-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QFS6B6VUeWZNfllF1cbEZ1ufuYy58dYQ/5vJbHlpidA332VfmaWe0hQ1igRhDh7d SPiDDD53IpySj94DkoLYTA== 0000935036-98-000002.txt : 19980217 0000935036-98-000002.hdr.sgml : 19980217 ACCESSION NUMBER: 0000935036-98-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980212 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSACTION SYSTEMS ARCHITECTS INC CENTRAL INDEX KEY: 0000935036 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 470772104 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25346 FILM NUMBER: 98535413 BUSINESS ADDRESS: STREET 1: 330 SOUTH 108TH AVE CITY: OMAHA STATE: NE ZIP: 68154 BUSINESS PHONE: 4023907600 MAIL ADDRESS: STREET 1: 330 SOUTH 108TH CITY: OMAHA STATE: NE ZIP: 68154 10-Q 1 10 Q Q1 FISCAL 1998 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1997 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . ---- ---- Commission File Number 0-25346 TRANSACTION SYSTEMS ARCHITECTS, INC. (Exact name of registrant as specified in its charter) Delaware 47-0772104 (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification No.) 224 South 108th Avenue Omaha, Nebraska 68154 (Address of principal executive offices, including zip code) (402) 334-5101 (Registrant's 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 X No . ---- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: 26,963,657 shares of Class A Common Stock at January 30, 1998 1,171,252 shares of Class B Common Stock at January 30, 1998 TRANSACTION SYSTEMS ARCHITECTS, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997 TABLE OF CONTENTS Page Part I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Balance Sheets as of December 31, 1997 and September 30, 1997 3 Condensed Consolidated Statements of Income for the three months ended December 31, 1997 and 1996 4 Condensed Consolidated Statement of Stockholders' Equity for the three months ended December 31, 1997 5 Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 1997 and 1996 6 Notes to Condensed Consolidated Financial Statements 7 - 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 11 Part II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13 Index to Exhibits 14
TRANSACTION SYSTEMS ARCHITECTS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited and in thousands) December 31, September 30, 1997 1997 ------------------ ---------------- ASSETS Current assets: Cash and cash equivalents $ 46,966 $ 46,600 Billed receivables, net 40,501 39,864 Accrued receivables 25,399 25,063 Deferred income taxes 4,044 3,517 Other 3,184 3,043 ------------------ ---------------- Total current assets 120,094 118,087 Property and equipment, net 16,392 16,263 Software, net 6,504 6,105 Intangible assets, net 9,431 9,539 Installment receivables 1,298 2,394 Investment and notes receivable 11,244 7,969 Other 4,792 4,877 ------------------ ---------------- Total assets $ 169,755 $ 165,234 ================== ================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 802 $ 768 Current portion of capital lease obligations 551 524 Accounts payable 6,325 7,896 Accrued employee compensation 4,278 5,559 Accrued liabilities 8,345 9,048 Income taxes 8,419 6,230 Deferred revenue 26,574 28,792 ------------------ ---------------- Total current liabilities 55,294 58,817 Long-term debt 1,609 1,465 Capital lease obligations 1,013 914 ------------------ ---------------- Total liabilities 57,916 61,196 ------------------ ---------------- Stockholders' equity: Class A Common Stock 135 134 Class B Common Stock 6 6 Additional paid-in capital 104,626 103,708 Accumulated translation adjustments (618) (260) Retained earnings 7,702 462 Treasury stock, at cost (12) (12) ------------------ ---------------- Total stockholders' equity 111,839 104,038 ------------------ ---------------- Total liabilities and stockholders' equity $ 169,755 $ 165,234 ================== ================ See notes to condensed consolidated financial statements.
