| • | | Service-driven networks:These offerings comprise standards-based software solutions to enable service lifecycle management in a hybrid physical and virtual network functions (VNFs) and provides upsell opportunities with services such as security, web filtering or vCPE. Our full business enablement suite for enterprise customers also includes functions such as white-label billing, settlement or partner management as well as a large portfolio of competencies to support migration to cloud-native, microservices-based environments.
These offerings comprise standards-based software solutions to enable service lifecycle management across hybrid physical, virtual and cloud networks, allowing service providers to automate network operations and simplify the introduction of NFV, cloud and value-added services
| into existing and next generation networks, including 5G and edge-computing systems. Amdocs NFV powered byAmdocs’ Service and Network Automation Platform, that leverages components from ONAP (the Linux Foundation’s Open Network Automation Platform) features software and services capabilities to orchestrate multi-vendor virtual network functions (VNFs)VNFs over virtual infrastructures and public clouds such as AWSAmazon Web Services (AWS), Microsoft Azure and Azure,Google Cloud, automating VNF onboarding to enable the design, testing and launching of new network services in weeks rather than months, and supporting a live view of services and resources. The Amdocs network automation and service management suite of solutions enables service providers to deploy, manage and monetize 5G networks. We also provide operational support systems for fixed line, broadband, wireless and cable TV networks. The offerings facilitate network operational processes, including network planning and rollout across multiple technologies such as fiber, small cell and LTE, essential for 5G readiness, service fulfillment and assurance, inventory management, order orchestration and activation of new services through automation. Our integrated suite of network optimizationsoftwareoptimizationsoftware and services is designed to help service providers plan, build, launch, manage and optimize their mobile networks. Vendor and technology agnostic, this offering affords service providers the analytics and services |
| capabilities needed to maximize network investments, accelerate and automate the roll out and upgrade of network technologies, and optimize network performance and capacity. |
| • | | Services and agile operations:Our solutions are designed to enable service providers to introduce intelligence and automation into their operations to accelerate innovation, agility and efficiency; optimize data for intelligence-driven analytics; effectively manage multi-dimensional, dynamic hybrid operations; embark on their cloud and IT modernization paths, and prevent revenue loss and reduce cyber security risks. Using open source, third–party solutions and Amdocs’ unique IP, including tools and methodologies around artificial intelligence, predictive analytics and machine learning, these services span both Amdocs products and third-party software and can be rapidly deployed through DevOps capabilities and are focused on delivering clear business value as well as reducing costs.
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As part
New domains and disruptions: These offerings enable service providers to expand into new domains and disrupt traditional practices. Our eSIM cloud platform enables service providers to launch IoT solutions, while our advanced cyber-security service helps protect and manage enterprises. OurAI-powered, cloud-native, home operating system enables service providers to expand the home broadband experience, offering end users automated care, smart insights, security and control over the growing number of amdocsONE, weconnected home devices. Our data intelligence solutions and applications span every aspect of the service provider’s business, with detailed use cases and best practices to help service providers become truly data-driven organizations. We also offer aenable innovative commerce and payment solutions with our mobile financial services.Services and hybrid operations: Our solutions are designed to enable service providers to introduce intelligence and automation into their operations to accelerate innovation, agility and efficiency; optimize data for intelligence-driven analytics; effectively manage multi-dimensional, dynamic hybrid operations; embark on their cloud and IT modernization paths and prevent revenue loss. Using open source, third-party solutions and Amdocs’ unique IP, including tools and methodologies around artificial intelligence, SRE, predictive analytics and machine learning, these services span both Amdocs products and third-party software and can be rapidly deployed through DevOps capabilities and are focused on delivering clear business value as well as reducing costs.Our broad suite of services designed to help address our customers’ business imperatives. Fromrange from advisory services through solution development and business operations to managed services and training, and the extent of services provided varies from customer to customer. Our services engagements can range in size and scope and include advising customers on business and technical strategy, designing and implementing particular business solutions, managing specific business operations processes, adopting DevOps, migrating applications to the cloud and orchestrating large-scale transformation projects. We also provideapplication development and maintenance, from ideation to deployment, managing all steps of the development lifecycle, supportingbi-modal development methodologies, as well as ongoing maintenance. In addition, we are generally retained by the customer to provide ongoing services, such as maintenance, enhancement design and development and operational support, or to act as a lead systems integrator for post-production activities that may include interfaces with third-party and legacy systems. For a substantial number of our customers, the implementation and integration of an initial system has been followed by the sale of additional systems and modules. We aim to establish long-term maintenance and support contracts with our customers. These contracts generally involve an expansion in the scope of support delivered and provide us with recurring revenue.
Our key services are: | • | | Advisory Services — We identify actionable and pragmatic solutions to business and operational challenges. A team of industry experts design insights based on research, trend analysis, global best practices, innovation and partnerships. This service helps service providers meet their objectives, including digital transformation, IoT, customer experience, NFV, DevOps, NextGen IT, cloud, 5G and enterprise.
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| • | | Managed Services — We seek to transform traditional managed services towards autonomous operations, while continuing to manage legacy systems. This includes rapid deployment of new services through DevOps capabilities, modernization of legacy systems, cloud and infrastructure services, while maintaining ongoing IT operations. Using open source, third–party solutions and Amdocs’ unique IP around artificial intelligence, predictive analytics andmachine-to-machine learning, this suite of services spans both Amdocs products and third-party software.
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| • | | AutonomousNetwork Service Assurance — We combine machine learning and artificial intelligence with operational models, policies and workflows to provide proactive, autonomous network remediation and notifications, reducing operational costs and improving the customer experience. This service integrates BSS, OSS, IT and network information to present service providers a customer-centric view of network events.
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| • | | Digital Business Operations— We offer a suite of services for automating and digitalizing business operations, including order to activation and other business processes. These services combine domain-specific expertise and advanced technologies such as robotic process automation, predictive analytics, machine learning and technology with real-time,end-to-end visibility over any business process regardless of underlying silos. We aim to improve customer experience, decrease handling time, reduce OPEX and shorten time to introduce digital channels and new services.
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| • | | Quality Engineering Services— We offer industry-specific quality assurance services, and a global presence, to help our customers reduce operational costs, enhance innovation and ensure the desired
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| end-user experience, leveraging our advanced automation, intelligence and machine learning technologies.
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| • | | Data & Intelligence Services— We offer advanced, insightful data and analytics services, powered by our IP around customer data and our logical data model. From strategy and consulting through optimizing and modernizing data ecosystems, our services deliver self-service business intelligence (BI) reporting, dashboards and efficient data monetization.
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— We seek to transform traditional managed services towards cloud operations (“CloudOps”) and the enablement of self-managed and self-operated applications (“NoOps”), while continuing to manage legacy systems. This includes rapid deployment of new services through DevOps capabilities, modernization of legacy systems, cloud and infrastructure services, while maintaining ongoing IT operations. Using open source, third-party solutions and Amdocs’ unique IP around artificial intelligence, predictive analytics, self-healing and machine learning, as well as a unique adaptation of SRE methodologies, this suite of services spans both Amdocs products andnon-Amdocs, third-party software. Digital Business Operations — We offer a suite of services for automating and optimizing business operations, including order to activation and other business processes. These services combine domain-specific expertise and advanced technologies such as robotic process automation, predictive analytics, machine learning and technology with real-time,visibility over any business process regardless of underlying silos. We aim to improve customer experience, decrease handling time, reduce OPEX and shorten time to introduce digital channels and new services.Quality Engineering Services — We offer industry-specific quality assurance services to help our customers reduce operational costs, enhance time to market and ensure the desiredend-user experience, leveraging our advanced automation, intelligence and machine learning tools that form part of our 36ONE platform.— We provide a set of services to help design, build, implement and operate cloud solutions, including through strategic agreements with AWS, Microsoft Azure and Google Cloud. These services include cloud consulting, which is primarily delivered by experts from our Kenzan acquisition. Our cloud migration and modernization services move applications and IT systems to the cloud, and also implement changes to processes, culture and teams, enabling our customers to leverage the capabilities of the cloud to meet their business goals. With data migration to the cloud, we help improve the accessibility of data to enable faster, timelierAI-driven analytics. This provides customers with the ability to better leverage their data, with more users having access to more data, thereby enabling greater value to be achieved through analytics. — We provide business andtop-level technology strategy consulting services for both Amdocs andnon-Amdocs systems. Our consultants understand the service provider’s environment and bring with them the experience we accumulated when modernizing our own Amdocs product lines andre-skilling our people to master hybrids of the legacy and the new. Using expertise from recent acquisitions, we also provide experts in specific niches, such as the user experience (UX) experts from projekt202 and the digital software engineering and platform development experts from Kenzan. — We offer integration design and implementation services to help bridge between modern digital channels and a customer’s existing legacyback-end and third-party systems. We also offer a unique integration platform as a service (IPaaS) solution, built specifically for the unique challenges of the communications and media industry, enabling modernization with minimal impact on the systems of record and other legacy systems. In addition, amdocsONEAmdocs offerings includes our mobile financial services offering, whichenables service providers and financial institutions to serve financially underserved customer segments; revenue guard services designed to ensure faster, more accurate detection and resolution of revenue leakage, fraud and cyber fraud;fraud and the BriteBill multi-channel bill presentment platform focused on contextualproviding clarity in billing, creating a digital engagement channel with customers, and personalized customer engagements.generating upsell opportunities. We also provide advertising and media offerings for media publishers, TV networks, video streaming providers, advertising agencies and service providers.
Our portfolio architecture allowsenables our applications to work in multiple customer environments.environments ranging from on premise to public cloud. To help service providers respond more quickly to changes in their markets, we embrace an open and integrated approach to our technology built on the following key principles: | • | | Design led. Adoptingdesign-led principles and methodologies across software applications to ensure improved and optimized customer experiences.
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| • | | API enabled. Leveraging domain-driven design to expose APIs across key applications and ensure consumption and interaction between applications is easily enabled. It exposes the Amdocs portfolio application programming interfaces to external systems, allowing our applications to integrate with each other and with third-party applications.
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| • | | Cloud flexibility. Architected to run in public andon-premise cloud environments.
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| • | | Microservices. Developing highly granular, lightweight distributed software architecture, shipped and delivered using containers and orchestrated using Kubernetes, the industry-leading cluster management for containers.
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| • | | Scalability. Designed to take full advantage of the capabilities of the underlying platform, allowing progressive system expansion, proportional with increases in business volumes. Using the same software, our applications can support operations for small and very large service providers.
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| • | | Reliability. System and component architecture supports high availability and redundancy to allow connected and uninterrupted operations at full network utilization and device load.
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| • | | Modularity. Applications can be installed on an individual standalone basis, interfacing with the customer’s existing systems, or as part of an integrated Amdocs system environment. We believe this modularity provides our customers with a highly flexible solution that is able to incrementally expand with the customer’s growing needs and capabilities.
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| • | | Upgradability and Backwards Compatibility. Version interoperability eliminates risky upgrades and allows for a gradual upgrade approach of suite elements.
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| • | | Virtualization. Business agility improves with virtualization as it allows introduction of new services rapidly. Moreover, virtualization reduces cost by improving resource utilization, and by automating processes.
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| • | | Open Source Software. Enabling rapid time to market and lower-cost functionality introduction, our software leverages open-source components to encourage standardization and improved quality where possible. Amdocs is playing a central role in the development of The Linux Foundation’s ONAP (Open Network Automation Platform), an advanced open source solution for the telecommunication industry.
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| • | | Service-Oriented Architecture. SOA enables improved flow of information, rapid function development, easier scaling and simplified introduction of new services.
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. Adoptingdesign-led principles and methodologies across software applications to ensure improved and optimized customer experiences. . Leveraging domain-driven design to expose APIs across key applications and ensure consumption and interaction between applications is easily enabled. It exposes the Amdocs portfolio application programming interfaces to external systems, allowing our applications to integrate with each other and with third-party applications. . Architected to run in public andon-premise cloud environments, and across a variety of providers based on customer needs. . Developing highly granular, lightweight distributed software architecture, shipped and delivered using containers and orchestrated using Kubernetes, the industry-leading cluster management for containers. . Designed to take full advantage of the capabilities of the underlying platform, allowing progressive system expansion, proportional with increases in business volumes. Using the same software, our applications can support operations for small and very large service providers. System and component architecture supports high availability and redundancy to allow connected and uninterrupted operations at full network utilization and device load. . Applications can be installed on an individual standalone basis, interfacing with the customer’s existing systems, or as part of an integrated Amdocs system environment. We believe this modularity provides our customers with a highly flexible solution that is able to incrementally expand with the customer’s growing needs and capabilities. . Ongoing delivery of software functionality enables customers to adopt the latest features and functions as they are made available, accelerating time to market and business agility. . Business agility improves with virtualization as it allows introduction of new services rapidly. Moreover, virtualization reduces cost by improving resource utilization, and by automating processes. . Supporting application architecture that spans physical, virtual and cloud-based infrastructures. The deployment, security and operation of these diverse permutations must be orchestrated in order to deliver seamless experiences. . Enabling rapid time to market and lower-cost functionality introduction, our software leverages open-source components to encourage standardization and improved quality where possible. Amdocs is playing a central role in the development of The Linux Foundation’s ONAP, an advanced open source solution for the telecommunications industry. Service-Oriented Architecture. SOA enables improved flow of information, rapid function development, easier scaling and simplified introduction of new services.Our sales and marketing activities are primarily directed at major communications cable, entertainment and media companies.
As a result of the strategic importance of our amdocsONE solutions to the operations of service providers, 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 six continents.Our sales activities are supported by marketing efforts and increasing cooperation with strategic partners. We interact with other third parties in our sales activities, including independent sales agents, information systems consultants engaged by customers and system integrators that provide complementary products and services. We also have value-added reseller agreements with leading hardware and software vendors. Our sales and marketing activities also support projects with our partner ecosystem of over 100 partner companies in domains such as digital and consumer experience, media and entertainment, IoT, data intelligence, security and privacy, cloud and open source. Partner companies include Amazon Web Services, Microsoft, Intel, Google, Redhat, Dell EMC and VMware, Adobe, Nokia, Juniper, Hewlett Packard Enterprise and IBM.IBM, as well as startup companies. Our target market is comprised of service providers in the communications cable, entertainment and media industry that require customer experience solutions 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 industry and that our product offerings continue to address the market’s most sophisticated needs. Additionally, with projekt202, we deliver experience-driven transformations for customers in other industry verticals. We have a global orientation and customers in over 85 countries. Our customers include service providers, such as: | | | 20th Century Fox | | Proximus | A1 Bulgaria | | Reliance CommunicationsProximus | A1 Telekom Austria | | Red Carpet Home Cinema | Airtel | | Rogers Communications | Airtel Africa | | Rostelecom | Altice SFRFrance | | Safaricom | Altice USA | | SensisSES | America MovilAmérica Móvil | | SingtelSensis | Astro | | Sky ItaliaSingtel | AT&T | | SmartSky Italia | AT&T Mexico | | Sprint | Bell Canada | | StartHub | Bharat Sanchar Nigam Limited | | Sunrise TelecomCommunications | Botswana Telecommunications Corporation Limited | | Telefónica Argentina (Movistar) | BT | | Telefónica Brasil (Vivo) | Cable and& Wireless | | Telefónica Chile (Movistar) | Capita Business Services | | Telefónica Peru (Movistar) | Cellcom | | Telefónica PeruTelenet | CenturyLink | | Telefónica SATelia Norway | Claro BrasilCharter Communications | | Telia Sweden | Claro ChileBrasil | | Telkom South AfricaSA | Claro Chile | | Telkomsel | Claro Dominican Republic | | Telstra | Claro Puerto Rico | | TELUS Communications | Comcast | | Three Ireland (Hutchison) Limited | Deutsche Telekom | | Three UK | Dish Network | | TIM | Dex MediaEE | | TIM Brasil | Dish NetworkElisa | | T-Mobile USA US |
| | | EEEPIX | | True Corporation | ElisaEros Now | | Turner | EPIX (an MGM company)FarEasTone | | UPC Broadband Holding B.V. | FarEasToneFoxtel | | US Cellular | Globe Telecom | | UTS | J:COM | | VeonVEON | KazakhtelecomKCOM | | VerizonViacomCBS | KcellKT Corporation | | Virgin Media | KCOMLiberty Global | | Vodacom | Kyivstar | | Vodafone Germany | KPNM1 | | Vodafone Hungary | KT Corporation | | Vodafone Idea | Kyivstar | | Vodafone Ireland | M1 | | Vodafone Italy | Magyar Telekom | | Vodafone RomaniaIdea | Maxis | | Vodafone Ireland | MGM | | Vodafone Italy | MTS | | Vodafone Qatar | Oi | | Vodafone Romania | Optus | | Vodafone Spain | NetComOrange Belgium | | Vodafone Turkey | Orange Liberia | | Vodafone UK | OiOrange Spain | | VodafoneZiggo | OptusPartner Communications | | Warner Bros | PLDT | | XL Axiata | Post Luxembourg | | |
Our business is dependent on a limited number of significant customers, of which AT&T has historically been our largest. AT&T accounted for 27%26% and 33%23% of our revenue in fiscal 20182020 and 2017,2019, respectively. In fiscal year 2020 our next largest customer accounted for 12% of our revenue. Aggregate revenue derived from the multiple business arrangements we have with the ten largest of our significant customers accounted for approximately 66%65% of our revenue in fiscal 20182020 and 71% in fiscal 2017.2019. See “Risk Factors — 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 .”The following is a summary of revenue by geographic area. Revenue is attributed to geographic region based on the location of the customer: | | | | | | | | | | | | | | | 2018 | | | 2017 | | | 2016 | | North America | | | 64.2 | % | | | 65.9 | % | | | 64.0 | % | Europe | | | 14.4 | % | | | 12.6 | | | | 13.8 | | Rest of the World | | | 21.4 | % | | | 21.5 | | | | 22.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | 65.3 | % | | | 63.2 | % | | | 64.2 | % | | | | 14.7 | % | | | 14.7 | % | | | 14.4 | % | | | | 20.0 | % | | | 22.1 | % | | | 21.4 | % |
The market for customer experience solutions in the communications cable, entertainment and media industry continues to become more competitive. Amdocs’ competitive landscape is comprised of internal IT departments of our customers, as well as independent competitors or new entrants that may compete broadly with us or in limited segments of our market, and can be generally categorized as follows: providers of BSS/OSS and customer relationship management (CRM)/digital systems, including CSG International, Netcracker (a NEC subsidiary), Optiva, Oracle, Optiva,Pegasystems, Salesforce Pegasystems and SAP; system integrators and providers of IT services, such as Accenture, Cognizant, DXC Technology, IBM Global Services, Infosys, Tata Consultancy Services, Tech Mahindra and Wipro (some of whom we also cooperate with in certain opportunities and projects);
network equipment providers such as Ciena, Ericsson, Huawei, Nokia Networks, and NEC and its subsidiary NetCrackerNetcracker (some of whom we also cooperate with in certain opportunities and projects and some of whom have also moved into thehave BSS/OSS space)offerings); niche domain players, often start-up companies, who compete against particular parts of our portfolio, such as Matrixx Openet in charging; Zuora,Hansen (Sigma) in catalog; Aria, Stripe, Zuora in subscription billing; Forgerock and Okta in identity management; Deluxe Entertainment and iNDemandiNDEMAND in Media.We expect the competition in our industry to increase from many of such companies. We believe that we are able to differentiate ourselves from these competitors by, among other things: applying our over 35-year heritage to the development and delivery of products and professional services that enable our customers to overcome their challenges and achieve service differentiation by migrating to the cloud, providing a personalized and intelligent customer experience, shaping the quality of network experience and simplifying the complexity of the operating environment,continuing to design and develop solutions targeted specifically to the communications cable, entertainment and media 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-availability, high-quality, reliable, scalable, integrated and modular applications, leveraging cloud technology, artificial intelligence and new software development and deployment options, providing flexible and tailored IT and business process outsourcing solutions and delivery models, and offering customers accountability from a single vendor.
We invest significant resources in the training, retention and motivation of high qualityhigh-quality personnel. Training programs cover areas such as technology, applications, development methodology, project methodology, programming standards, industry background, business, management development and 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 and outstanding leaders. Moreover, we are committed to diversity and inclusion, believing a gender diverse, multi-cultural workforce spread across the globe provides strength and a competitive business advantage. See “Directors, Senior Management and Employees — Workforce Personnel” for further details regarding our employees and our relationships with them. Property, Plants and Equipment
We lease land and buildings for our executive offices, sales, marketing, administrative, development and support centers. We lease an aggregate of approximately 3.73.4 million square feet worldwide, including significant leases in the United States, Israel, Canada, Cyprus, India, Philippines, United Kingdom and Mexico. The
following table summarizes information with respect to the principal facilities leased by us and our subsidiaries as of September 30, 2018:2020: | | | | | | | | | United States:
| | | | | Champaign, IL
| | | 176,283804,910 | | St. Louis, MO
| | | 70,8811,348,316 | | Burbank, CA
| | | 56,005 | | Seattle, WA
| | | 55,396 | | Eldorado Hills, CA
| | | 40,867 | | Others
| | | 280,4031,250,868 | | | | | | | | | | 679,835 | | Israel:
| | | | | Ra’anana
| | | 917,795 | | Sderot
| | | 143,192 | | Nazareth
| | | 25,919 | | Others
| | | 29,8703,404,094 | | | | | | | Total
| | | 1,116,776 | | Canada:
| | | | | Montreal
| | | 60,274 | | Toronto
| | | 44,470 | | Ottawa
| | | 40,422 | | | | | | | Total
| | | 145,166 | | Cyprus (Limassol)
| | | 143,730 | | India:
| | | | | Pune
| | | 940,420 | | Delhi
| | | 204,051 | | Mumbai
| | | 4,403 | | | | | | | Total
| | | 1,148,874 | | Philippines
| | | 76,370 | | United Kingdom
| | | 75,896 | | Mexico
| | | 70,934 | | Other locations (27 countries)
| | | 219,739 | | | | | | | Total
| | | 3,677,320 | | | | | | |
Our leases expire on various dates through 2026, not including various options to terminate or extend lease terms.2035. In December 2017, the Company entered into agreements with Union Investments and Development Limited (“Union”) to partner through a legal entity that would be equally owned by the Company and Union for the purpose of acquiring land which the Company intends to use as the site for a new campus in Ra’anana, Israel that we believe will provide an advanced, optimal working environment that can meet the needs of Amdocs Israel and its employees, and support the Company’s future growth. The design for the new campus is in accordance with LEEDrequirementsLEEDrequirements and includes advanced energy and water saving systems. We develop amdocsONEour solutions over a system of UNIX, Linux and Windows servers owned or leased by us.us, as well as over cloud providers. We use a variety of software products in our development centers, including products by Microsoft, Oracle,CouchBase, Syncsort, Red Hat, CA, IBM, Hewlett-Packard or others. Our data storage is based mainly on equipment from EMC, NetApp,InfiniDat, IBM Hitachi and Hewlett-Packard.
