied yield currently
available on United States Treasury zero coupon issues with a term equal to the expected term at
the date of grant of the options. The expected dividend yield is zero as the Company has
historically paid no dividends and does not anticipate dividends to be paid in the future.
10
A summary of nonvested long-term incentive program performance share awards (LTIP performance
shares) outstanding as of March 31, 2011 and changes during the period are as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Weighted- |
|
|
|
Shares at |
|
|
Average |
|
|
|
Expected |
|
|
Grant Date |
|
Nonvested LTIP Performance Shares |
|
Attainment |
|
|
Fair Value |
|
Nonvested as of December 31, 2010 |
|
|
499,035 |
|
|
$ |
20.57 |
|
Forfeited |
|
|
(3,840 |
) |
|
|
16.52 |
|
|
|
|
|
|
|
|
Nonvested as of March 31, 2011 |
|
|
495,195 |
|
|
$ |
20.61 |
|
|
|
|
|
|
|
|
A summary of nonvested restricted share awards (RSAs) as of March 31, 2011 and changes
during the period are as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Restricted |
|
|
Weighted-Average Grant |
|
Nonvested Restricted Share Awards |
|
Share Awards |
|
|
Date Fair Value |
|
Nonvested as of December 31, 2010 |
|
|
192,298 |
|
|
$ |
18.42 |
|
Vested |
|
|
(40,834 |
) |
|
|
16.54 |
|
|
|
|
|
|
|
|
Nonvested as of March 31, 2011 |
|
|
151,464 |
|
|
$ |
18.93 |
|
|
|
|
|
|
|
|
During the three months ended March 31, 2011, 40,834 of the RSAs vested. The Company withheld
12,361 of those shares to pay the employees portion of the minimum payroll withholding taxes.
As of March 31, 2011, there were unrecognized compensation costs of $5.7 million related to
nonvested stock options, $2.1 million related to the nonvested RSAs, and $7.0 million related to
the LTIP performance shares, which the Company expects to recognize over weighted-average periods
of 2.1 years, 1.6 years and 2.3 years, respectively.
The Company recorded stock-based compensation expenses for the three months ended March 31, 2011
and 2010 related to stock options, LTIP performance shares, RSAs, and the ESPP of $2.4 million and
$1.8 million, respectively, with corresponding tax benefits of $0.9 million and $0.7 million,
respectively. Tax benefits in excess of the options grant date fair value are classified as
financing cash flows. No stock-based compensation costs were capitalized during the three months
ended March 31, 2011 and 2010. Estimated forfeiture rates, stratified by employee classification,
have been included as part of the Companys calculations of compensation costs. The Company
recognizes compensation costs for stock option awards, which vest with the passage of time with
only service conditions on a straight-line basis over the requisite service period.
Cash received from option exercises for the three months ended March 31, 2011 and 2010 was $1.8
million and $1.4 million, respectively. The actual tax benefit realized for the tax deductions
from option exercises totaled $1.1 million and $0.2 million for the three months ended March 31,
2011 and 2010, respectively.
4. Goodwill
Changes in the carrying amount of goodwill during the three months ended March 31, 2011, were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
|
EMEA |
|
|
Asia/Pacific |
|
|
Total |
|
Gross Balance prior to December 31, 2010 |
|
$ |
187,362 |
|
|
$ |
44,250 |
|
|
$ |
19,755 |
|
|
$ |
251,367 |
|
Total impairment prior to December 31,
2010 |
|
|
(47,432 |
) |
|
|
|
|
|
|
|
|
|
|
(47,432 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2010 |
|
|
139,930 |
|
|
|
44,250 |
|
|
|
19,755 |
|
|
|
203,935 |
|
Addition acquisition of ISD (1) |
|
|
11,569 |
|
|
|
|
|
|
|
|
|
|
|
11,569 |
|
Foreign currency translation adjustments |
|
|
61 |
|
|
|
2,423 |
|
|
|
415 |
|
|
|
2,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2011 |
|
$ |
151,560 |
|
|
$ |
46,673 |
|
|
$ |
20,170 |
|
|
$ |
218,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Addition relates to the goodwill acquired in the acquisition of ISD as discussed in
Note 2. |
11
5. Software and Other Intangible Assets
At March 31, 2011, software net book value totaling $26.3 million, net of $51.2 million of
accumulated amortization, includes the net book value of software marketed for external sale of
$14.3 million. The remaining software net book value of $12.0 million is comprised of various
software that has been acquired or developed for internal use.
Quarterly amortization of software marketed for external sale is computed using the greater of the
ratio of current revenues to total estimated revenues expected to be derived from the software or
the straight-line method over an estimated useful life of three to six years. Software for resale
amortization expense recorded in the three months ended March 31, 2011 and 2010 totaled $1.6
million and $1.5 million, respectively. These software amortization expense amounts are reflected
in cost of software license fees in the condensed consolidated statements of operations.
Amortization of software for internal use of $1.9 million and $1.8 million for the three months
ended March 31, 2011 and 2010, respectively, is included in depreciation and amortization in the
condensed consolidated statements of operations.
The carrying amount and accumulated amortization of the Companys other intangible assets that were
subject to amortization at each balance sheet date are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Amount |
|
|
Amortization |
|
|
Net Balance |
|
|
Amount |
|
|
Amortization |
|
|
Net Balance |
|
Customer relationships |
|
$ |
40,988 |
|
|
$ |
(20,253 |
) |
|
$ |
20,735 |
|
|
$ |
36,393 |
|
|
$ |
(18,855 |
) |
|
$ |
17,538 |
|
Purchased contracts |
|
|
10,814 |
|
|
|
(9,015 |
) |
|
|
1,799 |
|
|
|
10,753 |
|
|
|
(8,504 |
) |
|
|
2,249 |
|
Trademarks and
tradenames |
|
|
1,359 |
|
|
|
(482 |
) |
|
|
877 |
|
|
|
1,062 |
|
|
|
(422 |
) |
|
|
640 |
|
Covenant not to compete |
|
|
85 |
|
|
|
(68 |
) |
|
|
17 |
|
|
|
83 |
|
|
|
(62 |
) |
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
53,246 |
|
|
$ |
(29,818 |
) |
|
$ |
23,428 |
|
|
$ |
48,291 |
|
|
$ |
(27,843 |
) |
|
$ |
20,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets amortization expense totaled $1.6 million for the three months ended
March 31, 2011 and 2010.
Based on capitalized software and other intangible assets at March 31, 2011, estimated amortization
expense for future fiscal years is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
Intangible |
|
|
|
Software |
|
|
Assets |
|
Fiscal Year Ending December 31, |
|
Amortization |
|
|
Amortization |
|
Remainder of 2011 |
|
$ |
10,005 |
|
|
$ |
4,862 |
|
2012 |
|
|
9,992 |
|
|
|
5,527 |
|
2013 |
|
|
3,895 |
|
|
|
5,269 |
|
2014 |
|
|
2,054 |
|
|
|
3,450 |
|
2015 |
|
|
325 |
|
|
|
1,534 |
|
Thereafter |
|
|
|
|
|
|
2,786 |
|
|
|
|
|
|
|
|
Total |
|
$ |
26,271 |
|
|
$ |
23,428 |
|
|
|
|
|
|
|
|
6. Derivative Instruments and Hedging Activities
The Company had two interest rate swaps that terminated on October 4, 2010. Neither swap qualified
for hedge accounting. Accordingly, the loss resulting from the change in the fair value of the
interest rate swaps of $0.2 million for the three months
ended March 31, 2010, was reflected as expense in other income (expense), net in the accompanying
condensed consolidated statements of operations.
As both interest rate swaps terminated on October 4, 2010, there was no liability reported in the
accompanying condensed consolidated balance sheet as of March 31, 2011 and December 31, 2010.
12
7. Common Stock, Treasury Stock and Earnings (Loss) Per Share
The Companys board of directors has approved a stock repurchase program authorizing the Company,
from time to time as market and business conditions warrant, to acquire up to $210 million of its
common stock. Under the program to date, the Company has purchased approximately 8,082,180 shares
for approximately $187.1 million. The Company did not repurchase shares under this program during
the three months ended March 31, 2011. The maximum remaining dollar value of shares authorized for
purchase under the stock repurchase program was approximately $22.9 million as of March 31, 2011.
Earnings (loss) per share is computed in accordance with the U.S. GAAP. Basic earnings (loss) per
share is computed on the basis of weighted average outstanding common shares. Diluted earnings
(loss) per share is computed on the basis of basic weighted average outstanding common shares
adjusted for the dilutive effect of stock options and other outstanding dilutive securities.
The following table reconciles the average share amounts used to compute both basic and diluted
loss per share (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Weighted average share outstanding: |
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
|
33,318 |
|
|
|
33,725 |
|
Add: Dilutive effect of stock options,
restricted stock
awards and common stock warrants |
|
|
665 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding |
|
|
33,983 |
|
|
|
33,725 |
|
|
|
|
|
|
|
|
For the three months ended March 31, 2011 and 2010, 3.2 million and 6.8 million, respectively,
options to purchase shares, restricted share awards, common stock warrants and contingently
issuable shares were excluded from the diluted earnings per share computation as their effect would
be anti-dilutive.
