UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
 
FORMForm 20-F
 
o
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR(g) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
or
OR
þ
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2008
or
For the fiscal year ended September 30, 2010
OR
o
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
or
OR
o
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
Date of event requiring this shell company report............
For the transition period from          to          .
 
Commission File Number1-14840
 
AMDOCS LIMITED
(Exact name of Registrant as specified in its charter)
 
Guernsey
(Jurisdiction of incorporation or organization)
Suite 5, Tower Hill House Le Bordage
St. Peter Port, Island of Guernsey, GY1 3QT
 
Amdocs, Inc.
1390 Timberlake Manor Parkway, Chesterfield, Missouri 63017
(Address of principal executive offices)
Thomas G. O’Brien
Amdocs, Inc.
1390 Timberlake Manor Parkway, Chesterfield, Missouri 63017
Telephone:314-212-8328
Email: dox_info@amdocs.com
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
 
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
   
Title of each class
Each Class		 
Name of exchangeExchange on which registered
Which Registered
 
Ordinary Shares, par value £0.01
 New York Stock Exchange
 
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
 
None
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report.annual report.
 
   
Ordinary Shares, par value £0.01 203,915,726(1)193,049,164(1)
(Title of class) (Number of shares)
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yesþ     No o
 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes o     No þ
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ     No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§ 232.405 of this chapter) 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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act.(Check one):
 
Large accelerated filer þ     Accelerated filer o     Non-accelerated filer o
Large accelerated filer þAccelerated filer oNon-accelerated filer o
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
     
U.S. GAAPþ
 International Financial Reporting Standards as issuedo
by the International Accounting Standards Board		 Othero
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).
Yes o     No þ
 
(1)Net of 36,919,79051,082,645 shares held in treasury. Does not include (a) 22,387,68922,198,151 ordinary shares reserved for issuance upon exercise of stock options granted under our stock option plan or by companies we have acquired, and (b) 10,435,99523,655 ordinary shares reserved for issuance upon conversion of outstanding convertible debt securities.

 

 
AMDOCS LIMITED
 
 
FORM 20-F
 
ANNUAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 20082010
 
 
INDEX
 
         
PART I
 
Item 1.
  Identity of Directors, Senior Management and AdvisorsAdvisers  34 
 
Item 2.
  Offer Statistics and Expected Timetable  34 
 
Item 3.
  Key Information  34 
 
Item 4.
  Information on the Company  1415
Item 4A.
Unresolved Staff Comments27 
 
Item 5.
  Operating and Financial Review and Prospects  2827 
 
Item 6.
  Directors, Senior Management and Employees  4744 
 
Item 7.
  Major Shareholders and Related Party Transactions  5452 
 
Item 8.
  Financial Information  5553 
 
Item 9.
  The Offer and Listing  5654 
 
Item 10.
  Additional Information  5654 
 
Item 11.
  Quantitative and Qualitative Disclosure aboutDisclosures About Market Risk  6663 
 
Item 12.
  Description of Securities Other than Equity Securities  6764 
 
PART II
 
Item 13.
  Defaults, Dividend Arrearages and Delinquencies  6864 
 
Item 14.
  Material Modifications to the Rights of Security Holders and Use of Proceeds  6864 
 
Item 15.
  Controls and Procedures  6864 
 
Item 16A.
  Audit Committee Financial Expert  6864 
 
Item 16B.
  Code of Ethics and Business Conduct  6865 
 
Item 16C.
  Principal Accountant Fees and Services  6965 
 
Item 16D.
  Exemption FromExemptions from the Listing Standards for Audit Committees  6966 
 
Item 16E.
  Purchases of Equity Securities by the Issuer and Affiliated Purchasers  7066
Item 16F.
Changes in Registrant’s Certifying Accountant66
Item 16G.
Corporate Governance66 
 
PART III
 
Item 17.
  Financial Statements  7167 
 
Item 18.
  Financial Statements  7167 
 
Item 19.
  Exhibits  71
67 
Index to Consolidated Financial Statements
  F-1 
 EX-8: SUBSIDIARIESEX-1.2
 EX-12.1: CERTIFICATIONEX-8
 EX-12.2: CERTIFICATIONEX-12.1
 EX-13.1: CERTIFICATIONEX-12.2
 EX-13.2: CERTIFICATIONEX-13.1
 EX-14.1: CONSENT OF ERNST & YOUNG LLPEX-13.2
EX-14.1


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Unless the context otherwise requires, all references in this Annual Report onForm 20-F to “Amdocs”, “we”, “our”,“Amdocs,” “we,” “our,” “us” and the “Company” refer to Amdocs Limited and its consolidated subsidiaries and their respective predecessors.predecessors, and references to our software products, such as Amdocs CES 8, refer to current and future versions. Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, and are expressed in U.S. dollars. References to “dollars” or ‘‘$“$” are to U.S. dollars. Our fiscal year ends on September 30 of each year. References to any specific fiscal year refer to the year ended September 30 of the calendar year specified.
 
We own, have rights to or use trademarks or trade names in conjunction with the sale of our products and services, including, without limitation, each of the following: Amdocstm, Clarifytm, Cramertm, CEStm, Intentional Customer Experiencetm, OpenMarkettm, Qpasstm, JacobsRimelltm,ChangingWorldstm and JacobsRimelljNetXtm.
 
Forward Looking Statements
 
This Annual Report onForm 20-F contains forward-looking statements (within the meaning of the U.S. federal securities laws) that involve substantial risks and uncertainties. You can identify these forward-looking statements by words such as “expect”, “anticipate”, “believe”, “seek”, “estimate”, “project”, “forecast”, “continue”, “potential”, “should”, “would”, “could”,“expect,” “anticipate,” “believe,” “seek,” “estimate,” “project,” “forecast,” “continue,” “potential,” “should,” “would,” “could,” “intend” and “may”,“may,” and other words that convey uncertainty of future events or outcome. Statements that we make in this Annual Report that are not statements of historical fact also may be forward-looking statements. Forward-looking statements are not guarantees of future performance, and involve risks, uncertainties and assumptions that may cause our actual results to differ materially from the expectations that we describe in our forward-looking statements. There may be events in the future that we are not accurately able to predict, or over which we have no control. You should not place undue reliance on forward-looking statements. We do not promise to notify you if we learn that our assumptions or projections are wrong for any reason. We disclaim any obligation to update our forward-looking statements, except where applicable law may otherwise require us to do so.
 
Important factors that may affect these projections or expectations include, but are not limited to: changes in the overall economy; changes in competition in markets in which we operate; changes in the demand for our products and services; the loss of a significant customer; consolidation within the industries in which our customers operate; changes in the telecommunications regulatory environment; changes in technology that impact both the markets we serve and the types of products and services we offer; financial difficulties of our customers; losses of key personnel; difficulties in completing or integrating acquisitions; litigation and regulatory proceedings; and acts of war or terrorism. For a discussion of these important factors, please read the information set forth below under the caption “Risk Factors”.Factors.”


23

 
PART I
 
ItemITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORSADVISERS
 
Not applicable.
 
ItemITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE
 
Not applicable.
 
ItemITEM 3.KEY INFORMATION
 
Selected Financial Data
 
Our historical consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”)GAAP, and presented in U.S. dollars. The selected historical consolidated financial information set forth below has been derived from our historical consolidated financial statements for the years presented. Historical information as of and for the five years ended September 30, 20082010 is derived from our consolidated financial statements, which have been audited by Ernst & Young LLP, our independent registered public accounting firm. You should read the information presented below in conjunction with those statements.
 
The information presented below is qualified by the more detailed historical consolidated financial statements, the notes thereto and the discussion under “Operating and Financial Review and Prospects” included elsewhere in this Annual Report.
 
                                        
 2008 2007 2006 2005 2004  2010 2009(1) 2008(1) 2007(1) 2006(1) 
 (in thousands, except per share data)  (In thousands, except per share data) 
Statement of Operations Data:
                                        
Revenue $3,162,096  $2,836,173  $2,480,050  $2,038,621  $1,773,732  $2,984,223  $2,862,607  $3,162,096  $2,836,173  $2,480,050 
Operating income  405,596   357,433   332,132   338,492   296,200   410,433   367,319   405,596   357,433   332,132 
Net income  378,906   364,937   318,636   288,636   234,860   343,906   326,176   378,906   364,937   318,636 
Basic earnings per share  1.83   1.76   1.57   1.44   1.13   1.70   1.60   1.82   1.75   1.56 
Diluted earnings per share  1.74   1.65   1.48   1.35   1.08   1.69   1.57   1.74   1.65   1.47 
Dividends declared per share  —   —   —   —   —   —   —   —   —   — 
 
                    
                     2010 2009 2008 2007 2006 
 2008 2007 2006 2005 2004  (In thousands) 
Balance Sheet Data:
                                        
Cash, cash equivalents and short-term interest-bearing investments $1,433,299  $1,173,041  $1,244,378  $1,179,280  $979,381 
Total assets $4,579,063  $4,344,599  $3,962,828  $3,202,468  $2,863,884   4,820,604   4,328,417   4,579,063   4,345,350   3,962,828 
Long-term obligations                                        
2% Convertible Notes due June 1, 2008  —   —   —   272   272 
0.50% Convertible Senior Notes due 2024(1)  450,000   450,000   450,000   450,000   450,000 
Convertible Senior Notes(2)  1,020   1,020   450,000   450,000   450,000 
Long-term portion of capital lease obligations  356   —   —   —   4,112   353   510   356   —   — 
Shareholders’ equity  2,805,191   2,600,243   2,154,165   1,656,452   1,444,190   3,229,380   3,213,053   2,805,191   2,600,243   2,154,165 
 
(1)The basic and diluted weighted average number of shares outstanding for the fiscal years ended September 30, 2009, 2008, 2007 and 2006 have been retroactively adjusted to reflect the adoption of new earnings per share authoritative guidance requiring the inclusion of unvested share-based payment awards containing nonforfeitable rights to dividends or dividend equivalents in the calculation of basic weighted average number of shares outstanding. This adjustment reduced basic and/or diluted earnings per share for the fiscal years ended September 30, 2009, 2008, 2007 and 2006 by up to $0.01.


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        Additional
    
  Ordinary Shares  Paid-In
    
  Shares  Amount  Capital  Treasury Stock 
  (in thousands) 
 
Statement of Changes in Shareholders’ Equity Data:
                
Balance as of September 30, 2004  201,334  $3,601  $1,837,608  $(502,416)
Issuance of restricted stock and stock options related to acquisitions, net  144   2   6,034   — 
Employee stock options exercised  2,229   41   23,983   — 
Tax benefit of stock options exercised  —   —   3,147   — 
Repurchase of shares  (3,525)  —   —   (99,976)
Expense related to vesting of stock options  —   —   150   — 
                 
Balance as of September 30, 2005  200,182  $3,644  $1,870,922  $(602,392)
Employee stock options exercised  5,869   106   106,853   — 
Tax benefit of stock options exercised  —   —   7,619   — 
Issuance of restricted stock, net of cancellations  742   13   —   — 
Issuance of restricted stock and stock options related to acquisitions, net  —   —   4,634   — 
Equity-based compensation expense related to employees  —   —   46,178   — 
Reclassification of unearned compensation to additional paid in capital  —   —   (962)  — 
Equity-based compensation expense related to non employee stock options  —   —   65   — 
                 
Balance as of September 30, 2006  206,793  $3,763  $2,035,309  $(602,392)
Employee stock options exercised  3,970   79   74,576   — 
Tax benefit of stock options exercised  —   —   3,965   — 
Repurchase of shares  (1,411)  —   —   (49,837)
Issuance of restricted stock, net of cancellations  410   8   —   — 
Issuance of restricted stock and stock options related to acquisitions, net  —   —   768   — 
Equity-based compensation expense related to employees  —   —   53,587   — 
Equity-based compensation expense related to non employee stock options  —   —   29   — 
                 
Balance as of September 30, 2007  209,762  $3,850  $2,168,234  $(652,229)
Employee stock options exercised  2,052   41   37,527   — 
Tax benefit of stock options exercised  —   —   1,549   — 
Repurchase of shares  (8,370)  —   —   (255,051)
Issuance of restricted stock, net of cancellations  472   9   —   — 
Equity-based compensation expense related to employees  —   —   57,490   — 
                 
Balance as of September 30, 2008  203,916  $3,900  $2,264,800  $(907,280)
(2)During fiscal 2009, using proceeds from our revolving credit facility, we purchased $449.0 million aggregate principal amount of our 0.50% convertible notes at an average price of 99.5% of the principal amount, excluding accrued interest and transaction fees. As of September 30, 2010 and 2009, $1.02 million principal amount of the notes remain outstanding, due in 2024, in accordance with their terms.
                 
        Additional
    
  Ordinary Shares  Paid-In
    
  Shares  Amount  Capital  Treasury Stock 
  (In thousands) 
 
Statement of Changes in Shareholders’ Equity Data:
                
Balance as of September 30, 2006  206,793  $3,763  $2,035,309  $(602,392)
Employee stock options exercised  3,970   79   74,576   — 
Tax benefit of stock options exercised/cancelled  —   —   3,965   — 
Repurchase of shares  (1,411)  —   —   (49,837)
Issuance of restricted stock, net of forfeitures  410   8   —   — 
Issuance of stock options related to acquisitions, net  —   —   768   — 
Equity-based compensation expense related to employees  —   —   53,587   — 
Equity-based compensation expense related to non-employee stock options  —   —   29   — 
                 
Balance as of September 30, 2007  209,762   3,850   2,168,234   (652,229)
Employee stock options exercised  2,052   41   37,527   — 
Tax benefit of stock options exercised/cancelled  —   —   1,549   — 
Repurchase of shares  (8,370)  —   —   (255,051)
Issuance of restricted stock, net of forfeitures  472   9   —   — 
Equity-based compensation expense related to employees  —   —   57,490   — 
                 
Balance as of September 30, 2008  203,916   3,900   2,264,800   (907,280)
Employee stock options exercised  1,289   23   27,863   — 
Tax benefit of stock options exercised/cancelled  —   —   (1,484)  — 
Repurchase of shares  (468)  —   —   (12,594)
Issuance of restricted stock, net of forfeitures  342   7   —   — 
Equity-based compensation expense related to employees  —   —   42,911   — 
                 
Balance as of September 30, 2009  205,079   3,930   2,334,090   (919,874)
Employee stock options exercised  1,097   17   23,618   — 
Repurchase of shares(1)  (13,695)  —   —   (389,287)
Issuance of restricted stock, net of forfeitures  568   9   —   — 
Equity-based compensation expense related to employees  —   —   44,455   — 
                 
Balance as of September 30, 2010  193,049  $3,956  $2,402,163  $(1,309,161)
                 
 
 
(1)In November 2008,April 2010, our Boardboard of Directorsdirectors authorized a share repurchase plan allowing the repurchase of up to $700.0 million of our outstanding ordinary shares over the following 12 months. The authorization permits us to repurchase up to $100 million aggregate principal amount ofpurchase our 0.50% Convertible Senior Notes due 2024, which we refer to as our notes,ordinary shares in such amounts,open market or privately negotiated transactions at suchtimes and prices and at such times that we deemconsider appropriate. During the first quarter ofIn fiscal 2009,2010, we purchased $100repurchased 13.7 million aggregate principal amount of our notesordinary shares at an average price of 98% of the principal amount, excluding accrued interest$28.41 per share (excluding broker and transaction fees. In March 2009, thefees). As of September 30, 2010, we had remaining notes are redeemable by us, and if we do not elect to redeem the notes, then the holders of the notes may require usauthority to repurchase the notes, in each case at a purchase price equalup to 100% of the principal amount of the notes plus accrued and unpaid interest. We anticipate that a substantial portion of the outstanding notes will be put to us in March 2009 if we do not elect to redeem them. As of November 30, 2008, $350,000 aggregate principal amount$311.0 million of our notes was outstanding.outstanding ordinary shares.

4
5

 
Risk Factors
 
We are exposed to general global economic and market conditions, particularly those impacting the communications industry.
 
Developments in the communications industry, such as the impact of general global economic conditions, industry consolidation, emergence of new competitors, commoditization of voice services and changes in the regulatory environment, at times have had, and could continue to have, a material adverse effect on our existing or potential customers. In the past, these conditions reduced the high growth rates that the communications industry had previously experienced, and caused the market value, financial results and prospects and capital spending levels of many communications companies to decline or degrade. During previous economic downturns, the communications industry experienced significant financial pressures that caused many in the industry to cut expenses and limit investment in capital intensive projects and, in some cases, led to restructurings and bankruptcies. Although we are unable to determine what the full effects ofThe recent worldwide recession and the current uncertainty as to economic turmoil will be, the forecasted worldwide recessionrecovery have had, and may lead to significanthave further, adverse consequences for our customers and our business.
 
DuringWhen faced with adverse conditions in the business environment for communications companies, service providers often need to control operating expenses and capital investment budgets, which may resultcan adversely affect our business. For example, downturns in the business climate for communications companies have resulted in slowed customer buying decisions and price pressures that can adversely affectaffected our ability to generate revenue. AdverseIn recent years, adverse market conditions in the future could have had a negative impact on our business by reducing the number ofdecreasing our new contracts we are able to signcustomer engagements and the size of initial spending commitments under those engagements, as well as decreasing the level of discretionary spending under contracts with existing customers. In addition, a reoccurrence of the slowdown in the buying decisions of service providers could extendextended our sales cycle period and limitlimited our ability to forecast our flow of new contracts. If such adverse business conditions continue or arise again in the future, our business may be harmed.
 
If we fail to adapt to changing market conditions and cannot compete successfully with existing or new competitors, our business could be harmed.
 
We may be unable to compete successfully with existing or new competitors. Our failure to adapt to changing market conditions and to compete successfully with established or new competitors could have a material adverse effect on our results of operations and financial condition. We face intense competition for the software products and services that we sell, including competition for managed services we provide to customers under long-term service agreements. These managed services include services such as management of datacenterdata center operations and IT infrastructure, application management and ongoing support, systems modernization and consolidation and management ofend-to-end business processes for billing and customer care operations.
 
The market for communications information systems is highly competitive and fragmented, and we expect competition to continue to increase. We compete with independent software and service providers and with the in-house IT and network departments of communications companies. Our main competitors include firms that provide IT services (including consulting, systems integration and managed services), software vendors that sell products for particular aspects of a total information system, software vendors that specialize in systems for particular communications services (such as Internet, wireline and wireless services, cable, satellite and service bureaus) and companiesnetwork equipment providers that offer software systems in combination with the sale of network equipment. Since our 2006 acquisition of Qpass Inc., which we refer to as Qpass, we also compete with companies that provide digital commerce software and solutions.
 
We believe that our ability to compete depends on a number of factors, including:
 
 • the development by others of software products that isare competitive with our products and services,
 
 • the price at which others offer competitive software and services,
 
 • the ability of competitors to deliver projects at a level of quality that rivals our own,
 
 • the responsiveness of our competitors to customer needs, and
 
 • the ability of our competitors to hire, retain and motivate key personnel.


56

 
A number of our competitors have long operating histories, large customer bases, substantial financial, technical, sales, marketing and other resources, and strong name recognition. Current and potential competitors have established, and may establish in the future, cooperative relationships among themselves or with third parties to increase their abilities to address the needs of our existing or prospective customers. In addition, our competitors have acquired, and may continue to acquire in the future, companies that may enhance their market offerings. Accordingly, new competitors or alliances among competitors may emerge and rapidly acquire significant market share. As a result, our competitors may be able to adapt more quickly than us to new or emerging technologies and changes in customer requirements, and may be able to devote greater resources to the promotion and sale of their products. We cannot assure you that we will be able to compete successfully with existing or new competitors. If we fail to adapt to changing market conditions and to compete successfully with established or new competitors, our results of operations and financial condition may be adversely affected.
 
If we do not continually enhance our products and service offerings, we may have difficulty retaining existing customers and attracting new customers.
 
We believe that our future success will depend, to a significant extent, upon our ability to enhance our existing products and to introduce new products and features to meet the requirements of our customers in a rapidly developing and evolving market. We are currently devoting significant resources to refining and expanding our base software modules and to developing our customer experience systems. Our present or future products may not satisfy the evolving needs of the communications industry or of other industries that we serve. If we are unable to anticipate or respond adequately to such needs, due to resource, technological or other constraints, our business and results of operations could be harmed.
 
Our business is dependent on a limited number of significant customers, and the loss of any one of our significant customers could harm our results of operations.
 
Our business is dependent on a limited number of significant customers, of which AT&T washas historically been our largestlargest. AT&T accounted for 29% of our revenue in fiscal 2008, accounting2010, compared to 33% in fiscal 2009. In the second half of fiscal 2009, AT&T reduced its discretionary spending with us. The lower resulting revenue level persisted into fiscal 2010, offset in part by an increase in our managed services for 28% of our revenue.AT&T; however, revenue from AT&T on a quarterly basis in fiscal 2010 was relatively stable. In fiscal 2008,2010, our threetwo next largest groups of customers were AT&T, Bell Canada and Sprint Nextel, and certain of their subsidiaries, each of which accounted for 10% or more than 10% of our revenue in fiscal 2008. Together, these three customer groups accounted for approximately 51% of our revenue in fiscal 2008.2010. Aggregate revenue derived from the multiple business arrangements we have with our ten largest customer groupscustomers accounted for approximately 75% of our revenue in fiscal 20082010 and 73%76% of our revenue in fiscal 2007. AT&T has historically been one of our largest shareholders, and, as of November 24, 2008, it beneficially owned approximately 5.1% of our outstanding ordinary shares.2009. The loss of any significant customer or a significant decrease in business from any such customer could harm our results of operations and financial condition. Revenue from individual customers may fluctuate from time to time based on the commencement and completion of projects, the timing of which may be affected by market conditions.
 
Although we have received a substantial portion of our revenue from recurring business with established customers, many of our major customers do not have any obligation to purchase additional products or services from us and generally have already acquired fully paid licenses to their installed systems. Therefore, our customers may not continue to purchase new systems, system enhancements or services in amounts similar to previous years or may delay implementation or significantly reduce the scope of committed projects, each of which could reduce our revenue and profits.
 
Our future success will depend on our ability to develop long-term relationships with our customers and to meet their expectations in providing products and performing services.
 
We believe that our future success will depend to a significant extent on our ability to develop long-term relationships with successful network operators and service providers with the financial and other resources required to invest in significant ongoing customer experience systems. If we are unable to develop new customer relationships, our business will be harmed. In addition, our business and results of operations depend in part on our ability to provide high quality services to customers that have already implemented our


6

products. If we are unable to meet customers’ expectations in providing products or performing services, our business and results of operations could be harmed.


7

We may seek to acquire companies or technologies that could disrupt our ongoing business, distractdivert the attention of our management and employees and adversely affect our results of operations.
 
It is a part of our business strategy to pursue acquisitions and other initiatives in order to offer new products or services or otherwise enhance our market position or strategic strengths. Since 1999, we have completed numerous acquisitions, which, among other things, have expanded our business into customer caremanagement and billing solutions for broadband media cable and satellite companies, and intoas well as digital commerce software and solutions, enhanced our offerings in the operational support systems, or OSS, market, and added expertise in providingenabled us to provide integrated billing and customer care systems in high-growth emerging markets. In the future, we may acquire other companies that we believe will advance our business strategy. We cannot assure you that suitable future acquisition candidates can be found, that acquisitions can be consummated on favorable terms or that we will be able to complete otherwise favorable acquisitions because of antitrust or other regulatory concerns.
 
We cannot assure you that the acquisitions we have completed, or any future acquisitions that we may make, will enhance our products or strengthen our competitive position. We also cannot guaranteeassure you that we have identified, or will be able to identify, all material adverse issues related to the integration of our acquisitions, such as significant defects in the internal control policies of companies that we have acquired. In addition, our acquisitions could lead to difficulties in integrating acquired personnel and operations and in retaining and motivating key personnel from these businesses. For example, in 2005, we acquired Longshine Information Technology Company Ltd., or Longshine, a Chinese subsidiary. Although it had been our plan to fully integrate Longshine into our operations, our expansion into China met with a number of business challenges, and we did not integrate Longshine’s business. In 2010, we divested a majority stake in Longshine, and now retain a minority interest in that company. Any failure to recognize significant defects in the internal control policies of acquired companies or to properly integrate and retain personnel may require a significant amount of time and resources to address. Acquisitions may disrupt our ongoing operations, divert management fromday-to-day responsibilities, increase our expenses and harm our results of operations or financial condition.
 
The skilled and highly qualified workforce that we need to develop, implement and modify our solutions may be difficult to hire, train and retain, and we could face increased costs to attract and retain our skilled workforce.
 
Our business operations depend in large part on our ability to attract, train, motivate and retain highly skilled information technology professionals, software programmers and communications engineers on a worldwide basis. In addition, our competitive success will depend on our ability to attract and retain other outstanding, highly qualified personnel. Because our software products are highly complex and are generally used by our customers to perform critical business functions, we depend heavily on skilled technology professionals. Skilled technology professionals are often in high demand and short supply. If we are unable to hire or retain qualified technology professionals to develop, implement and modify our solutions, we may be unable to meet the needs of our customers. In addition, if we were to obtainserving several new customers or implementimplementing several new large-scale projects in a short period of time, we may needrequire us to attract and train additional IT professionals at a rapid rate. We may face difficulties identifying and hiring qualified personnel. Although we are heavily investing in training our new employees, we may not be able to train them rapidly enough to meet the increasing demands on our business, particularly in light of high attrition rates in some regions where we have operations. Our inability to hire, train and retain the appropriate personnel could increase our costs of retaining a skilled workforce and make it difficult for us to manage our operations, to meet our commitments and to compete for new customer contracts. In particular, wage costs in some of the countries in which we maintain development centers, such as Cyprus and India, have historically been significantly lower than wage costs in the United States, Europe and EuropeIsrael for comparably-skilled professionals, although such costs are increasing. We may need to increase the levels of our employee compensation more rapidly than in the past to remain competitive.
 
As a result of our entry into the digital commerce space, we now compete for high quality employees in that space’s limited and competitive talent market. In addition, cost containment measures effected in recent years, such as the relocation of projects to lower costs countries, may lead to greater employee attrition and increase the cost of retaining our most skilled employees. The transition of projects to new locations may also lead to business disruptions due to differing levels of employee knowledge, organizational and leadership skills.


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Our success will also depend, to a certain extent, upon the continued active participation of a relatively small group of senior management personnel. The loss of the services of all or some of these executives could harm our operations and impair our efforts to expand our business. In November 2010, Dov Baharav, who had been our President and Chief Executive Officer and a director since 2002, retired from these offices, and Eli Gelman, who was our Executive Vice President from 2002 to 2008, our Chief Operating Officer from 2006 to 2008 and a director since 2002, became our President and Chief Executive Officer.


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Our quarterly operating results may fluctuate, and a decline in revenue in any quarter could result in lower profitability for that quarter and fluctuations in the market price of our ordinary shares.
 
We have experienced fluctuations in our quarterly operating results and anticipate that such movements may continue and could intensify.continue. Fluctuations may result from many factors, including:
 
 • the size and timing of significant customer projects and license and service fees,
 
 • delays in or cancellations of significant projects by customers,
 
 • changes in operating expenses,
 
 • increased competition,
 
 • changes in our strategy,
 
 • personnel changes,
 
 • foreign currency exchange rate fluctuations,
• penetration of new markets, and
 
 • general economic and political conditions.
 
Generally, our combined license fee revenue and service fee revenue relating to customization, modification, implementation and integration are recognized as work is performed, using the percentage of completion method of accounting. Given our reliance on a limited number of significant customers, our quarterly results may be significantly affected by the size and timing of customer projects and our progress in completing such projects.
 
We believe that the placement of customer orders may be concentrated in specific quarterly periods due to the time requirements and budgetary constraints of our customers. Although we recognize a significant portion of our revenue as projects are performed, progress may vary significantly from project to project, and we believe that variations in quarterly revenue are sometimes attributable to the timing of initial order placements. Due to the relatively fixed nature of certain of our costs, a decline of revenue in any quarter could result in lower profitability for that quarter. In addition, fluctuations in our quarterly operating results could cause significant fluctuations in the market price of our ordinary shares.
 
Our revenue, earnings and profitability are affected by the length of our sales cycle, and a longer sales cycle could adversely affect our results of operations and financial condition.
 
Our business is directly affected by the length of our sales cycle. Information systems for communications companies are relatively complex and their purchase generally involves a significant commitment of capital, with attendant delays frequently associated with large capital expenditures and procurement procedures within an organization. The purchase of these types of products and services typically also requires coordination and agreement across many departments within a potential customer’s organization. Delays associated with such timing factors could have a material adverse effect on our results of operations and financial condition. In periods of economic slowdown in the communications industry, which may recur in the current economic climate,such as during 2009, our typical sales cycle lengthens, which means that the average time between our initial contact with a prospective customer and the signing of a sales contract increases. The lengthening of our sales cycle could reduce growth in our revenue in the future.revenue. In addition, the lengthening of our sales cycle contributes to an increased cost of sales,selling expenses, thereby reducing our profitability.


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If the market for our products deteriorates, we may be required to reduce the scope of our operations, and if we fail to successfully plan and manage changes in the size of our operations, our business will suffer.
 
Over the last several years, we have both grown and contracted our operations in order to profitably offer our products and services in a rapidly changing market. If we are unable to manage these changes and plan and manage any future changes in the size and scope of our operations, our business will suffer.


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For example, in the fourth quarter of fiscal 2008 and in the second quarter of fiscal 2007, we commenced several measures designed to align our operational structure to our expected future growth and to improve efficiency. As part of these plans, we recorded expenses of $6.0 million in fiscal 2007 and $12.1 in fiscal 2008, consisting primarily of employee separation costs in connection with the termination of the employment of software and information technology specialists and administrative professionals at various locations around the world and, in fiscal 2007, for rent obligations. From time to time in the past, we have undertaken similar cost reduction measures.
 
Restructurings and cost reduction measures that we have implemented from time to time, have reduced the size of our operations and headcount, and acquisitions and organic growth have from time to time increased our headcount.workforce. Reductions in personnel can result in significant severance, administrative and legal expenses and may also adversely affect or delay various sales, marketing and product development programs and activities. Depending on market conditions in the communications industry and our business and financial needs, we may be forced to implement additional restructuring plans to further reduce our costs, which could result in additional restructuring charges. Additional restructuring charges could have a material adverse effect on our financial results.
During periods of contraction, we have disposed of office space and related obligations in efforts to keep pace with the changing size of our operations and we may do so in the future. These cost reduction measures have included, and may in the future include, consolidatingand/or relocating certain of our operations to different geographic locations. These activities could lead to difficulties and significant expenses related to subleasing or assigning any surplus space and retaining our base of skilled professionals. It is our policy to accrue the estimated expenses that will result from our restructuring efforts. We accrued restructuring charges totaling $33.2 million in fiscal 2007, 2008 and 2009. However, if it is determined that the amount accrued is insufficient, an additional charge could have an unfavorable impact on our consolidated financial statements in the period this was determined.
 
Acquisitions and organic growth have, from time to time, increased our headcount. During periods of expansion, we may need to serve several new customers or implement several new large-scale projects in short periods of time. This may require us to attract and train additional IT professionals at a rapid rate, which we may have difficulties doing successfully.
The current credit crisisTurmoil in the world’s capital markets may adversely affect our investment portfolio and other financial assets and our ability to secure additional credit availability.assets.
 
Our cash, cash equivalents and short-term interest-bearing investments totaled $1,244.4 million$1.23 billion, net of short-term debts, as of September 30, 2008.2010. Our policy is to retain substantial cash balances in order to support our growth. Our short-term investments consist primarily of money market funds, U.S. government treasuries, U.S. agency securities corporate bonds, commercial paper, certificates of deposit, asset-backed obligations and mortgages.government guaranteed debt. Although we believe that we generally adhere to conservative investment guidelines, the continuingrecent turmoil in theworld capital markets may resulthas resulted in immaterial impairments of the carrying value of certain of our investment assets. Continuing adverse market conditions may lead to additional impairments. Realized or unrealized losses in our investments or in our other financial assets may adversely affect our financial condition.
 
Bank failures or closings or further declinesDeclines in the financial condition of U.S. and European banks andor other global financial institutions may adversely affect our normal financial operations, as well as our ability to secure additional credit facilities, if needed. The unavailability of additional credit may prevent us from executing our future business plans, including potential acquisitions.operations.
 
We may be exposed to the credit risk of customers that have been adversely affected by weakened markets.
 
We typically sell our software and related services as part of long-term projects. During the life of a project, a customer’s budgeting constraints can impact the scope of a project and the customer’s ability to make required payments. In addition, due to adverse general business conditions such as the recent turmoil in the financial markets,may degrade the creditworthiness of our customers may deteriorate over time, and we can be adversely affected by bankruptcies or other business failures.
 
Our international presence exposes us to risks associated with varied and changing political, cultural, legal and economic conditions worldwide.
 
We are affected by risks associated with conducting business internationally. We maintain development facilities in China,Brazil, Cyprus, India, Ireland, Israel and the United States, operate a support center in Brazil and have operations in North America, Europe, Latin America and the Asia-Pacific region. Although a substantial


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majority of our revenue is derived from customers in North America and Europe, we obtain significant revenue from customers in the Asia-Pacific region


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and Latin America. Our strategy is to continue to broaden our North American and European customer bases and to expand into new international markets. Conducting business internationally exposes us to certain risks inherent in doing business in international markets, including:
 
 • lack of acceptance of non-localized products,
 
 • legal and cultural differences in the conduct of business,
 
 • difficulties in staffing and managing foreign operations,
 
 • longer payment cycles,
 
 • difficulties in collecting accounts receivable and withholding taxes that limit the repatriation of earnings,
 
 • trade barriers,
 
 • difficulties in complying with varied legal and regulatory requirements across jurisdictions,
 
 • immigration regulations that limit our ability to deploy our employees,
 
 • political instability and threats of terrorism, and
 
 • variations in effective income tax rates among countries where we conduct business.
 
One or more of these factors could have a material adverse effect on our international operations, which could harm our results of operations and financial condition. For example, in 2005, as part of our strategic plan to establish a local China presence in order to help penetrate that market, we acquired Longshine. Although it had been our plan to fully integrate Longshine into our operations, our expansion there met with a number of business challenges, and we did not do so. In 2010, we realigned our strategy in China by divesting a majority stake in Longshine, and now retain a minority interest in that company.
 
Our international operations expose us to risks associated with fluctuations in foreign currency exchange rates that could adversely affect our business.
 
Although we have operations throughout the world, approximately 70% to 80% of our revenue and approximately 50% to 60% of our operating costs are denominated in, or linked to, the U.S. dollar. Accordingly, we consider the U.S. dollar to be our functional currency. However, approximately 40% to 50% of our operating costs in fiscal 20082010 were incurred outside the United States in other currencies. Therefore, fluctuations in exchange rates between the currencies in which such costs are incurred and the dollar may have a material adverse effect on our results of operations and financial condition. From time to time we may experience increases in the costs of our operations outside the United States, as expressed in dollars, which could have a material adverse effect on our results of operations and financial condition.
 
For example, during fiscal 2008, we recognized $18.9 million inhigher than usual foreign exchange losses under interest income and other (expense) income, net, mainly due to the significant revaluation of assets and liabilities denominated in other currencies resulting fromattributable to the rapid and significant foreign exchange rate changes associated with the global economic turbulence in the fourth quarterturbulence. Although our foreign exchange losses have been less significant since then as a result of fiscal 2008. Weenhanced hedging strategies, we believe that foreign exchange rates willmay continue to present challenges in fiscal 2009.future periods.
 
In addition, a portion of our revenue (approximately 20% to 30% in fiscal 2008)2010) is not incurred in dollars or linked to the dollar, and, therefore, fluctuations in exchange rates between the dollar and the currencies in which such revenue is incurred and the dollar may have a material effect on our results of operations and financial condition. If more of our customers seek contracts that are denominated in currencies such as the Euroeuro and not the dollar, our exposure to fluctuations in currency exchange rates could increase.
 
We do not hedge all of our currency exposure, in currencies other than the U.S. dollar, but rather our policy is to hedge significant net exposures in the major foreign currencies in which we operate, and we generally hedge our net currency exposure with respect to expected revenue and operating costs and certain balance sheet items. However, we cannot assure you that we will be able to effectively limit all of our exposure to currency exchange rate fluctuations.


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The imposition of exchange or price controls or other restrictions on the conversion of foreign currencies could also have a material adverse effect on our business, results of operations and financial condition.


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Political and economic conditions in the Middle East and other countries may adversely affect our business.
 
Of the development centers we maintain worldwide, our two largest development center iscenters are located in fourIsrael and India. In Israel, the centers are located in three different sites throughout Israel. Approximately 27%Israel, and approximately 24% of our software and information technology workforce is located in Israel. As a result, we are directly influenced by the political, economic and military conditions affecting Israel and its neighboring regions. Any major hostilities involving Israel could have a material adverse effect on our business. We have developed contingency plans to provide ongoing services to our customers in the event that escalated political or military conditions disrupt our normal operations. These plans include the transfer of some development operations within Israel to various of our other sites both within and outside of Israel. If we have to implement these plans, our operations would be disrupted and we would incur significant additional expenditures, which would adversely affect our business and results of operations.
 
While Israel has entered into peace agreements with both Egypt and Jordan, Israel has not entered into peace arrangements with any other neighboring countries. Over the past several years there has been a significant deterioration in Israel’s relationship with the Palestinian Authority and a related increase in violence, including recent hostilities related to Lebanon and the Gaza Strip. Efforts to resolve the problem have failed to result in a permanent solution. Continued violence between the Palestinian community and Israel may have a material adverse effect on our business. Further deterioration of relations with the Palestinian Authority might require more military reserve service by some of our workforce, which may have a material adverse effect on our business.
 
In 2004, we established a development center in India, and since 2005,recent years, we have expanded our operations internationally, particularly in India China and the Commonwealth of Independent States (including Russia). Conducting business in each of these and other countries involves unique challenges, including political instability, threats of terrorism, the transparency, consistency and effectiveness of business regulation, the protection of intellectual property, and the availability of sufficient qualified local personnel. Any of these or other challenges associated with operating in these countries may adversely affect our business or operations. We have development and other facilities at multiple locations in India, and had over 3,700approximately 36.5% of our software and information technology employeesworkforce is located in India as of the end of fiscal 2008. Recent terroristIndia. Terrorist activity in India and Pakistan has ledcontributed to tensions between India and Pakistanthose countries and our operations in India may be adversely affected by future political and other events in the region.
 
In addition, our development facility in Cyprus may be adversely affected by political conditions in that country. As a result of intercommunal strife between the Greek and Turkish communities, Turkish troops invaded Cyprus in 1974 and continue to occupy approximately 40%a large portion of the island. Despite the admission of CypressCyprus into the European Union and recent improvements in the relations between the parties, discussions facilitated by the United Nations, the European Union and the United States have not resulted in a plan of reunification for Cyprus. Major hostilities between Cyprus and Turkey could have a material adverse effect on our development facility in Cyprus.
 
If we are unable to protect our proprietary technology from misappropriation, our business may be harmed.
 
Any misappropriation of our technology or the development of competitive technology could seriously harm our business. Our software and software systems are largely comprised of software and systems we have developed or acquired and that we regard as proprietary. We rely upon a combination of trademarks, patents, contractual rights, trade secret law, copyrights, non-disclosure agreements and other methods to protect our proprietary rights. We enter into non-disclosure and confidentiality agreements with our customers, workforce and marketing representatives and with certain contractors with access to sensitive information, and we also limit our customer access to the source codes of our software and our software systems. However, we generally do not include in our software any mechanisms to prevent or inhibit unauthorized use.
 
The steps we have taken to protect our proprietary rights may be inadequate. If so, we might not be able to prevent others from using what we regard as our technology to compete with us. Existing trade secret, copyright and trademark laws offer only limited protection. In addition, the laws of some foreign countries do not protect our


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proprietary technology or allow enforcement of confidentiality covenants to the same extent as the laws of the United States.


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If we have to resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome, protracted and expensive and could involve a high degree of risk.
 
Claims by others that we infringe their proprietary technology could harm our business.business and subject us to potentially burdensome litigation.
 
Our software and software systems are the results of long and complex development processes, and, although our technology is not significantly dependent on patents or licenses from third parties, certain aspects of our products make use of readily available software components that we license from third parties, including our employees and contractors. As a developer of complex software systems, third parties may claim that portions of our systems violate their intellectual property rights. The ability to develop and use our software and software systems requires knowledge and professional experience that we believe is unique to us and would be very difficult for others to independently obtain, however, our competitors may independently develop technologies that are substantially equivalent or superior to ours.
 
We expect that software developers will increasingly be subject to infringement claims as the number of products and competitors providing software and services to the communications industry increases and overlaps occur. Any claim of infringement by a third party could cause us to incur substantial costs defending against the claim and could distract our management from our business. Furthermore, a party making such a claim, if successful, could secure a judgment that requires us to pay substantial damages. A judgment could also include an injunction or other court order that could prevent us from selling our products or offering our services, or prevent a customer from continuing to use our products. Additionally, since our 2006 acquisition of Qpass, we support service providers and media companies with respect to digital content services, which could subject us to claims related to such services. Our entry into the digital content services market has also subjected us to direct legal claims from retail consumers arising from the delivery of such services.
 
If anyone asserts a claim against us relating to proprietary technology or information, we might seek to license their intellectual property. We might not, however, be able to obtain a license on commercially reasonable terms or on any terms. In addition, any efforts to develop non-infringing technology could be unsuccessful. Our failure to obtain the necessary licenses or other rights or to develop non-infringing technology could prevent us from selling our products and could therefore seriously harm our business.
 
Product defects or software errors could adversely affect our business.
 
Design defects or software errors may cause delays in product introductions orand project implementations, damage customer satisfaction and may have a material adverse effect on our business, results of operations and financial condition. Our software products are highly complex and may, from time to time, contain design defects or software errors that may be difficult to detect and correct.
 
Because our products are generally used by our customers to perform critical business functions, design defects, software errors, misuse of our products, incorrect data from external sources or other potential problems within or outside of our control may arise during implementation or from the use of our products, and may result in financial or other damages to our customers, for which we may be held responsible. Although we have license agreements with our customers that contain provisions designed to limit our exposure to potential claims and liabilities arising from customer problems, these provisions may not effectively protect us against such claims in all cases and in all jurisdictions. In addition, as a result of business and other considerations, we may undertake to compensate our customers for damages caused to them arising from the use of our products, even if our liability is limited by a license or other agreement. Claims and liabilities arising from customer problems could also damage our reputation, adversely affecting our business, results of operations and financial condition and the ability to obtain “Errors and Omissions” insurance.


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System disruptions and failures may result in customer dissatisfaction, customer loss or both, which could materially and adversely affect our reputation and business.
 
Our systems are an integral part of our customers’ business operations. The continued and uninterrupted performance of these systems by our customers is critical to our success. Customers may become dissatisfied by any system failure that interrupts our ability to provide services to them. Sustained or repeated system


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failures would reduce the attractiveness of our services significantly and could result in decreased demand for our products and services.
 
Our ability to perform managed services depends on our ability to protect our computer systems against damage from fire, power loss, water damage, telecommunications failures, earthquake, terrorism attack, vandalism and similar unexpected adverse events. Despite our efforts to implement network security measures, our systems are also vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering. We do not carry enough business interruption insurance to compensate for any significant losses that may occur as a result of any of these events.
 
We have experienced systems outages and service interruptions in the past. To date, these outages have not had a material adverse effect on us. However, in the future, a prolonged system-wide outage or frequent outages could cause harm to our reputation and could cause our customers to make claims against us for damages allegedly resulting from an outage or interruption. Any damage or failure that interrupts or delays our operations could result in material harm to our business and expose us to material liabilities.
 
The termination or reduction of certain government programs and tax benefits could adversely affect our overall effective tax rate.
 
There can be no assurance that our effective tax rate of 9.3%10.7% for the year ended September 30, 20082010 will not change over time as a result of changes in corporate income tax rates or other changes in the tax laws of Guernsey, the jurisdiction in which our holding company is organized, or of the various countries in which we operate.
We have benefited or currently benefit from a variety of government programs and tax benefits that generally carry conditions that we must meet in order to be eligible to obtain any benefit. For example, through subsidiaries, we operate development centers and a business processing operations center in India. In 2008,2010, the corporation tax rate applicable in India on trading activities was 33.99%33.2%. Our subsidiaries in India operate under specific favorable tax entitlements that are based upon pre-approved information technology related services activity. As a result, our subsidiaries in Pune are entitled to considerable corporate income tax reductions thatfor certain of their respective eligible income which reduce their current applicable tax rate (cash basis) to 11.33%, and18%. Further, our newly-established subsidiary in Delhi isand a new unit we recently established in Pune are also currently entitled to a tax exemption. Such favorable tax treatment is applied, where applicable, on all income derived from such pre-approved information technology activity, provided the subsidiaries continue to meet the conditions required for such tax benefits. The benefits applicable to our subsidiaries based in Pune are scheduled to expire on April 1, 20102011 and the benefits applicable to our Delhi subsidiary are scheduled to phase out over 15 years from the subsidiary’s establishment. Proposed changes in Indian tax law may reduce or eliminate the availability of the noted beneficial tax rates for our Indian subsidiaries. Please see “Item 10 — Additional Information — Taxation — Certain Indian Tax Considerations” for more information.
 
If we fail to meet the conditions upon which certain favorable tax treatment is based, we would not be able to claim future tax benefits and could be required to refund tax benefits already received. In addition, any of the following could have a material effect on our overall effective tax rate:
 
 • some tax benefit programs may be limited in duration or may be discontinued,
 
 • we may be unable to meet the requirements for continuing to qualify for some programs,
 
 • these programs and tax benefits may be unavailable at their current levels, or
 
 • upon expiration of a particular benefit, we may not be eligible to participate in a new program or qualify for a new tax benefit that would offset the loss of the expiring tax benefit.


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The market price of our ordinary shares has and may continue to fluctuate widely.
 
The market price of our ordinary shares has fluctuated widely and may continue to do so. SinceFrom September 30, 2007,2008 to November 30, 2010, our ordinary shares have traded as high as $38.03$32.44 and as low as $16.19$14.61 per share. As of November 24, 2008,30, 2010, the closing price of our ordinary shares was $19.12$26.00 per share. Many factors could cause the market price of our ordinary shares to rise and fall, including:
 
 • market conditions in the industry and the economy as a whole,


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 • variations in our quarterly operating results,
• changes in our backlog levels,
 
 • announcements of technological innovations by us or our competitors,
 
 • introductions of new products or new pricing policies by us or our competitors,
 
 • trends in the communications or software industries, including industry consolidation,
 
 • acquisitions or strategic alliances by us or others in our industry,
 
 • changes in estimates of our performance or recommendations by financial analysts,
 
 • changes in our shareholder base,
• changes in our backlog levels, and
 
 • political developments in the Middle East or other areas of the world.
 
In addition, in recent years, the stock market has experienced significant price and volume fluctuations, including particularly significant fluctuations in recent months in connection with the credit crisis.fluctuations. In the past, market fluctuations have, from time to time, particularly affected the market prices of the securities of many high technology companies. These broad market fluctuations could adversely affect the market price of our ordinary shares.
 
It may be difficult for our shareholders to enforce any judgment obtained in the United States against us or our affiliates.
 
We are incorporated under the laws of the Island of Guernsey and a majority of our directors and executive officers are not citizens or residents of the United States. A significant portion of our assets and the assets of those persons are located outside the United States. As a result, it may not be possible for investors to effect service of process upon us within the United States or upon such persons outside their jurisdiction of residence. Also, we have been advised that there is doubt as to the enforceability in Guernsey of judgments of the U.S. courts of civil liabilities predicated solely upon the laws of the United States, including the federal securities laws.
 
ITEM 4.INFORMATION ON THE COMPANY
 
History, Development and Organizational Structure of Amdocs
 
Amdocs Limited was organized as a company with limited liability under the laws of the Island of Guernsey in 1988. Since 1995, Amdocs Limited has been a holding company for the various subsidiaries that conduct our business on a worldwide basis. Our global business is providing software and services solutions to enable communications companies that are major services providers in North America, Europe and the rest of the world to move toward an integrated approach to customer management. Our registered office is Suite 5, Tower Hill House Le Bordage, St. Peter Port, Guernsey, GY1 3QT, and the telephone number at that location is +44-1481-728444.
 
In the United States, our main sales and development center is in St. Louis, Missouri. The executive offices of our principal subsidiary in the United States are located at 1390 Timberlake Manor Parkway, Chesterfield, Missouri 63017, and the telephone number at that location is +1-314-212-8328.
 
Our subsidiaries are organized under and subject to the laws of several countries. Our principal operating subsidiaries are in Canada, Cyprus, India, Ireland, Israel and the United States.


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We have pursued and may continue to pursue acquisitions in order to offer new products or services or otherwise enhance our market position or strategic strengths. Since fiscal 2000, we have completed numerous acquisitions, theacquisitions; our principal onesacquisitions since fiscal 2006 are summarized below:
 
     
Fiscal Year
 
Acquired Business
 
Description of Business
 
2006 Qpass Software systems for digital commerce
2006 Cramer Operation support software systems
2007 SigValue Customer care, billing and service control systems for communications providers in high-growth emerging markets
2008 JacobsRimell Fulfillment software for the broadband cable industry
2009 ChangingWorlds Mobile device personalization technology
2010jNetXService delivery platform provider
2010MX TelecomMobile payments and messaging aggregator
 
Our acquisitions have enabled us to expand our service offerings and our customer base and to enhance our ability to provide managed services solutions to our customers. Through acquisitions, we have also expanded our presence in growing geographical and emerging communications markets, reinforcing our leadership in delivering a comprehensive portfolio of business software applications. In
As the future, we may consider, as partresult of our strategy, additionalorganic growth and acquisitions and other initiatives in order to offer new products or services or otherwise enhancethe size of our market position or strategic strengths.
Ouroperations, our software and information technology workforce has increased from 14,826 as of September 30, 2006 to 15,97815,871 as of the end of fiscal 2007 and2009 to 17,10018,051 as of the end of fiscal 2008. The increases in2010. In the past, our workforce are attributablehas fluctuated with changes in business conditions. In 2009, in light of the economic downturn, we had reduced our software and information technology workforce during fiscal year 2009 from 17, 100 as of the end of fiscal 2008 to our acquisitions,15,871 as well as to organic growth inof the sizeend of our operations.fiscal 2009.
 
Our principal capital expenditures for fiscal 2008, 20072010, 2009 and 20062008 have been for computer equipment, for which we spent approximately $113.2$70.6 million, $117.3$71.5 million, and $66.6$113.2 million, respectively. Capital expenditures in fiscal 2008 reflect2010 were mainly attributable to investments in managed services projectsour operating facilities and our development centers around the continued support of the overall growth of our business.world. We anticipate our principal capital expenditures in fiscal 20092011 will be financed internally and will consist of additional computer equipment, with the bulk of these expenditures for computer equipment to be located at our facilities in North America, India and Israel.equipment.
 
Business Overview
 
Amdocs is a leading provider of software and services for communications, media and entertainment industry service providers. Although our market focus has traditionally been primarily on Tier 1Tier-1 and Tier 2Tier-2 service providers in developed markets, we have begun to focusalso focused in the last several years on Tier 3Tier-3 and 4Tier-4 providers in thesedeveloped markets and on providers in emerging markets, such as China,Latin America, the Commonwealth of Independent States, India and Latin America.Southeast Asia.
 
We develop, implement and manage software and services associated with the business support systems (BSS) and operational support systems (BSS and OSS) that(OSS) to enable service providers to deliver a better customer experience, by, for example, introducingintroduce new products quickly, understandingunderstand their customers more deeply, processingprocess orders more efficiently and solving problems productively.support new business models. We refer to these systems collectively as customer experience systems because of the crucial impact and increasing importance that these systems have on the service providers’ end-user experience.
 
We believe the demand for our customer experience systems is driven by the need of service providers to anticipate and respond to marketconsumer demands. In established markets, service providers are transforming their businesses as they attempta global communications industry impacted by a growing number of connected devices and the resulting demand for increased bandwidth, consumers expect immediate and constant connectivity to derive revenuepersonalized services, information and profit fromIP-based digital content and commerce services, while confronting increased competition from non-traditional competitors, including major Internet companies, handset manufacturers and network equipment providers. In emerging markets, many startup operations are introducing communications services to markets for the first time, coping with massive scale and rapid growth; other companies are undergoing consolidations as providers with global brands seek to do business in these new geographies. Regardless of whether providers are bringing their first offerings to market, scaling for growth, consolidating systems or transforming the way they do business, we believe they will succeed by


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differentiating their offerings by delivering a customer experience that is simple, personal and valuable at every point of service. We refer to this type of customer experience as the “intentional customer experience.”applications. We seek to address these market forces through a strategy of forward-looking product development and holistic, vertical integration encompassing all systemsinnovation from the customernetwork and business support systems to the network. Our goal isdevice and end user. We continue to supply softwareintroduce and enhance products and services that provide functionalitydeliver organizational and flexibilityprocess improvements to service providersbring value to our customers as they — and their markets — grow and change. Our goal is to supply scalable offerings that provide the functionality and flexibility to service providers that facilitate innovation and enable cost-effective execution.


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Industry Background
 
Communications Industry
 
Over the more than two decades that Amdocs has been in business, the global communications industry has changed — and continues to change — dramatically. Competition has increased as a result of deregulation in the United States, which effectively commenced with the historicbreak-up of AT&T in 1984, and the privatization of formerly government owned or controlled communications providers in many other countries. Consolidation has swept the world’s mature markets and continues in emerging markets. The emergence of technologies, such as Internet Protocol (IP), IP Multimedia Subsystem (IMS), worldwide interoperability for microwave access (WiMax) and others, has enabled and accelerated the introduction of new products and services, which has led to the new, “open Internet,” enabling new, non-traditional players to emerge. In turn, these relatively new services, including content andIP-based services, have created an expectation of immediacy, personal relevance and ubiquity, and expanded the universe of participants involved in delivering them. The bundling and blending of wireline and wireless voice, video and data services continues, and the evolution of directory systems has ushered in new technologies and distribution platforms, making possible digital advertising, search applications and location-based services — components of what we call the “digital lifestyle.” We believe that, as the economy continues to stabilize, service providers are beginning to invest in renewed growth, while maintaining a resultstrong focus on cost reduction and efficient operations, as seen by a number of all these forces, industry playerstransformation projects planned by leading service providers worldwide. The rise of the smartphone and communications and entertainment applications, or “apps” is already providing unprecedented growth in data demand, while other connected devices such as the iPad, Kindle and the improvement inmachine-to-machine (M2M) technologies will only further this growth in what we refer to as the “connected world”. In response to the demand for increased bandwidth, service providers, both wireline and wireless, are seekinginvesting in their networks and are searching for ways to monetize this investment, moving away from flat-rate pricing.
In recent years, non-traditional service providers and device manufacturers have penetrated the wireless market and are now poised to compete by operating at lower cost,for customer attention in the television market as well. Additionally, social networks such as Facebook and Twitter are becoming an alternative mode of communications to traditional voice communication. To meet the challenges from new competitors and differentiate themselves, service providers are moving towards a model of converged services, with wireline operators offering competitive prices, rapidly introducingInternet Protocol TV services as well as the convergence of fixed-mobile networks. Service providers are also looking to marketstrengthen their standing with enterprise customers as well as exploring new featuresopportunities in the wholesale market.
To capture new revenue streams in the emerging connected world, service providers will need the ability to expand faster to connect more emerging devices and penetrate new connected industry verticals; they will need to provide customers with a truly connected experience across devices, networks, screens and services, and being more responsivethey must continue to customer needsbuild cost-efficient businesses and technical environments that can change quickly and onboard new partners. We believe service providers will place a greater emphasis on modernization and transformation projects for both networks and business support systems as they evolve in real time, across different networks and geographies.
The business- and operational-support systems — or customer experience systems — upon which service providers depend are considered vitallook for innovative ways to achieving competitive advantage. We find that our customers are seeking to upgrade existing systems and install new systems to enable them to transform their businesses in order to deliver new, next-generation, convergent or bundled services in the context of a differentiating, intentional customer experience. We believe that service providers are looking for systems and services that reduce IT and operational costs and transformation risk, enhance customer management to increase average revenue and profitability per user, support customer retention, and enable rapid rollout of new marketing packages and advanced data services. In addition, these systems must have the ability to orchestrateend-to-end business processes and provide customers with single-contact, single-invoice solutions for their services. We believe these needs are driven by the move toward convergence and the demand from consumers for simplicity and ubiquitous connectivity: access to any service anytime, anywhere, through any device as part of their digital lifestyle.improve operations.
 