UNRESOLVED STAFF COMMENTS OPERATING AND FINANCIAL REVIEW AND PROSPECTS Overview of Business and Trend Information Amdocs is a leading provider of software and services for communications cable, entertainment and media industry service providers in both developed countries and emerging markets. Regardless of whether service providers are bringing their first offerings to market, scaling for growth, consolidating systems or transforming the way they do business, we believe that service providers seek to differentiate their offerings by delivering a customer experience that is simple, personal, contextual and valuable at every point of engagement and across all channels. We develop, implement and manage software and services designed to meet the business imperatives of our customers. Our technology, design-led thinking approach and expertise help service providers to migrate to the cloud, further transform into digital service providers, enhance their entertainment offerings, and serve their customers across all channels. amdocsONE, our latest set of industry-leading offeringsOur open and services,modular cloud-native portfolio enables service providers to accelerate their continuous digital transformation.In a global communications and media industry impacted by unprecedented growth in data demand, an increasing number of connected devices, improvement in IoT technologies, and the rising influence of device makers, social networks and OTT players that bypass traditional service providers, consumers expect immediate and constant connectivity to a wide array of personalized services, information and applications. To capture new revenue streams, service providers are migrating to the cloud, continuing to transform to become digital service providers, investing in their networks to meet the demand for increased bandwidth and are searching for ways to provide new services, particularly around content. We seek to address these market forces through a strategy of
innovation from the network and digital business support systems to the device and end user, leveraging cloud-native microservices technologies for high velocity time to market, and delivering in fast DevOps sprints, with full accountability, to control costs, bring optimal scope and drive agility. Our goal is to supply cost-effective, modular, scalable, cloud-native and open 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, through acquisitions, to expand our service offerings and customer base and to enhance our ability to provide managed services to our customers. In recent years, we have completed numerous acquisitions (including our fiscal 2017 acquisition of Kenzan, and our fiscal 2018 acquisitions of projekt202, UXP Systems and Vubiquity)Vubiquity and our fiscal 2019 acquisition of TTS Wireless and our fiscal 2020 acquisition of Openet), which, among other things, we believe will enable us to expand our digital offerings, network and cloud-native capabilities and technological expertise. As part of our strategy, we may continue to pursue acquisitions and other initiatives in order to offer new products or services, enter into new vertical markets or otherwise enhance our market position or strategic strengths. amdocsONE
In November 2020, we signed an agreement for the divestiture of OpenMarket, an Amdocs subsidiary, as part of our strategy to divest a non-strategic asset in the mobile messaging domain and remain focused on our core strategic growth initiatives.Our amdocsONE offeringportfolio consists of software and services that address service providers’ business and operational needs. Its open, modular and integrated solution set introduces a rich group of capabilities built on cloud-native, microservices and machine learningmachine-learning technologies, and is delivered based on modern DevOps practices. amdocsONEOur portfolio is designed to meet the business imperatives of our customers who are transforming into digital service providers within the framework of a hybrid IT environment, which requires them to rapidly introduce new cloud-native applications while still operating legacy systems. Its solutions help service providers to grow revenue and deliver a superior user experience; entertain end users and leverage the digital ecosystem; enable the enterprise and connected society; evolve to a service-driven network, as well as provide our customers with services to drive agile operations. Our comprehensive line of services is designed to address every stage of a service provider’s lifecycle. They include advisoryconsulting services, managed services, autonomous network service assurance, digital business operations, quality engineering services, cloud services and data and intelligenceintegration services. Our managed services provide multi-year, flexible and tailored business processes and applications services, including application development, modernization and maintenance, IT and infrastructure services, testing and professional services that are designed to assist customers in the selection, implementation, operation, management and maintenance of their IT systems. 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 entertainment and media industry. In fiscal 2018,2020, customers in North America accounted for 64.2%65.3% of our revenue, while customers in Europe and the rest of the world accounted for 14.4%14.7% and 21.4%20.0%, respectively. We maintain development facilities in Brazil, Canada, Cyprus, India, Ireland, Israel, Mexico, the Philippines, the United Kingdom and the United States. Historically, AT&T has been our largest customer, accounting for 27%26% and 33%23% of our revenue in fiscal 20182020 and 2017,2019, respectively. In fiscal year 2020 our next largest customer accounted for 12% of our revenue. Aggregate revenue derived from the multiple business arrangements we have with our ten largest customers accounted for approximately 66%65% of our revenue in fiscal 20182020 and 71% in fiscal 2017.2019. We believe that demand for our solutions is primarily driven by the following key factors: Transformation within the communications and media industry, including: continued transformation of service providers to digital service providers, service provider migration to the cloud, increasing use of communications and content services, widespread access to content, information and applications, continued growth in Latin America and Southeast Asia,
expansion into new lines of business, consolidation among service providers in established markets, often including companies with multinational operations, increased competition, including from non-traditional players,continued bundling and blending of communications and entertainment, and continued commoditization and pricing pressure. Technology advances, such as: wide-scale foundational technology changes including the leveraging of open-source, cloud-enabled and cloud-native operating infrastructure, microservices-based architecture, API-based ecosystems, and aggressive digital modernization transformations,evolving service provider business models and opportunities like OTT partnerships, content development and offerings, advertising, enterprise and smallsmall- or medium-sized business modernization, and innovative consumer bundling solutions,network evolution in order to support growing technology needs associated with Internet of Things (IoT), autonomous vehicles and augmented and virtual reality, new communications technologies such as 5G wireless technology, long range (LoRa),eSIM,Wi-Fi 6, and Narrowband IoT (NB-IOT, network functions virtualization (NFV)(NB-IOT), network automation and, edge computing,emerging initiatives like artificial intelligence, including machine learning (ML) and natural language processing (NLP), edge computing, network and service automation, and blockchain. the need for service providers to personalize the customer’s experience and provide contextual and personalized engagements at all points in their omni-channel customer journey, increasing customer expectations for new, innovative services and applications that are personally relevant and that can be accessed anytime, anywhere and from any device, and the ever-increasing expectations for service and support, including omni-monetization and proactive multi-modal customer care and commerce.commerce, and continuous proliferation ofon-demand experiences, includinglow-latency, high quality of service connectivity and seamless digital interactions. The need for operational efficiency, including: the shift from in-house management to vendor solutions,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, introducing artificial intelligence, and integrating business processes that span service providers’ BSS/OSSbusiness systems and network solutions, implementing and integrating new next-generation networks (and retiring legacy networks) to deploy new technologies, and transforming fragmented legacy OSS to introduce new, orchestrated and automated services in a timely and cost-effective manner. In fiscal 2018, our total revenue was $3.97 billion, of which $3.93 billion, or 98.9%, was attributable to the sale of amdocsONE.
Revenue from managed services arrangements (for amdocsONE and entertainment and media directory systems) is a significant part of our business generating substantial, long-term recurring revenue streams and cash flow. Revenue from managed services arrangements accounted for
approximately $2.05$2.4 billion and $2.01$2.25 billion of revenue in fiscal 20182020 and 2017,2019, respectively. In managed services contracts revenue from the operation of a customer’s system is recognized as services are performed based on time elapsed, output produced or volume of data processed. In the initial period of our managed services projects, we often invest in modernization and consolidation of the customer’s systems. Managed services engagements can be less profitable in their early stages; however, margins tend to improve over time, and this improvement is seen more rapidly 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. 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. We also expend additional amounts on applied research and software development activities to keep abreast of new technologies in the communications and media markets and to provide new and enhanced functionality to our existing product offerings. We leverage leading-edge development technologies and associated technologies, for example, DevOps, Continuous Integration/Continuous Development (CI/CD) and Agile, to ensure we are able to develop and deliver our solutions efficiently and cost-effectively. Substantially all of our research and development expenditures are directed at our solutions. In recent years, we have also invested our research and development efforts in network control, optimization and orchestration and network functions virtualization technologies; applications to enable service providers to deploy and monetize technologies such as fiber, LTE, 5G, small cells andWi-Fi; big data analytics and intelligence capabilities leveraging natural language processing and artificial intelligence toward consumer and business satisfaction, marketing effectiveness and network operations and experience; increased focusedfocus for the business segment, digital, commerce and entertainment domains, platforms for processing, distributing and monetizing content globally and on foundational technologies including microservices and cloud infrastructure readiness. 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. In recent years, we have invested in adopting open source components in an effort to reduce total cost of ownership for our customers, but our software and software systems remain the results of long, robust and intensive development processes. Although our technology is not significantly dependent on patents or licenses from third parties, certain aspects of our products continue to make use of 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 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 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 non-disclosure agreements. We enter intonon-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.
The following table sets forth for the fiscal years ended September 30, 2018, 20172020, 2019 and 2016,2018, certain items in our consolidated statements of income reflected as a percentage of revenue (figures may not sum because of rounding): | | | | | | | | | | | | | | | Year Ended September 30, | | | | 2018 | | | 2017 | | | 2016 | | Revenue | | | 100 | % | | | 100 | % | | | 100 | % | Operating expenses: | | | | | | | | | | | | | Cost of revenue | | | 65.3 | | | | 64.8 | | | | 64.8 | | Research and development | | | 7.0 | | | | 6.7 | | | | 6.8 | | Selling, general and administrative | | | 12.1 | | | | 12.2 | | | | 12.5 | | Amortization of purchased intangible assets and other | | | 2.7 | | | | 2.9 | | | | 2.9 | | Non-recurring charges | | | 2.1 | | | | — | | | | — | | | | | | | | | | | | | | | | | | 89.2 | | | | 86.6 | | | | 87.0 | | | | | | | | | | | | | | | Operating income | | | 10.8 | | | | 13.4 | | | | 13.0 | | Interest and other (expense) income, net | | | (0.2 | ) | | | (0.1 | ) | | | 0.0 | | | | | | | | | | | | | | | Income before income taxes | | | 10.6 | | | | 13.3 | | | | 13.0 | | Income taxes | | | 1.7 | | | | 2.0 | | | | 2.0 | | | | | | | | | | | | | | | Net income | | | 8.9 | % | | | 11.3 | % | | | 11.0 | % | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 100 | % | | | 100 | % | | | 100 | % | | | | | | | | | | | | | | | | | 66.1 | | | | 64.9 | | | | 65.3 | | | | | 6.8 | | | | 6.7 | | | | 7.0 | | Selling, general and administrative | | | 11.0 | | | | 12.1 | | | | 12.1 | | Amortization of purchased intangible assets and other | | | 1.9 | | | | 2.4 | | | | 2.7 | | | | | — | | | | — | | | | 2.1 | | | | | | | | | | | | | | | | | | 85.7 | | | | 86.1 | | | | 89.2 | | | | | | | | | | | | | | | | | | 14.3 | | | | 13.9 | | | | 10.8 | | Interest and other expense, net | | | 0.3 | | | | 0.0 | | | | 0.2 | | | | | | | | | | | | | | | Income before income taxes | | | 14.0 | | | | 13.9 | | | | 10.6 | | | | | 2.1 | | | | 2.2 | | | | 1.7 | | | | | | | | | | | | | | | | | | 11.9 | % | | | 11.7 | % | | | 8.9 | % | | | | | | | | | | | | | |
Fiscal Years Ended September 30, 20182020 and 20172019 The following is a tabular presentation of our results of operations for the fiscal year ended September 30, 2018,2020, compared to the fiscal year ended September 30, 2017.2019. Following the table is a discussion and analysis of our business and results of operations for these fiscal years. | | | | | | | | | | | | | | | | | | | Year Ended September 30, | | | Increase (Decrease) | | | | 2018 | | | 2017 | | | Amount | | | % | | | | (In thousands) | | Revenue | | $ | 3,974,837 | | | $ | 3,867,155 | | | $ | 107,682 | | | | 2.8 | % | Operating expenses: | | | | | | | | | | | | | | | | | Cost of revenue | | | 2,595,276 | | | | 2,507,656 | | | | 87,620 | | | | 3.5 | | Research and development | | | 276,615 | | | | 259,097 | | | | 17,518 | | | | 6.8 | | Selling, general and administrative | | | 481,093 | | | | 472,778 | | | | 8,315 | | | | 1.8 | | Amortization of purchased intangible assets and other | | | 108,489 | | | | 110,291 | | | | (1,802 | ) | | | (1.6 | ) | Non-recurring charges | | | 85,057 | | | | — | | | | 85,057 | | | | 100 | | | | | | | | | | | | | | | | | | | | | | 3,546,530 | | | | 3,349,822 | | | | 196,708 | | | | 5.9 | | | | | | | | | | | | | | | | | | | Operating income | | | 428,307 | | | | 517,333 | | | | (89,026 | ) | | | (17.2 | ) | Interest and other (expense) income, net | | | (6,766 | ) | | | (4,421 | ) | | | (2,345 | ) | | | 53.0 | | | | | | | | | | | | | | | | | | | Income before income taxes | | | 421,541 | | | | 512,912 | | | | (91,371 | ) | | | (17.8 | ) | Income taxes | | | 67,145 | | | | 76,086 | | | | (8,941 | ) | | | (11.8 | ) | | | | | | | | | | | | | | | | | | Net income | | $ | 354,396 | | | $ | 436,826 | | | $ | (82,430 | ) | | | (18.9 | )% | | | | | | | | | | | | | | | | | |
Revenue.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 4,169,039 | | | $ | 4,086,669 | | | $ | 82,370 | | | | 2.0 | % | | | | | | | | | | | | | | | | | | | | | 2,755,563 | | | | 2,653,172 | | | | 102,391 | | | | 3.9 | | | | | 282,042 | | | | 273,936 | | | | 8,106 | | | | 3.0 | | Selling, general and administrative | | | 458,539 | | | | 492,457 | | | | (33,918 | ) | | | (6.9 | ) | Amortization of purchased intangible assets and other | | | 78,137 | | | | 97,358 | | | | (19,221 | ) | | | (19.7 | ) | | | | | | | | | | | | | | | | | | | | | 3,574,281 | | | | 3,516,923 | | | | 57,358 | | | | 1.6 | | | | | | | | | | | | | | | | | | | | | | 594,758 | | | | 569,746 | | | | 25,012 | | | | 4.4 | | Interest and other expense, net | | | 11,436 | | | | 1,859 | | | | 9,577 | | | | 515.2 | | | | | | | | | | | | | | | | | | | Income before income taxes | | | 583,322 | | | | 567,887 | | | | 15,435 | | | | 2.7 | | | | | 85,482 | | | | 88,441 | | | | (2,959 | ) | | | (3.3 | ) | | | | | | | | | | | | | | | | | | | | $ | 497,840 | | | $ | 479,446 | | | $ | 18,394 | | | | 3.8 | % | | | | | | | | | | | | | | | | | |
Revenue increased by $107.7$82.4 million, or 2.8%2.0%, to $3,974.8$4,169.0 million in fiscal year 2018,2020, from $3,867.2$4,086.7 million in fiscal year 2017.2019. The majority of increase in revenue which was net of a revenue decrease from the sale of directory systems, was attributable mainly to managed services arrangements, including managed transformation activities. Revenue for the year ended September 30, 2020 increased activityby 2.4% compared to fiscal year ended September 30, 2019, excluding approximately 0.4% negative
foreign exchange fluctuations impact, and was also positively affected by activities related to acquisitions completed in Europe,fiscal year 2019 and to a lesser extent, in the rest of the world. The 2.8% increase in revenue, was positively affected by activity related to acquisitions completed in fiscal year 2018, as well as approximately half percent from foreign exchange fluctuations.Revenue attributable to the sale of amdocsONE increased by $121.0 million, or 3.2%, to $3,930.1 million in fiscal year 2018, from $3,809.1 million in fiscal year 2017. The majority of increase in revenue was attributable to increased activity in Europe, and to a lesser extent in the rest of the world. Revenue resulting from the sale of amdocsONE represented 98.9% and 98.5% of our total revenue in fiscal years 2018 and 2017, respectively.
Revenue attributable to the sale of directory systems decreased by $13.4 million, or 23.1%, to $44.7 million in fiscal year 2018, from $58.1 million in fiscal year 2017. This decrease was primarily attributable to continued slowness in the directory systems market and we anticipate revenue from the sale of directory systems will continue to decline in fiscal year 2019. Revenue from the sale of directory systems represented 1.1% and 1.5% of our total revenue in fiscal years 2018 and 2017, respectively.
2020. In fiscal year 2018,2020, revenue from customers in North America, Europe and the rest of the world accounted for 64.2%65.3%, 14.4%14.7% and 21.4%20.0%, respectively, of total revenue, compared to 65.9%63.2%, 12.6%14.7% and 21.5%22.1%, respectively, in fiscal year 2017. Revenue from customers2019. The increase in North America slightly increasedrevenue in fiscal year 2018, while total revenue increased at a higher rate, which resulted in a decrease of revenue from customers in North America as a percentage of total revenue. The decrease in the percentage of revenue from customers2020 in North America was primarily attributable to lower activity with AT&T. The decrease was partially offset by higher revenue from other key customersmanaged services activities. Having said that, we note that in addition to the global uncertainties, including those resulting from theCOVID-19 pandemic, the recently completedT-Mobile and Sprint merger remains a source of uncertainty in the North America as we support the continuous digital transformation of the region’s communications, Pay TV and media companies and by activities related to fiscal year 2018 acquisitions. The increase in revenueregion.Revenue from customers in Europe wasincreased in fiscal year 2020, despite negative foreign exchange fluctuations, primarily attributable toas a result of higher revenue from development and modernization activities while we expand our presence in this region, as well as to positive foreign exchange fluctuations.region. Revenue from customers in the rest of the world increaseddecreased in fiscal year 2018, while total revenue increased at a higher rate,2020, which resulted in similar level of revenue from customers in the rest of the world as a percentage of total revenue. Theis attributable to an increase in revenue from customers in the rest of the world was driven by increased activity in Asia-Pacific, as a result of our expansion and progress with new and existing customersof managed transformation activities, which was partiallymore than offset by lower revenue from other regions within the rest of the world.world region, as well as negative foreign exchange fluctuations impact. Cost of revenue consists primarily of costs associated with providing services to customers, including compensation expense and costs of third-party products, as well as fee and royalty payments to software suppliers. Cost of revenue increased by $87.6$102.4 million, or 3.5%3.9%, to $2,595.3$2,755.6 million in fiscal year 2018,2020, from $2,507.7$2,653.2 million in fiscal year 2017.2019. As a percentage of revenue, cost of revenue increased to 65.3%66.1% in fiscal year 20182020 from 64.8%64.9% in fiscal year 2017. The decrease in the gross margin in fiscal year 2018 compared2019, mainly due to fiscal year 2017 was primarily attributableinvestments required to a loss resulting from changes in certain acquisition-related liabilities measured at fair value recognized in fiscal year 2018 as well as to an opposite effect in fiscal year 2017 supportramp-up of a gain resulting from changes in certain acquisition-related liabilities measured at fair value recognized.Excluding the changes in certain acquisition-related liabilities measured at fair value mentioned above, we were able to maintain our gross margin in fiscal year 2018.
new deals. Research and Development.Development Research and development expense is primarily comprised of compensation expense. Research and development expense increased by $17.5$8.1 million, or 6.8%3.0%, to $276.6$282.0 million in fiscal year 2018,2020, from $259.1$273.9 million in fiscal year 2017.2019. Research and development expense increased as a percentage of revenue from 6.7% in fiscal year 2017,2019, to 6.8% in fiscal year 2020. We continue to invest in our cloud offering, 5G and network related innovation and developing our digital offerings as well as our media offerings. 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 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 “Research and Development, Patents and Licenses.”Selling, General and Administrative Selling, general and administrative expense, which is primarily comprised of compensation expense, decreased by $33.9 million, or 6.9%, to $458.5 million in fiscal year 2020, from $492.5 million in fiscal year 2019. The decrease was mainly due to lower travel and selling and marketing costs in fiscal year 2020 compared to fiscal year 2019 as a result of theCOVID-19 restrictions and was also attributable to decrease in the account receivable allowances. Selling, general and administrative expense may fluctuate from time to time, depending upon such factors as changes in our workforce and sales efforts and the results of any operational efficiency programs that we may undertake.Amortization of Purchased Intangible Assets and Other Amortization of purchased intangible assets and other decreased by $19.2 million, or 19.7%, to $78.1 million in fiscal year 2020, from $97.4 million in fiscal year 2019. The decrease in amortization of purchased intangible assets and other was primarily attributable to a completion of amortization of previously purchased intangible assets, partially offset by an increase in amortization of intangible assets due to acquisitions completed in fiscal years 2020 and 2019.Operating income increased by $25.0 million, or 4.4%, to $594.8 million in fiscal year 2020, from $569.7 million in fiscal year 2019. Operating income increased as a percentage of revenue, from
13.9% in fiscal year 2019 to 14.3% in fiscal year 2020. The increase in operating income was attributable primarily to the increase in revenue and the decrease in selling, general and administrative and amortization of purchased intangible assets and other, partially offset by the increase in cost of service in fiscal year 2020. Positive foreign exchange impacts on our operating expenses were partially offset by the negative foreign exchange impacts on our revenue, resulting in a positive impact on our operating income. Interest and Other Expense, Net Interest and other expense, net, changed from a net expenses of $1.9 million in fiscal year 2019 to a net expenses of $11.4 million in fiscal year 2020. The increase in interest and other expense, net, was primarily attributable to an increase in interest expenses related to financing activities and to the changes of minority equity investments recorded in fiscal 2019 compared to fiscal year 2020, partially offset by foreign exchange impacts.Income taxes for fiscal year 2020 were $85.5 million onpre-tax income of $583.3 million, resulting in an effective tax rate of 14.7%, compared to 15.6% in fiscal year 2019. Our effective tax rate may fluctuate between periods as a result of discrete items that may affect a particular period. Please see Note 11 to our consolidated financial statements. Net income increased by $18.4 million, or 3.8%, to $497.8 million in fiscal year 2020, from $479.4 million in fiscal year 2019. The increase in net income was primarily attributable to the increase in operating income partially offset by an increase in interest and other expenses, net. Diluted Earnings Per Share Diluted earnings per share increased by $0.24, or 6.9%, to $3.71 in fiscal year 2020, from $3.47 in fiscal year 2019. The increase in diluted earnings per share was primarily attributable to the increase in net income as well as to the decrease in the diluted weighted average number of shares outstanding which resulted from share repurchases. Please see also Note 21 to our consolidated financial statements.Fiscal Years Ended September 30, 2019 and 2018 The following is a tabular presentation of our results of operations for the fiscal year ended September 30, 2019, compared to the fiscal year ended September 30, 2018. Following the table is a discussion and analysis of our business and results of operations for these fiscal years. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 4,086,669 | | | $ | 3,974,837 | | | $ | 111,832 | | | | 2.8 | % | | | | | | | | | | | | | | | | | | | | | 2,653,172 | | | | 2,595,276 | | | | 57,896 | | | | 2.2 | | | | | 273,936 | | | | 276,615 | | | | (2,679 | ) | | | (1.0 | ) | Selling, general and administrative | | | 492,457 | | | | 481,093 | | | | 11,364 | | | | 2.4 | | Amortization of purchased intangible assets and other | | | 97,358 | | | | 108,489 | | | | (11,131 | ) | | | (10.3 | ) | | | | — | | | | 85,057 | | | | (85,057 | ) | | | (100 | ) | | | | | | | | | | | | | | | | | | | | | 3,516,923 | | | | 3,546,530 | | | | (29,607 | ) | | | (0.8 | ) | | | | | | | | | | | | | | | | | | | | | 569,746 | | | | 428,307 | | | | 141,439 | | | | 33.0 | | Interest and other expense, net | | | 1,859 | | | | 6,766 | | | | (4,907 | ) | | | (72.5 | ) | | | | | | | | | | | | | | | | | | Income before income taxes | | | 567,887 | | | | 421,541 | | | | 146,346 | | | | 34.7 | | | | | 88,441 | | | | 67,145 | | | | 21,296 | | | | 31.7 | | | | | | | | | | | | | | | | | | | | | $ | 479,446 | | | $ | 354,396 | | | $ | 125,050 | | | | 35.3 | % | | | | | | | | | | | | | | | | | |
Revenue increased by $111.8 million, or 2.8%, to $4,086.7 million in fiscal year 2019, from $3,974.8 million in fiscal year 2018. The increase in revenue was attributable to increased managed services
including managed transformation activities. Revenue for the year ended September 30, 2019 increased by 4.1% compared to fiscal year ended September 30, 2018, excluding approximately 1.3% negative foreign exchange fluctuations impact, and was also positively affected by activities related to acquisitions completed in fiscal year 2018 and to a lesser extent 2019 acquisition. In fiscal year 2019, revenue from customers in North America, Europe and the rest of the world accounted for 63.2%, 14.7% and 22.1%, respectively, of total revenue, compared to 64.2%, 14.4% and 21.4%, respectively, in fiscal year 2018. Revenue from customers in North America increased during the fiscal year 2019, while total revenue increased at a higher rate, which resulted in a decrease of revenue from customers in North America as a percentage of total revenue. The increase in revenue from customers in North America in absolute amounts was primarily attributable to higher revenue from key customers in North America as we support the continuous digital transformation of the region’s communications, Pay TV and media companies and by activities related to fiscal year 2018 acquisitions, partially offset by lower revenue with AT&T. Revenue from customers in Europe increased in fiscal year 2019, despite negative foreign exchange fluctuations, primarily as a result of higher revenue from development and modernization activities while we expand our presence in this region. Revenue from customers in the rest of the world increased in fiscal year 2019, despite negative foreign exchange fluctuations, as a result of our expansion and progress of managed transformations activities for customers in the rest of the world. Cost of revenue consists primarily of costs associated with providing services to customers, including compensation expense and costs of third-party products, as well as fee and royalty payments to software suppliers. Cost of revenue increased by $57.9 million, or 2.2%, to $2,653.2 million in fiscal year 2019, from $2,595.3 million in fiscal year 2018. As a percentage of revenue, cost of revenue decreased to 64.9% in fiscal year 2019 from 65.3% in fiscal year 2018. The cost of revenue increase was commensurate with revenue growth, excluding the impact of changes of certain acquisition-related liabilities measured at fair value recognized in the fiscal years 2019 and 2018 in total amount of $2.2 million and $17.7 million, respectively. Research and development expense is primarily comprised of compensation expense. Research and development expense decreased by $2.7 million, or 1.0%, to $273.9 million in fiscal year 2019, from $276.6 million in fiscal year 2018. Research and development expense decreased as a percentage of revenue from 7.0% in fiscal year 2018.2018, to 6.7% in fiscal year 2019. We continue to expandinvest in our digital offering as well as our media offering, invest in our network related innovation and in developing cloud native offering. 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 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 “Research and Development, Patents and Licenses.”