8. Other Income (Expense), net
Other, net is comprised of the following items (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Foreign currency transaction gain (losses) |
|
$ |
(239 |
) |
|
$ |
56 |
|
Loss on interest rate swap |
|
|
|
|
|
|
(158 |
) |
Other |
|
|
(63 |
) |
|
|
(112 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
(302 |
) |
|
$ |
(214 |
) |
|
|
|
|
|
|
|
9. Segment Information
The Companys chief operating decision maker, together with other senior management personnel,
currently focus their review of consolidated financial information and the allocation of resources
based on reporting of operating results, including revenues and operating income, for the
geographic regions of the Americas, Europe/Middle East/Africa (EMEA) and Asia/Pacific. The
Companys products are sold and supported through distribution networks covering these three
geographic regions, with each distribution network having its own sales force. The Company
supplements its distribution networks with independent reseller and/or distributor arrangements.
As such, the Company has concluded that its three geographic regions are its operating segments.
The Companys chief operating decision maker reviews financial information presented on a
consolidated basis, accompanied by disaggregated information about revenues and operating income
(loss) by geographical region.
13
The Company allocated segment support expenses such as global product delivery and development,
global customer operations and global product management based upon percentage of revenue per
segment. Corporate overhead costs are allocated as a percentage of the headcount by segment. The
following is selected segment financial data for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Revenues: |
|
|
|
|
|
|
|
|
Americas |
|
$ |
52,330 |
|
|
$ |
46,316 |
|
EMEA |
|
|
42,141 |
|
|
|
31,913 |
|
Asia/Pacific |
|
|
10,072 |
|
|
|
9,514 |
|
|
|
|
|
|
|
|
|
|
$ |
104,543 |
|
|
$ |
87,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss): |
|
|
|
|
|
|
|
|
Americas |
|
$ |
5,963 |
|
|
$ |
3,059 |
|
EMEA |
|
|
6,260 |
|
|
|
(141 |
) |
Asia/Pacific |
|
|
(4,725 |
) |
|
|
(3,823 |
) |
|
|
|
|
|
|
|
|
|
$ |
7,498 |
|
|
$ |
(905 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Total assets: |
|
|
|
|
|
|
|
|
Americas United States |
|
$ |
344,735 |
|
|
$ |
335,457 |
|
Americas Other |
|
|
29,909 |
|
|
|
21,254 |
|
EMEA |
|
|
184,500 |
|
|
|
186,209 |
|
Asia/Pacific |
|
|
56,309 |
|
|
|
58,609 |
|
|
|
|
|
|
|
|
|
|
$ |
615,453 |
|
|
$ |
601,529 |
|
|
|
|
|
|
|
|
No single customer accounted for more than 10% of the Companys consolidated revenues during
the three months ended March 31, 2011 and 2010. Aggregate revenues attributable to customers in
the United Kingdom accounted for 14.9% of the Companys consolidated revenues during the three
months ended March 31, 2011. No country outside the United States accounted for more than 10% of
the Companys consolidated revenues during the three months ended March 31, 2010.
10. Income Taxes
The effective tax rate for the three months ended March 31, 2011 was 76.1%. The Company reported
tax expense for the three months ended March 31, 2010 while reporting a pretax loss for the same
period. The resulting effective tax rate is negative. The effective tax rate in both periods is
negatively impacted by the Companys inability to recognize income tax benefits during the period
on losses sustained in certain tax jurisdictions where the future utilization of the losses are
uncertain, and by the recognition of tax expense associated with the transfer of certain
intellectual property rights from U.S. to non-U.S. entities.
The Companys effective tax rate could fluctuate significantly on a quarterly basis and could be
adversely affected to the extent earnings are lower in the countries in which it operates that have
a lower statutory rate or higher in the countries in which it operates that have a higher statutory
rate or the extent it has losses sustained in countries where the future utilization of losses are
uncertain. The Companys effective tax rate could also fluctuate due to changes in the valuation
of its deferred tax assets or liabilities, or by changes in tax laws, regulations, accounting
principles, or interpretations thereof. In addition, the Company is occasionally subject to
examination of its income tax returns by tax authorities in the jurisdictions it operates. The
Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to
determine the adequacy of its provision for income taxes.
14
The amount of unrecognized tax benefits for uncertain tax positions was $8.4 million as of March
31, 2011 and $8.4 million as of December 31, 2010, excluding related liabilities for interest and
penalties of $2.3 million as of March 31, 2011 and $2.2 million as of December 31, 2010.
The Company believes it is reasonably possible that the total amount of unrecognized tax benefits
will decrease within the next 12 months by approximately $5.9 million, due to the settlement of
various audits and the expiration of statutes of limitation.
11. Commitments and Contingencies
Legal Proceedings
From time to time, the Company is involved in various litigation matters arising in the ordinary
course of its business. The Company is not currently a party to any legal proceedings, the adverse
outcome of which, individually or in the aggregate, the Company believes would be likely to have a
material adverse effect on the Companys financial condition or results of operations.
12. International Business Machines Corporation Alliance
During the three months ended March 31, 2011 and 2010, the Company incurred $0.3 million and $2.9
million of costs, respectively, related to fulfillment of the technical enablement milestones under
the International Business Machines Corporation (IBM) Master Alliance Agreement, as amended (the
Alliance). The reimbursement of these costs was recorded as a reduction of the Alliance agreement
liability and a reduction in capitalizable costs under U.S. GAAP, in the accompanying condensed
consolidated balance sheets and a reduction of operating expenses in the accompanying condensed
consolidated statements of operations for the three months ended March 31, 2011 and 2010. As of
March 31, 2011 and December 31, 2010, $20.7 million was refundable unless certain future milestones
are achieved.
Changes in the Alliance agreement liability were as follows (in thousands):
|
|
|
|
|
|
|
Alliance |
|
|
|
Agreement |
|
|
|
Liability |
|
Balance as of December 31, 2010 |
|
$ |
22,584 |
|
Costs related to fulfillment of technical enablement
milestones |
|
|
(317 |
) |
|
|
|
|
Balance as of March 31, 2011 |
|
$ |
22,267 |
|
|
|
|
|
Of the $22.3 million Alliance agreement liability, $1.6 million is current and $20.7 million
is non-current in the accompanying condensed consolidated balance sheet as of March 31, 2011.
Of the $22.6 million Alliance agreement liability, $1.9 million is current and $20.7 million is
non-current in the accompanying condensed consolidated balance sheet as of December 31, 2010.
15
|
|
|
Item 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Forward-Looking Statements
This report contains forward-looking statements based on current expectations that involve a number
of risks and uncertainties. Generally, forward-looking statements do not relate strictly to
historical or current facts and may include words or phrases such as believes, will, expects,
anticipates, intends, and words and phrases of similar impact. The forward-looking statements
are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of
1995, as amended.
Forward-looking statements in this report include, but are not limited to, statements regarding
future operations, business strategy, business environment and key trends, as well as statements
related to expected financial and other benefits from our organizational restructuring activities.
Many of these factors will be important in determining our actual future results. Any or all of the
forward-looking statements in this report may turn out to be incorrect. They may be based on
inaccurate assumptions or may not account for known or unknown risks and uncertainties.
Consequently, no forward-looking statement can be guaranteed. Actual future results may vary
materially from those expressed or implied in any forward-looking statements, and our business,
financial condition and results of operations could be materially and adversely affected. In
addition, we disclaim any obligation to update any forward-looking statements after the date of
this report, except as required by law.
All of the forward-looking statements in this report are expressly qualified by the risk factors
discussed in our filings with the Securities and Exchange Commission. Such factors include, but are
not limited to, risks related to the global financial crisis and the continuing decline in the
global economy, restrictions and other financial covenants in our credit facility, volatility and
disruption of the capital and credit markets and adverse changes in the global economy, the
maturation of our current credit facility, the restatement of our financial statements,
consolidations and failures in the financial services industry, the accuracy of managements
backlog estimates, the cyclical nature of our revenue and earnings and the accuracy of forecasts
due to the concentration of revenue generating activity during the final weeks of each quarter,
impairment of our goodwill or intangible assets, exposure to unknown tax liabilities, volatility in
our stock price, risks from operating internationally, including fluctuations in currency exchange
rates, increased competition, our offshore software development activities, customer reluctance to
switch to a new vendor, the performance of our strategic product, BASE24-eps, the maturity of
certain products, our strategy to migrate customers to our next generation products, ratable or
deferred recognition of certain revenue associated with customer migrations and the maturity of
certain of our products, demand for our products, failure to obtain renewals of customer contracts
or to obtain such renewals on favorable terms, delay or cancellation of customer projects or
inaccurate project completion estimates, business interruptions or failure of our information
technology and communication systems, our alliance with International Business Machines Corporation
(IBM), our outsourcing agreement with IBM, the complexity of our products and services and the
risk that they may contain hidden defects or be subjected to security breaches or viruses,
compliance of our products with applicable legislation, governmental regulations and industry
standards, our compliance with privacy regulations, the protection of our intellectual property in
intellectual property litigation, future acquisitions, strategic partnerships and investments and
litigation. The cautionary statements in this report expressly qualify all of our forward-looking
statements.