TRANSACTION SYSTEMS ARCHITECTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited and in thousands, except per share amounts) Three Months Ended December 31, --------------------------------- 1997 1996 ------------- ------------- Revenues: Software license fees $ 35,774 $ 27,139 Maintenance fees 11,349 10,106 Services 12,548 12,041 Hardware, net 1,388 553 ------------- ------------- Total revenues 61,059 49,839 ------------- ------------- Expenses: Cost of software license fees: Software costs 7,282 5,555 Amortization of purchased software - 801 Cost of maintenance and services 13,335 12,712 Research and development 5,505 4,079 Selling and marketing 13,752 10,569 General and administrative: General and administrative costs 9,674 8,291 Amortization of goodwill and purchased intangibles 315 217 ------------- ------------- Total expenses 49,863 42,224 ------------- ------------- Operating income 11,196 7,615 ------------- ------------- Other income (expense): Interest income 591 442 Interest expense (20) (57) Other (80) (317) ------------- ------------- Total other 491 68 ------------- ------------- Income before income taxes 11,687 7,683 Provision for income taxes (4,447) (3,415) ------------- ------------- Net income $ 7,240 $ 4,268 ============= ============= Earnings Per Share Data: Basic: Net income $ 0.26 $ 0.15 ============= ============= Average shares outstanding 28,071 27,756 ============= ============= Diluted: Net income $ 0.25 $ 0.15 ============= ============= Average shares outstanding 29,064 28,613 ============= ============= See notes to condensed consolidated financial statements.
TRANSACTION SYSTEMS ARCHITECTS, INC. CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For the three months ended December 31, 1997 (unaudited and in thousands) Class A Class B Additional Accumulated Common Common Paid-in Translation Retained Treasury Stock Stock Capital Adjustments Earnings Stock Total --------- --------- ---------- ------------ ---------- --------- --------- Balance, September 30, 1997 $ 134 $ 6 $ 103,708 $ (260)$ 462 $ (12)$ 104,038 Exercise of stock options 1 217 218 Tax benefit of stock options exercised 517 517 Sale of Class A Common Stock pursuant to Employee Stock Purchase Plan 184 184 Net Income 7,240 7,240 Translation adjustments (358) (358) --------- --------- ---------- ---------- ----------- --------- --------- Balance, December 31, 1997 $ 135 $ 6 $ 104,626 $ (618)$ 7,702 $ (12)$ 111,839 ========= ========= ========== ========== =========== ========= =========
TRANSACTION SYSTEMS ARCHITECTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited and in thousands) Three months ended December 31, ---------------------------------------- 1997 1996 ------------------ ----------------- Cash flows from operating activities: Net income $ 7,240 $ 4,604 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,493 1,295 Amortization 988 1,637 Increase in receivables, net (1,623) (8,222) (Increase) decrease in other current assets (79) 2,445 (Increase) decrease in installment receivables 1,096 (196) Increase in other assets (558) (97) Decrease in accounts payable (1,616) (951) Decrease in accrued employee compensation (1,331) (1,919) Increase (decrease) in accrued liabilities (285) 1,486 Increase (decrease) in income tax liabilities 2,706 (613) Increase (decrease) in deferred revenue (2,334) 4,804 -------------- ----------------- Net cash provided by operating activities 5,697 4,273 -------------- ----------------- Cash flows from investing activities: Purchases of property and equipment (1,217) (1,843) Purchase of software (1,006) (643) Acquisition of businesses, net of cash acquired (100) 33 Additions to investment and notes receivable (3,231) (1,691) -------------- ---------------- Net cash used in investing activities (5,554) (4,144) -------------- ---------------- Cash flows from financing activities: Proceeds from issuance of Class A Common Stock 184 197 Distribution to RVS owners - (1,014) Proceeds from exercise of stock options 217 161 Payments on capital lease obligations (49) (32) -------------- --------------- Net cash provided by (used in)financing activities 352 (688) ---------------- --------------- Effect of exchange rate fluctuations on cash (129) 178 -------------- ---------------- Increase (decrease) in cash and cash equivalents 366 (381) Cash and cash equivalents, beginning of period 46,600 32,751 -------------- ---------------- Cash and cash equivalents, end of period $ 46,966 $ 32,370 ============== ================ See notes to condensed consolidated financial statements.