Selling, General and Administrative.Administrative Selling, general and administrative expense, which is primarily comprised of compensation expense, increased by $8.3$11.4 million, or 1.8%2.4%, to $492.5 million in fiscal year 2019, from $481.1 million in fiscal year 2018, from $472.8 million2018. The increase in fiscal year 2017. Selling,selling, general and administrative expense decreased as a percentage of revenue from 12.2%was primarily attributable to changes in fiscal year 2017, to 12.1% in fiscal year 2018.the accounts receivable allowances. Selling, general and administrative expense may fluctuate from time to time, depending upon such factors as changes in our workforce and sales efforts and the results of any operational efficiency programs that we may undertake.
Amortization of Purchased Intangible Assets and Other.Other Amortization of purchased intangible assets and other decreased by $1.8$11.1 million, or 1.6%10.3%, to $97.4 million in fiscal year 2019, from $108.5 million in fiscal year 2018, from $110.3 million in fiscal year 2017.2018. The decrease in amortization of purchased intangible assets and other was primarily attributable to a decrease incompletion of amortization caused by fully amortizedof previously purchased intangible assets, partially offset by an increase ofin amortization of intangible assets due to the acquisitions completed in fiscal years 2019 and 2018.There were nonon-recurring charges in fiscal year 2019, while there were $85.1 million of such charges in fiscal year 2018. Non-recurring Charges.Non-recurring The
non-recurring charges forin fiscal year 2018 were $85.1 million, while there were no such charges in the fiscal year 2017. TheNon-recurring charges includeprimarily
associated to a loss incurred to settle a long-running legal dispute and restructuring charges which were primarily associated with recently completed acquisitions and internal business realignment actions in North America. Please see Note 10 and Note 16 to our consolidated financial statements.
Operating income decreasedincreased by $89.0$141.4 million, or 17.2%33.0%, to $569.7 million in fiscal year 2019, from $428.3 million in fiscal year 2018, from $517.3 million in fiscal year 2017.2018. Operating income decreasedincreased as a percentage of revenue, from 13.4% in fiscal year 2017 to 10.8% in fiscal year 2018.2018 to 13.9% in fiscal year 2019. The decreaseincrease in operating income as a percentage ofrevenue was attributable mainlyprimarily to revenue growth surpassing operating expenses particularly togrowth in fiscal year 2019 as well asnon-recurring charges recognized in fiscal year 2018. Negative foreign exchange impacts on our revenue were partially offset by the foreign exchange reduction impact on our operating income which resulted fromexpense, resulting in a negative impact on our operating expenses, were partially offset by positive foreign exchange impacts on our revenue.
income. Interest and Other (Expense) Income, Net.Expense, Net Interest and other (expense) income,expense, net, changed from a net loss of $4.4 million in fiscal year 2017 to a net lossexpenses of $6.8 million in fiscal year 2018. This change2018 to a net expenses of $1.9 million in interestfiscal year 2019. The decrease in Interest and other (expense) income, net,expense, was primarily attributable to foreign exchange impacts.the realized and unrealized net gains relating to minority equity investments. Income taxes for fiscal year 20182019 were $67.1$88.4 million on pre-tax income of $421.5$567.9 million, resulting in an effective tax rate of 15.9%15.6%, compared to 14.8%15.9% in fiscal year 2017.2018. Our effective tax rate may fluctuate between periods as a result of discrete items that may affect a particular period. Please see Note 11 to our consolidated financial statements.
Net income decreasedincreased by $82.4$125.1 million, or 18.9%35.3%, to $479.4 million in fiscal year 2019, from $354.4 million in fiscal year 2018, from $436.8 million in fiscal year 2017.2018. The decreaseincrease in net income was primarily attributable to non-recurring charges recognized the increase in fiscal year 2018.operating income partially offset by increase in Income Taxes. Diluted Earnings Per Share.Share Diluted earnings per share decreasedincreased by $0.49,$1.00, or 16.6%40.5%, to $3.47 in fiscal year 2019, from $2.47 in fiscal year 2018, from $2.96 in fiscal year 2017.2018. The decreaseincrease in diluted earnings per share was primarily attributable to non-recurring charges, partially offset by the increase in net income as well as to the decrease in the diluted weighted average number of shares outstanding which resulted from share repurchases. Please see also Note 2021 to our consolidated financial statements. Fiscal Years Ended September 30, 2017 and 2016
The following is a tabular presentation of our results of operations for the fiscal year ended September 30, 2017, compared to the fiscal year ended September 30, 2016. Following the table is a discussion and analysis of our business and results of operations for these fiscal years.
| | | | | | | | | | | | | | | | | | | Year Ended September 30, | | | Increase (Decrease) | | | | 2017 | | | 2016 | | | Amount | | | % | | | | (In thousands) | | Revenue | | $ | 3,867,155 | | | $ | 3,718,229 | | | $ | 148,926 | | | | 4.0 | % | Operating expenses: | | | | | | | | | | | | | | | | | Cost of revenue | | | 2,507,656 | | | | 2,408,040 | | | | 99,616 | | | | 4.1 | | Research and development | | | 259,097 | | | | 252,292 | | | | 6,805 | | | | 2.7 | | Selling, general and administrative | | | 472,778 | | | | 464,883 | | | | 7,895 | | | | 1.7 | | Amortization of purchased intangible assets and other | | | 110,291 | | | | 109,873 | | | | 418 | | | | 0.4 | | | | | | | | | | | | | | | | | | | | | | 3,349,822 | | | | 3,235,088 | | | | 114,734 | | | | 3.5 | | | | | | | | | | | | | | | | | | | Operating income | | | 517,333 | | | | 483,141 | | | | 34,192 | | | | 7.1 | | Interest and other (expense) income, net | | | (4,421 | ) | | | 1,557 | | | | (5,978 | ) | | | (384 | ) | | | | | | | | | | | | | | | | | | Income before income taxes | | | 512,912 | | | | 484,698 | | | | 28,214 | | | | 5.8 | | Income taxes | | | 76,086 | | | | 75,367 | | | | 719 | | | | 1.0 | | | | | | | | | | | | | | | | | | | Net income | | $ | 436,826 | | | $ | 409,331 | | | $ | 27,495 | | | | 6.7 | % | | | | | | | | | | | | | | | | | |
Revenue. Revenue increased by $148.9 million, or 4.0%, to $3,867.2 million in fiscal year 2017, from $3,718.2 million in fiscal year 2016. The increase in revenue, which was net of a decrease of approximately 1.0% from the sale of directory systems, was primarily attributable to increased activity in North America and was also positively affected by activities related to Vindicia, Brite:Bill and Pontis, which we acquired in September 2016.
Revenue attributable to the sale of amdocsONE increased by $179.4 million, or 4.9%, to $3,809.1 million in fiscal year 2017, from $3,629.7 million in fiscal year 2016. The increase in revenue was primarily attributable to increased activity in North America and was also positively affected by activities related to Vindicia, Brite:Bill and Pontis, which we acquired in September 2016. Revenue resulting from the sale of amdocsONE represented 98.5% and 97.6% of our total revenue in fiscal years 2017 and 2016, respectively.
Revenue attributable to the sale of directory systems decreased by $30.4 million, or 34.4%, to $58.1 million in fiscal year 2017, from $88.5 million in fiscal year 2016. This decrease was primarily attributable to continued slowness in the directory systems market and we anticipate revenue from the sale of directory systems will continue to decline in fiscal year 2018. Revenue from the sale of directory systems represented 1.5% and 2.4% of our total revenue in fiscal years 2017 and 2016, respectively.
In fiscal year 2017, revenue from customers in North America, Europe and the rest of the world accounted for 65.9%, 12.6% and 21.5%, respectively, of total revenue, compared to 64.0%, 13.8% and 22.2%, respectively, in fiscal year 2016. The increase in the percentage of revenue from customers in North America was primarily attributable to increased activity with several customers, particularly AT&T and Pay TV service providers. The decrease in revenue from customers in Europe was attributable to lower revenue from transformation and implementation projects. Revenue from customers in the rest of the world slightly increased in fiscal year 2017, while total revenue increased at a higher rate, which resulted in a decrease in revenue from customers in the rest of the world as a percentage of total revenue. The slight increase in revenue from customers in the rest of the world was driven by increased activity in Asia-Pacific, which was partially offset by lower revenue from customers in Central and Latin America.
Cost of Revenue. Cost of revenue consists primarily of costs associated with providing services to customers, including compensation expense and costs of third-party products, as well as fee and royalty payments to software suppliers. Cost of revenue increased by $99.6 million, or 4.1%, to $2,507.7 million in fiscal year 2017, from $2,408.0 million in fiscal year 2016. As a percentage of revenue, cost of revenue remained flat at 64.8% in both fiscal years 2017 and 2016. We were able to maintain our gross margin in fiscal year 2017 as a result of ongoing focus on achieving operational efficiencies, despite the negative effect of our activity outside of our established markets, where we continued our penetration efforts in order to expand our business into those markets.
Research and Development. Research and development expense is primarily comprised of compensation expense. Research and development expense increased by $6.8 million, or 2.7%, to $259.1 million in fiscal year 2017, from $252.3 million in fiscal year 2016. Research and development expense decreased as a percentage of revenue from 6.8% in fiscal year 2016, to 6.7% in fiscal year 2017. 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 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 “Research and Development, Patents and Licenses.”
Selling, General and Administrative. Selling, general and administrative expense, which is primarily comprised of compensation expense, increased by $7.9 million, or 1.7%, to $472.8 million in fiscal year 2017, from $464.9 million in fiscal year 2016. Selling, general and administrative expense decreased as a percentage of revenue from 12.5% in fiscal year 2016, to 12.2% in fiscal year 2017. The decrease in selling, general and administrative expense as a percentage of revenue was primarily attributable to changes in the accounts receivable allowances that were partially offset by activities related to Vindicia, Brite:Bill and Pontis, which we acquired in September 2016. Selling, general and administrative expense may fluctuate from time to time, depending upon such factors as changes in our workforce and sales efforts and the results of any operational efficiency programs that we may undertake.
Amortization of Purchased Intangible Assets and Other. Amortization of purchased intangible assets and other increased by $0.4 million, or 0.4%, to $110.3 million in fiscal year 2017, from $109.9 million in fiscal year
2016. The increase in amortization of purchased intangible assets and other was attributable to an increase in amortization of intangible assets due to the acquisitions of Vindicia, Brite:Bill and Pontis, which was offset by timing of amortization charges of previously purchased intangible assets and a decrease in acquisition-related costs.
Operating Income. Operating income increased by $34.2 million, or 7.1%, to $517.3 million in fiscal year 2017, from $483.1 million in fiscal year 2016. Operating income increased as a percentage of revenue, from 13.0% in fiscal year 2016 to 13.4% in fiscal year 2017. The increase in operating income as a percentage of revenue was attributable to operating expenses, particularly selling, general and administrative expense, increasing at a lower rate than revenue.
Interest and Other (Expense) Income, Net. Interest and other (expense) income, net, changed from a net gain of $1.6 million in fiscal year 2016 to a net loss of $4.4 million in fiscal year 2017. This change in interest and other (expense) income, net, was primarily attributable to foreign exchange impacts.
Income Taxes. Income taxes for fiscal year 2017 were $76.1 million onpre-tax income of $512.9 million, resulting in an effective tax rate of 14.8%, compared to 15.5% in fiscal year 2016. Our effective tax rate may fluctuate between periods as a result of discrete items that may affect a particular period. Please see Note 11 to our consolidated financial statements.
Net Income. Net income increased by $27.5 million, or 6.7%, to $436.8 million in fiscal year 2017, from $409.3 million in fiscal year 2016. The increase in net income was primarily attributable to the increase in operating income.
Diluted Earnings Per Share. Diluted earnings per share increased by $0.25, or 9.2%, to $2.96 in fiscal year 2017, from $2.71 in fiscal year 2016. The increase in diluted earnings per share was primarily attributable to the increase in net income, and, to a lesser extent, the decrease in the diluted weighted average number of shares outstanding, which resulted from share repurchases. Please see also Note 20 to our consolidated financial statements.
Liquidity and Capital Resources
Cash, Cash Equivalents and Short-Term Interest-Bearing Investments.Investments . Cash, cash equivalents and short-term interest-bearing investments, net of short-term debt, totaled $519.2$983.9 million as of September 30, 2018,2020, compared to $979.6$471.6 million as of September 30, 2017.2019. The decrease during fiscal year 2018increase was mainly attributable to $419.2$643.9 million used to repurchase our ordinary shares, $355.1 net cash paid for acquisitions, $231.1proceeds from issuance of debt, $450.0 million for capital expenditures, net, $134.3 million of cash dividend payments, partially offset by $557.2borrowing under financing arrangement, $658.1 million in positive cash flow from operations $81.3and $97.9 million of proceeds from stock option exercises, partially offset by $360.9 million used to repurchase of our ordinary shares, $350.0 million payments under financing arrangement, $249.4 million of payments for business and $47.0intangible assets acquisitions, $205.5 million investment by noncontrolling interest, net.for capital expenditures, net, $164.1 million of cash dividend payment. Net cash provided by operating activities amounted to $557.2$658.1 million and $636.1 million$656.4 in fiscal years 20182020 and 2017,2019, respectively. Our policyfree cash flow for fiscal year 2020, was $452.6 million, and is calculated as net cash provided by operating activities of $658.1 million for the period less $205.5 million for capital expenditures, net (which included capital expenditures of $62.7 million as part of our investment in our new campus in Israel). Free cash flow is anon-GAAP financial measure and is not prepared in accordance with, and is not an alternative for, generally accepted accounting principles and may be different fromnon-GAAP financial measures with similar names used by other companies.Non-GAAP measures such as free cash should only be reviewed in conjunction with the corresponding GAAP measures. We believe that free cash flow, when used in conjunction with the corresponding GAAP measure provides useful information to retain sufficientinvestors and management relating to the amount of cash balances in order to support our growth. generated by the Company’s business operations.
We believe that our current cash balances, cash generated from operations, and our current lines of credit, loans, Senior Notes and our ability to access capital markets will provide sufficient resources to meet our operational needs, fund the construction of the new campus in Israel, loan and todebt repayment needs, fund share repurchases and the payment of cash dividends for at least the next fiscal year. As a general long-term guideline, we expect to retain a portion of our free cash flow (calculated as cash flow from operations less net capital expenditures and other) to support the growth of our business, including possible mergers and acquisitions, with the majority returned to our shareholders through share repurchases and dividends. In fiscal year 2019, we plan to return to shareholders the majority of our normalized free cash flow before the capital expenditures associated with the multiyear development of our new campus in Israel and a payment related to the settlement of the legal dispute, subject to factors such as mergers and acquisitions, financial markets and prevailing industry conditions, (see also Note 2 and Note 16 to our consolidated financial
statements) through our ongoing share repurchase and dividend program. While having this plan in mind, our actual share repurchase activity and payment of future dividends, if any, may vary quarterly or annually and will be based on several factors including our financial performance, outlook and liquidity, the size of possible mergers and acquisitions activity, financial market conditions and prevailing industry conditions.
Our interest-bearing investments are classified assecurities. Such short-terminterest-bearing investments consist primarily of bank deposits, corporate bonds, money market funds U.S. government treasuries, and U.S. agency securities.corporate bonds. We believe we have conservative investment policy guidelines. Our interest-bearing investments are stated at fair value with the unrealized gains or losses reported as a separate component of accumulated other comprehensive income (loss), net of tax, unless a security is other than temporarily impaired, in which case the loss is recorded in the consolidated statements of income. 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 other observable inputs to price these securities. During fiscal years 20182020 and 20172019 we did not recognize credit losses. Please see Notes 45 and 56 to our consolidated financial statements.
Revolving Credit Facility, Loans, Senior Notes, Letters of Credit, Guarantees and Guarantees.Contractual Obligations . In December 2011, we entered into anthe unsecured $500.0 million five-year revolving credit facility with a syndicate of banks.Revolving Credit Facility (as defined below). In December 2014, and in December 2017, the credit facilityRevolving Credit Facility was amended and restated to, among other things, extend the maturity date of the facility to December 20192019. In December 2017, the Revolving Credit Facility was amended and restated again to, among other things, extend the maturity date of the facility to December 2022, respectively. The credit facility is available for general corporate purposes, including acquisitions2022. Given the uncertain magnitude and repurchasesduration of ordinary shares thattheCOVID-19 economic crisis, we may consider from time to time. The interest rate for borrowings undertook the revolving credit facility is chosen atprecaution of increasing our option from severalpre-defined alternatives, depends on the circumstances of any advancecash balance and is based in part on our credit rating. In March 2017,2020, we borroweddrew an aggregate of $200.0$300.0 million under the facilityRevolving Credit Facility and repaid it in April 2017. In March 2018, we borrowed an aggregatefull in June 2020 in connection with the issuance of $120.0 million under the facility and repaid it in April 2018.our Senior Notes. As of September 30, 2018,2020, we were in compliance with the financial covenants under the revolving credit facility and had no outstanding borrowings under this facility.the Revolving Credit Facility. In addition, unassociated with the borrowings under the Revolving Credit Facility discussed above, in March 2020 we entered into a $50.0 million short-term loan and repaid it in full in June 2020 in connection with the issuance of our Senior Notes, and in May 2020 we entered into an additional $100.0 million short-term loan which remained outstanding as of September 30, 2020. In June 2020, we issued an aggregate principal amount of $650.0 million in Senior Notes that will mature in June 2030 and bear interest at a fixed rate of 2.538 percent per annum (the “Senior Notes”). The interest is payable semi-annually in June and December of each year, commencing in December 2020. We incurred issuance costs of $6.1 million in relation to the Senior Notes, which are being amortized to interest expenses over the term of the Senior Notes using the effective interest rate. The Senior Notes are our senior unsecured obligations and rank equally in right of payment with all of our existing and future senior indebtedness, including any indebtedness we may incur from time to time under the Revolving Credit Facility. As of September 30, 2018,2020, the noncurrent outstanding principal portion was $650.0 million, please see Note 13 to our consolidated financial statements. As of September 30, 2020, we had additional uncommitted lines of credit available for general corporate and other specific purposes and had outstanding letters of credit and bank guarantees from various banks totaling $53.9$93.6 million. These were supported by a combination of the uncommitted lines of credit that we maintain with various banks. Acquisitions.
. During fiscal year 2018,2020, we acquired three technology companies to expand our digital and media offering: Vubiquity, projekt202other intangible assets for total consideration of approximately $291.5 million, among them the largest of the three is Openet, which offers cloud-native capabilities, network pedigree, and UXP Systems (“UXP”),deep 5G charging, policy and data management expertise and whose solutions complement the Amdocs portfolio. During fiscal year 2019, we acquired three companies for total consideration of approximately $65.0 million, among them the largest is TTS Wireless a leading provider of mobile network engineering services, specializing in network optimization, planning and software-enabled
solutions. In addition, in November 2020, we signed an agreement for the aggregate purchase pricedivestiture of $355.1 millionOpenMarket, an Amdocs subsidiary, as part of our strategy to divest anon-strategic asset in cash.the mobile messaging domain and remain focused on our core strategic growth initiatives. See Note 24 to our consolidated financial statements. Capital Expenditures.Expenditures . Generally, 80% to 90% of our capital expenditures (excluding the investment in our new campus in Israel) consist of purchases of computer equipment, and the remainder is attributable mainly to leasehold improvements. Our capital expenditures were approximately $231.1$205.5 million in fiscal year 2018.2020. Our fiscal year 20182020 capital expenditures were mainly attributable to investments in our operating facilities and our development centers around the world. Regarding our expected investment in our new campus in Israel, please see Note 2 to our consolidated financial statements.
Share Repurchases.Repurchases . From time to time, our Board of Directors can adopt share repurchase plans authorizing the repurchase of our outstanding ordinary shares. Our Board of Directors adopted a share repurchase plan, on February 2, 2016, which authorized the repurchase of up to $750.0 million of our outstanding ordinary shares with no expiration date. On November 8, 2017, our Board of Directors adopted anothera share repurchase plan for the repurchase of up to an additional $800.0 million of our outstanding ordinary shares with no expiration date. On November 12, 2019, our Board of Directors adopted another share repurchase plan authorizing the repurchase of up to an additional $800.0 million of our outstanding ordinary shares with no expiration date. In April 2018,May 2020, we completed the repurchase of the remaining authorized amount of ordinary shares under the February, 2016November 2017 plan and began executinginitiated repurchases underof our outstanding ordinary shares pursuant to the November 20172019 plan. In fiscal year 2018,2020, we repurchased approximately 6.35.7 million ordinary shares at an average price of $66.14$63.66 per share (excluding broker and transaction fees). The November 20172019 plan permits us to purchase our ordinary shares in the open market or through privately negotiated transactions at times and prices that we consider appropriate. As of September 30, 2018,2020, we had remaining authority to repurchase up to $637.1$678.3 million of our outstanding ordinary shares under the November 20172019 plan.
Our Board of Directors declared the following dividends during fiscal years 2020, 2019 and 2018 2017 and 2016: | | | | | | | | | | | | | Declaration Date | | Dividends Per Ordinary Share | | | Record Date | | Total Amount (In millions) | | | Payment Date | | July 31, 2018 | | $ | 0.250 | | | September 28, 2018 | | $ | 35.0 | | | October 19, 2018 | May 10, 2018 | | $ | 0.250 | | | June 29, 2018 | | $ | 35.4 | | | July 20, 2018 | January 30, 2018 | | $ | 0.250 | | | March 30, 2018 | | $ | 35.6 | | | April 20, 2018 | November 8, 2017 | | $ | 0.220 | | | December 29, 2017 | | $ | 31.6 | | | January 19, 2018 | | August 2, 2017 | | $ | 0.220 | | | September 29, 2017 | | $ | 31.7 | | | October 23, 2017 | May 9, 2017 | | $ | 0.220 | | | June 30, 2017 | | $ | 32.0 | | | July 14, 2017 | February 1, 2017 | | $ | 0.220 | | | March 31, 2017 | | $ | 32.2 | | | April 14, 2017 | November 8, 2016 | | $ | 0.195 | | | December 30, 2016 | | $ | 28.6 | | | January 13, 2017 | | July 26, 2016 | | $ | 0.195 | | | September 30, 2016 | | $ | 28.7 | | | October 21, 2016 | May 4, 2016 | | $ | 0.195 | | | June 30, 2016 | | $ | 28.8 | | | July 15, 2016 | February 2, 2016 | | $ | 0.195 | | | March 31, 2016 | | $ | 29.2 | | | April 15, 2016 | November 10, 2015 | | $ | 0.170 | | | December 31, 2015 | | $ | 25.6 | | | January 15, 2016 | |
: | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 0.3275 | | | September 30, 2020 | | $ | 43.1 | | | October 23, 2020 | | | $ | 0.3275 | | | June 30, 2020 | | $ | 43.6 | | | July 24, 2020 | | | $ | 0.3275 | | | March 31, 2020 | | $ | 43.7 | | | April 24, 2020 | | | $ | 0.285 | | | December 31, 2019 | | $ | 38.4 | | | January 24, 2020 | | | | $ | 0.285 | | | September 30, 2019 | | $ | 38.4 | | | October 25, 2019 | | | $ | 0.285 | | | June 28, 2019 | | $ | 38.7 | | | July 19, 2019 | | | $ | 0.285 | | | March 29, 2019 | | $ | 39.1 | | | April 19, 2019 | | | $ | 0.250 | | | December 31, 2018 | | $ | 34.8 | | | January 18, 2019 | | | | $ | 0.250 | | | September 28, 2018 | | $ | 35.0 | | | October 19, 2018 | | | $ | 0.250 | | | June 29, 2018 | | $ | 35.4 | | | July 20, 2018 | | | $ | 0.250 | | | March 30, 2018 | | $ | 35.6 | | | April 20, 2018 | | | $ | 0.220 | | | December 29, 2017 | | $ | 31.6 | | | January 19, 2018 | |
On November 8, 2018,10, 2020, our Board of Directors approved a quarterly dividend payment of $0.25$0.3275 per share and set December 31, 20182020 as the record date for determining the shareholders entitled to receive the dividend, which is payable on January 18, 2019.22, 2021. On November 8, 2018,10, 2020 our Board of Directors also approved, subject to shareholder approval at the January 20192021 annual general meeting of shareholders, an increase in the quarterly cash dividend to $0.285$0.36 per share, anticipated to be paid in April 2019.2021. Our Board of Directors considers on a quarterly basis whether to declare and pay, if any, a dividend in accordance with the terms of the dividend program, subject to applicable Guernsey law and based on several factors including our financial performance, outlook and liquidity. Guernsey law requires that our Board of
Directors consider a dividend’s effects on our solvency before it may be declared or paid. While the Board of Directors will have the authority to reduce the quarterly dividend or discontinue the dividend program should it determine that doing so is in the best interests of our shareholders or is necessary pursuant to Guernsey law, any increase to the per share amount or frequency of the dividend would require shareholder approval.
Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements.The following table summarizes our contractual obligations as of September 30, 2018,2020, and the effect such obligations are expected to have on our liquidity and cash flows in future periods (in millions): | | | | | | | | | | | | | | | | | | | | | | | Payments Due by Period | | Contractual Obligations | | Total | | | Less Than 1 Year | | | 1-3 Years | | | 4-5 Years | | | More Than 5 Years | | Pension funding | | $ | 13.4 | | | $ | 1.3 | | | $ | 4.1 | | | $ | 2.7 | | | $ | 5.3 | | Purchase obligations | | | 87.1 | | | | 43.8 | | | | 42.5 | | | | 0.8 | | | | — | | Non-cancelable operating leases | | | 293.9 | | | | 75.2 | | | | 174.6 | | | | 33.1 | | | | 11.0 | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 394.4 | | | $ | 120.3 | | | $ | 221.2 | | | $ | 36.6 | | | $ | 16.3 | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Long-term and Short-term debt and accrued interests | | $ | 754.9 | | | $ | 104.9 | | | | — | | | | — | | | $ | 650.0 | | | | | 11.3 | | | | 1.2 | | | | 3.4 | | | | 2.3 | | | | 4.4 | | | | | 174.8 | | | | 72.5 | | | | 87.3 | | | | 15.0 | | | | — | | Non-cancelable operating leases | | | 344.2 | | | | 70.5 | | | | 138.5 | | | | 50.4 | | | | 84.8 | | Construction of the new campus (see below) | | | 232.0 | | | | 135.0 | | | | 97.0 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | $ | 1,517.2 | | | $ | 384.1 | | | $ | 326.2 | | | $ | 67.7 | | | $ | 739.2 | | | | | | | | | | | | | | | | | | | | | | |
As discussed in Note 2 to our consolidated financial statements, we purchased specific land to use as the future site of the new campus in Ra’anana, Israel and we are obligated to construct the campus. The total net investment we expect to make in connection with the construction of the new campus is estimated to be approximatelyup to $350 million over a period of fourfive years, starting with fiscal year 2018, out of which approximately $50$96 million was incurred in fiscal yearyears 2018 by both us and $50our partner Union at equal portions (i.e. our net investment was approximately $48 million), $7 million expected to bewas incurred by us in fiscal year 2019. Due to the difficulty2019 and $63 million was incurred by us in determining the other timing of the net investment in the coming years, these obligations are not included in the above table.fiscal year 2020. Please see Note 2 to our consolidated financial statements. The total amount of unrecognized tax benefits for uncertain tax positions was $187.6$168.2 million as of September 30, 2018.2020. 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 Asset Valuation Allowance As of September 30, 2018,2020, we had deferred tax assets of $112.7$69.5 million, which were offset by valuation allowances due to the uncertainty of realizing any tax benefit for such credits and losses. These deferred tax assets derived primarily from tax credits, net capital and operating loss carryforwards related to some of our subsidiaries, see Note 11. 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, or GAAP. 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 Goodwill, intangible assets and long-lived assets-impairment assessment Derivative and hedge accounting Accounts receivable reserves We discuss these policies further below, 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 in our domain expertise and other related services, and recurring revenue from ongoing support, maintenance and enhancements provided to our customers, and from incremental license fees resulting from increases in a customer’s business volume. Revenue is recognized onlyunder the five-step methodology required under ASC 606, which requires us to identify the contract with the customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations identified, and recognize revenue when all of the following conditions have been met: (i) there(or as) each performance obligation is persuasive evidence of an arrangement; (ii) delivery has occurred; (iii) the fee is fixed or determinable; and (iv) collectability of the fee is reasonably assured. satisfied. 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 are deemed essential to the software. As a result, we generally recognize initial license fee and related service revenue over the course of these projects, usingprojects. Revenue from customization, implementation, modification and integration services is also recognized over the percentagecourse of completion method of accounting. the projects. When total cost estimates exceed revenue in such project, the estimated losses are recognized immediately based upon the cost applicable to the project. Contingent 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.
Revenue from salesmanaged services arrangements are recognized for each individual performance obligation according to its relevant revenue category, including but not limited to, revenue from the management of a customer’s operations, revenue from projects and revenue from ongoing support services. Typically, managed services arrangements include management of data center operations and IT infrastructure, which include third-party hardware that functions together with theand software, licenses to provide the essential functionalityapplication management and ongoing support, management of the productbusiness processes, and managed transformation that includes significant customization, modification, implementation and integration, is recognizedboth a transformation project 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. well as taking over managed services responsibility. Revenue from services that do not involve significant ongoing obligations is recognized as services are rendered. In managedRevenue from other ongoing services contracts, we typically recognize revenue from the operation of a customer’s systemis recognized over time as services are performed, based onusing one method of measuring performance such as time elapsed, output produced, volume of data processed or subscriber count depending onthat provides the specific contract termsmost faithful depiction 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. transfer of services. Revenue from third-party hardware sales is recognized upon delivery andor 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 from third-party hardware and software sales is recorded at gross amount for transactions in which we control the third-party hardware and software before transferring them to the customer. In specific circumstances where we do not meet the above criteria, we recognize revenue is recognized over the course of implementation and integration projects under the percentage of completion method of accounting, usually based on a percentage that incurred labor effort to date bears to total projected labor effort. When total cost estimates exceednet basis. In certain arrangements, we may earn revenue infrom other third-party services which is recorded at a fixed-price arrangement,gross amount as we control the estimated losses are recognized immediately based upon the cost applicableservices before transferring them to the project. The percentage of completion method requires the exercise of judgment on a quarterly basis, such as with respect to estimates ofprogress-to-completion, contract revenue, loss contracts and contract costs. Progress in completing such projects may significantly affect our annual and quarterly operating results.
customer. 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. policy: We evaluate contracts entered into at or near the same time with the same customer (or related parties of the customer) and determine if the contracts should be combined in accordance with the guidance for revenue recognition. A significant portion of our revenue is recognized over the course of implementation and integration projects, usually based on a percentage that incurred labor effort to date bears to total projected labor effort. The recognition of revenue over time requires the exercise of judgment on a quarterly basis, such as with respect to estimates ofcontract revenue, loss contracts and contract costs. Progress in completing such projects may significantly affect our annual and quarterly operating results. 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.collection. This determination requires the exercise of judgment, which affects our revenue recognition. If we determine that collection of a fee is not reasonably assured,collectible, we deferexclude the revenue recognition untilrelevant fee from transaction price. Many of our agreements include multiple performance obligations. We allocate the time collection becomes reasonably assured. For arrangements with multiple deliverables within the scope of software revenue recognition guidance, we allocate revenuetransaction price for each contract to each component based upon its relative fair value, which is determinedperformance obligation identified in the contract based 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. In the absence of fair value for a delivered element, we use the residual method. The residual method requires that we first allocate revenue based on fair value to the undelivered elements and then the residual revenue is allocated 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 upon commencement of the maintenance services. 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. Under the guidance for revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance, we allocate revenue to each element based upon the relative fair value. Fair value would be allocated by using a hierarchy of (1) VSOE, (2) third-party evidence ofstandalone selling price for that element, or (3) 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 fornon-software arrangements.(SSP). We determine ESPSSP for the purposes of allocating the considerationtransaction price to individual elements of an arrangementeach performance obligation by considering several external and internal factors including, but not limited to, transactions where the specific performance obligation sold separately, historical actual pricing practices margin objectives,and geographies in which we offer our services and internal costs.in accordance with ASC 606. The determination of ESPSSP requires the exercise of judgement. If a specific performance obligation is judgmentalsold for a broad range of amounts (that is, the selling price is highly variable) or if we have not yet established a price for that good or service, and the good or service has not previously been sold on a standalone basis (that is, made through consultationthe selling price is uncertain), we apply the residual approach whereby all other performance obligations within a contract are first allocated a portion of the transaction price based upon their respective SSPs with and approval by management.
Revenue fromany residual amount of transaction price allocated to the remaining specific performance obligation.
For transactions which involve third-party hardware, software and software sales is recorded at a gross or net amount according to certain indicators. In certain arrangements, we may earn revenue from other third-party services, which is recorded at a gross or net amount according to certain indicators. The application of these indicators for gross and net reportingthe determination of revenue dependsrecognition based on the relative facts and circumstancesgross amount or on a net basis requires the exercise of each sale and requires significant judgment.judgment in considering whether we control the third-party hardware, software or services prior to fulfilling the performance obligation. 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. We recognize the tax benefit from an uncertain tax position only 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 tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood 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 changes in tax law. 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.
In accordance with business combinations accounting, assets acquired and liabilities assumed, as well as any contingent consideration that may be part of the acquisition agreement, are recorded at their respective fair values at the date of acquisition. For acquisitions that include contingent consideration, the fair value is estimated on the acquisition date as the present value of the expected contingent payments, determined using weighted probabilities of possible payments. We remeasure the fair value of the contingent consideration at each reporting
period until the contingency is resolved. Except for measurement period adjustments, the changes in fair value are recognized in the consolidated statements of income. In accordance with business combinations 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. As a result of the significant judgments that need to be made, we obtain the assistance of independent valuation firms. We complete these assessments as soon as practical after the closing dates. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.Although we believe the assumptions and estimates of fair value we 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 and subject to refinement. 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, 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 a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill, if the changes are related to conditions that existed at the time of the acquisition. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments, based on events that occurred subsequent to the acquisition date, are recorded in our consolidated statements of income.We estimate the fair values of our services, hardware, software license and maintenance obligations assumed. The estimated fair values of these performance obligations are determined utilizing a cost build-up approach. The costbuild-up approach determines fair value by estimating the costs related to fulfilling the obligations plus a normal profit margin. 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.
Goodwill, Intangible Assets and Long-Lived Assets — Impairment Assessment Goodwill is measured as the excess of the cost of a business acquisition over the sum of the amounts assigned to tangible and identifiable intangible assets acquired less liabilities assumed. Goodwill is subject to periodic impairment tests. Goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. The goodwill impairment test involves a two-step process. The first step, identifying a potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the second step would need to be conducted; otherwise, no further steps are necessary as no potential impairment exists. The second step, measuring the impairment loss, compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. Any excess of the reporting unit goodwill carrying value over the respective implied fair value is recognized as an impairment loss.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 in fiscal years 2018, 20172020, 2019 or 2016.2018.
We test long-lived assets, including definite life intangible assets, for impairment in the event an indication of 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 years 2018, 20172020, 2019 or 2016.2018. Derivative and Hedge Accounting During fiscal years 2018, 20172020, 2019 and 2016,2018, approximately 70% to 80% of our revenue and 50% to 60% of our operating expenses were 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 (loss) 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. 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 ultimately 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 collectionthe fee is not reasonably assuredcollectible at the time the transaction is consummated, we do not recognize revenue until collection becomes reasonably assured.exclude the relevant fee from the transaction price. If we estimate that our customers’ ability and intent to make payments have been impaired, additional allowances may be required. 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 Standards Please see Note 2 to our consolidated financial statements.
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. As of December 3, 2018,2020, our directors and officers were as follows: | | | | | | | | | | | | | Robert A. Minicucci(1)(2)(3) | | | 6668 | | | Chairman of the Board | Adrian Gardner(1) | | | 5658 | | | Director and Chairman of the Audit Committee | John T. McLennan(2) | | | 73 | | | Director and Chairman of the Management Resources and Compensation Committee | Zohar Zisapel(4) | | | 69 | | | Director and Chairman of the Technology and Innovation Committee | Julian A. Brodsky(3) | | | 85 | | | Director | James S. Kahan(3) | �� | | 7173 | | | Director and Chairman of the Nominating and Corporate Governance Committee | Richard T.C. LeFave(1)(2)(4)(3) | | | 6668 | | | Director | Giora Yaron(4) | | | 7072 | | | Director and Chairman of the Technology and Innovation Committee | Rafael de la Vega(2) | | | 69 | | | Director and Chairman of the Management Resources and Compensation Committee | Eli Gelman(4) | | | 62 | | | Director | Ariane de Rothschild(3) | | | 53 | | | Director | Rafael de la VegaJohn A. MacDonald(2)(4) | | | 67 | | | Director | Eli Gelman(4)Yvette Kanouff(4) | | | 6055 | | | Director | Shuky Sheffer | | | 5860 | | | Director, President and Chief Executive Officer | Tamar Rapaport-Dagim | | | 4749 | | | Chief Financial Officer and Chief Operating Officer | Rajat Raheja | | | 4951 | | | Division President, Amdocs Development Center India Pvt. Ltd. | Matthew Smith | | | 4648 | | | Secretary; Head of Investor Relations |
(1) | Member of the Audit Committee |
(2) | Member of the Management Resources and Compensation Committee |
(3) | Member of the Nominating and Corporate Governance Committee |
(4) | Member of the Technology and Innovation Committee |
Robert A. Minicucci has been Chairman of the Board of Directors of Amdocs since 2011 and a director since 1997. Mr. Minicucci joined Welsh, Carson, Anderson & Stowe, or WCAS, in 1993. Mr. Minicucci has served as a managing member of the general partners of certain funds affiliated with WCAS and has focused on the information and business services industry. Until 2003, investment partnerships affiliated with WCAS had been among our largest shareholders. 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 iswas a director of one other publicly-held company, Alliance Data Systems, Inc. until June 2020. He is also a director of several private companies. Mr. Minicucci’s career in information technology investing, including as a director of more than 20 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. Adrian Gardner has been a director of Amdocs since 1998 and is Chairman of the Audit Committee. Mr. Gardner serves as Chief FinancialOperating Officer of Ipes HoldingsStonehage Fleming Family & Partners Limited, a provider of outsourced services to private equity firms, froman international Multi-Family Office business, since October 2016.2019. Mr. Gardner has served as a member of the Audit & Risk Committee of Worcester College, Oxford University since May 2017. From 2016 to 2019, Mr. Gardner served as Chief Financial Officer of Ipes Holdings Limited, a provider of outsourced services to private equity firms. From 2014 to September 2016, Mr. Gardner served as Chief Financial Officer of International Personal Finance plc, an international home credit business. Mr. Gardner was Chief Financial Officer and a director of RSM Tenon Group PLC, a London-based accounting and advisory firm listed on the London Stock Exchange, from 2011 until the acquisition in 2013 of its operating subsidiaries by Baker Tilly UK Holdings Limited, since renamed RSM UK Limited. Mr. Gardner was Chief Financial Officer of PA Consulting Group, a London-based business consulting firm from 2007 to 2011. Mr. Gardner was Chief Financial Officer and a director of ProStrakan Group plc, a pharmaceuticals company based in the United Kingdom and listed on the London Stock Exchange, from 2002 until 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 fellow 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. John T. McLennan has been a director of Amdocs since 1999 and is Chairman of the Management Resources and Compensation Committee. From 2000 until 2004, he served as Vice-Chair and Chief Executive Officer of Allstream (formerly AT&T Canada). Mr. McLennan founded Jenmark Consulting Inc. and was its President from 1997 until 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 Emera Inc., a Canadian publicly-held energy services company, and was its Chairman from 2009 to 2014. 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.
Zohar Zisapel has been a director of Amdocs since 2008 and is the Chairman of the Technology and Innovation Committee. Mr. Zisapelco-founded RAD Data Communications Ltd., a privately-held voice and data communications company and part of the RAD Group, a family of independent networking and telecommunications companies, and was its CEO from 1982 until 1998 and Chairman from 1998 until 2012. Mr. Zisapel also serves as chairman of Ceragon Networks Ltd. and as a director of Radcom Ltd., both public companies traded on Nasdaq, and on the boards of directors of several privately-held companies. Mr. Zisapel served as chairman of the Israel Association of Electronic Industries from 1998 until 2001. Mr. Zisapel received an Honorary Doctorate from the Technion — Israel Institute of Technology, and he is teaching Entrepreneurship at the Tel Aviv University. 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 2003. Since 2011, Mr. Brodsky has served as a senior advisor to Comcast Corporation. Mr. Brodsky served as a director of Comcast Corporation from 1969 to 2011, and as Vice Chairman of Comcast Corporation from 1989 to 2011. From 1999 to 2004, Mr. Brodsky was Chairman of Comcast Ventures (formerly Comcast Interactive Capital, LP), a venture fund affiliated with Comcast. He is a director of RBB Fund, Inc. Mr. Brodsky brings to our Board of Directors deep and extensive knowledge of business in general and of the cable industry in particular 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 practicing CPA.
James S. Kahan has been a director of Amdocs since 1998.1998 and is Chairman of the Nominating and Corporate Governance Committee. From 1983 until his retirement in 2007, he worked at SBC Communications Inc., which is now AT&T, and served as a Senior Executive Vice President from 1992 until 2007. AT&T 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., a publicly-traded live music and ticketing entity, as well as one private company. Mr. Kahan’s long service at SBC Communications Inc. 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. Richard T.C. LeFave has been a director of Amdocs since 2011. Since 2008, Mr. LeFave has been a Principal at D&L Partners, LLC, an information technology consulting firm. Mr. LeFave served as Chief Information Officer for Nextel Communications, a telecommunications company, from 1999 until its merger with Sprint Corporation in 2005, after which he served as Chief Information Officer for Sprint Nextel Corporation until 2008. From 1995 to 1999, Mr. LeFave served as Chief Information Officer for Southern New England Telephone Company, a provider of communications products and services. Mr. LeFave has held the CISO position and duties for a U.S.-based manufacturing firm and attended Harvard Business School (“HBS”) courses in Board Compensation and Audit Committee strategies and recently completed his HBS Corporate Director Certificate. We believe Mr. LeFave’s qualifications to sit on our board include his extensive experience and leadership in the information technology and telecommunications industry. Giora Yaron has been a director of Amdocs since 2009.2009 and is Chairman of the Technology and Innovation Committee. Dr. Yaron co-founded Itamar Medical Ltd., a publicly-traded medical technology company, and has been itsco-chairman since 1997 and since 2015, served as its chairman. Dr. Yaron provides consulting services to Itamar Medical and to various other technology companies. Heco-foundedP-cube,co-founded P-cube, Pentacom, Qumranet, Exanet and Comsys, privately-held companies sold to multinational corporations. In 2009, Dr. Yaron alsoco-founded Qwilt, Inc., a privately-held video technology company and serves as one of its directors. Dr. Yaron served as a director of Hyperwise Security, a company focused on providing a comprehensive APT protection, which was sold to Checkpoint in early 2015, servesserved as Chairman of the Board at Excelero (ExpressIO), untill 2019, a company focused on providing ultra-fast block storage solution and Equalum focused on streaming in real-time changes from a variety of data bases to a unified platform for real-time Big Data Analytics. Since 2010,Dr. Yaron is an active investor in various companies including, Salto, Afforata, Vulcan Security, Aqua Security, CyberPion and ArgonSec. Dr. Yaron has beenserved as the chairman of The Executive Council of Tel Aviv University an institution of higher education between 2010-2019 and a director of Ramot, which is the Tel Aviv University’s technology transfer company until 2015. Dr. Yaron has served on the advisory board of Rafael Advanced Defense Systems, Ltd., a developer of high-tech defense systems, since 2008, and on the advisory board of the Israeli Ministry of Defense since 2011. Dr. Yaron served from 1996 to 2006 as a member of the Board of Directors of Mercury Interactive, a publicly-traded IT optimization software company acquired by Hewlett-Packard, including as chairman from 2004 to 2006. 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.Baroness Ariane de Rothschild has been a director of Amdocs since January 2018. Since January 2015, she has served as the Chairwoman of the Executive Committee of Edmond de Rothschild Group. Since 2009,
Baroness de Rothschild has served as the vice-president of Edmond de Rothschild Group’s supervisory board and has also served as the vice-president of the Edmond de Rothschild Holding SA since 1999. Baroness de Rothschild now holds various board positions across Holding Benjamin & Edmond de Rothschild Pregny, Compagnie Benjamin de Rothschild Conseil S.A., Siaci Saint-Honoré Insurance Broker, and Barons and Baronne Associés. We believe Baroness de Rothschild’s qualifications to sit on our Board of Directors include her strong financial and banking expertise and her international business experience.