The following discussion should be read together with our financial statements and related notes
contained in this report and with the financial statements and related notes and Managements
Discussion & Analysis in our Annual Report on Form 10-K for the fiscal year ended December 31,
2010, filed February 18, 2011. Results for the three months ended March 31, 2011, are not
necessarily indicative of results that may be attained in the future.
Overview
We develop, market, install and support a broad line of software products and services primarily
focused on facilitating electronic payments. In addition to our own products, we distribute, or act
as a sales agent for, software developed by third parties. Our products are sold and supported
through distribution networks covering three geographic regions the Americas, EMEA and
Asia/Pacific. Each distribution network has its own sales force and supplements its sales force
with independent reseller and/or distributor networks. Our products and services are used
principally by financial institutions, retailers and electronic payment processors, both in
domestic and international markets. Accordingly, our business and operating results are influenced
by trends such as information technology spending levels, the growth rate of the electronic
payments industry, mandated regulatory changes, and changes in the number and type of customers in
the financial services industry. Our products are marketed under the ACI Worldwide and ACI Payment
Systems brands.
16
We derive a majority of our revenues from non-domestic operations and believe our greatest
opportunities for growth exist largely in international markets. Refining our global infrastructure
is a critical component of driving our growth. We have
launched a globalization strategy which includes elements intended to streamline our supply chain
and provide low-cost centers of expertise to support a growing international customer base. We
utilize our Irish subsidiaries to manage certain of our intellectual property rights and to oversee
and manage certain international product development and commercialization efforts. We also
continue to grow low-cost centers of expertise in Timisoara, Romania and Bangalore, India.
Key trends that currently impact our strategies and operations include:
|
|
|
Global Financial Markets Uncertainty. The continuing uncertainty in the global
financial markets has negatively impacted general business conditions. It is possible
that a weakening economy could adversely affect our customers, their purchasing plans,
or even their solvency, but we cannot predict whether or to what extent this will occur.
We have diversified counterparties and customers, but we continue to monitor our
counterparty and customer risks closely. While the effects of the economic conditions in
the future are not predictable, we believe our global presence, the breadth and
diversity of our service offerings and our enhanced expense management capabilities
position us well in a slower economic climate. Market analysts, such as Boston
Consulting Group, indicate that banks now recognize the importance of payments to their
business, so providing services for that aspect of the business is of less risk than for
other aspects of their business. |
|
|
|
Availability of Credit. There have been significant disruptions in the capital and
credit markets during the past two years and many lenders and financial institutions
have reduced or ceased to provide funding to borrowers. The availability of credit,
confidence in the entire financial sector, and volatility in financial markets have been
adversely affected. These disruptions are likely to have some impact on all institutions
in the U.S. banking and financial industries, including our lenders and the lenders of
our customers. While the Federal Reserve Bank and other Central Banks have provided
liquidity into the banking system there is still uncertainty over the strength of
short-term borrowing markets and other capital markets. Reduced liquidity in the markets
could increase financing costs or reduce the availability of funds to finance our
existing operations as well as those of our customers. We are not currently dependent
upon short-term funding, and the limited availability of credit in the market has not
affected our revolving credit facility or our liquidity or materially impacted our
funding costs. |
|
|
|
Increasing electronic payment transaction volumes. Electronic payment volumes
continue to increase around the world, taking market share from traditional cash and
check transactions. In May 2010, Tower Group noted that global noncash payment
transactions are expected to grow in volume at 4.95% per year through 2012 to a total of
299 billion items, with varying growth rates based on the type of payment and part of
the world. We leverage the growth in transaction volumes through the licensing of new
systems to customers whose older systems cannot handle increased volume and through the
licensing of capacity upgrades to existing customers. |
|
|
|
Increasing competition. The electronic payments market is highly competitive and
subject to rapid change. Our competition comes from in-house information technology
departments, third-party electronic payment processors and third-party software
companies located both within and outside of the United States. Many of these companies
are significantly larger than us and have significantly greater financial, technical and
marketing resources. As electronic payment transaction volumes increase, third-party
processors tend to provide competition to our solutions, particularly among customers
that do not seek to differentiate their electronic payment offerings. As consolidation
in the financial services industry continues, we anticipate that competition for those
customers will intensify. |
|
|
|
Adoption of open systems technology. In an effort to leverage lower-cost computing
technologies and current technology staffing and resources, many financial institutions,
retailers and electronic payment processors are seeking to transition their systems from
proprietary technologies to open technologies. Our continued investment in open systems
technologies is, in part, designed to address this demand. |
|
|
|
Electronic payments fraud and compliance. As electronic payment transaction volumes
increase, criminal elements continue to find ways to commit a growing volume of
fraudulent transactions using a wide range of techniques. Financial institutions,
retailers and electronic payment processors continue to seek ways to leverage new
technologies to identify and prevent fraudulent transactions. Due to concerns with
international terrorism and money laundering, financial institutions in particular are
being faced with increasing scrutiny and regulatory pressures. We continue to see
opportunity to offer our fraud detection solutions to help customers manage the growing
levels of electronic payment fraud and compliance activity. |
17
|
|
|
Adoption of smartcard technology. In many markets, card issuers are being required to
issue new cards with embedded chip technology. Chip-based cards are more secure, harder
to copy and offer the opportunity for multiple functions on one card (e.g. debit,
credit, electronic purse, identification, health records, etc.). The EMV standard for
issuing and processing debit and credit card transactions has emerged as the global
standard, with many regions throughout the world working on EMV rollouts. The primary
benefit of EMV deployment is a reduction in electronic payment fraud, with the
additional benefit that the core infrastructure necessary for multi-function chip cards
is being put in place (e.g., chip card readers in ATMs and POS devices) allowing the
deployment of other technologies like contactless. We are working with many customers
around the world to facilitate EMV deployments, leveraging several of our solutions. |
|
|
|
Single Euro Payments Area (SEPA). The SEPA, primarily focused on the European
Economic Community and the United Kingdom, is designed to facilitate lower costs for
cross-border payments and reduce timeframes for settling electronic payment
transactions. Our retail and wholesale banking solutions facilitate key functions that
help financial institutions address these mandated regulations. |
|
|
|
Financial institution consolidation. Consolidation continues on a national and
international basis, as financial institutions seek to add market share and increase
overall efficiency. Such consolidations have increased, and may continue to increase, in
their number, size and market impact as a result of the global economic crisis and the
financial crisis affecting the banking and financial industries. There are several
potential negative effects of increased consolidation activity. Continuing consolidation
of financial institutions may result in a smaller number of existing and potential
customers for our products and services. Consolidation of two of our customers could
result in reduced revenues if the combined entity were to negotiate greater volume
discounts or discontinue use of certain of our products. Additionally, if a non-customer
and a customer combine and the combined entity in turn decides to forego future use of
our products, our revenue would decline. Conversely, we could benefit from the
combination of a non-customer and a customer when the combined entity continues use of
our products and, as a larger combined entity, increases its demand for our products and
services. We tend to focus on larger financial institutions as customers, often
resulting in our solutions being the solutions that survive in the consolidated entity. |
|
|
|
Electronic payments convergence. As electronic payment volumes grow and pressures to
lower overall cost per transaction increase, financial institutions are seeking methods
to consolidate their payment processing across the enterprise. We believe that the
strategy of using service-oriented-architectures to allow for re-use of common
electronic payment functions such as authentication, authorization, routing and
settlement will become more common. Using these techniques, financial institutions will
be able to reduce costs, increase overall service levels, enable one-to-one marketing in
multiple bank channels, leverage volumes for improved pricing and liquidity, and manage
enterprise risk. Our product development strategy is, in part, focused on this trend, by
creating integrated payment functions that can be re-used by multiple bank channels,
across both the consumer and wholesale bank. While this trend presents an opportunity
for us, it may also expand the competition from third-party electronic payment
technology and service providers specializing in other forms of electronic payments.
Many of these providers are larger than us and have significantly greater financial,
technical and marketing resources. |
The banking, financial services and payments industries have come under increased scrutiny from
federal, state and foreign lawmakers and regulators in response to the crises in the financial
markets and the global recession. In particular, the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the Dodd-Frank Act), which was signed into law July 21, 2010, represents a
comprehensive overhaul of the U.S. financial services industry and requires the implementation of
many new regulations that will have a direct impact on our customers and potential customers.
These regulatory changes may create both opportunities and challenges for us. The application of
the new regulations on our customers could create an opportunity for us to market our product
capabilities and the flexibility of our solutions to assist our customers in addressing these
regulations. At the same time, these regulatory changes may have an adverse impact on our
operations and our financial results as we adjust our activities in light of increased compliance
costs and customer requirements. It is currently too difficult to predict the actual extent to
which the Dodd-Frank Act or the resulting regulations will impact our business and the businesses
of our current and potential customers.