As a result, we believe service providers require modular yet integrated, customer experience systems that provide the level of integration, flexibility and scalability they need to improve operational efficiency and to differentiate themselves from their competitors in an increasingly crowded marketplace. We recognize that some providers may choose to rely on their own internal resources to serve their customers and expand their service offerings. However, in order to implement efficient, flexible, cost-effective information systems on a timely basis, we find that many providers are looking to acquire customer experience systems from external vendors. To further save scarce capital and operating expenditure resources, many of these providers are investing in pre-configured open-architecture software products, which require limited customization, rather than highly-customized solutions. Additionally, some providers may choose to outsource the management of these systems as a way to reduce costs and focus internal resources on corporate competencies — delivering communication, media and entertainment services, rather than managing software systems. We believe these factors create significant opportunities for vendors of information technology software products and providers of managed services, such as Amdocs.


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The Amdocs Offerings
 
We believe that our product-driven approach, commitment to and support of quality personnel and deep industry knowledge and expertise permitenable us to create and deliver effective offerings that are highly innovative, reliable and cost-effective. In addition, we offer software products that address the specific business needs of service providers. We believe that our success derives from a combination of the following factors that differentiate us from most of our competitors.
 
 • Software Products.  In fiscal 2008,2010, we released the Amdocs CES (customer experience systems) 7.5 portfolio of software products.(Customer Experience Systems) 8 portfolio. Building on Amdocs 6 and Amdocs 7,CES 7.5, our predecessor software portfolio, Amdocs CES 7.58 provides the fourth generation of integration between our post-paid and pre-paid billing, customer relationship management (CRM) and ordering applications that are designed to enable our customers to achieve integrated customer management and deliver an intentional customer experience. The CES 8 portfolio was designed to enable our customers to support new business models, devices and partnerships by centralizing common assets, such as customer, network and product data. Our portfolio of pre-integrated software products was built to span the entire customer lifecycle across business support systems (BSS)BSS, OSS and operational support systems (OSS), and enable service providersdelivery to centralize common information assets, such as customer, product and network resource data, align their business processes around the end customer, and link subscriber-facing business processes and touch points across back-office and front-office systems. Ourcustomer. In addition, our products are designed to allow modular extensionexpansion as a service provider evolves, to ensure fast and reduced-cost,ensuring rapid, low-cost, reduced-risk implementations.
 
The Amdocs CES 7.5 product8 portfolio is based on an open architecture that is intended to provide the functionality, scalability, modularity and adaptability required by service providers in their dynamic, highly competitive markets. The open architecture is based on the principles of service-oriented architecture (SOA) and business process management, which helps to ensure our products operate together or as stand-alone


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applications within existing environments. We believe this flexibility enables our customers to achieve significanttime-to-market advantages and reducereduces their dependence on technical and other staff. In addition, our products are designed to uphold the prevailing industry standards set by standards bodies such as the TeleManagement (TM) Forum. Amdocs is an active, board-level member in the TM Forum and other industry forums.personnel.
 
 • Services.  Amdocs’Our services include business consulting, and systems integration and delivery services, product supportmanaged services and managedproduct services to support the deployment and operations of our products. We combine deep industry knowledge, advanced methodologies, industry best practices and pre-configured tools to deliver consistent results and minimize our customers’ risks.
 
 • Solution Bundles and Packs.  Building on the products included in the Amdocs CES 7.58 portfolio, we offer bundled solutions of products (including those of Amdocs and third parties)and/or and services that address specific business issues, such as subscriber profitability and segmentation, or the identification of consumer segments to be targeted, orand system strengths to be enhanced. “Packs” are turnkey versions of our products, designed for fast, lower-cost implementation, often deployed in emerging markets or by new market entrants in developed markets. We believe that these bundled and packaged offerings provide our customers with timely, cost-effective, relatively low-risk solutions to specific business issues at a consistent level of quality.
 
 • Experience.  We are able to offer our customers superior products and services on a worldwide basis in large part because of our highly qualified and trained technical, sales, marketing, consulting and management personnel. We invest significantly in the ongoing training of our personnel in key areas such as industry knowledge, software technologies and management capabilities. Leveraging thisongoing training and experience, we have developed a field-provenfield-tested set of business processes, tools and methodologies that we apply to all ongoing product development and delivery activities. Significantly basedBased in significant part on the skills and knowledge of our workforce, we believe that we have developed a reputation for reliably delivering quality solutions within agreed time frames and budgets.solutions.


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Due to the complex and dynamic nature of our customers’ business needs, the products and services that we provide are typically integrated and designed to work in concert to provide each customer with a complete solution.
 
Business Strategy
 
Our goal is to provide products, services and support to the world’s leading service providers as they transform from voice or video utilitiesevolve to purveyors of the digital lifestyle.remain relevant and competitive in an increasingly connected world. We seek to accomplish our goal by pursuing the strategies described below.
 
 • Continued Focus on the Communications, Media and Entertainment Industry.  We intend to continue to concentratefocus our mainprimary resources and efforts on providing customer experience systems to service providers in the communications, media and entertainment industry. This strategy has enabled us to develop the specialized industry know-how and capability necessary to deliver the technologically advanced, large-scale, specifications-intensive customer experience systems required by the leading wireless, wireline, broadband cable and satellite companies. We consider our longstanding and continuing focus on this industry a competitive advantage.
 
 • Target Industry Leaders.  We intend to continue to direct our marketing efforts principallyprimarily toward the majorcommunications, media and entertainment industry leaders. By targeting such leading service providers, which require the most sophisticated customer experience systems, we believe that we are better able to remain at the forefront of developments in established markets.the industry. We derive athe substantial majority of our revenues from our customer base of major service providers in North America and Europe. We believe that the development of this premier customer base has helped position us as a market leader, while contributing to the core strength of our business. By targeting industry leaders that require the most sophisticated customer experience systems, we believe that we are better able to remain at the forefront of developments in the industry.
 
 • ExpandContinued Expansion into Emerging Markets.  Through our acquisition of SigValue in fiscal 2007 and our own development efforts, we believe we have improvedWe continue to improve our ability to serve the needs of service providers operating in emerging markets where subscriber growth, principally for prepaid wireless service, is far greater than in more developed Western markets, but where average revenue per user is relatively low. Our prospective customers in these markets vary dramatically, with some service providers serving subscriber bases already numbering in the hundreds of millions and others introducing communications services to communities for the first time. We believe this spectrum of emerging market service


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providers requires offerings ranging from relatively low-cost systems with pre-packaged services that can be implemented rapidly, to more robust service delivery offerings, to complete customer experience systems.
 • Provide Customers with a Broad, Deep Portfolio of Integrated Products.  We seek to provide our customers with a broad, yet vertically-integrated, portfolio of products to help them deliver an intentional customer experience. We seek to provide customer experience systems across the BSS and OSS domains and across multiple lines of business, often including wireline, wireless, broadband cable and satellite services. Integration of our systems is achieved through an open, service-oriented architecture, allowing our products to work well together and with third-party products. This holistic approach serves to support the world’s largest service providers throughout their various, often international operations. We believe that our ability to provide a broad, deep suite of products helps position us as a strategic partner for our customers, and also provides us with multiple avenues for strengthening and expanding our ongoing customer relationships.
 
 • Leverage ourOur Managed Services and Consulting Capabilities.  Managed services enable Amdocsus to assume responsibility for the operation and management of our customers’ Amdocs systems, as well as systems developed by in-house IT departments or by other vendors. Managed services benefit ourOur customers by affording themreceive improved efficiencies and long-term savings over theday-to-day costs of operating and maintaining these systems, and by enabling them toso they can focus on their own internal strengths, leaving systems concerns to us. Managed services also benefit Amdocs,us, as they can be a source of predictable revenue and long-term relationships.
• Leverage Our Consulting Capabilities.  We seek to maintain and develop long-term, mutually-beneficial relationships for us. Similarly, Amdocs’with our customers, and have organized our internal operations to better anticipate and respond to their needs. These relationships, which include consulting services are mutually beneficial for Amdocs and our customers. Consulting engagements, can lead to the sale of new licenses and additional services projects. In addition, our consultants’ experience in the field is channeled into our product development process, applying the best-practicesbest practices and business processes we have accumulated over more than 25 years to enhance the performance of our products and improve the success of future projects for our customers.


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 • Maintain and Develop Long-Term Customer Relationships.  We seek to maintain and develop long-term, mutually beneficial relationships with our customers, and have organized our internal operations to better anticipate and respond to their needs.  We find that our most positive, productive customer relationships lead to additional product sales, as well as ongoing, long-term support, system enhancement and maintenance, and managed services agreements. We believe that such relationships are facilitated in many cases by the mission-critical, strategic nature of Amdocs systems and by the added value we provide through our specialized skills and knowledge. We believe that the longevity of our strong customer relationships and the recurring revenue that theysuch relationships produce areprovide a competitive advantage for us, especially in times of economic stress.us.
 
Products
 
Our product offerings includeconsist of an extensive software portfolio that we have developed to provide comprehensive customer experience systems functionality for service providers. Our software systems coversupport the full rangespan of the customer lifecycle: revenue management, customer management, service and resource management digital commerce and service deliverydelivery. Further, our systems support portfolio enablers which consist of offerings to help service providers make intelligent decisions, manage the product lifecycle and information management.simplify the integration, operation and administration of applications . We also provide solutions for high growth and emerging markets, as well as advertising and media solutions for directory publishers.
 
We configure individual customer experience systems into families of offerings oriented to the service provider needs that they are designed to address. Our products focus on the five main business challenges of our customers:on:
 
 • Revenue Management:  Products that enable service providers to manage and trackcollect all sources of revenue through any channel, from service consumption to cash in hand.cash-in-hand. Amdocs’ Revenue Management offerings include:
 
 • BillingConvergent Charging and ChargingBilling::  enables flexible, real-time rating  facilitates the purchase, consumption and billingpayment for all voice, data broadband, content, commercepre-paid and video services, whetherpre-paid,post-paid or a blend of both. customers across multi-play operations.


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 • MediationMediation::  enables service providers to address BSS/OSS data processing and event handling needs across all lines of business and to transform raw network activity in real timedata into a formactionable business information that can be used to authorize events on the network, bill a customer or pay a content provider.
 
 • Partner SettlementSettlements::  allows service providers to manage an unlimited number of partners providing services over the network across several lines of business, such as interconnect, roaming and mobile virtual network operator (MVNO) operations, as well as digital content commerce and advertisingadvertising.
• Compact Convergence:  offering for Tier-3 and dealer incentives.Tier-4 operators in high-growth, emerging markets; providesout-of-the-box essential business functionality, such as invoicing and provisioning, customer care, self web-care and reporting capabilities.
 
 • Customer Management:  Products that covertransform the critical touchpoints at which customers interact withway service providers helping to ensure consistent interactionsdeliver a cost-effective, superior customer experience across all channels and throughout the customer lifecycle.channels. Amdocs’ Customer Management offerings include:
 
 • Contact Center and Agent InteractionsCustomer Care::  provides a unified desktop that consolidates information for afrom disparate systems and applications to deliver personalized customer service agent to provide real-time guidance and up-selling and cross-selling recommendations, all within a single unified interface.
• Service and Support:  prioritizes case handling, enables support and closes the loop between the initial service request and problem resolution, including field service.
• Online and Self-Directed Interactions:  enables end-users to manage their own billing, ordering, trouble-ticketing, account maintenance and reporting throughbusiness-to-consumer andbusiness-to-business customer portals.across lines of business.
 
 • Sales and OrderingOrdering::  provides the completeorder-to-cash cycle from a business or an end customer across multiple lines of business; captures orders initiated from any channel, including the Internet, call center and sales automation systems, then validates and breaks downunbundles the orders into component actions,customer order and triggers the requestrequests to the appropriate systems for completion.


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 • Service and Resource Management (OSS):  Products that comprise the core operational support systems, such as network planning, service fulfillment and assurance. Amdocs’ Service and Resource Management (OSS) offerings include:
 
 • Network PlanningPlanning::  enables network planners to analyze current, shortshort- and long-term consumption trends of network resources and to plan and roll out a “service-ready network.”
 
 • Service FulfillmentFulfillment::  includes pre-packaged automation for specific services and lines of business, including broadband, satellite and cable; also supports the fulfillment of multiple services, either to support a convergent services bundle, or to standardize fulfillment across the organization with a single interface to orchestrate all fulfillment processes.
 
 • Service AssuranceAssurance::  assures  supports service assurance by managing the problem resolution process, including impact analysis to assess what services are affected by proactively identifying and resolving network problems before outages affect customers (through integration with the inventory system), and reactively with trouble ticketing functionality to enable faster resolution of service issues.outages.
 
 • Inventory and DiscoveryDiscovery::  provides a single source of service and network inventory and performance data, to support network planning and service fulfillment and assurance.
• Service Management:  provides an automated,end-to-end solution to manage the entire order fulfillment lifecycle, including multiple order channels and lines of business.
 
 • Digital Commerce and Service Delivery:  ProductsSolutions that help service providers entertainmentsolve delivery challenges for Internet Protocol (IP) and media companies realize new revenue streams by managing the digital commerce lifecycle and the value chain of parties involved in delivering digital goods and services. Amdocs’ Digital Commerce and Service Deliverynext-generation services, often known as Telco 2.0. Our service delivery offerings include:
 
 • SearchConvergent Service Platform:  provides a standards-based Java service platform for developing and Digital Advertising:  managesdeploying innovative end-user applications across any network topology. Deployed in the entire digital advertising lifecycle, from partner management campaign inception, personalizationnetwork, it works in the service plan to give service providers the ability to transform business models within their BSS and management, to reporting and billing.OSS.
 
 • Digital CommerceServices::  facilitates  provides a rich, personal shopping experience for digital content, enablingcomplete portal, storefront, commerce search and advertising platform that allows service providers to offer consumersprovide a personalized productexperience; supports mobile, broadband and service recommendations across all mobile content channels and media types.IPTV.
 
 • Open ServicesConvergent Applications::  provides  runs on the Amdocs jNetX convergent service platform, providing network-based applications for fixed, mobile and emerging devices; includes a collaboration environment in which third-party developers can develop newbroad suite of call-control applications and usecharging-based applications, helping service providers’ systems, such as billingproviders move away from legacy environments and customer case, to support interactions with end-users.
• Service Deliveryfully leverage and Control:  comes with dozens of pre-built value-added services, such as ringback tones and missed call notifications, and hundreds of pre-configured service building blocks to quickly bring to market an infinite number of service combinations.monetize all their network assets.
 
 • Information Management:Portfolio Enablers:  Products that provide service providers a single view of each customer they serve and product they offer. Amdocs’ Information Management offerings include:
• Product Management:  consolidates product information into a central location, efficiently maintainsas the information and maximizes the value of product assets.
• Customer Data Integration:  consolidates customer information from all systems and lines of businessunderlying drivers for technology innovation across the enterprise.
Foundation
We consider the products in our “foundation” layerAmdocs CES portfolio of offerings. These products provide the foundation, enablers and building blocks to be critical components of our portfolio. These products are integrated with all the product areas described above and form the platform upon which our customers can implement, integrate and centralize their operating environments.
Our foundation products are organized into three broad frameworks, including:
• Application Framework:  a common infrastructure designed to ease the integration of our own and third-party applications.
• Operational Framework:  a unified operational environment with tools, including a common interface, to manage all portfolio applications.
• Delivery Framework:  a set of common tools, methodologies and web services that enable customers to simplify the way they customize and deploy our products.


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High-Growth and Emerging Markets Systems
The Amdocs offering designed for service providers in high-growth emerging markets is called the Amdocs Compact Convergence Solution. This “service-provider-in-a-box” solution provides the software and hardware needed to quickly and cost-effectively bring services to market and support any network or payment type. Its integrated software includes operational- and business-support systems, such as customer care and self-care, real-time charging for converged services, a service delivery platform, and value-added services. Specifically, the Amdocs Compact Convergence Solution includes:
 • Compact Business Platform:  Provides out-of the-box essential business functionality, such as customer care, invoicingquickly create and provisioning, and the ability to configure and apply newmodify business processes, as needed.
• Compact Charging Platform:  Allows service providersprovide a single customer view and effectively manage products to implementdeliver a positive customer experience and execute a range of tariff plans and pricing strategies, and to bill customers for service usage.
• Service Platform:  Provides value-added services out of the box, and enables service providers to adjust services or create new ones using its service creation capabilities.achievetime-to-market advantage.
 
Directory SystemsAdvertising and Media Solutions
 
TheOur advertising and media offerings for directory systems product offering ispublishers are comprised of the Integrated Advertising Management Framework, the Amdocs solution for Internet Yellow Pages (IYP) and a comprehensive set of products enabling multimedia advertising via IP television (IPTV), mobile telephone and the Internet. These productsservices designed to enable local search and directory publishers to becomemanage the “destination of choice” for consumers, advertisersentire media selling, fulfillment, consumer experience and distribution partners. The Directory Systemsfinancial processes across online, print and mobile media. These directory systems offerings include:
 
 • Integrated Advertising Management:Consumer Engagement and Publishing Operations:  Comprised of pre-integratedOfferings that enable directory publishers to enrich both content and modular applications that support traditional yellow pages and white pages directory sales andthe consumer’s local search experience on multi-media publishing operationsproperties, as well as interactiveto enable and scale up partner distribution and advertising products, such as advertisements, directories and catalogs delivered across multiple digital media, including the Internet and mobile devices. The Integrated Advertising Management framework consists of the following key functional areas:
• Target/Market— Supports all marketing functions from product design, rollout and offer development, to lead management and support for multiple advertiser segment definitions.networks.
 
 • SalesMedia Business:  Offerings to support the complete lifecycle of advertisers, customers and Ordering— Supports the definition of flexible advertisingmedia products, including traditional printed yellow pages, new media products, customer management, financials and support as well as sales campaigns and theproductivity management of purchased orders.
• Deliver— Supports production of advertising products across multiple media; the design is intended to allow content to be collected, verified, managed and maintained using a virtual repository consisting of multiple content types from multiple sources.
• Syndication Partner Management (SPM)— Enables publishers to manage complex relationships with search and content syndication partners and affiliates. SPM defines revenue-sharing models in partner contracts, and automatically rates and generates payments for events accordingly. SPM also includes functionality for reporting and auditing partner activities.
• Finance— Provides a robust mechanism for monetizing simple and complex advertising events. A mediation layer interacts with the network layer to capture events and supports complex rating and billing functionality.
• Support— Provides support for publishers’ operational activities such as the creation of new orders, billing, managing advertiser account profiles, verifying contracts, and viewing advertiser promotions and campaigns.


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• Internet Yellow Pages Solution:  Includes full support for the Internet Yellow Pages operation under the Web 2.0 paradigm, including the following key functional areas:
• Local Directories —Uses an online local search portal and provides business search capabilities and supports social networking.
• User Manager —Supports the collection and maintenance of users’ profiles and the tracking of users’ site activities.
• User Generated Content (UGC) Manager —Supports users’ ability to contribute content to the Internet Yellow Pages 2.0 site repository.
• Local Search —Combines fuzzy logic, run-time expansion and machine learning to provide greater accuracy for online and mobile search applications.tools.
 
Technology
 
Our portfolio architecture is designed to increase our customers’ business agility and lower their overall total cost of ownership. Our technology platform allows our applications to work in multiple customer environments, including:
 
 • Hardware:  IBM, Hewlett-Packard, Sun Microsystems
 
 • Operating Systems:  IBM AIX, HP-UX, Solaris, Windows
 
 • Database Management Systems:  Oracle, SQL Server, IBM UDB
 
 • Middleware:  BEA WebLogic, IBM WebSphere
 
We believe this abilityour technology platform’s flexibility affords our customers the freedom to choose a preferred operating environment and to maximize return on existing infrastructure investments. To help service providers respond more quickly to changes in their markets and lower their integration costs, we employ service-oriented architecture principles in our portfolio design. For example, Amdocs Integration Framework includes a central service repository for defining business services for both Amdocs and external applications, allowing our applications to seamlessly integrate with each other and with third party enterprise server bus or legacy applications.
 
Our portfolio applications are based around consistent architectural guidelines and software infrastructure and they also leverage, where appropriate, consistent foundation tools and services for areas such as integration, process management, monitoring and control, security and information management. Our platform-agnostic foundation layer spans our applications and helps us evolve our products towards robust service-oriented architecture (SOA) integration and business process support. With these tools, we aim to provide our customers a sound framework upon which to implement, integrate and centralize their operating environments. This allows service providers to mitigate many costs associated with deploying and operating new applications, such as those related to installation, configuration, integration and monitoring.
 
Our product portfolio also includes the following key characteristics:
 
 • Scalability.  Our applications are designed to take full advantage of the scalability capabilities of the underlying platform, allowing progressive system expansion, proportional with the customer’s growth in business volumes. Using the same software, our applications can support operations for small, as well as very large service providers.
 
 • Modularity.  Our product portfolio is comprised of sets of individual functional application products. Each of our applications can be installed on an individual stand-alone basis, interfacing with the customer’s existing systems, or as part of an integrated Amdocs system environment. This modularity provides our customers with a highly flexible and cost-effective solution that is able to incrementally expand with the


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customer’s growing needs and capabilities. The modular approach also preserves the customer’s initial investment in products, while minimizing future disruptions and the overall cost of system implementation.


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 • Portability.  Our applications support diverse hardware and operating systems to ensure that our customers can choose from a variety of vendors, including Hewlett-Packard, IBM and Sun Microsystems. Certain applications can also be deployed on the Windows NT platform. Our applications utilize, where applicable, Java-based design and programming to augment cross-platform portability.
 
Services
 
As part of our effort to provide comprehensive offerings, weWe offer a broad suite of services that are designedto advise, transform and optimize business and technology processes. We provide consulting, system integration, managed services and product support to assist our customers with their business strategy, system implementation, integration, modification, consolidation, modernization and ongoing support, enhancement and maintenance needs. In addition, we offer comprehensive learning services to help service providers transformour customers develop competency in their businessesAmdocs systems and deliver an intentional customer experience.applications. Our services methodology incorporates rigorous focus on the people, processes and technology of an organization, and we invite active customer participation at all stages to help prioritize and implement time-critical system solutions that address the customer’s individual needs. We believe that our services methodology helps us to achieve the timeframe, budget and quality objectives we jointly set with customers.
 
Our services portfolio includes:
 
 • Business Consulting and Systems Integration Services— These services span the entire consulting universeproject lifecycle and range from assessment and advisory services to optimization services that measure and improve operational performance, and help to define the project scope and implementation path of business transformation that help lower overall operational costs.solutions to deliver tangible operations improvements.
• System Integration Services— This suite of services allows us to act as a prime integrator from project deployment to implementation and operations. We have developed advanced methodologies, industry best-practicesbest practices and pre-configured tools to deliver consistent resultsa cohesive implementation plan, including solution, architecture, change management and minimize the service providers’ exposure to risk.business benefit realization.
 
 • Managed Services— This set of flexible strategic sourcing services offerings is uniquely tailored for the service provider industry to outsource the performance and management of their support business functions, operations and infrastructure support.support across all environments, whether Amdocs systems or other implementations. Our services for managed services projects include data centerIT and infrastructure management, application management and ongoing support, systems modernization and consolidation, business process operationsoperation support, andend-to-endend to end transformational business process outsourcing (BPO).
• Delivery Services— Usesbest-in-class delivery methodologies (e.g. project management governance, solution architecture, IT outsourcing (ITO) and quality assurance), best practices, business processes and testing tools for optimal delivery. Our deliverymanaged services are designedmodels can be leveraged to maximize the value of our productssupportday-to-day operations and provide service providers with cost-effectiveto foster strategic business transformation and reduce their exposure to risk.objectives.
 
 • Product Support Services—  Support packagesThese services are designed to help our customers solve key challenges and to maximize their investment in our customers’ business performance, strengthen their competitive positionproducts throughout the entire product life cycle. Our global product support organization uses certified methodologies and ensure ongoing, consistent operations over the long-term.provides support options, including online services and personalized interactions.
 
The extent of services provided varies from customer to customer. Our services engagements can range in size and scope from deploying single point solutions to orchestrating large-scale transformation projects. We have invested considerable research and development efforts in upgrading our applications suite to address this market requirement and to meet each customer’s unique needs.
Depending on the customer’s needs, system implementation and integration activities often are conducted jointly by teams from Amdocs and the customer in parallel with the customization effort.customer. Implementation and integration activities include project management, development of training methods and procedures, design of work flows, hardware planning and installation, network and system design and installation, system conversion and documentation. In some cases, Amdocs personnel provide support services to the customer’s own implementation and integration team, which has primary responsibility for the task. In other cases, we take a primary role in facilitating implementation and integration. In yet other instances, customers require turnkey solutions, in which case we are able to provide full system implementation and integration services.


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Once the system becomes operational, we are generally retained by the customer to provide ongoing services, such as maintenance, enhancement design and development and operational support. For substantially all of our customers, the implementation and integration of an initial system has been followed by the sale of additional systems and modules. In recent years, we have establishedWe aim to establish long-term maintenance and support


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contracts with a number of our customers. These contracts have generally involvedinvolve an expansion in the scope of support provided, while also providing us with recurring revenue.
 
Our business is conducted on a global basis. We maintain development and support facilities in China,worldwide, including Brazil, Cyprus, India, Ireland, Israel and the United States, operate a support center in Brazil and have operations in North America, Europe, Israel, Latin America and the Asia-Pacific region.
 
Sales and Marketing
 
Our sales and marketing activities are primarily directed at major communications, media and entertainment companies. As a result of the strategic importance of our customer experience systems to the operations of these companies, a number of constituencies within a customer’s organization are typically involved in purchasing decisions, including senior management, information systems personnel and user groups, such as the finance, customer service and marketing departments. We maintain sales offices in the United States, the United Kingdom and several other countries.
 
Our sales activities are supported by marketing efforts and increasing cooperation with strategic partners. We reorganized our marketing function in fiscal 2008 to better align it with our sales functions. We also created a new Alliances group in fiscal 2008 to provide a more formal structure for, and to support, our activities with partner companies, such as IBM, Alcatel-Lucent, Hewlett-Packard and others.
We interact with other third parties in our sales activities, including independent sales agents, information systems consultants engaged by our customers or prospective customers and systems integrators that provide complementary products and services to such customers. We also have value-added reseller agreements with certain hardware and database vendors. Our marketing activities also continue to support projects with partner companies, such as IBM, Alcatel-Lucent, Hewlett-Packard and others.
 
Customers
 
Our target market is comprised of service providers in the communication, media and entertainment industry that require customer experience systems with advanced functionality and technology. The companies in our target segment are typically market leaders. By working with such companies, we help ensure that we remain at the forefront of developments in the communication, media and entertainment industry and that our product offerings continue to address the market’s most sophisticated needs. We have an international orientation. The broad base of our customers is in North America and Europe, however, withdue to our expandedexpansion in emerging markets, we also have customers in geographies as diverse as China, India and the Commonwealth of Independent States.States, India, Latin America and Southeast Asia.
 
Our customers include global communications leaders and leading network operators and service providers, as well as directory publishers in the United States and around the world. Our customers include:
 
   
America Movil Seat Pagine Gialle S.p.A.RH Donnelley
AT&T Sprint NextelRogers
Bakcell SunriseSprint Nextel
Bell Canada Svyazinvest
BT Telefonica de Espana
Cablevision Telefonica 02 Germany
Claro BrazilTelkom South Africa
China MobileClearwire Telstra
Comcast TELUS
Deutsche Telekom T-Mobile
DIRECTV TRUE CorporationVerizon Communications
Elisa Verizon Communications
ExcelcomVimpelCom
KazakhtelecomInstituto Costarricense de Electricidad Virgin Media
KPN MobileJ:COM Vodafone D2Germany
RH DonnelleyKazakhtelecom Vodafone Netherlands
RogersKPN Vodafone UK
MetroPCSXL Axiata


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Our business is dependent on a limited number of significant customers, of which AT&T washas historically been our largestlargest. AT&T accounted for 29% of our revenue in fiscal 2008, accounting for 28%2010, compared to 33% in fiscal 2009. In the second half of fiscal 2008 revenue.2009, AT&T reduced its discretionary spending with us. The lower resulting revenue level persisted into fiscal 2010, offset in part by an increase in our managed services for AT&T; however, revenue from AT&T on a quarterly basis in fiscal 2010 was relatively stable. In fiscal 2008,2010, our threetwo next largest groups of customers were AT&T, Bell Canada and Sprint Nextel, and certain of their subsidiaries, each of which accounted for 10% or more than 10% of our revenue in fiscal 2008. Together, these three customer groups accounted for approximately 51% of our revenue in fiscal 2008.2010. Aggregate revenue derived from the multiple business arrangements we have with our ten largest customer groupscustomers accounted for approximately 75% of our revenue in fiscal 20082010 and 73%76% of our revenue in fiscal 2007.
2009. The following is a summary of revenue by geographic area. Revenue is attributed to geographic region based on the location of the customer:
 
                     
 2008 2007 2006  2010 2009 2008
North America  68.7%  66.6%  69.9%  75.8%  75.3%  68.7%
Europe  17.3   21.5   21.8   11.8   13.8   17.3 
Rest of the World  14.0   11.9   8.3   12.4   10.9   14.0 
 
Competition
 
The market for customer experience systems and services in the communication, media and entertainment industry continues to become increasingly more competitive. Amdocs’ competitive landscape is comprised of internal IT departments of large communication companies as well as independent competitors that can be categorized as follows:
 
 • providers of OSS/BSSBSS/OSS systems, including Comverse, Convergys, CSG Systems International, NetCracker, Oracle Corporation and Oracle Corporation;Telecordia;
 
 • system integrators and providers of IT services, such as Accenture, Cognizant, HP, Infosys,Hewlett-Packard, IBM Global Services, Satyam Computer Services Ltd,Infosys, Tata Consultancy Services, and Tech Mahindra Ltd and Wipro (some of whom we also cooperate with in certain opportunities and projects); and
 
 • network equipment providers such as MotorolaAlcatel-Lucent, Ericsson, Huawei, Nokia Siemens and Nokia.ZTE (some of whom we also cooperate with in certain opportunities and projects).
 
Systems integrators and many providers of information systems mainly serve other industries, while network equipment providers focus primarily on equipment manufacturing. Nevertheless, weWe expect the competition in our industry to increase from such companies.
 
We believe that we are able to differentiate ourselves from these competitors by, among other things:
 
 • applying our 25-plus-year heritage to the development and delivery of products and professional services that enable our customers to achieve service differentiation viaby means of an intentional customer experience,
 
 • focusing on communications service providers and continuing to design and develop solutions targeted specifically to this industry,
 
 • innovating and enabling our customers to adopt new business models that will improve their ability to drive new revenues, and compete and win in a changing market,
 
 • providing high-quality, reliable, scalable, integrated, yet modular applications,
• providing flexible and tailored IT and business process outsourcing solutions and delivery models, and
 
 • offering customersend-to-end accountability from a single vendor.
 
We compete with a number of companies that have long operating histories, large customer bases, substantial financial, technical, sales, marketing and other resources, and strong name recognition. Some of these companies are continuing their attempts to expand their communications industry market penetration. Current and potential competitors have established, and may establish in the future, cooperative relationships among themselves or with third parties to increase their ability to address the needs of our existing or prospective customers. Accordingly, new competitors or alliances among competitors may emerge and rapidly acquire significant market share. There can be no assurance that we will be able to compete successfully with existing or new competitors.


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Our failure to adapt to changing market conditions and compete successfully with established or new competitors would have a material adverse effect on our results of operations and financial condition.


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Employees
 
We invest significant resources in the training, retention and motivation of high quality personnel. Training programs cover areas such as technology, applications, development methodology, project methodology, programming standards, industry background, business, aspectsmanagement development and management development.leadership. Our management development efforts are reinforced by an organizational structure that provides opportunities for talented managers to gain experience in general management roles. We also invest considerable resources in personnel motivation, including providing various incentive plans for sales staff and high quality employees. Our future success depends in large part upon our continuing ability to attract and retain highly qualified managerial, technical, sales and marketing personnel.personnel and outstanding leaders.
 
See “Directors, Senior Management and Employees — Employees” for further details regarding our employees and our relationships with them.
 
Research and Development, Patents and Licenses
 
Our research and development activities involve the development of new software architecture, modules and product offerings in response to an identified market demand, either as part of our internal product development programs or in conjunction with a customer project. We also expend additional amounts on applied research and software development activities to keep abreast of new technologies in the communications markets and to provide new and enhanced functionality to our existing product offerings.
 
While we have continued to upgrade our existing systems over the last several years, we have also devoted significant research and development efforts to integration among our products. In fiscal 2010, we released the Amdocs CES (Customer Experience Systems) 8 portfolio. Building on Amdocs CES 7.5, portfolio, we dedicated significant efforts and resources to the integration among CES 8 and our other products within the portfolio including deeper integration between our products. As partbilling, customer relationship management and ordering applications that are designed to enable our customers to achieve integrated customer management and deliver an intentional customer experience. The CES 8 portfolio was designed to enable our customers to support new business models, devices and partnerships by centralizing common assets, such as customer, network and product data. Our portfolio of these efforts, during fiscal 2007, we invested in Amdocs CES 7.5,pre-integrated software products was built to span the latest major release of our comprehensive portfolio, which we introduced in February 2008. Amdocs CES 7.5 expands onentire customer lifecycle across BSS and OSS to align their business processes around the capabilities of our previous Amdocs 7 release by improving subscriber management throughend customer. Our products are designed to allow modular expansion as a unified user interface, providing support for seamless service ordering across all channels, offering a single source for all product and subscriber information, and comprehensive support for critical service provider evolves, ensuring rapid, low-cost, reduced-risk implementations. In addition, Amdocs focuses on offering business processes.solutions that leverage functionality from across the CES portfolio combined with services and industry knowledge. These business solutions address larger business problems and provide greater value to our customers.
Our next major product release will address additional challenges and opportunities of the connected world by delivering enhanced functionality to enable our customers to execute on innovative solutions more cost effectively. For software development, Amdocs CES 7.5 comprises an enhanced portfolio of modular billing, CRM, self-service, order management, mediation, OSSuses Agile, a software development methodology based on iterative and content management software products.incremental development where requirements and solutions evolve through collaboration between self-organizing, cross-functional teams.
 
The majority of our research and development expenditures is directed at our customer experience systems, and the remainder tois directed at directory solutions. We believe that our research and development efforts are a key element of our strategy and are essential to our success. However, an increase or a decrease in our total revenue would not necessarily result in a proportional increase or decrease in the levels of our research and development expenditures, which could affect our operating margin.
 
Our products are largely comprised of software and systems that we have developed or acquired and that we regard as proprietary. Our software and software systems are the results of long and complex development processes, and although our technology is not significantly dependent on patents or licenses from third parties, certain aspects of our products make use of readily available software components licensed from third parties. As a developer of complex software systems, third parties may claim that portions of our systems infringe their intellectual property rights. The ability to develop and use our software and software systems requires knowledge and professional experience that we believe is unique to us and would be very difficult for others to independently obtain. However, our competitors may independently develop technologies that are substantially equivalent or


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superior to ours. We have taken, and intend to continue to take, several measures to establish and protect our proprietary rights in our products and technologies from third-party infringement. We rely upon a combination of trademarks, patents, contractual rights, trade secret law, copyrights and nondisclosure agreements; weagreements. We enter into non-disclosure and confidentiality agreements with our customers, employees and marketing representatives and with certain contractors with access to sensitive information; and we also limit customer access to the source code of our software and software systems.
 
See the discussion under “Operating and Financial Review and Prospects — Research and Development, Patents and Licenses.”


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Property, Plants and Equipment
 
Facilities
 
We lease land and buildings for our executive offices, sales, marketing, administrative, development and support centers. We lease an aggregate of approximately 3,139,0002.8 million square feet worldwide, including significant leases in the United States, Israel, Canada, China, Cyprus, India and the United Kingdom. Our aggregate annual lease costs with respect to our properties as of November 30, 2008,2010, including maintenance and other related costs, arewere approximately $65.7$59.2 million. The following table summarizes information with respect to the principal facilities leased by us and our subsidiaries as of November 30, 2008:2010:
 
     
  Area
 
Location
 (Sq. Feet) 
 
United States:    
St. Louis, MO  91,928 
San Jose, CA(*)  112,120 
Champaign, IL  199,183178,063 
Eldorado Hills, CA(*)  70,008113,291 
Others(*)Others  361,995195,473 
     
Total  835,234690,875 
Israel:    
Ra’anana  641,443643,219 
Hod-Hasharon(*)Hod-Hasharon  236,52295,906 
Haifa  74,609 
OthersOthers(*)  157,479108,408 
     
Total  1,110,053922,142 
Canada:    
Toronto(*)  66,12858,446 
Montreal  57,70555,414 
Others  26,82819,527 
     
Total  150,661
China85,587133,387 
Cyprus (Limassol)  103,89374,675 
India:    
Pune  442,633493,949 
Delhi  122,890168,294 
     
Total  565,523662,243 
United Kingdom(*)  103,460101,712 
Rest of the world(*)(**)  185,060210,862
Total2,795,896 
 
 
(*)Includes space sublet to third parties.


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(**)Includes Australia, Austria, Australia, Brazil, China, Costa Rica, Czech Republic, Denmark, France, Germany, Greece, Hungary, Indonesia, Ireland, Italy, Japan, Kazakhstan, Korea, Malaysia, Mexico, New Zealand, Poland, Romania,Netherlands, Russia, Singapore, South Africa, Spain, Sweden, Taiwan, Thailand, Turkey, The Netherlands and the United Arab Emirates.Vietnam.
 
Our leases expire on various dates between 2009 andcalendar years 2010 through 2020, not including various options to terminate or extend lease terms.


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Equipment
 
We develop our customer experience systems over a system of UNIX, MVS, Linux and Windows2000/20032003/2008 servers owned or leased by us. We use a variety of software products in our development centers, including products by Microsoft, Oracle, Synscsort, RedHat,CA, Merant, IBM HP, SUN and BEA.Hewlett-Packard. Our data storage is based on equipment from EMC, SUN, NetApp, Hitachi and Hewlett-Packard. Our development servers are connected to approximately 22,150more than 20,000 personal computers owned or leased by us.
 
Automatic tape libraries and virtual tape libraries (VTL) provide full and incremental backups of the data used in and generated by our business. The backup tapes are kepton-site and off-site, as appropriate, to ensure security and integrity, and are used as part of our disaster recovery plan. The distributed development sites that we operate worldwide are connected by a high-speed redundant wide area network, or WAN, using telecommunication equipment manufactured by, among others, Cisco and Avaya/Nortel.
 
ITEM 4A.UNRESOLVED STAFF COMMENTS
The distributed development sites that we operate worldwide are also connected by a high speed WAN.
Not applicable.
 
ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Introduction
In this section, we discuss the general financial condition and the results of operations for Amdocs Limited and its subsidiaries, including:
• the factors that affect our business,
• our revenue and costs for the fiscal years ended September 30, 2008, 2007 and 2006,
• the reasons why specific line items in our consolidated statements of income were different from year to year,
• the sources of our revenue,
• how all of this affects our overall financial condition,
• our capital expenditures for the fiscal years ended September 30, 2008, 2007 and 2006,
• the changes in our business, including those resulting from acquisitions of other businesses, and
• the sources of our cash to pay for future capital expenditures and possible acquisitions.
You should read this section in conjunction with our consolidated financial statements and the notes thereto, which follow.
 
Overview of Business and Trend Information
 
Amdocs is a leading provider of software and services for communications, media and entertainment industry service providers. Although our market focus has traditionally been primarily on Tier 1Tier-1 and Tier 2Tier-2 service providers in developed markets, we have begun to focusalso focused in the last several years on Tier 3Tier-3 and 4Tier-4 providers in thesedeveloped markets, and on providers in emerging markets, such as China, the Commonwealth of Independent States, India, Latin America and Latin America.
We develop, implement and manage software and services associated with the business support systems and operational support systems (BSS and OSS) that enable service providers to deliver a better customer experience, by, for example, introducing products quickly, understanding their customers more deeply, processing orders efficiently and solving problems productively. We refer to these systems collectively as customer experience systems because of the crucial impact and increasing importance that these systems have on the service providers’ end-user experience.
We believe the demand for our customer experience systems is driven by the need of service providers to anticipate and respond to market demands. In established markets, service providers are transforming their businesses as they attempt to derive revenue and profit fromIP-based digital content and commerce services,


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while confronting increased competition from non-traditional competitors, including major Internet companies, handset manufacturers and network equipment providers. In emerging markets, many startup operations are introducing communications services to markets for the first time, coping with massive scale and rapid growth; other companies are undergoing consolidations as providers with global brands seek to do business in these new geographies.Southeast Asia. Regardless of whether providers are bringing their first offerings to market, scaling for growth, consolidating systems or transforming the way they do business, we believe they will succeed by differentiatingthat providers seek to differentiate their offerings by delivering a customer experience that is simple, personal and valuable at every point of service.
We develop, implement and manage software and services associated with business support systems (BSS), operational support systems (OSS) and service delivery platforms, to enable service providers to introduce new products quickly, understand their customers more deeply, process orders more efficiently and support new business models. We refer to this type ofthese systems collectively as customer experience systems because of the crucial impact that these systems have on the service providers’ end-user experience.
In a global communications industry impacted by unprecedented growth in data demand, increasing number of connected devices, and improvement inmachine-to-machine (M2M) technologies, consumers expect immediate and constant connectivity to personalized services, information and applications. We refer to these developments as the “intentional customer experience.evolution to the “connected world.” We seek to address these market forces through a strategy of forward-looking product development and holistic, vertical integration encompassing all systemsinnovation from the customernetwork and business support systems to the network.device and end user. Our goal is to supply cost-effective, scalable software products and services that provide functionality and flexibility to service providers as they — and their markets — grow and change.
 
In part, we have sought to expand both our functionality and geographic markets through acquisitions. Since 1999, we have completed numerous acquisitions, which, among other things, have expanded our business into customer care and billing solutions for broadband media cable and satellite companies and enhanced our offerings in the OSS, market. In fiscal 2006, we acquired Qpass Inc. and Cramer Systems Group Limited — which we refer to, respectively, as Qpass and Cramer — in order to offer software products for the digital content and commerce markets and to enhance our end-to-end BSS/OSS offerings. In fiscal 2007, we acquired SigValue Technologies Inc., which we refer to as SigValue, to add expertise in providing integrated billing and customer care systems in high-growthhigh growth emerging markets. In fiscal 2008, we acquired JacobsRimell Ltd. (JacobsRimell), a provider of fulfillment solutions for the broadband cable industry, to enrich our OSS offering for cable, and in fiscal 2009, we acquired ChangingWorlds, a provider of mobile device personalization technology. As part of our strategy, we may continue to


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pursue acquisitions and other initiatives in order to offer new products or services, or otherwise enhance our market position or strategic strengths.
 
Please see Note 3 to theour consolidated financial statements for more information regarding our acquisitions.
 
Offerings
 
Amdocs’ offerings of software and related services consist of:
 
 • A complete, modular yet integrated portfolio of customer experience systems, including revenue management (billing(convergent charging and charging,billing, mediation, and partner settlement)settlements), customer management (contact center(customer care, and agent interaction, service and support, sales and ordering, and online and self-directed interactions)ordering), service and resource management (OSS) (network planning, service fulfillment, service assurance, and inventory and discovery) digital commercediscovery, and service management), service delivery (digital commerce, search and(convergent service platform, digital advertising, open services, and service delivery and control), information management (product management and customer data integration)convergent applications), and foundation (application framework, operational framework and delivery framework).portfolio enablers.
 
 • A comprehensive line of services. Because our customers’ projects are complex and require systems support expertise, we provide business process and information technology, or IT, services, including extensive consulting, systems integration and delivery andservices, managed services and product support to assist our customers with their business strategy, system implementation, integration, modification, consolidation, modernization, and ongoing support, enhancement and maintenance services.needs. In addition, we offer comprehensive traininglearning services to help our customers develop competency in their Amdocs systems and applications.
 
We have designed our customer experience systems to meet the high-volume, complex needs of Tier 1Tier-1 and Tier 2Tier-2 service providers and as well as to address the unique issues of service providers in high growth emerging markets. We support theirour customers’ various lines of business, including wireline, wireless, cable and satellite, and a wide range of communication services, including voice, video, data, IP, broadband, content, electronic and mobile commerce applications. We alsoIn addition, we support companies that offer bundled or convergent service packages.


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We also offer advertising and media services for directory publishers are comprised of a full rangecomprehensive set of products and services designed to enable local search and directory salespublishers to manage the entire media selling, fulfillment, consumer experience and publishing systemsfinancial processes across online, print and related services, which we refer to as directory systems, for publishers of both traditional printed yellow page and white page directories and electronic Internet directories. We have expanded our range of directory services to include support for digital advertising, search applications, and location-based services.mobile media.
 
We conduct our business globally, and as a result we are subject to the effects of global economic conditions and, in particular, market conditions in the communications, media and entertainment industry. In fiscal 2008,2010, customers in North America accounted for 68.7%75.8% of our revenue, while customers in Europe and the rest of the world accounted for 17.3%11.8% and 14.0%12.4%, respectively. We maintain development facilities in China,Brazil, Cyprus, India, Ireland, Israel and the United States. AT&T was our largest customer in fiscal 2010, accounting for 29% of our revenue, as compared to 33% in fiscal 2009. Aggregate revenue derived from the multiple business arrangements we have with our ten largest customers accounted for approximately 75% of our revenue in fiscal 2010 and 76% of our revenue in fiscal 2009.
 
We believe that demand for our customer experience systems is primarily driven by the following key factors:
 
 • Industry transformation, including:
 
 • ubiquitousincreasing use of communications and content services,
 
 • increases in digitalwidespread access to content, information and mobile commerce,applications,
 
 • continued explosiverapid growth in emerging markets,
• expansion into new lines of business
 
 • consolidation among service providers in established markets, often including companies with multi-national operations,
 
 • increased competition, including non-traditional players,
 
 • continued convergencebundling and blending of communications broadband cable and satellite services,entertainment, and
 
 • continued commoditization and pricing pressure.


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 • Technology advances, such as:
 
 • emergence and development of new communications products and services, such as web services, video, broadband, data and content services, includingIP-based services, such as Internet Protocol (IP), Internet Protocol Television (IPTV), machine to machine (M2M), worldwide interoperability for microwave access (WiMax) and Voice over IP (VoIP),
• evolution to and expansion of more sophisticated and interconnected communication devices, such as smart devices, electronic book readers, energy meters, global positioning systems and home security systems that enable communication across and between devices and widespread access to information,
 
 • evolution to next-generation networks, such as IP Multimedia Subsystem (IMS), that enable converged services offerings, likesuch as fixed-mobile convergence, and
 
 • technological changes, such as the introduction of 3G and 4G wireless technology, next-generation content systems, FTTx, Carrier Ethernet, WiMax-, and WiFi- and WiMax-basedLTE-based access technologies.
 
 • Customer focus, such as:
 
 • the need for service providers to focus on their customers in order to build profitable customer relationships,
 
 • the need for service providers to have a unified view of the customer across multiple services, devices and channels,
• the “authority shift” toward the consumer, with increased customer expectations for new, innovative services and applications that are personally relevant and that can be accessed anytime, anywhere and from any device,
 
 • the ever-increasing expectation of customer service and support, including access to self-service options that are convenient and consistent across all channels, and
 
 • the need for service providers to differentiate themselves by creating a unique and mutually-valuable customer experience.
 
 • The need for operational efficiency, including:
 
 • the shift from in-house management to vendor solutions,


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 • business needs of service providers to reduce costs and lower total cost of ownership of software systems while retaining high-value customers in a highly competitive environment,
 
 • automating and integrating business processes that span service providers’ BSS and OSS systems and create a simple, one-company face to customers,
 
 • integratingimplementing and implementingintegrating new next-generation networks (and retiring legacy networks) to deploy new technologies, and
 
 • transforming fragmented legacy OSS systems to introduce new services in a timely and cost-effective manner.
 
In fiscal 2008,2010, our total revenue was $3,162.1$2,984.2 million, of which $2,894.3$2,775.3 million, or 91.5%93.0%, was attributable to the sale of customer experience systems. Revenue from managed services arrangements (for customer experience systems and directory systems) is included in both license and service revenue. Revenue generated in connection with managed services arrangements is a significant part of our business, accounting for approximately 35% toover 45% of our fiscal 2010 revenue and slightly more than 40% of our fiscal 2008 and 20072009 revenues, and generating substantial, long-term revenue streams, cash flow and operating income. In the initial period of our managed services projects, we generally invest in modernization and consolidation of the customer’s systems. Invoices are usually structured on a periodic fixed or unit charge basis. Managed services projectsengagements can be less profitable in the initial period,their early stages; however, margins tend to improve over time, especially in the initial period of an engagement, as we derive benefit from the operational efficiencies and from changes in the geographical mix of our resources.


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Research and Development, Patents and Licenses
 
Our research and development activities involve the development of new software architecture, modules and product offerings in response to an identified market demand, either as part of our internal product development programs or in conjunction with a customer project. We also expend additional amounts on applied research and software development activities to keep abreast of new technologies in the communications markets and to provide new and enhanced functionality to our existing product offerings. Research and development expenditures were $225.5 million, $230.4 million and $186.8 million in the fiscal years ended September 30, 2008, 2007 and 2006, respectively, representing 7.1%, 8.1% and 7.5%, respectively, of our revenue in these fiscal years.
 
While we have continued to upgrade our existing systems in fiscal year 2008,over the last several years, we have also devoted significant research and development efforts to integration among our products. In fiscal 2010, we released the Amdocs CES (Customer Experience Systems) 8 portfolio. Building on Amdocs CES 7.5 portfolio, we dedicated significant efforts and resources to the integration among CES 8 and our other products within the portfolio including deeper integration between our products. As partbilling, customer relationship management and ordering applications that are designed to enable our customers to achieve integrated customer management and deliver an intentional customer experience. The CES 8 portfolio was designed to enable our customers to support new business models, devices and partnerships by centralizing common assets, such as customer, network and product data. Our portfolio of these efforts, during fiscal 2007, we invested in Amdocs CES 7.5,pre-integrated software products was built to span the latest major release of our comprehensive portfolio, which we introduced in February 2008. Amdocs CES 7.5 expands onentire customer lifecycle across BSS and OSS to align their business processes around the capabilities of our previous Amdocs 7 release by improving subscriber management throughend customer. Our products are designed to allow modular expansion as a unified user interface, providing support for seamless ordering across all channels, offering a single source for all product and subscriber information, and comprehensive support for critical service provider evolves, ensuring rapid, low-cost, reduced-risk implementations. In addition, Amdocs focuses on offering business processes.solutions that leverage functionality from across the CES portfolio combined with services and industry knowledge. These business solutions address larger business problems and provide greater value to our customers.
Our next major product release, will address additional challenges and opportunities of the connected world by delivering enhanced functionality to enable our customers to execute on innovative solutions more cost effectively. For software development, Amdocs CES 7.5 comprises an enhanced portfolio of modular billing, CRM, self-service, order management, mediation, OSSuses Agile, a software development methodology based on iterative and content management software products.incremental development where requirements and solutions evolve through collaboration between self-organizing, cross-functional teams.
 
The majority of our research and development expenditures is directed at our customer experience systems, and the remainder tois directed at directory solutions. We believe that our research and development efforts are a key element of our strategy and are essential to our success. However, an increase or a decrease in our total revenue would not necessarily result in a proportional increase or decrease in the levels of our research and development expenditures, which could affect our operating margin.
Operational Efficiency and Cost Reduction Program
In the fourth quarter of fiscal 2008 and in the second quarter of fiscal 2007, we commenced a series of measures designed to improve efficiency and to align our operational structure to our expected future growth . As part of these plans, we recorded a charge of $12.1 million and $6.0 million in fiscal 2008 and fiscal 2007, respectively, consisting primarily of employee separation costs in connection with the termination of the


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employment of software and information technology specialists and administrative professionals at various locations around the world and, in fiscal 2007, for rent obligations.
Notes Repurchase Program
In November 2008, our Board of Directors authorized us to repurchase $100 million of our 0.50% Convertible Senior Notes in such amounts, at such prices and at such times that we deem appropriate. During the first quarter of fiscal 2009, using proceeds from our revolving credit facility, we purchased $100 million aggregate principal amount of our notes at an average price of 98% of the principal amount, excluding accrued interest and transaction fees. In March 2009, the remaining notes are redeemable by us, and if we do not elect to redeem the notes, then the holders of the notes may require us to repurchase the notes, at a purchase price equal to 100% of the principal amount of the notes, plus accrued and unpaid interest. We anticipate that a substantial portion of the outstanding notes will be put to us in March 2009 if we do not elect to redeem them.
Operating Results
 
The following table sets forth for the fiscal years ended September 30, 2008, 20072010, 2009 and 2006,2008, certain items in our consolidated statements of operationsincome reflected as a percentage of total revenue:
 
                        
 Year ended September 30,  Year Ended September 30, 
 2008 2007 2006  2010 2009 2008 
Revenue:                        
License  4.3%  5.6%  4.7%  3.4%  4.7%  4.3%
Service  95.7   94.4   95.3   96.6   95.3   95.7 
              
  100.0   100.0   100.0   100.0   100.0   100.0 
              
Operating expenses:                        
Cost of license  0.1   0.1   0.2   0.1   0.1   0.1 
Cost of service  64.0   63.2   63.7   63.8   64.0   64.0 
Research and development  7.1   8.1   7.5   7.0   7.3   7.1 
Selling, general and administrative  12.8   13.1   12.7   12.5   12.0   12.8 
Amortization of purchased intangible assets  2.7   2.6   1.5 
Restructuring charges, in-process research and development, and other acquisition related costs  0.5   0.3   1.0 
Amortization of purchased intangible assets and other  2.9   3.0   2.7 
Restructuring charges and in-process research and development  —   0.8   0.5 
              
  87.2   87.4   86.6   86.3   87.2   87.2 
              
Operating income  12.8   12.6   13.4   13.7   12.8   12.8 
Interest income and other, net  0.4   1.8   1.7 
Interest and other (expense) income, net  (0.8)  —   0.4 
              
Income before income taxes  13.2   14.4   15.1   12.9   12.8   13.2 
Income taxes  1.2   1.5   2.2   1.4   1.4   1.2 
              
Net income  12.0%  12.9%  12.9%  11.5%  11.4%  12.0%
              


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Fiscal Years Ended September 30, 20082010 and 20072009
 
The following is a tabular presentation of our results of operations for the fiscal year ended September 30, 2008,2010, compared to the fiscal year ended September 30, 2007.2009. Following the table is a discussion and analysis of our business and results of operations for these years.
 