Rafael de la Vega has been a director of Amdocs since January 2018.2018 and is Chairman of the Management Resources and Compensation Committee. Since 2017, he has served as the Chairman and Founder of the De La Vega Group, a consultancy and advisory services firm. From February 2016 to December 2016, Mr. de la Vega served as the Vice Chairman of AT&T Inc. and CEO of Business Solutions & International. From 2014 to 2016
Mr. de la Vega served as President and CEO of AT&T Mobile and Business Solutions and from 2007 to 2014 he served as the President and CEO of AT&T Mobility. Mr. de la Vega also held various positions at several telecommunications companies, including Cingular Wireless and Bell South Latin America. During his time at Cingular Wireless, he was responsible for the integration of AT&T Wireless and Cingular Wireless. He also serves on the boards of American Express Company and New York Life Insurance Company. He served on the Executive Committee of the Boy Scouts of America until May 2018 and served as Chairman of the 2017 Boy Scouts Jamboree. He is the former Chairman of Junior Achievement Worldwide and continues to serve on its board of directors. In June of 2018, Mr. de la Vega joined as the Vice Chairman of the Board of Directors of Ubicquia LLC. In September of 2018 he joined the Board of Advisors of RapidSOS. Mr. de la Vega also recently joined Forté Ventures as a Limited Partner. We believe Mr. de la Vega’s qualifications to sit on our Board of Directors includes his extensive experience and leadership in the telecommunications industry. Eli Gelman has been a director of Amdocs since 2002. Since January 2019, Mr. Gelman has served as the chairman of the Executive Council of Tel Aviv University. Mr. Gelman served as our President and Chief Executive Officer from 2010 to September 30, 2018. From 2010 until 2013, Mr. Gelman served as a director of Retalix, a global software company, and during 2010, he also served as its Chairman. From 2008 to 2010, Mr. Gelman devoted his time to charitable matters focused on youth education. He served as Executive Vice President of Amdocs Management Limited from 2002 until 2008 and as our Chief Operating Officer from 2006 until 2008. Prior to 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. Before joining Amdocs, Mr. Gelman was involved in the development of real-time software systems for communications networks and software projects for NASA. 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 Officer and President and Chief Executive Officer. With more than 30 years of experience in the software industry, he possesses a vast institutional knowledge and strategic understanding of our organization and industry. John A. MacDonald has been a director of Amdocs since 2019. Mr. MacDonald is an experienced senior executive who has worked at some of Canada’s largest technology organizations and serves as a board member of Rogers Communications Inc. and BookJane Inc. From 2003 to 2008, Mr. MacDonald served as the President, Enterprise Division of MTS Allstream. Before that, between 2002 to 2003, Mr. MacDonald was a President and Chief Operating Officer AT&T Canada. AT&T Canada wasre-branded Allstream in 2003 and was subsequently acquired by MTS the following year. In 1994 Mr. MacDonald joined Bell Canada as its Chief Technology Officer and retired from Bell Canada in 1999 as its President and Chief Operating Officer. From 1977 to 1994 Mr. MacDonald worked at NBTel, where he became Chief Executive Officer in 1994. We believe Mr. MacDonald’s qualifications to sit on our Board of Directors includes his extensive experience and leadership in the telecommunications industry. Yvette Kanouff has been a director of Amdocs since 2020. Since August 2019, Ms. Kanouff has served as a director of Science Applications International Corporation (SAIC). She is currently a partner and chief technology officer at Silicon Valley-based venture capital and private equity firm JC2 Ventures where Ms. Kanouff is responsible for technology strategy and engineering relationships within JC2 Ventures investment companies, partners, and customers. Prior to that, Ms. Kanouff served as a senior vice president and general manager for Cisco’s Service Provider Business where she was responsible for more than $7 billion in direct revenue and more than 6,000 employees globally. Previously, Ms. Kanouff held leadership positions for numerous companies, including Cablevision, SeaChange International, and Time Warner. Ms. Kanouff holds a bachelor’s degree and a master’s degree in mathematics from the University of Central Florida. Ms. Kanouff is also a director and executive advisor of several private technology companies. Shuky Sheffer is a director and has been our President and Chief Executive Officer since October 1, 2018. Mr. Sheffer previously served as Senior Vice President and President of the Global Business Group from October
2013 to September 30, 2018. Mr. Sheffer served as Chief Executive Officer of Retalix Ltd., a global software company, from 2009 until its acquisition by NCR Corporation in 2013. Following the acquisition, he served as a General Manager of Retalix through September 2013. From 1986 to 2009, Mr. Sheffer served at various managerial positions at Amdocs, most recently as President of the Emerging Markets Divisions. Tamar Rapaport-Dagim has been our Chief Financial Officer since 2007, and our Chief Operating Officer since October 1, 2018. Ms. Rapaport-Dagim served as our 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. 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. Rajat Raheja has been our Division President for India operations since February 2016. Mr. Raheja has close to 23 years of experience and most recently served as Director, Global Services at Deloitte Consulting. Prior to joining Amdocs, Mr. Raheja held leadership positions in Deloitte Consulting, Arthur Andersen, PricewaterhouseCoopers and Tata Telecom. Matthew Smith has been Secretary of Amdocs Limited since January 2015. Mr. Smith joined Amdocs in October 2012 as Director of Investor Relations and has been Head of Investor Relations since January 2014. Prior to joining Amdocs, from April 2006 to August 2012, Mr. Smith was a research director at A.I. Capital Management, a hedge fund, where he covered many sectors, including the technology sub-sectors of IT hardware, semiconductors, software and IT services. From April 2001 to April 2006, Mr. Smith was an equity analyst at CIBC World Markets (now Oppenheimer Co.).During fiscal 2018,2020, each of our directors who was not our employee, or Non-Employee Directors, received compensation for their services as directors in the form of cash and restricted shares. EachNon-Employee Director received an annual cash payment of $80,000. Each member of our Audit Committee who is aNon- Employee Non-Employee Director and who is not the chairman of such committee received an annual cash payment of $25,000.$30,000. Each member of our Management Resources and Compensation Committee who is aNon-Employee Director and who is not a committee chairman received an annual cash payment of $15,000.$20,000. Each member of our Nominating and Corporate Governance and Technology and Innovation Committees who is aNon-Employee Director and who is not a committee chairman received an annual cash payment of $10,000.$15,000. The Chairman of our Audit Committee received an annual cash payment of $35,000$42,500 and the Chairman of our ManagementResources and Compensation Committee received an annual cash payment of $25,000.$32,500. The Chairmen of our Nominating and Corporate Governance and Technology and Innovation Committees each received an annual cash payment of $20,000.$27,500. Each Non-Employee Director received an annual grant of restricted shares at a total value of $245,000.$255,000. The Chairman of the Board of Directors received an additional annual amount equal to $200,000 awarded in the form of restricted shares. AllThe restricted share awards to ourNon-Employee Directors are fully vested upon grant. Beginning in fiscal 2019, these grants will vest quarterly. The price per share for the purpose of determining the value of the grants to ourNon-Employee Directors was the Nasdaq closing price of our shares on the last trading day preceding the grant date. We also reimburse all of ourNon-Employee Directors for their reasonable travel expenses incurred in connection with attending Board or committee meetings. Cash compensation paid to ourNon-Employee Directors is prorated for partial year service.A total of 1715 persons who served either as directors or officers of Amdocs during all or part of fiscal 20182020 received remuneration from Amdocs. The aggregate remuneration paid or accrued by us to such persons in fiscal 20182020 was approximately $7$5.3 million, compared to $6.9$5.4 million and $7 million in each of fiscal 20172019 and fiscal 2016,2018, respectively, 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 2018,
2020, we granted to such persons options to purchase an aggregate of 115,817153,746 ordinary shares at a weighted average price of $62.60$68.57 per share with vesting generally over four-year terms and expiring ten years from the date of grant, and an aggregate of 86,085147,112 restricted shares typically subject to three to four-year vesting and often times, achievement of certain performance thresholds, and in the case of our directors, no vesting restrictions.subject to quarterly 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.”
Ten directors currently serve on our Board of Directors, all of whom were elected at our annual meeting of shareholders on January 26, 2018.31, 2020. All directors hold office until the next annual meeting of our shareholders, which generally is in January or February of each calendar year, or until their respective successors are duly elected and qualified or their positions are earlier vacated by resignation or otherwise. In August 2017, the Board of Directors established a mandatory retirement age of 73 for directors. No person of or over the age of 73 years shall be nominated or elected to start a new term as director, unless the Chairman of the Board of Directors recommends to the Board of Directors, and the Board of Directors determines, to waive the retirement age for a specific director in exceptional circumstances. Once the waiver is granted, it must be renewed annually for it to stay in effect. Julian A. BrodskyIn November 2020, Mr. James Kahan was granted a one-year waiver to continue as director past the age of 73 years for an additional yearuntil the next annual general meeting in 2022 in light of Mr. Brodsky’s vastthe circumstances presented to the Board of Directors, including his exceptional industry experience inand value to the Multiple System Operators (“MSO”)Board, as well as the current global business and market which is in the midst of a major modernization cycle.environment. Other than the employment agreement between us and our President and Chief Executive Officer, 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. On January 31, 2020, Mr. Julian Brodsky retired from our Board of Directors and is serving as “director emeritus” and provides us certain advisory services. The agreement with Mr. Julian Brodsky will expire on January 31, 2021, see “Item 7. Major Shareholders and Related Party Transactions — Related Party Transactions.” Our Board of Directors maintains four committees as 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, risk assessment and risk management. The current members of our Audit Committee are Messrs. Gardner (Chair), LeFave and Minicucci, all of whom are independent directors, as defined by the rules of Nasdaq, 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 Nasdaq. In particular, we believe that the professional experiences of Messrs. Gardner, LeFave and Minicucci provide important insights into their work on the Audit Committee. For example, we believe Mr. Gardner’s extensive experience as an accountant, technology investment banker and chief financial officer enables him to make valuable contributions to the Committee. In addition, we believe that Mr. LeFave’s experience as a seasoned Fortune 500 CIO and CISO for over 5 years provides a foundation of cyber awareness to the Audit Committee and also believe that Mr. LeFave’s post-graduate training at HBS in Audit Committee, Board compensation best practices and recently completed HBS Corporate Director Certificate provide valuable contributions to the Committee. Similarly, we believe that Mr. Minicucci’s 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 that benefits the Committee. The Audit Committee written charter is available on our website at
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. The current members of the Nominating and Corporate Governance Committee are Messrs. Kahan (Chair), BrodskyMinicucci and Baroness de Rothschild,LeFave, all of whom are independent directors, as required by the Nasdaq 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 available on our website at www.amdocs.com. The Nominating and Corporate Governance Committee has approved corporate governance guidelines that are also available on our website at www.amdocs.com..The Management Resources and Compensation Committee discharges the responsibilities of our Board of Directors relating to the compensation of the Chief Executive Officer of Amdocs Management Limited, makes recommendations to our Board of Directors with respect to the compensation of our other executive officers and oversees management succession planning for the executive officers of the Company. The current members of our Management Resources and Compensation Committee are Messrs. McLennanDe la Vega (Chair), LeFave, Minicucci and Minicucci,MacDonald, all of whom are independent directors, as defined by the rules of Nasdaq, and pursuant to the categorical director independence standards adopted by our Board of Directors. The Management Resources and Compensation Committee written charter is available on our website at 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. ZisapelDr. Yaron (Chair), Gelman, LeFaveKanouff and Dr. Yaron.MacDonald. Ournon-employee directors receive no compensation from us, except in connection with their membership on the Board of Directors and its committees as described above regardingNon-Employee Directors under “— Compensation.” The following table presents the approximate average number of our workforce atfor each of the fiscal years indicated, by function and by geographical location (in each of which we operate at multiple sites): | | | | | | | | | | | | | | | fiscal year, | | | | 2018 | | | 2017 | | | 2016 | | Software and Information Technology, Sales and Marketing | | | | | | | | | | | | | Americas | | | 5,598 | | | | 5,606 | | | | 5,398 | | EMEA | | | 6,306 | | | | 6,408 | | | | 6,232 | | APAC | | | 10,851 | | | | 10,650 | | | | 9,575 | | | | | | | | | | | | | | | | | | 22,755 | | | | 22,664 | | | | 21,205 | | Management and Administration | | | 1,626 | | | | 1,573 | | | | 1,546 | | | | | | | | | | | | | | | Total Workforce(1) | | | 24,381 | | | | 24,237 | | | | 22,751 | | | | | | | | | | | | | | |
(1) | Total workforce numbers for fiscal years 2017 and 2016 restated to reflect the average number of our workforce.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | Software and Information Technology, Sales and Marketing | | | | | | | | | | | | | | | | 5,522 | | | | 5,409 | | | | 5,598 | | | | | 5,957 | | | | 6,063 | | | | 6,306 | | | | | 12,815 | | | | 11,472 | | | | 10,851 | | | | | | | | | | | | | | | | | | 24,294 | | | | 22,944 | | | | 22,755 | | Management and Administration | | | 1,581 | | | | 1,572 | | | | 1,626 | | | | | | | | | | | | | | | | | | 25,875 | | | | 24,516 | | | | 24,381 | | | | | | | | | | | | | | |
As a company with global operations, we are required to comply with various labor and immigration laws throughout the world. Our employees in certain countries of Europe, and to a limited extent in Canada and Brazil, are protected 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 specific 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 provisions of general extension orders issued by the Israeli Ministry of
Labor and Welfare which derive from various labor related statutes. The most significant of these provisions provide for mandatory pension benefits and wage adjustments in relation to increases in the consumer price index, or CPI. The amount and frequency of these adjustments are modified from time to time. A small number of our employees in Canada and Bulgaria, our employees in Brazil and our employees in Chile have union representation. We also have an affiliation with a non-active union in Mexico. We have a works council body in the Netherlands and Germany which represents the employees and with which we work closely to ensure compliance with the applicable local law. We also have an employee representative body in France, Hungary and in Finland.In recent years, Israeli labor unions have increased their efforts to organize workers at companies with significant operations in Israel, including several companies in the technology sector. In addition, a national union and a group of our employees had attempted to secure the approval of the minimum number of employees needed for union certification with respect to our employees in Israel. While these efforts have not resulted in either group being recognized as a representative union, we cannot be certain there will be no such efforts in the future. In the event an organization is recognized as a representative union for our employees in Israel, we would be required to enter into negotiations to implement a collective bargaining agreement. See “Risk Factors — 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 .”We consider our relationship with our employees to be good and have never experienced an organized labor dispute, strike or work stoppage. Security Ownership of Directors and Senior Management and Certain Key Employees As of December 3, 2018,2020, the aggregate number of our ordinary shares beneficially owned by our directors and executive officers was 2,104,041131,110,182 shares. As of December 3, 2018,2020, none of our directors or members of senior management beneficially owned 1% or more of our outstanding ordinary shares. 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.
Stock Option and Incentive Plan Our Board of Directors adopted, and our shareholders approved, our 1998 Stock Option and Incentive Plan, as amended, which we refer to as the Equity Incentive Plan, pursuant to which up to 67,550,00070,550,000 of our ordinary shares may be issued. The Equity Incentive 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 Equity Incentive 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, 2018,2020, of the 67,550,00070,550,000 ordinary shares available for issuance under the Equity Incentive Plan, 54,302,89457,985,546 ordinary shares had been issued as a result of option exercises and restricted share issuances. As of September 30, 2018, 6,722,0732020, 6,718,461 ordinary shares remained available for future grants, subject to a sublimit applicable to the award of restricted shares or awards dominateddenominated in stock units. As of December 3, 2018,2020, there were outstanding options to purchase an aggregate of 6,939,3855,618,043 ordinary shares at exercise prices ranging from $16.92$27.47 to $68.40$72.19 per share and 106,216137,383 shares are subject to outstanding restricted stock units. The Equity Incentive Plan is administered by a committee of our Board of Directors, which determines the terms of awards for directors, employees and consultants as well as the manner in which awards may be made subject
to the terms of the Equity Incentive Plan. The Board of Directors may amend or terminate the Equity Incentive Plan, provided that shareholder approval is required to increase the number of ordinary shares available under the Equity Incentive 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 subject to restricted stock awards are subject to certain restrictions on sale, transfer or hypothecation. Under its terms, no awards may be granted pursuant to the Equity Incentive Plan after January 28, 2025. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
The following table sets forth specified information with respect to the beneficial ownership of the ordinary shares as of December 3, 20182020 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 139,575,585131,110,182 ordinary shares outstanding as of December 3, 2018,2020, net of shares held in treasury. Information concerning shareholders other than our directors and officers is based on periodic public filings made by such shareholders and may not necessarily be accurate as of December 3, 2018.2020. None of our major shareholders have voting rights that are different from those of any other shareholder. | | | | | | | | | Name | | Shares Beneficially Owned | | | Percentage Ownership | | FMR LLC(1) | | | 16,167,614 | | | | 11.58 | % | Janus Henderson Group plc (2) | | | 7,545,647 | | | | 5.41 | % | All directors and officers as a group (15 persons)(3) | | | 2,104,041 | | | | 1.50 | % |
| | | | | | | | | | | | | | | | | | | 15,971,485 | | | | 12.2 | % | Janus Henderson Group plc(2) | | | 7,541,445 | | | | 5.8 | % | All directors and officers as a group (13 persons)(3) | | | 2,074,527 | | | | 1.6 | % |
(1) | Based on a Schedule 13G/A filed by FMR LLC, or FMR, with the SEC on February 13, 2018,7, 2020, as of December 29, 2017,31, 2019, FMR had sole power to vote or direct the vote over 1,227,4891,565,866 shares and sole power to dispose or direct the disposition of 16,167,61415,971,485 shares. Edward C. Johnson 3d is a Director and the Chairman of FMR and Abigail P. Johnson is a Director, the Vice Chairman of FMR and the Chief Executive Officer and the President of FMR. Members of the family of Edward C. Johnson 3d,family, including Abigail P. Johnson, directly or through trusts, own approximately 49% of the voting power of FMR. The address of FMR is 245 Summer Street, Boston, Massachusetts 02210. |
(2) | Based on a Schedule 13G/A filed by Janus Henderson Group plc, or Janus Henderson, with the SEC on February 12, 2018,13, 2020, as of December 31, 2017,2019, Janus had an indirect 97.11%97% ownership stake in IntechInvestment Management LLC (“Intech”) and a 100% ownership stake in Janus Capital Management LLC (“Janus Capital”), Perkins Investment Management LLC (“Perkins”), Geneva Capital Management LLC (“Geneva”), Henderson Global Investors Limited (“HGIL”) , and Janus Henderson Investors Australia Institutional Funds Management Limited (“HGIAIFML”) and Henderson Global Investors North America Inc. (“HGINA”), (each an “Asset Manager” and collectively as the “Asset Managers”). Due to the above ownership structure, holdings for the Asset Managers are aggregated for purposes of this filing. Each Asset Manager is an investment adviser registered or authorized in its relevant jurisdiction and each furnishing investment advice to various fund, individual and/or institutional clients (collectively referred to herein as “Managed Portfolios”). As a result of its role as investment adviser or sub-adviser to the Managed Portfolios, Janus Capital may be deemed to be the beneficial owner of 7,383,4587,482,025 shares or 5.1%5.6% of the shares outstanding of Amdocs Common Stock held by such Managed Portfolios. However, Janus Capital 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. As a result of its role as investment adviser orsub-adviser to the Managed Portfolios, Intech may be deemed to be the beneficial owner of 142,92041,574 shares or 0.1%0.0% of the shares outstanding of Amdocs |
| Common Stock held by such Managed Portfolios. However, Intech 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. As a result of its role as investment adviser or sub-adviser to the Managed Portfolios, HGINAHGIL may be deemed to be the beneficial owner of 12,25617,846 shares or 0.0% of the shares outstanding of Amdocs Common Stock held by such Managed Portfolios. However, HGINA 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. As a result of its role as investment adviser orsub-adviser to the Managed Portfolios, HGIL may be deemed to be the beneficial owner of 7,023 shares or 0.0% of the shares |
| outstanding of Amdocs Common Stock held by such Managed Portfolios. However, HGILJCIL 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. The address of Janus Henderson is 201 Bishopsgate EC2M 3AE, United Kingdom. |
(3) | Includes options held by such directors and executive officers that are exercisable within 60 days after December 3, 2018.2020. As of such date, none of our directors or executive officers beneficially owned 1% or more of our outstanding ordinary shares. |
As of December 3, 2018,2020, our ordinary shares were held by 1,6701,595 record holders. Based on a review of the information provided to us by our transfer agent, 775747 record holders, including Cede & Co. the nominee of The Depository Trust Company, holding approximately 77%83.5% of our outstanding ordinary shares held of record, were residents of the United States. Related Party Transactions Zohar Zisapel, a member
On January 31, 2020, Mr. Julian Brodsky retired from our Board of our board of directors, is a member of the board of directors and a significant shareholder of Radcom Ltd (“Radcom”). In 2015, certain of our subsidiariesDirectors. On February 1, 2020, we have entered into a number of contractsan agreement with Radcom for itMr. Brodsky pursuant to act as a subcontractor for us and/or a value added reseller. In addition, in the ordinary course of business we purchase certain products from other entities in which Mr. Zisapel hasBrodsky serves as “director emeritus” and provides us certain advisory services, for which we pay Mr. Brodsky an interest.annual total payment equal to $255,000 in equity and $80,000 in cash. In fiscal 2018, our aggregate paymentsyear 2020, we paid Mr. Brodsky $255,000 in equity and $80,000 in cash. The agreement with respect to all these transactions were substantially less than 1% of our total operating expenses.Mr. Brodsky will expire on January 31, 2021. See “Financial Statements” for our audited Consolidated Financial Statements and Financial Statement Schedule filed as part of this Annual Report. We are involved in various legal claims and proceedings arising in the normal course of our business. We accrue for a loss contingency when we determine that it is probable, after consultation with counsel, that a liability has been incurred and the amount of such loss can be reasonably estimated. At this time, we believe that the results of any such contingencies, either individually or in the aggregate, will not have a material adverse effect on our consolidated financial position, results of operations or cash flows. Since
Between 2014 and 2018, we have been defendingdefended a lawsuit against certain of our subsidiaries in the U.S. District Court in Oregon alleging breach of contract and trade secret misappropriation. According to the suit, we improperly utilized information received in connection with our electronic payment processing solution, which is one of several components of our mobile financial services offerings. During fiscal year 2016, the District Court denied our motions to dismiss and to compel arbitration with respect to certain of the claims, and the proceedings continued. The District Court scheduled a tentative jury trial date for late October 2018. We filed a motion for summary judgment with the District Court during fiscal year 2018 and the District Court partially granted the motion with respect to two trade secrets. In October 2018, while continuing to deny the plaintiff’s allegations, we entered into a settlement agreement with the plaintiff, which included a $50 million settlement payment by us, in consideration for a mutual release of each party and its respective customers with no admission of liability or fault. As a result of the settlement, the lawsuit was dismissed with prejudice on November 13, 2018. In addition toDuring fiscal year 2019 we paid the settlement amount of $50 million we also accruedand $5 million in legal fees and other associated costsfees which were accrued as of $5 million.September 30, 2018. Certain of our subsidiaries are currently in a dispute with a state-owned telecom enterprise in Ecuador, which appears to have political aspects. Our counterparty has claimed monetary damages. The dispute is over a contract,contracts, under which we were providing certain services, which hashave been terminated by the counterparty in connection with such dispute and iswhich are under scrutiny by certain local governmental authorities. We believe
we have solid arguments and are vigorously defending our rights. To date, however, the Ecuadorian Courts have responded to such defense efforts, including motions alleging constitutional defects, in an inconsistent manner. While we have encountered a dismissive approach byachieved some successes, the Ecuadorian Courts, with reasoning that we believe is inconsistent with applicable law.majority of the procedures are still ongoing. We are unable to reasonably estimate the ultimate outcome of the above dispute. Please refer to “Liquidity and Capital Resources — Cash Dividends” for a discussion of our dividend policy.
On December 19, 2013, we voluntarily withdrew our ordinary shares from the New York Stock Exchange and transferred our listing to the Nasdaq Global Select Market (“Nasdaq”) and commenced trading on Nasdaq on December 20, 2013. Our ordinary shares were quoted on the New York Stock Exchange (“NYSE”) from 1998 to 2013 under the symbol “DOX” and are now quoted on Nasdaq under the same symbol. The following table sets forth the high and low reported sale prices for our ordinary shares for the periods indicated: | | | | | | | | | | | High | | | Low | | Fiscal Year Ended September 30, | | | | | | | | | 2014 | | $ | 48.99 | | | $ | 36.39 | | 2015 | | $ | 61.46 | | | $ | 44.06 | | 2016 | | $ | 61.33 | | | $ | 50.06 | | 2017 | | $ | 67.98 | | | $ | 54.91 | | 2018 | | $ | 71.72 | | | $ | 61.00 | | Quarter | | | | | | | | | Fiscal 2017: | | | | | | | | | First Quarter | | $ | 61.11 | | | $ | 54.91 | | Second Quarter | | $ | 62.65 | | | $ | 56.10 | | Third Quarter | | $ | 66.48 | | | $ | 60.30 | | Fourth Quarter | | $ | 67.98 | | | $ | 62.13 | | Fiscal 2018: | | | | | | | | | First Quarter | | $ | 66.99 | | | $ | 61.00 | | Second Quarter | | $ | 71.72 | | | $ | 62.56 | | Third Quarter | | $ | 70.31 | | | $ | 65.00 | | Fourth Quarter | | $ | 69.16 | | | $ | 63.04 | | Fiscal 2019: | | | | | | | | | First Quarter (through November 30, 2018) | | $ | 67.57 | | | $ | 60.50 | | Most Recent Six Months | | | | | | | | | June 2018 | | $ | 70.31 | | | $ | 65.79 | | July 2018 | | $ | 69.16 | | | $ | 65.58 | | August 2018 | | $ | 68.99 | | | $ | 63.04 | | September 2018 | | $ | 66.87 | | | $ | 64.25 | | October 2018 | | $ | 66.41 | | | $ | 60.50 | | November 2018 | | $ | 67.57 | | | $ | 62.32 | |
Memorandum and Articles of Incorporation Amdocs Limited is registered as a company with limited liability pursuant to the laws of the Island of Guernsey with company number 19528 and whose registered office situated at Hirzel House, Smith Street, St Peter Port, Guernsey, GY1 2NG. 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 are not restricted and our Articles of Incorporation, or the Articles, provide 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 supervising the management of the business and affairs of Amdocs Limited. Article 70(1) of the Articles 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 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 Amdocs Limited for any third party. Such borrowing powers can only be altered through an amendment to the Articles by special resolution. Our Memorandum and Articles do not impose a requirement on the directors to own shares of Amdocs Limited in order to serve as directors, however, the Board of Directors has adopted guidelines for minimum share ownership by the directors. The Board of Directors is authorized to issue a maximum of (i) 25,000,000 preferred shares and (ii) 700,000,000 ordinary shares, consisting of voting and non-voting ordinary shares without further shareholder approval. As of September 30, 2018, 140,176,8282020, 131,535,692 ordinary shares were outstanding (net of treasury shares) and nonon-voting ordinary shares or preferred shares were outstanding. The rights, preferences and restrictions attaching to each class of the shares are set out in the Memorandum and Articles 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.