Several other factors related to our business may have a significant impact on our operating
results from year to year. For example, the accounting rules governing the timing of revenue
recognition in the software industry are complex and it can be difficult to estimate when we will
recognize revenue generated by a given transaction. Factors such as maturity of the software
product licensed, payment terms, creditworthiness of the customer, and timing of delivery or
acceptance of our products often cause revenues related to sales generated in one period to be
deferred and recognized in later periods. For arrangements in which services revenue is deferred,
related direct and incremental costs may also be deferred. Additionally, while the majority of our
contracts are denominated in the United States dollar, a substantial portion of our sales are made,
and some of our expenses are incurred, in the local currency of countries other than the United
States. Fluctuations in currency exchange rates in a given period may result in the recognition of
gains or losses for that period.
18
We continue to seek ways to grow, through organic sources, partnerships, alliances, and
acquisitions. We continually look for potential acquisitions designed to improve our solutions
breadth or provide access to new markets. As part of our acquisition strategy, we seek acquisition
candidates that are strategic, capable of being integrated into our operating environment, and
financially accretive to our financial performance.
Acquisition
On March 18, 2011, we closed the acquisition of ISD Holdings, Inc. and its 100% owned subsidiary
ISD Corporation (collectively ISD). ISDs suite of products enables retailers to consolidate,
manage, secure and route all electronic transactions from their point-of-sale systems to third
party processors for authorization and settlement.
The aggregate purchase price of ISD was $19.1 million, after working capital adjustments in
accordance with the terms of the purchase agreement, including $2.4 million in cash acquired. The
preliminary allocation of the purchase price to specific assets and liabilities was based on the
relative fair value of all assets and liabilities.
Backlog
Included in backlog estimates are all software license fees, maintenance fees and services fees
specified in executed contracts, as well as revenues from assumed contract renewals to the extent
that we believe recognition of the related revenue will occur within the corresponding backlog
period. We have historically included assumed renewals in backlog estimates based upon automatic
renewal provisions in the executed contract and our historic experience with customer renewal
rates.
Our 60-month backlog estimate represents expected revenues from existing customers using the
following key assumptions:
|
|
|
Maintenance fees are assumed to exist for the duration of the license term for
those contracts in which the committed maintenance term is less than the committed
license term. |
|
|
|
License and facilities management arrangements are assumed to renew at the end of
their committed term at a rate consistent with our historical experiences. |
|
|
|
Non-recurring license arrangements are assumed to renew as recurring revenue
streams. |
|
|
|
Foreign currency exchange rates are assumed to remain constant over the 60-month
backlog period for those contracts stated in currencies other than the U.S. dollar. |
|
|
|
Our pricing policies and practices are assumed to remain constant over the
60-month backlog period. |
In computing our 60-month backlog estimate, the following items are specifically not taken into
account:
|
|
|
Anticipated increases in transaction volumes in customer systems. |
|
|
|
Optional annual uplifts or inflationary increases in recurring fees. |
|
|
|
Services engagements, other than facilities management, are not assumed to renew
over the 60-month backlog period. |
|
|
|
The potential impact of merger activity within our markets and/or customers. |
We review our customer renewal experience on an annual basis. The impact of this review and
subsequent update may result in a revision to the renewal assumptions used in computing the
60-month and 12-month backlog estimates. In the event a revision to renewal assumptions is
determined to be necessary, prior periods will be adjusted for comparability purposes. Based on
our annual review of customer renewal experience completed during the three months ended December
31, 2010, backlog results for all reported periods have been updated to reflect our most current
customer renewal experience.
19
The following table sets forth our 60-month backlog estimate, by geographic region, as of March 31,
2011 and December 31, 2010 (in millions). Dollar amounts reflect foreign currency exchange rates
as of each period end.
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
895 |
|
|
$ |
871 |
|
EMEA |
|
|
526 |
|
|
|
506 |
|
Asia/Pacific |
|
|
192 |
|
|
|
189 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,613 |
|
|
$ |
1,566 |
|
|
|
|
|
|
|
|
Included in our 60-month backlog estimates are amounts expected to be recognized during the
initial license term of customer contracts (Committed Backlog) and amounts expected to be
recognized from assumed renewals of existing customer contracts (Renewal Backlog). Amounts
expected to be recognized from assumed contract renewals are based on our historical renewal
experience.
The following table sets forth our 60-month Committed Backlog and Renewal Backlog estimates as of
March 31, 2011 and December 31, 2010 (in millions). Dollar amounts reflect foreign currency
exchange rates as of each period end.
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Committed |
|
$ |
890 |
|
|
$ |
857 |
|
Renewal |
|
|
723 |
|
|
|
709 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,613 |
|
|
$ |
1,566 |
|
|
|
|
|
|
|
|
We also estimate 12-month backlog, segregated between monthly recurring and non-recurring
revenues, using a methodology consistent with the 60-month backlog estimate. Monthly recurring
revenues include all monthly license fees, maintenance fees and processing services fees.
Non-recurring revenues include other software license fees and services fees. Amounts included in
our 12-month backlog estimate assume renewal of one-time license fees on a monthly fee basis if
such renewal is expected to occur in the next 12 months. The following table sets forth our
12-month backlog estimate, by geographic region, as of March 31, 2011 and December 31, 2010 (in
millions). Dollar amounts reflect foreign currency exchange rates as of each period end.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
Monthly |
|
|
Non- |
|
|
|
|
|
|
Monthly |
|
|
Non- |
|
|
|
|
|
|
Recurring |
|
|
Recurring |
|
|
Total |
|
|
Recurring |
|
|
Recurring |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
166 |
|
|
$ |
39 |
|
|
$ |
205 |
|
|
$ |
164 |
|
|
$ |
43 |
|
|
$ |
207 |
|
EMEA |
|
|
101 |
|
|
|
34 |
|
|
|
135 |
|
|
|
103 |
|
|
|
27 |
|
|
|
130 |
|
Asia/Pacific |
|
|
37 |
|
|
|
14 |
|
|
|
51 |
|
|
|
34 |
|
|
|
10 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
304 |
|
|
$ |
87 |
|
|
$ |
391 |
|
|
$ |
301 |
|
|
$ |
80 |
|
|
$ |
381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimates of future financial results are inherently unreliable. Our backlog estimates require
substantial judgment and are based on a number of assumptions as described above. These assumptions
may turn out to be inaccurate or wrong, including for reasons outside of managements control. For
example, our customers may attempt to renegotiate or terminate their contracts for a number of
reasons, including mergers, changes in their financial condition, or general changes in economic
conditions in the customers industry or geographic location, or we may experience delays in the
development or delivery of products or services specified in customer contracts which may cause the
actual renewal rates and amounts to differ from historical experiences. Changes in foreign
currency exchange rates may also impact the amount of revenue actually recognized in future
periods. Accordingly, there can be no assurance that amounts included in backlog estimates will
actually generate the specified revenues or that the actual revenues will be generated within the
corresponding 12-month or 60-month period. Additionally, because backlog estimates are operating
metrics, the estimates are not required to be subject to the same level of internal review or
controls as a GAAP financial measure.
20
RESULTS OF OPERATIONS
The following table presents the condensed consolidated statements of operations as well as the
percentage relationship to total revenues of items included in our condensed consolidated
statements of operations (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Total |
|
|
|
Amount |
|
|
Revenue |
|
|
Amount |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial license fees (ILFs) |
|
$ |
12,565 |
|
|
|
12.0 |
% |
|
$ |
9,743 |
|
|
|
11.1 |
% |
Monthly license fees (MLFs) |
|
|
31,159 |
|
|
|
29.8 |
% |
|
|
19,574 |
|
|
|
22.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Software license fees |
|
|
43,724 |
|
|
|
41.8 |
% |
|
|
29,317 |
|
|
|
33.4 |
% |
Maintenance fees |
|
|
35,070 |
|
|
|
33.5 |
% |
|
|
33,422 |
|
|
|
38.1 |
% |
Services |
|
|
15,371 |
|
|
|
14.7 |
% |
|
|
14,618 |
|
|
|
16.7 |
% |
Software hosting fees |
|
|
10,378 |
|
|
|
9.9 |
% |
|
|
10,386 |
|
|
|
11.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
104,543 |
|
|
|
100.0 |
% |
|
|
87,743 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of software licenses fees |
|
|
3,442 |
|
|
|
3.3 |
% |
|
|
3,074 |
|
|
|
3.5 |
% |
Cost of maintenance, services,
and hosting fees |
|
|
29,607 |
|
|
|
28.3 |
% |
|
|
27,892 |
|
|
|
31.8 |
% |
Research and development |
|
|
23,130 |
|
|
|
22.1 |
% |
|
|
18,396 |
|
|
|
21.0 |
% |
Selling and marketing |
|
|
19,294 |
|
|
|
18.5 |
% |
|
|
16,845 |
|
|
|
19.2 |
% |
General and administrative |
|
|
16,362 |
|
|
|
15.7 |
% |
|
|
17,462 |
|
|
|
19.9 |
% |
Depreciation and amortization |
|
|
5,210 |
|
|
|
5.0 |
% |
|
|
4,979 |
|
|
|
5.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
97,045 |
|
|
|
92.8 |
% |
|
|
88,648 |
|
|
|
101.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
7,498 |
|
|
|
7.2 |
% |
|
|
(905 |
) |
|
|
-1.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
238 |
|
|
|
0.2 |
% |
|
|
124 |
|
|
|
0.1 |
% |
Interest expense |
|
|
(643 |
) |
|
|
-0.6 |
% |
|
|
(523 |
) |
|
|
-0.6 |
% |
Other, net |
|
|
(302 |
) |
|
|
-0.3 |
% |
|
|
(214 |
) |
|
|
-0.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
(707 |
) |
|
|
-0.7 |
% |
|
|
(613 |
) |
|
|
-0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
6,791 |
|
|
|
6.5 |
% |
|
|
(1,518 |
) |
|
|
-1.7 |
% |
Income tax expense |
|
|
5,169 |
|
|
|
4.9 |
% |
|
|
571 |
|
|
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1,622 |
|
|
|
1.6 |
% |
|
$ |
(2,089 |
) |
|
|
-2.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended March 31, 2011 Compared to Three-Month Period Ended March 31, 2010
Revenues
Total revenues for the three months ended March 31, 2011 increased $16.8 million, or 19.1%, as
compared to the same period in 2010. Total revenues increased as a result of a $14.4 million, or
49.1%, increase in software license fee revenues, a $1.6 million, or 4.9%, increase in maintenance
fee revenue, and a $0.8 million, or 5.2%, increase in services revenues.