                                
 Year ended September 30, Increase (Decrease)  Year ended September 30, Increase (Decrease) 
 2008 2007 Amount %  2010 2009 Amount % 
 (in thousands)    (In thousands)   
Revenue:                                
License $135,487  $159,357  $(23,870)  (15.0)% $100,967  $135,146  $(34,179)  (25.3)%
Service  3,026,609   2,676,816   349,793   13.1   2,883,256   2,727,461   155,795   5.7 
              
  3,162,096   2,836,173   325,923   11.5   2,984,223   2,862,607   121,616   4.2 
              
Operating expenses:                                
Cost of license  2,729   3,914   (1,185)  (30.3)  2,021   2,686   (665)  (24.8)
Cost of service  2,023,562   1,792,468   231,094   12.9   1,903,645   1,831,947   71,698   3.9 
Research and development  225,492   230,444   (4,952)  (2.1)  207,836   210,387   (2,551)  (1.2)
Selling, general and administrative  404,134   370,194   33,940   9.2   373,585   344,335   29,250   8.5 
Amortization of purchased intangible assets  86,687   74,959   11,728   15.6 
Restructuring charges, in-process research and development and other acquisition related costs  13,896   6,761   7,135   105.5 
Amortization of purchased intangible assets and other  86,703   85,153   1,550   1.8 
Restructuring charges and in-process research and development  —   20,780   (20,780)  (100.0)
              
  2,756,500   2,478,740   277,760   11.2   2,573,790   2,495,288   78,502   3.1 
              
Operating income  405,596   357,433   48,163   13.5   410,433   367,319   43,114   11.7 
Interest income and other, net  11,955   50,566   (38,611)  (76.4)
Interest and other expense, net  (25,135)  (1,165)  (23,970)  2,057.5 
              
Income before income taxes  417,551   407,999   9,552   2.3   385,298   366,154   19,144   5.2 
Income taxes  38,645   43,062   (4,417)  (10.3)  41,392   39,978   1,414   3.5 
              
Net income $378,906  $364,937  $13,969   3.8% $343,906  $326,176  $17,730   5.4%
              
 
Revenue.  Total revenue increased by $325.9$121.6 million, or 11.5%4.2%, to $3,162.1$2,984.2 million in fiscal 2008,2010, from $2,836.2$2,862.6 million in fiscal 2007. Approximately 48% of the2009. The increase in revenue was primarily attributable to an increase in businessrevenue related to managed services customersarrangements and the remainderto foreign exchange impacts. The increase was primarily attributable to additional revenue from consolidation and transformation projects for Tier 1 and for cable and satellite customers, frompartially offset by decreases in revenue related to OSS projectsimplementation and integration projects. In the second half of fiscal 2009, AT&T reduced its discretionary spending with us. The lower resulting revenue level persisted into fiscal 2010, offset in part by an increase in our managed services for AT&T; however, revenue from revenue contributed by customersAT&T on a quarterly basis in emerging markets.fiscal 2010 was relatively stable.
 
License revenue in fiscal 2010 decreased by $23.9$34.2 million, or 15.0%25.3%, to $135.5$101.0 million, from $135.1 million in fiscal 2008, from $159.4 million in fiscal 2007. The decrease in license2009. License revenue was attributabledeclined primarily due to the completion of some projects.implementation and integration projects and the impact of fewer project signings in 2009.
 
License and service revenue attributable to the sale of customer experience systems was $2,894.3increased by $89.8 million, or 3.3%, to $2,775.3 million in fiscal 2008, an increase of $342.62010, from $2,685.5 million or 13.4%, fromin fiscal 2007. The increase was primarily attributable to revenue related to the expansion of our managed services activities, revenue from consolidation and transformation projects for Tier 1 and for cable and satellite customers, from revenue related to OSS projects and from revenue contributed by customers in emerging markets.
2009. License and service revenue resulting from the sale of customer experience systems represented 91.5%93.0% and 90.0%93.8% of our total revenue in fiscal 20082010 and 2007,2009, respectively.
 
License and service revenue from the sale of directory systems was $267.8 million for fiscal 2008, a decrease of $16.7increased by $31.8 million, or 5.9%18.0%, to $208.9 million in fiscal 2010, from $177.1 million in fiscal 2007.2009. The decreaseincrease was primarily attributable to decrease in activities related to our existing customers.the completion of major project milestones. License and service revenue from the sale of directory systems represented 8.5%7.0% and 10.0%6.2% of our total revenue in fiscal 20082010 and 2007,2009, respectively. We believe that we are


33

a leading provider of directory systems in most of the markets we serve. We expect that our revenue from directory systems will decrease in fiscal 2009.
 
In fiscal 2008,2010, revenue from customers in North America, Europe and the rest of the world accounted for 68.7%75.8%, 17.3%11.8% and 14.0%12.4%, respectively, of our total revenue, compared to 66.6%75.3%, 21.5%13.8% and 11.9%10.9%, respectively, for


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fiscal 2007.2009. The increase as a percentage of revenue from customers in North America was primarily attributable to an increase in revenue from other than our top three customers, mainly related to managed services arrangements. The decrease in revenue contributed from customers in Europe was primarily attributable primarily to completion of projects. The increasea decline in the percentage of revenue contributedimplementation and integration projects related revenue. Revenue from customers in the rest of the world in fiscal 2008 was attributableincreased primarily due to revenue contributed by customers in the Asia-Pacific region and emerging markets.markets as well as completion of major project milestones.
 
Cost of License and Service.  Cost of license mainly includes license fees and royalty payments to software suppliers. Cost of service consists primarily of costs associated with providing services to customers, including compensation expense and costs of third-party products. The increase in costCost of license and service increased by $71.0 million, or 3.9%, to $1,905.7 million in fiscal 2008 was $229.92010, from $1,834.6 million or, 12.8%, which is higher than the increase in our total revenue in fiscal 2008.2009. As a percentage of revenue, cost of license and service wasdecreased to 63.9% in fiscal 2010 from 64.1% in fiscal 2008, compared2009. The increase in our cost of license and service was primarily attributable to 63.3%increase in fiscal 2007.our headcount to support the growth in the size of our operations, partially offset by costs savings resulting primarily from expansion into lower cost jurisdictions. Our cost of service, as a percentage of revenue, in fiscal 20082010 was impactedpositively affected by expansion of ourhigher margins from existing managed services activities, partially offset by cost savings resultingarrangements. Margins from our expansion into lower cost jurisdictions and increased efficiencies in our overall operations. Margins fromexisting managed services tend to improve over time, especially in the initial period of an engagement, as we realize synergies, create cost efficiencies and improve business processes.
 
Research and Development.  Research and development expense is primarily comprised of compensation expense. Research and development expense decreased by $4.9$2.6 million, or 2.1%1.2%, to $225.5$207.8 million in fiscal 2008,2010, from $230.4$210.4 million in fiscal 2007.2009. Research and development expense decreased as a percentage of revenue from 8.1%7.3% in fiscal 20072009, to 7.1%7.0% in fiscal 2008. We believe that our2010. Our research and development efforts are a key element of our strategy and are essential to our success, and we intend to maintain our commitment to research and development. An increase or a decrease in our total revenue would not necessarily result in a proportional increase or decrease in the levels of our research and development expenditures, which could affect our operating margin.
The majority of our research and development expenditures is directed at our customer experience systems, and the remainder to directory systems. Please see the discussion above under the caption “Research and Development, Patents and Licenses.”
 
Selling, General and Administrative.  Selling, general and administrative expense increased by $33.9$29.3 million, or 9.2%8.5%, to $404.1$373.6 million in fiscal 2008,2010, from $370.2$344.3 million in fiscal 2007.2009. Selling, general and administrative expense is primarily comprised of compensation expense. Selling, general and administrative expense increased at a lower rate than the 11.5% increase in our total revenue, which resulted in a decrease as a percentage of revenue, from 13.1% in fiscal 2007 to 12.8% in fiscal 2008. The increase in selling, general and administrative expense in fiscal 2010 was primarily attributable to an overall increaseselling efforts, a significant portion of which were in our operations.
Amortization of Purchased Intangible Assets.  Amortization of purchased intangible assets in fiscal 2008 was $86.7 million, compared to $74.9 million in fiscal 2007. The increase in amortization of purchased intangible assets was primarily due to purchased intangible assets acquired in our fiscal 2006, 2007 and 2008 acquisitions.emerging markets.
 
Restructuring Charges and In-Process Research and DevelopmentDevelopment.  In fiscal 2009, we recorded restructuring charges and Other.  Restructuring charges, in-process research and development expenses of $20.8 million, which consisted of a $15.1 million restructuring charge related primarily to our restructuring plan in the first quarter of fiscal 2009 and a $5.7 million charge for the write-off of purchased in-process research and development related to a small acquisition during the first quarter of fiscal 2009. We did not take any such restructuring charges in fiscal 2010. Effective October 1, 2009, we adopted revised accounting guidance for business combinations and as a result capitalized immaterial in-process research and development.
Operating Income.  Operating income increased by $43.1 million, or 11.7%, to $410.4 million in fiscal 2010, from $367.3 million in fiscal 2009. Operating income increased as a percentage of revenue, from 12.8% in fiscal 2009 to 13.7% in fiscal 2010. The increase in operating income as a percentage of revenue was primarily attributable to our continued efforts to improve efficiencies including expansion into lower cost jurisdictions, the effect of our fiscal 2009 restructuring charges and in-process research and development charges, and foreign exchange impacts, partially offset by the increase in selling expense in fiscal 2010.
Interest and Other Expense, Net.  Interest and other expense, net increased by $7.1$24.0 million to $25.1 million in fiscal 2010, from $1.2 million in fiscal 2009. The increase in interest and other expense, net, was primarily attributable to a $23.4 million loss from our April 2010 divestiture of a majority interest in a Chinese subsidiary. We retain a minority interest in this Chinese company. Please see Note 16 to our consolidated financial statements.
Income Taxes.  Income taxes for fiscal 2010 were $41.4 million on pre-tax income of $385.3 million, resulting in an effective tax rate of 10.7%, compared to 10.9% in fiscal 2009. Our effective tax rate may fluctuate between quarters as a result of discrete items that may affect a specific quarter. Please see Note 11 to our consolidated financial statements.


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Net Income.  Net income increased by $17.7 million, or 105.5%5.4%, to $343.9 million in fiscal 2010, from $326.2 million in fiscal 2009. The increase in net income was attributable mainly to the increase in operating income, partially offset by the increase in interest and other expense, net.
Diluted Earnings Per Share.  Diluted earnings per share increased by $0.12, or 7.6%, to $1.69 in fiscal 2010, from $1.57 in fiscal 2009. The increase in diluted earnings per share resulted primarily from the increase in net income, as well as the decrease in diluted weighted average shares outstanding resulting primarily from our repurchase of ordinary shares in fiscal 2010. Please see Note 21 to our consolidated financial statements.
Fiscal Years Ended September 30, 2009 and 2008
The following is a tabular presentation of our results of operations for the fiscal year ended September 30, 2009, compared to the fiscal year ended September 30, 2008. Following the table is a discussion and analysis of our business and results of operations for these years.
                 
  Year ended September 30,  Increase (Decrease) 
  2009  2008  Amount  % 
  (In thousands)    
 
Revenue:                
License $135,146  $135,487  $(341)  (0.3)%
Service  2,727,461   3,026,609   (299,148)  (9.9)
                 
   2,862,607   3,162,096   (299,489)  (9.5)
                 
Operating expenses:                
Cost of license  2,686   2,729   (43)  (1.6)
Cost of service  1,831,947   2,023,562   (191,615)  (9.5)
Research and development  210,387   225,492   (15,105)  (6.7)
Selling, general and administrative  344,335   404,134   (59,799)  (14.8)
Amortization of purchased intangible assets  85,153   86,687   (1,534)  (1.8)
Restructuring charges and in-process research and development  20,780   13,896   6,884   49.5 
                 
   2,495,288   2,756,500   (261,212)  (9.5)
                 
Operating income  367,319   405,596   (38,277)  (9.4)
Interest and other (expense) income, net  (1,165)  11,955   (13,120)  (109.7)
                 
Income before income taxes  366,154   417,551   (51,397)  (12.3)
Income taxes  39,978   38,645   1,333   3.4 
                 
Net income $326,176  $378,906  $(52,730)  (13.9)%
                 
Revenue.  Total revenue decreased by $299.5 million, or 9.5%, to $2,862.6 million in fiscal 2009, from $3,162.1 million in fiscal 2008. Of the 9.5% decrease in revenue, 3.5% was attributable to foreign exchange impacts. The decrease in revenue in fiscal 2009 was also attributable to the downturn in macroeconomic conditions, which resulted in a slower pace of new project signings and fewer transformation deals, as well as a decrease in revenue from directory systems customers. The decrease was partially offset by increases in revenue from cable and satellite customers and from managed services telecommunication customers.
License and service revenue attributable to the sale of customer experience systems was $2,685.5 million in fiscal 2009, a decrease of $208.9 million, or 7.2%, from fiscal 2008. The decrease was primarily attributable to a decrease in revenue from transformation projects and to foreign exchange impacts, partially offset by an increase in revenue attributable to cable and satellite customers and from managed services arrangements. License and service revenue resulting from the sale of customer experience systems represented 93.8% and 91.5% of our total revenue in fiscal 2009 and 2008, respectively.


34

License and service revenue from the sale of directory systems was $177.1 million for fiscal 2009, a decrease of $90.6 million, or 33.8%, from fiscal 2008. The decrease was primarily attributable to a decrease in revenue from existing directory systems customers. License and service revenue from the sale of directory systems represented 6.2% and 8.5% of our total revenue in fiscal 2009 and 2008, respectively.
In fiscal 2009, revenue from customers in North America, Europe and the rest of the world accounted for 75.3%, 13.8% and 10.9%, respectively, of total revenue, compared to 68.7%, 17.3% and 14.0%, respectively, for fiscal 2008. Revenue from customers in North America, in absolute amount, was relatively stable in fiscal 2009 compared to fiscal 2008, which resulted in an increase in revenue from customers in North America as a percentage of total revenue. The decrease in revenue from customers in Europe was primarily attributable to completion of projects, a decrease in the pace of new project commitments and foreign exchange impacts. The decrease in revenue from customers in the rest of the world was primarily attributable to completion of projects, a decrease in the pace of new project commitments, a decrease in revenue attributable to the sale of directory systems and foreign exchange impacts.
Cost of License and Service.  Cost of license and service decreased by $191.7 million, or 9.5%, to $1,834.6 million in fiscal 2009, from $2,026.3 million in fiscal 2008. As a percentage of revenue, cost of license and service was 64.1% in fiscal 2009, the same level as in fiscal 2008. Cost of service in fiscal 2009, as a percentage of revenue, was affected by the decrease in revenue which was offset by the effects of our cost savings programs, including reductions in headcount, subcontractors, travel and other costs, our expansion into lower cost jurisdictions, foreign exchange impacts and higher margins from existing managed services arrangements.
Research and Development.  Research and development expense decreased in absolute amount by $15.1 million, or 6.7%, to $210.4 million in fiscal 2009, from $225.5 million in fiscal 2008, primarily as a result of our cost savings measures and changes in the geographical mix of our research and development resources. However, as a percentage of revenue, research and development expense increased to 7.3% in fiscal 2009, compared to 7.1% in fiscal 2008.
Selling, General and Administrative.  Selling, general and administrative expense decreased by $59.8 million, or 14.8%, to $344.3 million in fiscal 2009, from $404.1 million in fiscal 2008. Selling, general and administrative expense is primarily comprised of compensation expense. The decrease in selling, general and administrative expense was primarily attributable to the effects of our cost savings programs and foreign exchange impacts.
Restructuring Charges and In-Process Research and Development.  Restructuring charges and in-process research and development increased by $6.9 million, or 49.5%, to $20.8 million in fiscal 2009, from $13.9 million in fiscal 2008, from $6.8 million in fiscal 2007.2008. Restructuring charges and in-process research and development in fiscal 2009 consisted of a $15.1 million restructuring charge related primarily to our restructuring plan in the first quarter of fiscal 2009 and othera $5.7 million charge for the write-off of purchased in-process research and development related to a small acquisition during fiscal 2009. Restructuring charges and in-process research and development in fiscal 2008 consisted of a $12.1 million restructuring charge related to our restructuring plan in the fourth quarter of fiscal 2008 and a $1.8 million charge for the write-off of purchased in-process research and development related to an immateriala small acquisition during fiscal 2008. Restructuring charges, in-process research and development and other in fiscal 2007 consisted of a $6.0 million restructuring charge related to our restructuring plan in the second quarter of fiscal 2007, and a $0.8 million net charge for the write-off of purchased in-process research and development and other related to a fiscal 2007 acquisition. Please see the discussion above under the caption ‘‘Operational Efficiency and Cost Reduction Program.”


34

In-process research and development was written-offwritten off as of the closing dates of the acquisitions, in accordance with Financial Accounting Standards Board Interpretation No. 4, “Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method” (“FASB No. 4”).acquisitions. The in-process research and development had no alternative future use and had not reached technological feasibility as of the closing dates of the acquisitions.
 
Operating Income.  Operating income increaseddecreased by $48.2$38.3 million, or 13.5%9.4%, to $367.3 million in fiscal 2009, from $405.6 million in fiscal 2008, from $357.4 million in fiscal 2007. Operating expense grew at a slightly lower rate than the 11.5% increase in revenue during fiscal 2008, which resulted in a slight increase in operating income as2008. As a percentage of revenue.revenue, operating income was 12.8% in fiscal 2009, the same level as in fiscal 2008. Operating income in fiscal 2009 was affected by the decrease in revenue, foreign exchange impacts and increase in restructuring and in-process research and development charges, which was offset


35

by the effects of our cost savings programs, our expansion into lower cost jurisdictions and higher margins from existing managed services arrangements.
 
Interest (Expense) Income and Other, Net.  Interest (expense) income and other, net decreased by $38.6$13.1 million to expense of $1.2 million in fiscal 2009, from income of $12.0 million in fiscal 2008, from $50.6 million in fiscal 2007.2008. The decrease in interest (expense) income and other, net, was primarily attributable to the impact of foreign exchange losses and to lower income on our short-term interest-bearing investments due to current market conditions.conditions, offset by an improvement in foreign exchange effects.
 
Income Taxes.  Income taxes for fiscal 20082009 were $38.6$40.0 million on pretaxpre-tax income of $417.6$366.2 million, resulting in an effective tax rate of 9.3%10.9%, compared to 10.6%9.3% in fiscal 2007.2008. Of the decreaseincrease in our effective tax rate, approximately 2.1%4.5% was attributable to adjustments made during fiscal 2007 to deferredchanges in our tax liabilities related to two fiscal 2006 acquisitions,reserves, approximately 1.8% was attributable to a tax benefit in fiscal 2008, resulting from a lapse of statute of limitations and approximately 1.1% was attributable to the changes in our tax reserves. These decreases were partially offset by increases of approximately 3.7%0.4% attributable to changes in theour valuation allowances, and approximately 0.3% attributable to the effect of acquisition-related costs (which include amortization of purchased intangible assets, and in-process research and development and other), restructuring charges and equity-based compensation expense, and the remaining differencewhich was primarily attributable topartially offset by a decrease in our effective tax rate dueof approximately 5.2% attributable to the geographical distribution of earnings from global operations. Our effective tax rate may fluctuate between quarters as a result of discrete items that may affect a specific quarter. Please see Note 9 to our consolidated financial statementsoperations and the discussion below under the caption “Effective Tax Rate.”
Net Income.  Net income was $378.9 million in fiscal 2008, compared to net income of $364.9 million in fiscal 2007. The increase in net income was attributable to the increase in our operating income and to the decrease of our effective tax rate, offset by the decrease in interest income and other, net.
Diluted Earnings Per Share.  Diluted earnings per share increased by $0.09, or 5.5%, to $1.74 in fiscal 2008, from $1.65 in fiscal 2007. The increase in diluted earnings per share resulted from the increase in net income and the decrease in diluted weighted average number of shares outstanding. Please see Note 18 to our consolidated financial statements.


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Fiscal Years Ended September 30, 2007 and 2006
The following is a tabular presentation of our results of operations for the fiscal year ended September 30, 2007, compared to the fiscal year ended September 30, 2006. Following the table is a discussion and analysis of our business and results of operations for these years.
                 
  Year ended September 30,  Increase (Decrease) 
  2007  2006  Amount  % 
  (in thousands)    
 
Revenue:                
License $159,357  $116,285  $43,072   37.0%
Service  2,676,816   2,363,765   313,051   13.2 
                 
   2,836,173   2,480,050   356,123   14.4 
                 
Operating expenses:                
Cost of license  3,914   4,003   (89)  (2.2)
Cost of service  1,792,468   1,579,823   212,645   13.5 
Research and development  230,444   186,760   43,684   23.4 
Selling, general and administrative  370,194   313,997   56,197   17.9 
Amortization of purchased intangible assets  74,959   37,610   37,349   99.3 
Restructuring charges, in-process research and development and other acquisition related costs  6,761   25,725   (18,964)  (73.7)
                 
   2,478,740   2,147,918   330,822   15.4 
                 
Operating income  357,433   332,132   25,301   7.6 
Interest income and other, net  50,566   41,741   8,825   21.1 
                 
Income before income taxes  407,999   373,873   34,126   9.1 
Income taxes  43,062   55,237   (12,175)  (22.0)
                 
Net income $364,937  $318,636  $46,301   14.5%
                 
Revenue.  Total revenue increased by $356.1 million, or 14.4%, to $2,836 million in fiscal 2007, from $2,480 million in fiscal 2006. Approximately 52% of the increase was attributable to revenue contributed by the businesses that we acquired during fiscal 2006 and 2007, a portion of which we attribute to synergies and benefits resulting from those businesses being a part of the Amdocs group. The remainder was primarily attributable to additional revenue from consolidation and transformation projects for Tier 1 customers.
License revenue increased by $43.1 million, or 37.0%, to $159.4 million in fiscal 2007, from $116.3 million in fiscal 2006. The increase in license revenue was attributable primarily to license revenue contributed by acquisitions made during fiscal 2006, as well as additional license revenue from our customers.
License and service revenue attributable to the sale of customer experience systems was $2,552 million in fiscal 2007, an increase of $350.5 million, or 15.9%, from fiscal 2006. Approximately 52% of the increase was attributable to revenue contributed by the businesses that we acquired during fiscal 2006 and 2007, a portion of which we attribute to synergies and benefits resulting from those businesses being a part of the Amdocs group, and the remainder was primarily attributable to additional revenue from consolidation and transformation projects for Tier 1 customers. License and service revenue from the sale of customer experience systems represented 90.0% and 88.8% of our total revenue in fiscal 2007 and 2006, respectively.
License and service revenue from the sale of directory systems was $284.4 million for fiscal 2007, an increase of $5.6 million, or 2.0%, from fiscal 2006. License and service revenue from the sale of directory systems represented 10.0% and 11.2% of our total revenue in fiscal 2007 and 2006, respectively. We believe that we are a leading provider of directory systems in most of the markets we serve.


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In fiscal 2007, revenue from customers in North America, Europe and the rest of the world accounted for 66.6%, 21.5% and 11.9%, respectively, of total revenue compared to 69.9%, 21.8% and 8.3%, respectively, for fiscal 2006. Revenue from customers in North America and Europe increased in absolute amounts, but in each case the increase was less than the 14.4% increase in our total revenue which resulted in a decrease in revenue from customers in North America and Europe as a percentage of total revenue . The increase in revenue from customers in the rest of the world in fiscal 2007 was attributable primarily to revenue contributed by customers in the Asia-Pacific region.
Cost of License.  Cost of license mainly includes amortization of purchased computer software and intellectual property rights. Because such amortization is relatively stable from period to period and, absent impairment, is generally fixed in amount, an increase or decrease in license revenue will cause a significant fluctuation in cost of license as a percentage of license revenue. In fiscal 2007, cost of license as a percentage of license revenue was 2.5%, compared to 3.4% in fiscal 2006.
Cost of Service.  Cost of service consists primarily of costs associated with providing services to customers, including compensation expense and costs of third-party products. The increase in cost of service in fiscal 2007 was $212.6 million or 13.5%, which is less than the increase in our total revenue in fiscal 2007. As a percentage of revenue, cost of service was 63.2% in fiscal 2007, compared to 63.7% in fiscal 2006. The decrease in cost of service in fiscal 2007 as a percentage of revenue was attributable to a decrease in cost of service expense related to our core business, partially offset by cost of service expenses related to our fiscal 2006 and 2007 acquisitions. Our gross margin may vary depending on the types and geographic locations of projects that we undertake.
Research and Development.  Research and development expense is primarily comprised of compensation expense. Research and development expense increased by $43.6 million, or 23.4%, in fiscal 2007 to $230.4 million from $186.8 million in fiscal 2006. Research and development expense increased as a percentage of revenue from 7.5% in fiscal 2006 to 8.1% in fiscal 2007. The increase in research and development expense as a percentage of revenue was attributable primarily to research and development activities related to our fiscal 2006 and 2007 acquisitions. While we invested in upgrading our existing systems in fiscal 2007, we also devoted significant research and development efforts to the integration between our products and a unified user interface in order to enable our customers to adopt an integrated customer management approach. As part of these efforts, in January 2007 we launched Amdocs 7, the next major release of our comprehensive portfolio. Amdocs 7 expanded on the capabilities of our previous Amdocs 6 release and comprises an enhanced portfolio of modular billing, CRM, self-service, order management, mediation, OSS and content management software products.
The majority of our research and development expenditures is directed at our customer experience systems, and the remainder to directory systems. We believe that our research and development efforts are a key element of our strategy and are essential to our success. However, an increase or a decrease in our total revenue would not necessarily result in a proportional increase or decrease in the levels of our research and development expenditures, which could affect our operating margin. Please see the discussion above under the caption “Research and Development, Patents and Licenses.”
Selling, General and Administrative.  Selling, general and administrative expense increased by $56.2 million, or 17.9%, in fiscal 2007 to $370.2 million, from $314.0 million in fiscal 2006. Selling, general and administrative expense is primarily comprised of compensation expense. The increase in selling, general and administrative expense as a percentage of revenue is attributable to selling, general and administrative expense related to our fiscal 2006 and 2007 acquisitions partially offset by a decrease in selling, general and administrative expense related to our core business.
Amortization of Purchased Intangible Assets.  Amortization of purchased intangible assets in fiscal 2007 was $74.9 million, compared to $37.6 million in fiscal 2006. The increase in amortization of purchased intangible assets was due to purchased intangible assets acquired in our fiscal 2006 and 2007 acquisitions.
Restructuring Charges, In-Process Research and Development and Other.  Restructuring charges,in-process research and development and other in fiscal 2007 consisted of a $6.0 million restructuring charge


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related to our restructuring plan in the second quarter of fiscal 2007, and a charge of $2.7 million for the write-off of purchased in-process research and development related to our acquisition of SigValue, offset by the cumulative effect of our 14% share in SigValue’s pre-acquisition results of $1.9 million. In fiscal 2006, restructuring charges, in-process research and development and other acquisition related costs consisted of $25.7 million for the write-off of purchased in-process research and development related to our acquisitions of Cramer and Qpass.
In-process research and development was written-off as of the closing dates of the acquisitions, in accordance with Financial Accounting Standards Board Interpretation No. 4, “Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method” (“FASB No. 4”). The in-process research and development had no alternative future use and had not reached technological feasibility as of the closing dates of the acquisitions.
Operating Income.  Operating income increased by $25.3 million, or 7.6%, in fiscal 2007, to $357.4 million from $332.1 million in fiscal 2006. Operating expense grew at a greater rate than the 14.4% increase in revenue during fiscal 2007, which resulted in a decrease in operating income as a percentage of revenue. The increase in operating expense as a percentage of revenue is primarily attributable to the increases in amortization of purchased intangible assets, and to operating expense related to our fiscal 2006 and 2007 acquisitions, partially offset by a decrease in our core operating expenses as a percentage of revenue, and in restructuring charges, in-process research and development and other.
Interest Income and Other, Net.  Interest income and other, net increased by $8.8 million in fiscal 2007 to $50.6 million from $41.7 million in fiscal 2006. The increase is primarily attributable to the impact of foreign exchange benefits.
Income Taxes.  Income taxes for fiscal 2007 were $43.1 million on pretax income of $408.0 million, resulting in an effective tax rate of 10.6% compared to 14.8% in fiscal 2006. Of the reduction in our effective tax rate, 2.1%remaining difference was attributable to the net effect of acquisition-related costs (which include amortization of purchased intangible assets, and other)in-process research and development), restructuring charges and equity-based compensation expense, 1.4% was attributableexpense. Please see Note 11 to the net change in valuation allowances and tax reserves, offset by 2.1% attributable to adjustments to deferred tax liabilities related to two fiscal 2006 acquisitions, and the remaining difference was primarily attributable to the geographical distribution of earnings from global operations. Our effective tax rate for fiscal year 2008 is expected to be between 9% and 12% on an annualized basis compared to 10.6% in fiscal year 2007. Our effective tax rate may fluctuate between quarters as a result of discrete items that may affect a specific quarter and changes in our tax reserves in the ordinary course of business. See the discussion below under the caption “Effective Tax Rate.”consolidated financial statements.
 
Net Income.  Net income was $364.9decreased by $52.7 million, or 13.9%, to $326.2 million in fiscal 2007, compared to net income of $318.62009, from $378.9 million in fiscal 2006.2008. The increasedecrease in net income iswas attributable primarily to the increasedecrease in operating income and the decrease in interest (expense) income and other, net and to the decrease of our effective tax rate in fiscal 2007.net.
 
Diluted Earnings Per Share.  Diluted earnings per share increaseddecreased by $0.17,$0.16, or 11.5%9.2%, to $1.58 in fiscal 2007 to $1.652009, from $1.48$1.74 in fiscal 2006.2008. The increasedecrease in diluted earnings per share resulted primarily from the increasedecrease in net income, partially offset by the increasedecrease in diluted weighted average numbershares outstanding resulting primarily from the repurchase and redemption of our convertible notes and the full impact of the repurchase of our ordinary shares outstanding.in fiscal 2008. Please see Note 1821 to our consolidated financial statements.
 
Liquidity and Capital Resources
 
Cash, cash equivalents and short-term interest-bearing investments totaled $1,244.4 million$1.43 billion as of September 30, 2008,2010, compared to $1,179.3 million$1.17 billion as of September 30, 2007.2009. The increase during fiscal 2008 is2010 was mainly attributable to $483.6 million in positive cash flows from operations of $685.2 million and $37.6$200.0 million in proceeds from the exercise of employee stock options,borrowings under financing arrangements, partially offset by approximately $247.6$389.3 million used to repurchase our ordinary shares pursuant to our share repurchase program $135.8 million for capital expenditures and $58.8$200.3 million in net cash paid for acquisitions. Net cash provided by operating activities amounted to $483.6$685.2 million and $519.2 million for fiscal 20082010 and $424.0 million for fiscal 2007.2009, respectively.


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Our policy is to retain substantial cash balances in order to support our growth. We believe that our current cash balances, cash generated from operations and our current lines of credit will provide sufficient resources to meet our operational needs for at least the next fiscal year.
 
Our short-term interest-bearing investments are classified asavailable-for-sale securities. Unrealized gains or losses are reported as a separate component of accumulated other comprehensive income, net of tax. Such short-term interest-bearing investments consist primarily of money market funds, U.S. government treasuries, U.S. agency securities and corporate bonds.government guaranteed debt. We believe we have conservative investment policy guidelines and, consistent with these guidelines, in prior years we also purchased AAAasset-backed obligations and mortgages.guidelines. Ourinterest-bearing investments are stated at fair value. The estimated fair values of theOur interest-bearing investments are based onpriced by pricing vendors and are classified as Level 1 or Level 2 investments, since these vendors either provide a quoted market pricesprice in an active market or use observable inputs. Please see Note 4 to our consolidated financial statements. During fiscal 2010 and on observable market inputs as2009, we recognized immaterial credit loss. As of the endSeptember 30, 2010, unrealized losses of the reporting period. We review various factors$1.5 million related toother-than-temporarily impaired securities are included in determining whether we should recognize an impairment charge for our short-term interest-bearing investments, including our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value, the length of time and extent to which the fair value has been less than our cost basis, the credit ratings of the securities and the financial condition and near-term prospects of the issuers. Based on our considerations of these factors the other-than-temporary impairment on our short-term interest-bearing investments was immaterial during fiscal 2008, 2007 and 2006.accumulated other comprehensive income.
 
In November 2007,fiscal 2008, we entered into an unsecured $500$500.0 million five-year revolving credit facility with a syndicate of banks, which is available for general corporate purposes, including acquisitions and repurchases of our ordinary shares that we may consider from time to time. The interest rate for borrowings under the revolving credit facility is chosen at our option (fromfrom severalpre-defined alternatives) and alternatives, depends on the circumstances of any advance and is based on our credit ratings.rating. As of September 30, 2008,2010, we were in compliance with specifiedthe financial covenants thatunder the agreement imposes on us and had not borrowed against thisrevolving credit facility. However, duringDuring the first quarterhalf of fiscal 2009, we borrowed $100$450.0 million under the facility which accruesat an average interest at rate that is


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equal to LIBOR plus 3540 basis points margin, and used the proceeds to repurchase a portion ofacquire our outstanding notes as described below. During the second half of fiscal 2009, we repaid all of the $450.0 million outstanding under our credit facility. In September 2010, we borrowed an aggregate of $200.0 million under the facility and repaid it in October 2010.
 
In November 2008, our Board of Directors authorized us to repurchase 100 million of our notes in such amounts, at such prices and at such times that we deem appropriate. During the first quarter of fiscal 2009, using proceeds from our revolving credit facility, as described above, we purchased $100$449.0 million aggregate principal amount of our 0.50% convertible notes at an average price of 98%99.5% of the principal amount, excluding accrued interest and transaction fees. In MarchAs of September 30, 2010 and 2009, the notes are redeemable by us, and if we do not elect to redeem the notes, then the holders of the notes may require us to repurchase the notes at a purchase price equal to 100% of the$1.0 million principal amount of the notes plus accrued and unpaid interest. We anticipate that a substantial portion of theremained outstanding, notes will be put to usdue in March 2009 if we do not elect to redeem them.2024, in accordance with their terms.
 
As of September 30, 2008,2010, we had outstanding letters of credit and bank guarantees from various banks totaling $5.2$62.2 million. As of September 30, 2008,2010, we also had outstanding short-term loansobligations of $1.5$0.7 million secured by specified pledges and guarantees.
The following table summarizes our contractual obligations as of September 30, 2008, and the effect such obligations are expected to have on our liquidity and cash flows in future periods (in millions):connection with leasing arrangements.
                     
  Cash Payments Due by Period 
     Less Than
  1-3
  4-5
  Over 5
 
Contractual Obligations
 Total  1 Year  Years  Years  Years 
 
Convertible notes including interest (1) $486.1  $2.3  $6.8  $4.5  $472.5 
Financing arrangements  1.5   1.5   —   —   — 
Pension funding  20.0   4.4   4.9   3.6   7.1 
Purchase Obligations  39.8   26.4   13.4   —   — 
Non-cancelable operating leases  229.1   71.7   125.4   25.5   6.5 
                     
  $776.5  $106.3  $150.5  $33.6  $486.1 
                     


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(1)During the first quarter of fiscal 2009, using proceeds from our revolving credit facility as described above, we purchased $100 million aggregate principal amount of our notes at an average price of 98% of the principal amount, excluding accrued interest and transaction fees. In March 2009, the notes are redeemable by us, and if we do not elect to redeem the notes, then the holders of the notes may require us to repurchase the notes at a purchase price equal to 100% of the principal amount of the notes plus accrued and unpaid interest. The notes mature on 2024, however, we anticipate that a substantial portion of the outstanding notes will be put to us in March 2009 if we do not elect to redeem them. Please see Note 11 to our consolidated financial statements.
 
Our capital expenditures, net were approximately $135.8$86.9 million in fiscal 2008.2010. Approximately 83%80% of these expenditures consisted of purchases of computer equipment, with the remainder attributable mainly to leasehold improvements. Our fiscal 20082010 capital expenditures were mainly attributable to investments in our operating facilities and our development centers around the world. Our policy is to fund our capital expenditures principally from operating cash flows, and we do not anticipate any changes to this policy in the foreseeable future.
 
From time to time, we have engaged in share repurchase programs in which we repurchase our shares in the open market or privately negotiated transactions and at times and prices we deem appropriate.
 
In April 2010, our board of directors authorized a share repurchase plan allowing the repurchase of up to $700 million of our outstanding ordinary shares over the following 12 months. The authorization permits us to purchase our ordinary shares in open market or privately negotiated transactions at times and prices that we consider appropriate. In fiscal 2010, we repurchased 13.7 million ordinary shares at an average price of $28.41 per share (excluding broker and transaction fees). As of September 30, 2010, we had remaining authority to repurchase up to $311.0 million of our outstanding ordinary shares. In the first quarter of fiscal 2011 (through December 3, 2010), we repurchased approximately 2.9 million ordinary shares at an average price of $27.57 per share (excluding broker and transaction fees).
In August 2007, our board of directors authorized a share repurchase plan allowing the repurchase of up to $400 million of our outstanding ordinary shares. The authorization permitspermitted us to purchase our ordinary shares in open market or privately negotiated transactions at times and prices that we considerconsidered appropriate. In fiscal 2008, we repurchased 8.4 million ordinary shares at an average price of $30.45 per share (excluding broker and transaction fees), leaving us with authority as of September 30, 2008 to repurchase up to $95.3 million of our ordinary shares under the share repurchase plan.. In the first quarter of fiscal 2009, (through November 30, 2008), we repurchased approximately 0.5 million ordinary shares at an average price of $26.90 per share (excluding broker and transaction fees). Although we currently do not planAs of August 2009, our authority to repurchase additional ordinary shares in the immediate future, we have authority, as of November 30, 2008, to repurchase up to $82.7 million of our ordinary shares under this plan.plan expired.
 
Net Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Contractual Obligations
The following table summarizes our contractual obligations as of September 30, 2010, and the effect such obligations are expected to have on our liquidity and cash flows in future periods (in millions):
                     
  Payments Due by Period 
     Less Than
  1-3
  4-5
  More Than
 
Contractual Obligations Total  1 Year  Years  Years  5 Years 
 
Convertible notes including interest $1.1  $—  $—  $—  $1.1 
Pension funding  17.8   2.2   5.3   3.5   6.8 
Purchase Obligations  43.1   30.5   12.6   —   — 
Non-cancelable operating leases  115.9   62.4   49.2   4.3   — 
                     
  $177.9  $95.1  $67.1  $7.8  $7.9 
                     


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The total amount of unrecognized tax benefits for uncertain tax positions was $118.7 million as of September 30, 2010. Payment of these obligations would result from settlements with taxing authorities. Due to the difficulty in determining the timing of resolution of audits, these obligations are not included in the above table.
Deferred Tax AssetsAsset Valuation Allowance
 
As of September 30, 2008,2010, we had deferred tax assets of $76.5$106.7 million, derived primarily from net capital and operating loss carryforwards related primarily to some of our subsidiaries, which were offset by valuation allowances due to the uncertainty of the realizing any tax benefit for such losses. When realization of the tax benefits associated with such net capital and operating losses is deemed more likely than not, the valuation allowance will be released through income taxes or through goodwill.earnings.
 
Critical Accounting Policies
 
Our discussion and analysis of our consolidated financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent liabilities. On a regular basis, we evaluate and may revise our estimates. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent. Actual results could differ materially from the estimates under different assumptions or conditions.
 
We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. These policies require that we make estimates in the preparation of our financial statements as of a given date. Our critical accounting policies are as follows:
 
 • Revenue recognition and contract accounting


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 • Tax accounting
 
 • Business combinations
 
 • Equity-basedShare-based compensation expense
 
 • Goodwill, and intangible assets and long-lived assets - impairment assessment
 
 • Derivative and hedge accounting
 
 • Short-term interest-bearing investments
 
 • Realizability of long-lived assets
 
 • Accounts receivable reserves
 
Below, we discuss these policies further, as well as the estimates and judgments involved. We also have other key accounting policies. We believe that, compared to the critical accounting policies listed above, the other policies either do not generally require us to make estimates and judgments that are as difficult or as subjective, or it is less likely that they would have a material impact on our reported consolidated results of operations for a given period.
 
Revenue Recognition and Contract Accounting
 
We derive our revenue principally from:
 
 • the initial sales of licenses to use our products and related services, including modification, implementation, integration and customization services,
 
 • providing managed services and other related services for our solutions, and


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 • recurring revenue from ongoing support and maintenance provided to our customers, and from incremental license fees resulting from increases in a customer’s business volume.
 
Revenue is recognized only when all of the following conditions have been met: (i) there is persuasive evidence of an arrangement; (ii) delivery has occurred; (iii) the fee is fixed or determinable; and (iv) collectibility of the fee is reasonably assured. We usually sell our software licenses as part of an overall solution offered to a customer that combines the sale of software licenses with a broad range of services, which normally include significant customization, modification, implementation and integration. Those services and those in which the services are not available from third-party vendors are deemed essential to the software. As a result, we generally recognize combinedinitial license fee and related service revenue over the course of these long-term projects, using the percentage of completion method of accounting. Initial license fee revenue is recognized as work is performed, using the percentage of completion method of accounting. Subsequent license fee revenue is recognized upon completion of specified conditions in each contract, based on a customer’s subscriber or transaction volume or other measurements when greater than the level specified in the contract for the initial license fee. Service revenue that involves significant ongoing obligations, including fees for software customization, implementation and modification, also is recognized as work is performed, under the percentage of completion method of accounting. Revenue from software solutions that do not require significant customization, implementation and modification is recognized upon delivery. Revenue from services that do not involve significant ongoing obligations is recognized as services are rendered. In managed services contracts, we typically recognize revenue from the operation of a customer’s system as services are performed based on time elapsed, output produced or volume of data processed, depending on the specific contract terms of the managed services arrangement. Typically, managed services contracts are long-term in duration and are not subject to seasonality. Revenue from ongoing support services is recognized as work is performed. Revenue from third-party hardware sales is recognized upon delivery and installation and revenue from third-party software sales is recognized upon delivery. Maintenance revenue is recognized ratably over the term of the maintenance agreement.
A significant portion of our revenue is recognized over the course of long-term implementation and integration projects under the percentage of completion method of accounting. When total cost estimates exceed revenues in a fixed-price arrangement, the estimated losses are recognized immediately based upon the cost applicable to the project. The percentage of completion method requires the exercise of judgment on a quarterly basis, such as with respect to estimations ofprogress-to-completion,


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contract revenue, loss contracts and contract costs. Progress in completing such projects may significantly affect our annual and quarterly operating results.
 
We follow very specific and detailed guidelines, several of which are discussed above, in measuring revenue; however, certain judgments affect the application of our revenue recognition policy.
 
Our revenue recognition policy takes into consideration the creditworthiness and past transaction history of each customer in determining the probability of collection as a criterion of revenue recognition. This determination requires the exercise of judgment, which affects our revenue recognition. If we determine that collection of a fee is not reasonably assured, we defer the revenue recognition until the time collection becomes reasonably assured, which is generally upon receipt of cash. We regularly review the allowance for doubtful accounts by considering factors that may affect a customer’s ability to pay, such as historical experience, credit quality, age of the accounts receivable balances, and current economic conditions.
 
For arrangements with multiple deliverables, we allocate revenue to each component based upon its relative fair value, which is determined in reliance on the Vendor Specific Objective Evidence (“VSOE”) of fair value for that element. Such determination is judgmental and for most contracts is based on normal pricing and discounting practices for those elements when sold separately in similar arrangements. WeFor arrangements within the scope of software revenue recognition guidance, we use the residual method in accordance withSOP 97-2, “Software Revenue Recognition”(“SOP 97-2”) and EITFNo. 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITFNo. 00-21”). In the absence of fair value for a delivered elementelement. The residual method requires that we first allocate revenue to the fair value of the undelivered elements and residual revenue to the delivered elements. If VSOE of any undelivered items does not exist, revenue from the entire arrangement is deferred and recognized at the earlier of (i) delivery of those elements for which VSOE does not exist or (ii) when VSOE can be established. However, in limited cases where maintenance is the only undelivered element without VSOE, the entire arrangement fee is recognized ratably. The residual method is used mainly in multiple element arrangements that include license for the sale of software solutions that do not require significant customization, modification and implementation and maintenance to determine the appropriate value for the license component. Beginning October 1, 2009, we adopted the new authoritative guidance for revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under this guidance, we allocate revenue to each identified unit of accounting by using estimated selling price, or ESP, for individual


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elements of an arrangement when VSOE or third-party evidence of selling price is unavailable. This results in the elimination of the residual method of allocating revenue consideration. We determine ESP for the purposes of allocating the consideration to individual elements of an arrangement by considering several external and internal factors including, but not limited to, pricing practices, margin objectives, geographies in which the Company offers its services and internal costs. The determination of ESP is judgmental and is made through consultation with and approval by management. Please see “ Recent Accounting Pronouncements.”
 
Revenue from third-party hardware and software sales is recorded at a gross or net amount according to certain indicators. The application of these indicators for gross and net reporting of revenue depends on the relative facts and circumstances of each sale and requires significant judgment.
 
Tax Accounting
 
As part of the process of preparing our consolidated financial statements, we are required to estimate our income tax expense in each of the jurisdictions in which we operate. In the ordinary course of a global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of revenue sharing and reimbursement arrangements among related entities, the process of identifying items of revenue and expenses that qualify for preferential tax treatment and segregation of foreign and domestic income and expense to avoid double taxation. We also assess temporary differences resulting from differing treatment of items, such as deferred revenue, for tax and accounting differences. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We may record a valuation allowance to reduce our deferred tax assets to the amount of future tax benefit that is more likely than not to be realized.
 
Although we believe that our estimates are reasonable and that we have considered future taxable income and ongoing prudent and feasible tax strategies in estimating our tax outcome and in assessing the need for the valuation allowance, there is no assurance that the final tax outcome and the valuation allowance will not be different than those that are reflected in our historical income tax provisions and accruals. Such differences could have a material effect on our income tax provision, net income and cash balances in the period in which such determination is made.
 
Effective October 1, 2007, we adopted Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes -We recognize the tax benefit from an interpretation of FASB Statement No. 109” (“FIN No. 48”), which contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS No. 109”). The first step is to evaluate the tax position for recognition by determiningonly if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or


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litigation processes, if any. The second step is to measuretax benefits recognized in the tax benefit asfinancial statements from such a position should be measured based on the largest amountbenefit that is morehas a greater than 50% likelylikelihood of being realized upon ultimate settlement.
Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Although we believe our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the effect of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest.
 
We have filed or are in the process of filing tax returns that are subject to audit by the respective tax authorities. Although the ultimate outcome is unknown, we believe that any adjustments that may result from tax return audits are not likely to have a material, adverse effect on our consolidated results of operations, financial condition or cash flows.
 
Business Combinations
 
In accordance with business combination accounting, we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed, as well as to in-process research and development based on their estimated fair values. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets.


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Management makesAlthough we believe the assumptions and estimates of fair value based upon assumptions believed to be reasonable. These estimateswe have made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Critical estimates in valuing certain assets acquired and liabilities assumed include, but are not limited to: future expected cash flows from license and service sales, maintenance and hosting agreements, customer contracts and acquired developed technologies, expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when completed and the acquired company’s brand awareness and discount rate. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.
 
As discussed above under “Tax Accounting,” we may establish a valuation allowance for certain deferred tax assets and estimate the value of uncertain tax positions of a newly acquired entity. This process requires significant judgment and analysis.
 
Equity-BasedShare-Based Compensation Expense
 
We account for equity-based compensation in accordance with SFAS No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”). Under the fair value recognition provisions of this statement, share-basedShare-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the requisite service periods. We estimate the fair value of employee stock options using a Black-Scholes valuation model and value restricted stock based on the market value of the underlying shares at the date of grant. We recognize compensation costs using the graded vesting attribution method that results in an accelerated recognition of compensation costs in comparison to the straight line method.
 
The fair value of an award is affected by our stock price on the date of grant and other assumptions, including the estimated volatility of our stock price over the term of the awards and the estimated period of time that we expect employees to hold their stock options. We use a combination of implied volatility of our traded options and historical stock price volatility (“blended volatility”) as the expected volatility assumption required in the Black-Scholes option valuation model. The selection of the blended volatility approach was based upon the availability of traded options on our shares and our assessment that blended volatility is more representative of future share price trends than historical volatility. Equity-basedShare-based compensation expense recognized in our consolidated statementstatements of operations wereincome was reduced for estimated forfeitures.


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Determining the fair value of share-based awards at the grant date requires the exercise of judgment. In addition, the exercise of judgment is also required in estimating the amount of share-based awards that are expected to be forfeited. If actual results differ significantly from these estimates, equity-basedshare-based compensation expense and our results of operations could be materially impacted.affected. Please see Note 1720 to our consolidated financial statements.
 
Goodwill, and Intangible Assets and Long-Lived Assets - Impairment Assessment
 
We follow SFAS No. 142, “GoodwillGoodwill is measured as the excess of the cost of acquisition over the sum of the amounts assigned to tangible and Other Intangible Assets” (“SFAS No. 142”). Under SFAS No. 142, goodwill andidentifiable intangible assets deemed to have indefinite lives and areacquired less liabilities assumed. Goodwill is subject to periodic impairment tests in accordance with the Statement.tests. Goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. The total purchase price of business acquisitions accounted for using the purchase method is allocated first to identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the fair value of net assets of purchased businesses is recorded as goodwill.
 
We perform an annual goodwill impairment test during the fourth quarter of each fiscal year, or more frequently if impairment indicators are present. We operate in one operating segment, and this segment comprises our only reporting unit. In calculating the fair value of the reporting unit, we used our market capitalization and a discounted cash flow methodology. There was no impairment of goodwill upon adoption of SFAS No. 142in fiscal 2010, 2009 and there was no impairment at the annual impairment test date.
Derivative and Hedge Accounting
Approximately 70% of our revenue and 50% to 60% of our operating expenses are denominated in U.S. dollar or linked to the U.S. dollar. We enter into foreign exchange forward contracts and options to hedge a significant portion of our foreign currency net exposure resulting from revenue and expense in each foreign currency, in order to reduce the impact of foreign currency on our results. We also enter into foreign exchange forward contracts to reduce the impact of foreign currency on balance sheet items. The effective portion of changes in the fair value of forward exchange contracts and options that are classified as cash flow hedges are recorded in other comprehensive income (loss). We estimate the fair value of such derivative contracts by reference to forward and spot rates quoted in active markets.
Establishing and accounting for foreign exchange contracts involve judgments, such as determining the nature of the exposure, assessing its amount and timing, and evaluating the effectiveness of the hedging arrangement.
Although we believe that our estimates are accurate and meet the requirement of hedge accounting, actual results differ from these estimates, and such difference could cause fluctuation of our recorded revenue and expenses.
Short-Term Interest-Bearing Investments
Our short-term interest-bearing investments are classified as available-for-sale securities. Unrealized gains or losses are reported as a separate component of accumulated other comprehensive income, net of tax. Such short-term interest-bearing investments consist primarily of U.S. government treasuries, U.S. agency securities and corporate bonds. We have conservative investment policy guidelines and, consistent with these guidelines, in prior years we also purchased only AAA asset-backed obligations and mortgages. Our interest-bearing investments are stated at fair value. The estimated fair values of the investments are based on quoted market prices and on observable market inputs as of the end of the reporting period. We review various factors in determining whether we should recognize an impairment charge for our short-term interest-bearing investments, including our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value, the length of time and extent to which the fair value has been less than our cost basis, the credit ratings of the securities and the financial condition and near-term prospects of the issuers. Based on our considerations of these factors, the other-than-temporary impairment on our short-term interest-bearing investments was immaterial during fiscal 2008, 2007 and 2006.


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Due to the continuing changes and uncertainty in the credit markets, it is possible that the valuation of the securities will further fluctuate, and as market conditions change, we may determine that unrealized losses, which are currently considered temporary in nature, may become “other than temporary,” resulting in additional impairment charges.
Realizability of Long-Lived Assets2008.
 
We are required to assess the impairment oftest long-lived assets, other than goodwill, tangible andincluding definite life intangible under SFAS No. 144, “Accountingassets, for impairment in the Impairment or Disposalevent an indication of Long-Lived Assets” (“SFAS No. 144”) on a periodic basis, and if events or changes in circumstances indicate that the carrying value may not be recoverable.impairment exists. Impairment indicators include any significant changes in the manner of our use of the assets or the strategy of our overall business, significant negative industry or economic trends and significant decline in our share price for a sustained period.
 
If the sum of expected future cash flows (undiscounted and without interest charges) of the long-lived assets is less than the carrying amount of such assets, an impairment would be recognized and the assets would be written down to their estimated fair values, based on expected future discounted cash flows. There was no impairment of long-lived assets in fiscal 2010, 2009 and 2008.


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Derivative and Hedge Accounting
Approximately 70% to 80% of our revenue and 50% to 60% of our operating expenses are denominated in U.S. dollars or linked to the U.S. dollar. We enter into foreign exchange forward contracts and options to hedge a significant portion of our foreign currency net exposure resulting from revenue and expense in major foreign currencies in which we operate, in order to reduce the impact of foreign currency on our results. We also enter into foreign exchange forward contracts and options to reduce the impact of foreign currency on balance sheet items. The effective portion of changes in the fair value of forward exchange contracts and options that are classified as cash flow hedges are recorded in other comprehensive income. We estimate the fair value of such derivative contracts by reference to forward and spot rates quoted in active markets.
Establishing and accounting for foreign exchange contracts involve judgments, such as determining the fair value of the contracts, determining the nature of the exposure, assessing its amount and timing, and evaluating the effectiveness of the hedging arrangement.
Although we believe that our estimates are accurate and meet the requirement of hedge accounting, if actual results differ from these estimates, such difference could cause fluctuation of our recorded revenue and expenses.
 