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| • | | 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.
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| • | | 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 accrue.
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| • | | 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 over the holders of any shares ranking junior to the preferred in liquidation 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. Except as provided in the resolution or resolutions providing for the issue of any series of preferred shares, the holders of preferred shares are entitled to no further payment. 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 ratably in accordance with the respective amount such holder would have received if all amounts had been paid in full.
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| • | | 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 shareholders.
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— 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.— 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 accrue. — 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 over the holders of any shares ranking junior to the preferred in liquidation 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. Except as provided in the resolution or resolutions providing for the issue of any series of preferred shares, the holders of preferred shares are entitled to no further payment. 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 ratably in accordance with the respective amount such holder would have received if all amounts had been paid in full. — 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 shareholders. Ordinary Shares and Non-Voting Ordinary SharesExcept as otherwise provided by the Memorandum and Articles, 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 andnon-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 ornon-voting ordinary shares, dividends must be declared that are payable at the same rate in both classes of shares.
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| • | | Conversion ofNon-Voting Ordinary Shares into Voting Ordinary Shares — upon the transfer ofnon-voting ordinary shares from the original holder thereof to any third party not affiliated with such original holder,non-voting ordinary shares are redesignated in our books as voting ordinary shares and automatically convert into the same number of voting ordinary shares.
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| • | | Liquidation— upon any liquidation, dissolution orwinding-up, any 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 andnon-voting ordinary shares equally share for share.
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| • | | Voting Rights— the holders of voting ordinary shares are entitled to vote on all matters to be voted on by the shareholders, and the holders ofnon-voting ordinary shares are not entitled to any voting rights.
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| • | | Preferences— the voting ordinary shares andnon-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.
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— when and as dividends are declared on our shares, the holders of voting ordinary shares andnon-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 ornon-voting ordinary shares, dividends must be declared that are payable at the same rate in both classes of shares. Conversion ofNon-Voting Ordinary Shares into Voting Ordinary Shares — upon the transfer ofnon-voting ordinary shares from the original holder thereof to any third party not affiliated with such original holder,non-voting ordinary shares are redesignated in our books as voting ordinary shares and automatically convert into the same number of voting ordinary shares.— upon any liquidation, dissolution orwinding-up, any 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 andnon-voting ordinary shares equally share for share. — the holders of voting ordinary shares are entitled to vote on all matters to be voted on by the shareholders, and the holders ofnon-voting ordinary shares are not entitled to any voting rights. — the voting ordinary shares andnon-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. As regards both preferred shares and voting and non-voting ordinary shares, we have the power to purchase any of our own shares, whether or not they are redeemable and may make a payment out of capital for such purchase. If we repurchase shares off market, the repurchase must be approved by special resolution of our shareholders. If we are making a market acquisition of our own shares, the acquisition 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 through our subsidiaries.The Articles now 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 Companies Law. Under the Companies Law, Amdocs Limited may not indemnify a director for certain excluded liabilities, which are: fines imposed in criminal proceedings; expenses incurred in defending criminal proceedings resulting in a conviction; expenses incurred in defending civil proceedings brought by Amdocs 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. In addition to the excluded liabilities listed above, directors may also not be indemnified by us for liabilities to us or any of our subsidiaries arising out of negligence, default, breach of duty or breach of trust of a director in relation to us or any of our subsidiaries. The Companies Law authorizes Guernsey companies to purchase insurance against such liabilities to companies or to third parties for the benefit of directors. We currently maintain such insurance. Judicial 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 board of directors or for cumulative voting for directors. If the share capital is divided into different classes of shares, Article 11 of the Articles provides that the rights attached to any class of shares (unless otherwise provided by the terms of issue) may be 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. A special resolution is defined by the Companies Law as being a resolution passed by a majority of shareholders representing not less than 75% of the total 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 such 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 determining whether a quorum is present at a general or special meeting. Nominees who are members of NYSE and who, as brokers, hold ordinary shares in “street name” for customers have, by NYSE rules, the authority to vote on certain items in the absence of instructions from their customers, the beneficial owners of the ordinary shares. If such nominees 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 present for purposes of determining whether a quorum is present.Provisions in respect of the holding of general meetings and extraordinary general meetings are set out at Articles22-41 of the Articles. The Articles 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. The shareholders of the Company may waive the requirement to hold an annual general meeting in accordance with the Companies Law. The directors may, whenever they deem fit, convene an extraordinary general meeting. General meetings may be convened by any shareholders holding more than 10% in the aggregate of Amdocs Limited’s share capital. Shareholders may participate in general meetings by video link, telephone conference call or other electronic or telephonic means of communication. A minimum of ten days’ written notice is required in connection with an annual general meeting and a minimum of 14 days’ written notice is required 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 every 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 his proxy to exercise all or any of his rights to attend and to speak and vote 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 or Articles that would have the effect of delaying, deferring or preventing a change in control of Amdocs Limited or 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 or Articles 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. The directors may reduce our share capital or any other capital subject to us satisfying the solvency requirements set out in the Companies Law. In December 2017, we entered into an Amended and Restated 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, providing for an unsecured $500 million five-year revolving credit facility with a syndicate of banks. The facility is available for general corporate purposes, including acquisitions and repurchases of our ordinary shares that we may consider from time to time, and has a maturity date in December 2022. The Amended and Restated Credit Agreement replaces our Credit Agreement, dated as of December 12, 2014, by and among us, certain of our subsidiaries, 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. A copy of the Amended and Restated Credit Agreement is included as Exhibit 4.c to this Annual Report. In February 2017, we entered into a Master Services Agreement with AT&T Services, Inc., as amended, which replaces in its entirety the Software and Professional Services that we entered into with AT&T Services, Inc. effective August 7, 2003. The agreement provides that Amdocs will provide software and services to AT&T as specified therein and remains in effect until September 30, 2021. A copy of the Master Services Agreement is included as Exhibit 4.a.1 to this Annual Report. 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.
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.
Our effective tax rate was 14.7% for fiscal 2020, compared to 15.6% for fiscal 2019 and 15.9% for fiscal 2018, compared to 14.8% for fiscal 2017 and 15.5% for fiscal 2016.2018. Our effective tax rate may fluctuate between periods as a result of discrete items that may affect a particular period and 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, including the potential impact, which we are currentlycontinuously assessing, of the recent tax reform in the United States. Moreover, our effective tax rate in future years may be adversely affected in the event that a tax authority challenges 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 Tax legislation in Guernsey subjects us to the standard rate of corporate income tax for a Guernsey resident company of zero percent.
Certain Indian Tax Considerations Through subsidiaries, we operate development centers and a business processing operations center in India. In 2018,2020, the corporate tax rate applicable in India on trading activities was 34.94% . for development center and reduced corporate tax at 27.82% for business processing operations having gross turnover up to a prescribed threshold. Our main subsidiary in India operates under specific favorable tax entitlements that are based upon pre-approved information technology related services activity. As a result, these activities are entitled to considerable corporate income tax exemptions on eligible profits from export of services derived from suchpre-approved information technology activity, provided our subsidiary continues to meet the conditions required for such tax benefits.During the year 2016-17 2016–17 our main subsidiary in India changed its corporate legal structure from a private limited company (PLC) to a limited liability partnership (LLP) through conversion by process of law effective 28th FebFebruary 28, 2017. Thereafter, all rights and liabilities of the PLC under agreements are vested in the LLP by operation of law. As of April 1, 2011, the Minimum Alternative Tax, or MAT, became applicable to all of our PLC Indian operations. The MAT is levied on book profits at the effective rate of 20%17.48% and can be carried forward for 1015 years to be credited against corporate income taxes. As for the LLP, as a result of the conversion certain accumulated tax credits willare not be available to be set off against future income of the LLP, however, for LLP the Alternative Minimum Tax, or AMT, provisions are applicable such that LLPs are subject to AMT at a rate of 21.34%21.55% on adjusted total income (Income as computed under the normal provisions, increased by prescribed adjustments) if tax on income under normal provisions is lower than the AMT, and can be carried forward for 1015 years.
Our main Indian subsidiary is subject to a separate tax entitlement under which its operating units are exempt from tax on the respective tax incentive-eligible activity for the first five years of operations and it enjoys a 50% reduction on its corporate income tax for such activity for the following five years. If it meets additional requirements,Further, an additional 50% deduction may beis available for another 5 years.years, if 50% of the profits of the unit are credited to a specific reserve provided that such reserve is utilized for the purpose of investments in plant & machinery within three years from the end of the year in which reserve is created. If such reserve is not utilized for the purpose specified in the Indian Tax Laws, the same will be deemed as income in the year immediately following the period of three years in which the reserve is made. Further, in 2018 a new operation was commenced in another subsidiary in India with effect from May 1, 2018. The activity conducted by this entity is generally entitled to a 100 %100% reduction on its corporate income tax for the first five years of operation and a 50% reduction for the following 5 years. MAT is levied on book profits at an effective rate of 16.69% and can be carried forward for 15 years to be credited against corporate income taxes. Certain Israeli Tax Considerations Our primary Israeli subsidiary, Amdocs (Israel) Limited, operates one of our largest development centers. Discussed below are certain Israeli tax considerations relating to this subsidiary.
General Corporate Taxation in Israel. The general corporate tax rate on taxable income is 23%. However, the effective tax rate applicable to the taxable income of an Israeli company that is eligible for tax benefits by virtue of the Law for the Encouragement of Capital Investments may be considerably lower.
Law for the Encouragement of Capital Investments, 1959. Certain production and development facilities of our primary Israeli subsidiary have been granted “Approved Enterprise” status pursuant to the Law for the Encouragement of Capital Investments, 1959, or the Investment Law, which provides certain tax and financial benefits to investment programs that have been granted such status. In general, investment programs of our primary Israeli subsidiary that have obtained instruments of approval for an Approved Enterprise issued by the Israeli Investment Center prior to the change in legislation in 2005 continue to be subject to the old provisions of the Investment Law as described below. In addition, our primary Israeli subsidiary made several expansions to its Approved Enterprise under the terms of the Investment Law of 2005.
Our primary Israeli subsidiary has elected the alternative benefits’ route with respect to its existing Approved Enterprise and its expansions, pursuant to which it enjoys, in relation to its Approved Enterprise operations, certain tax holidays, based on the location of activities within Israel, for a period of two to ten years and, in the case of a two year tax holiday, reduced tax rates for an additional period of up to eight years (and, in certain cases, up to 13 years). In case it pays a dividend, at any time, out of exempt income generated during the tax holiday period in respect of its Approved Enterprise, it will be subject to corporate tax at the otherwise applicable rate of 10% of the income from which such dividend has been paid. This tax is in addition to the withholding tax on dividends as described below. The tax benefits, available with respect to an Approved Enterprise only to taxable income attributable to that specific enterprise, are provided according to an allocation formula set forth in the Investment Law or in the relevant approval, and are contingent upon the fulfillment of the conditions stipulated by the Investment Law, the regulations issued thereunder and the instruments of approval for the specific investments in the Approved Enterprises. In the event our primary Israeli subsidiary fails to comply with these conditions, the tax and other benefits could be rescinded, in whole or in part, and the subsidiary might be required to refund the amount of the rescinded benefits, with the addition of CPI linkage differences and interest. We believe that the Approved Enterprise of our primary Israeli subsidiary substantially complies with all such conditions currently, but there can be no assurance that it will continue to do so.
Dividends paid out of income derived by an Approved Enterprise are subject to withholding tax at a reduced rate (15%, compared with the general rate of 30%). If a dividend is paid by our primary Israeli subsidiary, such dividend may be distributed out of income from both Approved Enterprises and non-Approved Enterprises. As such, we expect the weighted average withholding tax rate applicable to such dividend to be approximately 20%. This withholding tax shall be levied in addition to the corporate tax to which our primary Israeli subsidiary shall be subject in the event it pays a dividend out of earnings generated during the tax holiday period related to its Approved Enterprise status.In recent years changes were introduced to the Investment Law, specifically a major amendment of the Investment Law in 2011 and 2017.
The 2011 amendment (“Preferred Enterprise”) Among other things, these changes include a prospective termination of all tax incentives available under the law prior to the amendment. The amendment to the Investment Law also introduced a new concept of “Preferred Enterprise.” However, under the transition rules, with respect to the applicability of the provisions of the Investment Law as amended in 2011, benefits granted pursuant to incentive programs commenced prior to 2011 would continue to apply until their expiration, unless the company affirmatively elects to apply the regime provided pursuant to the amended Investment Law. Our primary Israeli subsidiary has not yet made such election.
The 2017 amendment (“Preferred Technological Enterprises”) Amendment 73 to the Investment Law, which came into effect January 1, 2017, was followed by regulations promulgated on May 28, 2017, which incorporated the “Nexus Principles,” based on OECD guidelines recently published as part of the Base Erosion and Profit Shifting (BEPS) project, into Israeli law. The OECD has since then confirmed that the regime adopted by Israel is “not harmful”. The new incentives regime applies to “Preferred Technological Enterprises” that meet certain conditions. The corporate tax rate applicable to the Preferred Technological Income generated by a Special Preferred Technological Enterprise (companies which are part of a group with annual consolidated revenue in excess of NIS 10 billion - billion—approximately US$2.7US $3 billion at current exchange rates -)rates) is 6%. The reduced tax rate applies only with respect to the revenue attributable to the portion of intellectual property developed in Israel. The withholding tax on dividends paid to a foreign parent company holding at least 90% of the shares of the distributing company out of earnings that are eligible for the reduced corporate tax rate (in our case, 6%) is 4%. For other dividend distributions out of earnings of a Preferred Technological Enterprise, the withholding tax rate is 20% (or a lower rate under a tax treaty, if applicable). In 2018,2020, our primary Israeli subsidiary continues to apply the benefits under the terms of the law as provided prior to the 2011 amendment. We are continuously evaluating the potential benefits of applying the 2011 and 2017 amendments.
Taxation Of Holders Of Ordinary Shares
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 (which includes Alderney and Herm for these purposes) and who does not carry on business in Guernsey through a permanent establishment situated there is not subject to Guernsey income tax on dividends paid with respect to the ordinary shares and is not liable for Guernsey income tax on gains realized upon sale or
disposition of such ordinary shares. In addition, Guernsey does not impose a withholding tax on dividends paid by us to 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. Under Guernsey tax legislation, a holder of our ordinary shares who is a Guernsey resident or who carries on business in Guernsey through a permanent establishment may, depending on their circumstances, be subject to Guernsey income tax in connection with dividends paid by us and where such holder is a Guernsey resident individual, such tax may be collected by way of withholding from the dividend. We do not believe this legislation affects 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.
Certain United States Federal Income Tax Considerations The following discussion describes material U.S. federal income tax consequences to a U.S. holder of the ownership or disposition of our ordinary shares. A U.S. holder is a beneficial owner of our ordinary shares that 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 includible in gross income for U.S. federal income tax purposes regardless of its source; or (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 an owner 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, 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 U.S. holder of ordinary shares based on such holder’s particular circumstances, U.S. federal income tax consequences to certain U.S. holders that are subject to special treatment (such as broker-dealers, insurance companies, tax-exempt organizations, financial institutions, U.S. holders that hold ordinary shares as part of a “straddle,” “hedge” or “conversion transaction” with other investments, U.S. holders that hold ordinary shares in connection with a trade or business outside the United States, or U.S. 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, the possible application of U.S. federal gift or estate taxes or any alternative minimum or Medicare contribution tax consequences.This summary is for general information only and is not binding on the Internal Revenue Service, 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. Except as described in “–“—Passive Foreign Investment Company Considerations” below, this discussion assumes that we are not and have not been a passive foreign investment company (a “PFIC”) for any taxable year.
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 non-U.S. 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. However, since we do not calculate our earnings and profits under U.S. federal income tax principles, it is expected that any distribution will be reported as a dividend. 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 taxed as ordinary income. However, a preferential U.S. federal income tax rate applies to “qualified dividend income” received by individuals (as well as certain trusts and estates), provided that certain holding period and other requirements are met. “Qualified dividend income” includes dividends paid on shares of a foreign corporation that are readily tradable on an established securities market in the United States. Since our ordinary shares are listed on the Nasdaq, 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 applicable holding period and other applicable requirements are satisfied. U.S. holders should consult their tax advisers regarding the availability of these preferential rates in their particular circumstances. Dividends paid by us generally will be foreign source “passive category income” or, in certain cases, “general category income” for U.S. foreign tax credit purposes, which may be relevant in calculating a U.S. holder’s foreign tax credit limitation.
Disposition of Ordinary Shares. Subject to the PFIC rules described below, 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 generally will be subject to a preferential U.S. federal income tax rate. 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. The deductibility of capital losses is subject to limitations. Passive Foreign Investment Company Considerations. If, for any taxable year, 75% or more of our gross income consists of certain types of passive income, or 50% or more of the average quarterly value during a taxable year of our assets including goodwill (generally determined on a quarterly basis) consists of passive assets (generally assets that generate passive income) is 50% or more of the value of all of our assets (including goodwill) for such year,, we will be treated as a PFIC for such year. If we are treated as a PFIC for any taxable year during which a U.S. holder owns our ordinary shares, the U.S. holder generally will be subject to increased tax liability upon the sale of our ordinary shares or upon the receipt of certain excess distributions, unless such U.S. holder makes an election to mark our ordinary shares to market annually. We believe that we were not a PFIC for our taxable year ended September 30, 2018.2020. However, because the tests for determining PFIC status for any taxable year are dependent upon a number of factors, some of which are beyond our control, including the value of our assets, which may be determined by reference to the market price of our ordinary shares (which may be volatile), and the amount and type of our gross income, we cannot guarantee that we will not become a PFIC for the current or any future taxable year or that the IRS will agree with our conclusion regarding our current PFIC status. In addition, if we were a PFIC for any taxable year in which we make a distribution or the preceding taxable year, the preferential rules on “qualified dividend income” described above would not apply. If a U.S. holder owns ordinary shares during any year in which we are a PFIC, the U.S. holder generally must file annual reports to the IRS.
Information Reporting and Backup Withholding. U.S. holders generally will be subject to information reporting requirements with respect to dividends that are paid within the United States or through U.S.-related financial intermediaries, as well as with respect to gross proceeds from disposition of our ordinary shares, unless the U.S. holder is an “exempt recipient.” U.S. holders may also be subject to backup withholding (currently at a 24% rate) on such payments, unless the U.S. holder provides a taxpayer identification number and a duly executed IRS Form W-9 or otherwise establishes an exemption. Backup withholding is not an additional tax and the amount of any backup withholding will be allowed as a credit against a U.S. holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that the required information is timely furnished to the IRS.Certain U.S. holders who are individuals or entities closely-held by individuals are required to report information with respect to their investment in our ordinary shares not held through a custodial account with a U.S. financial institution to the IRS. In general a U.S. holder holding specified “foreign financial assets” (which generally would include (i) our ordinary shares ornot held through a custodial account with a financial institution, and (ii) a custodial account with anon-U.S. financial institution through which our ordinary shares may be held) with an aggregate value exceeding certain threshold amounts should report information about those assets on IRS Form 8938, which must be attached to the U.S. holder’s annual income tax return. Investors who fail to report required information could become subject to substantial penalties.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 on Form20-F. We also submit reports to the SEC, including Form 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 atfor further information about the Public Reference Room. Such reports are also available to the public on the SEC’s website atSome of this information may also be found on our website at
You may request copies of our reports, at no cost, by writing to or telephoning us as follows: Attention: Matthew E. Smith 1390 Timberlake Manor Parkway, Chesterfield, Missouri 63017 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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. We 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 as indicated in the authoritative guidance for foreign currency matters. During fiscal year 2018,2020, approximately 70% to 80% of our revenue and approximately 50% to 60% of our operating expenses were denominated in U.S. dollarsdollar or linked to the U.S. dollar. If more customers will 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 into various foreign exchange 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, assuming the costs of executing these contracts are worthwhile. We use such contracts to hedge net exposure to changes in foreign currency exchange rates associated with revenue denominated in a foreign currency, primarily in British PoundsCanadian dollar and European Euros, and anticipated costs to be incurred in a foreign currency, primarily Israeli shekels and Indian rupees and Mexican Pesos.rupees. We also use such 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, Indian rupees, Philippine Pesos and European Euros, as well as other foreign currency of jurisdictions in which we operate. We seek to minimize the net exposure that the anticipated cash flow from sales of our products and services, 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 67 to our consolidated financial statements. The table below presents the total volume or notional amounts and fair value of our derivative instruments as of September 30, 2018.2020. Notional values are in U.S. dollars and are translated and calculated based on forward rates as of September 30, 2018,2020, for forward contracts, and based on spot rates as of September 30, 20182020 for options. | | | | | | | | | | | Notional Value* | | | Fair Value of Derivatives | | Foreign exchange contracts (in millions) | | $ | 1,148 | | | $ | (27.8 | ) |
| | | | | | | | | | | | | | | | Foreign exchange contracts (in millions) | | $ | 1,220 | | | $ | 20.6 | |
(*) | 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. |
Our interest expenses and income are sensitive to changes in interest rates, as all of our cash investments and some of our borrowings, are subject to interest rate changes. Our short-term interest-bearing investments, if applicable, are generally invested in short-term conservative debt instruments, primarily U.S. dollar-denominated, and consist mainly of bank deposits, corporate bonds, money market funds U.S. government treasuries, and U.S. agencycorporate bonds securities.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS Our management is responsible for establishing and maintaining adequate internal control over financial reporting. With the participation of the Chief Executive Officer and Chief Financial Officer of Amdocs Management Limited, our management evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2018.2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and
15d-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 required 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, 2018,2020, 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. Ernst and Young LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report on Form 20-F, has issued an attestation report on our internal control over financial reporting as of September 30, 2018,2020, which is included herein.No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) occurred during the fiscal year ended September 30, 20182020 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 in Rules 13a-15(f) and15d-15(f) under the Exchange Act), and the related reports of our independent public accounting firm, are included on pagesF-2F-3 andF-4 through F-7 of this Annual Report on Form20-F, and are incorporated herein by reference.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.
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, of our subsidiaries and other business entities controlled by us worldwide. Our Code of Ethics and Business Conduct is available on our website at , or you may request a copy of our code of ethics, at no cost, by writing to or telephoning us as follows:Attention: Matthew E. Smith 1390 Timberlake Manor Parkway, Chesterfield, Missouri 63017 We intend to post on our website within five business days all disclosures that are required by law or Nasdaq rules concerning any amendments to, or waivers from, any provision of the code.
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. Ernst & Young billed us approximately $4.0$3.6 million for audit services for fiscal 2018,2020, including fees associated with the annual audit and reviews of our quarterly financial results submitted on Form 6-K, consultations on various accounting issues and performance of local statutory audits. Ernst & Young billed us approximately $3.6$3.8 million for audit services for fiscal 2017.2019. Ernst & Young billed us approximately $2.3$1.4 million for audit-related services for fiscal 2018.2020. Audit-related services principally include SOC 1 report issuances and due diligence examinations. Ernst & Young billed us approximately $1.2$1.5 million for audit-related services for fiscal 2017.2019. Ernst & Young billed us approximately $1.6$1.5 million for tax advice, including fees associated with tax compliance, tax advice and tax planning services for fiscal 2018.2020. Ernst & Young billed us approximately $1.7$1.8 million for tax advice in fiscal 2017.2019. Ernst & Young did not bill us for services other than Audit Fees, Audit-Related Fees and Tax Fees described above for fiscal 20182020 or fiscal 2017.2019. 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 ornon-audit services unless the service is specifically approved in advance by the Audit Committee or the engagement is entered into pursuant to thepre-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 suchpre-approval is detailed as to the particular service or type of services to be provided and is also generally subject to a maximum dollar amount. In fiscal 2018,2020, our Audit Committee approved all of the services provided by Ernst & Young.