The increase in total revenues was driven by increases in the Americas, EMEA and Asia/Pacific
reportable operating segments of $6.0 million, $10.2 million and $0.6 million, respectively.
Software License Fees Revenue
Customers purchase the right to license ACI software for the term of their agreement which term is
generally 60 months. Within these agreements are specified capacity limits typically based on
customer transaction volumes. ACI employs measurement tools that monitor the number of transactions
processed by customers and if contractually specified limits are exceeded, additional fees are
charged for the overage. Capacity overages may occur at varying times throughout the term of the
agreement depending on the product, the size of the customer, and the significance of customer
transaction volume growth. Depending on specific circumstances, multiple overages or no overages
may occur during the term of the agreement.
21
As a result of the maturation of certain retail payment engine products, a higher percentage of our
initial license fees are being recognized ratably over an extended period. Initial license and
capacity fees that are recognized as revenue ratably over an extended period are included in our
monthly license fee revenues. Due to the compounding effect of this, our MLF revenues have
increased significantly during the three months ended March 31, 2011 as compared to the same period
in 2010. This shift of software license fees from ILF revenues to MLF revenues is expected to
continue in future periods.
Initial License Fees (ILF) Revenue
ILF revenue includes license and capacity revenues that do not recur on a monthly or quarterly
basis. Included in ILF revenues are license and capacity fees that are recognizable at the
inception of the agreement and license and capacity fees that are recognizable at interim points
during the term of the agreement, including those that are recognizable annually due to negotiated
customer payment terms. ILF revenues during the three months ended March 31, 2011 compared to the
same period in 2010, increased by $2.8 million, or 29.0%. ILF revenue in the Americas and EMEA
reportable operating segments increased by $1.3 million and $1.5 million, respectively. Included
in the above are capacity related revenue increases of $0.7 million in the EMEA reportable
operating segment offset by a decline of $0.3 million in the Americas reportable operating segment
within the three months ended March 31, 2011 as compared to the same period in 2010.
Monthly License Fees (MLF) Revenue
MLF revenues are license and capacity revenues that are paid monthly or quarterly due to negotiated
customer payment terms as well as initial license and capacity fees that are recognized as revenue
ratably over an extended period as MLF revenue. MLF revenues increased $11.6 million, or 59.2%,
during the three months ended March 31, 2011, as compared to the same period in 2010 with the
Americas and EMEA reportable operating segments increasing by $3.2 million and $8.4 million,
respectively. The increase in MLF revenues is primarily due to the cumulative effect of ILF revenue
that is being recognized ratably over an extended period as a result of the maturation of certain
retail payment engine products.
Maintenance Fees Revenue
Maintenance fee revenue includes standard and enhanced maintenance or any post contract support
fees received from customers for the provision of product support services. Maintenance fee
revenues increased $1.6 million, or 4.9%, during the three months ended March 31, 2011, as compared
to the same period in 2010. Maintenance fee revenue increased in the Americas and EMEA reportable
segments by $0.5 million and $1.3 million, respectively, while the Asia/Pacific reportable segment
declined by $0.2 million. Increases in maintenance fee revenues are primarily driven by an
increase in the customer installation base as well as expanded product usage.
Services Revenue
Services revenue includes fees earned through implementation services, professional services and
facilities management services. Implementation services include product installations, product
configurations, and retrofit custom software modifications (CSMs). Professional services
include business consultancy, technical consultancy, on-site support services, CSMs, product
education, and testing services. These services include new customer implementations as well as
existing customer migrations to new products or new releases of existing products. During the
period in which non-essential services revenue is being deferred, direct and incremental costs
related to the performance of these services are also being deferred. During the period in which
essential services revenue is being deferred, direct and indirect costs related to the performance
of these services are also being deferred.
Services revenue increased $0.8 million, or 5.2%, for the three months ended March 31, 2011,
primarily as a result of an increase in implementation and professional services revenue in the
Americas and Asia/Pacific reportable operating segments of $1.1 million and $0.8 million,
respectively, partially offset by a decline in the EMEA reportable operating segment of $1.1
million.
Software Hosting Fees Revenue
Software hosting fee revenue includes fees earned through hosting and on-demand arrangements. All
revenues from hosting and on-demand arrangements that do not qualify for treatment as separate
units of accounting, which may include set-up fees, implementation or customization services, and
product support services, are included in software hosting fee revenue.
Software hosting fees revenue was flat, for the three months ended March 31, 2011 as compared to
the three months ended March 31, 2010.
22
Expenses
Total operating expenses for the three months ended March 31, 2011 increased $8.4 million, or 9.5%,
as compared to the same period of 2010. Total expenses increased primarily as a result of a $4.7
million, or 25.7%, increase in research and development expenses, a $2.5 million, or 14.5%,
increase in selling and marketing expenses, a $1.7 million, or 6.1%, increase in the cost of
maintenance, services, and hosting fees, a $0.4 million, or 12.0%, increase in the cost of software
license fees and a $0.2 million, or 4.6%, increase in depreciation and amortization, partially
offset by a $1.1 million, or 6.3%, decrease in general and administrative expenses.
Cost of Software License Fees
The cost of software licenses for our products sold includes third-party software royalties as well
as the amortization of purchased and developed software for resale. In general, the cost of
software licenses for our products is minimal because we internally develop most of the software
components, the cost of which is reflected in research and development expense as it is incurred as
technological feasibility coincides with general availability of the software components.
Cost of software licenses fees increased $0.4 million, or 12.0%, in the three months ended March
31, 2011 compared to the same period in 2010. Third-party software royalty expense increased $0.3
million as a result of an increase in license revenue associated with certain products that include
a corresponding royalty expense. Purchased or developed technology for resale amortization
increased $0.1 million.
Cost of Maintenance, Services, and Hosting fees
Cost of maintenance, services and hosting fees includes costs to provide hosting services and both
the costs of maintaining our software products as well as the service costs required to deliver,
install and support software at customer sites. Maintenance costs include the efforts associated
with providing the customer with upgrades, 24-hour help desk, post go-live (remote) support and
production-type support for software that was previously installed at a customer location. Service
costs include human resource costs and other incidental costs such as travel and training required
for both pre go-live and post go-live support. Such efforts include project management, delivery,
product customization and implementation, installation support, consulting, configuration, and
on-site support.
Cost of maintenance, services, and hosting fees for the three months ended March 31, 2011,
increased $1.7 million, or 6.1%, compared to the same period in 2010 primarily due to $1.2 million
higher personnel and related costs and a $0.8 million decrease in net deferred expenses associated
with project implementations, partially offset by a $0.3 million decrease in third-party
maintenance and services related fees.
Research and Development
Research and development (R&D) expenses are primarily human resource costs related to the
creation of new products, improvements made to existing products and the costs related to
regulatory requirements and processing mandates as well as compatibility with new operating system
releases and generations of hardware.
R&D expense for the three months ended March 31, 2011 increased $4.7 million, or 25.7%, compared to
the same period in 2010 primarily due to a $2.6 million decrease in net deferred expenses
associated with various product development efforts, $1.1 million higher personnel and related
costs, $0.7 million higher third-party contractor costs, and $0.3 million higher professional fees.