Fair Value Measurement of Short-Term Interest-Bearing Investments
Our short-term interest-bearing investments are classified asavailable-for-sale securities and are stated at fair value in the Consolidated Balance Sheets. Unrealized gains or losses are reported as a separate component of accumulated other comprehensive income, net of tax. Such short-term interest-bearing investments consist primarily of money market funds, U.S. government treasuries, U.S. agency securities and government guaranteed debt. We believe we have conservative investment policy guidelines. Our interest-bearing investments are priced by pricing vendors and are classified as Level 1 or Level 2 investments, since these vendors either provide a quoted market price in an active market or use observable inputs such as quoted market prices for similar instruments, market dealer quotes, market spreads, non-binding market prices that are corroborated by observable market data and other observable market information and discounted cash flow techniques using observable market inputs. Effective at the beginning of the third quarter of fiscal 2009, we were required to evaluate ouravailable-for-sale securities forother-than-temporary impairments subject to new accounting guidance. Pursuant to this accounting guidance, for securities with unrealized losses that we intend to sell or it is more likely than not that we will be required to sell the securities before recovery, the entire difference between amortized cost and fair value is recognized in earnings. For securities that we do not intend to sell and it is not more likely than not that we will be required to sell, we used a discounted cash flow analysis to determine the portion of the impairment that relates to a credit loss. To the extent that the net present value of the projected cash flows was less than the amortized cost of the security, the difference is considered credit loss and is recorded through earnings. The inputs on the future performance of the underlying assets used in the cash flow models include prepayments, defaults and loss severity assumptions. Prior to April 2009, we reviewed various factors in determining whether we should recognize an impairment charge for our short-term interest-bearing investments, including our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value, the length of time and extent to which the fair value has been less than our cost basis, the credit ratings of the securities and the financial condition and near-term prospects of the issuers. Theother-than-temporary impairment on our short-term interest-bearing investments was immaterial during fiscal 2010, 2009 and 2008.
Given the relative reliability of the inputs we use to value our investment portfolio, and because substantially all of our valuation inputs are obtained using quoted market price in an active market or observable inputs, we do not believe that the nature of estimates and assumptions affected by levels of subjectivity and judgment was material to the valuation of the investment portfolio as of September 30, 2010.
It is possible that the valuation of the securities will further fluctuate, and as market conditions change, we may determine that unrealized losses, which are currently considered temporary in nature, may become “other than temporary,” resulting in additional impairment charges.


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Accounts Receivable Reserves
 
The allowance for doubtful accounts is for estimated losses resulting from accounts receivable for which their collection is not reasonably assured. We evaluate accounts receivable to determine if they will ultimately be collected. Significant judgments and estimates are involved in performing this evaluation, which we base on factors that may affect a customer’s ability and intent to pay, such as past experience, credit quality of the customer, age of the receivable balance and current economic conditions. If collection is not reasonably assured at the time the transaction is consummated, we do not recognize revenue until collection becomes reasonably assured. If the financial condition ofwe estimate that our customers were to deteriorate, resulting in an impairment of theircustomers’ ability and intent to make payments have been impaired, additional allowances may be required. The allowance for doubtful accounts is established either through a charge to selling, general and administrative expenses or as a reduction to revenue.
 
Within the context of these critical accounting policies, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.
 
Recent Accounting Pronouncements
 
In June 2008,2009, the Financial Accounting Standards Board, (“FASB”)or FASB, issued authoritative guidance on the consolidation of variable interest entities, which is effective for us beginning October 1, 2010. The new guidance requires revised evaluations of whether entities represent variable interest entities, ongoing assessments of control over such entities, and additional disclosures for variable interests. The adoption of this new guidance did not have a material impact on our financial statements.
Adoption of New Accounting Standards
In January 2010, the FASB Staff Position No. EITFNo. 03-6-1, “Determining Whether Instruments Grantedissued guidance to amend the disclosure requirements of fair value measurements. The guidance requires new disclosures on the transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy, including the reasons for the transfers, the reasons for any transfer in Share-Based Payment Transactions Are Participating Securities” (“FSP EITFNo. 03-6-1”). Accordingor out of Level 3 of the fair value measurement hierarchy and a roll forward of activities on purchases, sales, issuance, and settlements of recurring assets and liabilities measured at Level 3 of the fair value measurement hierarchy. In addition to FSP EITFNo. 03-6-1,these new disclosure requirements the new guidance also clarifies certain existing disclosure requirements. The guidance became effective for us beginning January 1, 2010, except for the disclosure on the roll forward activities for Level 3 fair value measurements, which will become effective for us beginning October 1, 2011. The adoption of this new guidance did not have a material impact on our financial statements.
In October 2009, the FASB issued authoritative guidance for revenue recognition relating to arrangements containing both hardware and software elements. Under the new guidance, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and will now be subject to other relevant revenue recognition guidance. Additionally, the FASB updated its authoritative guidance for revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. The revised guidance eliminates the requirement that “objective and reliable” evidence of fair value exist for an undelivered item in order for a delivered item to be treated as a specific unit of accounting. In addition, the guidance modifies the methodology to allocate transaction consideration to each identified unit of accounting by allowing the use of estimated selling price, or ESP, for individual elements of an arrangement when vendor specific objective evidence, or VSOE, of fair value or third-party evidence of selling price is unavailable. This results in the elimination of the residual method of allocating revenue consideration. We elected to early adopt the pronouncements at the beginning of our first quarter of fiscal 2010 on a prospective basis for applicable transactions originating or materially modified after October 1, 2009. If VSOE of fair value or third-party evidence of selling price is unavailable, we determine ESP for the purposes of allocating the consideration to individual elements of an arrangement by considering several external and internal factors including, but not limited to, pricing practices, margin objectives, geographies in which we offer our services and internal costs. The determination of ESP is made through consultation with and approval by our management. This guidance does not generally change the units of accounting in our revenue arrangements or the methodology by which transaction consideration is allocated to the various units of accounting due to the fact that for the majority of our existing multiple deliverables arrangements, we allocated transaction consideration for


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purposes of revenue recognition to each identified unit of accounting based upon its relative fair value, determined using VSOE. The new accounting standards for revenue recognition if applied to the year ended September 30, 2009 would not have had a material impact on our results of operations or financial position for that fiscal year. In addition, the adoption of the new guidance did not have a material impact on our results of operations or financial position in fiscal 2010.
Effective October 1, 2009, we adopted the new earnings per share authoritative guidance that provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities under Statement of Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS No. 128”).securities. As such, they should be included in the computation of basic earnings per share, (“EPS”)or EPS, using the two-class method. FSP EITFNo. 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, as well as interim periods within those years. Once effective, all prior-periodPrior-period EPS data presented must behave been adjusted retrospectively. Weretroactively, and this adjustment reduced basic and diluted EPS for the fiscal year ended September 30, 2009 and basic EPS for the fiscal year ended September 30, 2008 by $0.01.
Effective October 1, 2009, we adopted the fair value measurements guidance for non-financial assets and non-financial liabilities, except those that are currently evaluatingrecognized or disclosed in the effect that adopting the provisionsfinancial statements at fair value on a recurring basis (at least annually). The adoption of FSP EITFNo. 03-6-1 willthis accounting guidance did not have a material impact on our consolidated results of operations and we currently expect that the effect will not be material.or financial position.
 
In March 2008,Effective October 1, 2009, we adopted the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” an amendment of FASB Statement No. 133 (“SFAS No. 161”). SFAS No. 161 applies to all derivative instruments and nonderivative instruments that are designated and qualify as hedging instruments and related hedged items accountedrevised accounting guidance for under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”). SFAS No. 161 requires entities to provide greater transparency through additional disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial


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position, results of operations, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Although SFAS No. 161 requires us to make additional disclosures, it does not affect the underlying accounting policy or the application thereof.
In December 2007, the FASB issued Statement No. 141 (revised), “Business Combinations” (“SFAS No. 141(R)”). SFAS No. 141(R)business combinations. This guidance significantly changes the accounting for business combinations and establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree and recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase. SFAS No. 141(R) applies to us prospectively for business combinations for whichAmong the more significant changes, acquired in-process research and development will be capitalized and upon completion amortized over its useful life; acquisition costs will be expensed as incurred; restructuring costs will generally be expensed in periods after the acquisition date; contingent consideration will be recognized at fair value at the acquisition date is on or after October 1, 2009.
with subsequent changes recognized in earnings, and reductions in deferred tax valuation allowance relating to a business acquisition will be recognized in earnings. In December 2007,April 2009, the FASB issued Statement No. 160, “Noncontrolling Interestsan amendment to the revised business combination guidance regarding the accounting for assets acquired and liabilities assumed in Consolidated Financial Statements” -an amendmenta business combination that arise from contingencies. The impact of ARB No. 51 (“SFAS No. 160”). SFAS No. 160this accounting guidance on our results of operations or financial position will vary depending on each specific business combination. This guidance did not have a material impact on our results of operations or financial position in fiscal 2010.
Effective October 1, 2009, we adopted the guidance that changes the accounting and reporting for noncontrolling (minority) interests in consolidated financial statements, including the requirementsrequirement to classify noncontrolling interests as a component of consolidated shareholders’stockholders’ equity, the elimination of “minority interest” accounting in results of operations and changes in the accounting for both increases and decreases in a parent’s controlling ownership interest. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008, and earlyThe adoption is prohibited. We are currently evaluating the effect that the application of SFAS No. 160 will havethis accounting guidance had no impact on our consolidated results of operations and financial condition.
In February 2007, the FASB issued Statement No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities” including an amendment of FASB Statement No. 115 (“SFAS No. 159”), which allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities under aninstrument-by-instrument election. If the fair value option is elected for an instrument, subsequent changes in fair value for that instrument will be recognized in earnings. SFAS No. 159 also establishes additional disclosure requirements and is effective for fiscal years beginning after November 15, 2007, with early adoption permitted provided that the entity also adopts Statement No. 157, “Fair Value Measurements” (“SFAS No. 157”). We will apply SFAS No. 159 beginning in the first quarter of fiscal 2009, and we do not expect it to have a material impact on our results of operations or financial position.
In September 2006, the FASB issued SFAS No. 157 which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB issued FASB Staff PositionNo. SFAS No. 157-2, Effective Date of FASB Statement No. 157, which provides a one-year deferral of the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value on a recurring basis (at least annually). We do not expect the adoption of SFAS No. 157 for financial assets and financial liabilities to have a material impact on our results of operations or financial position. We are currently assessing the impact that SFAS No. 157 will have on our results of operations and financial position when it is applied to nonfinancial assets and nonfinancial liabilities beginning in the first quarter of fiscal 2010.
Adoption of New Accounting Standard
In June 2006, the FASB issued FIN No. 48 which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. FIN No. 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return that results in a tax benefit. Additionally, FIN No. 48 provides guidance on de-recognition, income statement classification of interest and penalties, accounting in interim periods, disclosure and transition. We adopted


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FIN No. 48 in the first quarter of fiscal 2008. The adoption of FIN No. 48 did not result in a change to retained earnings. Please see Note 9 to our consolidated financial statements.
 
ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 
Directors and Senior Management
 
We rely on the executive officers of our principal operating subsidiaries to manage our business. In addition, Amdocs Management Limited, our management subsidiary, performs certain executive coordination functions for all of our operating subsidiaries. In November 2010, Dov Baharav, who had been our President and Chief Executive Officer and a director since 2002, retired from these offices, and Eli Gelman, who was our Executive Vice President from 2002 to 2008, our Chief Operating Officer from 2006 to 2008 and a director since 2002, became our President and Chief Executive Officer. In addition, James Liang, our Senior Vice President and Chief Strategy Officer, has informed us that he will resign effective January 31, 2011.


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As of November 30, 2008,2010, our directors and senior managers were as follows:
 
     
Name
 
Age
 
Position
 
Bruce K. Anderson(2)(4)(5) 6870 Chairman of the Board, Amdocs Limited
Adrian Gardner(1)(3) 4648 Director and Chairman of the Audit Committee, Amdocs Limited
Charles E. Foster(1)(3) 7274 Director and Chairman of the Nominating and Corporate Governance Committee, Amdocs Limited
James S. Kahan(2)(3)(4) 6163 Director and Chairman of the Compensation Committee, Amdocs Limited
Zohar Zisapel(5) 5961 Director and Chairman of the Technology and Innovation Committee, Amdocs Limited
Julian A. Brodsky(3) 7577 Director, Amdocs Limited
Eli Gelman(5)50 Director, Amdocs Limited
Nehemia Lemelbaum(4)(5) 6668 Director, Amdocs Limited
John T. McLennan(1) 6365 Director, Amdocs Limited
Robert A. Minicucci(2)(4) 5658 Director, Amdocs Limited
Simon Olswang(1) 6466 Director, Amdocs Limited
Dov Baharav(4)Richard Sarnoff(1) 5851Director, Amdocs Limited
Giora Yaron(5)61Director, Amdocs Limited
Eli Gelman(4)(5)52 Director, Amdocs Limited; President and Chief Executive Officer, Amdocs Management Limited
Tamar Rapaport Dagim 3739 Senior Vice President and Chief Financial Officer, Amdocs Management Limited
James Liang 5153 Senior Vice President and Chief Strategy Officer, Amdocs Inc.Management Limited
Ayal Shiran 4345 Senior Vice President and Head of Customer Business Group, Amdocs Management Limited
Brian Shepherd43Senior Vice President and Head of Broadband Cable and Satellite Group, Diversification and Global Marketing Amdocs, Inc.
Anshoo Gaur 4042 Division President, Amdocs Development Center India Pvt. Ltd.
Thomas G. O’Brien 4749 Treasurer and Secretary, Amdocs Limited
 
 
(1)Member of the Audit Committee
 
(2)Member of the Compensation Committee
 
(3)Member of the Nominating and Corporate Governance Committee
 
(4)Member of the Executive Committee
 
(5)Member of the Technology and Innovation Committee
In November 2008, Mario Segal resigned as a director of Amdocs. Mr. Segal had been a director since December 2001 and served as Senior Vice President and Chief Operating Officer of Amdocs Management Limited from 1995 until July 2002.


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Bruce K. Anderson has been Chairman of the Board of Directors of Amdocs since September 1997. Since August 1978, Mr. Anderson has been a general partner of Welsh, Carson, Anderson & Stowe (“WCAS”), an investment firm that specializes in the acquisition of companies in the information and business services and health care industries. Until September 2003, investment partnerships affiliated with WCAS had been among our largest shareholders. Mr. Anderson served for nine years with Automated Data Processing, Inc. (“ADP”) until his resignation as Executive Vice President and a director of ADP, and President of ADP International, effective August 1978. Mr. Anderson serves on the board of Alliance Data Systems, Inc., a publicly heldpublicly-held company that provides transaction, credit and marketing services to large consumer based businesses. Mr. Anderson’s career in information technology investing and service, and his experience as a director of many public and private companies, have given him sharp business acumen, financial expertise and extensive experience providing strategic and financial advisory services to complex organizations.


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Adrian Gardner has been a director of Amdocs since April 1998 and is Chairman of the Audit Committee. Since November 2007, Mr. Gardner has been Chief Financial Officer of PA Consulting Group, a London-based business consulting firm. From April until November 2007, Mr. Gardner was a private investor. Mr. Gardner was Chief Financial Officer of ProStrakan Group plc, a pharmaceuticals company based in the United Kingdom and listed on the London Stock Exchange, from 2002 until April 2007 and a director from April 2002 until June 2007. Prior to joining ProStrakan, he was a Managing Director of Lazard LLC, based in London, where he worked with technology- and telecommunications-related companies. Prior to joining Lazard in 1989, Mr. Gardner qualified as a chartered accountant with Price Waterhouse (now PricewaterhouseCoopers). Mr. Gardner is a member of the Institute of Chartered Accountants in England & Wales. Mr. Gardner’s extensive experience as an accountant, technology investment banker and chief financial officer enables him to make valuable contributions to our strategic and financial affairs.
 
Charles E. Foster has been a director of Amdocs since December 2001 and is Chairman of the Nominating and Corporate Governance Committee. Since January 2010, Mr. Foster has served as the Chair of the Board of Trustees of CPS Energy, a municipally owned energy utility. He was Chairman of the Board of Prodigy Communications Corporation from June until November 2001. From April 1997 until June 2001, Mr. Foster served as Group President of SBC, where he was responsible, at various times, for engineering, network, centralized services, marketing and operations, information systems, procurement, treasury, international operations, wireless services, merger integration, real estate, yellow pagesYellow Pages and cable TV operations. In 2005, SBC acquired AT&T Corp. and became AT&T Inc. AT&T together with its affiliates, holds 5.1% of our outstanding ordinary shares and is our most significant customer. Mr. Foster serves as trustee of the Southwest Foundation for Bio-Medical Research, a non-profit research institute. Mr. Foster is a former member of the Texas Society of Professional Engineers and a director of Morningside Ministries Foundation, a non-profit operator of nursing homes in the San Antonio area. Mr. Foster’s decades of operations and management experience and responsibility at SBC lends him deep telecommunications industry expertise.
 
James S. Kahan has been a director of Amdocs since April 1998 and is Chairman of the Compensation Committee.Committee, and a member of the Executive and Nominating and Corporate Governance Committees. From 1983 until his June 2007 retirement, he worked at SBC, which is now AT&T, and served as a Senior Executive Vice President from 1992 until June 2007. AT&T together with its affiliates, holds 5.1% of our outstanding ordinary shares and is our most significant customer. Prior to joining AT&T, Mr. Kahan held various positions at several telecommunications companies, including Western Electric, Bell Laboratories, South Central Bell and AT&T Corp. Mr. Kahan also serves on the Board of Directors of Live Nation Entertainment, Inc., the world’s largest live music and ticketing entity. Mr. Kahan’s long service at SBC and AT&T, as well as his management and financial experience at several public and private companies, have provided him with extensive knowledge of the telecommunications industry, particularly with respect to corporate development, mergers and acquisitions and business integration.
 
Zohar Zisapel has been a director of Amdocs since July 2008 and is the Chairman of the Technology and Innovation Committee. Mr. Zisapel co-founded RAD Data Communications Ltd. and has been its chairman since 1982, a privately-held voice and data communications company and part of the RAD Group, a family of independent networking and telecommunications companies. Mr. Zisapel also serves as chairman of Ceragon Networks Ltd., RADVision Ltd. and RADCOM Ltd., each of which is a publicly-traded member of the RAD Group, as well as on the boards of directors of several privately-held companies. Mr. Zisapel previously served as head of the electronics research and development department in the Israeli Ministry of Defense from 1978 until 1982 and as chairman of the Israel Association of Electronic Industries from 1998 until 2001. Mr. Zisapel’s experience as founder, chairman and director of several public and private high technology companies, and his leadership in several government organizations, demonstrate his leadership capability and provide him with valuable insights into the voice and data communications industries.
 
Julian A. Brodsky has been a director of Amdocs since July 2003. Mr. Brodsky has served as a director and as Vice Chairman of Comcast Corporation since 1989. From 1989 to May 2004, Mr. Brodsky was Chairman of Comcast Interactive Capital, LP, a venture fund affiliated with Comcast. He is a director of RBB Fund, Inc.
Eli Gelman has been Mr. Brodsky brings to our board of directors deep and extensive knowledge of the cable industry gained through his longstanding executive leadership roles at Comcast, as well as financial expertise in capital markets, accounting and tax matters gained through his experience as Chief Financial Officer of Comcast and as a director of Amdocs since 2002. Since April 2007, Mr. Gelman has devoted his time to charitable matters focused on youth education. He served as Executive Vice President of Amdocspracticing CPA.


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Management Limited from 2002 until 2007 and as our Chief Operating Officer from October 2006 until April 2007. Prior to October 2002, he was a Senior Vice President, where he headed our U.S. sales and marketing operations and helped spearhead our entry into the customer care and billing systems market. Before that, Mr. Gelman was an account manager for our major European and North American installations, and has led several major software development projects. Mr. Gelman has more than 28 years of experience in the software industry, including more than 20 years with Amdocs. Before joining Amdocs, Mr. Gelman was involved in the development of real-time software systems for communications networks.
Nehemia Lemelbaum has been a director of Amdocs since December 2001 and was a Senior Vice President of Amdocs Management Limited from 1985 until January 2005. Since 2005, Mr. Lemelbaum has been a private investor.investor and since November 2009, he has been a director of Retalix, a publicly-held global software company. Since December 2006, Mr. Lemelbaum has also been a director and the Chief Executive Officer of EHYN, a privately-held investment company. He joined Amdocs in 1985, with initial responsibility for U.S. operations. Mr. Lemelbaum led our development of graphic products for the yellow pagesYellow Pages industry and later led our development of customer care and billing systems, as well as our penetration into that market. Prior to joining Amdocs, he served for nine years with Contahal Ltd., a leading Israeli software company, first as a senior consultant, and later as Managing Director. From 1967 to 1976, Mr. Lemelbaum was employed by the Ministry of Communications of Israel (the organization that predated Bezeq, the Israel Telecommunication Corp. Ltd.), with responsibility for computer technology in the area of business data processing. With more than two decades in our leadership ranks, including representing us with analysts and investors for five years during and after our initial public offering, Mr. Lemelbaum has extensive communication software industry experience, and deep institutional knowledge and understanding of our business and strategy.
 
John T. McLennan has been a director of Amdocs since November 1999. From May 2000 until June 2004, he served as Vice-Chair and Chief Executive Officer of Allstream (formerly AT&T Canada). Mr. McLennan founded and was the President of Jenmark Consulting Inc. from 1997 until May 2000. From 1993 to 1997, Mr. McLennan served as the President and Chief Executive Officer of Bell Canada. Prior to that, he held various positions at several telecommunications companies, including BCE Mobile Communications and Cantel Inc. Mr. McLennan is also a director of Air Canada Jazz, a publicly heldpublicly-held regional airline company, Chairman of Emera Inc., a Canadian publicly heldpublicly-held energy services company, and Chairmandirector of Nova Scotia Power Inc., a wholly-owned subsidiary of Emera Inc. From 2005 to 2008, Mr. McLennan also served as a director of Medisys Inc., a healthcare management company. We believe Mr. McLennan’s qualifications to sit on our board of directors include his years of experience in the telecommunications industry, including as chief executive officer of a leading Canadian telecommunications provider, and his experience providing strategic advice to complex organizations across a variety of industries, including as a public company director.
 
Robert A. Minicucci has been a director of Amdocs since September 1997. He has been a general partner of WCAS since 1993. From 1992 to 1993, Mr. Minicucci served as Senior Vice President and Chief Financial Officer of First Data Corporation, a provider of information processing and related services for credit card and other payment transactions. From 1991 to 1992, he served as Senior Vice President and Treasurer of the American Express Company. He served for 12 years with Lehman Brothers (and its predecessors) until his resignation as a Managing Director in 1991. Mr. Minicucci is also a director of two other publicly-held companies: Alliance Data Systems, Inc. and Retalix Ltd., a publicly held company, and several private companies. Mr. Minicucci’s career in information technology investing, including as a director of more than twenty different public and private companies, and his experience as chief financial officer to a public company and treasurer of another public company, have provided him with strong business acumen and strategic and financial expertise.
 
Simon Olswang has been a director of Amdocs since November 2004. In 2002, Mr. Olswang retired as Chairman of Olswang, a media and communications law firm in the United Kingdom that he founded in 1981. He is a member of the Advisory Board of Palamon Capital Partners LLP.LLP and of the Board of Directors of Amiad Filtration Systems Limited, an Israeli company listed on the London AIM market, which is active in the clean water industry. Mr. Olswang was a member of the Board of Directors of The British Library until March 2008 and has served as a non-executive director of a number of companies and organizations, including Aegis Group plc, The Press Association and the British Film Institute. Mr. Olswang servespreviously served as Trustee of Langdon College of Further (Special) Education in Salford, of which he is a co-founder. We believe Mr. Olswang’s qualifications to sit on our board of directors include his extensive experience providing strategic and legal advisory services to complex organizations, as well as startups, in the media and communications industry.
 
Dov BaharavRichard Sarnoff has been a director of Amdocs since March 1, 2010, and is employed by Bertelsmann AG, a diversified media and services company, where he serves as Co-Chairman of Bertelsmann, Inc. and President of Bertelsmann Digital Media Investments. Previously, Mr. Sarnoff served as Executive Vice President and Chief Financial Officer of Random House, Inc., a general trade book publisher and subsidiary of Bertelsmann AG. Since 2005, he has served on the Board of Directors of Activision Blizzard, Inc., a worldwide online and console game and entertainment software publisher. Mr. Sarnoff also served as a member of the Supervisory Board of Bertelsmann


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AG from 2002 to 2008, as a member of the Board of Directors of the Princeton Review, an educational preparation company, from 2000 to 2009 and as a member of the Board of Directors of Audible, Inc., a provider of spoken audio entertainment, information, and educational programming, from 2001 to 2008. He was also formerly Chairman of the Board of the American Association of Publishers. We believe that Mr. Sarnoff brings to our board his experience and business expertise gained while serving in executive roles and board positions for companies in the media, entertainment and digital technology industries.
Dr. Giora Yaron has been a director of Amdocs since July 2009. Dr. Yaron co-founded Itamar Medical Ltd., a publicly-traded medical technology company, and has been its co-chairman since 1997. Dr. Yaron provides consulting services to Itamar Medical and to various other technology companies. He co-founded Exanet, Inc., a privately-held company focused on building single entity scalable storage networks, and has been its chairman since 2000. In 2009, Dr. Yaron also co-founded Qwilt, Inc., a privately-held video technology company and serves as one of its directors. Since 2004, Dr. Yaron has been the chairman of Yissum Research Development Company, the technology transfer company of the Hebrew University of Jerusalem. Dr. Yaron also has served on the advisory board of Rafael Advanced Defense Systems, Ltd., a developer of high-tech defense systems, since 2008. In addition, Dr. Yaron previously co-founded and served as chairman of Qumranet Inc. from 2006 to 2008, a privately-held enterprise software company acquired by Red Hat, Mercury Interactive from 1996 to 2006, a publicly-traded IT optimization software company acquired by Hewlett-Packard, P-cube Inc., a privately-held company focused on content-based switching for smart networks acquired by Cisco, Comsys Communication and Signal Processing Ltd., a semiconductor company. We believe that Dr. Yaron’s qualifications to sit on our board of directors include his experience as an entrepreneur and the various leadership positions he has held on the boards of directors of software and technology companies.
Eli Gelman has been a director of Amdocs since 2002. On November 15, 2010, Mr. Gelman became the President and Chief Executive Officer of Amdocs Management Limited, our wholly-owned subsidiary, since July 2002.subsidiary. Since January 2010, Mr. BaharavGelman has overall coordination responsibilities forserved as a director of Retalix, a publicly-held global software company, and from January 2010 to December 2010, he also served as the operations and activitiesChairman of our operating subsidiaries. In 1991,Retalix. From April 2008 to December 2010, Mr. Baharav joined Amdocs, Inc., our principal wholly-owned U.S. subsidiary, servingGelman devoted his time to charitable matters focused on youth education. He served as itsExecutive Vice President of Amdocs Management Limited from October 2002 until April 2008 and then President in St. Louis, Missourias our Chief Operating Officer from October 2006 until 1995. From 1995 until JulyApril 2008. Prior to October 2002, Mr. Baharavhe was a Senior Vice President, where he headed our U.S. sales and marketing operations and helped spearhead our entry into the Chief Financial Officer of Amdocs Management Limited. Prior tocustomer care and billing systems market. Before that, Mr. Gelman was an account manager for our major European and North American installations, and has led several major software development projects. Before joining Amdocs, Mr. Baharav servedGelman was involved in the development of real-time software systems for communications networks. Mr. Gelman’s qualifications to serve on our board of directors include his more than two decades of service to Amdocs and its customers, including as our Chief Operating OfficerOfficer. With more than 28 years of Optrotech Ltd.,experience in the software industry, he possesses a publicly held company that develops, manufacturesvast institutional knowledge and markets electro-optical devices.strategic understanding of our organization and industry.
 
Tamar Rapaport-Dagim has been Senior Vice President and Chief Financial Officer of Amdocs Management Limited since November 2007. Ms. Rapaport-Dagim joined Amdocs in 2004 and served as Vice President of Finance from 2004 until 2007. Prior to joining Amdocs, from 2000 to 2004, Ms. Rapaport-Dagim was the Chief Financial Officer of Emblaze, a provider of multimedia solutions over wireless and IP networks.


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She has also served as controller of Teledata Networks (formerly a subsidiary of ADC Telecommunications) and has held various finance management positions in public accounting.
 
James L. Liang has been our Senior Vice President and Chief Strategy Officer since July 2008. Mr. Liang is responsible for guiding our corporate strategy, and strategic alliances, as well as for leading the company’s acquisitions and divestitures work. From January 2005 to June 2008, Mr. Liang served as Vice President of Strategy of IBM’s Global Technology Services Division, where he was responsible for charting the overall strategic direction for this division. From January 1993 to December 2004, Mr. Liang served as an investment banker at Morgan Stanley, providing capital raising and advisory services to technology industry clients.
 
Ayal Shiran has been Senior Vice President and Head of the Customer Business Group since August 2008. Mr. Shiran joined Amdocs in 2004, with initial responsibility as President of our Customer Business Unit responsible for Amdocs business with Cingular Wireless and later as Division President, responsible for Amdocs business with the AT&T group of companies, including SBC, Bellsouth and Cingular. Prior to joining Amdocs, Mr. Shiran served as Acting Vice President at TTI Team Telecom International, a telecommunications company. He


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also served in the Israel Air Force, where he was responsible for various projects concerning the development of computer systems for the F-15 jet airplane, and software development laboratories for the F-15 at Boeing.
Brian A. Shepherd has been our Senior Vice President and Head of Broadband Cable and Satellite Group, Diversification and Global Marketing since November 2010. He joined Amdocs as Business Unit President of Cable and Satellite in 2005 as part of our acquisition of DST Innovis, where he had been Senior Vice President of Customer Business Operations since 2002. From October 2006 to October 2008, he served as our Division President — North America Communications and Cable, from November 2008 to April 2010, he served as President of Amdocs Interactive, leading our digital commerce and content business, and from May 2010 to October 2010, he was Group President — Digital Services, Global Marketing, and Broadband Cable and Satellite. Prior to his experience with DST Innovis and Amdocs, Mr. Shepherd was an executive with SoDeog Technologies, a wireless software company, and as a strategy consultant with McKinsey & Company.
 
Anshoo Gaur has been our Division President for India operations since August 2007. From 2006 to 2007, Mr. Gaur was the President of IT Infrastructure Management of EDS/MphasiS, a technology services company. From 2005 to 2006, Mr. Gaur served as the Managing Director of EDS India Enterprise (“EDS”), where he was responsible for India strategy and operations. From 2003 to 2005, Mr. Gaur was the Global Transformation Director for Desktop Services of EDS.
 
Thomas G. O’Brien has been Treasurer and Secretary of Amdocs Limited since 1998 and has held other financial management positions within Amdocs since 1995. From 1993 to 1995, Mr. O’Brien was Controller of Big River Minerals Corporation, a diversified natural resources company. From 1989 to 1993, Mr. O’Brien was the Assistant Controller for Big River Minerals Corporation. From 1983 to 1989, Mr. O’Brien was with Arthur Young and Company (now Ernst & Young LLP). Mr. O’Brien is a member of the American Institute of Certified Public Accountants.
 
Compensation
 
OurDuring fiscal 2010, each of our directors who arewas not our employees, which we refer to as ouremployee, or Non-Employee Directors, receivereceived compensation for their services as directors in the form of cash and options to purchase ordinaryrestricted shares. During fiscal 2008, our compensation policy provided that eachEach Non-Employee Director receivesreceived an annual cash payment of $35,000, however, for fiscal 2009, our Board of Directors has approved a reduction in this annual cash payment to $31,500.$80,000. Each member of our Audit and Executive Committees who is a Non-Employee Director receivesand who is not the chairman of such committees received an annual cash payment of $10,000. In addition,$5,000. Each member of our Compensation, Nominating and Corporate Governance and Technology and Innovation Committees, who is a Non-Employee Director and who is not the Chairmanchairman of the Board of Directors receivessuch committees, received an annual cash payment of $75,000, the$1,000. The Chairmen of our Audit and Executive Committees each receivereceived an annual cash payment of $10,000 and the Chairmen of our Compensation, Nominating and Corporate Governance and Technology and Innovation Committees each receivereceived an annual cash payment of $5,000. Each Non-Employee Director receives $1,500 per meetingreceived an annual grant of restricted shares at a total value of $150,000. The Chairman of the Board of Directors received an additional annual amount equal to $200,000, of which $75,000 was paid in cash and $1,000 per meeting$125,000 was awarded in the form of a committee of the Board of Directors, except for Non-Employee Directors who are members of our Audit Committee or Executive Committee, who each receive $2,000 per meeting. Upon election or appointment to our Board of Directors, each Non-Employee Director also receives an initial option grant for the purchase of 12,000 ordinary shares. Thereafter, Non-Employee Directors receive an annual option grant for the purchase of 11,500 ordinaryrestricted shares. All option grantsrestricted share awards to our Non-Employee Directors vest asare immediately vested with respect to one-quarter of the shares immediately,25%, with the remainder vesting annually in three equal installments. The exercise price per share for the purpose of all options granteddetermining the value of the grants to our Non-Employee Directors iswas the NYSE closing price of our shares on the last trading day preceding the grant date. We also reimburse all of our directorsNon-Employee Directors for their reasonable travel expenses incurred in connection with attending Board or committee meetings.
 
A total of 2219 persons who served either as directors of Amdocs or members of its senior management during all or part of fiscal 20082010 received remuneration from Amdocs. The aggregate remuneration paid by us


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to such persons in fiscal 2010 was approximately $7.8 million, compared to $4.4 million in fiscal 2009 and $10.1 million in fiscal 2008, which includes amounts set aside or accrued to provide cash bonuses, pension, retirement or similar benefits, but does not include amounts expended by us for automobiles made available to such persons, expenses (including business travel, professional and business association dues) or other fringe benefits. During fiscal 2008,2010, we granted to such persons options to purchase an aggregate of 2,683,8331,750,444 ordinary shares at a weighted average price of $32.71$27.50 per share with vesting generally over three to four-year terms and expiring ten years from the date of grant, and an aggregate of 222,222196,518 restricted shares subject to three to four-year vesting. All options and restricted share awards were granted pursuant to our 1998 Stock Option and Incentive Plan, as amended. See discussion below — “Share Ownership — Employee Stock Option and Incentive Plan”.Plan.”


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Board Practices
 
OurThe size of our Board of Directors is comprised of13; 12 directors as of November 30, 2008, of whom 11 were elected to our Board of Directors at our annual meeting of shareholders on January 23, 2008. Mr. Zisapel21, 2010; one director was elected byappointed to our Board of Directors on July 23, 2008 to fill a vacancy oneffective March 1, 2010; and one director resigned from our Board of Directors.Directors effective November 18, 2010. All directors hold office until the next annual meeting of our shareholders, which generally is in January of each calendar year, or until their respective successors are duly elected and qualified or their positions are earlier vacated by resignation or otherwise.
 
Executive officers of Amdocs are elected by the Board of Directors on an annual basis and serve until the next annual meeting of the Board of Directors or until their respective successors have been duly elected and qualified or their positions are earlier vacated by resignation or otherwise. The executive officers of Amdocs Limited and each of the Amdocsits subsidiaries are elected by the Boardboard of Directorsdirectors of such subsidiarythe relevant company on an annual basis and serve until the next annual meeting of such Boardboard of Directorsdirectors or until their respective successors have been duly elected and qualified or their positions are earlier vacated by resignation or otherwise.
 
Other than the employment agreement between us and theour President and Chief Executive Officer, of Amdocs Management Limited, which provides for immediate cash severance upon termination of employment, there are currently no service contracts in effect between us and any of our directors providing for immediate cash severance upon termination of their employment. The employment agreement between us and our former President and Chief Executive Officer also provided for immediate cash severance upon termination of employment.
 
Board Committees
 
Our Board of Directors has formed five committees set forth below. Members of each committee are appointed by the Board of Directors.
 
The Audit Committee reviews, acts on and reports to the Board of Directors with respect to various auditing and accounting matters, including the selection of our independent registered public accounting firm, the scope of the annual audits, fees to be paid to, and the performance of, such public accounting firm, and assists with the Board of Directors’ oversight of our accounting practices, financial statement integrity and compliance with legal and regulatory requirements, including establishing and maintaining adequate internal control over financial reporting. The current members of our Audit Committee are Messrs. Gardner (Chair), Foster, McLennan, Olswang and Olswang,Sarnoff, all of whom are independent directors, as defined by the rules of the NYSE, and pursuant to the categorical director independence standards adopted by our Board of Directors. The Board of Directors has determined that Mr. Gardner is an “audit committee financial expert” as defined by rules promulgated by the SEC, and that each member of the Audit Committee is financially literate as required by the rules of the NYSE. The Audit Committee written charter is available on our website atwww.amdocs.com.
 
The Nominating and Corporate Governance Committee identifies individuals qualified to become members of our Board of Directors, recommends to the Board of Directors the persons to be nominated for election as directors at the annual general meeting of shareholders, develops and makes recommendations to the Board of Directors regarding our corporate governance principles and oversees the evaluations of our Board of Directors and our management. The current members of the Nominating and Corporate Governance Committee are Messrs. Foster (Chair), Brodsky, Gardner and Kahan, all of whom are independent directors, as required by the NYSE listing standards, and pursuant to the categorical director independence standards adopted by our Board of Directors. The Nominating and Corporate Governance Committee written charter is


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available on our website atwww.amdocs.com.The Nominating and Corporate Governance Committee has approved corporate governance guidelines that are also available on our website atwww.amdocs.com.
 
The Compensation Committee discharges the responsibilities of our Board of Directors relating to the compensation of the Chief Executive Officer of Amdocs Management Limited and makes recommendations to our Board of Directors with respect to the compensation of our other executive officers. The current members of our Compensation Committee are Messrs. Kahan (Chair), Anderson and Minicucci, all of whom are independent directors, as defined by the rules of the NYSE, and pursuant to the categorical director independence standards adopted by our Board of Directors. The Compensation Committee written charter is available on our website atwww.amdocs.com.
 
The Executive Committee has such responsibilities as may be delegated to it from time to time by the Board of Directors. The current members of our Executive Committee are Messrs. Anderson (Chair), Baharav,Gelman, Kahan, Lemelbaum and Minicucci.


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The Technology and Innovation Committee was established to assist the Board of Directors in reviewing our technological development, opportunities and innovation, in connection with the current and future business and markets. The current members of our Technology and Innovation Committee are Messrs. Zisapel (Chair), Anderson, Gelman, Lemelbaum and Lemelbaum.Dr. Yaron.
 
Our independent directors receive no compensation from us, except in connection with their membership on the Board of Directors and its committees as described above regarding Non-Employee Directors under “— Compensation”.Compensation.”
 
Workforce Personnel
 
The following table presents the approximate number of our workforce as of each date indicated, by function and by geographical location (in each of which we operate at multiple sites):
 
                        
 As of September 30,  As of September 
 2008 2007 2006  2010 2009 2008 
Software and Information Technology            
Software and Information Technology, Sales and Marketing            
North America  5,351   4,541   4,391   4,725   4,547   5,351 
Israel  4,314   4,588   4,686   4,306   3,616   4,314 
India  3,767   3,091   2,182   6,588   4,418   3,767 
Rest of the World  3,668   3,758   3,567   2,432   3,290   3,668 
              
  17,100   15,978   14,826   18,051   15,871   17,100 
Management and Administration  1,435   1,483   1,408   1,404   1,373   1,435 
              
Total Workforce  18,535   17,461   16,234   19,455   17,244   18,535 
              
 
As a company with global operations, we are required to comply with various labor and immigration laws throughout the world, including laws and regulations in Australia, Brazil, Canada, China, Cyprus, Europe,France, Germany, India, Israel, Japan, Mexico, South Africa, the United Kingdom and the United States. Our employees in Europe are protected, in some countries, by mandatory collective bargaining agreements. To date, compliance with such laws has not been a material burden for us. As the number of our employees increases over time in particular countries, our compliance with such regulations could become more burdensome.
 
Our principal operating subsidiaries are not party to any collective bargaining agreements. However, our Israeli subsidiaries are subject to certain labor-related statutes and to certain provisions of general extension orders issued by the Israeli Ministry of Labor and Welfare. A significant provision applicable to all employees in Israel under collective bargaining agreements and extension orders is an adjustment of wages in relation to increases in the consumer price index, or CPI. The amount and frequency of these adjustments are modified from time to time.


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SomeA small number of employees in Canada have union representation. In addition, all employees in Brazil, including members of management,local senior employees, are represented by unions. Collective bargaining between employers and unions is mandatory, negotiated annually, and covers work conditions, including cost of living increases, minimum wages that exceed government thresholds and overtime pay. In the Netherlands we have a works council which represents the employees. We work closely with the works council to ensure compliance with the local law. In France, we have employee representatives.representatives and a new works counsel with whom we work closely, as required under local laws.
 
We consider our relationship with our employees to be good and have never experienced an organized labor dispute, strike or work stoppage.
 
Share Ownership
 
Security Ownership of Directors and Senior Management and Certain Key Employees
 
As of November 24, 2008,22, 2010, the aggregate number of our ordinary shares beneficially owned by our directors and senior management was 5,893,7344,742,358 shares. As of November 24, 2008,22, 2010, none of our directors or members of senior management beneficially owned 1% or more of our outstanding ordinary shares. Shares held by AT&T are not included in shares beneficially owned by our directors and officers as of November 24, 2008. Historically, this number had included shares held by AT&T, since Mr. Kahan, who served as Senior Executive Vice President of AT&T until June 2007, serves on our Board of Directors.
 
Beneficial ownership by a person, as of a particular date, assumes the exercise of all options and warrants held by such person that are currently exercisable or are exercisable within 60 days of such date.


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Stock Option and Incentive Plan
 
Our Board of Directors has adopted, and our shareholders have approved, our 1998 Stock Option and Incentive Plan, as amended, (the “1998 Plan”),which we refer to as the 1998 Plan, pursuant to which up to 55,300,000 of our ordinary shares may be issued. The 1998 Plan expires on January 17, 2016.
 
The 1998 Plan provides for the grant of restricted shares, stock options and other stock-based awards to our directors, officers, employees and consultants. The purpose of the 1998 Plan is to enable us to attract and retain qualified personnel and to motivate such persons by providing them with an equity participation in Amdocs. As of September 30, 2008,2010, of the 55,300,000 ordinary shares available for issuance under the 1998 Plan, 19,533,11422,746,602 ordinary shares had been issued as a result of option exercises and restricted share issuances under the provisions of the 1998 Plan, and 13,563,45210,431,451 ordinary shares remained available for future grants. As of October 31, 2008,2010, there were outstanding options to purchase an aggregate of 22,073,66521,967,808 ordinary shares at exercise prices ranging from $6.40 to $78.31 per share and an aggregate of 1,064,405 restricted shares outstanding under the 1998 Plan.share.
 
The 1998 Plan is administered by a committee, which determines all the terms of the awards (subject to the above), including which employees, directors or consultants are granted awards. The Board of Directors may amend or terminate the 1998 Plan, provided that shareholder approval is required to increase the number of ordinary shares available under the 1998 Plan, to materially increase the benefits accruing to participants, to change the class of employees eligible for participation, to decrease the basis upon which the minimum exercise price of options is determined or to extend the period in which awards may be granted or to grant an option that is exercisable for more than ten years. Ordinary shares acquired upon exercise of asubject to restricted stock awardawards are subject to certain restrictions on sale, transfer or hypothecation. No awards may be granted after January 2016.
 
As a result of acquisitions, as of September 30, 2008,2010, we are obligated to issue (and have reserved for issuance) an additional 184,25576,204 ordinary shares upon exercise of options that had previously been granted under the option plans of the acquired companies and were exchanged for options to purchase our ordinary shares. These options have exercise prices ranging from $0.38 to $67.59$37.66 per share. No additional options have been or will be granted under these predecessor plans.


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ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 
Major Shareholders
 
The following table sets forth specified information with respect to the beneficial ownership of the ordinary shares as of November 24, 200822, 2010 of (i) any person known by us to be the beneficial owner of more than 5% of our ordinary shares, and (ii) all of our directors and executives officers as a group. Beneficial ownership is determined in accordance with the rules of the SEC and, unless otherwise indicated, includes voting and investment power with respect to all ordinary shares, subject to community property laws, where applicable. The number of ordinary shares used in calculating the percentage beneficial ownership included in the table below is based on 203,615,917191,772,268 ordinary shares outstanding as of November 24, 2008.22, 2010. Information concerning shareholders other than AT&T and our directors and executive officers is based on periodic public filings made by such shareholders and may not necessarily be accurate as of November 24, 2008.22, 2010. None of our major shareholders have voting rights that are different from those of any other shareholder.
 
         
  Shares
    
  Beneficially
  Percentage
 
Name
 Owned  Ownership 
 
T. Rowe Price Associates, Inc.(1)  17,360,591   8.5 
Janus Capital Management LLC(2)  16,389,277   8.0 
J &W Seligman & Co. Incorporated(3)  11,740,656   5.8 
Glenview Capital Management, LLC(4)  11,639,877   5.7 
AT&T Inc.(5)  10,364,698   5.1 
All directors and executive officers as a group (17 persons)(6)  5,893,734   2.8 
         
  Shares
  
  Beneficially
 Percentage
Name Owned Ownership
 
Thornburg Investment Management Inc.(1)  20,682,441   10.78%
Manning & Napier Advisors, Inc..(2)  12,111,330   6.32%
Ameriprise Financial, Inc.(3)  11,586,312   6.04%
All directors and executive officers as a group (19 persons)(4)  4,742,358   2.45%
 
 
(1)The address of T. Rowe Price Associates,Thornburg Investment Management Inc. (“T. Rowe Price”), or Thornburg, is 100 E. Pratt Street, Baltimore, Maryland 21202.2300 North Ridgetop Road, Santa Fe, New Mexico 87506. Based on a Schedule 13G filed by T. Rowe PriceThornburg with the SEC on February 12, 2008, asJanuary 7, 2010, Thornburg had sole voting and dispositive power over all of December 31, 2007, T. Rowe Pricethese ordinary shares.


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(2)Based on a Schedule 13G filed by Manning & Napier Advisors, Inc., or Manning & Napier, with the SEC on June 18, 2010, Manning & Napier had sole voting power over 3,629,10011,326,615 of our ordinary shares and sole dispositive power over 17,360,59112,111,300 of our ordinary shares. The address of Manning & Napier is 290 Woodcliff Drive, Fairport, NY 14450.
 
(2)(3)The address of Janus Capital Management LLC (“Janus”) is 151 Detroit Street, Denver, Colorado 80206. Based on a Schedule 13G filed by JanusAmeriprise Financial, Inc., or Ameriprise, and RiverSource Investments, LLC, or RiverSource, with the SEC on February 14, 2008, as of December 31, 2007, Janus Capital has an indirect 86.5% ownership stake in Enhanced Investment Technologies LLC (“INTECH”)10, 2010, Ameriprise and an indirect 30% ownership stake in Perkins, Wolf, McDonnell and Company, LLC (“Perkins Wolf”). Due to this ownership structure, holdings for Janus, Perkins Wolf and INTECH are aggregated. Janus, Perkins Wolf and INTECH are registered investment advisers, each furnishing investment advice to various investment companies registered under Section 8 of the Investment Company Act of 1940 and to individual and institutional clients (collectively, the “Managed Portfolios”). As a result of its role as investment adviser or sub-adviser to the Managed Portfolios, Janus may be deemed to be the beneficial owner of 16,389,277 ordinary shares held by the Managed Portfolios. However, Janus does not have the right to receive any dividends from, or the proceeds from the sale of, the securities held in the Managed Portfolios and disclaims any ownership associated with such rights.
(3)The address of J &W Seligman & Co. Incorporated (“Seligman”) is 100 Park Avenue, New York, New York 10017. Based on a Schedule 13G filed by Seligman with the SEC on January 28, 2008, as of December 31, 2007, SeligmanRiverSource had shared voting power over 11,740,656 of our ordinary shares and shared dispositive power over 11,740,65611,586,312 of our ordinary shares. William C. Morris, asAmeriprise is the ownerparent company of a majorityRiverSource. Ameriprise and RiverSource disclaim beneficial ownership of the outstanding voting securitiesthese shares. The address of Seligman, may be deemed to beneficially own the shares reported by Seligman.Ameriprise and RiverSource is 145 Ameriprise Financial Center, Minneapolis, Minnesota 55474.
 
(4)The address of Glenview Capital Management, LLC (“Glenview”) is 767 Fifth Avenue, 44th Floor, New York, New York 10153. Based on a Schedule 13G filed by Glenview with the SEC on April 18, 2008, as of April 17, 2008, Glenview had shared voting power and shared dispositive power over all of these ordinary shares. Of these ordinary shares, 386,390 were held for the account of Glenview Capital Partners, L.P., 6,377,229 were held for the account of Glenview Capital Master Fund, Ltd., 2,595,536 were held for the account of Glenview Institutional Partners, L.P., 694,616 were held for the account of GCM Little Arbor Master Fund, Ltd., 120,812 were held for the account of GCM Little Arbor Institutional Partners, L.P.,


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747,059 were held for the account of Glenview Capital Opportunity Fund, L.P., 686,270 were held for the account of Glenview Offshore Opportunity Master Fund, Ltd., 8,545 were held for the account of GCM Little Arbor Partners, L.P. and 23,420 were held for the account of GCM Opportunity Fund, L.P. Lawrence M. Robbins, as the Chief Executive Officer of Glenview, may be deemed to beneficially own the shares reported by Glenview.
(5)The address of AT&T Inc. is 175 East Houston, San Antonio, Texas 78205. Based upon information provided to us by AT&T, as of November 24, 2008, AT&T beneficially owned 10,364,698 of our ordinary shares.
(6)Includes options held by such directors and executive officers that are exercisable within 60 days after November 24, 2008.22, 2010.
 
Over the last three years, our major shareholders have included our directors and executive officers as a group, AT&T and its affiliates, and other institutional investors, including T. Rowe Price, Massachusetts Financial Services Company (“MFS”), Janus Capital Management LLC (“Janus”), J &W Seligman & Co. Incorporated (“Seligman”) and Thornburg InvestmentGlenview Capital Management, IncLLC (“Thornburg”Glenview”). AT&T’s share ownership has decreased to 5.1%below 5.0% as of November 24, 200822, 2010 from 9.1%5.2% in November 2002,2006. MFS ceased to be a major shareholder in fiscal 2008. T. Rowe Price, Janus and it has, at times during fiscal 2008, decreased to below 5.0%. MFS and ThornburgGlenview Capital Management, LLC ceased to be major shareholders in fiscal 2008. Thornburg did not file a 13G for fiscal2009. Seligman was acquired by Ameriprise in 2008.
 
As of November 24, 2008,22, 2010, our ordinary shares were held by 1,2962,189 record holders. Based on a review of the information provided to us by our transfer agent, 1,2331,057 record holders, holding approximately 86.2%99.66% of our outstanding ordinary shares held of record, were residents of the United States.
 
Related Party Transactions
 
In addition to being a major shareholder at times during fiscal 2008, AT&T, andtogether with some of its operating subsidiaries, are alsois our most significant customers of ours.customer. During fiscal 2008,2010, AT&T and those subsidiaries accounted for approximately 28%29% of our revenue. AT&T is also a beneficial owner of companies that provide certain miscellaneous support services to us in the United States.
 
ITEM 8.FINANCIAL INFORMATION
 
Financial Statements
 
See “Financial Statements” for our audited Consolidated Financial Statements and Financial Statement Schedule filed as part of this Annual Report.
 
Legal Proceedings
 
We are involved in various legal proceedings arising in the normal course of our business. Based upon the advice of counsel, we do not believe that the ultimate resolution of these matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows.
 
Dividend Policy
 
After the payment of dividends in 1998 that followed a corporate reorganization, we decided in general to retain earnings to finance the development of our business, and we have not paid any cash dividends on our ordinary shares since that time. The payment of any future dividends will be paid by us based on conditions then existing, including our earnings, financial condition and capital requirements, as well as other conditions we deem relevant. The terms of our revolving credit facility restrict, and the terms of any other debt that we may incur could effectively limit, our ability to pay dividends.


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ITEM 9.THE OFFER AND LISTING
 
Our ordinary shares have been quoted on the NYSE since June 19, 1998, under the symbol “DOX”.“DOX.” The following table sets forth the high and low reported sale prices for our ordinary shares for the periods indicated:
 
                
 High Low  High Low
Fiscal Year Ended September 30
              
2004 $30.69  $18.08 
2005 $30.96  $20.70 
2006 $41.01  $24.30  $41.01  $24.30 
2007 $40.74  $32.50  $40.74  $32.50 
2008 $38.03  $24.65  $38.03  $24.65 
2009 $27.71  $14.61 
2010 $32.44  $24.10 
Quarter
              
Fiscal 2007:
        
Fiscal 2009:
      
First Quarter $40.74  $35.22  $27.71  $15.62 
Second Quarter $39.48  $32.50  $21.66  $14.61 
Third Quarter $40.26  $34.39  $22.55  $18.15 
Fourth Quarter $40.36  $32.75  $27.40  $19.88 
Fiscal 2008:
        
Fiscal 2010:
      
First Quarter $34.72  $33.73  $29.04  $24.10 
Second Quarter $31.77  $30.69  $30.94  $27.75 
Third Quarter $31.28  $30.50  $32.44  $26.65 
Fourth Quarter $29.59  $28.72  $29.26  $25.64 
Fiscal 2009:
        
First Quarter (through November 24, 2008) $27.71  $16.19 
Fiscal 2011:
      
First Quarter (through November 30, 2010) $30.96  $25.75 
Most Recent Six Months
              
June 2008 $31.81  $31.09 
July 2008 $30.02  $29.13 
August 2008 $30.37  $29.76 
September 2008 $28.36  $27.24 
October 2008 $27.71  $19.39 
November 2008 (through November 24, 2008) $24.60  $16.19 
June 2010 $28.50  $26.65 
July 2010 $29.26  $26.15 
August 2010 $28.63  $25.64 
September 2010 $28.75  $26.30 
October 2010 $30.78  $28.57 
November 2010 $30.96  $25.75 
 
ITEM 10.ADDITIONAL INFORMATION
 
Memorandum and Articles of AssociationIncorporation
 
Amdocs Limited is registered atas a company with limited liability pursuant to the Companies Registry inlaws of the Island of Guernsey and has been assignedwith company number 19528 with itsand whose registered office situated at Suite 5, Tower Hill House, Le Bordage, St Peter Port, Guernsey, GY1 3QT. The telephone number at that location is +44-1481-728444.
 