TRANSACTION SYSTEMS ARCHITECTS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Consolidated Financial Statements The condensed consolidated financial statements at December 31, 1997 and for the three months ended December 31, 1997 and 1996 are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management's discussion and analysis of financial condition and results of operations, contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1997. The results of operations for the three months ended December 31, 1997 are not necessarily indicative of the results for the entire fiscal year ending September 30, 1998. The condensed consolidated financial statements include all domestic and foreign subsidiaries which are more than 50% owned and controlled. Investments in companies less than 20% owned are carried at cost. 2. Earnings Per Share Effective October 1, 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share." Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the periods. Diluted earnings per share is computed by dividing net income by the sum of the weighted average number of shares of common stock outstanding and the potential dilutive effect from the Company's stock-based incentive plans. 3. Acquisitions In October 1996, the Company completed the acquisition of Open Systems Solutions, Inc. (OSSI). Stockholders of OSSI received 210,000 shares of TSA Class A Common Stock in exchange for 100% of OSSI's common stock. The stock exchange was accounted for as a pooling of interests. OSSI's results of operations prior to the acquisition were not material. In May 1997, the Company completed the acquisition of Regency Voice Systems, Inc. and related entities (RVS). Shareholders of RVS received 1,615,383 shares of TSA Class A Common Stock in exchange for 100% of RVS's shares. The stock exchange was accounted for as a pooling of interests. The accompanying condensed consolidated financial statements have been restated to reflect the results of operations of RVS. Prior to the acquisition, RVS was taxed primarily as a partnership and, accordingly, taxable income was included in the personal tax of RVS owners who were responsible for the payment of taxes thereof. Net income, basic earnings per share and diluted earnings per share for the three months ended December 31, 1996 on the accompanying condensed statement of operations reflects a pro forma tax provision of $336,000 for combined federal and state income taxes to report income taxes on the basis of which income taxes will be reported in future periods. 4. Investment and Notes Receivable In January 1996, the Company entered into a transaction with Insession, Inc. (Insession) whereby the Company acquired a 7.5% minority interest in Insession for $1.5 million. In addition, the Company has extended $5.8 million in promissory notes as of December 31, 1997. The promissory notes bear an interest rate of prime plus 0.25%, and are payable in January 1999 ($1.0 million), January 2000 ($1.0 million) and January 2001 ($1.5 million). The remaining $2.3 million of promissory notes are payable upon demand. The promissory notes are secured by future royalties owed by the Company to Insession. The Company has extended a $4.5 million line of credit facility to U.S. Processing, Inc. (USPI), a transaction processing business in which the company has a 19.9% ownership interest. As of December 31, 1997, borrowings under the line of credit totaled $3.6 million.
TRANSACTION SYSTEMS ARCHITECTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth certain financial data and the percentage of total revenues of the Company for the periods indicated: Three Months Ended December 31, ------------------------------------------------------ 1997 1996 ------------------------------------------------------ % of % of Amount Revenue Amount Revenue ---------- ----------- ----------- ----------- Revenues: Software license fees $ 35,774 58.6 % $ 27,139 54.5 % Maintenance fees 11,349 18.6 10,106 20.3 Services 12,548 20.6 12,041 24.2 Hardware, net 1,388 2.2 553 1.0 ---------- ----------- ----------- ----------- Total revenues 61,059 100.0 49,839 100.0 ---------- ----------- ----------- ----------- Expenses: Cost of software license fees: Software costs 7,282 11.9 5,555 11.1 Amortization of purchased software 0 0.0 801 1.6 Cost of maintenance and services 13,335 21.8 12,712 25.5 Research and development 5,505 9.0 4,079 8.2 Selling and marketing 13,752 22.5 10,569 21.2 General and administrative: General and administrative costs 9,674 15.8 8,291 16.6 Amortization of goodwill and purchased intangibles 315 0.7 217 0.5 ---------- ----------- ------------ ----------- Total expenses 49,863 81.7 42,224 84.7 ---------- ------------ ----------- ----------- Operating income 11,196 18.3 7,615 15.3 ---------- ----------- ------------ ----------- Other income (expense): Interest income 591 1.0 442 0.9 Interest expense (20) 0.0 (57) (0.1) Other (80) (0.2) (317) (0.7) ---------- ----------- ----------- ----------- Total other 491 0.8 68 0.1 ---------- ----------- ------------ ----------- Income before income taxes 11,687 19.1 7,683 15.4 Provision for income taxes (4,447) (7.2) (3,415) (7.0) ---------- ----------- ------------ ----------- Net income $ 7,240 11.9 % $ 4,268 8.6 % ========== =========== ============ ===========