Selling and Marketing
Selling and marketing includes both the costs related to selling our products to current and
prospective customers as well as the costs related to promoting the Company, its products and the
research efforts required to measure customers future needs and satisfaction levels. Selling
costs are primarily the human resource and travel costs related to the effort expended to license
our products and services to current and potential customers within defined territories and/or
industries as well as the management of the overall relationship with customer accounts. Selling
costs also include the costs associated with assisting distributors in their efforts to sell our
products and services in their respective local markets. Marketing costs include costs needed to
promote the Company and its products as well as perform or acquire market research to help us
better understand what products our
customers are looking for in the future. Marketing costs also include the costs associated with
measuring customers opinions toward the Company, our products and personnel.
23
Selling and marketing expense for the three months ended March 31, 2011 increased $2.5 million, or
14.5%, compared to the same period in 2010 due to $2.2 million higher personnel and related
expenses and $0.4 million higher advertising and professional expenses, partially offset by $0.1
million lower internal IT costs.
General and Administrative
General and administrative expenses are primarily human resource costs including executive salaries
and benefits, personnel administration costs, and the costs of corporate support functions such as
legal, administrative, human resources and finance and accounting.
General and administrative expense for the three months ended March 31, 2011 decreased $1.1
million, or 6.3%, compared to the same period in 2010 due to a $0.8 million decrease in bad debt
expense and $0.6 million lower personnel and related costs partially offset by $0.2 million higher
professional and advertising fees.
Depreciation and Amortization
Depreciation and amortization expense includes charges for depreciation of property and equipment
and amortization of acquired intangibles excluding amortization of purchased or developed
technology for resale. Amortization of acquired intangibles include customer relationships, trade
names, non-competes and other intangible assets.
Depreciation and amortization expense for the three months ended March 31, 2011 increased $0.2
million, or 4.6%, compared to the same period in 2010 as a result of higher capital expenditures.
Other Income and Expense
Other income and expense includes interest income and expense, foreign currency gains and losses,
and other non-operating items. Fluctuating currency rates impacted the three months ended March
31, 2011 by $0.2 million in net foreign currency losses, as compared with $0.1 million in net gains
during the same period in 2010. The fair value of interest rate swaps resulted in a $0.2 million
loss during the three months ended March 31, 2010. Interest income and interest expense were flat
for the three months ended March 31, 2011 as compared to the corresponding period of 2010.
Income Taxes
The effective tax rate for the three months ended March 31, 2011 was 76.1%. We reported tax
expense for the three months ended March 31, 2010 while reporting a pretax loss for the same
period. The resulting effective tax rate is negative. The effective tax rate in both periods is
negatively impacted by our inability to recognize income tax benefits during the period on losses
sustained in certain tax jurisdictions where the future utilization of the losses are uncertain,
and by the recognition of tax expense associated with the transfer of certain intellectual property
rights from U.S. to non-U.S. entities.
Our effective tax rate could fluctuate significantly on a quarterly basis and could be adversely
affected to the extent earnings are lower in the countries in which we operate that have a lower
statutory rate or higher in the countries in which we operate that have a higher statutory rate or
the extent we have losses sustained in countries where the future utilization of losses are
uncertain. Our effective tax rate could also fluctuate due to changes in the valuation of our
deferred tax assets or liabilities, or by changes in tax laws, regulations, accounting principles,
or interpretations thereof. In addition, we are occasionally subject to examination of our income
tax returns by tax authorities in the jurisdictions we operate. We regularly assess the likelihood
of adverse outcomes resulting from these examinations to determine the adequacy of our provision
for income taxes.
24
Segment Results
The following table presents revenues and operating income (loss) for the periods indicated by
geographic region (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Revenues: |
|
|
|
|
|
|
|
|
Americas |
|
$ |
52,330 |
|
|
$ |
46,316 |
|
EMEA |
|
|
42,141 |
|
|
|
31,913 |
|
Asia/Pacific |
|
|
10,072 |
|
|
|
9,514 |
|
|
|
|
|
|
|
|
|
|
$ |
104,543 |
|
|
$ |
87,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss): |
|
|
|
|
|
|
|
|
Americas |
|
$ |
5,963 |
|
|
$ |
3,059 |
|
EMEA |
|
|
6,260 |
|
|
|
(141 |
) |
Asia/Pacific |
|
|
(4,725 |
) |
|
|
(3,823 |
) |
|
|
|
|
|
|
|
|
|
$ |
7,498 |
|
|
$ |
(905 |
) |
|
|
|
|
|
|
|
Reportable segment results are impacted by both direct expenses and allocated shared function costs
such as global product delivery and development, global customer operations, global product
management and corporate overhead costs. Shared function costs are allocated to the reportable
segments as a percentage of revenue or as a percentage of headcount.
Operating income in the Americas and EMEA reportable segments increased for the three months ended
March 31, 2011 as compared to the same period in 2010 primarily due to increased revenues.
Operating income in the Asia/Pacific reportable segment declined for the three months ended March
31, 2011 as compared to the same period in 2010 primarily due to increased allocated costs as a
result of the headcount growth relative to the other reportable segments.
Liquidity and Capital Resources
As of March 31, 2011, we had $168.9 million in cash and cash equivalents. Cash and cash equivalents
consist of highly liquid investments with original maturities of three months or less.
As of March 31, 2011, $89.2 million of the $168.9 million of cash and cash equivalents was held by
our foreign subsidiaries. If these funds were needed for our operations in the U.S. we would be
required to accrue and pay U.S. taxes to repatriate these funds. However, our intent is to
permanently reinvest these funds outside the U.S. and our current plans do not demonstrate a need
to repatriate them to fund our U.S. operations.
As of March 31, 2011, we had up to $75.0 million of unused borrowings under our revolving credit
facility. The amount of unused borrowings actually available under the revolving credit facility
varies in accordance with the terms of the agreement. We believe that the amount currently
available along with our current cash balance provides sufficient liquidity for at least the next
twelve month period. The current credit facility will mature on September 29, 2011, at which time
any principal amounts outstanding are due. We are currently in discussions with various lenders,
including our current lenders, for a new credit facility and anticipate closing on the new facility
prior to the maturation of the current facility. The revolving credit facility contains certain
affirmative and negative covenants, including limitations on the incurrence of indebtedness, asset
dispositions, acquisitions, investments, dividends and other restricted payments, liens and
transactions with affiliates. The revolving credit facility also contains financial covenants
relating to maximum permitted leverage ratio and the minimum interest coverage ratio. The facility
does not contain any subjective acceleration features and does not have any required payment or
principal reduction schedule and is included as a current liability in our consolidated balance
sheet. At March 31, 2011 and December 31, 2010,
(and at all times during these periods) we were in compliance with our debt covenants. The
interest rate in effect at March 31, 2011 was 1.01%.
25
We are not currently dependent upon short-term funding, and the limited availability of credit in
the market has not affected our revolving credit facility, our liquidity or materially impacted our
funding costs. However, due to the existing uncertainty in the capital and credit markets and the
impact of the current economic crisis on our operating results and financial conditions, the amount
of available unused borrowings under our existing credit facility may be insufficient to meet our
needs and/or our access to capital outside of our existing credit facility may not be available on
terms acceptable to us or at all. Additionally, if one or more of the financial institutions in
our syndicate were to default on its obligation to fund its commitment, the portion of the
committed facility provided by such defaulting financial institution would not be available to us.
We cannot assure you that alternative financing on acceptable terms would be available to replace
any defaulted commitments. The existing uncertainty in the capital and credit markets and the
current economic crisis may also impact our ability to successfully negotiate a new credit facility
with our existing lenders or alternative lenders. We cannot guarantee that a new credit facility
will be available to us or that we will be able to negotiate terms and conditions acceptable to us.
In the event we are unable to successfully negotiate a new credit facility, all outstanding
amounts under the existing credit facility will become due and payable.
We believe that our existing sources of liquidity, including cash on hand and cash provided by
operating activities, will satisfy our projected liquidity requirements, which primarily consists
of working capital requirements, for the next twelve months, even in the unlikely event that we are
unable to successfully negotiate a new credit facility and all outstanding amounts under the
existing credit facility become due and payable.
In fiscal 2005, we announced that our board of directors approved a stock repurchase program
authorizing us, from time to time as market and business conditions warrant, to acquire up to $80
million of our common stock. In May 2006, our board of directors approved an increase of $30
million to the stock repurchase program, bringing the total of the approved program to $110
million. In March 2007, our board of directors approved an increase of $100 million to its current
repurchase authorization, bringing the total authorization to $210 million, of which approximately
$22.9 million remains available at March 31, 2011. In June 2007, we implemented this previously
announced increase to our share repurchase program. There is no guarantee as to the exact number of
shares that will be repurchased by us. Repurchased shares are returned to the status of authorized
but unissued shares of common stock. In March 2005, our board of directors approved a plan under
Rule 10b5-1 of the Securities Exchange Act of 1934 to facilitate the repurchase of shares of common
stock under the existing stock repurchase program. Under our Rule 10b5-1 plan, we have delegated
authority over the timing and amount of repurchases to an independent broker who does not have
access to inside information about the Company. Rule 10b5-1 allows us, through the independent
broker, to purchase shares at times when we ordinarily would not be in the market because of
self-imposed trading blackout periods, such as the time immediately preceding the end of the fiscal
quarter through a period three business days following our quarterly earnings release. We did not
purchase any shares under the repurchase plan during the three months ended March 31, 2011.