Our Memorandum of Incorporation, or the Memorandum, provides that the objects and powers of Amdocs Limited’s purposeLimited are not restricted and our Articles of Incorporation, or the Articles, provides that our business is to engage in any lawful act or activity for which companies may be organized under the Companies (Guernsey) Law, 2008, as amended, or the Companies Law.
The Articles grant the Board of Directors all the powers necessary for managing, directing and all corporate activities permissible under Guernsey law, as set forth in detail at Clause 3(1) to (37)supervising the management of our Memorandumthe business and affairs of Association (the “MemorandumAmdocs Limited.
Article 70(1) of Association”). Article 21(2) of our Amended and Restatedthe Articles of Association (the “Articles of Association”) provides that a director may vote in respect of any contract or arrangement in which such director has an interest notwithstanding such director’s interest and an interested director will not be liable to us for any profit realized through any such contract or arrangement by reason of such director holding the office of director. Article 20 of the Articles of Association provides that the remuneration of the directors shall from time to time be determined by us by ordinary resolution of our shareholders, but that the directors are authorized to determine from time to time the remuneration for any outside or unaffiliated directors. Article 22


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office of director. Article 71(1) of the Articles provides that the directors shall be paid out of the funds of Amdocs Limited by way of fees such sums as the Board shall reasonably determine. Article 73 of the Articles provides that directors may exercise all the powers of Amdocs Limited to borrow money, and to mortgage or charge its undertaking, property and uncalled capital or any part thereof, and to issue securities whether outright or as security for any debt, liability or obligation of the companyAmdocs Limited for any third party. Such borrowing powers can only be altered through an amendment to the Articles of Association.by special resolution. Our Memorandum of Association and Articles of Association do not impose a requirement on ourthe directors to own shares of Amdocs Limited in order to serve as directors, however, ourthe Board of Directors has adopted guidelines for minimum share ownership by ourthe directors, and senior managers, who have until January 20102013 to be in compliance with the guidelines.
 
On July 1, 2008, a new companies law, the Companies (Guernsey) Law, 2008 (the “New Companies Law”), became effective in Guernsey. Under the New Companies Law, the term “Memorandum of Incorporation” is now used in place of the term “Memorandum of Association,” and the term “Articles of Incorporation” is now used in place of the term “Articles of Association.” Accordingly, we use these terms interchangeably below.
In order to comply with the provisions of the New Companies Law, our Board of Directors has approved certain amendments to our Memorandum of Incorporation and Articles of Incorporation, which will be presented to shareholders for their approval at our annual meeting of shareholders scheduled for January 2009. The proposed amendments will:
(i) amend the Memorandum of Association to state that our purpose is to engage in any and all corporate activities permissible under Guernsey law and to delete the detailed specification of permissible activities contained in the current Memorandum of Association;
(ii) eliminate certain provisions of the current Articles of Association that are set forth in substantially the same terms in the New Companies Law, including provisions dealing with transactions between a director and us and the rights of shareholders to receive certificates for their shares;
(iii) permit our Board of Directors to issue up to 700 million ordinary shares and 25 million preferred shares for a period of up to five years after the adoption of the amended Articles of Incorporation, subject to the ability of shareholders to approve extensions of such authority for further periods not exceeding five years;
(iv) conform the provisions of the Articles of Incorporation dealing with the indemnification of directors and officers to the requirements of the New Companies Law;
(v) expressly authorize us to obtain insurance to cover claims against directors and officers to the fullest extent permitted by the New Companies Law;
(vi) permit our Board of Directors to determine the compensation of all directors, whether or not employed by us; and
(vii) state that the Board of Directors will have all the powers necessary for managing and for directing and supervising the management of our business and affairs and delete the specification of powers contained in the current Articles of Association.
Our current share capital is £5,750,000 divided into£5,250,000, which is comprised of (i) 25,000,000 preferred shares with a par value of £0.01 per share and (ii) 550,000,000700,000,000 ordinary shares with a par value of £0.01 per share, consisting of 500,000,000 voting ordinary shares and 50,000,000 non-voting ordinary shares. Under the New Companies Law, and subject to shareholder approval of the amended Memorandum of Incorporation and Articles of Incorporation, our share capital will continue to include 25,000,000 preferred shares and we will be permitted to issue up to 700,000,000 ordinary shares. As of September 30, 2008, 203,915,7262010, 193,049,164 ordinary shares were outstanding (net of treasury shares) and no non-voting ordinary shares or preferred shares were outstanding. The rights, preferences and restrictions attaching to each class of the shares underwere not changed by the amendment to our currentcharter documents and are set out in the Memorandum


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of Association and Articles of Association, which would not change as a result of the amendments described above,and are as follows:
 
Preferred Shares
 
 • Issue— the preferred shares may be issued from time to time in one or more series of any number of shares up to the amount authorized.
 
 • Authorization to Issue Preferred Shares— authority is vested in the directors from time to time to authorize the issue of one or more series of preferred shares and to provide for the designations, powers, preferences and relative participating, optional or other special rights and qualifications, limitations or restrictions thereon.
 
 • Relative Rights— all shares of any one series of preferred shares must be identical with each other in all respects, except that shares of any one series issued at different times may differ as to the dates from which dividends shall be cumulative.accrue.
 
 • Liquidation— in the event of any liquidation, dissolution orwinding-up of Amdocs Limited, the holders of preferred shares are entitled to a preference with respect to payment and to receive payment (at the rate fixed in any resolution or resolutions adopted by the directors in such case) plus an amount equal to all dividends accumulated to the date of final distribution to such holders. The holders of preferred shares are entitled to no further payment other than that stated above. If upon any liquidation our assets are insufficient to pay in full the amount stated above, then such assets shall be distributed among the holders of preferred shares.shares ratably in accordance with the respective amount such holder would have received if all amounts had been paid in full.
 
 • Voting Rights— except as otherwise provided for by the directors upon the issue of any new series of preferred shares, the holders of preferred shares have no right or power to vote on any question or in any proceeding or to be represented at, or to receive notice of, any meeting of members.shareholders.
 
Ordinary Shares and Non-Voting Ordinary Shares
 
Except as otherwise provided by the Memorandum of Association and Articles, of Association, the ordinary shares and non-voting ordinary shares are identical and entitle holders thereof to the same rights and privileges.
 
 • Dividends— when and as dividends are declared on our shares, the holders of voting ordinary shares and non-voting shares are entitled to share equally, share for share, in such dividends except that if dividends are declared that are payable in voting ordinary shares or non-voting ordinary shares, dividends must be declared that are payable at the same rate in both classes of shares.
 
 • Conversion of Non-Voting Ordinary Shares into Voting Ordinary Shares— upon the transfer of non-voting ordinary shares from the original holder thereof to any third party not affiliated with such original holder,


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non-voting ordinary shares are redesignated in our books as voting ordinary shares and automatically convert into the same number of voting ordinary shares.
 • Liquidation— upon any liquidation, dissolution orwinding-up, of Amdocs Limited, ourany assets remaining after creditors and the holders of any preferred shares have been paid in full shall be distributed to the holders of voting ordinary shares and non-voting ordinary shares equally share for share.
 
 • Voting Rights— the holders of voting ordinary shares are entitled to vote on all matters to be voted on by the members,shareholders, and the holders of non-voting ordinary shares are not entitled to any voting rights.
 
 • Preferences— the voting ordinary shares and non-voting ordinary shares are subject to all the powers, rights, privileges, preferences and priorities of the preferred shares as are set out in the Articles of Association.Articles.
 
As regards both preferred shares and voting and non-voting ordinary shares, we have the power to purchase any of itsour own shares, whether or not they are redeemable and may make a payment out of capital


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for such purchase, howeverpurchase. Where our shares are repurchased by us off market, the terms of such repurchasesrepurchase must be approved in advance by a special resolution of our shareholders. If we are making a market acquisition of our own shares, the holdersacquisition must be approved by an ordinary resolution of our shareholders. In practice, we expect that we would continue to effect any future repurchases of our ordinary shares. Our subsidiaries may purchaseshares through our ordinary shares without the approval of our shareholders.subsidiaries.
 
The current Articles of Association provide that our directors, officers and other agents will be indemnified against liabilities sustained in connection with the performance of their duties as directors, officers or agents, except to the extent attributable to their own willful act or default. In accordance with the New Companies Law, the Articles will be amended, subject to shareholder approval, tonow provide that our directors, officers and other agents will be indemnified by us from and against all liabilities to Amdocs Limited or third parties (including our shareholders) sustained in connection with their performance of their duties, except to the extent prohibited by the New Companies Law. Under thatthe Companies Law, weAmdocs Limited may not indemnify a director for certain excluded liabilities, which are:
 
 • fines imposed in criminal proceedings;
 
 • regulatory fines;
 
 • expenses incurred in defending criminal proceedings resulting in a conviction;
 
 • expenses incurred in defending civil proceedings brought by the companyAmdocs Limited or an affiliated company in which judgment is rendered against the director; and
 
 • expenses incurred in unsuccessfully seeking judicial relief from claims of a breach of duty.
 
Although ourIn addition to the excluded liabilities listed above, directors may also not be exempted from, or indemnified by us for liabilities to Amdocs Limitedus or any of our subsidiaries arising out of negligence, default, breach of duty or breach of trust liabilitiesof a director in relation to third parties (including tous or any of our shareholders) arising out of negligence, default, breach of duty or breach of trust may be indemnified by us and the Newsubsidiaries. The Companies Law authorizes Guernsey companies to purchase insurance against such liabilities to companies or to third parties for the benefit of directors and we dodirectors. We currently maintain such insurance. In any event, judicialJudicial relief is available for an officer charged with a neglect of duty if the court determines that such person acted honestly and reasonably, having regard to all the circumstances of the case.
 
There are no provisions in the Memorandum or Articles that provide for a classified Boardboard of Directorsdirectors or for cumulative voting for directors.
 
If the share capital is divided into different classes of shares, Article 811 of the Articles of Association provides that all or any of the rights privileges, or conditions attached to any class or group of shares (unless otherwise provided by the terms of issue) may be changed as follows:varied with the consent in writing of the holders of three-fourths of the issued shares of that class or with the sanction of a special resolution of the holders of the shares of that class.
• by an agreement between us and any person purporting to contract on behalf of the holders of shares of the class or group affected, provided that such agreement is ratified in writing by the holders of at least two-thirds of the issued shares of the class affected; or
• with the consent in writing of the holders of three-fourths of the issued shares of that class or with the sanction of an extraordinary resolution passed by majority of three-fourths of the votes of the holders of shares of the class or group affected entitled to vote and voting in person or by attorney or proxy and passed at a separate meeting of the holders of such shares but not otherwise.
 
A special resolution must beis defined by the Companies Law as being a resolution passed by a majority of shareholders representing not less than three-quarters75% of the votes recordedtotal voting rights of the shareholders present in person or by proxy.
Rather than attend general or special meetings of our shareholders, shareholders may confer voting authority by proxy to be represented at a meeting calledsuch meetings. Generally speaking, proxies will not be counted as voting in respect of any matter as to which abstention is indicated, but abstentions will be counted as ordinary shares that are present for purposes of votingdetermining whether a quorum is present at a general or special meeting. Nominees who are members of the NYSE, and who, as brokers, hold ordinary shares in “street name” for customers have, by NYSE rules, the


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authority to vote on certain items in the matter. Asabsence of instructions from their customers, the beneficial owners of the ordinary shares. If such the conditions set out abovenominees or brokers indicate that they do not have authority to vote shares as to a particular matter, we will not count those votes in favor of such matter, however, such “broker non-votes” will be counted as ordinary shares that are as significant as the requirementspresent for purposes of Guernsey law.determining whether a quorum is present.
 
Provisions in respect of the holding of general meetings and extraordinary general meetings are set out atArticles 14, 15 and 1622-41 of the Articles of Association.Articles. The Articles of Association provide that an annual general meeting must be held once in every calendar year (provided that not more than 15 months have elapsed since the last such meeting) at such time and place as the directors appoint and, in default,appoint. The shareholders of the Company may waive the requirement to hold an annual general meeting may be convened by any two members holding at least 10% in accordance with the aggregate of our share capital.Companies Law. The directors may, whenever they deem fit, convene an extraordinary general meeting, and extraordinary generalmeeting. General meetings will also be convened on the requisition in writing of holders of at least 20% of our issued share capital carrying voting rights or, if the directors fail upon such requisition to convene such meeting within 21 days, then such meeting may be convened by such holdersany shareholders holding more than 10% in such manner as providedthe aggregate of Amdocs Limited’s share capital. Shareholders may participate in general meetings by Guernsey Law. video link, telephone conference call or other electronic or telephonic means of communication.
A minimum of 10ten days’ written notice is required in connection with an annual general


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meeting and a minimum of 14 days’ written notice is required in connection with any other meeting.for an extraordinary general meeting, although a general meeting may be called by shorter notice if all shareholders entitled to attend and vote agree. The notice shall specify the place, the day and the hour of the meeting, and in the case of any special business, the general nature of that business and details of any special resolutions, waiver resolutions or unanimous resolutions being proposed at the meeting. The notice must be sent to such personsevery shareholder and every director and may be published on a website.
At general meetings, the Chairman of the Board may choose whether a resolution put to a vote shall be decided by a show of hands or by a poll. However, a poll may be demanded by not less than five shareholders having the right to vote on the resolution or by shareholders representing not less than 10% of the total voting rights of all shareholders having the right to vote on the resolution.
A shareholder is entitled to appoint another person as are entitled by the Articleshis proxy to exercise all or any of Association to receive such notices from us provided that a meeting shall, notwithstanding that it is called by shorter notice than that specified in the Articles, be deemed to have been duly called if it is so agreed by all the members entitledhis rights to attend and to speak and vote thereat.at a meeting of Amdocs Limited.
Amdocs Limited may pass resolutions by way of written resolution.
 
There are no limitations on the rights to own securities, including the rights of non-resident or foreign shareholders to hold or exercise voting rights on the securities.
 
There are no provisions in the Memorandum of Association or Articles of Association that would have the effect of delaying, deferring or preventing a change in control of Amdocs Limited and that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or any of our subsidiaries).
 
There are no provisions in the Memorandum of Association or Articles of Association governing the ownership threshold above which our shareholder ownership must be disclosed. U.S. federal law, however, requires that all directors, executive officers and holders of 10% or more of the stock of a company that has a class of stock registered under the Securities Exchange Act of 1934, as amended (other than a foreign private issuer, such as Amdocs Limited), disclose such ownership. In addition, holders of more than 5% of a registered equity security of a company (including a foreign private issuer) must disclose such ownership.
 
Pursuant to Article 1319 of the Articles, of Association, we may from time to time, by ordinary resolution, increase our share capital by such sum, to be divided into shares of such amount, as the resolution prescribes. A restructuring of the existing share capital must be done by extraordinary resolution (which requires the same vote as a special resolution), and weThe directors may by special resolution reduce our share capital any capital redemption reserve fund or any share premium accountother capital subject to us satisfying the solvency requirements set out in accordance with Guernsey law. These provisions in relation to the alteration of our capital are in accordance with but no more onerous than the Companies Law.
 
Material Contracts
 
On November 27, 2007, we entered into a Credit Agreement among us, certain of our subsidiaries, the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent, J.P. Morgan Europe Limited, as London agent, and JPMorgan Chase Bank, N.A., Toronto branch, as Canadian agent. The agreement provides for an unsecured $500 million five-year revolving credit facility with a syndicate of banks, which is available for general corporate purposes, including acquisitions and repurchases of our ordinary shares that we may consider from time to time.


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On December 28, 2007,31, 2009, we entered into ana Further Amended and Restated Information Technology Services Agreement, which amends and restates in its entirety the Information Technology Services Agreement that we entered into effective April 17, 2007 with AT&T Services, Inc.as well as the Amended and Restated Information Technology Services Agreement that we entered into effective April 17, 2007.December 28, 2007 with AT&T Services. The agreement provides that Amdocs will provide services for application software to AT&T for fees as specified therein.
 
In the past two years, we have not entered into any other material contracts other than contracts entered into in the ordinary course of our business.
 
Taxation
 
Taxation of the Company
 
The following is a summary of certain material tax considerations relating to Amdocs and our subsidiaries. To the extent that the discussion is based on tax legislation that has not been subject to judicial or administrative interpretation, there can be no assurance that the views expressed in the discussion will be accepted by the tax authorities in question. The discussion is not intended, and should not be construed, as legal or professional tax advice and is not exhaustive of all possible tax considerations.


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General
 
Our effective tax rate was 10.7% for fiscal 2010, compared to 10.9% for fiscal 2009 and 9.3% for the year ended September 30, 2008, compared to 10.6% for fiscal 2007 and 14.8% for fiscal 2006.2008.
 
There can be no assurance that our effective tax rate will not change over time as a result of a change in corporate income tax rates or other changes in the tax laws of Guernsey, the jurisdiction in which our holding company is organized, or of the various countries in which we operate. Moreover, our effective tax rate in future years may be adversely affected in the event that a tax authority challenged the manner in which items of income and expense are allocated among us and our subsidiaries. In addition, we and certain of our subsidiaries benefit from certain special tax benefits. The loss of any such tax benefits could have an adverse effect on our effective tax rate.
 
Certain Guernsey Tax Considerations
 
In the past we qualified as an exempt company (i.e., our shareholders are not Guernsey residents and we do not carry on business in Guernsey) so we generally were not subject to taxation in Guernsey. Tax legislation enacted in Guernsey with effect from January 1, 2008 repealed the exemption and subjected us to a zero percent corporate tax rate, which we believe will not impact our effectiverate. In October 2009, Guernsey officials announced that Guernsey’s corporate income tax rate.regime was under review.
 
Certain Indian Tax Considerations
 
Through subsidiaries, we operate a development center and a business processing operations center in Pune, India, and another development center in Delhi, India. In 2008,2010, the corporation tax rate applicable in India on trading activities was 33.99%33.2%. Our subsidiaries in India operate under specific favorable tax entitlements that are based upon pre-approved information technology related services activity. As a result, our subsidiaries based in Pune are entitled to considerable corporate income tax exemptions on all income derived from such pre-approved information technology activity, provided they continue to meet the conditions required for such tax benefits. The benefits applicable for our Pune-based subsidiaries are scheduled to expire on April 1, 2010.2011. However, as of April 1, 2007, the Minimum Alternative Tax, (“MAT”)or MAT, became applicable to our Indian subsidiaries based in Pune. The MAT is levied on book profits at the rate of 11.33%18% (during the Indian fiscal year commencing on April 1, 2010) and can be carried forward for five10 years to be credited against corporate income tax. Our-Delhi based subsidiary isand a newly established unit in Pune as part of one of our subsidiaries (per their respective eligible income) are subject to a separate tax entitlement under which it is exempt from tax on its tax incentive-eligible activity for its first five years of operation and it will enjoy 50% reduction on its corporate income tax for such activity for the following five years. After 10 years of operations, such 50% reduction may be available for an additional five years, subject to further investment-related undertakings that we would be required to make. Under Indian laws, any dividend distribution by our Indian subsidiaries would be subject to a dividend distribution tax at the rate of 16.995%16.6% to be paid by such subsidiaries. Recently, the Indian government published a draft for the replacement of the country’s tax


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code. This draft, if enacted, would substantially change Indian tax laws, and might reduce or eliminate the availability of these beneficial tax rates for our Indian subsidiaries.
 
Certain Israeli Tax Considerations
 
Our Israeli subsidiary, Amdocs (Israel) Limited, operates one of our largest development center.centers. Discussed below are certain Israeli tax considerations relating to this subsidiary.
 
General Corporate Taxation in Israel.  In August 2005, the Israeli parliament enacted legislation whichthat has gradually reduced the “Companies Tax” rates of taxable income apply to Israeli companies. According to this legislation, the Companies Tax rate on taxable income in 2005 and upcoming years was and will be as follows: 34% in 2005, 31% in 2006, and 29% in 2007, 27% in 2008, 26% in 2009 and 25% for 2010 and thereafter. However, the effective tax rate payable by an Israeli company that derives income from an Approved Enterprise may be considerably less.
 
Law for the Encouragement of Capital Investments, 1959.  Certain production and development facilities of our Israeli subsidiary have been granted “Approved Enterprise” status pursuant to the Law for the Encouragement of Capital Investments, 1959, (the “Investment Law”),or the Investment Law, which provides certain tax and financial benefits to investment programs that have been granted such status.
 
In April 2005, the Israeli parliament enacted legislation that significantly revised the Investment Law. Generally,general, investment programs of our Israeli subsidiary that have already obtained instruments of approval for


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an Approved Enterprise by the Israeli Investment Center willprior to the change in legislation in 2005 continue to be subject to the old provisions as described below of the Investment Law prior to being revised.as described below. The revisions that were introduced into the Investment Law in 2005 did not affect our effective tax rate for year ended September 30, 20082010 and we do not expect them to have a significant impact on our effective tax rate in fiscal 2009.2010.
 
The provisions of the Investment Law applicable to investment programs approved prior to the effective date of the amendments to the Investment Law provide that capital investments in production facilities (or other eligible assets) may, upon application to the Israeli Investment Center, be designated as an Approved“Approved Enterprise.” Each instrument of approval for an Approved Enterprise relates to a specific investment program delineated both by the financial scope of the investment, including source of funds, and by the physical characteristics of the facility or other assets. The tax benefits available under any instrument of approval relate only to taxable profits attributable to the specific investment program and are contingent upon compliance with the conditions set out in the instrument of approval.
 
Tax Benefits.  Taxable income derived from an Approved Enterprise is subject to a reduced corporate tax rate of 25% until the earliest of:
 
 • seven consecutive years (or ten in the case of an FIC (as defined below)) commencing in the year in which the Approved Enterprise first generates taxable income,
 
 • 12 years from the year of commencement of production, or
 
 • 14 years from the year of the approval of the Approved Enterprise status.
 
Such income is eligible for further reductions in tax rates if we qualify as a Foreign Investors’ Company, (“FIC”)or FIC, depending on the percentage of the foreign ownership. Subject to certain conditions, an FIC is a company more than 25% of whose share capital (in terms of shares, rights of profits, voting and appointment of directors) and more than 25% of whose combined share and loan capital areis owned by non-Israeli residents. The tax rate is 20% if the foreign investment is 49% or more but less than 74%; 15% if the foreign investment is 74% or more but less than 90%; and 10% if the foreign investment is 90% or more. The determination of foreign ownership is made on the basis of the lowest level of foreign ownership during the tax year. A company that owns an Approved Enterprise approved after April 1, 1986, may elect to forego the entitlement to grants and apply for an alternative package of tax benefits. In addition, a company (like our Israeli subsidiary) with an enterprise outside the National Priority Regions (which is not entitled to grants) may also apply for the alternative benefits. Under the alternative benefits, undistributed income from the Approved Enterprise operations is fully tax exempt (a tax holiday) for a defined period. The tax holiday ranges between two to ten years from the first year of taxable income subject to the limitations as described above, depending principally upon the geographic location within Israel. On expiration of the tax holiday, the Approved Enterprise is eligible for a beneficial tax rate (25% or lower in the case of an FIC, as described above) for the remainder of the otherwise applicable period of benefits.


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Our primary Israeli subsidiary has elected the alternative benefits with respect to its current Approved Enterprise and its enlargements, pursuant to which the Israeli subsidiary enjoys, in relation to its Approved Enterprise operations, certain tax holidays, based on the location of activities within Israel, for a period of two or ten years (and in some cases for a period of four years) and, in the case of a two year tax holiday, reduced tax rates for an additional period of up to eight years. In case this Israeli subsidiary pays a dividend, at any time, out of income earned during the tax holiday period in respect of its Approved Enterprise, it will be subject, assuming that the current level of foreign investment in Amdocs is not reduced, to corporate tax at the otherwise applicable rate of 10% of the income from which such dividend has been paid and up to 25% if such foreign investments are reduced (as detailed above). This tax is in addition to the withholding tax on dividends as described below. Under an instrument of approval issued in December 1997 and an amendment issued in September 2006 to an instrument of approval issued in December 2000 and relating to specific investment programs of our Israeli subsidiary and to the income derived therefrom, the subsidiary is entitled to a reduced tax rate period of 13 years (instead of the eight-year period referred to above). The tax benefits, available with respect to an Approved Enterprise only to taxable income attributable to that specific enterprise, are given according to an allocation formula provided for in the Investment Law or in the instrument of


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approval, and are contingent upon the fulfillment of the conditions stipulated by the Investment Law, the regulations published thereunder and the instruments of approval for the specific investments in the Approved Enterprises. In the event our Israeli subsidiary fails to comply with these conditions, the tax and other benefits could be canceled, in whole or in part, and the subsidiary might be required to refund the amount of the canceled benefits, with the addition of CPI linkage differences and interest. We believe that the Approved Enterprise of our Israeli subsidiary substantially complies with all such conditions currently, but there can be no assurance that it will continue to do so.
During fiscal year 2010, as part of its budget approval process, the Israeli Cabinet proposed amendments to the Encouragements of Capital Investment Act. If such amendments are adopted, significant tax incentive changes in Israel would become effective in 2011. Among other things, these changes would include a prospective cancellation of all tax incentives under existing law. However, under the proposed transition rules, incentive programs commenced prior to 2011 would continue to apply until expired, unless the company elects to apply the regimes provided by the new law. Additionally, the proposed amendments include a tax incentive package that consists of flat tax rates of 5% through 15%, depending on size and location of the taxable entity, for calendar years 2011 through 2012 and 5% through 12%, depending on size and location of the taxable entity from 2013 forward. These incentives would apply to industrial companies that meet certain criteria.
 
Dividends
 
Dividends paid out of income derived by an Approved Enterprise during the benefit periods (or out of dividends received from a company whose income is derived by an Approved Enterprise) are subject to withholding tax at a reduced rate of 15% (deductible at source). In the case of companies that do not qualify as a FIC, the reduced rate of 15% is limited to dividends paid at any time up to 12 years thereafter. This withholding tax is in addition to the corporate tax that a company is subject to in the event it pays a dividend out of income earned during the tax holiday period related to its Approved Enterprise status.
 
Taxation Of Holders Of Ordinary Shares
 
Certain United States Federal Income Tax Considerations
 
The following discussion describes the material U.S. federal income tax consequences to the ownership or disposition of our ordinary shares to a U.S. holder. A U.S. holder is:
 
(i) an individual who is a citizen or resident of the United States;
 
(ii) a corporation created or organized in, or under the laws of, the United States or of any state thereof;
 
(iii) an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source; or


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(iv) a trust, if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons has the authority to control all substantial decisions of the trust.
 
This summary generally considers only U.S. holders that own ordinary shares as capital assets. This summary does not discuss the U.S. federal income tax consequences to a holder of ordinary shares that is not a U.S. holder.
 
This discussion is based on current provisions of the Internal Revenue Code of 1986, as amended, (the “Code”),or the Code, current and proposed Treasury regulations promulgated thereunder, and administrative and judicial decisions as of the date hereof, all of which are subject to change, possibly on a retroactive basis. This discussion does not address all aspects of U.S. federal income taxation that may be relevant to a holder of ordinary shares based on such holder’s particular circumstances (including potential application of the alternative minimum tax), U.S. federal income tax consequences to certain holders that are subject to special treatment (such as taxpayers who are broker-dealers, insurance companies, tax-exempt organizations, financial institutions, holders of securities held as part of a “straddle”,“straddle,” “hedge” or “conversion transaction” with other investments, or holders owning directly, indirectly or by attribution at least 10% of the ordinary shares), or any aspect of state, local ornon-U.S. tax laws. Additionally, this discussion does not consider the tax treatment of persons who hold ordinary shares through a partnership or other pass-through entity or the possible application of U.S. federal gift or estate taxes.
 
This summary is for general information only and is not binding on the Internal Revenue Service, (“IRS”).or the IRS. There can be no assurance that the IRS will not challenge one or more of the statements made herein. U.S. holders are urged to consult their own tax advisers as to the particular tax consequences to them of owning and disposing of our ordinary shares.


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Dividends.  In general, a U.S. holder receiving a distribution with respect to the ordinary shares will be required to include such distribution (including the amount of foreign taxes, if any, withheld therefrom) in gross income as a taxable dividend to the extent such distribution is paid from our current or accumulated earnings and profits as determined under U.S. federal income tax principles. Any distributions in excess of such earnings and profits will first be treated, for U.S. federal income tax purposes, as a nontaxable return of capital to the extent of the U.S. holder’s tax basis in the ordinary shares, and then, to the extent in excess of such tax basis, as gain from the sale or exchange of a capital asset. See “Disposition of Ordinary Shares” below. In general, U.S. corporate shareholders will not be entitled to any deduction for distributions received as dividends on the ordinary shares.
 
Dividend income is generally taxed as ordinary income. However, a maximum U.S. federal income tax rate of 15% will apply to “qualified dividend income” received by individuals (as well as certain trusts and estates) before January 1, 2011, provided that certain holding period requirements are met. “Qualified dividend income” includes dividends paid on shares of U.S. corporations as well as dividends paid on shares of “qualified foreign corporations”,corporations,” including shares of a foreign corporation that are readily tradable on an established securities market in the United States. Since our ordinary shares are readily tradable on the New York Stock Exchange,NYSE, we believe that dividends paid by us with respect to our ordinary shares should constitute “qualified dividend income” for U.S. federal income tax purposes, provided that the holding period requirements are satisfied and none of the other special exceptions applies.
 
The amount of foreign income taxes that may be claimed as a credit against U.S. federal income tax in any year is subject to certain complex limitations and restrictions, which must be determined on an individual basis by each U.S. holder. The limitations set out in the Code include, among others, rules that may limit foreign tax credits allowable with respect to specific classes of income to the U.S. federal income taxes otherwise payable with respect to each such class of income. Dividends paid by us generally will be foreign source “passive income” or “financial services income” for U.S. foreign tax credit purposes.
 
Disposition of Ordinary Shares.  Upon the sale, exchange or other disposition of our ordinary shares, a U.S. holder generally will recognize capital gain or loss in an amount equal to the difference between the amount realized on the disposition by such U.S. holder and its tax basis in the ordinary shares. Such capital gain or loss will be long-term capital gain or loss if the U.S. holder has held the ordinary shares for more than one year at the time of the disposition. In the case of a U.S. holder that is an individual, trust or estate, long-term capital gains realized upon a disposition of the ordinary shares during taxable years beginning before January 1, 2011 generally will be subject


61

to a maximum U.S. federal tax income rate of 15%. Gains realized by a U.S. holder on a sale, exchange or other disposition of ordinary shares generally will be treated as U.S. source income for U.S. foreign tax credit purposes.
 
Information Reporting and Backup Withholding.  Dividend payments with respect to the ordinary shares and proceeds from the sale, exchange or redemption of ordinary shares may be subject to information reporting to the IRS and possible U.S. backup withholding. Backup withholding will not apply, however, to a U.S. holder who furnishes a correct taxpayer identification number and makes any other required certification or who is otherwise exempt from backup withholding. Generally a U.S. holder will provide such certification on IRSForm W-9 (Request for Taxpayer Identification Number and Certification).
 
Amounts withheld under the backup withholding rules may be credited against a U.S. holder’s tax liability or refunded if the holder provides the required information to the IRS.
 
Passive Foreign Investment Company Considerations.  If, during any taxable year, 75% or more of our gross income consists of certain types of passive income, or the average value during a taxable year of passive assets (generally assets that generate passive income) is 50% or more of the average value of all of our assets, we will be treated as a “passive foreign investment company” under U.S. federal income tax law for such year and succeeding years. If we are treated as a passive foreign investment company, we do not intend to take steps necessary to qualify as a qualified electing fund. However, if we are treated as a passive foreign investment company, a U.S. holder may be subject to increased tax liability upon the sale of our ordinary shares or upon the receipt of certain distributions, unless such U.S. holder makes an election to mark our ordinary shares to market annually.


64

Based on an analysis of our financial position, we believe that we have not been a passive foreign investment company for U.S. federal income tax purposes for any preceding taxable year and expect that we will not become a passive foreign investment company during the current taxable year. However, because the tests for determining passive foreign investment company status are applied as of the end of each taxable year and are dependent upon a number of factors, some of which are beyond our control, including the value of our assets, based on the market price of our ordinary shares, and the amount and type of our gross income, we cannot assure youguarantee that we will not become a passive foreign investment company in the future or that the IRS will agree with our conclusion regarding our current passive foreign investment company status. We intend to use reasonable efforts to avoid becoming a passive foreign investment company.
 
Rules relating to a passive foreign investment company are very complex. U.S. holders should consult their own tax advisors regarding the U.S. federal income tax considerations discussed above and the applicability of passive foreign investment company rules to their investments in our ordinary shares.
On January 1, 2011, certain tax rates in the United States are scheduled to increase, including the rate on long term capital gains, which is scheduled to increase up to a maximum rate of 20%, and the rate on ordinary income (including income from dividends), which is scheduled to increase up to a maximum rate of 39.6%.
 
Certain Guernsey Tax Considerations
 
Under the laws of Guernsey as currently in effect, a holder of our ordinary shares who is not a resident of Guernsey and who does not carry on business in Guernsey through a permanent establishment situated there is exempt from Guernsey income tax on dividends paid with respect to the ordinary shares and is not liable for Guernsey income tax on gains realized on sale or disposition of such ordinary shares. In addition, Guernsey does not impose a withholding tax on dividends paid by us to the holders of our ordinary shares. Tax legislation was enacted in Guernsey, effective as of January 1, 2008, to tax Guernsey resident shareholders on actual or deemed distribution of certain profits of a Guernsey company. We do not believe this legislation will affect the taxation of a holder of ordinary shares who is not a resident of Guernsey and who does not carry on business in Guernsey through a permanent establishment situated there.
 
There are no capital gains, gift or inheritance taxes levied by Guernsey, and the ordinary shares generally are not subject to any transfer taxes, stamp duties or similar charges on issuance or transfer.


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Corporate Governance
We believe there are no significant ways that our corporate governance practices differ from those followed by U.S. domestic companies under the NYSE listing standards. For further information regarding our corporate governance practices, please refer to our Notice and Proxy Statement to be mailed to our shareholders along with this Annual Report, and to our website at www.amdocs.com.
Documents On Display
 
We are subject to the reporting requirements of foreign private issuers under the U.S. Securities Exchange Act of 1934. Pursuant to the Exchange Act, we file reports with the SEC, including this Annual Report onForm 20-F. We also submit reports to the SEC, includingForm 6-K Reports of Foreign Private Issuers. You may read and copy such reports at the SEC’s public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may call the SEC at1-800-SEC-0330 for further information about the Public Reference Room. Such reports are also available to the public on the SEC’s website atwww.sec.gov.Some of this information may also be found on our website atwww.amdocs.com.
 
You may request copies of our reports, at no cost, by writing to or telephoning us as follows:
 
Amdocs, Inc.
Attention: Thomas G. O’Brien
1390 Timberlake Manor Parkway
Chesterfield, Missouri 63017
Telephone: +1-314-212-8328


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ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSUREDISCLOSURES ABOUT MARKET RISK
 
Foreign Currency Risk
 
We manage our foreign subsidiaries as integral direct components of our operations. The operations of our foreign subsidiaries provide the same type of services with the same type of expenditures throughout the Amdocs group. Based on the salient economic factors indicated in SFAS No. 52, “Foreign Currency Translation,” weWe have determined that the U.S. dollar is our functional currency. We periodically assess the applicability of the U.S. dollar as our functional currency by reviewing the salient indicators.indicators as indicated in the authoritative guidance for foreign currency matters.
 
During fiscal 2008,2010, our revenue and operating expenses in the U.S. dollar or linked to the U.S. dollar were approximately 70% to 80% and 50% to 60%, respectively. As a result of long-term contracts andIf more customers seekingwill seek contracts in currencies other than the U.S. dollar, the percentage of our revenue and operating expenses in the U.S. dollar or linked to the U.S. dollar may decrease over time and our exposure to fluctuations in currency exchange rates could increase.
 
In managing our foreign exchange risk, we enter from time to time into various foreign exchange hedging contracts. We do not hedge all of our exposure in currencies other than the U.S. dollar, but rather our policy is to hedge significant net exposures in the major foreign currencies in which we operate. We use such contracts to hedge net exposure to changes in foreign currency exchange rates associated with revenue denominated in a foreign currency, primarily Canadian dollars, EurosAustralian dollars and Australian dollars,euros, and anticipated costs to be incurred in a foreign currency, primarily Israeli shekels, Indian rupees and Indian rupees.British pounds . We also use forwardsuch contracts to hedge the net impact of the variability in exchange rates on certain balance sheet items such as accounts receivable and employee related accruals denominated primarily in Israeli shekels, Canadian dollars, Israeli shekels,euros, British pounds and Australian dollars and Euros.dollars. We seek to minimize the net exposure that the anticipated cash flow from sales of our products and services, and cash flow required for our expenses and the net exposure related to our balance sheet items, denominated in a currency other than our functional currency will be affected by changes in exchange rates. Please see Note 216 to our consolidated financial statements. The following table summarizes our foreign currency forward exchange agreements and options as of September 30, 2008. A significant portion of the forward contracts and options are expected to mature during fiscal 2009 and the rest during fiscal 2010.
The table below (all dollar amounts in millions) presents the total volume or notional amounts and fair value of the totalour derivative instruments as of September 30, 2008.2010. Notional values are U.S. dollar translated and calculated based on forward rates as of September 30, 2008, U.S. dollar translated.2010 for forward contracts, and based on spot rates as of September 30, 2010 for options.
 
             
  As of September 30, 2008 
  Notional Amount
    
  Translated to
    
  U.S. Dollar(*)    
  Derivatives
    
  Maturing
    
  During Fiscal  Fair Value of
 
  2009  2010  Derivatives 
 
Revenue $116.8  $0.9  $2.8 
Costs  (354.9)  (0.8)  (11.4)
Assets  79.4   —   2.3 
Liabilities  (101.6)  —   (1.9)
             
  $(260.3) $0.1  $(8.2)
             
         
    Fair Value of
  Notional Value* Derivatives
 
Foreign exchange contracts $738.1  $4.3 
 
(*)(*) PositiveGross notional amounts do not quantify risk or represent forward contracts to sell foreign currency. Negative notional amounts represent forward contracts and options to buy foreign currency.assets or liabilities of the Company, but are used in the calculation of settlements under the contracts.


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Interest Rate Risk
 
Our interest expenses and income are sensitive to changes in interest rates, as all of our cash reserves and some of our borrowings, other than the 0.50% Notes, are subject to interest rate changes. Our short-term interest-bearing investments are invested in short termshort-term conservative debt instruments. Excess liquidity is invested in short-term high quality interest-bearing investmentsinstruments, primarily U.S. dollar-denominated. Such short-term interest-bearing investmentsdollar-denominated, and consist mainly of money market funds, U.S. government treasuries, U.S. agencies and corporate bonds.government guaranteed debt. As of September 30, 2008,2010, there were $1.5was $200.0 million of short-term outstanding short term loans and there were no outstanding borrowingsborrowing under our revolving lines of credit, or our short-term credit facilities.which we repaid in October 2010.


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ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
 
Not applicable.


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PART II
 
ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
 
Not applicable.
 
ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
 
Not applicable.
 
ITEM 15.CONTROLS AND PROCEDURES
 
Our management, with the participation of the Chief Executive Officer and Chief Financial Officer of Amdocs Management Limited, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2008.2010. The term “disclosure controls and procedures,” as defined inRules 13a-15(e) and15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding adequaterequired disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2008,2010, the Chief Executive Officer and the Chief Financial Officer of Amdocs Management Limited concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
 
No change in our internal control over financial reporting (as defined inRules 13a-15(f) and15d-15(f) under the Exchange Act) occurred during the fiscal year ended September 30, 20082010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
Management’s report on our internal control over financial reporting (as such defined inRules 13a-15(f) and15d-15(f) under the Exchange Act), and the related reportreports of our independent public accounting firm, are included in on pages F-2, F-3 and F-4 of this Annual Report onForm 20-F, and are incorporated herein by reference.
 
ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT
 
Our Board of Directors has determined that there is at least one audit committee financial expert, Adrian Gardner, serving on our Audit Committee. Our Board of Directors has determined that Mr. Gardner is an independent director.


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ITEM 16B.CODE OF ETHICS AND BUSINESS CONDUCT
 
Our Board of Directors has adopted a Code of Ethics and Business Conduct that sets forth legal and ethical standards of conduct for our directors and employees, including our principal executive officer, principal financial officer and other executive officers, our subsidiaries and other business entities controlled by us worldwide.
 
Our Code of Ethics and Business Conduct is available on our website atwww.amdocs.com, or you may request a copy of our code of ethics, at no cost, by writing to or telephoning us as follows:
 
Amdocs, Inc.
Attention: Thomas G. O’Brien
1390 Timberlake Manor Parkway
Chesterfield, Missouri 63017
Telephone: +1-314-212-8328
 
We intend to post on our website all disclosures that are required by law or NYSE rules concerning any amendments to, or waivers from, any provision of the code.


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ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
During each of the last three fiscal years, Ernst & Young LLP has acted as our independent registered public accounting firm.
 
Audit Fees
 
Ernst & Young billed us approximately $3.8$3.2 million for audit services for fiscal 2008,2010, including fees associated with the annual audit and reviews of our quarterly financial results submitted onForm 6-K, consultations on various accounting issues and performance of local statutory audits. Ernst & Young billed us approximately $3.6$3.3 million for audit services for fiscal 2007.2009.
 
Audit-Related Fees
 
Ernst & Young billed us approximately $1.0$1.7 million for audit-related services for fiscal 2008.2010. Audit-related services principally include due diligence examinations and SAS 70 report issuances.issuances and due diligence examinations. Ernst & Young billed us approximately $0.7$1.3 million for audit-related services for fiscal 2007.2009.
 
Tax Fees
 
Ernst & Young billed us approximately $1.6$1.4 million for tax advice, including fees associated with tax compliance, tax advice and tax planning services for fiscal 2008.2010. Ernst & Young billed us approximately $1.9$1.1 million for tax advice in fiscal 2007.2009.
 
All Other Fees
 
Ernst & Young did not bill us for services other than Audit Fees, Audit-Related Fees and Tax Fees described above for fiscal 20082010 or fiscal 2007.2009.
 
Pre-Approval Policies for Non-Audit Services
 
The Audit Committee has adopted policies and procedures relating to the approval of all audit and non-audit services that are to be performed by our independent registered public accounting firm. These policies generally provide that we will not engage our independent registered public accounting firm to render audit or non-audit services unless the service is specifically approved in advance by the Audit Committee or the engagement is entered into pursuant to the pre-approval procedure described below.
 
From time to time, the Audit Committee may pre-approve specified types of services that are expected to be provided to us by our independent registered public accounting firm during the next 12 months. Any such pre-approval is detailed as to the particular service or type of services to be provided and is also generally subject to a


65

maximum dollar amount. In fiscal 2008,2010, our Audit Committee approved all of the services provided by Ernst & Young.
 
ITEM 16D.EXEMPTION FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
 
Not applicable.


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ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
 
The following table provides information about purchases by us and our affiliated purchasers during the fiscal year ended September 30, 20082010 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act:
 
Ordinary Shares
 
                 
        (c)
    
        Total Number of
  (d)
 
        Shares
  Maximum Number (or
 
  (a)
     Purchased as Part
  Approximate Dollar Value)
 
  Total Number of
  (b)
  of Publicly
  of Shares that
 
  Shares
  Average Price
  Announced Plans
  May Yet Be Purchased Under
 
Period
 Purchased  Paid per Share  or Programs  the Plans or Programs(1) 
 
10/1/07 — 10/31/07  565,106  $33.77   565,106  $331,109,793 
11/1/07 — 11/30/07  997,700  $32.85   997,700  $298,333,727 
12/1/07 — 12/31/07  612,800  $33.63   612,800  $277,725,141 
1/1/08 — 1/31/08  405,448  $32.06   405,448  $264,725,486 
2/1/08 — 2/28/08  359,000  $31.27   359,000  $253,500,920 
3/1/08 — 3/31/08  886,100  $28.97   886,100  $227,826,473 
6/1/08 — 6/30/08  1,562,184  $31.92   1,562,184  $177,959,939 
7/1/08 — 7/31/08  8,600  $28.00   8,600  $177,719,165 
8/1/08 — 8/31/08  270,000  $30.02   270,000  $169,613,360 
9/1/08 — 9/30/08  2,702,979  $27.49   2,702,979  $95,307,756 
                 
Total  8,369,917  $30.45   8,369,917  $95,307,756 
                 
        (c)
    
        Total Number of
  (d)
 
        Shares
  Maximum Number (or
 
  (a)
     Purchased as Part
  Approximate Dollar Value)
 
  Total Number of
  (b)
  of Publicly
  of Shares that
 
  Shares
  Average Price
  Announced Plans
  May Yet Be Purchased Under
 
Period Purchased  Paid per Share  or Programs  the Plans or Programs(1) 
 
04/1/10-04/30/10  840,000  $31.66   840,000  $673,405,135 
05/1/10-05/31/10  3,138,236   30.42   3,138,236   577,951,922 
06/1/10-06/30/10  3,115,511   27.75   3,115,511   491,495,395 
07/1/10-07/31/10  3,189,900   27.74   3,189,900   403,007,829 
08/1/10-08/31/10  2,770,100   27.07   2,770,100   328,015,477 
09/1/10-09/30/10  641,300   26.56   641,300   310,983,520 
                 
Total  13,695,047  $28.41   13,695,047  $310,983,520 
                 
 
 
(1)In August 2007,April 2010, our Boardboard of Directorsdirectors authorized a share repurchase plan allowing the repurchase of up to $400$700 million of our outstanding ordinary shares.shares over the following 12 months. The authorization permits us to purchase our ordinary shares in open market or privately negotiated transactions at times and prices that we consider appropriate. In fiscal 2008,2010, we repurchased approximately 8.413.7 million ordinary shares at an average price of $30.45$28.41 per share (excluding broker and transaction fees) under this plan, leaving us with authority as. As of September 30, 2008,2010, we had remaining authority to repurchase up to $95.3$311.0 million of our outstanding ordinary shares under the share repurchase plan.shares. In the first quarter of 2009fiscal 2011 (through November 30, 2008)December 3, 2010), we repurchased approximately 0.52.9 million ordinary shares at an average price of $26.90$27.57 per share (excluding broker and transaction fees). Although we currently do not plan to repurchase additional ordinary shares in the immediate future, we have authority, as of November 30, 2008, to repurchase up to $82.7 million of our ordinary shares under this plan.
ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
 
Convertible NotesNot applicable.
 
ITEM 16G.CORPORATE GOVERNANCE
In November 2008,
We believe there are no significant ways that our Board of Directors authorized uscorporate governance practices differ from those followed by U.S. domestic companies under the NYSE listing standards. For further information regarding our corporate governance practices, please refer to repurchase upour Notice and Proxy Statement to $100 million aggregate principal amount ofbe mailed to our notesshareholders in such amounts,December 2010, and to our website at such prices and at such times that we deem appropriate. During the first quarter of fiscal 2009, using loan proceeds from our revolving credit facility, we purchased $100 million aggregate principal amount of our notes at an average price of 98% of the principal amount, excluding accrued interest and transaction fees. In March 2009, the remaining notes are redeemable by us, and if we do not elect to redeem the notes, then the holders of the notes may require us to repurchase the notes at a purchase price equal to 100% of the principal amount of the notes plus accrued and unpaid interest. We anticipate that a substantial portion of the outstanding notes will be put to us in March 2009 if we do not elect to redeem them. As of November 30, 2008, $350,000 aggregate principal amount of our notes was outstanding.www.amdocs.com.


7066

 
PART III
 
ITEM 17.FINANCIAL STATEMENTS
 
Not applicable.
 
ITEM 18.FINANCIAL STATEMENTS
 
Financial Statements And Schedule
 
The following Financial Statements and Financial Statement Schedule of Amdocs Limited, with respect to financial results for the fiscal years ended September 30, 2008, 20072010, 2009 and 2006,2008, are included at the end of this Annual Report:
 
Audited Financial Statements of Amdocs Limited
 
Reports of Independent Registered Public Accounting Firm
 
Consolidated Balance Sheets as of September 30, 20082010 and 20072009
 
Consolidated Statements of Income for the years ended September 30, 2008, 20072010, 2009 and 20062008
 
Consolidated Statements of Changes in Shareholders’ Equity for the years ended September 30, 2008, 20072010, 2009 and 20062008
 
Consolidated Statements of Cash Flows for the years ended September 30, 2008, 20072010, 2009 and 20062008
 
Notes to Consolidated Financial Statements
 
Financial Statement Schedules of Amdocs Limited
 
Valuation and Qualifying Accounts
 
All other schedules have been omitted since they are either not required or not applicable, or the information has otherwise been included.
 
ITEM 19.EXHIBITS
 
The exhibits listed on the Exhibit Index hereof are filed herewith in response to this Item.