EXEMPTION FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 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, 20182020 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act: Ordinary Shares | | | | | | | | | | | | | | | | | Period | | (a) Total Number of Shares Purchased | | | (b) Average Price Paid per Share(1) | | | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | | (d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs(2) | | 10/1/17-10/31/17 | | | 336,221 | | | $ | 65.43 | | | | 336,221 | | | $ | 234,261,338 | | 11/1/17-11/30/17 | | | 748,489 | | | $ | 63.87 | | | | 748,489 | | | $ | 986,452,363 | | 12/1/17-12/31/17 | | | 767,411 | | | $ | 65.24 | | | | 767,411 | | | $ | 936,389,892 | | 01/1/18-01/31/18 | | | 309,425 | | | $ | 67.83 | | | | 309,425 | | | $ | 915,400,866 | | 02/1/18-02/28/18 | | | 762,230 | | | $ | 66.10 | | | | 762,230 | | | $ | 865,019,278 | | 03/1/18-03/31/18 | | | 716,084 | | | $ | 67.71 | | | | 716,084 | | | $ | 816,535,701 | | 04/1/18-04/30/18 | | | 301,268 | | | $ | 66.69 | | | | 301,268 | | | $ | 796,443,427 | | 05/1/18-05/31/18 | | | 559,087 | | | $ | 66.35 | | | | 559,087 | | | $ | 759,345,919 | | 06/1/18-06/30/18 | | | 472,320 | | | $ | 69.03 | | | | 472,320 | | | $ | 726,741,836 | | 07/1/18-07/31/18 | | | 310,170 | | | $ | 67.80 | | | | 310,170 | | | $ | 705,710,919 | | 08/1/18-08/31/18 | | | 695,815 | | | $ | 64.83 | | | | 695,815 | | | $ | 660,602,200 | | 09/1/18-09/30/18 | | | 358,675 | | | $ | 65.45 | | | | 358,675 | | | $ | 637,126,788 | | | | | | | | | | | | | | | | | | | Total | | | 6,337,195 | | | $ | 66.14 | | | | 6,337,195 | | | $ | 637,126,788 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Total Number of Shares Purchased | | |
Average Price Paid per Share(1) | | |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | |
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs(2) | | | | | 349,599 | | | $ | 65.76 | | | | 349,599 | | | $ | 216,182,714 | | | | | 296,733 | | | $ | 67.40 | | | | 296,733 | | | $ | 996,183,385 | | | | | 662,269 | | | $ | 70.99 | | | | 662,269 | | | $ | 949,171,077 | | | | | 358,021 | | | $ | 73.32 | | | | 358,021 | | | $ | 922,921,938 | | | | | 411,341 | | | $ | 73.02 | | | | 411,341 | | | $ | 892,884,731 | | | | | 1,093,501 | | | $ | 58.27 | | | | 1,093,501 | | | $ | 829,171,117 | | | | | 355,694 | | | $ | 59.04 | | | | 355,694 | | | $ | 808,171,772 | | | | | 318,639 | | | $ | 62.76 | | | | 318,639 | | | $ | 788,172,482 | | | | | 301,222 | | | $ | 63.08 | | | | 301,222 | | | $ | 769,171,166 | | | | | 402,900 | | | $ | 59.80 | | | | 402,900 | | | $ | 745,077,821 | | | | | 500,030 | | | $ | 60.93 | | | | 500,030 | | | $ | 714,609,201 | | | | | 618,016 | | | $ | 58.68 | | | | 618,016 | | | $ | 678,343,867 | | | | | | | | | | | | | | | | | | | | | | 5,667,965 | | | $ | 63.66 | | | | 5,667,965 | | | $ | 678,343,867 | | | | | | | | | | | | | | | | | | |
(1) | Excludes broker and transaction fees. |
(2) | On November 8, 2017, our Board of Directors adopted a share repurchase plan authorizing the repurchase of up to $800.0 million of our outstanding ordinary shares and on November 12, 2019, adopted another share repurchase plan for the repurchase of up to an additional $800.0 million of our outstanding ordinary shares. The authorizations have no expiration date and permit us to purchase our ordinary shares in open market or privately negotiated transactions at times and prices that we consider appropriate. |
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
We believe there are no significant ways that our corporate governance practices differ from those followed by U.S. domestic companies under the Nasdaq listing standards. For further information regarding our corporate governance practices, please refer to our Notice and Proxy Statement to be mailed to our shareholders in December 2018,2020, and to our website at www.amdocs.com.
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, 2018, 20172020, 2019 and 2016,2018, 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, 20182020 and 20172019 Consolidated Statements of Income for the fiscal years ended September 30, 2018, 20172020, 2019 and 20162018 Consolidated Statements of Comprehensive Income for the fiscal years ended September 30, 2018, 20172020, 2019 and 20162018 Consolidated Statements of Changes in Equity for the fiscal years ended September 30, 2018, 20172020, 2019 and 20162018 Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2018, 20172020, 2019 and 20162018 Notes to the 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.
The exhibits listed hereof are filed herewith in response to this Item.
| | |
| | | | | 1.1 | | Amended and Restated Memorandum of Incorporation of Amdocs Limited (incorporated by reference to Exhibit 99.1 to Amdocs’ Form6-K filed January 26, 2009) | | | 1.2 | | Amended and Restated Articles of Incorporation of Amdocs Limited (incorporated by reference to Exhibit 1.2 to Amdocs’ Annual Report on Form20-F, filed December 7, 2010) | | | 2 | | Description of rights of each applicable class of securities registered under Section 12 of the Securities Exchange Act of 1934 | | | 2.1 | | Base Indenture between Amdocs Limited, as Issuer, and The Bank of New York Mellon, as Trustee, dated as of June 24, 2020 (incorporated by reference to Exhibit 4.1 to Amdocs’ Form 6-K filed June 24, 2020) | | | 2.2 | | First Supplemental Indenture to the Base Indenture between Amdocs Limited, as Issuer, and The Bank of New York Mellon, as Trustee, dated as of June 24, 2020 (incorporated by reference to Exhibit 4.2 to Amdocs’ Form 6-K filed June 24, 2020) | | | 4.a.1† | | Agreement between Amdocs, Inc. and AT&T Services, Inc. for Software and Professional Services, effective February 28, 2017 (incorporated by reference to Exhibit 4.b.6 to Amdocs’ Annual Report on Form20-F, filed December 11, 2017) | | | 4.a.24.a.2† | | Supplemental Agreement dated September 30, 2018 to the Agreement for Software and Professional Services effective February 28, 2017 that is filed as Exhibit 4.a.1 hereto.hereto (incorporated by reference to Exhibit 4.a.2. to Amdocs’ Annual Report on Form 20-F, filed December 10, 2018) | | | 4.a.3† | | Assignment Agreement among Amdocs Inc., Amdocs Development Limited and AT&T Services, Inc. under the Agreement for Software and Professional Services, effective October 1, 2018 | | | 4.a.4† | | Amendment No. 1 to Master Services Agreement between Amdocs Development Limited and AT&T Services, Inc. for Software and Professional Services, effective November 8, 2018 (incorporated by reference to Exhibit 4.a.3 to Amdocs’ Annual Report on Form 20-F, filed December 19, 2019) | | | 4.a.5† | | Amendment No. 2 to Master Services Agreement between Amdocs Development Limited and AT&T Services, Inc. for Software and Professional Services, effective December 27, 2018 (incorporated by reference to Exhibit 4.a.4 to Amdocs’ Annual Report on Form 20-F, filed December 19, 2019) | | | 4.b | | Amdocs Limited 1998 Stock Option and Incentive Plan, as amended (incorporated by reference to Exhibit 99.1 to Amdocs’ Registration Statement on Form S-8, filed on February 12, 2018) | | | 4.c | | Amended and Restated Credit Agreement, dated as of December 11, 2017, 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.d to Amdocs’ Annual Report on Form20-F, filed on December 11, 2017) | | | 8 | | Subsidiaries of Amdocs Limited | | | 12.1 | | Certification of Chief Executive Officer pursuant to Rule13a-14(a)/15d-14(a) | | | 12.2 | | Certification of Chief Financial Officer pursuant to Rule13a-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 on Form 20-F for the year ended September 30, 2018,2020, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets as of September 30, 20182020 and 2017,2019, (ii) Consolidated Statements of Income for the years ended September 30, 2018, 20172020, 2019 and 2016,2018, (iii) Consolidated Statements of Comprehensive Income for the years ended September 30, 2020, 2019 and 2018, 2017(iv) Consolidated Statements of Changes in Equity for the fiscal years ended September 30, 2020, 2019 and 2016, (iv)2018, (v) the Consolidated Statements of Cash Flows for the years ended September 30, 2020, 2019 and 2018, 2017 and 2016, and (iv)(vi) Notes to Consolidated Financial Statements | | | 104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
† | Confidential treatment requested as to portions of the exhibit. Confidential materials omitted and filed separately with the Securities and Exchange Commission. |
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. | | | AMDOCS LIMITED | | | By: | | | | | Name: Matthew E. Smith | Matthew E. Smith
| | Title: Secretary and Authorized Signatory |
Date: December 10, 201814, 2020
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS | | | | | | | | | Audited Consolidated Financial Statements | | | | | | | | F-2 | | | | | F-3 | | | | | F-6F-8 | | | | | F-7F-9 | | | | | F-8F-10 | | | | | F-9F-11 | | | | | F-10F-12 | | | | | F-11F-13 | | Financial Statement Schedule | | | | | | | | F-40F-46 | |
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, 2018.2020. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) in Internal Control-Integrated Framework. Based on its assessment, management concluded that, as of September 30, 2018,2020, 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 which has issued an attestation report on the Company’s internal control over financial reporting included elsewhere in this Annual Report on Form 20-F.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders of Amdocs Limited Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Amdocs Limited (the “Company”) as of September 30, 20182020 and 2017,2019, the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended September 30, 2018,2020, and the related notes and the financial statement schedule listed in the Index at Item 18 of Part III (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2018,2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of September 30, 2018,2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission “(2013(2013 framework), ” and our report dated December 10, 201814, 2020 expressed an unqualified opinion thereon. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. | | | | | Revenue recognition for projects | | | Description of the Matter | | As discussed in Note 2 to the consolidated financial statements, the Company’s software solutions usually require significant customization, modification, implementation and |
| | | | | integration. As a result, a significant portion of the Company’s project revenue is recognized over time, based on the percentage that incurred labor effort to date bears to total projected labor effort. Auditing the recognition of the Company’s project revenue was especially subjective and complex because of the significant estimation required by management to determine the total projected labor effort to complete a project. Determining the estimate of labor effort requires the knowledge of project-specific details, including the specific terms and conditions of the contract, remaining performance obligations, changes to the project schedule, and complexity of the project. Changes in this estimate can have a material effect on the timing of revenue recognition. | | | How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the projected labor effort estimation process. For example, for a sample of projects, we tested controls over management’s review of the initial estimate of total projected labor effort to complete a project, as well as the ongoing evaluation of those estimates through the life of the project. Additionally, for a sample of completed projects, we tested the retrospective review controls performed by management to assess the reasonableness of the estimated labor effort throughout the life of the project. Our audit procedures included, among others, evaluating the significant assumptions and the accuracy and completeness of the underlying data used in management’s estimate. For example, for a sample of contracts, we tested management’s estimate of total projected labor effort through a combination of analytical procedures, such as comparison of the estimated labor effort period over period and inspection of contracts to understand the specific terms and conditions as well as the remaining obligations in the contract. For a sample of projects, we also met with various executives throughout the organization, including project managers, to obtain an understanding of project status and other factors considered in developing the estimate of projected labor effort including project challenges, completed milestones, customer change orders and delays. In addition, we performed a retrospective review of actual labor effort incurred compared to previously estimated projected labor effort to evaluate management’s historical ability to accurately estimate projected labor effort. | | | | | | | | Description of the Matter | | As discussed in Notes 2 and 11 to the consolidated financial statements, the Company operates in a multinational tax environment and is subject to tax treaty arrangements and transfer pricing guidelines for intercompany transactions. The Company uses significant judgment to (1) determine whether, based on the technical merits, a tax position is more likely than not to be sustained and (2) measure the amount of tax benefit that qualifies for recognition. As of September 30, 2020, the total amount of unrecognized tax benefits for uncertain tax positions was $168.2 million. Auditing management’s analysis of the Company’s uncertain tax positions was especially subjective and complex due to the significant judgments made by management to determine the provisions for tax uncertainties. These provisions are based on interpretations of complex tax laws and legal rulings across various jurisdictions in which the Company operates and the determination of arm’s length pricing for certain intercompany transactions. The assumptions underlying the provisions for uncertain tax positions include the potential tax exposure resulting from management’s interpretations and the determination of the cumulative probability that the uncertain tax position will be upheld upon regulatory examination. |
| | | How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process to assess and review their tax positions. For example, we tested the controls over management’s review of assumptions used in the estimation calculation, including the review over existing and potential tax controversies and tax audit results, and the computation of the impact to uncertain tax positions and tax reserves. We involved our tax professionals to assist us with obtaining an understanding of the Company’s tax structure, assessing the Company’s compliance with tax laws, related developments in administrative rulings and court cases, identifying tax law changes in jurisdictions that may impact the Company’s unrecognized tax benefits and assessing the technical merits of the Company’s tax positions. We inspected the Company’s correspondence with the relevant tax authorities and evaluated income tax opinions. Our audit procedures also included, among others, evaluating the assumptions management used to develop its uncertain tax positions and related unrecognized income tax benefit amounts by jurisdiction and testing the completeness and accuracy of the underlying data used by management to calculate the uncertain tax positions. For certain tax positions related to intercompany transactions, we assessed the assumptions and pricing method used in determining arm’s length prices and the documentation to support the pricing. We also evaluated the adequacy of the Company’s financial statement disclosures related to these tax matters. |
We have served as the Company’s auditor since 1988. December 10, 201814, 2020
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders of Amdocs Limited Opinion on Internal Control over Financial Reporting We have audited Amdocs Limited’s internal control over financial reporting as of September 30, 2018,2020, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Amdocs Limited (the “Company”) maintained, in all material respects, effective internal control over financial reporting as of September 30, 2018,2020, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of September 30, 20182020 and 2017,2019, the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended September 30, 2018,2020, and the related notes and the financial statement schedule listed in the Index at Item 18 of Part III and our report dated December 10, 201814, 2020 expressed an unqualified opinion thereon. The Company’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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. 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. Definition and Limitations of Internal Control Over Financial Reporting 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. December 10, 201814, 2020
CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) | | | | | | | | | | | As of September 30, | | | | 2018 | | | 2017 | | ASSETS | | Current assets: | | | | | | | | | Cash and cash equivalents | | $ | 418,783 | | | $ | 649,611 | | Short-term interest-bearing investments | | | 100,433 | | | | 329,997 | | Accounts receivable, net | | | 971,502 | | | | 865,068 | | Prepaid expenses and other current assets | | | 229,999 | | | | 203,810 | | | | | | | | | | | Total current assets | | | 1,720,717 | | | | 2,048,486 | | Property and equipment, net | | | 496,585 | | | | 355,685 | | Goodwill | | | 2,444,895 | | | | 2,221,209 | | Intangible assets, net | | | 265,249 | | | | 177,326 | | Other noncurrent assets | | | 420,369 | | | | 476,674 | | | | | | | | | | | Total assets | | $ | 5,347,815 | | | $ | 5,279,380 | | | | | | | | | | | | LIABILITIES AND EQUITY | | Current liabilities: | | | | | | | | | Accounts payable | | $ | 194,738 | | | $ | 126,414 | | Accrued expenses and other current liabilities | | | 706,637 | | | | 668,087 | | Accrued personnel costs | | | 261,168 | | | | 265,354 | | Deferred revenue | | | 132,414 | | | | 113,091 | | | | | | | | | | | Total current liabilities | | | 1,294,957 | | | | 1,172,946 | | Deferred income taxes and taxes payable | | | 224,572 | | | | 219,417 | | Other noncurrent liabilities | | | 336,244 | | | | 312,947 | | | | | | | | | | | Total liabilities | | | 1,855,773 | | | | 1,705,310 | | | | | | | | | | | Equity: | | | | | | | | | Amdocs Limited Shareholders’ equity: | | | | | | | | | Preferred Shares — Authorized 25,000 shares; £0.01 par value; 0 shares issued and outstanding | | | — | | | | — | | Ordinary Shares — Authorized 700,000 shares; £0.01 par value; 275,896 and 273,773 issued and 140,177 and 144,391 outstanding, in 2018 and 2017, respectively | | | 4,436 | | | | 4,410 | | Additionalpaid-in capital | | | 3,587,625 | | | | 3,458,887 | | Treasury stock, at cost — 135,719 and 129,382 ordinary shares in 2018 and 2017, respectively | | | (4,784,352 | ) | | | (4,365,124 | ) | Accumulated other comprehensive (loss) income | | | (32,731 | ) | | | 18,790 | | Retained earnings | | | 4,673,901 | | | | 4,457,107 | | | | | | | | | | | Total Amdocs Limited shareholders’ equity | | | 3,448,879 | | | | 3,574,070 | | Noncontrolling interests | | | 43,163 | | | | — | | | | | | | | | | | Total equity | | | 3,492,042 | | | | 3,574,070 | | | | | | | | | | | Total liabilities and equity | | $ | 5,347,815 | | | $ | 5,279,380 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | | | | $ | | | Short-term interest-bearing investments | | | 752 | | | | — | | | | | | | | | | | Prepaid expenses and other current assets | | | | | | | | | | | | | | | | | | | | | | | | | | | Property and equipment, net | | | | | | | | | Lease assets | | | 295,494 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | Accrued expenses and other current liabilities | | | | | | | | | | | | | | | | | | Short-term financing arrangements | | | 100,000 | | | | — | | Lease liabilities | | | 59,100 | | | | — | | | | | | | | | | | | | | | | | | | | Total current liabilities | | | | | | | | | Deferred income taxes and taxes payable | | | | | | | | | Lease liabilities | | | 230,076 | | | | — | | Long-term debt, net of unamortized debt issuance costs | | | 644,023 | | | | — | | Other noncurrent liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amdocs Limited Shareholders’ equity: | | | | | | | | | Preferred Shares — Authorized 25,000 shares; £0.01 par value; 0 shares issued and outstanding | | | | | | | | | Ordinary Shares — Authorized 700,000 shares; £0.01 par value; 279,578 and 277,148 issued and 131,535 and 134,773 outstanding, in 2020 and 2019, respectively | | | | | | | | | | | | | | | | | | Treasury stock, at cost — 148,043 and 142,375 ordinary shares in 2020 and 2019, respectively | | | | ) | | | | ) | Accumulated other comprehensive income (loss) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | Total Amdocs Limited shareholders’ equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total liabilities and equity | | $ | | | | $ | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) | | | | | | | | | | | | | | | Year Ended September 30, | | | | 2018 | | | 2017 | | | 2016 | | Revenue | | $ | 3,974,837 | | | $ | 3,867,155 | | | $ | 3,718,229 | | Operating expenses: | | | | | | | | | | | | | Cost of revenue | | | 2,595,276 | | | | 2,507,656 | | | | 2,408,040 | | Research and development | | | 276,615 | | | | 259,097 | | | | 252,292 | | Selling, general and administrative | | | 481,093 | | | | 472,778 | | | | 464,883 | | Amortization of purchased intangible assets and other | | | 108,489 | | | | 110,291 | | | | 109,873 | | Non-recurring charges | | | 85,057 | | | | — | | | | — | | | | | | | | | | | | | | | | | | 3,546,530 | | | | 3,349,822 | | | | 3,235,088 | | | | | | | | | | | | | | | Operating income | | | 428,307 | | | | 517,333 | | | | 483,141 | | Interest and other (expense) income, net | | | (6,766 | ) | | | (4,421 | ) | | | 1,557 | | | | | | | | | | | | | | | Income before income taxes | | | 421,541 | | | | 512,912 | | | | 484,698 | | Income taxes | | | 67,145 | | | | 76,086 | | | | 75,367 | | | | | | | | | | | | | | | Net income | | $ | 354,396 | | | $ | 436,826 | | | $ | 409,331 | | | | | | | | | | | | | | | Basic earnings per share | | $ | 2.49 | | | $ | 2.99 | | | $ | 2.74 | | | | | | | | | | | | | | | Diluted earnings per share | | $ | 2.47 | | | $ | 2.96 | | | $ | 2.71 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Selling, general and administrative | | | | | | | | | | | | | Amortization of purchased intangible assets and other | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest and other expense, net | | | | | | | | | | | | | | | | | | | | | | | | | | Income before income taxes | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | Diluted earnings per share | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) | | | | | | | | | | | | | | | Year Ended September 30, | | | | 2018 | | | 2017 | | | 2016 | | Net income | | $ | 354,396 | | | $ | 436,826 | | | $ | 409,331 | | Other comprehensive (loss) income, net of tax: | | | | | | | | | | | | | Net change in fair value of cash flow hedges(1) | | | (51,116 | ) | | | 11,994 | | | | 24,666 | | Net change in fair value ofavailable-for-sale securities(2) | | | (1,182 | ) | | | (978 | ) | | | 249 | | Net actuarial gain (loss) on defined benefit plan(3) | | | 777 | | | | 1,679 | | | | (2,067 | ) | | | | | | | | | | | | | | Other comprehensive (loss) income, net of tax | | | (51,521 | ) | | | 12,695 | | | | 22,848 | | | | | | | | | | | | | | | Comprehensive income | | $ | 302,875 | | | $ | 449,521 | | | $ | 432,179 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | Net change in fair value of cash flow hedges(1) | | | | | | | | | | | | ) | Net change in fair value of available-for-sale securities(2) | | | | ) | | | | | | | | ) | Net actuarial (loss) gain on defined benefit plan(3) | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | Other comprehensive income (loss), net of tax | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | |
(1) | Net of tax (expense) benefit (expense) of $4,482, $651$(2,371), $(2,458) and $(7,053)$4,482 for the fiscal years ended September 30, 2020, 2019 and 2018, 2017 and 2016, respectively. |
(2) | Net of immaterial amount of tax benefit (expense) of $9, $(4) and $(1) for the fiscal years ended September 30, 2018, 20172020, 2019 and 2016, respectively. 2018. |
(3) | Net of tax (expense) benefit of $(254)$ (11), $(697)$1,080 and $747$(254) for the fiscal years ended September 30, 2020, 2019 and 2018, 2017 and 2016, respectively. |
The accompanying notes are an integral part of these consolidated financial statements .