We may also decide to use cash to acquire new products and services or enhance existing products
and services through acquisitions of other companies, product lines, technologies and personnel, or
through investments in other companies.
Cash Flows
The following table sets forth summary cash flow data for the periods indicated. Please refer to
this summary as you read our discussion of the sources and uses of cash in each period.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(amounts in thousands) |
|
Net cash provided by (used by): |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
17,943 |
|
|
$ |
13,578 |
|
Investing activities |
|
|
(24,017 |
) |
|
|
(5,649 |
) |
Financing activities |
|
|
2,107 |
|
|
|
(1,892 |
) |
Net cash flows provided by operating activities for the three months ended March 31, 2011
amounted to $17.9 million as compared to $13.6 million during the same period in 2010. The
comparative period increase in net cash flows from operating
activities of $4.4 million was principally the result of an increase in net income of $3.7 million
and a decrease in cash paid for taxes and cash paid to vendors of $5.6 million and $1.8 million,
respectively. These increases were partially offset by a decrease in cash receipts from customers
of $9.6 million during the three months ended March 31, 2011 compared to same period in 2010.
26
Net cash flows used by investing activities totaled $24.0 million in the three months ended March
31, 2011 as compared to $5.6 million used by investing activities during the same period in 2010.
This increase was largely driven by the $16.7 million of cash paid, net of $2.4 million in cash
acquired, to acquire ISD during the three months ended March 31, 2011. In addition, during the
three months ended March 31, 2011, we used cash of $7.0 million to purchase software, property and
equipment and $0.3 million for costs related to fulfillment of the technical enablement milestones
under the Alliance. During the three months ended March 31, 2010, we used cash of $3.9 million to
purchase software, property and equipment and $1.7 million for costs related to fulfillment of the
technical enablement milestones under the Alliance.
Net cash flows provided by financing activities totaled $2.1 million in the three months ended
March 31, 2011 as compared to net cash flows used by financing activities of $1.9 million during
the same period in 2010. We made payments to third-party financial institutions, primarily related
to debt and capital leases, totaling $0.5 million and $0.3 million during the three months ended
March 31, 2011 and 2010, respectively. During the three months ended March 31, 2011 and 2010, we
received proceeds of $2.7 million and $1.4 million, respectively, including corresponding excess
tax benefits, from the exercises of stock options and $0.3 million for the issuance of common stock
under our 1999 Employee Stock Purchase Plan, as amended. During the three months ended March 31,
2010, we used $3.0 million to repurchase shares of our common stock under our stock repurchase
plan.
We also realized a $1.5 million increase in cash during the three months ended March 31, 2011
related to foreign exchange rate variances compared to a $1.4 million decrease during the same
period in 2010.
We believe that our existing sources of liquidity, including cash on hand and cash provided by
operating activities, will satisfy our projected liquidity requirements to meet our working capital
needs for at least the next twelve months.
Contractual Obligations and Commercial Commitments
There have been no material changes to the contractual obligations and commercial commitments
disclosed in Item 7 of our Form 10-K for the fiscal year ended December 31, 2010.
Critical Accounting Estimates
The preparation of the condensed consolidated financial statements requires that we make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. We base our estimates on historical
experience and other assumptions that we believe to be proper and reasonable under the
circumstances. We continually evaluate the appropriateness of estimates and assumptions used in the
preparation of our condensed consolidated financial statements. Actual results could differ from
those estimates.
The accounting policies that reflect our more significant estimates, judgments and assumptions and
which we believe are the most critical to aid in fully understanding and evaluating our reported
financial results include the following:
|
|
|
Allowance for Doubtful Accounts |
|
|
|
Intangible Assets and Goodwill |
|
|
|
Stock-Based Compensation |
|
|
|
Accounting for Income Taxes |
During the three months ended March 31, 2011, there were no significant changes to our
critical accounting policies and estimates other than as discussed below. Please refer to
Managements Discussion and Analysis of Financial Condition and Results of Operations contained in
Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended December 31, 2010,
filed on February 18, 2011, for a more complete discussion of our critical accounting policies and
estimates.
Revenue Recognition for Arrangements with Multiple Deliverables
Effective January 1, 2011 we adopted on a prospective basis for all new or materially modified
arrangements entered into on or after that date, the amended accounting guidance for
multiple-deliverable revenue arrangements and the amended guidance related to the scope of existing
software revenue recognition guidance. The adoption of this guidance did not have a material impact
on our condensed consolidated financial statements for the three months ended March 31, 2011,
nor do we expect it to have a material impact on our future financial statements.
27
A multiple-deliverable arrangement is separated into more than one unit of accounting if the
delivered item(s) has value to the customer on a stand-alone basis; if the arrangement includes a
general right of return relative to the delivered item(s); and if delivery or performance of the
undelivered item(s) is considered probable and substantially in the control of the Company. If
these criteria are not met, the arrangement is accounted for as a single unit of accounting which
would result in revenue being recognized ratably over the contract term or being deferred until the
earlier of when such criteria are met or when the last undelivered element is delivered. If these
criteria are met for each, the arrangement consideration is allocated to the separate units of
accounting based on each units relative selling price. The selling price for each element is based
upon the following selling price hierarchy: vendor-specific objective evidence (VSOE) if
available, third party evidence (TPE) if VSOE is not available, or estimated selling price if
neither VSOE nor TPE is available.
We enter into hosting-related
arrangements that may consist of multiple service deliverables including initial implementation
and setup services; on-going support services; and other services. Our hosted products operate
in a highly regulated and controlled environment which requires a highly specialized and unique
set of initial implementation and setup services prior to the commencement of hosting-related
services. Due to the essential and specialized nature of the implementation and setup services,
these services do not qualify as separate units of accounting separate from the hosting service as
the delivered services do not have value to the client on a stand-alone basis. The on-going
support and other services are considered as separate units of accounting. The total arrangement
consideration is allocated to each of the separate units of accounting based on their relative
selling price and revenue is recognized over their respective service periods. As the support and
other services periods are the same as the hosting service period, the recognition pattern is
similar to what was experienced prior to adopting the amended accounting guidance for
multiple-deliverable revenue arrangements.
|
|
|
Item 3. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Excluding the impact of changes in interest rates, there have been no material changes to our
market risk for the three months ended March 31, 2011. We conduct business in all parts of the
world and are thereby exposed to market risks related to fluctuations in foreign currency exchange
rates. The U.S. dollar is the single largest currency in which our revenue contracts are
denominated. Thus, any decline in the value of local foreign currencies against the U.S. dollar
results in our products and services being more expensive to a potential foreign customer, and in
those instances where our goods and services have already been sold, may result in the receivables
being more difficult to collect. Additionally, any decline in the value of the U.S. dollar in
jurisdictions where the revenue contracts are denominated in U.S. dollars and operating expenses
are incurred in local currency will have an unfavorable impact to operating margins. We
at times enter into revenue contracts that are denominated in the countrys local currency,
principally in Australia, Canada, the United Kingdom and other European countries. This practice
serves as a natural hedge to finance the local currency expenses incurred in those locations. We
have not entered into any foreign currency hedging transactions. We do not purchase or hold any
derivative financial instruments for the purpose of speculation or arbitrage.
The primary objective of our cash investment policy is to preserve principal without significantly
increasing risk. Based on our cash investments and interest rates on these investments at March 31,
2011, and if we maintained this level of similar cash investments for a period of one year, a
hypothetical 10 percent increase or decrease in effective interest rates would increase or decrease
interest income by less than $0.1 million annually.
|
|
|
Item 4. |
|
CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
Our management, under the supervision of and with the participation of the Chief Executive Officer
and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended, as of the end of the period covered by this report, March 31, 2011. Based
on that evaluation, the Companys Chief Executive Officer and Chief Financial Officer have
concluded that the Companys disclosure controls and procedures are effective as of March 31, 2011.
Changes in Internal Control over Financial Reporting
Our management, under the supervision of and with the participation of the Chief Executive Officer
and Chief Financial Officer evaluated any change in the Companys internal control over financial
reporting that occurred during the quarter covered by this report and determined that there was no
change in the Companys internal control over financial reporting during the quarter
covered by this report that has materially affected, or is reasonably likely to materially affect,
the Companys internal control over financial reporting.
28
PART II OTHER INFORMATION
|
|
|
Item 1. |
|
LEGAL PROCEEDINGS |
From time to time, we are involved in various litigation matters arising in the ordinary course of
our business. We are not currently a party to any legal proceedings, the adverse outcome of which,
individually or in the aggregate, we believe would be likely to have a material adverse effect on
our financial condition or results of operations.