7167

SIGNATURES
 
The registrant hereby certifies that it meets all of the requirements for filing onForm 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
 
Amdocs Limited
 
/s/  
Thomas G. O’Brien
Thomas G. O’Brien
Treasurer and Secretary
Authorized U.S. Representative
 
Date: December 8, 20087, 2010


7268

EXHIBIT INDEX
 
Exhibit
No.
Description
1.Memorandum and Articles of Association of Amdocs Limited (incorporated by reference to Exhibits 3.1 and 3.2 to Amdocs’ Registration Statement onForm F-1 dated June 19, 1998; RegistrationNo. 333-8826)
2.a.1Indenture dated May 30, 2001 between Amdocs and United States Trust Company of New York (incorporated by reference to Exhibit 4.1 to Amdocs’Form 6-K dated May 31, 2001)
2.a.2Registration Rights Agreement dated May 30, 2001 between Amdocs and Goldman, Sachs & Co. (incorporated by reference to Exhibit 4.2 to Amdocs’Form 6-K dated May 31, 2001)
2.a.3Indenture, dated March 5, 2004, between Amdocs Limited and The Bank of New York, as trustee, for 0.50% Convertible Senior Notes due 2024 (incorporated by reference to Exhibit 99.1 to Amdocs’Form 6-K, filed March 5, 2004)
2.a.4Registration Rights Agreement, dated March 5, 2004, among Amdocs Limited and Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co. and Merrill Lynch, Pierce Fenner & Smith Incorporated (incorporated by reference to Exhibit 99.2 to Amdocs’Form 6-K, filed March 5, 2004)
4.a.1Share Sale and Purchase Agreement, dated as of July 1, 2005, by and among DST Systems, Inc., Amdocs, Inc. and Amdocs Limited (incorporated by reference to Exhibit 99.1 to Amdocs’Form 6-K dated July 5, 2005)
4.a.2Agreement and Plan of Merger, dated as of April 17, 2006, by and among Amdocs Limited, Amdocs Thesaurus, Inc., Qpass Inc. and Ray A. Rothrock, as Shareholders’ Agent (incorporated by reference to Exhibit 99.1 to Amdocs’Form 6-K dated April 21, 2006)
4.a.3Share Sale and Purchase Agreement relating to Cramer Systems Group Limited, dated July 18, 2006, by and among Amdocs Limited, Amdocs Astrum Limited and certain shareholders of Cramer Systems Group Limited (incorporated by reference to Exhibit 99.1 to Amdocs’Form 6-K dated July 20, 2006)
4.a.4Agreement, dated August 14, 2006, amending the Share Sale and Purchase Agreement relating to Cramer Systems Group Limited dated July 18, 2006, by and among Amdocs Limited, Amdocs Astrum Limited and certain shareholders of Cramer Systems Group Limited (incorporated by reference to Exhibit 99.1 to Amdocs’Form 6-K dated August 17, 2006)
4.a.5Agreement, dated September 14, 2006, amending the Share Sale and Purchase Agreement relating to Cramer Systems Group Limited dated July 18, 2006, by and among Amdocs Limited, Amdocs Astrum Limited and certain shareholders of Cramer Systems Group Limited, as amended (incorporated by reference to Exhibit 99.1 to Amdocs’Form 6-K dated September 14, 2006)
4.b.1Further Amended and Restated Information Technology Services Agreement, dated September 1, 2007, between Amdocs, Inc. and AT&T Services, Inc. (confidential material has been redacted and complete exhibits have been separately filed with the Securities and Exchange Commission) (incorporated by reference to Exhibit 99.3 to Amdocs’ Report of Foreign Private Issuer onForm 6-K dated December 3, 2007)
4.b.2Master Agreement for Software and Services between Amdocs, Inc. and SBC Operations, Inc., effective July 7, 1998 (confidential material has been redacted and complete exhibits have been separately filed with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.13 to Amdocs’ Amendment No. 1 to Registration Statement onForm F-1, dated May 21, 1999, RegistrationNo. 333-75151)
4.b.3Software Master Agreement between Amdocs Software Systems Limited and SBC Services, Inc., effective December 10, 2003 (confidential material has been redacted and complete exhibits have been separately filed with the Securities and Exchange Commission) (incorporated by reference to Exhibit 99.2 to Amdocs’ Amendment No. 1 to Registration Statement onForm F-3, dated September 21, 2004, RegistrationNo. 333-114344)
4.b.4Agreement between Amdocs, Inc. and SBC Services, Inc. for Software and Professional Services, effective August 7, 2003 (confidential material has been redacted and complete exhibits have been separately filed with the Securities and Exchange Commission) (incorporated by reference to Exhibit 99.3 to Amdocs’ Amendment No. 1 to Registration Statement onForm F-3, dated September 21, 2004, RegistrationNo. 333-114344)
     
Exhibit
  
No. Description
 
 1.1 Amended and Restated Memorandum of Incorporation of Amdocs Limited (incorporated by reference to Exhibits 99.1 to Amdocs’Form 6-K filed January 26, 2009)
 1.2 Amended and Restated Articles of Incorporation of Amdocs Limited
 2.a.1 Indenture, dated March 5, 2004, between Amdocs Limited and The Bank of New York, as trustee, for 0.50% Convertible Senior Notes due 2024 (incorporated by reference to Exhibit 99.1 to Amdocs’Form 6-K, filed March 5, 2004)
 2.a.2 Registration Rights Agreement, dated March 5, 2004, among Amdocs Limited and Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co. and Merrill Lynch, Pierce Fenner & Smith Incorporated (incorporated by reference to Exhibit 99.2 to Amdocs’Form 6-K, filed March 5, 2004)
 4.b.1 Further Amended and Restated Information Technology Services Agreement, dated September 1, 2007, between Amdocs, Inc. and AT&T Services, Inc. (confidential material has been redacted and complete exhibits have been separately filed with the Securities and Exchange Commission) (incorporated by reference to Exhibit 99.3 to Amdocs’ Report of Foreign Private Issuer onForm 6-K dated December 3, 2007)
 4.b.2 Master Agreement for Software and Services between Amdocs, Inc. and SBC Operations, Inc., effective July 7, 1998 (confidential material has been redacted and complete exhibits have been separately filed with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.13 to Amdocs’ Amendment No. 1 to Registration Statement onForm F-1, dated May 21, 1999, RegistrationNo. 333-75151)
 4.b.3 Software Master Agreement between Amdocs Software Systems Limited and SBC Services, Inc., effective December 10, 2003 (confidential material has been redacted and complete exhibits have been separately filed with the Securities and Exchange Commission) (incorporated by reference to Exhibit 99.2 to Amdocs’ Amendment No. 1 to Registration Statement onForm F-3, dated September 21, 2004, RegistrationNo. 333-114344)
 4.b.4 Agreement between Amdocs, Inc. and SBC Services, Inc. for Software and Professional Services, effective August 7, 2003 (confidential material has been redacted and complete exhibits have been separately filed with the Securities and Exchange Commission) (incorporated by reference to Exhibit 99.3 to Amdocs’ Amendment No. 1 to Registration Statement onForm F-3, dated September 21, 2004, RegistrationNo. 333-114344)
 4.b.5 Amended and Restated Customer Care and Billing Services Agreement, dated as of July 1, 2006, between Sprint/United Management Company and Amdocs Software Systems Limited (confidential material has been redacted and complete exhibits have been separately filed with the Securities and Exchange Commission) (incorporated by reference to Exhibit 99.1 to Amdocs’Form 6-K dated December 13, 2006)
 4.b.6 Agreement Amending the Further Amended and Restated Master Outsourcing Agreement and Master License and Services Agreement, dated as of October 5, 2006, between Bell Canada and Amdocs Canadian Managed Services Inc. (confidential material has been redacted and complete exhibits have been separately filed with the Securities and Exchange Commission) (incorporated by reference to Exhibit 4.c.1 to Amdocs’ Report of Foreign Private Issuer onForm 6-K dated December 13, 2006)
 4.b.7 Further Amended and Restated Information Technology Services Agreement, dated as of December 31, 2009, by and between AT&T Services, Inc. and Amdocs Inc. (confidential material has been redacted and complete exhibits have been separately filed with the Securities and Exchange Commission) (incorporated by reference to Exhibit 99.1 to Amdocs’ Report of Foreign Private Issuer onForm 6-K dated November 1, 2010)
 4.b.8 Credit Agreement, dated as of November 27, 2007, among Amdocs Limited, certain of its subsidiaries, the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent, J.P. Morgan Europe Limited, as London agent, and JPMorgan Chase Bank, N.A., Toronto branch, as Canadian agent (incorporated by reference to Exhibit 4.B.9 to Amdocs’ Annual Report onForm 20-F filed December 3, 2007)
 4.c.1 Amdocs Limited 1998 Stock Option and Incentive Plan, as amended (incorporated by reference to Exhibit 4.c.1 to Amdocs’ Annual Report onForm 20-F filed December 13, 2006)


7369

     
Exhibit
  
No. Description
 
 8  Subsidiaries of Amdocs Limited
 12.1 Certification of Chief Executive Officer pursuant toRule 13a-14(a)/15d-14(a)
 12.2 Certification of Chief Financial Officer pursuant toRule 13a-14(a)/15d-14(a)
 13.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350
 13.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350
 14.1 Consent of Ernst & Young LLP
 100.1* The following financial information from Amdocs Limited’s Annual Report onForm 20-F for the year ended September 30, 2010, filed with the SEC on December 7, 2010, formatted in Extensible Business Reporting Language (XBRL):(i) Consolidated Balance Sheets as of September 30, 2010 and 2009, (ii) Consolidated Statements of Income for the years ended September 30, 2010, 2009 and 2008, (iii) Consolidated Statements of Changes in Shareholders’ Equity for the years ended September 30, 2010, 2009 and 2008, (iv) the Consolidated Statements of Cash Flows for the years ended September 30, 2010, 2009 and 2008, and (iv) Notes to Consolidated Financial Statements (tagged as blocks of text)
Exhibit
* 
No.
Description
4.b.5Amended and Restated Customer Care and Billing Services Agreement, dated asAs permitted by Rule 405(a)(2) of July 1, 2006, between Sprint/United Management Company and Amdocs Software Systems Limited (confidential material has been redacted and complete exhibits have been separatelyRegulation S-T, this exhibit will be filed with the Securities and Exchange Commission) (incorporated by referencean amendment to Exhibit 99.1 to Amdocs’Form 6-K dated December 13, 2006)
4.b.6Agreement Amending the Further Amended and Restated Master Outsourcing Agreement and Master License and Services Agreement, dated as of October 5, 2006, between Bell Canada and Amdocs Canadian Managed Services Inc. (confidential material has been redacted and complete exhibits have been separately filed with the Securities and Exchange Commission) (incorporated by reference to Exhibit 4.c.1 to Amdocs’ Report of Foreign Private Issuer onForm 6-K dated December 13, 2006)
4.b.7Information Technology Services Agreement, dated as of April 1, 2007, between Amdocs, Inc. and AT&T Services, Inc. (confidential material has been redacted and complete exhibits have been separately filed with the Securities and Exchange Commission) (incorporated by reference to Exhibit 99.1 to Amdocs’ Report of Foreign Private Issuer onForm 6-K dated December 3, 2007)
4.b.8Amended and Restated Information Technology Services Agreement, dated as of December 28, 2007, between Amdocs, Inc. and AT&T Services, Inc. (confidential material has been redacted and complete exhibits have been separately filed with the Securities and Exchange Commission) (incorporated by reference to Exhibit 99.1 to Amdocs’ Report of Foreign Private Issuer onForm 6-K dated December 8, 2008)
4.b.9Credit Agreement, dated as of November 27, 2007, among Amdocs Limited, certain of its subsidiaries, the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent, J.P. Morgan Europe Limited, as London agent, and JPMorgan Chase Bank, N.A., Toronto branch, as Canadian agent (incorporated by reference to Exhibit 4.B.9 to Amdocs’ Annual Report onForm 20-F filed December 3, 2007)
4.c.1Amdocs Limited 1998 Stock Option and Incentive Plan, as amended (incorporated by reference to Exhibit 4.c.1 to Amdocs’ Annual Report onthis Form 20-F filed December 13, 2006)
8Subsidiarieswithin 30 days from the date of Amdocs Limited
12.1Certification of Chief Executive Officer pursuant toRule 13a-14(a)/15d-14(a)
12.2Certification of Chief Financial Officer pursuant toRule 13a-14(a)/15d-14(a)
13.1Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350
13.2Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350
14.1Consent of Ernst & Young LLPthis filing.

7470

AMDOCS LIMITED
 
AMDOCS LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
     
  Page
 
Audited Consolidated Financial Statements
    
Management’s Report on Internal Control Over Financial Reporting
  F-2 
Reports of Independent Registered Public Accounting Firm
  F-3 
Consolidated Balance Sheets as of September 30, 20082010 and 20072009
  F-5 
Consolidated Statements of Income for the years ended September 30, 2008, 20072010, 2009 and 20062008
  F-6 
Consolidated Statements of Changes in Shareholders’ Equity for the years ended September 30, 2008, 20072010, 2009 and 20062008
  F-7 
Consolidated Statements of Cash Flows for the years ended September 30, 2008, 20072010, 2009 and 20062008
  F-8 
Notes to the Consolidated Financial Statements
  F-10F-9 
Financial Statement Schedule
    
Valuation and Qualifying Accounts
  F-40F-39 


F-1

 
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process designed 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 and includes those policies and procedures that:
 
 • Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
 
 • Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
 
 • Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2008.2010. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.
 
Based on its assessment, management concluded that, as of September 30, 2008,2010, the Company’s internal control over financial reporting is effective based on those criteria.
 
The financial statements and internal control over financial reporting have been audited by Ernst & Young LLP, an independent registered public accounting firm.


F-2

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Directors and Shareholders of
Amdocs Limited
 
We have audited the accompanying consolidated balance sheets of Amdocs Limited as of September 30, 20082010 and 2007,2009, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended September 30, 2008.2010. Our audits also included the financial statement schedule listed in the Index at Item 18 of Part III. These financial statements and the schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Amdocs Limited at September 30, 20082010 and 2007,2009, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 2008,2010, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
 
As discussed in the Notes to the consolidated financial statements, the Company adopted FASB Interpretation No. 48, Accounting For Uncertainty in Income Taxes, effective October 1, 2007 and the Company changed its method of accounting for equity-based compensation to adopt Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, effective October 1, 2005.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Amdocs Limited’s internal control over financial reporting as of September 30, 2008,2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 8, 20087, 2010 expressed an unqualified opinion thereon.
 
/s/  
ERNST & YOUNG LLP
 
New York, New York
December 8, 20087, 2010


F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Directors and Shareholders of
Amdocs Limited
 
We have audited Amdocs Limited’s internal control over financial reporting as of September 30, 2008,2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Amdocs Limited’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, Amdocs Limited maintained, in all material respects, effective internal control over financial reporting as of September 30, 2008,2010, based on the COSO criteria.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Amdocs Limited as of September 30, 20082010 and 2007,2009, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended September 30, 20082010 of Amdocs Limited and our report dated December 8, 20087, 2010 expressed an unqualified opinion thereon.
 
/s/  
ERNST & YOUNG LLP
 
New York, New York
December 8, 20087, 2010


F-4

AMDOCS LIMITED
 
CONSOLIDATED BALANCE SHEETS
(inIn thousands, except per share data)
 
                
 As of September 30,  As of September 30, 
 2008 2007  2010 2009 
ASSETS
ASSETS
ASSETS
Current assets:
                
Cash and cash equivalents $718,850  $615,501  $1,036,195  $728,762 
Short-term interest-bearing investments  525,528   563,779   397,104   444,279 
Accounts receivable, net  573,764   473,847   580,000   454,965 
Deferred income taxes and taxes receivable  84,515   117,623   126,083   117,848 
Prepaid expenses and other current assets  102,930   98,746   112,417   126,704 
          
Total current assets
  2,005,587   1,869,496   2,251,799   1,872,558 
Equipment, vehicles and leasehold improvements, net  317,081   283,839 
Equipment and leasehold improvements, net  258,273   279,659 
Deferred income taxes  187,173   192,761   132,403   137,662 
Goodwill  1,526,371   1,489,132   1,637,416   1,539,424 
Intangible assets, net  270,551   303,456   218,762   227,337 
Other noncurrent assets  272,300   206,666   321,951   271,777 
          
Total assets
 $4,579,063  $4,345,350  $4,820,604  $4,328,417 
          
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
                
Accounts payable $157,357  $192,395  $168,321  $86,189 
Accrued expenses and other current liabilities  224,699   222,616   250,455   174,341 
Accrued personnel costs  218,229   177,926   202,773   154,841 
Short-term portion of financing arrangements and capital lease obligations  1,660   2,055 
Short-term financing arrangements  200,000   — 
Deferred revenue  197,851   174,526   184,481   186,158 
Deferred income taxes and taxes payable  30,228   205,960   18,117   9,338 
          
Total current liabilities
  830,024   975,478   1,024,147   610,867 
Convertible notes  450,000   450,000 
Deferred income taxes and taxes payable  266,548   122,983   293,723   273,110 
Noncurrent liabilities and other  227,300   196,646 
Other noncurrent liabilities  273,354   231,387 
          
Total liabilities
  1,773,872   1,745,107   1,591,224   1,115,364 
          
Shareholders’ equity:
                
Preferred Shares — Authorized 25,000 shares; £0.01 par value; 0 shares issued and outstanding  —   —   —   — 
Ordinary Shares — Authorized 550,000 shares; £0.01 par value 240,836 and 238,312 issued and 203,916 and 209,762 outstanding, in 2008 and 2007, respectively  3,900   3,850 
Ordinary Shares — Authorized 700,000 shares; £0.01 par value; 244,131 and 242,466 issued and 193,049 and 205,079 outstanding, in 2010 and 2009, respectively  3,956   3,930 
Additional paid-in capital  2,264,800   2,168,234   2,402,163   2,334,090 
Treasury stock, at cost — 36,920 and 28,550 Ordinary Shares in 2008 and 2007  (907,280)  (652,229)
Accumulated other comprehensive (loss) income  (14,834)  689 
Treasury stock, at cost — 51,082 and 37,387 ordinary shares in 2010 and 2009, respectively  (1,309,161)  (919,874)
Accumulated other comprehensive income  1,952   8,343 
Retained earnings  1,458,605   1,079,699   2,130,470   1,786,564 
          
Total shareholders’ equity
  2,805,191   2,600,243   3,229,380   3,213,053 
          
Total liabilities and shareholders’ equity
 $4,579,063  $4,345,350  $4,820,604  $4,328,417 
          
 
The accompanying notes are an integral part of these consolidated financial statements.


F-5

AMDOCS LIMITED
 
CONSOLIDATED STATEMENTS OF INCOME
(inIn thousands, except per share data)
 
                        
 Year ended September 30,  Year Ended September 30, 
 2008 2007 2006  2010 2009 2008 
Revenue:
                        
License $135,487  $159,357  $116,285  $100,967  $135,146  $135,487 
Service  3,026,609   2,676,816   2,363,765   2,883,256   2,727,461   3,026,609 
              
  3,162,096   2,836,173   2,480,050   2,984,223   2,862,607   3,162,096 
              
Operating expenses:
                        
Cost of license  2,729   3,914   4,003   2,021   2,686   2,729 
Cost of service  2,023,562   1,792,468   1,579,823   1,903,645   1,831,947   2,023,562 
Research and development  225,492   230,444   186,760   207,836   210,387   225,492 
Selling, general and administrative  404,134   370,194   313,997   373,585   344,335   404,134 
Amortization of purchased intangible assets  86,687   74,959   37,610 
Restructuring charges, in-process research and development and other acquisition-related costs  13,896   6,761   25,725 
Amortization of purchased intangible assets and other  86,703   85,153   86,687 
Restructuring charges and in-process research and development  —   20,780   13,896 
              
  2,756,500   2,478,740   2,147,918   2,573,790   2,495,288   2,756,500 
              
Operating income  405,596   357,433   332,132   410,433   367,319   405,596 
Interest income and other, net  11,955   50,566   41,741 
Interest and other (expense) income, net  (25,135)  (1,165)  11,955 
              
Income before income taxes  417,551   407,999   373,873   385,298   366,154   417,551 
Income taxes  38,645   43,062   55,237   41,392   39,978   38,645 
              
Net income
 $378,906  $364,937  $318,636  $343,906  $326,176  $378,906 
              
Basic earnings per share(1)
 $1.83  $1.76  $1.57  $1.70  $1.60  $1.82 
              
Diluted earnings per share(1)
 $1.74  $1.65  $1.48  $1.69  $1.57  $1.74 
              
Basic weighted average number of shares outstanding(1)
  206,590   207,846   203,194   202,584   204,023   207,639 
              
Diluted weighted average number of shares outstanding(1)
  219,606   223,256   218,534   204,076   208,350   220,275 
              
(1)The basic and diluted weighted average number of shares outstanding for the fiscal years ended September 30, 2009 and 2008 have been retroactively adjusted to reflect the adoption of new earnings per share authoritative guidance requiring the inclusion of unvested share-based payment awards containing nonforfeitable rights to dividends or dividend equivalents in the calculation of basic weighted average number of shares outstanding. This adjustment reduced basic and diluted earnings per share for the fiscal year ended September 30, 2009 and basic earnings per share for the fiscal year ended September 30, 2008 by $0.01.
 
The accompanying notes are an integral part of these consolidated financial statements.


F-6

AMDOCS LIMITED
 
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(inIn thousands)
 
                                                            
         Accumulated
                Accumulated
     
         Other
                Other
     
     Additional
   Comprehensive
     Total
      Additional
   Comprehensive
   Total
 
 Ordinary Shares Paid-in
 Treasury
 Income
 Unearned
 Retained
 Shareholders’
  Ordinary Shares Paid-in
 Treasury
 Income
 Retained
 Shareholders’
 
 Shares Amount Capital Stock (Loss) Compensation Earnings Equity  Shares Amount Capital Stock (Loss) Earnings Equity 
Balance as of October 1, 2005
  200,182  $3,644  $1,870,922  $(602,392) $(10,886) $    (962) $396,126  $1,656,452 
Comprehensive income:                                
Net income  —   —   —   —   —   —   318,636   318,636 
Unrealized gain on foreign currency hedging contracts, net of $1,847 tax  —   —   —   —   11,938   —   —   11,938 
Unrealized gain on short-term interest-bearing investments, net of $485 tax  —   —   —   —   1,671   —   —   1,671 
   
Comprehensive income                              332,245 
Employee stock options exercised  5,869   106   106,853   —   —   —   —   106,959 
Tax benefit of stock options exercised  —   —   7,619   —   —   —   —   7,619 
Issuance of restricted stock, net of cancellations  742   13   —   —   —   —   —   13 
Issuance of restricted stock and stock options related to acquisitions, net  —   —   4,634   —   —   —   —   4,634 
Equity-based compensation expense related to employees  —   —   46,178   —   —   —   —   46,178 
Reclassification of unearned compensation to additional paid-in capital  —   —   (962)  —   —   962   —   — 
Equity-based compensation expense related to non employee stock options  —   —   65   —   —   —   —   65 
                 
Balance as of September 30, 2006
  206,793   3,763   2,035,309   (602,392)  2,723   —   714,762   2,154,165 
Comprehensive income:                                
Net income  —   —   —   —   —   —   364,937   364,937 
Unrealized loss on foreign currency hedging contracts, net of $(1,363) tax  —   —   —   —   (3,420)  —   —   (3,420)
Unrealized gain on short-term interest-bearing investments, net of $30 tax  —   —   —   —   659   —   —   659 
   
Comprehensive income                              362,176 
Adjustment to accumulated other comprehensive income upon adoption of statement 158 net of $(378) tax  —   —   —   —   727   —   —   727 
Employee stock options exercised  3,970   79   74,576   —   —   —   —   74,655 
Repurchase of shares  (1,411)  —   —   (49,837)  —   —   —   (49,837)
Tax benefit of stock options exercised  —   —   3,965   —   —   —   —   3,965 
Issuance of restricted stock, net of cancellations  410   8   —   —   —   —   —   8 
Issuance of stock options related to acquisitions, net  —   —   768   —   —   —   —   768 
Equity-based compensation expense related to employees  —   —   53,587   —   —   —   —   53,587 
Equity-based compensation expense related to non- employee stock options  —   —   29   —   —   —   —   29 
                 
Balance as of September 30, 2007
  209,762   3,850   2,168,234   (652,229)  689   —   1,079,699   2,600,243 
Balance as of October 1, 2007
  209,762  $3,850  $2,168,234  $(652,229) $689  $1,079,699  $2,600,243 
Comprehensive income:                                                            
Net income  —   —   —   —   —   —   378,906   378,906   —   —   —   —   —   378,906   378,906 
Unrealized loss on foreign currency hedging contracts, net of $3,272 tax  —   —   —   —   (4,578)  —   —   (4,578)  —   —   —   —   (4,578)  —   (4,578)
Unrealized loss on short-term interest-bearing investments, net of $(468) tax  —   —   —   —   (10,002)  —   —   (10,002)  —   —   —   —   (10,002)  —   (10,002)
Unrealized loss on defined benefit plan assets, net of $(489) tax  —   —   —   —   (943)  —   —   (943)
Unrealized loss on defined benefit plan, net of $(489) tax  —   —   —   —   (943)  —   (943)
      
Comprehensive income                              363,383                           363,383 
Employee stock options exercised  2,052   41   37,527   —   —   —   —   37,568   2,052   41   37,527   —   —   —   37,568 
Repurchase of shares  (8,370)  —   —   (255,051)  —   —   —   (255,051)  (8,370)  —   —   (255,051)  —   —   (255,051)
Tax benefit of stock options exercised  —   —   1,549   —   —   —   —   1,549 
Tax benefit of stock options exercised/cancelled  —   —   1,549   —   —   —   1,549 
Issuance of restricted stock, net of forfeitures  472   9   —   —   —   —   —   9   472   9   —   —   —   —   9 
Equity-based compensation expense related to employees  —   —   57,490   —   —   —   —   57,490   —   —   57,490   —   —   —   57,490 
                                
Balance as of September 30, 2008
  203,916  $3,900  $2,264,800  $(907,280) $(14,834) $—  $1,458,605  $2,805,191   203,916   3,900   2,264,800   (907,280)  (14,834)  1,458,605   2,805,191 
Comprehensive income:                            
Net income  —   —   —   —   —   326,176   326,176 
Unrealized gain on foreign currency hedging contracts, net of $647 tax  —   —   —   —   18,092   —   18,092 
Unrealized gain on short-term interest-bearing investments, net of $218 tax  —   —   —   —   4,828   —   4,828 
Unrealized gain on defined benefit plan, net of $1,078 tax  —   —   —   —   2,040   —   2,040 
                    
Comprehensive income                          351,136 
Cumulative effect from adoption of FSPNo. 115-2/124-2 (primarily codified inASC 320-10- Investments-Debt and Equity Securities-Overall) at April 1, 2009
  —   —   —   —   (1,783)  1,783   — 
Employee stock options exercised  1,289   23   27,863   —   —   —   27,886 
Repurchase of shares  (468)  —   —   (12,594)  —   —   (12,594)
Tax benefit of stock options exercised/cancelled  —   —   (1,484)  —   —   —   (1,484)
Issuance of restricted stock, net of forfeitures  342   7   —   —   —   —   7 
Equity-based compensation expense related to employees  —   —   42,911   —   —   —   42,911 
               
Balance as of September 30, 2009
  205,079   3,930   2,334,090   (919,874)  8,343   1,786,564   3,213,053 
Comprehensive income:                            
Net income  —   —   —   —   —   343,906   343,906 
Unrealized loss on foreign currency hedging contracts, net of $(1,537) tax  —   —   —   —   (6,934)  —   (6,934)
Unrealized gain on short-term interest-bearing investments, net of $129 tax  —   —   —   —   5,150   —   5,150 
Unrealized loss on defined benefit plan, net of $(2,011) tax  —   —   —   —   (4,607)  —   (4,607)
   
Comprehensive income                          337,515 
Employee stock options exercised  1,097   17   23,618   —   —   —   23,635 
Repurchase of shares  (13,695)  —   —   (389,287)  —   —   (389,287)
Issuance of restricted stock, net of forfeitures  568   9   —   —   —   —   9 
Equity-based compensation expense related to employees  —   —   44,455   —   —   —   44,455 
               
Balance as of September 30, 2010
  193,049  $3,956  $2,402,163  $(1,309,161) $1,952  $2,130,470  $3,229,380 
               
 
As of September 30, 2008, 20072010, 2009 and 2006,2008, accumulated other comprehensive income (loss) is comprised of unrealized gain (loss) gain on derivatives, net of tax, of $6,002, $12,936 and $(5,157), $(579) and $2,841, unrealized (loss) incomeloss on cash equivalents and short-term interest-bearing investments, net of tax, of $(9,461)$(1,267), $541$(6,417) and $(118)$(9,461) and unrealized (loss) gain on defined benefit plan, assets, net of tax of $(216)$(2,783), $727$1,824 and $0.$(216).
 
The accompanying notes are an integral part of these consolidated financial statements.


F-7

AMDOCS LIMITED
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(inIn thousands)
 
                        
 Year ended September 30,  Year Ended September 30, 
 2008 2007 2006  2010 2009 2008 
Cash Flow from Operating Activities:
                        
Net income $378,906  $364,937  $318,636  $343,906  $326,176  $378,906 
Reconciliation of net income to net cash provided by operating activities:                        
Depreciation and amortization  192,937   164,994   117,900   195,940   198,119   192,937 
Loss from divestiture of a subsidiary  23,399   —   — 
In-process research and development expenses  1,780   750   25,725   —   5,640   1,780 
Equity-based compensation expense  57,490   53,587   46,178   44,455   42,911   57,490 
(Gain) loss on sale of equipment  (970)  (8)  789 
Loss (gain) on sale of equipment  400   197   (970)
Deferred income taxes  1,111   (21,095)  22,811   (19,137)  16,249   1,111 
Gain on repurchase of convertible notes  —   (2,185)  — 
Excess tax benefit from equity-based compensation  (211)  (795)  (722)  (126)  (18)  (211)
Loss (gain) from short-term interest-bearing investments  5,553   (2,936)  (4,030)
(Gain) loss from short-term interest-bearing investments  (1,284)  4,449   4,945 
Net changes in operating assets and liabilities, net of amounts acquired:                        
Accounts receivable, net  (118,291)  (67,333)  (79,363)  (131,387)  131,527   (118,291)
Prepaid expenses and other current assets  4,173   (62)  (10,536)  9,009   (13,614)  4,173 
Other noncurrent assets  (31,739)  (26,264)  (18,313)  (35,948)  (2,690)  (31,739)
Accounts payable, accrued expenses and other current liabilities  (27,501)  29,642   54,569 
Accounts payable, accrued expenses and accrued personnel  187,652   (160,321)  (27,501)
Deferred revenue  28,408   (96,674)  (52,050)  33,927   20,956   28,408 
Income taxes payable, net  (26,824)  12,243   (10,796)  20,272   (19,980)  (26,824)
Noncurrent liabilities and other  18,799   12,984   18,422 
Other noncurrent liabilities  14,120   (28,260)  18,799 
              
Net cash provided by operating activities  483,621   423,970   429,220   685,198   519,156   483,013 
              
Cash Flow from Investing Activities:
                        
Proceeds from sale of equipment, vehicles and leasehold improvements  2,655   3,832   4,274 
Payments for purchase of equipment, vehicles and leasehold improvements  (135,823)  (166,426)  (80,717)
Payments for purchase of equipment and leasehold improvements, net  (86,945)  (82,331)  (133,168)
Proceeds from sale of short-term interest-bearing investments  1,503,231   1,045,278   708,708 
Purchase of short-term interest-bearing investments  (685,873)  (969,198)  (1,216,259)  (1,449,494)  (963,433)  (685,873)
Proceeds from sale of short-term interest-bearing investments  708,100   781,239   1,288,261 
Net cash paid for acquisitions  (58,772)  (90,724)  (624,801)  (200,307)  (65,890)  (58,772)
Net cash received from divestiture of a subsidiary and other  22,009   —   — 
              
Net cash used in investing activities  (169,713)  (441,277)  (629,242)  (211,506)  (66,376)  (169,105)
              
Cash Flow from Financing Activities:
                        
Borrowings under financing arrangements  200,000   450,000   — 
Payments under financing arrangements  —   (450,000)  — 
Redemption of convertible notes  —   (330,780)  (175)
Repurchase of convertible notes  —   (116,015)  — 
Repurchase of shares  (389,287)  (20,014)  (247,630)
Proceeds from employee stock options exercised  37,577   74,663   106,853   23,644   27,893   37,577 
Excess tax benefit from equity-based compensation  211   795   722 
Repurchase of shares  (247,630)  (49,837)  — 
Repurchase of 2% convertible notes  (175)  —   (97)
Principal payments under financing arrangements  (542)  —   (4,677)
Principal payments on capital lease obligations  —   —   (3,144)
Payments under capital lease, short-term financing arrangements and other  (616)  (3,952)  (331)
              
Net cash (used in) provided by financing activities  (210,559)  25,621   99,657 
Net cash used in financing activities  (166,259)  (442,868)  (210,559)
              
Net increase (decrease) in cash and cash equivalents  103,349   8,314   (100,365)
Net increase in cash and cash equivalents  307,433   9,912   103,349 
Cash and cash equivalents at beginning of year  615,501   607,187   707,552   728,762   718,850   615,501 
              
Cash and cash equivalents at end of year $718,850  $615,501  $607,187  $1,036,195  $728,762  $718,850 
              
Supplementary Cash Flow Information
            
Interest and Income Taxes Paid            
Cash paid for:            
Income taxes, net of refunds $46,448  $39,793  $51,273 
Interest  2,846   3,321   4,863 
 
The accompanying notes are an integral part of these consolidated financial statements.


F-8

AMDOCS LIMITED
 
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
(in thousands)
             
  Year ended September 30, 
  2008  2007  2006 
 
Supplementary Cash Flow Information
            
Interest and Income Taxes Paid            
Cash paid for:            
Income taxes, net of refunds $51,273  $44,642  $40,861 
Interest  4,863   4,167   2,630 
The accompanying notes are an integral part of these consolidated financial statements.


F-9

AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollar and share amounts in thousands, except per share data)
 
Note 1 —Nature of Entity
 
Amdocs Limited (the “Company”) is a leading provider of software products and services to thefor communications, media and entertainment industry.industry service providers. The Company and its subsidiaries operate in one segment, providing integrated products and services. The Company designs, develops, markets, supports, implements and operates customer experience systems, including revenue management, customer and information management, digital commerce and service delivery, service and resource management (OSS), service delivery, portfolio enablers, and consulting, andsystem integration, managed services and product support, primarily to leading wireless, wireline, broadband cable and satellite service providers throughout the world. Amdocs also offers a full range of directory sales and publishing systems.
 
The Company is a Guernsey corporation, which directly or indirectly holds severalnumerous wholly-owned subsidiaries around the world. The majority of the Company’s customers are in North America, Europe, Latin America and the Asia-Pacific region. The Company’s main production and operating facilities are located in Brazil, Canada, Cyprus, India, Ireland, Israel and the United States, and China.States.
 
Note 2 —Summary of Significant Accounting Policies
 
Basis of Presentation
 
The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles.principles, or U.S. GAAP.
 
Consolidation
 
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
 
Use of Estimates
The preparation of financial statements in conformity with 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 dates of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
 
Certain immaterial amounts in prior years’ financial statements have been reclassified to conform to the current year’s presentation.
 
Functional Currency
 
The Company manages its foreign subsidiaries as integral direct components of its operations. The operations of the Company’s foreign subsidiaries provide the same type of services with the same type of expenditures throughout the Amdocs group. Based on the salient economic factors indicated in Statement of Financial Accounting Standards (“SFAS”) No. 52, “Foreign Currency Translation,” theThe Company has determined that its functional currency is the U.S. dollar. The Company periodically assesses the applicability of the U.S. dollar as the Company’s functional currency by reviewing the salient indicators.indicators as indicated in the authoritative guidance for foreign currency matters.
 
Cash and Cash Equivalents
 
Cash and cash equivalents consist of cash and interest-bearing investments with insignificant interest rate risk and original maturities from acquisition date of 90 days or less.


F-9

AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
Investments
 
The Company classifies all of its short-term interest-bearing investments asavailable-for-sale securities. Such short-term interest-bearing investments consist primarily of money market funds, U.S. government treasuries, U.S. agencies and corporate bonds,government guaranteed debts, which are stated at market value. Unrealized gains and losses are comprised of the difference between market value and amortized costs of such securities and are reflected, net of tax, as “accumulated other comprehensive income” in shareholders’ equity. Realized gains and losses on short-term interest-bearing investments are


F-10

AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
included in earnings and are derived using the specific identificationfirst in first out (FIFO) method for determining the cost of securities. TheEffective at the beginning of the third quarter of fiscal 2009, the Company was required to evaluate itsavailable-for-sale securities forother-than-temporary impairments subject to new accounting guidance. Under this guidance, the Company recognizes an impairment charge when a decline in the fair value of its investments below the cost basis is judged to beother-than-temporary. For securities with an unrealized loss that the Company intends to sell, or it is more likely than not that the Company will be required to sell before recovery of their amortized cost basis, the entire difference between amortized cost and fair value is recognized in earnings. For securities that do not meet these criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income. The Company considers various factors in determining whetheruses a discounted cash flow analysis to recognize andetermine the portion of the impairment charge, includingthat relates to the Company’s intent and ability to holdcredit loss. To the investment for a periodextent that the net present value of time sufficient to allow for any anticipated recovery in market value, the length of time and extent to which the fair value has beenprojected cash flows is less than the amortized cost basis, the credit ratings of the securitiessecurity, the difference is considered credit loss and is recorded through earnings. Upon the financial conditionadoption of this new accounting guidance, a non-credit related amount of $1,783 forother-than-temporary impairment losses recognized in earnings prior to April 1, 2009 was reclassified as a cumulative effect adjustment that increased retained earnings and near-term prospects of the issuers.decreased accumulated other comprehensive income at April 1, 2009.
 
Equipment Vehicles and Leasehold Improvements
 
Equipment vehicles and leasehold improvements are stated at cost. Assets under capital leases are recorded at the present value of the future minimum lease payments at the date of acquisition. Depreciation is computed using the straight-line method over the estimated useful life of the asset, which primarily ranges from 3three to 10ten years and includes the amortization of assets under capitalized leases. Leasehold improvements are amortized over the shorter of the estimated useful lives or the term of the related lease. Management reviews property and equipment and other long-lived assets on a periodic basis to determine whether events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.
 
Goodwill, Intangible Assets and Other IntangibleLong-Lived Assets
 
SFAS No. 141, “Business Combinations” (“SFAS No. 141”) requires that the purchase method of accounting be used for all business combinations. Under SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwillGoodwill and intangible assets deemed to have indefinite lives are subject to an annual impairment test in accordance with the Statement.or more frequently if impairment indicators are present. Goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. Other definite-life intangible assets are amortized over their useful lives.
 
The total purchase price of business acquisitions accounted for using the purchase method is allocated first to identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the fair value of net assets of purchased businesses is recorded as goodwill.
 
Other definite-life intangible assets consist primarily of purchased computer software, intellectual property rights, core technology, customer arrangements and trademarks. Intellectual property rights, purchased computer software, coreCore technology and trademarks acquired by the Company are amortized over their estimated useful lives on a straight-line basis.
 
Some of the acquired customer arrangements are amortized over their estimated useful lives in proportion to the economic benefits realized. This accounting policy results in accelerated amortization of such customer arrangements as compared to the straight-line method. All other acquired customer arrangements are amortized over their estimated useful lives on a straight-line basis.
Long-Lived Assets
The Company considers whether there are indicators of impairment that would require the comparison of the estimated net realizable value of intangible assets with finite lives, equipment, leasehold improvements and vehicles and other long-lived assets, using an undiscounted cash flow analysis, to their carrying value under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Any impairment would be recognized when the fair market value of such long-lived assets is less than their carrying value.
Comprehensive Income (Loss)
The Company accounts for comprehensive income (loss) under the provisions of SFAS No. 130, “Reporting Comprehensive Income,” which established standards for the reporting and display of


F-11F-10

AMDOCS LIMITED
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
comprehensive income (loss)arrangements as compared to the straight-line method. All other acquired customer arrangements are amortized over their estimated useful lives on a straight-line basis.
The Company tests long-lived assets, including definite life intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability of long-lived assets is based on an estimate of the undiscounted future cash flows resulting from the use of the asset and its components. Comprehensive income (loss) representseventual disposition. Measurement of an impairment loss for long-lived assets, including definite life intangible assets that management expects to hold and use is based on the change in shareholders’ equity during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity except those resulting from investments by owners and distributionsfair value of the asset. Long-lived assets, including definite life intangible assets, to owners.be disposed of are reported at the lower of carrying amount or fair value less costs to sell.
 
Convertible NotesComprehensive Income
 
Accrued interestComprehensive income, net of related taxes where applicable, includes, in addition to net income:
(i) unrealized gains and losses on the Company’s convertible notes is includedavailable-for-sale securities;
(ii) unrealized gains and losses in “accrued expensesrespect of derivative instruments designated as a cash flow hedge; and other current liabilities.” The Company amortizes the issuance costs related to the convertible notes
(iii) unrealized gains and losses on a straight-line basis over the term of the convertible notes.defined benefit plans.
 
Treasury Stock
 
The Company repurchases its ordinary shares from time to time on the open market or in other transactions and holds such shares as treasury stock. The Company presents the cost to repurchase treasury stock as a reduction of shareholders’ equity.
 
Income Taxes
 
The Company records deferred income taxes to reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and tax purposes. Deferred taxes are computed based on tax rates anticipated to be in effect when the deferred taxes are expected to be paid or realized. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefit, or where future deductibility is uncertain. In the event that a valuation allowance relating to a business acquisition is subsequently reduced, the adjustment will reduce the original amount allocated to goodwill.
 
Deferred tax liabilities and assets are classified as current or noncurrent based on the classification of the related asset or liability for financial reporting, or according to the expected reversal dates of the specific temporary differences if not related to an asset or liability for financial reporting, and also include anticipated withholding taxes due on subsidiaries’ earnings when paid as dividends to the Company.
 
Effective October 1, 2007,The Company recognizes the Company adopted Interpretation No. 48, “Accounting for Uncertainty in Income Taxes -tax benefit from an Interpretation of SFAS No. 109” (“FIN No. 48”). FIN No. 48, is a change in accounting for income taxes. FIN No. 48 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS No. 109”). The first step is to evaluate the tax position for recognition by determiningonly if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second steptax benefits recognized in the financial statements from such a position is to measure the tax benefit asmeasured based on the largest amountbenefit that is morehas a greater than 50% likelylikelihood of being realized upon ultimate settlement. The Company will classify the liability for unrecognized tax benefits as current to the extent that the Company anticipates payment of cash within one year. Interest and penalties related to uncertain tax positions are recognized in the provision for income taxes. Please see Note 911 to the consolidated financial statements.
 
Revenue Recognition
 
Revenue is recognized only when all of the following conditions have been met: (i) there is persuasive evidence of an arrangement; (ii) delivery has occurred; (iii) the fee is fixed or determinable; and (iv) collectibility of the fee is reasonably assured. The Company usually sells its software licenses as part of an overall solution offered to a customer that combines the sale of software licenses with a broad range of services, which normally include significant customization, modification, implementation and integration. As a


F-12F-11

AMDOCS LIMITED
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
to a customer that combines the sale of software licenses with a broad range of services, which normally include significant customization, modification, implementation and integration. As a result, combined license and service revenue generally is recognized over the course of these long-term projects, using the percentage of completion method of accounting in conformityaccordance with Accounting Research Bulletin (“ARB”) No. 45, “Long Term Construction-Type Contracts,” Statement of Position (“SOP”)81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts”(“SOP 81-1”), Software Revenue Recognition(“SOP 97-2”).software revenue recognition authoritative guidance. When total cost estimates exceed revenues in a fixed-price arrangement, the estimated losses are recognized immediately based upon the cost applicable to the delivering unit in accordance withSOP 81-1.unit.
 
Initial license fee for software revenue is recognized as work is performed, under the percentage of completion method of accounting. Subsequent license fee revenue is recognized upon completion of specified conditions in each contract, based on a customer’s subscriber level or transaction volume or other measurements when greater than the level specified in the contract for the initial license fee.
 
Service revenue that involves significant ongoing obligations, including fees for software customization, modification, implementation and integration as part of a long-term contract, is recognized as work is performed, under the percentage of completion method of accounting. Revenue from software solutions that do not require significant customization and modification is recognized upon delivery. Service revenue that does not involve significant ongoing obligations is recognized as services are rendered, in accordance with SAB No. 104, “Revenue Recognition” andSOP 97-2. The Company complies with Emerging Issues Task Force (“EITF”)No. 03-05, “Applicability of AICPASOP 97-2 to Non-Software Deliverables in an Arrangement Containing More Than Incidental Software.”rendered.
 
Fees are generally considered fixed and determinable unless a significant portion (more than 10%) of the license and related service fee is due more thenthan 12 months after delivery, in which case license and related services fees are recognized when payments are due, in accordance with SOP97-2.due.
 
In managed services contracts and in other long term contracts, revenue from the operation of a customer’s system is recognized either as services are performed based on time elapsed, output produced or volume of data processed. Revenue from ongoing support services is recognized as work is performed or based on straight-line over the service period.performed.
 
Revenue from third-party hardware sales is recognized upon delivery and installation, and revenue from third-party software sales is recognized upon delivery. Revenue from third-party hardware and software sales is recorded according to the criteria established inEITF No. 99-19, “Recording Revenue Gross as a Principal versus Net as an Agent” and SAB No. 104. Revenue is recorded at gross amount for transactions in which the Company is the primary obligor under the arrangementand/or possesses other attributes such as pricing and supplier selection latitude. In specific circumstances where the Company does not meet the above criteria, particularly when the contract stipulates that the Company is not the primary obligor, the Company recognizes revenue on a net basis.
 
Included in service revenue are sales of third-party products. Revenue from sales of such products includes third-party computer hardware and computer software products. Revenue from third-party sales was less than 10% of total revenue in each of fiscal 2008, 20072010, 2009 and 2006.2008.
 
Maintenance revenue is recognized ratably over the term of the maintenance agreement, which in most cases is one year.
 
As a result of a significant portion of the Company’s revenue being subject to the percentage of completion accounting method, the Company’s annual and quarterly operating results may be significantly affected by the size and timing of customer projects and the Company’s progress in completing such projects.
 
Many of the Company’s agreements include multiple deliverables. For these multiple element arrangements, the Company allocates revenue to each element based upon its relative fair value as determined by Vendor Specific Objective Evidence (“VSOE”). For arrangements within the scope of software revenue recognition authoritative guidance the Company uses the residual method in the absence of fair value for a delivered element. The residual method requires that the Company first allocate revenue to the fair value of the undelivered elements and residual revenue to delivered elements. If VSOE of any undelivered items does not exist, revenue from the entire arrangement is deferred and recognized at the earlier of (i) delivery of those elements for which VSOE does not exist or (ii) when VSOE can be established. However, in limited cases where maintenance is the only undelivered element without VSOE, the entire arrangement fee is recognized ratably. The residual method is used


F-13F-12

AMDOCS LIMITED
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
by Vendor Specific Objective Evidence (“VSOE”). The Company uses the residual method in accordance withSOP 97-2 andEITF No. 00-21, “Revenue Arrangements with Multiple Deliverables”(“EITF No. 00-21”). In the absence of fair value for a delivered element the Company first allocates revenue to the fair value of the undelivered elements and residual revenue to delivered elements. The residual method is used mainly in multiple element arrangements that include license for the sale of software solutions that do not require significant customization, modification, implementation and integration and maintenance to determine the appropriate value for the license component. Beginning October 1, 2009, the Company adopted the new authoritative guidance for revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under this guidance the Company allocates revenue to each identified unit of accounting by using estimated selling price, or ESP, for individual elements of an arrangement when VSOE or third-party evidence of selling price is unavailable. This results in the elimination of the residual method of allocating revenue consideration. Please see Recent Accounting Pronouncements.
 
In circumstances where the Company enters into a contract with a customer for the provision of managed services for a defined period of time, the Company defers in accordance with SAB No. 104, certain incremental costs incurred at the inception of the contract. These costs include time and expense incurred in association with the origination of a contract. In addition, under the provisions ofEITF No. 00-21,if the revenue for a delivered item is not recognized because it is not separable from the managed services arrangement,undelivered item, then the Company also defers the cost of the delivered item. The deferred costs are amortized on a straight-line basis over the life of the applicable customer contract. Revenue associated with these capitalized costs is deferred and is recognized over the same period.
 
In cases where extended payment terms exist and revenue is deferred until payments are due, related costs are capitalized as contract costs and recognized as revenue is recognized.
 
Deferred revenue represents billings to customers for licenses and services for which revenue has not been recognized. Deferred revenue that is expected to be recognized beyond the next 12 months is considered long-term deferred revenue. Unbilled accounts receivable include all revenue amounts that had not been billed as of the balance sheet date due to contractual or other arrangements with customers. Unbilled accounts receivable that are expected to be billed beyond the next 12 months are considered long-term unbilled receivables. Allowances that are netted against accounts receivable represent amounts provided for accounts for which their collectibility is not reasonably assured.
 
Cost of License and Cost of Service
 
Cost of license and cost of service consist of all costs associated with providing software licenses and services to customers, including identified losses on contracts and warranty expense. Estimated losses on contracts accounted for in accordance withSOP 81-1are recognized in the period in which the loss is identified. Estimated costs related to warranty obligations are initially provided at the time the product is delivered and are revised to reflect subsequent changes in circumstances and estimates. Cost of license includes license fees and royalty payments to software suppliers, amortization of purchased computer software and intellectual property rights.suppliers.
 
Cost of service also includes costs of third-party products associated with reselling third-party computer hardware and software products to customers, when revenue from third-party products is recorded at the gross amount. Customers purchasing third-party products from the Company generally do so in conjunction with the purchase of the Company’s software and services.
 
Research and DevelopmentUse of Estimates
 
ResearchThe preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and development expenditures consistassumptions that affect the reported amounts of costs incurredassets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain immaterial amounts in prior years’ financial statements have been reclassified to conform to the developmentcurrent year’s presentation.
Functional Currency
The Company manages its foreign subsidiaries as integral direct components of new software modules and product offerings, either as partits operations. The operations of the Company’s internal product development programs orforeign subsidiaries provide the same type of services with the same type of expenditures throughout the Amdocs group. The Company has determined that its functional currency is the U.S. dollar. The Company periodically assesses the applicability of the U.S. dollar as the Company’s functional currency by reviewing the salient indicators as indicated in conjunction with customer projects. Research and development costs, which are incurred in conjunction with a customer project, are expensed as incurred.the authoritative guidance for foreign currency matters.
 
Based on the Company’s product development process, technological feasibility, as defined in SFAS No. 86, “Accounting for the CostsCash and Cash Equivalents
Cash and cash equivalents consist of Computer Software to be Sold, Leasedcash and interest-bearing investments with insignificant interest rate risk and maturities from acquisition date of 90 days or Otherwise Marketed” (“SFAS No. 86”), is established upon completion of a detailed program design or, in the absence thereof,less.


F-14F-9

AMDOCS LIMITED
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
completion of a working model. Costs incurred by the Company after achieving technological feasibility and before the product is ready for customer release have been insignificant.
 
Equity-Based CompensationInvestments
 
The Company accountsclassifies all of its short-term interest-bearing investments asavailable-for-sale securities. Such short-term interest-bearing investments consist primarily of money market funds, U.S. government treasuries, U.S. agencies and government guaranteed debts, which are stated at market value. Unrealized gains and losses are comprised of the difference between market value and amortized costs of such securities and are reflected, net of tax, as “accumulated other comprehensive income” in shareholders’ equity. Realized gains and losses on short-term interest-bearing investments are included in earnings and are derived using the first in first out (FIFO) method for equity-based payments to employees in accordance with FASB Statement No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”), which requires all equity-based payments to employees, including grantsdetermining the cost of employee stock options, to be recognized insecurities. Effective at the income statement based on their fair values. In addition,beginning of the third quarter of fiscal 2009, the Company has appliedwas required to evaluate itsavailable-for-sale securities forother-than-temporary impairments subject to new accounting guidance. Under this guidance, the provisions of Staff Accounting Bulletin No. 107 (“SAB No. 107”),Company recognizes an impairment charge when a decline in its adoption of SFAS No. 123(R). The Company estimates the fair value of employee stock options usingits investments below the cost basis is judged to beother-than-temporary. For securities with an unrealized loss that the Company intends to sell, or it is more likely than not that the Company will be required to sell before recovery of their amortized cost basis, the entire difference between amortized cost and fair value is recognized in earnings. For securities that do not meet these criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income. The Company uses a Black-Scholes valuation model and values restricted stock based ondiscounted cash flow analysis to determine the marketportion of the impairment that relates to the credit loss. To the extent that the net present value of the underlying sharesprojected cash flows is less than the amortized cost of the security, the difference is considered credit loss and is recorded through earnings. Upon the adoption of this new accounting guidance, a non-credit related amount of $1,783 forother-than-temporary impairment losses recognized in earnings prior to April 1, 2009 was reclassified as a cumulative effect adjustment that increased retained earnings and decreased accumulated other comprehensive income at April 1, 2009.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost. Assets under capital leases are recorded at the present value of the future minimum lease payments at the date of grant. The Company recognizes compensation costsacquisition. Depreciation is computed using the graded vesting attributionstraight-line method that results in an accelerated recognition of compensation costs in comparison toover the straight-line method.
The Company uses a combination of implied volatilityestimated useful life of the Company’s traded optionsasset, which primarily ranges from three to ten years and historical stock price volatility (“blended volatility”) asincludes the expected volatility assumption required inamortization of assets under capitalized leases. Leasehold improvements are amortized over the Black-Scholes option valuation model. Prior to the Company’s adoption of SFAS No. 123(R) on October 1, 2005, the Company had used its historical stock price volatility in accordance with Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) for purposes of presenting its pro forma information. The selectionshorter of the blended volatility approach was based uponestimated useful lives or the availabilityterm of traded optionsthe related lease. Management reviews property and equipment and other long-lived assets on a periodic basis to determine whether events or changes in circumstances indicate that the Company’s shares and the Company’s assessment that blended volatility is more representativecarrying amount of future share price trends than historical volatility. As equity-based compensation expense recognized in the Company’s consolidated statements of income for fiscal 2008, 2007 and 2006 is based on awards ultimately expected to vest, such expense has been reduced for estimated forfeitures. SFAS No. 123(R) requires forfeitures toassets may not be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For the periods prior to fiscal 2006, the Company accounted for forfeitures as they occurred.recoverable.
 
Fair Value of Financial InstrumentsGoodwill, Intangible Assets and Long-Lived Assets
 
Goodwill and intangible assets deemed to have indefinite lives are subject to an annual impairment test or more frequently if impairment indicators are present. Goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. Other definite-life intangible assets are amortized over their useful lives.
The financial instrumentstotal purchase price of business acquisitions accounted for using the purchase method is allocated first to identifiable assets and liabilities based on estimated fair values. The excess of the Company consist mainly of cash and cash equivalents, short-term interest-bearing investments, accounts receivable, accounts payable, short-term financing arrangements, forward exchange contracts and options, lease obligations and convertible notes. Thepurchase price over the fair value of net assets of purchased businesses is recorded as goodwill.
Other definite-life intangible assets consist primarily of core technology, customer arrangements and trademarks. Core technology and trademarks acquired by the financial instruments, excluding the convertible notes (for which the fair value as of September 30, 2008 is approximately $438,000), included in the accountsCompany are amortized over their estimated useful lives on a straight-line basis.
Some of the Company does not significantly vary fromacquired customer arrangements are amortized over their carrying amount.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents, short-term interest-bearing investments and trade receivables. The Company has conservative investment policy guidelines under which it invests its excess cash primarilyestimated useful lives in highly liquid U.S. dollar-denominated securities primarily with major U.S. institutions. The Company’s revenue is generated primarily in North America and Europe. To a lesser extent, revenue is generated in the Asia-Pacific region and Latin America. Most of the Company’s customers are among the largest communications and directory publishing companies in the world (or are owned by them). The Company’s business is subjectproportion to the effectseconomic benefits realized. This accounting policy results in accelerated amortization of general global economic conditions and, in particular, market conditions in the communications industry. The Company performs ongoing credit analyses of itssuch customer base and generally does not require collateral. The allowance for doubtful accounts is for estimated losses resulting


F-15F-10

AMDOCS LIMITED
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
arrangements as compared to the straight-line method. All other acquired customer arrangements are amortized over their estimated useful lives on a straight-line basis.
The Company tests long-lived assets, including definite life intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability of long-lived assets is based on an estimate of the undiscounted future cash flows resulting from the inabilityuse of the Company’s customersasset and its eventual disposition. Measurement of an impairment loss for long-lived assets, including definite life intangible assets that management expects to make required payments. The Company evaluates accounts receivable to determine if they will ultimately be collected. Significant judgmentshold and estimates are involved in performing this evaluation, which areuse is based on factors that may affect a customer’s ability to pay, such as past experience, credit qualitythe fair value of the customer, ageasset. Long-lived assets, including definite life intangible assets, to be disposed of are reported at the receivable balance and current economic conditions. Aslower of September 30, 2008, the Company had two groups of customers with accounts receivable balances of more than 10% of total accounts receivable, aggregating 39% (27.5% and 11.5%). These two groups of customers accounted for approximately 40% of our revenue in fiscal 2008. As of September 30, 2007, the Company had two customers that had accounts receivable balances of more than 10% of total accounts receivable, aggregating 31.4% (21.0% and 10.4%).carrying amount or fair value less costs to sell.
 
Earnings per ShareComprehensive Income
Comprehensive income, net of related taxes where applicable, includes, in addition to net income:
(i) unrealized gains and losses onavailable-for-sale securities;
(ii) unrealized gains and losses in respect of derivative instruments designated as a cash flow hedge; and
(iii) unrealized gains and losses on defined benefit plans.
Treasury Stock
 
The Company accounts for earnings per share based on SFAS No. 128, “Earnings per Share” (“SFAS No. 128”). SFAS No. 128 requires companiesrepurchases its ordinary shares from time to compute earnings per share under two different methods, basic and diluted earnings per share, and to disclose the methodology used for the calculations. Basic earnings per share are calculated using the weighted average number of shares outstanding during the period. Diluted earnings per share is computedtime on the basis ofopen market or in other transactions and holds such shares as treasury stock. The Company presents the weighted average number of shares outstanding and the effect of dilutive outstanding equity-based awards using thecost to repurchase treasury stock method and the effectas a reduction of dilutive outstanding convertible notes using the if-converted method.shareholders’ equity.
 
Derivatives and HedgingIncome Taxes
 
The Company accountsrecords deferred income taxes to reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for derivativesfinancial reporting and hedgingtax purposes. Deferred taxes are computed based on SFAS No. 133, “Accountingtax rates anticipated to be in effect when the deferred taxes are expected to be paid or realized. A valuation allowance is provided for Derivative Instruments and Hedging Activities” (“SFAS No. 133”), as amended and related Interpretations. SFAS No. 133 requiresdeferred tax assets if it is more likely than not these items will either expire before the Company is able to recognize all derivativesrealize their benefit, or where future deductibility is uncertain.
Deferred tax liabilities and assets are classified as current or noncurrent based on the balance sheet at fair value. If a derivative meets the definition of a hedge and is so designated, depending on the natureclassification of the hedge, changes inrelated asset or liability for financial reporting, or according to the fair valueexpected reversal dates of the derivative will either be offset againstspecific temporary differences if not related to an asset or liability for financial reporting, and also include anticipated withholding taxes due on subsidiaries’ earnings when paid as dividends to the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is recognized in earnings. If a derivative does not meet the definition of a hedge the changes in the fair value will be included in earnings.
Guarantor’s Accounting and Disclosure Requirements for GuaranteesCompany.
 
The Company follows FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guaranteesrecognizes the tax benefit from an uncertain tax position only if the weight of Indebtednessavailable evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of Others” (“FIN No. 45”). FIN No. 45 requiresrelated appeals or litigation processes, if any. The tax benefits recognized in the financial statements from such a position is measured based on the largest benefit that athas a greater than 50% likelihood of being realized upon ultimate settlement. The Company will classify the inception of certain types of guarantees, the guarantor must disclose and recognize a liability for unrecognized tax benefits as current to the fair valueextent that the Company anticipates payment of cash within one year. Interest and penalties related to uncertain tax positions are recognized in the obligation it assumes underprovision for income taxes. Please see Note 11 to the guarantee.consolidated financial statements.
 