Results of Operations (continued) - ---------------------------------- Revenues Total revenues for the first quarter of fiscal 1998 increased 22.5% or $11.2 million over the comparable period in fiscal 1997. Of this increase, $8.7 million of the growth resulted from a 31.8% increase in software license fee revenue, $500,000 from a 4.2% increase in services revenue, $1.2 million from a 12.3% increase in maintenance fee revenue and an $800,000 increase in hardware revenue. The growth in software license fee revenue is the result of increased demand for the Company's BASE24 products and continued growth of the installed base of customers paying monthly license fee (MLF) revenue. Contributing to the strong demand for the Company's products is the continued world-wide growth of electronic payment transaction volume and the growing complexity of electronic payment systems. MLF revenue was $9.6 million in the first quarter of fiscal 1998 compared to $7.2 million in the first quarter of fiscal 1997. The growth in services revenue for the first quarter of fiscal 1998 is the result of increased demand for technical and project management services which is a direct result of the increased installed base of the Company's BASE24 products. The increase in maintenance fee revenue for the first quarter of fiscal 1998 is a result of the continued growth of the installed base of the Company's BASE24 products. The increase in hardware revenue is due to an increase in commissions received from Tandem Computers Incorporated (Tandem). The agreement with Tandem expired on December 31, 1997 and is expected to be replaced by an arrangement whereby Tandem will terminate the payment of commissions to the Company and replace these payments with market development funding. This market development funding is expected to be substantially less than the Company received under the prior agreement. Expenses Total operating expenses for the first quarter of fiscal 1998 increased 18.1% or $7.6 million over the comparable period in fiscal 1997. The primary reason for the overall increase in operating expenses is the increase in staff required to support the increased demand for the Company's products and services. Total staff (including both employees and independent contractors) increased from 1,391 at December 31, 1996 to 1,608 at December 31, 1997. The Company's operating margin for the first quarter of fiscal 1998 was 18.3% as compared to 15.3% for the comparable period in fiscal 1997. This improvement is primarily due to the impact of the growth in the Company's recurring revenues (MLF's, maintenance and facilities management fees) and the conclusion in December 1996 of the amortization of purchased software associated with the acquisition of Applied Communications, Inc. (ACI) and Applied Communications Inc. Limited (ACIL) in December 1993. The Company's gross margin (total revenues minus cost of software and cost of maintenance and services) for the first quarter of fiscal 1998 was 66.2% as compared to 61.7% for the comparable period in fiscal 1997. The improvements are principally due to the conclusion of software amortization in December 1996 associated with the acquisitions of ACI and ACIL. EBITDA The Company's earnings before interest expense, income taxes, depreciation and amortization (EBITDA) increased from $10.5 million in the first quarter of fiscal 1997 to $13.7 million for the first quarter of fiscal 1998. The increase in EBITDA can be attributed to the continued growth in both recurring and non-recurring revenues more than offsetting the growth in operating expenses. EBITDA is not intended to represent cash flows for the periods. Income Taxes The effective tax rate for the first quarter of fiscal 1998 was 38.1% as compared to 39.1% for all of fiscal 1997. The decrease in the effective rate is principally the result of deferred tax assets which were recognized in the first quarter of fiscal 1998 which reduced the effective proforma tax rate for that period with no corresponding recognition of deferred tax assets in the first quarter of fiscal 1997. As of December 31, 1997, the Company has deferred tax assets of $16.6 million and deferred tax liabilities of $0.4 million. Each quarter, the Company evaluates its historical operating results as well as its projections for the future to determine the realizability of the deferred tax assets. This analysis indicated that $4.0 million of the deferred tax assets were more likely than not to be realized. Accordingly, the Company has recorded a valuation allowance of $12.6 million as of December 31, 1997. The Company intends to analyze the realizability of the net deferred tax assets at each future reporting period. Such analysis may indicate that the realization of various deferred tax benefits is more likely than not and, therefore, the valuation reserve may be reduced. Backlog As of December 31, 1997 and 1996, the Company had non-recurring revenue backlog of $28.1 million and $21.9 million, respectively, in software license fees and $23.2 million and $14.6 million, respectively, in services. The Company includes in its non-recurring revenue backlog all fees specified in contracts which have been executed by the Company to the extent that the Company contemplates recognition of the related revenue within one year. There can be no assurance that the contracts included in non-recurring revenue backlog will actually generate the specified revenues or that the actual revenues will be generated within the one year period. As of December 31, 1997 and 1996, the Company had recurring revenue backlog of $98.2 million and $75.0 million, respectively. The Company defines recurring revenue backlog to be all monthly license fees, maintenance fees and facilities management fees specified in contracts which have been executed by the Company and its customers to the extent that the Company contemplates recognition of the related revenue within one year. There can be no assurance, however, that contracts included in recurring revenue backlog will actually generate the specified revenues or that the actual revenues will be generated within the one year period. Liquidity and Capital Resources As of December 31, 1997, the Company had working capital of $64.8 million which includes cash and cash equivalents of $47.0 million. The Company has a $10 million bank line of credit of which there are no borrowings outstanding. The bank line of credit expires on June 30, 1998. During the three months ended December 31, 1997, the Company's cash flow from operations amounted to $5.7 million and cash used in investing activities amounted to $5.9 million. Of the $5.9 of cash used in investing activities, $1.3 million consisted of advances to Insession under promissory notes and $1.6 consisted of advances to USPI under a line of credit. In the normal course of business, the Company evaluates potential acquisitions of complementary businesses, products or technologies. In October 1996, the Company acquired 100% of OSSI in exchange for 210,000 shares of the Company's Class A Common Stock. In May 1997, the Company acquired 100% of RVS in exchange for 1,615,383 shares of the Company's Class A Common Stock. Management believes that the Company's working capital, cash flow generated from operations and borrowing capacity are sufficient to meet the Company's working capital requirements for the foreseeable future. Year 2000 Management has initiated a Company-wide program to prepare the Company's computer systems and applications as well as the Company's product offerings for the year 2000. The Company expects to incur internal staff costs as well as consulting and other expenses related to system enhancements and product modifications for the year 2000. The majority of the Company's product offerings are currently year 2000 compliant. The total cost to be incurred by the Company for all year 2000 related projects is not expected to have a material impact on the future results of operations. However, there could be a material adverse effect on the results of operations of the Company if the system enhancements and product modifications for the year 2000 prove not to be effective. TRANSACTION SYSTEMS ARCHITECTS, INC. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27.00 Financial Data Schedule (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: February 12, 1998 TRANSACTION SYSTEMS ARCHITECTS, INC (Registrant) /s/ Dwight G. Hanson ---------------------------------- Dwight G. Hanson Principal Accounting Officer TRANSACTION SYSTEMS ARCHITECTS, INC. INDEX TO EXHIBITS Exhibit Number Description - -------- --------------- 27.00 Financial Data Schedule EX-27 2 FDS SCHEDULE
5 1000 3-MOS SEP-30-1998 OCT-01-1997 DEC-31-1997 46,966 0 65,900 0 0 120,094 33,555 17,163 169,755 55,294 0 0 0 141 111,698 169,755 61,059 61,059 20,617 49,863 (511) 0 20 11,687 4,447 7,240 0 0 0 7,240 .26 .25
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