There have been no material changes to the risk factors disclosed in Item 1A of our Form 10-K for
the fiscal year ended December 31, 2010. Additional risks and uncertainties, including risks and
uncertainties not presently known to us, or that we currently deem immaterial, could also have an
adverse effect on our business, financial condition and/or results of operations.
|
|
|
Item 2. |
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Issuer Purchases of Equity Securities
The following table provides information regarding the Companys repurchases of its common stock
during the three months ended March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate |
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Dollar Value of |
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Shares that May |
|
|
|
|
|
|
|
|
|
|
|
Purchased as |
|
|
Yet Be |
|
|
|
Total Number of |
|
|
|
|
|
|
Part of Publicly |
|
|
Purchased |
|
|
|
Shares |
|
|
Average Price |
|
|
Announced |
|
|
Under the |
|
Period |
|
Purchased |
|
|
Paid per Share |
|
|
Program |
|
|
Program |
|
January 1 through January 31, 2011 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
22,920,000 |
|
February 1 through February 28,
2011 |
|
|
11,303 |
(1) |
|
|
27.69 |
|
|
|
|
|
|
$ |
22,920,000 |
|
March 1 through March 31, 2011 |
|
|
1,058 |
(1) |
|
|
30.59 |
|
|
|
|
|
|
$ |
22,920,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
12,361 |
|
|
$ |
27.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Pursuant to our 2005 Incentive Plan, we granted restricted share awards (RSAs).
These awards have requisite service periods of either three or four years and vest in
increments of either 33% or 25% on the anniversary dates of the grants. Under each
arrangement, stock is issued without direct cost to the employee. During the three months
ended March 31, 2011, 40,834 shares of the RSAs vested. We withheld 12,361 of those shares
to pay the employees portion of applicable payroll taxes. |
In fiscal 2005, we announced that our board of directors approved a stock repurchase program
authorizing us, from time to time as market and business conditions warrant, to acquire up to $80
million of our common stock, and that we intend to use existing cash and cash equivalents to fund
these repurchases. In May 2006, our board of directors approved an increase of $30 million to the
stock repurchase program, bringing the total of the approved program to $110 million. In March
2007, our board of directors approved an increase of $100 million to its current repurchase
authorization, bringing the total authorization to $210 million, of which approximately $22.9
million remains available. In June 2007, we implemented this previously announced increase to our
share repurchase program. There is no guarantee as to the exact number of shares that will be
repurchased by us. Repurchased shares are returned to the status of authorized but unissued shares
of common stock. In March 2005, our board of directors approved a plan under Rule 10b5-1 of the
Securities Exchange Act of 1934 to facilitate the repurchase of shares of common
stock under the existing stock repurchase program. Under our Rule 10b5-1 plan, we have delegated
authority over the timing and amount of repurchases to an independent broker who does not have
access to inside information about the Company. Rule 10b5-1 allows us, through the independent
broker, to purchase shares at times when we ordinarily would not be in the market because of
self-imposed trading blackout periods, such as the time immediately preceding the end of the fiscal
quarter through a period three business days following our quarterly earnings release. We did not
repurchase any shares under this program during the three months ended March 31, 2011.
29
|
|
|
Item 3. |
|
DEFAULTS UPON SENIOR SECURITIES |
Not applicable.
|
|
|
Item 5. |
|
OTHER INFORMATION |
Not applicable.
The following lists exhibits filed as part of this quarterly report on Form 10-Q:
|
|
|
|
|
Exhibit |
|
|
|
No. |
|
|
Description |
|
3.01 |
(1) |
|
Amended and Restated Certificate of Incorporation of the Company, and amendments thereto |
|
3.02 |
(2) |
|
Amended and Restated Bylaws of the Company |
|
4.01 |
(3) |
|
Form of Common Stock Certificate |
|
31.01 |
|
|
Certification of Principal Executive Officer pursuant to SEC Rule 13a-14, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
31.02 |
|
|
Certification of Principal Financial Officer pursuant to SEC Rule 13a-14, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
32.01 |
* |
|
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
32.02 |
* |
|
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
101.INS |
** |
|
XBRL Instance Document |
101.SCH |
** |
|
XBRL Taxonomy Extension Schema |
101.CAL
|
** |
|
XBRL Taxonomy Extension Calculation Linkbase |
101.LAB
|
** |
|
XBRL Taxonomy Extension Label Linkbase |
101.PRE
|
** |
|
XBRL Taxonomy Extension Presentation Linkbase |
101.DEF
|
** |
|
XBRL Taxonomy Extension Definition Linkbase |
|
|
|
* |
|
This certification is not deemed filed for purposes of Section 18 of the Securities
Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification
will not be deemed to be incorporated by reference into any filing under the Securities Act of
1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically
incorporates it by reference. |
|
** |
|
Furnished, not filed |
|
(1) |
|
Incorporated herein by reference to registrants current report on Form 8-K filed
July 30, 2007. |
|
(2) |
|
Incorporated herein by reference to Exhibit 3.2 to the registrants current report on
Form 8-K filed December 18, 2008. |
|
(3) |
|
Incorporated herein by reference to Exhibit 4.01 to the registrants Registration
Statement No. 33-88292 on Form S-1. |
30
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.
|
|
|
|
|
|
|
|
|
ACI WORLDWIDE, INC. |
|
|
|
|
(Registrant) |
|
|
|
|
|
|
|
|
|
Date: April 29, 2011
|
|
By:
|
|
/s/ Scott W. Behrens
Scott W. Behrens
|
|
|
|
|
|
|
Senior Vice President, Chief Financial Officer and |
|
|
|
|
|
|
Chief Accounting Officer |
|
|
|
|
|
|
(Principal Financial Officer) |
|
|
31
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
|
No. |
|
|
Description |
|
3.01 |
(1) |
|
Amended and Restated Certificate of Incorporation of the Company, and amendments thereto |
|
3.02 |
(2) |
|
Amended and Restated Bylaws of the Company |
|
4.01 |
(3) |
|
Form of Common Stock Certificate |
|
31.01 |
|
|
Certification of Principal Executive Officer pursuant to SEC Rule 13a-14, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
31.02 |
|
|
Certification of Principal Financial Officer pursuant to SEC Rule 13a-14, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
32.01 |
* |
|
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
32.02 |
* |
|
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
101.INS |
** |
|
XBRL Instance Document |
101.SCH |
** |
|
XBRL Taxonomy Extension Schema |
101.CAL |
** |
|
XBRL Taxonomy Extension Calculation Linkbase |
101.LAB |
** |
|
XBRL Taxonomy Extension Label Linkbase |
101.PRE |
** |
|
XBRL Taxonomy Extension Presentation Linkbase |
101.DEF |
** |
|
XBRL Taxonomy Extension Definition Linkbase |
|
|
|
* |
|
This certification is not deemed filed for purposes of Section 18 of the Securities
Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification
will not be deemed to be incorporated by reference into any filing under the Securities Act of
1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically
incorporates it by reference. |
|
** |
|
Furnished, not filed |
|
(1) |
|
Incorporated herein by reference to registrants current report on Form 8-K filed
July 30, 2007. |
|
(2) |
|
Incorporated herein by reference to Exhibit 3.2 to the registrants current report on
Form 8-K filed December 18, 2008. |
|
(3) |
|
Incorporated herein by reference to Exhibit 4.01 to the registrants Registration
Statement No. 33-88292 on Form S-1. |
32
Exhibit 31.01
Exhibit 31.01
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Philip G. Heasley, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ACI Worldwide, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonable likely to materially affect, the registrants internal control over financial
reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
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Date: April 29, 2011
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/s/ PHILIP G. HEASLEY |
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Philip G. Heasley |
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President, Chief Executive Officer |
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and Director |
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(Principal Executive Officer) |
Exhibit 31.02
Exhibit 31.02
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Scott W. Behrens, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ACI Worldwide, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonable likely to materially affect, the registrants internal control over financial
reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
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Date: April 29, 2011
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/s/ Scott W. Behrens
Scott W. Behrens
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Senior Vice President, Chief Financial Officer and |
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Chief Accounting Officer |
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(Principal Financial Officer) |
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Exhibit 32.01
Exhibit 32.01
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of ACI Worldwide, Inc. (the Company) on Form 10-Q for the
quarter ended March 31, 2011 as filed with the Securities and Exchange Commission on the date
hereof (the Report), I, Philip G. Heasley, Principal Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to my knowledge:
1) |
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The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities
Exchange Act of 1934; and |
2) |
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The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
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Date: April 29, 2011
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/s/ PHILIP G. HEASLEY
Philip G. Heasley
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President, Chief Executive Officer |
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and Director |
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(Principal Executive Officer) |
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Exhibit 32.02
Exhibit 32.02
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of ACI Worldwide, Inc. (the Company) on Form 10-Q for the
quarter ended March 31, 2011 as filed with the Securities and Exchange Commission on the date
hereof (the Report), I, Scott W. Behrens, Principal Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to my knowledge:
1) |
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The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities
Exchange Act of 1934; and |
2) |
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The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
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Date: April 29, 2011
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/s/ Scott W. Behrens
Scott W. Behrens
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Senior Vice President, Chief Financial Officer and |
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Chief Accounting Officer |
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(Principal Financial Officer) |
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