Recent Accounting PronouncementsRevenue Recognition
 
In June 2008,Revenue is recognized only when all of the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. EITFNo. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITFNo. 03-6-1”). According to FSP EITFNo. 03-6-1, unvested share-based payment awards that contain nonforfeitable rights to dividendsfollowing conditions have been met: (i) there is persuasive evidence of an arrangement; (ii) delivery has occurred; (iii) the fee is fixed or dividend equivalents are considered participating securities under SFAS No. 128. As such, they should be included indeterminable; and (iv) collectibility of the computation of basic earnings per share (“EPS”) using the two-class method. FSP EITFNo. 03-6-1fee is effective for financial statements issued for fiscal years beginning after December 15, 2008, as well as interim periods within those years. Once effective, all prior-period EPS data presented must be adjusted retrospectively.reasonably assured. The Company isusually sells its software licenses as part of an overall solution offered


F-16F-11

AMDOCS LIMITED
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
currently evaluatingto a customer that combines the effectsale of software licenses with a broad range of services, which normally include significant customization, modification, implementation and integration. As a result, combined license and service revenue generally is recognized over the course of these long-term projects, using the percentage of completion method of accounting in accordance with software revenue recognition authoritative guidance. When total cost estimates exceed revenues in a fixed-price arrangement, the estimated losses are recognized immediately based upon the cost applicable to the delivering unit.
Initial license fee for software revenue is recognized as work is performed, under the percentage of completion method of accounting. Subsequent license fee revenue is recognized upon completion of specified conditions in each contract, based on a customer’s subscriber level or transaction volume or other measurements when greater than the level specified in the contract for the initial license fee.
Service revenue that adoptinginvolves significant ongoing obligations, including fees for software customization, modification, implementation and integration as part of a long-term contract, is recognized as work is performed, under the provisionspercentage of FSP EITFNo. 03-6-1 will have on its consolidated resultscompletion method of operations,accounting. Revenue from software solutions that do not require significant customization and it currently expectsmodification is recognized upon delivery. Service revenue that does not involve significant ongoing obligations is recognized as services are rendered.
Fees are generally considered fixed and determinable unless a significant portion (more than 10%) of the effect will not be material.license and related service fee is due more than 12 months after delivery, in which case license and related services fees are recognized when payments are due.
 
In March 2008,managed services contracts and in other long term contracts, revenue from the FASB issued Statement No. 161, “Disclosures about Derivative Instrumentsoperation of a customer’s system is recognized either as services are performed based on time elapsed, output produced or volume of data processed. Revenue from ongoing support services is recognized as work is performed.
Revenue from third-party hardware sales is recognized upon delivery and Hedging Activities”, an amendment of FASB Statement No. 133 (“SFAS No. 161”). SFAS No. 161 applies to all derivative instrumentsinstallation, and nonderivative instruments that are designatedrevenue from third-party software sales is recognized upon delivery. Revenue from third-party hardware and qualify as hedging instruments and related hedged items accountedsoftware sales is recorded at gross amount for under SFAS No. 133. SFAS No. 161 requires entities to provide greater transparency through additional disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, results of operations, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Although SFAS No. 161 requirestransactions in which the Company to make additional disclosures, itis the primary obligor under the arrangementand/or possesses other attributes such as pricing and supplier selection latitude. In specific circumstances where the Company does not affectmeet the underlying accounting policy orabove criteria, particularly when the application thereof.contract stipulates that the Company is not the primary obligor, the Company recognizes revenue on a net basis.
 
In December 2007,Included in service revenue are sales of third-party products. Revenue from sales of such products includes third-party computer hardware and computer software products. Revenue from third-party sales was less than 10% of total revenue in each of fiscal 2010, 2009 and 2008.
Maintenance revenue is recognized ratably over the FASB issued Statement No. 141 (revised), “Business Combinations”term of the maintenance agreement, which in most cases is one year.
As a result of a significant portion of the Company’s revenue being subject to the percentage of completion accounting method, the Company’s annual and quarterly operating results may be significantly affected by the size and timing of customer projects and the Company’s progress in completing such projects.
Many of the Company’s agreements include multiple deliverables. For these multiple element arrangements, the Company allocates revenue to each element based upon its relative fair value as determined by Vendor Specific Objective Evidence (“SFAS No. 141(R)”VSOE”). SFAS No. 141(R) significantly changesFor arrangements within the accounting for business combinations and establishes principles and requirements for how an acquirer recognizes and measures in its financial statementsscope of software revenue recognition authoritative guidance the identifiable assets acquired,Company uses the liabilities assumed and any noncontrolling interestresidual method in the acquiree and recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase. SFAS No. 141(R) applies to the Company prospectively for business combinations for which the acquisition date is on or after October 1, 2009.
In December 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements” - an amendmentabsence of ARB No. 51 (“SFAS No. 160”). SFAS No. 160 changes the accounting for noncontrolling (minority) interests in consolidated financial statements including the requirements to classify noncontrolling interests as a component of consolidated shareholders’ equity, the elimination of “minority interest” accounting in results of operations and changes in the accounting for both increases and decreases in a parent’s controlling ownership interest. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008, and early adoption is prohibited. The Company is currently evaluating the effect that the application of SFAS No. 160 will have on its consolidated results of operations and financial condition.
In February 2007, the FASB issued Statement No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities” including an amendment of FASB Statement No. 115 (“SFAS No. 159”), which allows an entity the irrevocable option to elect fair value for a delivered element. The residual method requires that the initial and subsequent measurement for certain financial assets and liabilities under aninstrument-by-instrument election. IfCompany first allocate revenue to the fair value option is elected for an instrument, subsequent changes in fair value for that instrument will be recognized in earnings. SFAS No. 159 also establishes additional disclosure requirements and is effective for fiscal years beginning after November 15, 2007, with early adoption permitted provided that the entity also adopts Statement No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 159 is effective for the Company in the first quarter of fiscal 2009, and it is not expected to have a material impact on its results of operations or financial position.
In September 2006, the FASB issued SFAS No. 157 which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB issued FASB Staff Position No. SFASNo. 157-2, Effective Date of FASB Statement No. 157, which provides a one-year deferral of the effective dateundelivered elements and residual revenue to delivered elements. If VSOE of SFAS No. 157any undelivered items does not exist, revenue from the entire arrangement is deferred and recognized at the earlier of (i) delivery of those elements for non-financial assets and non-financial liabilities, except those that arewhich VSOE does not exist or (ii) when VSOE can be established. However, in limited cases where maintenance is the only undelivered element without VSOE, the entire arrangement fee is recognized orratably. The residual method is used


F-17F-12

AMDOCS LIMITED
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
disclosedmainly in multiple element arrangements that include license for the sale of software solutions that do not require significant customization, modification, implementation and integration and maintenance to determine the appropriate value for the license component. Beginning October 1, 2009, the Company adopted the new authoritative guidance for revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under this guidance the Company allocates revenue to each identified unit of accounting by using estimated selling price, or ESP, for individual elements of an arrangement when VSOE or third-party evidence of selling price is unavailable. This results in the financial statementselimination of the residual method of allocating revenue consideration. Please see Recent Accounting Pronouncements.
In circumstances where the Company enters into a contract with a customer for the provision of managed services for a defined period of time, the Company defers certain incremental costs incurred at fair valuethe inception of the contract. These costs include time and expense incurred in association with the origination of a contract. In addition, if the revenue for a delivered item is not recognized because it is not separable from the undelivered item, then the Company also defers the cost of the delivered item. The deferred costs are amortized on a recurringstraight-line basis (at least annually). The adoptionover the life of SFAS No. 157the applicable customer contract. Revenue associated with these capitalized costs is deferred and is recognized over the same period.
In cases where extended payment terms exist and revenue is deferred until payments are due, related costs are capitalized as contract costs and recognized as revenue is recognized.
Deferred revenue represents billings to customers for financial assetslicenses and financial liabilitiesservices for which revenue has not been recognized. Deferred revenue that is expected to be recognized beyond the next 12 months is considered long-term deferred revenue. Unbilled accounts receivable include all revenue amounts that had not been billed as of the balance sheet date due to contractual or other arrangements with customers. Unbilled accounts receivable that are expected to be billed beyond the next 12 months are considered long-term unbilled receivables. Allowances that are netted against accounts receivable represent amounts provided for accounts for which their collectibility is not expected to have a material impact on the Company’s results of operations or financial position. The Company is currently assessing the impact that SFAS No. 157 will have on its results of operations and financial position when it is applied to nonfinancial assets and nonfinancial liabilities beginning in the first quarter of fiscal 2010.reasonably assured.
 
AdoptionCost of New Accounting StandardLicense and Cost of Service
 
In June 2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty in income taxesCost of license and cost of service consist of all costs associated with providing software licenses and services to customers, including identified losses on contracts and warranty expense. Estimated losses on contracts are recognized in an enterprise’s financial statementsthe period in accordancewhich the loss is identified. Estimated costs related to warranty obligations are initially provided at the time the product is delivered and are revised to reflect subsequent changes in circumstances and estimates. Cost of license includes license fees and royalty payments to software suppliers.
Cost of service also includes costs of third-party products associated with SFAS No. 109, Accounting for Income Taxes. FIN 48 also prescribes a recognition thresholdreselling third-party computer hardware and measurement attribute forsoftware products to customers, when revenue from third-party products is recorded at the financial statement recognitiongross amount. Customers purchasing third-party products from the Company generally do so in conjunction with the purchase of the Company’s software and measurement of a tax position taken or expected to be taken in a tax return that results in a tax benefit. Additionally, FIN 48 provides guidance on de-recognition, income statement classification of interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted FIN 48 in the first quarter of fiscal 2008. The adoption of FIN 48 did not result in a change to retained earnings. Please see Note 9 to the consolidated financial statements.services.
 
Use of Estimates
 
The preparation of financial statements in conformity with U.S. generally accepted accounting principlesGAAP 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 dates of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
 
Note 3 —Acquisitions
SigValueReclassifications
 
In February 2007, the Company acquired SigValue Technologies, Inc. (“SigValue”), a provider of an integrated billing, customer care and service control platform designed for telecommunications service providersCertain immaterial amounts in high-growth emerging markets around the world, where the customer base is predominantly comprised of mobile pre-paid subscribers. Priorprior years’ financial statements have been reclassified to conform to the acquisition, the Company owned 14% of SigValue’s outstanding capital stock. Under the terms of the agreement, the Company acquired the balance of SigValue’s remaining share capital. The Company expects that this acquisition will expand its offering for the fast growing emerging markets.current year’s presentation.
Functional Currency
 
The aggregate purchase price for the remaining 86%Company manages its foreign subsidiaries as integral direct components of SigValue’s outstanding capital stock was $71,193, which consisted of $69,728 in cash (including cash on hand), $768 related to the assumption of stock options held by SigValue employees and $697 of transaction costs.its operations. The fair valueoperations of the stock options was estimated usingCompany’s foreign subsidiaries provide the Black-Scholes option pricing model.same type of services with the same type of expenditures throughout the Amdocs group. The acquisition was accounted for usingCompany has determined that its functional currency is the purchase methodU.S. dollar. The Company periodically assesses the applicability of accounting,the U.S. dollar as requiredthe Company’s functional currency by Statement of Financial Accounting Standard No. 141, “Business Combinations” (“SFAS No. 141”). The fair market value of SigValue’s assets and liabilities has been includedreviewing the salient indicators as indicated in the Company’s consolidated balance sheetsauthoritative guidance for foreign currency matters.
Cash and the results of SigValue’s operations are included in the Company’s consolidated statements of operations, commencing on February 8, 2007. The total purchase price was allocated to SigValue’s assetsCash Equivalents
Cash and liabilities, including identifiable intangibles, based on their respective estimated fair values, on the date the transaction was consummated. The value of acquired technology included both existing technology and in-process research and development. The valuation of these items was determined by applying the income forecast method, which considered the present valuecash equivalents consist of cash flows by product lines. Of the $27,436and interest-bearing investments with insignificant interest rate risk and maturities from acquisition date of acquired identifiable intangible assets (which represents 86% of total identifiable intangible assets), $2,666 was assigned to in-process research and development. The in-process90 days or less.


F-18F-9

AMDOCS LIMITED
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
research
Investments
The Company classifies all of its short-term interest-bearing investments asavailable-for-sale securities. Such short-term interest-bearing investments consist primarily of money market funds, U.S. government treasuries, U.S. agencies and development was written-off asgovernment guaranteed debts, which are stated at market value. Unrealized gains and losses are comprised of the closing datedifference between market value and amortized costs of such securities and are reflected, net of tax, as “accumulated other comprehensive income” in shareholders’ equity. Realized gains and losses on short-term interest-bearing investments are included in earnings and are derived using the first in first out (FIFO) method for determining the cost of securities. Effective at the beginning of the acquisition,third quarter of fiscal 2009, the Company was required to evaluate itsavailable-for-sale securities forother-than-temporary impairments subject to new accounting guidance. Under this guidance, the Company recognizes an impairment charge when a decline in accordance with Financial Accounting Standards Board Interpretation No. 4, “Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method.” The in-process research and development had no alternative future use and had not reached technological feasibility as such date. The fair value assigned to core technology was $19,513 and is being amortized over four years commencing on February 8, 2007. The fair value assigned to customer arrangements was $4,775 and is being amortized over six years commencing on February 8, 2007 based on pro-rata amounts of the future discounted cash flows. The fair value assigned to trademarks was $482 and is being amortized over two years commencing on February 8, 2007. The amount of the purchase price that exceeded 86% of the fair value of its investments below the cost basis is judged to beother-than-temporary. For securities with an unrealized loss that the Company intends to sell, or it is more likely than not that the Company will be required to sell before recovery of their amortized cost basis, the entire difference between amortized cost and fair value is recognized in earnings. For securities that do not meet these criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income. The Company uses a discounted cash flow analysis to determine the portion of the impairment that relates to the credit loss. To the extent that the net assetspresent value of the projected cash flows is less than the amortized cost of the security, the difference is considered credit loss and identifiable intangibles acquired, or goodwill, was $28,971,is recorded through earnings. Upon the adoption of which none is tax deductible.
As described above,this new accounting guidance, a non-credit related amount of $1,783 forother-than-temporary impairment losses recognized in earnings prior to the acquisition the Company’s ownership interest in SigValueApril 1, 2009 was 14%,reclassified as a cumulative effect adjustment that increased retained earnings and therefore the Company accounted for the investment in SigValue under the cost method. In the second quarter of 2007, the Company recognized its 14% share in SigValue’s results from the time it first acquired an ownership interest in SigValue through the acquisition of 100% ownership of SigValue on February 7, 2007. The Company’s share in SigValue’s pre-acquisition results wasdecreased accumulated other comprehensive income of $1,916, which is included in restructuring charges, in-process research and development and other.at April 1, 2009.
 
CramerEquipment and Leasehold Improvements
 
In August 2006,Equipment and leasehold improvements are stated at cost. Assets under capital leases are recorded at the Company acquired all of the capital stock of Cramer Systems Group Limited (“Cramer”), a privately-held leading provider of operations support systems (OSS) solutions. This acquisition enabled the Company to leverage and greatly enhance its assets in the BSS (business support systems) and OSS market.
The aggregate purchase price for Cramer was $420,997 which consisted of $412,402 in cash (including cash on hand), $2,228 related to the assumption of stock options and restricted shares held by Cramer employees and $6,367 of transaction costs. The fairpresent value of the stock options was estimated using the Black-Scholes option pricing model and the fair value of the restricted shares was valued based on the market value of the underlying sharesfuture minimum lease payments at the date of grant. Please see Note 17acquisition. Depreciation is computed using the straight-line method over the estimated useful life of the asset, which primarily ranges from three to ten years and includes the consolidated financial statements. amortization of assets under capitalized leases. Leasehold improvements are amortized over the shorter of the estimated useful lives or the term of the related lease. Management reviews property and equipment and other long-lived assets on a periodic basis to determine whether events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.
Goodwill, Intangible Assets and Long-Lived Assets
Goodwill and intangible assets deemed to have indefinite lives are subject to an annual impairment test or more frequently if impairment indicators are present. Goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. Other definite-life intangible assets are amortized over their useful lives.
The acquisition wastotal purchase price of business acquisitions accounted for as a business combination using the purchase method of accounting, as required by SFAS No. 141. The fair market value of Crameris allocated first to identifiable assets and liabilities has been included in the Company’s consolidated balance sheets and the results of Cramer’s operations have been included in the Company’s consolidated statements of income, commencing on August 15, 2006. The total purchase price was allocated to Cramer’s assets and liabilities, including identifiable intangibles, based on their respective estimated fair values, on the date the transaction was consummated. The value of acquired technology included both existing technology and in-process research and development. The valuation of these items was determined by applying the income forecast method, which considered the present value of cash flows by product lines. Of the $177,203 of acquired identifiable intangible assets, $17,310 was assigned to in-process research and development related to the next two major releases of Cramer’s current technology. The in-process research and development was written-off as of the closing date of the acquisition, in accordance with Financial Accounting Standards Board Interpretation No. 4, “Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method.” The in-process research and development had no alternative future use and had not reached technological feasibility as of such date. The fair value assigned to core technology was $88,690 and is being amortized over five years commencing on August 15, 2006. The fair value assigned to customer arrangements was $69,043 and is being amortized over seven years commencing on August 15, 2006 based on pro-rata amounts of the future discounted cash flows. The fair value assigned to trademarks was $2,160 and is being amortized over two years commencing on August 15, 2006.values. The excess of the purchase price over the fair value of the net assets of purchased businesses is recorded as goodwill.
Other definite-life intangible assets consist primarily of core technology, customer arrangements and identifiable intangiblestrademarks. Core technology and trademarks acquired or goodwill, was $263,334 of which none is tax deductible. During fiscal 2007,by the Company revisedare amortized over their estimated useful lives on a straight-line basis.
Some of the acquired customer arrangements are amortized over their estimated useful lives in proportion to the economic benefits realized. This accounting policy results in accelerated amortization of such customer


F-19F-10

AMDOCS LIMITED
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
arrangements as compared to the allocationstraight-line method. All other acquired customer arrangements are amortized over their estimated useful lives on a straight-line basis.
The Company tests long-lived assets, including definite life intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability of long-lived assets is based on an estimate of the purchase price as it obtained more informationundiscounted future cash flows resulting from the use of the asset and changed its estimates relatedeventual disposition. Measurement of an impairment loss for long-lived assets, including definite life intangible assets that management expects to hold and use is based on the tax basisfair value of assumed liabilities and relatedthe asset. Long-lived assets, including definite life intangible assets, to certain other acquired assets and assumed liabilities. The revised purchase price allocation resulted in a net decreasebe disposed of $5,783 in goodwill. During fiscal 2008, the Company determined that it should have established a valuation allowance related to certain net operating losses that existedare reported at the acquisition date. As a result, the Company adjusted purchase accountinglower of carrying amount or fair value less costs to reflect a $19,653 increase in the tax valuation allowance and in goodwill.sell.
 
QpassComprehensive Income
 
In May 2006, the Company acquired allComprehensive income, net of the capital stockrelated taxes where applicable, includes, in addition to net income:
(i) unrealized gains and losses onavailable-for-sale securities;
(ii) unrealized gains and losses in respect of Qpass Inc. (“Qpass”), a leading provider of digital commerce software and solutions. This acquisition has allowed the Company to support service providers and media companies seeking to launch and monetize digital content, and the Company believes that this acquisition positioned itderivative instruments designated as a leader in the emerging digital content market.cash flow hedge; and
(iii) unrealized gains and losses on defined benefit plans.
Treasury Stock
 
The aggregate purchase priceCompany repurchases its ordinary shares from time to time on the open market or in other transactions and holds such shares as treasury stock. The Company presents the cost to repurchase treasury stock as a reduction of shareholders’ equity.
Income Taxes
The Company records deferred income taxes to reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for Qpass was $280,984, which consistedfinancial reporting and tax purposes. Deferred taxes are computed based on tax rates anticipated to be in effect when the deferred taxes are expected to be paid or realized. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefit, or where future deductibility is uncertain.
Deferred tax liabilities and assets are classified as current or noncurrent based on the classification of $274,024 in cash, $2,405the related asset or liability for financial reporting, or according to the expected reversal dates of the specific temporary differences if not related to an asset or liability for financial reporting, and also include anticipated withholding taxes due on subsidiaries’ earnings when paid as dividends to the assumptionCompany.
The Company recognizes the tax benefit from an uncertain tax position only if the weight of stock options held by Qpass employeesavailable evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The tax benefits recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company will classify the liability for unrecognized tax benefits as current to the extent that the Company anticipates payment of cash within one year. Interest and $4,555 of transaction costs. The fair value ofpenalties related to uncertain tax positions are recognized in the stock options was estimated using the Black-Scholes option pricing model.provision for income taxes. Please see Note 1711 to the consolidated financial statements. The acquisition was accounted for as a business combination using the purchase method of accounting, as required by SFAS No. 141. The fair market value of Qpass assets and liabilities has been included in the Company’s consolidated balance sheets and the results of Qpass’s operations have been included in the Company’s consolidated statements of income, commencing on June 1, 2006. The total purchase price was allocated to Qpass’s assets and liabilities, including identifiable intangibles, based on their respective estimated fair values, on the date the transaction was consummated. The value of acquired technology included both existing technology and in-process research and development. The valuation of these items was determined by applying the income forecast method, which considered the present value of cash flows by product lines. Of the $72,981 of acquired identifiable intangible assets, $8,340 was assigned to in-process research and development and was written-off as of the closing date of the acquisition, in accordance with Financial Accounting Standards Board Interpretation No. 4. The in-process research and development had no alternative future use and had not reached technological feasibility as of such date. The fair value assigned to core technology was $28,060 and is being amortized over 3 to 4.5 years commencing on June 1, 2006. The fair value assigned to customer arrangements was $36,581 and is being amortized over seven years commencing on June 1, 2006. The excess of the purchase price over the fair value of the net liabilities and identifiable intangibles acquired, or goodwill, was $234,737 of which none is tax deductible. During fiscal 2007, within the one-year allocation period, the Company revised the allocation of the purchase price as it obtained more information and changed its estimates related to certain acquired assets and assumed liabilities. The revised purchase price allocation resulted in a net decrease of $3,718 in goodwill.
 
Pro forma financial informationRevenue Recognition
 
Set forth below areRevenue is recognized only when all of the unaudited pro forma revenue, operating income, net incomefollowing conditions have been met: (i) there is persuasive evidence of an arrangement; (ii) delivery has occurred; (iii) the fee is fixed or determinable; and per share figures for(iv) collectibility of the years ended September 30, 2006fee is reasonably assured. The Company usually sells its software licenses as if Cramer had been acquired aspart of October 1, 2005, excluding thean overall solution offered


F-20F-11

AMDOCS LIMITED
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
capitalizationto a customer that combines the sale of researchsoftware licenses with a broad range of services, which normally include significant customization, modification, implementation and development expense, write-offintegration. As a result, combined license and service revenue generally is recognized over the course of purchased in-process research and development and other acquisition related costs:
     
  Year ended
 
  September 30, 
  2006 
 
Revenue $2,575,703 
Operating income  321,333 
Net income  297,746 
Basic earnings per share  1.47 
Diluted earnings per share  1.38 
these long-term projects, using the percentage of completion method of accounting in accordance with software revenue recognition authoritative guidance. When total cost estimates exceed revenues in a fixed-price arrangement, the estimated losses are recognized immediately based upon the cost applicable to the delivering unit.
 
Pro forma information regardingInitial license fee for software revenue is recognized as work is performed, under the percentage of completion method of accounting. Subsequent license fee revenue is recognized upon completion of specified conditions in each contract, based on a customer’s subscriber level or transaction volume or other measurements when greater than the level specified in the contract for the initial license fee.
Service revenue that involves significant ongoing obligations, including fees for software customization, modification, implementation and integration as part of a long-term contract, is recognized as work is performed, under the percentage of completion method of accounting. Revenue from software solutions that do not require significant customization and modification is recognized upon delivery. Service revenue that does not involve significant ongoing obligations is recognized as services are rendered.
Fees are generally considered fixed and determinable unless a significant portion (more than 10%) of the license and related service fee is due more than 12 months after delivery, in which case license and related services fees are recognized when payments are due.
In managed services contracts and in other long term contracts, revenue from the operation of a customer’s system is recognized either as services are performed based on time elapsed, output produced or volume of data processed. Revenue from ongoing support services is recognized as work is performed.
Revenue from third-party hardware sales is recognized upon delivery and installation, and revenue from third-party software sales is recognized upon delivery. Revenue from third-party hardware and software sales is recorded at gross amount for transactions in which the Company is the primary obligor under the arrangementand/or possesses other attributes such as pricing and supplier selection latitude. In specific circumstances where the Company does not meet the above criteria, particularly when the contract stipulates that the Company is not the primary obligor, the Company recognizes revenue on a net basis.
Included in service revenue are sales of third-party products. Revenue from sales of such products includes third-party computer hardware and computer software products. Revenue from third-party sales was less than 10% of total revenue in each of fiscal 2010, 2009 and 2008.
Maintenance revenue is recognized ratably over the term of the maintenance agreement, which in most cases is one year.
As a result of a significant portion of the Company’s consolidated statementsrevenue being subject to the percentage of income forcompletion accounting method, the years ended September 30, 2007Company’s annual and 2006 to reflectquarterly operating results may be significantly affected by the SigValuesize and Qpass acquisitions is not presented, as these acquisitions are not considered material business combinations.timing of customer projects and the Company’s progress in completing such projects.
 
Note 4 — Short-Term Interest-Bearing Investments
Short-term interest-bearing investments consistMany of the following:
                 
  Amortized Cost
  Market Value
 
  As of September 30,  As of September 30, 
  2008  2007  2008  2007 
 
U.S. government treasuries $119,825  $40,546  $121,065  $40,990 
U.S. agencies  112,396   108,468   113,250   109,789 
Corporate bonds  103,578   111,329   101,886   111,273 
Asset backed obligations  71,651   155,358   69,179   154,646 
Mortgages (including government and corporate)  66,362   102,128   58,677   101,739 
Commercial paper/CD  61,578   45,342   61,471   45,342 
                 
   535,390   563,171   525,528   563,779 
Unrealized gain (loss)  (9,862)  608   —   — 
                 
Total $525,528  $563,779  $525,528  $563,779 
                 
Company’s agreements include multiple deliverables. For these multiple element arrangements, the Company allocates revenue to each element based upon its relative fair value as determined by Vendor Specific Objective Evidence (“VSOE”). For arrangements within the scope of software revenue recognition authoritative guidance the Company uses the residual method in the absence of fair value for a delivered element. The gross unrealized losses related to short-term interest-bearing investments were primarily due to credit market conditions and changes in market prices. The Company has determinedresidual method requires that the gross unrealized losses on short-term interest-bearing investments as of September 30, 2008 are temporary in nature. The Company reviews various factors in determining whether it should recognize an impairment charge for its short-term interest-bearing investments, including its intent and abilityfirst allocate revenue to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value, the length of time and extent to which the fair value has been less than its cost basis, the credit ratings of the securitiesundelivered elements and residual revenue to delivered elements. If VSOE of any undelivered items does not exist, revenue from the financial conditionentire arrangement is deferred and near-term prospectsrecognized at the earlier of (i) delivery of those elements for which VSOE does not exist or (ii) when VSOE can be established. However, in limited cases where maintenance is the issuers. Based ononly undelivered element without VSOE, the Company’s considerations of these factors, the other-than-temporary impairment on its short-term interest-bearing investments was immaterial in fiscal years 2008, 2007 and 2006.entire arrangement fee is recognized ratably. The residual method is used


F-21F-12

AMDOCS LIMITED
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
mainly in multiple element arrangements that include license for the sale of software solutions that do not require significant customization, modification, implementation and integration and maintenance to determine the appropriate value for the license component. Beginning October 1, 2009, the Company adopted the new authoritative guidance for revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under this guidance the Company allocates revenue to each identified unit of accounting by using estimated selling price, or ESP, for individual elements of an arrangement when VSOE or third-party evidence of selling price is unavailable. This results in the elimination of the residual method of allocating revenue consideration. Please see Recent Accounting Pronouncements.
In circumstances where the Company enters into a contract with a customer for the provision of managed services for a defined period of time, the Company defers certain incremental costs incurred at the inception of the contract. These costs include time and expense incurred in association with the origination of a contract. In addition, if the revenue for a delivered item is not recognized because it is not separable from the undelivered item, then the Company also defers the cost of the delivered item. The deferred costs are amortized on a straight-line basis over the life of the applicable customer contract. Revenue associated with these capitalized costs is deferred and is recognized over the same period.
In cases where extended payment terms exist and revenue is deferred until payments are due, related costs are capitalized as contract costs and recognized as revenue is recognized.
Deferred revenue represents billings to customers for licenses and services for which revenue has not been recognized. Deferred revenue that is expected to be recognized beyond the next 12 months is considered long-term deferred revenue. Unbilled accounts receivable include all revenue amounts that had not been billed as of the balance sheet date due to contractual or other arrangements with customers. Unbilled accounts receivable that are expected to be billed beyond the next 12 months are considered long-term unbilled receivables. Allowances that are netted against accounts receivable represent amounts provided for accounts for which their collectibility is not reasonably assured.
Cost of License and Cost of Service
Cost of license and cost of service consist of all costs associated with providing software licenses and services to customers, including identified losses on contracts and warranty expense. Estimated losses on contracts are recognized in the period in which the loss is identified. Estimated costs related to warranty obligations are initially provided at the time the product is delivered and are revised to reflect subsequent changes in circumstances and estimates. Cost of license includes license fees and royalty payments to software suppliers.
Cost of service also includes costs of third-party products associated with reselling third-party computer hardware and software products to customers, when revenue from third-party products is recorded at the gross amount. Customers purchasing third-party products from the Company generally do so in conjunction with the purchase of the Company’s software and services.
Research and Development
Research and development expenditures consist of costs incurred in the development of new software modules and product offerings, either as part of the Company’s internal product development programs, which are sold, leased or otherwise marketed, or in conjunction with customer projects. Research and development costs are expensed as incurred.
Based on the Company’s product development process, technological feasibility is established upon completion of a detailed program design or, in the absence thereof, completion of a working model. Costs incurred by the Company after achieving technological feasibility and before the product is ready for customer release have been insignificant.


F-13

AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
Equity-Based Compensation
The Company measures and recognizes the compensation expense for all equity-based payments to employees and directors based on their estimated fair values. The Company estimates the fair value of employee stock options at the date of grant using a Black-Scholes valuation model and values restricted stock based on the market value of the underlying shares at the date of grant. The Company recognizes compensation costs using the graded vesting attribution method that results in an accelerated recognition of compensation costs in comparison to the straight-line method.
The Company uses a combination of implied volatility of the Company’s traded options and historical stock price volatility (“blended volatility”) as the expected volatility assumption required in the Black-Scholes option valuation model. As equity-based compensation expense recognized in the Company’s consolidated statements of income is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents, short-term interest-bearing investments and trade receivables. Cash and cash equivalents are maintained with several financial institutions. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit and therefore bear minimal credit risk. The Company seeks to mitigate its credit risks by spreading such risks across multiple counterparties and monitoring the risk profiles of these counterparties. The Company has conservative investment policy guidelines under which it invests its excess cash primarily in highly liquid U.S. dollar-denominated securities. The Company’s revenue is generated primarily in North America. To a lesser extent, revenue is generated in Europe, the Asia-Pacific region and Latin America. Most of the Company’s customers are among the largest communications and directory publishing companies in the world (or are owned by them). The Company’s business is subject to the effects of general global economic conditions and, in particular, market conditions in the communications industry. The Company performs ongoing credit analyses of its customer base and generally does not require collateral. The allowance for doubtful accounts is for estimated losses resulting from accounts receivable for which their collection is not reasonably assured.
The Company evaluates accounts receivable to determine if they will ultimately be collected. Significant judgments and estimates are involved in performing this evaluation, which are based on factors that may affect a customer’s ability to pay, such as past experience, credit quality of the customer, age of the receivable balance and current economic conditions. As of September 30, 2008, short-term interest-bearing investments2010 and 2009 the Company had the following maturity dates:one customer, including its subsidiaries, with an accounts receivable balance of more than 10% of total accounts receivable, aggregating 30.0% and 32.6%, respectively. This customer accounted for approximately 29% and 33% of our revenue in fiscal 2010 and 2009, respectively.
 
     
  Market Value 
 
2009 $164,634 
2010  164,243 
2011  54,434 
2012  20,722 
Thereafter  121,495 
     
  $525,528 
     
Earnings per Share
Basic earnings per share is calculated using the weighted average number of shares outstanding during the period. Diluted earnings per share is computed on the basis of the weighted average number of shares outstanding, the effect of dilutive outstanding equity-based awards using the treasury stock method and the effect of dilutive outstanding convertible notes using the if-converted method.
Derivatives and Hedging
The Company carries out transactions involving foreign currency exchange derivative financial instruments. The transactions are designed to hedge the Company’s exposure in currencies other than the U.S. dollar. The Company recognizes derivative instruments as either assets or liabilities and measures those instruments at fair


F-14

AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
value. If a derivative meets the definition of a hedge and is so designated, changes in the fair value of the derivative are recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative designated as a hedge is recognized in earnings. If a derivative does not meet the definition of a hedge, the changes in the fair value are included in earnings.
Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board, or FASB, issued authoritative guidance on the consolidation of variable interest entities, which is effective for the Company beginning October 1, 2010. The new guidance requires revised evaluations of whether entities represent variable interest entities, ongoing assessments of control over such entities, and additional disclosures for variable interests. The adoption of this new guidance did not have a material impact on the Company’s financial statements.
Adoption of New Accounting Standards
In January 2010, the FASB issued guidance to amend the disclosure requirements of fair value measurements. The guidance requires new disclosures on the transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy, including the reasons for the transfers, the reasons for any transfer in or out of Level 3 of the fair value measurement hierarchy and a roll forward of activities on purchases, sales, issuances, and settlements of recurring assets and liabilities measured at Level 3 of the fair value measurement hierarchy. In addition to these new disclosure requirements the new guidance also clarifies certain existing disclosure requirements. The guidance became effective for the Company beginning January 1, 2010, except for the disclosure on the roll forward activities for Level 3 fair value measurements, which will become effective for the Company beginning October 1, 2011. The adoption of this new guidance did not have a material impact on the Company’s financial statements.
In October 2009, the FASB issued authoritative guidance for revenue recognition relating to arrangements containing both hardware and software elements. Under the new guidance, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of software revenue recognition guidance, and will now be subject to other relevant revenue recognition guidance. Additionally, the FASB updated its authoritative guidance for revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. The revised guidance eliminates the requirement that “objective and reliable” evidence of fair value exist for an undelivered item in order for a delivered item to be treated as a specific unit of accounting. In addition, the guidance modifies the methodology to allocate transaction consideration to each identified unit of accounting by allowing the use of estimated selling price, or ESP, for individual elements of an arrangement when vendor specific objective evidence, or VSOE, of fair value or third-party evidence of selling price is unavailable. This results in the elimination of the residual method of allocating revenue consideration. The Company elected to early adopt the pronouncements at the beginning of its first quarter of fiscal 2010 on a prospective basis for applicable transactions originating or materially modified after October 1, 2009. If VSOE of fair value or third-party evidence of selling price is unavailable, the Company determines ESP for the purposes of allocating the consideration to individual elements of an arrangement by considering several external and internal factors including, but not limited to, pricing practices, margin objectives, geographies in which the Company offers its services and internal costs. The determination of ESP is made through consultation with and approval by management. This guidance does not generally change the units of accounting in the Company’s revenue arrangements or the methodology by which transaction consideration is allocated to the various units of accounting due to the fact that, for the majority of the Company’s existing multiple deliverables arrangements, the Company allocated transaction consideration for purposes of revenue recognition to each identified unit of accounting based upon its relative fair value, determined using VSOE. The new accounting standards for revenue recognition if applied to the year ended September 30, 2009 would not have had a material impact on the


F-15

AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
Company’s results of operations or financial position for that fiscal year. In addition, the adoption of the new guidance did not have a material impact on the Company’s results of operations or financial position in fiscal 2010.
Effective October 1, 2009, the Company adopted the new earnings per share authoritative guidance that provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities. As such, they should be included in the computation of basic earnings per share, or EPS, using the two-class method. Prior-period EPS data presented have been adjusted retroactively. This adjustment reduced basic and diluted EPS for the fiscal year ended September 30, 2009 and basic EPS for the fiscal year ended September 30, 2008 by $0.01.
Effective October 1, 2009, the Company adopted the fair value measurements guidance for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value on a recurring basis (at least annually). The adoption of this guidance did not have a material impact on the Company’s results of operations or financial position.
Effective October 1, 2009, the Company adopted the revised accounting guidance for business combinations. This guidance significantly changes the accounting for business combinations and establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree and recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase. Among the more significant changes, acquired in-process research and development will be capitalized and upon completion amortized over its useful life; acquisition costs will be expensed as incurred; restructuring costs will generally be expensed in periods after the acquisition date; contingent consideration will be recognized at fair value at the acquisition date with subsequent changes recognized in earnings, and reductions in deferred tax valuation allowance relating to a business acquisition will be recognized in earnings. In April 2009, the FASB issued an amendment to the revised business combination guidance regarding the accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies. The impact of this accounting guidance on the Company’s results of operations or financial position will vary depending on each specific business combination. This guidance did not have a material impact on the Company’s results of operations or financial position in fiscal 2010.
Effective October 1, 2009, the Company adopted the guidance that changes the accounting and reporting for noncontrolling (minority) interests in consolidated financial statements, including the requirement to classify noncontrolling interests as a component of consolidated stockholders’ equity, the elimination of “minority interest” accounting in results of operations and changes in the accounting for both increases and decreases in a parent’s controlling ownership interest. The adoption of this guidance had no impact on the Company’s consolidated results of operations or financial position.
 
Note 53 —Accounts Receivable, NetAcquisitions
 
Accounts receivable, net consistsThe Company acquired few entities during fiscal 2010, 2009 and 2008. The entities have been consolidated into the Company’s results of operations since their respective acquisition dates. These acquisitions, individually and in the following:
         
  As of September 30, 
  2008  2007 
 
Accounts receivable — billed $560,064  $457,393 
Accounts receivable — unbilled  48,264   43,870 
Less — allowances  (34,564)  (27,416)
         
Accounts receivable, net $573,764  $473,847 
         
aggregate, were not material.
 
Note 64 —Equipment, Vehicles and Leasehold Improvements, NetFair Value Measurements
 
Components of equipment, vehiclesThe Company accounts for certain assets and leasehold improvements, net are:
         
  As of September 30, 
  2008  2007 
 
Computer equipment $671,126  $574,294 
Vehicles furnished to employees  372   3,363 
Leasehold improvements  144,319   127,707 
Furniture and fixtures  51,048   48,814 
         
   866,865   754,178 
Less accumulated depreciation  (549,784)  (470,339)
         
  $317,081  $283,839 
         
Total depreciation expense on equipment, vehiclesliabilities at fair value. Fair value is the price that would be received from selling an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and leasehold improvements for fiscal years 2008, 2007liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and 2006, was $103,740, $85,916 and $75,964, respectively.it considers assumptions that market participants would use when pricing the asset or liability.


F-22F-16

AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. The Company categorizes each of its fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety.
The three levels of inputs that may be used to measure fair value are as follows:
Level 1:  Quoted prices in active markets for identical assets or liabilities;
Level 2:  Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets), or other inputs that are observable (model-derived valuations in which significant inputs are observable) or can be derived principally from, or corroborated by, observable market data; and
Level 3:  Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following tables present the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2010 and 2009:
             
  As of September 30, 2010 
  Level 1  Level 2  Total 
 
Available-for-sale securities:
            
Money market funds $867,335  $—  $867,335 
U.S. government treasuries  111,912   —   111,912 
U.S. agencies  —   65,724   65,724 
Government guaranteed debt  —   102,112   102,112 
Supranational and sovereign debt  —   23,771   23,771 
Corporate bonds  —   58,742   58,742 
Asset backed obligations  —   7,147   7,147 
Mortgages (including agencies and corporate)  —   18,948   18,948 
Commercial paper and certificate of deposit  10,048   9,254   19,302 
             
Totalavailable-for-sale securities
  989,295   285,698   1,274,993 
             
Derivative financial instruments, net  —   4,333   4,333 
             
Total $989,295  $290,031  $1,279,326 
             


F-17

AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
             
  As of September 30, 2009 
  Level 1  Level 2  Total 
 
Available-for-sale securities:
            
Money market funds $465,249  $—  $465,249 
U.S. government treasuries  272,405   —   272,405 
U.S. agencies  —   93,211   93,211 
Government guaranteed debt  —   83,949   83,949 
Supranational and sovereign debt  —   15,751   15,751 
Corporate bonds  —   32,130   32,130 
Asset backed obligations  —   16,645   16,645 
Mortgages (including agencies and corporate)  —   32,392   32,392 
Other  8,000   14   8,014 
             
Totalavailable-for-sale securities
  745,654   274,092   1,019,746 
             
Derivative financial instruments, net  —   13,882   13,882 
             
Total $745,654  $287,974  $1,033,628 
             
Available for sale securities that are classified as Level 2 assets are priced using observable data that may include quoted market prices for similar instruments, market dealer quotes, market spreads, non-binding market prices that are corroborated by observable market data and other observable market information and discounted cash flow techniques. The Company’s derivative instruments are classified as Level 2 as they represent foreign currency forward and option contracts valued primarily based on observable inputs including forward rates and yield curves. The Company did not have any transfers between Level 1 and Level 2 fair value measurements during fiscal 2010.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued personal costs, short-term financing arrangements and other current liabilities approximates their fair value because of the relatively short maturity of these items.

F-18

AMDOCS LIMITED
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
Note 5 —Available-For-Sale Securities
Available-for-sale securities consist of the following interest-bearing investments:
                 
  As of September 30, 2010 
     Gross
  Gross
    
  Amortized
  Unrealized
  Unrealized
    
  Cost  Gains  Losses  Fair Value 
 
Money market funds $867,335  $—  $—  $867,335 
U.S. government treasuries  111,685   227   —   111,912 
U.S. agencies  64,837   887   —   65,724 
Government guaranteed debt  100,832   1,280   —   102,112 
Supranational and sovereign debt  23,672   99   —   23,771 
Corporate bonds  59,247   728   1,233   58,742 
Asset backed obligations  8,230   —   1,083   7,147 
Mortgages (including agencies and corporate)  21,062   372   2,486   18,948 
Commercial paper and certificate of deposit  19,414   —   112   19,302 
                 
Total(1) $1,276,314  $3,593  $4,914  $1,274,993 
                 
(1)Available-for-sale securities are classified as short-term interest-bearing investments on the Company’s balance sheet, except for $877,889 of securities with maturities from date of acquisition of 90 days or less which are included in cash and cash equivalents as of September 30, 2010.
                 
  As of September 30, 2009 
     Gross
  Gross
    
  Amortized
  Unrealized
  Unrealized
    
  Cost  Gains  Losses  Fair Value 
 
Money market funds $465,249  $—  $—  $465,249 
U.S. government treasuries  271,483   922   —   272,405 
U.S. agencies  91,772   1,439   —   93,211 
Government guaranteed debt  83,212   764   27   83,949 
Supranational and sovereign debt  15,610   141   —   15,751 
Corporate bonds  32,924   730   1,524   32,130 
Asset backed obligations  19,630   179   3,164   16,645 
Mortgages (including agencies and corporate)  38,339   552   6,499   32,392 
Other  8,127   —   113   8,014 
                 
Total(2) $1,026,346  $4,727  $11,327  $1,019,746 
                 
(2)Available-for-sale securities are classified as short-term interest-bearing investments on the Company’s balance sheet, except for $575,467 of securities with maturities from date of acquisition of 90 days or less which are included in cash and cash equivalents as of September 30, 2009.
As of September 30, 2010, the unrealized losses were primarily due to credit market conditions and interest rate movements. A significant portion of the unrealized losses has been in a continuous loss position for 12 months or greater. The Company assessed whether such unrealized losses for the investments in its portfolio wereother-than-temporary. Based on this assessment, the Company recognized through earnings a credit loss of $760 and $1,094 in fiscal 2010 and 2009, respectively. As of September 30, 2010, unrealized losses of $1,526 related toother-than-temporarily impaired securities are included in accumulated other comprehensive income.


F-19

AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
The following table presents a cumulative roll forward of credit losses recognized in earnings as of September 30, 2010:
     
Balance as of April 1, 2009 $794 
Credit loss on debt securities for which another-than-temporary impairment was not previously recognized
  667 
Additional credit loss on debt securities for which another-than-temporary impairment was previously recognized
  427 
Reductions for securities realized during the period  (131)
     
Balance as of September 30, 2009  1,757 
Credit loss on debt securities for which another-than-temporary impairment was not previously recognized
  198 
Additional credit loss on debt securities for which another-than-temporary impairment was previously recognized
  562 
Reductions for securities realized during the period  (930)
     
Balance as of September 30, 2010 $1,587 
     
As of September 30, 2010, the Company’savailable-for-sale securities had the following maturity dates:
     
  Market Value 
 
within one year $1,071,240 
1 to 2 years  109,715 
2 to 3 years  55,545 
3 to 4 years  5,561 
Thereafter  32,932 
     
  $1,274,993 
     
Note 6 —Derivative Financial Instruments
The Company’s risk management strategy includes the use of derivative financial instruments to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. The Company does not enter into derivative transactions for trading purposes.
The Company’s derivatives expose it to credit risks from possible non-performance by counterparties. The maximum amount of loss due to credit risk that the Company would incur if counterparties to the derivative financial instruments failed completely to perform according to the terms of the contracts, based on the gross fair value of the Company’s derivative contracts that are favorable to the Company, was approximately $13,682 as of September 30, 2010. The Company has limited its credit risk by entering into derivative transactions exclusively with investment-grade rated financial institutions and monitors the creditworthiness of these financial institutions on an ongoing basis.
The Company classifies cash flows from its derivative transactions as cash flows from operating activities in the consolidated statements of cash flow.
The table below presents the total volume or notional amounts of the Company’s derivative instruments as of September 30, 2010. Notional values are U.S. dollar translated and calculated based on forward rates as of September 30, 2010 for forward contracts, and based on spot rates as of September 30, 2010 for options.


F-20

AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
     
  Notional Value* 
 
Foreign exchange contracts $738,125 
(*)Gross notional amounts do not quantify risk or represent assets or liabilities of the Company, but are used in the calculation of settlements under the contracts.
The Company records all derivative instruments on the balance sheet at fair value. Please see Note 4 to the consolidated financial statements. The fair value of the open foreign exchange contracts recorded by the Company on its consolidated balance sheets as of September 30, 2010 and 2009, as an asset or a liability is as follows:
         
  As of 
  September 30, 
  2010  2009 
 
Derivatives designated as hedging instruments
        
Prepaid expenses and other current assets $8,993  $19,023 
Other noncurrent assets  669   24 
Accrued expenses and other current liabilities  (960)  (3,709)
Other noncurrent liabilities  (292)  (32)
         
   8,410   15,306 
Derivatives not designated as hedging instruments
        
Prepaid expenses and other current assets  4,020   583 
Accrued expenses and other current liabilities  (8,097)  (2,007)
         
   (4,077)  (1,424)
         
Net fair value $4,333  $13,882 
         
Cash Flow Hedges
In order to reduce the impact of changes in foreign currency exchange rates on its results, the Company enters into foreign currency exchange forward contracts and options contracts to purchase and sell foreign currencies to hedge a significant portion of its foreign currency net exposure resulting from revenue and expense transactions denominated in currencies other than the U.S. dollar. The Company designates these contracts for accounting purposes as cash flow hedges. The Company currently hedges its exposure to the variability in future cash flows for a maximum period of two years (a significant portion of the forward contracts and options outstanding as of September 30, 2010 are expected to mature within the next 12 months).
The effective portion of the gain or loss on the derivative instruments is initially recorded as a component of other comprehensive income, a separate component of shareholders’ equity, and subsequently reclassified into earnings to the same line item as the related forecasted transaction and in the same period or periods during which the hedged exposure affects earnings. The cash flow hedges are evaluated for effectiveness at least quarterly. As the critical terms of the forward contract or options and the hedged transaction are matched at inception, the hedge effectiveness is assessed generally based on changes in the fair value for cash flow hedges as compared to the changes in the fair value of the cash flows associated with the underlying hedged transactions. Hedge ineffectiveness, if any, and hedge components, such as time value, excluded from assessment of effectiveness testing for hedges of estimated receipts from customers, are recognized immediately in interest and other (expense) income, net.

F-21

AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
The effect of the Company’s cash flow hedging instruments in the consolidated statement of income for the fiscal year ended September 30, 2010, which partially offset the foreign currency impact from the underlying exposures, is summarized as follows:
     
  Gains (Losses) Reclassified from
 
  Other Comprehensive Income
 
  (Effective Portion)
 
  Fiscal Year Ended
 
  September 30, 2010 
 
Line item in statement of income:    
Revenue $(3,466)
Cost of service  9,131 
Research and development  2,490 
Selling, general and administrative  1,306 
     
Total $9,461 
     
The effect of the Company’s cash flow hedging instruments in the consolidated statement of income for the nine months ended September 30, 2009, which partially offset the foreign currency impact from the underlying exposures, is summarized as follows:
     
  Gains (Losses) Reclassified from
 
  Other Comprehensive Income
 
  (Effective Portion)
 
  Nine Months Ended
 
  September 30, 2009 * 
 
Line item in statement of income:    
Revenue $3,039 
Cost of service  (17,679)
Research and development  (2,836)
Selling, general and administrative  (2,483)
     
Total $(19,959)
     
*Since the adoption date of the amended guidance on disclosure about derivative instruments and hedging activities.
An aggregate gain of $8,138, net of taxes, was reclassified from other comprehensive income in the fiscal year ended September 30, 2010. An aggregate loss of $19,614, net of taxes, was reclassified from other comprehensive income in the nine months ended September 30, 2009. The ineffective portion of the change in fair value of a cash flow hedge, including the time value portion excluded from effectiveness testing for the fiscal year ended September 30, 2010 and for the nine months ended September 30, 2009, was not material.
As of September 30, 2010, amounts related to derivatives designated as cash flow hedges and recorded in accumulated other comprehensive income totaled $6,002 which will be reclassified into earnings within the next 12 months and will partially offset the foreign currency impact from the underlying exposures. The amount ultimately realized in earnings will likely differ due to future changes in foreign exchange rates. Gains from cash flow hedges recognized in other comprehensive income during the fiscal year ended September 30, 2010 were $(990), or $(1,204), net of taxes.
Cash flow hedges are required to be discontinued in the event it becomes probable that the underlying forecasted hedged transaction will not occur. The Company did not discontinue any cash flow hedges during any of the periods presented nor does the Company anticipate any such discontinuance in the normal course of business.


F-22

AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
The activity related to the changes in net unrealized gains on cash flow hedges, net of tax, is as follows:
     
Net unrealized gains on cash flow hedges, net of tax, as of October 1, 2009 $12,936 
Changes associated with hedging transactions, net of tax $(214)  1,204 
Reclassification into earnings, net of tax $(1,323)  (8,138)
     
Net unrealized gains on cash flow hedges, net of tax, as of September 30, 2010 $6,002 
     
Other Risk Management Derivatives
The Company also enters into foreign currency exchange forward contracts that are not designated as hedging instruments under hedge accounting and are used to reduce the impact of foreign currency on certain balance sheet exposures and certain revenue and expense.
These instruments are generally short-term in nature, with typical maturities of less than one year, and are subject to fluctuations in foreign exchange rates.
The effect of the Company’s derivative instruments not designated as hedging instruments in the consolidated statement of income for the fiscal year ended September 30, 2010, which partially offset the foreign currency impact from the underlying exposure, is summarized as follows:
     
  Gains (Losses)
 
  Recognized in Income
 
  Fiscal Year Ended
 
  September 30, 2010 
 
Line item in statement of income:    
Revenue $(2,461)
Cost of service  1,464 
Research and development  280 
Selling general and administrative  339 
Interest and other (expense) income, net  (1,613)
Income taxes  (489)
     
Total $(2,480)
     
The effect of the Company’s non-designated as hedging instruments in the consolidated statement of income for the nine months ended September 30, 2009, which partially offset the foreign currency impact from the underlying exposure, is summarized as follows:
     
  Gains (Losses)
 
  Recognized in Income
 
  Nine Months Ended
 
  September 30, 2009* 
 
Line item in statement of income:    
Revenue $(4,395)
Cost of service  1,425 
Research and development  (1,204)
Selling general and administrative  920 
Interest and other (expense) income, net  (10,761)
Income taxes  (496)
     
Total $(14,511)
     


F-23

AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
*Since the adoption date of the amended guidance on disclosure about derivative instruments and hedging activities.
Note 7 —Accounts Receivable, Net
Accounts receivable, net consists of the following:
         
  As of September 30, 
  2010  2009 
 
Accounts receivable — billed $529,182  $443,094 
Accounts receivable — unbilled(1)  62,246   21,749 
Less — allowances  (11,428)  (9,878)
         
Accounts receivable, net $580,000  $454,965 
         
(1)The increase in accounts receivable unbilled in the fiscal year ended September 30, 2010 was primarily attributable to timing differences between delivery and invoicing milestones in projects.
Note 8 —Equipment and Leasehold Improvements, Net
Components of equipment and leasehold improvements, net are:
         
  As of September 30, 
  2010  2009 
 
Computer equipment $777,135  $725,398 
Leasehold improvements  157,268   145,539 
Furniture, fixtures and other  55,129   53,179 
         
   989,532   924,116 
Less accumulated depreciation  (731,259)  (644,457)
         
  $258,273  $279,659 
         
Total depreciation expense on equipment and leasehold improvements for fiscal years 2010, 2009 and 2008, was $111,966, $110,365 and $103,740, respectively.
Note 9 —Goodwill and Intangible Assets, Net
 
The following table presents details of the Company’s total goodwill (please also see Note 3 to the consolidated financial statements):goodwill:
 
     
As of October 1, 2006  1,461,606 
Goodwill resulted from SigValue acquisition  28,707 
Increase in goodwill as a result of additional purchase price in connection with 2005 acquisition  8,139 
Decrease in Cramer goodwill as a result of a purchase price allocation adjustments  (5,783)
Decrease in Qpass goodwill as a result of a purchase price allocation adjustments  (3,718)
Other  181 
     
As of September 30, 2007  1,489,132 
Increase in Cramer goodwill as a result of valuation allowance of pre-existing losses adjustment  19,653 
Other(1)  17,586 
     
As of September 30, 2008 $1,526,371 
     
     
As of October 1, 2008 $1,526,371 
Goodwill resulting from immaterial acquisitions  16,534 
Decrease in goodwill as a result of release of valuation allowances on deferred tax assets  (3,481)
     
As of September 30, 2009  1,539,424 
Goodwill resulting from immaterial acquisitions  151,434 
Decrease in goodwill as a result of divestiture of a subsidiary(1)  (53,442)
     
As of September 30, 2010 $1,637,416 
     
 
(1)Represents goodwill related primarilyPlease see Note 17 to immaterial acquisitions.the consolidated financial statements.


F-24

AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
The following table presents the amortization expense of the Company’s purchased intangible assets, included in each financial statement caption reported in the consolidated statements of income:
 
                        
 Year ended September 30,  Year Ended September 30, 
 2008 2007 2006  2010 2009 2008 
Cost of license $—  $2,402  $2,620 
Cost of service  849   —   —  $1,533  $1,820  $849 
Amortization of purchased intangible assets  86,687   74,959   37,610 
Amortization of purchased intangible assets and other  82,441   85,153   86,687 
              
Total $87,536  $77,361  $40,230  $83,974  $86,973  $87,536 
              
 
The Company performs an annual goodwill impairment test during the fourth quarter of each fiscal year, or more frequently if impairment indicators are present. The Company operates in one operating segment, and this segment comprises its only reporting unit. In calculating the fair value of the reporting unit, the Company used its market capitalization and a discounted cash flow methodology. There was no impairment of goodwill upon adoptionas of SFAS No. 142 and there was no impairment at the fiscal 2010 annual impairment test dates.date.
The following table presents details of the Company’s total purchased intangible assets:
                 
  Estimated
          
  Useful Life
     Accumulated
    
  (in years)  Gross  Amortization  Net 
 
September 30, 2010
                
Core technology  4-8  $364,057  $(272,798) $91,259 
Customer arrangements  6-15   304,308   (189,062)  115,246 
Intellectual property rights and purchased computer software  3-10   51,996   (51,996)  — 
Other  2-10   20,753   (8,496)  12,257 
                 
Total     $741,114  $(522,352) $218,762 
                 
September 30, 2009
                
Core technology  3-7  $317,952  $(225,328) $92,624 
Customer arrangements  6-15   281,254   (158,704)  122,550 
Intellectual property rights and purchased computer software  3-10   51,996   (51,996)  — 
Other  2-10   18,546   (6,383)  12,163 
                 
Total     $669,748  $(442,411) $227,337 
                 


F-23F-25

AMDOCS LIMITED
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
The following table presents details of the Company’s total purchased intangible assets:
                 
  Estimated
          
  useful life
     Accumulated
    
  (in years)  Gross  Amortization  Net 
 
September 30, 2008
                
Core technology  3-7  $290,648  $(175,989) $114,659 
Customer arrangements  6-15   267,938   (123,734)  144,204 
Intellectual property rights and purchased computer software  3-10   51,996   (51,996)  — 
Other  2   15,407   (3,719)  11,688 
                 
Total     $625,989  $(355,438) $270,551 
                 
September 30, 2007
                
Core technology  3-5  $263,790  $(126,095) $137,695 
Customer arrangements  6-15   252,930   (88,440)  164,490 
Intellectual property rights and purchased computer software  3-10   51,996   (51,996)  — 
Trademarks  2   2,642   (1,371)  1,271 
                 
Total     $571,358  $(267,902) $303,456 
                 
 
The estimated future amortization expense of purchased intangible assets as of September 30, 20082010 is as follows:
 
        
 Amount  Amount 
Fiscal year:
        
2009 $78,902 
2010  67,446 
2011  45,903  $65,795 
2012  21,827   41,361 
2013  14,829   28,759 
2014  21,308 
2015  17,199 
Thereafter  41,644   44,340 
      
Total $270,551  $218,762 
      


F-24

AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
Note 810 —Other Noncurrent Assets
 
Other noncurrent assets consist of the following:
 
                
 As of September 30,  As of September 30, 
 2008 2007  2010 2009 
Funded employee benefit costs(1) $115,874  $87,938  $131,274  $112,300 
Managed services deferred costs(2)  81,402   70,438 
Deferred costs(2)  109,698   92,129 
Long term accounts receivable-unbilled  47,055   20,322   43,018   38,600 
Prepaid maintenance and other  7,231   10,733 
Rent and other deposits  8,146   8,372 
Other  12,592   8,863   37,961   28,748 
          
 $272,300  $206,666  $321,951  $271,777 
          
 
(1)Please see Note 1519 to the consolidated financial statements.
 
(2)Please see Note 2 to the consolidated financial statements.
 
Note 911 —Income Taxes
 
The provision (benefit) for income taxes consists of the following:
 
                        
 Year ended September 30,  Year Ended September 30, 
 2008 2007 2006  2010 2009 2008 
Current $36,341  $66,780  $42,290  $60,529  $21,361  $36,341 
Deferred  2,304   (23,718)  12,947   (19,137)  18,617   2,304 
              
 $38,645  $43,062  $55,237  $41,392  $39,978  $38,645 
              
 
All income taxes are from continuing operations reported by the Company in the applicable taxing jurisdiction. Income taxes also include anticipated withholding taxes due on subsidiaries’ earnings when paid as dividends to the Company.


F-25F-26

AMDOCS LIMITED
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
Deferred income taxes are comprised of the following components:
 
                
 As of September 30,  As of September 30, 
 2008 2007  2010 2009 
Deferred tax assets:                
Deferred revenue $13,905  $22,766  $37,304  $21,499 
Accrued employee costs  56,780   52,544   48,746   43,772 
Equipment, vehicles and leasehold improvements, net  2,544   12,371 
Intangible assets, computer software and intellectual property  26,692   19,886   21,184   24,691 
Net operating loss carryforwards  160,140   122,969   144,830   124,045 
Other  68,291   80,101   81,416   77,588 
          
Total deferred tax assets  328,352   310,637   333,480   291,595 
Valuation allowances  (76,481)  (33,251)
Valuation allowances(1)  (106,743)  (82,780)
          
Total deferred tax assets, net  251,871   277,386   226,737   208,815 
          
Deferred tax liabilities:                
Anticipated withholdings on subsidiaries’ earnings  (47,029)  (50,618)  (37,521)  (42,595)
Equipment, vehicles and leasehold improvements, net  (4,573)  (3,817)
Intangible assets, computer software and intellectual property  (103,944)  (102,603)  (111,423)  (96,747)
Managed services costs  (16,097)  (16,086)  (13,898)  (16,339)
Other  (22,034)  (12,752)  (18,819)  (17,751)
          
Total deferred tax liabilities  (193,677)  (185,876)  (181,661)  (173,432)
          
Net deferred tax assets $58,194  $91,510  $45,076  $35,383 
          
(1)Subsequent releases of the valuation allowance will be recognized through earnings.
 
The effective income tax rate varied from the statutory Guernsey tax rate as follows:
 
                     
 Year ended September 30,  Year Ended September 30, 
 2008 2007 2006  2010 2009 2008 
Statutory Guernsey tax rate  0%  20%  20%  0%  0%  0%
Guernsey tax-exempt status  —   (20)  (20)
Foreign taxes  9   11   15   11   11   9 
              
Effective income tax rate  9%  11%  15%  11%  11%  9%
              
 
As a Guernsey company subject to a corporate tax rate of zero percent, the Company’s overall effective tax rate is attributable to foreign taxes. Tax legislation recently enacted in Guernsey with effect from January 1, 2008 repealed the exemption that the Company previously utilized, and subjects the Company to a corporate tax rate of zero percent, which has not affected the Company’s overall effective tax rate.
 
During fiscal 2008,2010, the net increase in valuation allowances was $43,230,$23,963, which related to the uncertainty of realizing tax benefits primarily for net capital and operating loss carryforwards related to certain of itsthe Company’s subsidiaries. WhenOf the increase, $10,541 was charged to other accounts, primarily goodwill, with the remainder recorded to earnings. As of September 30, 2010, the Company had net operating loss carryforwards of $520,098, of which $159,682 have expiration dates through 2029 and the remainder do not expire.
During fiscal 2009, the net increase in valuation allowances was $6,299, which related to the uncertainty of realizing tax benefits primarily for net capital and operating loss carryforwards related to certain of the Company’s subsidiaries and was recorded primarily to income tax expense. The Company released $3,481 of the valuation allowance in connection with fiscal 2006 and 2008 acquisitions. Prior to the adoption of the new business combination authoritative guidance on October 1, 2009, realization of the tax benefitsvaluation allowances associated with such losses is deemed more likely thanbusiness combinations was recorded as an adjustment of goodwill and amounts not the valuation allowance will be released throughassociated with business combinations were recognized as part of income taxes or through goodwill when it relates to a business combination.tax expense.


F-26F-27

AMDOCS LIMITED
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
The period before which $4,449 of these loss carryforwards expires is up to 20 years and the remainder of the losses do not expire. The Company recorded $26,208 of the valuation allowance in connection with fiscal 2006 and 2008 acquisitions. During fiscal 2008, the Company recorded a deferred tax asset for carryforward losses relating to one of its subsidiaries as the statute of limitation related to the fiscal years in which these losses had occurred lapsed. This deferred tax asset was partially offset by a valuation allowance.
During fiscal 2007, the net change in valuation allowances was $3,916, which related to the uncertainty of realizing tax benefits for net capital and operating loss carryforwards related to certain of its subsidiaries. When realization of the tax benefits associated with such net capital and operating losses is deemed more likely than not, the valuation allowance will be released through income taxes or through goodwill when it relates to a business combination. The period of $5,745 of these loss carryforwards is up to 20 years and the remainder of the losses do not expire. The Company recorded $5,667 of the valuation allowance in connection with fiscal 2006 acquisitions. During fiscal 2007, the Company released certain valuation allowances in connection with the Company’s estimation that carryforward losses related to one of its subsidiaries will be realized through future taxable earnings. The decrease in the valuation allowance was partially offset by an increase in tax reserves for this same subsidiary.
On October 1, 2007, the Company adopted FIN No. 48 which prescribes a comprehensive model for the financial statement recognition, measurement, classification and disclosure of uncertain tax positions. The adoption of FIN No. 48 did not result in a change to the Company’s retained earnings. The total amount of gross unrecognized tax benefits as of the date of adoption, which includes interest and penalties, was $108,929, of which $105,473 would affect the Company’s effective tax rate if realized. The Company historically classified unrecognized tax benefits in current income taxes payable. In implementing FIN No. 48, the Company has reclassified unrecognized tax benefits for which the Company does not anticipate making payment within one year to long-term income taxes payable.
The aggregate changes in the balance of the Company’s gross unrecognized tax benefits were as follows:
 
     
Balance at October 1, 2007 $108,929 
Additions based on tax positions related to the current year  19,280 
Net additions for tax positions of prior years  1,142 
Settlements with tax authorities(1)  (43,080)
Lapse of statute of limitations  (499)
     
Balance at September 30, 2008 $85,772 
     
         
  Year Ended September 30, 
  2010  2009 
 
Balance at beginning of fiscal year $103,304  $85,772 
Additions based on tax positions related to the current year  19,883   16,285 
Additions for tax positions of prior years(1)  19,832   3,918 
Settlements with tax authorities  (20,703)  — 
Lapse of statute of limitations  (3,654)  (2,671)
         
Balance at end of fiscal year $118,662  $103,304 
         
 
(1)As a result of settlements of certain tax matters duringPrimarily relates to immaterial acquisitions in fiscal 2008, the amount of gross unrecognized tax benefits was reduced by $43,080 (including interest), of which $13,185 was recorded as tax payable. The statute of limitations applicable to some of the items released as a result of these settlements would have been lapsed during 2008.2010.
 
The total amount of unrecognized tax benefits, which includes interest and penalties, was $85,772$118,662 as of September 30, 2008,2010, all of which $81,825 would affect the effective tax rate if realized.
 
The Company’s policy of includingCompany recognizes interest and penalties related to income taxes, including unrecognized tax benefits withinin the provision for income taxes on the consolidated statements of income did not change as a result of implementing FIN No. 48. As of the date of adoption of FIN No. 48, the Company had accrued $17,530 in income taxes payable for interest and penalties relating to unrecognized tax benefits.taxes. As of September 30, 2008,2010, the Company has accrued $13,997$15,570 in income taxes payable for interest and penalties relating to unrecognized tax benefits, of which $1,596 of net interest and penalties income$880 was recognized in the statement of operationincome in fiscal 2008.


F-27

AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar2010. As of September 30, 2009, the Company has accrued $16,038 in income taxes payable for interest and share amountspenalties relating to unrecognized tax benefits, of which $2,041 was recognized in thousands, except per share data)the statement of income in fiscal 2009.
 
The Company is currently under audit in several jurisdictions for the tax years 20012005 and onwards. Timing of the resolution of audits is highly uncertain and therefore the Company generally cannot estimate the change in unrecognized tax benefits resulting from these audits within the next 12 months.
 
Within the next 12 months the Company believes that the amount of unrecognized tax benefits will increase in the ordinary course of business, inbusiness. In addition it is reasonably possible that the amount of unrecognized tax benefits will decrease by $13,526$8,545 as a result of expected resolutions of tax audits and lapse of statute of limitations in jurisdictions in which the Company operates.
 
Note 1012 —Repurchase of Shares
In April 2010, the Company’s board of directors authorized a share repurchase plan allowing the repurchase of up to $700,000 of its outstanding ordinary shares over the following 12 months. The authorization permits the Company to purchase its ordinary shares in open market or privately negotiated transactions at times and prices that it considers appropriate. In fiscal 2010, the Company repurchased 13,695 ordinary shares at an average price of $28.41 per share (excluding broker and transaction fees). As of September 30, 2010, the Company had remaining authority to repurchase up to $310,984 of its outstanding ordinary shares. In the first quarter of fiscal 2011 (through December 3, 2010), the Company repurchased approximately 2,930.1 ordinary shares at an average price of $27.57 per share (excluding broker and transaction fees).
In August 2007, the Company announced that its board of directors had authorized a share repurchase plan allowing the repurchase of up to $400,000 of its outstanding ordinary shares. The authorization permitted the Company to purchase its ordinary shares in open market or privately negotiated transactions at times and prices that it considered appropriate. In fiscal 2008, the Company repurchased 8,370 ordinary shares at an average price of $30.45 per share (excluding broker and transaction fees). In the first quarter of fiscal 2009, the Company repurchased 468 ordinary shares under this repurchase program, at an average price of $26.90 per share (excluding broker and transaction fees). As of August 2009, this authority to repurchase ordinary shares expired.


F-28

AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
Note 13 —Financing Arrangements
The Company’s financing transactions are described below:
 
In November 2007, the Company entered into an unsecured $500,000 five-year revolving credit facility with a syndicate of banks, which is available for general corporate purposes, including acquisitions and repurchases of the company’s ordinary shares that itthe Company may consider from time to time. The interest rate for borrowings under the revolving credit facility is chosen at ourthe Company’s option (fromfrom severalpre-defined alteratives) and depends alternatives, depending on the circumstances of any advance and is based on the Company’s credit ratings. As of September 30, 20082010, the Company was in compliance with specifiedthe financial covenants thatunder the agreement imposes on it and had not borrowed against thisrevolving credit facility. However, duringDuring the first quarterhalf of fiscal 2009, the Company borrowed $100,000an aggregate of $450,000 under the credit facility which accruesat an average interest at rate that is equal to LiborLIBOR plus 3540 basis points margin, and used the proceeds to repurchase $100,000 aggregate principal amountacquire its outstanding notes as described in Note 14 to the consolidated financial statements. During the second half of its 0.50% Convertible Senior Notes at an average price of 98%fiscal 2009, the Company repaid all of the principal amount excluding accrued interest$450,000 outstanding under its credit facility. In September 2010, the Company borrowed an aggregate of $200,000 under the facility and transaction fees.repaid it in October 2010.
 
As of September 30, 2008,2010, the Company had outstanding letters of credit and bank guarantees of $5,183.$62,229. These were mostly supported by a combination of the credit facilities and restricted cash balances that the Company maintains with various banks. In addition, as of September 30, 2008,2010, the Company had outstanding short-term loans totaling $1,467 secured by certain pledges and guarantees.obligations of $705 in connection with leasing arrangements.
 
Note 1114 —Convertible Notes
 
In March 2004, the Company issued $450,000 aggregate principal amount of 0.50% Convertible Senior Notes due 2024 (the “0.50% Notes”) through a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act.. The Company is obligated to pay interest on the 0.50% Notes semi-annually on March 15 and September 15 of each year. The 0.50% Notes are senior unsecured obligations of the Company and rank equal in right of payment with all existing and future senior unsecured indebtedness of the Company. The 0.50% Notes are convertible, at the option of the holders at any time before the maturity date, into ordinary shares of the Company at a conversion rate of 23.1911 shares per one thousand dollars principal amount, representing a conversion price of approximately $43.12 per share, as follows: (i) during any fiscal quarter commencing after March 31, 2004, and only during that quarter if the closing sale price of the Company’s ordinary shares exceeds 130% of the conversion price for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the proceeding fiscal quarter (initially 130% of $43.12 or $56.06); (ii) upon the occurrence of specified credit rating events with respect to the notes; (iii) subject to certain exceptions, during the five business day period after any five consecutive trading day period in which the trading price per note for each day of that measurement period was less than 98% of the product of the closing sale price of the Company’s ordinary shares and the conversion rate; provided, however, holders may not convert their notes (in reliance on this subsection) if on any trading day during such measurement period the closing sale price of the Company’s ordinary shares was between 100% and 130% of the then current conversion price of the notes (initially, between $43.12 and $56.06); (iv) if the notes have been called for redemption,redemption; or (v) upon the occurrence of specified corporate events.


F-28

AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
The 0.50% Notes are subject to redemption at any time, on or after March 20, 2009, in whole or in part, at the option of the Company, at a redemption price of 100% of the principal amount plus accrued and unpaid interest, if any, on such redemption date. The 0.50% Notes are subject to repurchase, at the holders’ option, on March 15, 2009, 2014 and 2019, at a repurchase price equal to 100% of the principal amount plus accrued and unpaid interest, if any, on such repurchase date (“Put Rights”).date. The Company may choose to pay the repurchase price in cash, ordinary shares or a combination of cash and ordinary shares.
 
During the first quarter of fiscal 2009, using proceeds from the Company’s revolving credit facility, the Company repurchased $100,000purchased $448,980 aggregate principal amount of theits 0.50% Notesconvertible notes at an average price of 98%99.5% of the principal amount, excluding accrued interest and transaction fees.
The FASB issued an exposure draft that would amend SFAS No. 128 to require that, if a convertible financial instrument has an option to settle a required redemption in cash or shares, the assumption is the option would be settled in shares and therefore the “if converted” method should be applied based on the current share price and not according to the conversion price (the current accounting guidelines) when computing diluted earnings per share. The Board As of Directors has authorized the Company to amend the 0.50% Notes by waiving its right to a share settlement upon exercise of Put Rights and committing to a cash settlement. If the Company amends the 0.50% Notes as authorized by its Board of Directors, then the expected new accounting rule would have no impact on the Company’s consolidated financial results.
Note 12 —Noncurrent Liabilities and Other
Noncurrent liabilities and other consistSeptember 30, 2010, $1,020 aggregate principal amount of the following:notes, presented under other noncurrent liabilities, remained outstanding, due 2024, in accordance with their terms.
         
  As of September 30, 
  2008  2007 
 
Accrued employees costs(1) $172,340  $137,167 
Noncurrent customer advances  19,349   13,018 
Accrued pension liability(2)  19,194   22,281 
Accrued print and mail obligation  6,980   10,468 
Accrued lease obligations  5,730   8,729 
Other  3,707   4,983 
         
  $227,300  $196,646 
         
(1)Primarily severance pay liability in accordance with Israeli law. Please see Note 15 to the consolidated financial statements.
(2)Relates to funded status of non-contributory defined benefit plans. Please see Note 15 to the consolidated financial statements.


F-29

AMDOCS LIMITED
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
Note 15 —Noncurrent Liabilities and Other
Noncurrent liabilities and other consist of the following:
         
  As of September 30, 
  2010  2009 
 
Accrued employees costs(1) $170,780  $152,994 
Noncurrent deferred revenue  75,826   53,611 
Accrued pension liability(2)  15,173   9,540 
Other  11,575   15,242 
         
  $273,354  $231,387 
         
(1)Primarily severance pay liability in accordance with Israeli law. Please see Note 19 to the consolidated financial statements.
(2)Primarily relates to funded status of non-contributory defined benefit plans. Please see Note 19 to the consolidated financial statements.
 
Note 1316 —Interest income and other (expense) income, net
 
Interest income and other (expense) income, net consists of the following:
 
                        
 Year ended September 30,  Year Ended September 30, 
 2008 2007 2006  2010 2009 2008 
Interest income  $42,839  $49,138  $50,962  $7,670  $16,371  $42,839 
Interest expense  (6,772)  (6,540)  (5,433)  (3,135)  (7,865)  (7,529)
Foreign exchange (loss) gain  (18,856)  9,232   (1,155)
Gain from repurchase of 0.5% Notes(1)  —   2,185   — 
Foreign exchange loss  (5,551)  (5,713)  (18,856)
Loss from divestiture of a subsidiary(2)  (23,399)  —   — 
Other, net  (5,256)  (1,264)  (2,633)  (720)  (6,143)  (4,499)
              
  $11,955  $50,566  $41,741  $(25,135) $(1,165) $11,955 
              
(1)See Note 14 to the consolidated financial statements.
(2)See Note 17 to the consolidated financial statements.
Note 17 —Divestiture of a Subsidiary
In April 2010, the Company divested an 81% majority stake in Longshine Information Technology Company Ltd., its Chinese subsidiary acquired in 2005, to a newly formed and locally-managed entity, Longshine Technology Holding, Ltd. for approximately $26,730. The Company divested its stake after the market dynamics in China did not evolve as it had anticipated and the Company believed the divestiture would enable it to better focus its efforts on service provider opportunities in China with the Company’s CES 8 portfolio. The Company retains a minority interest in Longshine which is recorded under other noncurrent assets using the cost method. In connection with the divestiture, during fiscal 2010, the Company recorded a loss of $23,399. The loss has been reflected in interest and other (expense) income, net.


F-30

AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
Note 1418 —Contingencies
 
Commitments
 
The Company leases office space under non-cancelable operating leases in various countries in which it does business. Future minimum non-cancelable lease payments required after October 1, 2008based on the Company’s contractual obligations as of September 30, 2010 are as follows:
 
        
For the years ended September 30,
   
For the Years Ended September 30,   
2009 $54,652 
2010  49,393 
2011  40,446  $45,033 
2012  18,795   20,923 
2013  15,218   15,725 
2014  8,312 
Thereafter  16,755   4,262 
      
 $195,259  $94,255 
      
 
Future minimum non-cancelable lease payments, as stated above, do not reflect committed future sublease income of $4,022, $3,283, $3,217, $2,624,$4,236, $3,226, $1,813 and $1,712$461 for the years ended September 30, 2009, 2010, 2011, 2012, and 2013 and thereafter,2014, respectively.
 
Rent expense net of sublease income, including accruals for future lease losses, was approximately $39,572, $42,209$40,560, $43,726 and $41,088$39,572 for fiscal 2008, 20072010, 2009 and 2006,2008, respectively.
 
The Company leases vehicles under operating leases. Future minimum non-cancelable lease payments required after October 1, 20082010 are as follows:
 
     
For the years ended September 30,
   
 
2009 $16,891 
2010  12,375 
2011  4,103 
     
  $33,369 
     
     
For the Years Ended September 30,   
 
2011 $17,005 
2012  3,466 
2013  438 
     
  $20,909 
     
 
Legal Proceedings
 
The Company is involved in various legal proceedings arising in the normal course of its business. Based upon the advice of counsel, the Company does not believe that the ultimate resolution of these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.


F-30

AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
Guarantor’s Accounting and Disclosure Requirements for Guarantees
 
The Company generally sellsoffers its products with a limited warranty for a period of 90 days. The Company’s policy is to accrue for warranty costs, if needed, based on historical trends in product failure. Based on the Company’s experience, only minimal warranty servicescharges have been required after revenue was fully recognized and, as a result, the Company did not accrue any amounts for product warranty liability during fiscal years 2008, 20072010, 2009 and 2006.2008.
 
The Company generally indemnifies its customers against claims of intellectual property infringement made by third parties arising from the use of the Company’s software. To date, the Company has incurred and recorded only minimal costs as a result of such obligations in its consolidated financial statements.


F-31

AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
Note 1519 —Employee Benefits
 
The Company accrues severance pay for the employees of its Israeli operations in accordance with Israeli law and certain employment procedures on the basis of the latest monthly salary paid to these employees and the length of time that they have worked for the Israeli operations. The severance pay liability, which is included as accrued employee costs in other noncurrent liabilities, and other, is partially funded by amounts on deposit with insurance companies, which are included in other noncurrent assets. These severance expenses were approximately$19,570, $14,616 and $26,085 $28,832 and $26,403 for fiscal 2008, 20072010, 2009 and 2006,2008, respectively.
 
The Company sponsors defined contribution plans covering certain of its employees around the world. The plans primarily provide for Company matching contributions based upon a percentage of the employees’ contributions. The Company’s contributions in fiscal 2008, 20072010, 2009 and 20062008 under such plans were not material compared to total operating expenses.
In September 2006, SFAS No. 158 was issued which requires plan sponsors of defined benefit pension and other postretirement benefit plans to recognize the funded status of such plans in the balance sheet, measure the fair value of plan assets and benefit obligations as of the date of the balance sheet and provide additional disclosures.
 
The Company maintains non-contributory defined benefit plans that provide for pension, other retirement and post employment benefits for certain employees of a Canadian subsidiary based on length of service and rate of pay. The Company accrues its obligations to these employees under employee benefit plans and the related costs net of returns on plan assets. Pension expense and other retirement benefits earned by employees are actuarially determined using the projected benefit method pro-rated on service and based on management’s best estimates of expected plan investments performance, salary escalation, retirement ages of employees, discount rate, inflation and expected health care costs. The Company recognized the funded status of such plans in the balance sheet.
 
The fair value of the employee benefit plans’ assets is based on market values. The plan assets are valued at market value for the purpose of calculating the expected return on plan assets and the amortization of experienceexperienced gains and losses. Past service costs, which may arise from plan amendments, are amortized on a straight-line basis over the average remaining service period of the employees who were active at the date of amendment. The excess of the net actuarial gain (loss) over 10% of the greater of the benefit obligation and the market-related value of plan assets is amortized over the average remaining service period of active employees.
 
The pension and other benefits costs related to the non-contributory defined benefit plans were immaterial in fiscal 2008, 20072010, 2009 and 2006 were $1,213, $1,237 and $3,193, respectively.2008.
 
Note 16 —Capital Transactions
In August 2007, the Company announced that its board of directors had authorized a share repurchase plan allowing the repurchase of up to $400,000 of its outstanding ordinary shares. The authorization permits


F-31

AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
the Company to purchase its ordinary shares in open market or privately negotiated transactions at times and prices that it considers appropriate. In fiscal 2008, the Company repurchased 8,370 ordinary shares at an average price of $30.45 per share (excluding broker and transaction fees). As of September 30, 2008, the Company may repurchase up to $95,308 of its ordinary shares under the share repurchase plan.
Note 1720 —Stock Option and Incentive Plan
 
In January 1998, the Company adopted the 1998 Stock Option and Incentive Plan (the “Plan”), which provides for the grant of restricted stock awards, stock options and other equity-based awards to employees, officers, directors, and consultants. The purpose of the Plan is to enable the Company to attract and retain qualified personnel and to motivate such persons by providing them with an equity participation in the Company. Since its adoption, the Plan has been amended on several occasions to, among other things, increase the number of ordinary shares issuable under the Plan. In January 2008, the maximum number of ordinary shares authorized to be granted under the Plan was increased from 46,300 to 55,300. Awards granted under the Plan generally vest over a period of four years and stock options have a term of ten years.


F-32

AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
The following table summarizes information about options to purchase the Company’s ordinary shares, as well as changes during the years ended September 30, 2008, 20072010, 2009 and 2006:2008:
 
                
 Number of
    Number of
   
 Share
 Weighted Average
  Share
 Weighted Average
 
 Options Exercise Price  Options Exercise Price 
Outstanding as of October 1, 2005  25,807.4  $26.91 
Granted(1)  4,812.1   29.41 
Exercised  (5,869.5)  18.24 
Forfeited  (1,956.0)  34.42 
   
Outstanding as of September 30, 2006  22,794.0   29.02 
Granted  2,830.2   35.92 
Exercised  (3,970.1)  18.80 
Forfeited  (1,197.6)  34.77 
   
Outstanding as of September 30, 2007  20,456.5   31.62 
Outstanding as of October 1, 2007  20,456.5  $31.62 
Granted  5,631.1   33.05   5,631.1   33.05 
Exercised  (2,051.7)  18.31   (2,051.7)  18.31 
Forfeited  (1,648.2)  35.85   (1,648.2)  35.85 
      
Outstanding as of September 30, 2008  22,387.7  $32.89   22,387.7   32.89 
Granted  3,658.1   18.70 
Exercised  (1,289.4)  21.63 
Forfeited  (3,435.0)  34.20 
      
Exercisable on September 30, 2008  12,995.6  $33.00 
Outstanding as of September 30, 2009  21,321.4   30.93 
Granted  4,735.2   27.71 
Exercised  (1,096.6)  21.55 
Forfeited  (2,761.8)  40.64 
      
Outstanding as of September 30, 2010  22,198.2  $29.50 
   
Exercisable on September 30, 2010(1)  13,299.7  $31.32 
   
 
(1)Includes options to purchase 297.6 ordinary shares assumed in connection withAt September 30, 2010, the Company’s acquisition of Qpass at weighted average exercise priceremaining contractual life of $8.01, andexercisable options to purchase 161.0 ordinary shares assumed in connection with the Company’s acquisition of Cramer at weighted average exercise price of $6.50.was 4.50 years.
The following table summarizes information relating to awards of restricted shares, as well as changes during the years ended September 30, 2010, 2009 and 2008:
         
     Weighted Average
 
  Number of
  Grant Date Fair
 
  Shares  Value 
 
Outstanding as of October 1, 2007  955.1  $34.50 
Granted  611.1   32.53 
Vested  (321.5)  32.81 
Forfeited  (139.6)  35.45 
         
Outstanding as of September 30, 2008  1,105.1   33.78 
Granted  583.2   18.42 
Vested  (315.7)  33.43 
Forfeited  (247.9)  34.80 
         
Outstanding as of September 30, 2009  1,124.7   25.69 
Granted  650.2   27.43 
Vested  (445.4)  26.83 
Forfeited  (78.0)  26.95 
         
Outstanding as of September 30, 2010  1,251.5  $26.11 
         


F-32F-33

AMDOCS LIMITED
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
 
The following table summarizes information relating to awards of restricted shares, as well as changes during the years ended September 30, 2008, 2007 and 2006:
         
     Weighted Average
 
  Number of
  Grant Date Fair
 
  Shares  Value 
 
Outstanding as of October 1, 2005  133.8  $26.43 
Granted(1)  747.4   33.22 
Vested  (94.9)  26.43 
Forfeited  (6.0)  32.12 
         
Outstanding as of September 30, 2006  780.3   32.89 
Granted  468.1   37.04 
Vested  (235.8)  33.76 
Forfeited  (57.5)  36.43 
         
Outstanding as of September 30, 2007  955.1   34.50 
Granted  611.1   32.53 
Vested  (321.5)  32.81 
Forfeited  (139.6)  35.45 
         
Outstanding as of September 30, 2008  1,105.1  $33.78 
         
(1)Includes 156.8 restricted shares assumed in connection with the Company’s acquisition of Cramer at weighted average grant date fair value of $40.70 per share.
The total intrinsic value of options exercised and the value of restricted shares vested during fiscal 20082010 was $27,931$8,262 and $10,228,$12,105, respectively. The aggregate intrinsic value of outstanding and exercisable stock options as of September 30, 20082010 was $41,099$57,138 and $35,905,$27,687, respectively.
 
The total income tax benefit recognized in the income statement for stock-based compensation (including restricted shares) for fiscal 2010, 2009 and 2008 2007was $3,677, $5,660 and 2006 was $5,903, $8,633 and $5,575, respectively.
 
As of September 30, 2008,2010, there was $57,584$39,713 of unrecognized compensation expense related to nonvested stock options and nonvested restricted stock awards. The Company recognizes compensation costs using the graded vesting attribution method which results in a weighted average period of approximately one year over which the unrecognized compensation expense is expected to be recognized.
The following table summarizes information about stock options outstanding as of September 30, 2010:
                     
                                            Outstanding  Exercisable 
     Weighted Average
          
     Remaining
          
     Contractual
  Weighted
     Weighted
 
  Number
  Life
  Average
  Number
  Average
 
Exercise Price Outstanding  (in Years)  Exercise Price  Exercisable  Exercise Price 
 
$ 0.38 — 4.76  47.8   4.31  $2.09   47.8  $2.09 
  6.40 — 16.75  321.4   2.48   11.18   312.4   11.02 
 16.92 — 19.78  1,791.5   8.12   17.46   447.6   17.74 
 19.94 — 22.38  2,204.5   6.09   20.89   1,260.7   21.55 
 22.43 — 26.65  2,918.8   6.93   25.41   1,695.5   25.20 
 26.68 — 28.59  3,688.7   7.95   27.70   1,130.8   27.62 
 28.60 — 32.12  3,668.1   3.83   30.77   3,000.5   30.97 
 32.15 — 33.16  3,001.4   7.19   33.05   1,843.3   33.05 
 33.74 — 35.45  2,344.1   6.62   34.96   1,442.1   34.85 
 35.87 — 47.90  1,594.8    3.24   41.03   1,501.9   41.23 
 52.75 — 78.31  617.1   0.31   61.46   617.1   61.46 
Employee equity-based compensation pre-tax expense for the years ended September 30, 2010, 2009 and 2008 was as follows:
             
  Year Ended September 30, 
  2010  2009  2008 
 
Cost of service $20,061  $21,733  $23,547 
Research and development  4,218   4,249   4,714 
Selling, general and administrative  20,176   16,929   29,229 
             
Total $44,455  $42,911  $57,490 
             


F-33F-34

AMDOCS LIMITED
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
The following table summarizes information about stock options outstanding as of September 30, 2008:
                     
Outstanding  Exercisable 
     Weighted Average
          
     Remaining
          
     Contractual
  Weighted
     Weighted
 
Exercise
 Number
  Life
  Average
  Number
  Average
 
Price
 Outstanding  (in Years)  Exercise Price  Exercisable  Exercise Price 
 
$0.38 — 4.76  87.7   6.23  $2.41   77.2  $2.58 
6.40 — 18.60  803.7   4.25   13.32   785.4   13.38 
19.78 — 22.75  2,018.7   5.70   21.98   1,608.7   21.99 
23.43 — 26.65  2,189.6   3.71   24.94   1,855.8   24.69 
27.30 — 29.91  2,381.5   7.17   28.21   1,401.4   27.94 
30.12 — 32.15  3,482.5   4.85   31.23   2,716.5   31.18 
32.31 — 33.16  3,628.1   9.17   33.06   20.4   33.05 
33.50 — 34.96  2,434.0   6.48   34.44   1,206.4   34.13 
35.45 — 39.82  2,643.9   8.43   37.34   605.8   38.48 
43.10 — 65.01  2,424.7   2.21   52.58   2,424.7   52.58 
66.25 — 78.31  293.3   1.86   69.78   293.3   69.78 
Employee equity-based compensation pre-tax expense under SFAS No. 123(R) for the years ended September 30, 2008 and 2007 was as follows:
             
  Year ended September 30, 
  2008  2007  2006 
 
Cost of service $23,547  $25,418  $18,042 
Research and development  4,714   6,574   4,711 
Selling, general and administrative  29,229   21,595   23,425 
             
Total $57,490  $53,587  $46,178 
             
 
The fair value of options granted was estimated on the date of grant using the Black-Scholes pricing model with the assumptions noted in the following table (all in weighted averages for options granted during the year):
 
                        
 Year ended September 30,  Year Ended September 30, 
 2008 2007 2006  2010 2009 2008 
Risk-free interest rate(1)  3.23%  4.57%  4.56%  1.98%  1.94%  3.23%
Expected life of stock options(2)  4.32   4.43   4.37   4.32   4.46   4.32 
Expected volatility(3)  33.3%  31.6%  34.9%  31.5%  47.9%  33.3%
Expected dividend yield(4)  None   None   None   None   None   None 
Fair value per option(5) $10.45  $12.65  $13.36  $7.66  $7.54  $10.45 
 
 
(1)(1) Risk-free interest rate is based upon U.S. Treasury yield curve appropriate for the term of the Company’s employee stock options.
 
(2)(2) Expected life of stock options is based upon historical experience.
 
(3)(3) Expected volatility for fiscal years 2008, 2007 and 2006 is based on blended volatility. Please see Note 2 to the consolidated financial statements.
 
(4)(4) Expected dividend yield is based on the Company’s history and future expectation of dividend payouts.
Note 21 —Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
             
  Year Ended September 30, 
  2010  2009(1)  2008(1) 
 
Numerator:            
Numerator for basic earnings per share $343,906  $326,176  $378,906 
Effect of assumed conversion of 0.50% convertible notes  —   1,486   3,940 
             
Numerator for diluted earnings per share $343,906  $327,662  $382,846 
             
Denominator:            
Denominator for basic earnings per share — weighted average number of shares outstanding  202,584   204,023   207,639 
Effect of assumed conversion of 0.50% convertible notes  24   3,948   10,436 
Effect of dilutive stock options granted  1,468   379   2,200 
             
Denominator for dilutive earnings per share — adjusted weighted average shares and assumed conversions  204,076   208,350   220,275 
             
Basic earnings per share $1.70  $1.60  $1.82 
             
Diluted earnings per share $1.69  $1.57  $1.74 
             
(1)The basic and diluted weighted average number of shares outstanding for the fiscal years ended September 30, 2009 and 2008 have been retroactively adjusted to reflect the adoption of new earnings per share authoritative guidance requiring the inclusion of unvested share-based payment awards containing nonforfeitable rights to dividends or dividend equivalents in the calculation of basic weighted average number of shares outstanding. This adjustment reduced basic and diluted earnings per share for the fiscal year ended September 30, 2009 and basic earnings per share for the fiscal year ended September 30, 2008 by $0.01.


F-34F-35

AMDOCS LIMITED
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
 
(5) Fiscal 2006 includes fair value of options assumed in connection with the Company’s acquisitions of Qpass and Cramer. Please see Note 3 to the consolidated financial statements. Fiscal 2006 fair value is $11.34, excluding Qpass and Cramer assumed options.
Note 18 —Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
             
  Year ended September 30, 
  2008  2007  2006 
 
Numerator:            
Numerator for basic earnings per share $378,906  $364,937  $318,636 
Effect of assumed conversion of 0.50% convertible notes  3,940   3,940   3,948 
             
Numerator for diluted earnings per share $382,846  $368,877  $322,584 
             
Denominator:            
Denominator for basic earnings per share — weighted average number of shares outstanding  206,590   207,846   203,194 
Restricted stock  380   373   141 
Effect of assumed conversion of 0.50% convertible notes  10,436   10,436   10,436 
Effect of dilutive stock options granted  2,200   4,601   4,763 
             
Denominator for dilutive earnings per share — adjusted weighted average shares and assumed conversions  219,606   223,256   218,534 
             
Basic earnings per share $1.83  $1.76  $1.57 
             
Diluted earnings per share $1.74  $1.65  $1.48 
             
The effect of the 0.50% Notes issued by the Company in March 2004 on diluted earnings per share was included in the above calculation. Please see Note 2 to the consolidated financial statements.
The weighted average effect of the repurchase of ordinary shares by the Company has been included in the calculation of basic earnings per share.
 
For the fiscal years ended September 30, 2010, 2009 and 2008, 16,201, 20,623 and 13,429 shares, respectively were attributable to antidilutive outstanding stock options and therefore were not included in the calculation of diluted earnings per share.
Note 1922 —Segment Information and Sales to Significant Customers
 
The Company and its subsidiaries operate in one operating segment, providing software products and services for the communications, media and entertainment industry.


F-35

 
AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
Geographic Information
 
The following is a summary of revenue and long-lived assets by geographic area. Revenue is attributed to geographic region based on the location of the customers.
 
                        
 Year ended September 30,  Year Ended September 30, 
 2008 2007 2006  2010 2009 2008 
Revenue
                        
United States $1,762,210  $1,482,668  $1,319,261  $1,847,351  $1,754,309  $1,762,210 
Canada  405,569   400,530   406,941   404,658   400,264   405,569 
Europe  548,027   609,170   539,784   353,239   394,263   548,027 
Rest of the world  446,290   343,805   214,064   378,975   313,771   446,290 
              
Total $3,162,096  $2,836,173  $2,480,050  $2,984,223  $2,862,607  $3,162,096 
              
 
                        
 As of September 30,  As of September 30, 
 2008 2007 2006  2010 2009 2008 
Long-lived Assets(1)
                        
United States $153,739  $137,160  $98,607  $110,245  $138,520  $153,739 
Israel  56,130   52,717   47,315   40,717   43,978   56,130 
India  39,208   33,159   22,190   36,322   32,578   39,208 
Europe  33,165   23,665   13,098   35,353   35,366   33,165 
Rest of the world  34,839   37,138   39,080   35,636   29,217   34,839 
              
Total $317,081  $283,839  $220,290  $258,273  $279,659  $317,081 
              
 
(1)Includes equipment vehicles and leasehold improvements.
 
Revenue and Customer Information
 
Customer experience systems includes the following offerings: revenue management (billing(convergent charging and charging,billing, mediation, and partner settlement)settlements), customer management (contact center(customer care, and agent interaction, service and support, sales and ordering, and online and self-directed interactions)ordering), service and resource management (OSS) (network planning, service fulfillment, service assurance, and inventory and discovery) digital commercediscovery and service management), service delivery (digital commerce, search and(convergent service platform, digital advertising, open services, and service deliveryconvergent applications), and control), information management (product management and customer data integration) and foundation (application framework, operational framework and delivery framework).portfolio enablers. Customer experience systems also includes a comprehensive line of services such as consulting, delivery and managed services, system implementation, integration, modification, consolidation, modernization and ongoing support, enhancement and maintenance services.maintenance. Directory includes directory salescomprehensive set of products and publishing systems and related services for publishers of both traditional printed yellow page and white page directories and electronic Internet directories.
             
  Year ended September 30, 
  2008  2007  2006 
 
Customer experience systems $2,894,335  $2,551,718  $2,201,245 
Directory  267,761   284,455   278,805 
             
Total $3,162,096  $2,836,173  $2,480,050 
             
directory publishers.


F-36

AMDOCS LIMITED
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
             
  Year Ended September 30, 
  2010  2009  2008 
 
Customer experience systems $2,775,271  $2,685,460  $2,894,335 
Directory  208,952   177,147   267,761 
             
Total $2,984,223  $2,862,607  $3,162,096 
             
Sales to Significant Customers
 
The following table summarizes the percentage of sales to significant customerscustomer groups (when they exceedamount to 10 percent or more of total revenue for the year).
 
                     
 Year ended September 30,  Year Ended September 30, 
 2008 2007 2006  2010 2009 2008 
Customer 1  28%  22%  23%  29%  33%  28%
Customer 2  12   15   13   12   10   12 
Customer 3  10   11   14   10   10   10 
 
Note 2023 —Operational Efficiency and Cost Reduction Programs
 
In accordance with SFAS No. 112 “Employers’ Accountingauthoritative guidance for Post Employment Benefits” (“SFAS No. 112”)employers’ accounting for post employment benefits and SFAS No. 146, “Accountingaccounting for Costs Associatedcosts associated with Exitexit or Disposal Activities” (“SFAS No. 146”),disposal activities, the Company recognized a total of $12,116, $6,011$0, $15,140 and $0$12,116 in restructuring charges in fiscal 2010, 2009 and 2008, 2007respectively.
In the three months ended December 31, 2008, the Company commenced a series of measures designed to align its operational structure to its expected future activities and 2006, respectively.to improve efficiency. As part of this plan, the Company recorded a charge of $14,187 consisting primarily of employee separation costs in connection with the termination of the employment of software and information technology specialists and administrative professionals at various locations around the world. The majority of the payments for the separation of employees were made in fiscal 2009. Remaining amounts were paid in fiscal 2010.
 
In the quarter ended September 30, 2008, the Company commenced a series of measures designed to improve efficiency and align its operational structure to its expected future growth.activities. As part of this plan, the Company recorded in the quarters ended September 30, 2008 and December 31, 2008 a charge of $12,116 and $953, respectively, consisting of employee separation costs in connection with the termination of the employment of software and information technology specialists and administrative professionals at various locations around the world. Approximately $1,926The majority of the total charge had beenpayments for the separation of employees were made in fiscal 2009 and 2008. Remaining amounts were paid in cash as of September 30, 2008.
In the quarter ended March 31, 2007, the Company commenced a series of measures designed to align its operational structure to its expected future growth and to improve efficiency. As part of this plan, the Company recorded a charge of $6,011, consisting primarily of employee separation costs in connection with the termination of the employment of software and information technology specialists and administrative professionals at various locations around the world and for facility related costs. Approximately $5,322 of the total charge had been paid in cash as of September 30, 2008. The facility related costs are expected to be paid through May 2013.
The restructuring accrual for this cost reduction program is comprised of the following as of September 30, 2008:
             
  Employee
       
  Separation
       
  Costs  Facilities  Total 
 
Balance as of October 1, 2007 $201  $1,100  $1,301 
Cash payments  (153)  (401)  (554)
Non-cash  —   (447)  (447)
             
Balance as of September 30, 2008 $48  $252  $300 
             
The following describes restructuring actions the Company initiated in fiscal 2005:
In connection with the acquisition of DST Innovis, Inc. and DST Interactive, Inc. (collectively, “DST Innovis”) in fiscal 2005, the Company commenced integration activities with respect to the DST Innovis business based on a plan to exit specific research and development activities and to terminate employees2010.


F-37

AMDOCS LIMITED
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
 
associated with these activities. The liabilities associated with this plan, which were recorded as part of the purchase accounting, are presented in the following table:
             
  Contractual
       
  Obligations  Other  Total 
 
Balance as of October 1, 2007  $4,247  $112   $4,359 
Cash payments  (630)  —   (630)
Non-cash adjustments  (3,576)  (112)  (3,688)
             
Balance as of September 30, 2008  $    41  $—   $    41 
             
Note 21 —Financial Instruments
The Company enters into forward contracts and options to purchase and sell foreign currencies to reduce the net exposure associated with revenue denominated in a foreign currency and net exposure associated with anticipated expenses (primarily personnel costs) innon-U.S. dollar-based currencies and designates these for accounting purposes as cash flow hedges. The Company also may enter into forward contracts to sell foreign currency in order to hedge its exposure associated with some firm commitments from customers innon-U.S. dollar-based currencies and designates these for accounting purposes as fair value hedges. As of September 30, 2008 and 2007, the Company had no outstanding fair value hedges. The derivative financial instruments are afforded hedge accounting because they are effective in managing foreign exchange risks and are appropriately assigned to the underlying exposures. The Company also enters into forward contracts that are not designated as hedging instruments under SFAS No. 133 and are used to offset the effect of exchange rates on certain assets and liabilities and certain revenue and expense that are not designated for accounting purposes as cash flow hedges. The Company does not engage in currency speculation. The Company currently enters into forward exchange contracts and options exclusively with major financial institutions. The Company currently hedges its exposure to the variability in future cash flows for a maximum period of two years.
The hedges that are designated for accounting purposes as cash flow hedges are evaluated for effectiveness at least quarterly. As the critical terms of the forward contract or options and the hedged transaction are matched at inception, the hedge effectiveness is assessed generally based on changes in the fair value for cash flow hedges as compared to the changes in the fair value of the cash flows associated with the underlying hedged transactions. The effective portion of the change in the fair value of forward exchange contracts or options, which are classified as cash flow hedges, is recorded as comprehensive income until the underlying transaction is recognized in earnings. Any residual change in fair value of the forward contracts, such as time value, excluded from effectiveness testing for hedges of estimated receipts from customers, is recognized immediately in “interest income and other, net.” Hedge ineffectiveness, if any, is also included in current period in earnings in “interest income and other, net.”
The Company discontinues hedge accounting for a forward contract or options when (1) it is determined that the derivative is no longer effective in offsetting changes in the fair value of cash flows of hedged item; (2) the derivative matures or is terminated; (3) it is determined that the forecasted hedged transaction will no longer occur; (4) a hedged firm commitment no longer meets the definition of a firm commitment; or (5) management decides to remove the designation of the derivative as a hedging instrument.
When hedge accounting is discontinued, and if the derivative remains outstanding, the Company will record the derivative at its fair value on the consolidated balance sheet, recognizing changes in the fair value in current period earnings in “interest income and other, net.” When the Company discontinues hedge accounting because it is no longer probable that the forecasted transaction will occur, the gains and losses that were accumulated in other comprehensive income will be recognized immediately in earnings in “interest income and other, net.”


F-38

AMDOCS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(dollar and share amounts in thousands, except per share data)
The Company has $260,382 net negative notional value foreign currency forward contracts and options maturing through 2009. Negative notional amounts represent forward contracts and options to buy foreign currency. Notional amounts do not quantify risk or represent assets or liabilities of the Company but are used in calculation of cash settlements under the contracts. The fair value of the open contracts recorded by the Company in its consolidated balance sheets as an asset or a liability is as follows:
         
  As of September 30, 
  2008  2007 
 
Prepaid expenses and other current assets  $15,259   $6,492 
Other noncurrent assets  28   10 
Accrued expenses and other current liabilities  (23,517)  (6,494)
Noncurrent liabilities and other  —   (1,388)
         
Net fair value  $(8,230)  $(1,380)
         
A significant portion of the forward contracts and options outstanding as of September 30, 2008 are expected to mature within the next year.
During fiscal years 2008, 2007 and 2006, the gains or losses recognized in earnings for hedge ineffectiveness, excluding the time value portion excluded from effectiveness testing, were not material. During fiscal years 2008, 2007 and 2006, the Company recognized no material losses resulting from hedged forecasted cash flows that no longer qualified as cash flow hedges. All of the above gains or losses are included in “interest income and other, net.”
Derivatives gains and losses, which are included in other comprehensive income, are reclassified into earnings at the time the forecasted revenue or expenses are recognized. The Company estimates that a $5,196 net loss related to forward contracts and options that are included in other comprehensive income as of September 30, 2008 will be reclassified into earnings within the next twelve months. The amount ultimately realized in earnings will likely differ due to future changes in foreign exchange rates.
Note 2224 —Selected Quarterly Results of Operations (Unaudited)
 
The following are details of the unaudited quarterly results of operations for the three months ended:
 
                                
 September 30, June 30, March 31, December 31,  September 30, June 30, March 31, December 31, 
2008
                
2010
                
Revenue $825,277  $820,288  $774,281  $742,250  $762,194  $753,249  $743,969  $724,811 
Operating income  101,463   105,951   102,880   95,302   102,888   105,269   103,127   99,149 
Net income  82,711   100,672   99,859   95,664   94,738   92,265   68,550   88,353 
Basic earnings per share  0.40   0.49   0.48   0.46   0.49   0.45   0.33   0.43 
Diluted earnings per share  0.38   0.46   0.46   0.44   0.48   0.45   0.33   0.43 
2007
                
2009(1)
                
Revenue $726,689  $712,091  $706,361  $691,032  $707,419  $690,265  $711,084  $753,839 
Operating income  94,140   91,989   83,798   87,506   96,845   93,246   95,959   81,269 
Net income  96,243   88,181   87,171   93,342   85,751   85,548   80,630   74,247 
Basic earnings per share  0.46   0.42   0.42   0.45   0.42   0.42   0.40   0.36 
Diluted earnings per share  0.43   0.40   0.40   0.42   0.42   0.42   0.39   0.35 
(1) The basic and diluted weighted average number of shares outstanding for the quarters ended within fiscal 2009 have been retroactively adjusted to reflect the adoption of new earnings per share authoritative guidance requiring the inclusion of unvested share-based payment awards containing nonforfeitable rights to dividends or dividend equivalents in the calculation of basic weighted average number of shares outstanding. This adjustment reduced basic earnings per share for the first quarter of fiscal year 2009 by $0.01.


F-39F-38

Valuation and Qualifying Accounts

VALUATION AND QUALIFYING ACCOUNTS
(inIn thousands)
 
                
   Valuation Allowances
    Valuation Allowances
 
   on Net
    on Net
 
 Accounts Receivable
 Deferred Tax
  Accounts Receivable
 Deferred Tax
 
 Allowances Assets  Allowances Assets 
Balance as of September 30, 2005 $6,908  $14,302 
Charged to costs and expenses  1,592   3,640(1)
Charged to revenue  1,448   — 
Charged to other accounts  4,406(2)  11,393(3)
Deductions  (2,279)  — 
     
Balance as of September 30, 2006  12,075   29,335 
Charged to costs and expenses  1,316   9,933(4)
Charged to revenue  23,102   — 
Charged to other accounts  27   5,667(3)
Deductions  (9,104)  (11,684)(5)
     
Balance as of September 30, 2007  27,416   33,251  $27,416  $33,251 
Charged to costs and expenses  97   24,479(6)  97   24,479 (1)
Charged to revenue  1,962   —   1,962   — 
Charged to other accounts  7,607   26,208(3)  7,607   26,208 (2)
Deductions  (2,518)  (7,457)(5)  (2,518)  (7,457)(3)
          
Balance as of September 30, 2008 $34,564  $76,481   34,564   76,481 
Charged to costs and expenses  1,436   22,756 (4)
Charged to revenue  3,768   — 
Charged to other accounts  3,397 (5)  — 
Deductions  (33,287)(7)  (16,457)(6)
          
Balance as of September 30, 2009  9,878   82,780 
Charged to costs and expenses  2,710   18,344 (8)
Charged to revenue  1,329   — 
Charged to other accounts  1,503 (10)  15,601 (9)
Deductions  (3,992)  (9,982)(11)
     
Balance as of September 30, 2010 $11,428  $106,743 
     
 
 
(1)(1) Valuation allowances on deferred tax assets incurred during fiscal 2006.2008.
 
(2)(2) Includes accounts receivable allowance of $4,406 acquired primarily as part of a 2006 acquisition.
(3) Includes valuation allowances on deferred tax assets incurred primarily in connection with a 2006 acquisitions.acquisition.
 
(3)(4) Valuation allowances on deferred tax assets incurred during fiscal 2007.
(5) Deductions in the valuation allowances on net deferred tax assets were released to income taxes on the consolidated statements of income.earnings.
 
(4)(6) Valuation allowances on deferred tax assets incurred during fiscal 2008.2009.
(5)Acquired as part of a 2009 small acquisition.
(6)$3,481 of valuation allowances on deferred tax assets incurred primarily in connection with 2006 and 2008 acquisitions was released through goodwill, $7,172 of valuation allowances on deferred tax assets was written off against the related deferred tax assets, the remaining deductions in the valuation allowances on net deferred tax assets were released to earnings.
(7)Primarily attributable to a settlement with a customer in which the allowances were written off against the related accounts receivable.
(8)Valuation allowances on deferred tax assets incurred during fiscal 2010.
(9)Includes valuation allowances on deferred tax assets incurred in connection with 2010 small acquisitions.
(10)Acquired as part of 2010 small acquisitions
(11)$5,060 of valuation allowances on deferred tax assets were written off against the related deferred tax assets, and the remaining deductions in the valuation allowances on net deferred tax assets were released to earnings.


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