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In thousands, except per share data) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ordinary Shares | | | Additional Paid-in Capital | | | Treasury Stock | | | Accumulated Other Comprehensive Income (Loss)(1) | | | Retained Earnings | | | Total Amdocs Limited Shareholders’ Equity | | | Non- controlling interests | | | Total Equity | | | Shares | | | Amount | | | | | | | | | | | | Balance as of September 30, 2015 | | | 151,150 | | | $ | 4,331 | | | $ | 3,182,573 | | | $ | (3,611,105 | ) | | $ | (16,753 | ) | | $ | 3,847,796 | | | $ | 3,406,842 | | | $ | — | | | $ | 3,406,842 | | Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 409,331 | | | | 409,331 | | | | — | | | | 409,331 | | Other comprehensive income | | | — | | | | — | | | | — | | | | — | | | | 22,848 | | | | — | | | | 22,848 | | | | — | | | | 22,848 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 432,179 | | | | — | | | | 432,179 | | Employee stock options exercised | | | 2,694 | | | | 39 | | | | 89,728 | | | | — | | | | — | | | | — | | | | 89,767 | | | | — | | | | 89,767 | | Repurchase of shares | | | (7,236 | ) | | | — | | | | — | | | | (413,422 | ) | | | — | | | | — | | | | (413,422 | ) | | | — | | | | (413,422 | ) | Tax benefit from equity-based awards | | | — | | | | — | | | | 7,788 | | | | — | | | | — | | | | — | | | | 7,788 | | | | — | | | | 7,788 | | Cash dividends declared ($0.755 per ordinary share) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (112,300 | ) | | | (112,300 | ) | | | — | | | | (112,300 | ) | Issuance of restricted stock, net of forfeitures | | | 526 | | | | 7 | | | | — | | | | — | | | | — | | | | — | | | | 7 | | | | — | | | | 7 | | Equity-based compensation expense related to employees | | | — | | | | — | | | | 42,700 | | | | — | | | | — | | | | — | | | | 42,700 | | | | — | | | | 42,700 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of September 30, 2016 | | | 147,134 | | | $ | 4,377 | | | $ | 3,322,789 | | | $ | (4,024,527 | ) | | $ | 6,095 | | | $ | 4,144,827 | | | $ | 3,453,561 | | | $ | — | | | $ | 3,453,561 | | Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 436,826 | | | | 436,826 | | | | — | | | | 436,826 | | Other comprehensive income | | | — | | | | — | | | | — | | | | — | | | | 12,695 | | | | — | | | | 12,695 | | | | — | | | | 12,695 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 449,521 | | | | — | | | | 449,521 | | Employee stock options exercised | | | 2,220 | | | | 28 | | | | 87,948 | | | | — | | | | — | | | | — | | | | 87,976 | | | | — | | | | 87,976 | | Repurchase of shares | | | (5,519 | ) | | | — | | | | — | | | | (340,597 | ) | | | — | | | | — | | | | (340,597 | ) | | | — | | | | (340,597 | ) | Tax benefit from equity-based awards | | | — | | | | — | | | | 3,611 | | | | — | | | | — | | | | — | | | | 3,611 | | | | — | | | | 3,611 | | Cash dividends declared ($0.855 per ordinary share) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (124,546 | ) | | | (124,546 | ) | | | — | | | | (124,546 | ) | Issuance of restricted stock, net of forfeitures | | | 556 | | | | 5 | | | | — | | | | — | | | | — | | | | — | | | | 5 | | | | — | | | | 5 | | Equity-based compensation expense related to employees | | | — | | | | — | | | | 44,539 | | | | — | | | | — | | | | — | | | | 44,539 | | | | — | | | | 44,539 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of September 30, 2017 | | | 144,391 | | | $ | 4,410 | | | $ | 3,458,887 | | | $ | (4,365,124 | ) | | $ | 18,790 | | | $ | 4,457,107 | | | $ | 3,574,070 | | | $ | — | | | $ | 3,574,070 | | Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 354,396 | | | | 354,396 | | | | — | | | | 354,396 | | Other comprehensive loss | | | — | | | | — | | | | — | | | | — | | | | (51,521 | ) | | | — | | | | (51,521 | ) | | | — | | | | (51,521 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 302,875 | | | | — | | | | 302,875 | | Employee stock options exercised | | | 1,800 | | | | 24 | | | | 81,262 | | | | — | | | | — | | | | — | | | | 81,286 | | | | — | | | | 81,286 | | Repurchase of shares | | | (6,337 | ) | | | — | | | | — | | | | (419,228 | ) | | | — | | | | — | | | | (419,228 | ) | | | — | | | | (419,228 | ) | Cash dividends declared ($0.970 per ordinary share) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (137,602 | ) | | | (137,602 | ) | | | — | | | | (137,602 | ) | Issuance of restricted stock, net of forfeitures | | | 323 | | | | 2 | | | | — | | | | — | | | | — | | | | — | | | | 2 | | | | — | | | | 2 | | Equity-based compensation expense related to employees | | | — | | | | — | | | | 47,476 | | | | — | | | | — | | | | — | | | | 47,476 | | | | — | | | | 47,476 | | Contribution of Noncontrolling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 43,163 | | | | 43,163 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of September 30, 2018 | | | 140,177 | | | $ | 4,436 | | | $ | 3,587,625 | | | $ | (4,784,352 | ) | | $ | (32,731 | ) | | $ | 4,673,901 | | | $ | 3,448,879 | | | $ | 43,163 | | | $ | 3,492,042 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Accumulated Other Comprehensive Income (Loss)(1) | | | | | |
Amdocs Limited Shareholders’ Equity | | |
| | |
| | | | | | | | Balance as of September 30, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Employee stock options exercised | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash dividends declared ($0.970 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Issuance of restricted stock, net of forfeitures | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity-based compensation expense related to employees | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Changes in Noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of September 30, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cumulative effect adjustment(3) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Employee stock options exercised | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash dividends declared ($1.105 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Issuance of restricted stock, net of forfeitures | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity-based compensation expense related to employees | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Changes in Noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of September 30, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Employee stock options exercised | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash dividends declared ($1.2675 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Issuance of restricted stock, net of forfeitures | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity-based compensation expense related to employees | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of September 30, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | As of September 30, 2018, 20172020, 2019 and 2016,2018, accumulated other comprehensive(loss)comprehensive income (loss) is comprised of unrealized gain (loss) gain on derivatives, net of tax, of $18,836, $3,945 and $(26,608), $24,508 and $12,514 , unrealized (loss) gainloss on short-term interest-bearing investments, net of tax, of $(1,592)$(2), $(410)$0 and $568$(1,592) and unrealized (loss)loss on defined benefit plan, net of tax, of $(4,531)$(7,172), $(5,308)$(6,492) and $(6,987)$(4,531). |
(2) | In fiscal years 2020, 2019 and 2018, all of the Company’s net income is attributable to Amdocs Limited as the net income attributable to the Non-controlling interests is negligible. |
(3) | The Cumulative effect adjustments as of October 1, 2018 include an increase of $14,294 to retained earnings due to the impact of adoptions of ASU No. 2014-09 (ASC 606) and decrease of $3,860 to retained earnings due to adoption of ASU No. 2016-16. |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) | | | | | | | | | | | | | | | Year Ended September 30, | | | | 2018 | | | 2017 | | | 2016 | | Cash Flow from Operating Activities: | | | | | | | | | | | | | Net income | | $ | 354,396 | | | $ | 436,826 | | | $ | 409,331 | | Reconciliation of net income to net cash provided by operating activities: | | | | | | | | | | | | | Depreciation and amortization | | | 211,224 | | | | 214,885 | | | | 211,791 | | Equity-based compensation expense | | | 47,476 | | | | 44,539 | | | | 42,700 | | Deferred income taxes | | | 25,098 | | | | 6,551 | | | | (2,315 | ) | Excess tax benefit from equity-based compensation | | | — | | | | (4,666 | ) | | | (6,913 | ) | Loss from short-term interest-bearing investments | | | 1,324 | | | | 9 | | | | 407 | | Net changes in operating assets and liabilities, net of amounts acquired: | | | | | | | | | | | | | Accounts receivable, net | | | (66,451 | ) | | | (41,075 | ) | | | (70,859 | ) | Prepaid expenses and other current assets | | | (18,736 | ) | | | 11,002 | | | | (11,164 | ) | Other noncurrent assets | | | 9,674 | | | | (52,667 | ) | | | 2,587 | | Accounts payable, accrued expenses and accrued personnel | | | 25,348 | | | | 72,049 | | | | 59,982 | | Deferred revenue | | | 7,650 | | | | (50,230 | ) | | | (49,828 | ) | Income taxes payable, net | | | (31,036 | ) | | | (15,145 | ) | | | 10,112 | | Other noncurrent liabilities | | | (8,718 | ) | | | 14,034 | | | | 24,403 | | | | | | | | | | | | | | | Net cash provided by operating activities | | | 557,249 | | | | 636,112 | | | | 620,234 | | | | | | | | | | | | | | | Cash Flow from Investing Activities: | | | | | | | | | | | | | Purchase of property and equipment | | | (231,146 | ) | | | (133,392 | ) | | | (130,086 | ) | Proceeds from sale of short-term interest-bearing investments | | | 303,090 | | | | 278,066 | | | | 361,960 | | Purchase of short-term interest-bearing investments | | | (76,037 | ) | | | (281,983 | ) | | | (370,742 | ) | Net cash paid for acquisitions | | | (355,142 | ) | | | (18,064 | ) | | | (283,450 | ) | Other | | | (3,157 | ) | | | (29,940 | ) | | | (18,533 | ) | | | | | | | | | | | | | | Net cash used in investing activities | | | (362,392 | ) | | | (185,313 | ) | | | (440,851 | ) | | | | | | | | | | | | | | Cash Flow from Financing Activities: | | | | | | | | | | | | | Borrowings under financing arrangements | | | 120,000 | | | | 200,000 | | | | 200,000 | | Payments under financing arrangements | | | (120,000 | ) | | | (400,000 | ) | | | (220,000 | ) | Repurchase of shares | | | (419,228 | ) | | | (340,597 | ) | | | (413,422 | ) | Proceeds from employee stock option exercises | | | 81,280 | | | | 87,586 | | | | 89,600 | | Payments of dividends | | | (134,292 | ) | | | (121,503 | ) | | | (109,304 | ) | Investment by noncontrolling interests, net | | | 47,013 | | | | — | | | | — | | Excess tax benefit from equity-based compensation and other | | | (458 | ) | | | 4,666 | | | | 6,830 | | | | | | | | | | | | | | | Net cash used in financing activities | | | (425,685 | ) | | | (569,848 | ) | | | (446,296 | ) | | | | | | | | | | | | | | Net decrease in cash and cash equivalents | | | (230,828 | ) | | | (119,049 | ) | | | (266,913 | ) | Cash and cash equivalents at beginning of year | | | 649,611 | | | | 768,660 | | | | 1,035,573 | | | | | | | | | | | | | | | Cash and cash equivalents at end of year | | $ | 418,783 | | | $ | 649,611 | | | $ | 768,660 | | | | | | | | | | | | | | | Supplementary Cash Flow Information | | | | | | | | | | | | | Interest and Income Taxes Paid | | | | | | | | | | | | | Cash paid for: | | | | | | | | | | | | | Income taxes, net of refunds | | $ | 55,938 | | | $ | 67,544 | | | $ | 50,407 | | Interest | | | 2,009 | | | | 1,145 | | | | 576 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Cash Flow from Operating Activities: | | | | | | | | | | | | | | | | | | | | | | | | | | Reconciliation of net income to net cash provided by operating activities: | | | | | | | | | | | | | Depreciation and amortization | | | | | | | | | | | | | Amortization of debt issuance cost | | | | | | | | | | | | | Equity-based compensation expense | | | | | | | | | | | | | | | | | | | | | | | | | | Loss from short-term interest-bearing investments | | | | | | | | | | | | | Net changes in operating assets and liabilities, net of amounts acquired: | | | | | | | | | | | | | | | | | | | | | | | | | | Prepaid expenses and other current assets | | | | | | | | | | | | | | | | | | | | | | | | | | Lease assets and liabilities, net | | | | | | | | | | | | | Accounts payable, accrued expenses and accrued personnel | | | | | | | | | | | | | | | | | | | | | | | | | | Income taxes payable, net | | | | | | | | | | | | | Other noncurrent liabilities | | | | | | | | | | | | | Net cash provided by operating activities | | | | | | | | | | | | | Cash Flow from Investing Activities: | | | | | | | | | | | | | Purchase of property and equipment, net(1) | | | | | | | | | | | | | Proceeds from sale of short-term interest-bearing investments | | | | | | | | | | | | | Purchase of short-term interest-bearing investments | | | | | | | | | | | | | Net cash paid for business and intangible assets acquisitions | | | | | | | | | | | | | | | | | | | | | | | | | | Net cash used in investing activities | | | | | | | | | | | | | Cash Flow from Financing Activities: | | | | | | | | | | | | | Borrowings under financing arrangements | | | | | | | | | | | | | Payments under financing arrangements | | | | | | | | | | | | | Proceeds from issuance of debt, net | | | | | | | | | | | | | | | | | | | | | | | | | | Proceeds from employee stock option exercises | | | | | | | | | | | | | | | | | | | | | | | | | | Investment by noncontrolling interests, net(1) | | | | | | | | | | | | | Payment of contingent consideration from a business acquisition | | | | | | | | | | | | | Excess tax benefit from equity-based compensation and other | | | | | | | | | | | | | Net cash provided by (used in) financing activities | | | | | | | | | | | | | Net increase (decrease) in cash and cash equivalents | | | | | | | | | | | | | Cash and cash equivalents at beginning of year | | | | | | | | | | | | | Cash and cash equivalents at end of year | | | | | | | | | | | | | Supplementary Cash Flow Information | | | | | | | | | | | | | Interest and Income Taxes Paid | | | | | | | | | | | | | | | | | | | | | | | | | | Income taxes, net of refunds | | | | | | | | | | | | | | | | | | | | | | | | | |
| The amounts under “Purchase of property and equipment, net”, include proceedsfrom sale of property and equipment of $194, $151 and $459 for the year ended September 30, 2020 , 2019 and 2018 ,respectively, and proceeds of $9,676 relating to refund of betterment levy for the year ended September 30 , 2019 ($4,776 of which was a refund to the noncontrollinginterest). |
| The amounts under “Interest” include payments of interest to financial institution, tax authorities and other. |
The accompanying notes are an integral part of these consolidated financial statements.
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 and services to communications, cable and satellite, entertainment and media industry service providers of all sizes throughout the world. The Company and its consolidated subsidiaries operate in one1 segment and designs, develops, markets, supports, implements design, develop, market, support, implementand operates amdocsONE, anmodular solution set.cloud offering. The Company is a Guernsey corporation,limited company, which directly or indirectly holds numerous subsidiaries around the world, the vast majority of which are wholly-owned. The majority of the Company’s customers are in North America, Europe, Latin AmericaAsia-Pacific and the Asia-PacificLatin America region. The Company’s main development facilities are located located in Brazil, Canada, Cyprus, India, Ireland, Israel, Mexico, the Philippines, the United Kingdom and the United States. Note 2 — Summary of Significant Accounting Policies
The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, or GAAP and are denominated in US Dollar unless indicated otherwise.U.S. dollars. The consolidated financial statements include the accounts of the Company and its subsidiaries, the vast majority of which are wholly-owned. All intercompany transactions and balances have been eliminated in consolidation. In December 2017, the Company entered into agreements with Union Investments and Development Limited (“Union”) to partner through a legal entity that is equally owned by the Company and Union for the purpose of acquiring specific land which the Company expects to use as the site for a new campus in Ra’anana, Israel. On January 2, 2018 the Company completed the acquisition of the land. Pursuant to the agreements between the Company and Union, as the Company has control over the construction and ongoing operations of the new campus, the new entity’s financial information is consolidated into the Company’s consolidated financial statements with the portion not owned classified as non-controlling interests. The Company is obligated to distribute in the future the new entity’s earnings under certain conditions, in fiscal year 2018years 2020and 2018 the new entity had negligible earnings or losses and, therefore, an immaterial effect on consolidated financial statements of Amdocs Limited.
The preparation of financial statements in conformity with 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.
From time to time, certain immaterial amounts in prior year financial statements may be reclassified to conform to the current year presentation.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in thousands, except per share data) 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. 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 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 maturities from acquisition date of 90 days or less.
Accounts Receivable Factoring From time to time, the Company uses non-recourse factoring arrangements, to sell accounts receivable to third-party financial institutions. The sale of the receivables in these arrangements are accounted for as a true sale.
The Company classifies all of its short-term interest-bearing investments as securities. Such short-term interest-bearing investments consist primarily of bank deposits, corporate bonds, money market funds U.S. government treasuries, and U.S. agency securities,corporate bonds, 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 (loss) income”” in equity, unless a security is other than temporarily impaired. The Company recognizes an impairment charge in earnings when a decline in the fair value of its investments below the cost basis is judged to be other-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 other declines in fair value related to other factors are recognized in other comprehensive income (loss) income.. The Company uses a discounted cash flow analysis to determine the portion of the impairment that relates to the credit losses. To the extent that the net present value of the projected cash flows is less than the amortized cost of the security, the difference is considered a credit loss. Realized gains and losses on short-term interest-bearing investments are included in earnings and are derived using the(FIFO) method for determining the cost of securities.
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful life of the asset, which primarily ranges from three to ten years. Leasehold improvements are amortized over the shorter of the estimated useful lives or the term of the related lease. Property and equipment that have been fully depreciated and are no longer in use are netted against accumulated depreciation. The Company capitalizes certain expenditures for software that is internally developed for use in the business, which is classified as computer equipment. Amortization of internal use software begins when the software is ready for service and continues on the straight-line method over the estimated useful life. The
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in thousands, except per share data) The Company capitalizes the expenditures related to the new campus in Israel, which are classified as building and land. Amortization will begin when the new campus is ready for use and will be amortized on the straight-line basis over the estimated useful life. As discussed below under “Adoption of New Accounting Standards” , the Company adopted ASUNo. 2016-02, As a lessee, substantially all of the Company’s lease obligation is for office real estate. The significant judgments used in determining its lease obligation include whether a contract is or contains a lease and the determination of the discount rate used to calculate the lease liability. The Company’s leases may include the option to extend or terminate before the end of the contractual term and are oftennon-cancelable or cancelable only by the payment of penalties. The lease assets and liabilities include these options in the lease term when it is reasonably certain that they will be exercised. In certain cases, the Company subleases excess office real estate to third-party tenants in immaterial amounts. Lease assets and liabilities recognized at the lease commencement date are determined predominantly as the present value of the payments due over the lease term. Unless the implicit rate can be determined, the Company uses its incremental borrowing rate on that date to calculate the present value. The incremental borrowing rate approximates the rate at which the Company could borrow, on a secured basis for a similar term, an amount equal to its lease payments in a similar economic environment. Effective October 1, 2019, when the Company is the lessee, all leases are recognized as lease liabilities and associated lease assets on the Consolidated Balance Sheet. Lease liabilities represent the Company’s obligation to make payments arising from the lease. Lease assets represent the Company’s right to use an underlying asset for the lease term and may also include advance payments, initial direct costs or lease incentives. Fixed and variable payments that depend upon an index or rate, such as the Consumer Price Index (CPI), are included in the recognition of lease assets and liabilities at the commencement-date rate. Other variable payments, such as common area maintenance, property and other taxes, utilities and insurance that are based on the lessor’s cost, are recognized in the Consolidated Income Statement in the period incurred. Operating lease expense is recorded on a straight-line basis over the lease term. 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. The goodwill impairment test involves a two-step process. The first step, identifying a potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the second step would need to be conducted; otherwise, no further steps are necessary as no potential impairment exists. The second step, measuring the impairment loss, compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. Any excess of the reporting unit goodwill carrying value over the respective implied fair value is recognized as an impairment loss.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 core technology and customer relationships. Core technology acquired by the Company is amortized over its estimated useful life on a straight-line basis.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in thousands, except per share data) Some of the acquired customer relationships are amortized over their estimated useful lives in proportion to the economic benefits realized. This accounting policy generally results in accelerated amortization of such customer relationships as compared to the straight-line method. All other acquired customer relationships 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 cash generating unit and its eventual 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 fair value of the cash generating unit. Long-lived assets, including definite life intangible assets, to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.
Comprehensive income, net of related taxes where applicable, includes, in addition to net income: (i) net change in fair value of securities;(ii) net change in fair value of cash flow hedges; and (iii) net actuarial gains and losses on defined benefit plans.
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 equity.
In accordance with business combinations accounting, assets acquired and liabilities assumed, as well as any contingent consideration that may be part of the acquisition agreement, are recorded at their respective fair values at the date of acquisition. For acquisitions that include contingent consideration, the fair value is estimated on the acquisition date as the present value of the expected contingent payments, determined using weighted probabilities of possible payments. The Company remeasures the fair value of the contingent consideration at each reporting period until the contingency is resolved. Except for measurement period adjustments, the changes in fair value are recognized in the consolidated statements of income. Anyearn-out which is not considered a contingent consideration is recognized as compensation expense over expected service period. In accordance with business combinations accounting, the Company allocates 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. As a result of the significant judgments that need to be made, the Company obtains the assistance of independent valuation firms. The Company completes these assessments as soon as practical after the closing dates. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.Although the Company believes the assumptions and estimates of fair value it has made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in thousands, except per share data) the management of the acquired companies and are inherently uncertain and subject to refinement. 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, customer contracts and acquired developed technologies, expected costs to develop the 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 a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill, if the changes are related to conditions that existed at the time of the acquisition. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments, based on events that occurred subsequent to the acquisition date, are recorded in its consolidated statements of income. The Company estimates the fair values of its services, hardware, software license and maintenance obligations assumed. The estimated fair values of these performance obligations are determined utilizing a cost build-up approach. The costbuild-up approach determines fair value by estimating the costs related to fulfilling the obligations plus a normal profit margin.The Company 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.
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 enacted 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, the Company will not be able to realize their benefit. Deferred tax liabilities and assets are classified as noncurrent on the balance sheet. Deferred tax liabilities also include anticipated withholding taxes due on subsidiaries’ earnings when paid as dividends to the Company. The Company recognizes the tax benefit from an uncertain tax position only 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 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. Interest and penalties related to uncertain tax positions are recognized in the provision for income taxes. See Note 11 to the consolidated financial statements. The Company recognizes revenue under the five-step methodology required under ASC 606, which requires the Company to identify the contract with the customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations identified, and recognize revenue when (or as) each performance obligation is satisfied. Revenue is recognized only when allnet of any revenue-based taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the following conditions have been met: (i) there is persuasive evidenceCompany from a customer (for example, sales, use and value added taxes).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and (iv) collectability of the fee is reasonably assured.share amounts in thousands, except per share data) The Company’s primary revenue categories, related performance obligations, and associated recognition patterns are as follows: Revenue Recognition for projects — 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 includeincluding significant customization, modification, implementation and integration. Those services are deemed essential to the software. As a result, revenue related to these projects is generally recognized over the course of these projects, using the percentage of completion method of accounting,time, usually based on a percentage that incurred labor effort to date bears to total projected labor effort. Incurred effort represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Revenue from customization, implementation, modification and integration services is also recognized over the course of the projects. When total cost estimates for these types of arrangements exceed revenues in a fixed-price arrangement, the estimated losses are recognized immediately based upon the cost applicable to the delivering unit. Significant judgment is required when estimating total labor effort and progress to completion on these arrangements, as well as whether a loss is expected to be incurred on the project. The Company evaluates contracts entered into at or near the same time with the same customer (or related partiesAs a significant portion of the customer) and determines if the contracts should be combined in accordance with the guidance for revenue recognition.Initial license fee for softwareCompany’s revenue is recognizedsatisfied over time as work is performed, underprogresses, the percentageannual and quarterly operating results may be affected by the size and timing of completion methodthe initiation of accounting. Contingentcustomer projects as well as the Company’s progress in completing such projects.
Revenue Recognition for subsequent license fee — Subsequent license fee revenue is recognized upon completionwhen the customer has access to the license and the right to use and benefit from the license. In cases when the conditions require delivery, then delivery must have occurred for purposes of specified conditions in each contract,revenue recognition. Subsequent license fee is 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. Revenue from sales of hardware that functions together with the software licensesRecognition for term-based license and perpetual license — Revenue related to provide the essential functionality of the product and that includes significant customization, modification, implementation and integration, is recognized as work is performed, under the percentage of completion method of accounting.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, implementation and modification isare recognized upon delivery.
Revenue that does not involve significantRecognition for maintenance — Maintenance revenue is recognized ratably over the term of the maintenance agreement.Revenue Recognition for ongoing obligationsservices — Revenue from ongoing support services 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 feework 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,performed, revenue from the operation of a customer’s systemother ongoing services is recognized eitherover time as services are performed based onpreformed, using one method of measuring performance such as time elapsed, output produced, volume of data processed or subscriber count depending onthat provides the most faithful depiction of the transfer of services.
Revenue Recognition for managed services arrangement — Managed services arrangements include management of data center operations and IT infrastructure, application management and ongoing support, management ofbusiness processes, and managed transformation that includes both a transformation project as well as taking over managed services responsibility.The revenue from managed services arrangement is recognized for each individual performance obligation according to its relevant revenue category, including but not limited to, revenue from the management of a customer’s operations, revenue from projects and revenue from ongoing support services. Revenue from the management of a customer’s operations pursuant to managed services arrangements, is recognized over time as services are performed, using one method of measuring performance such as time elapsed, output produced, volume of data processed or subscriber count that provides the most faithful depiction of the transfer of services, pursuant to the specific contract terms of the managed services arrangement. Typically, managed services contractsarrangements are long-termlong term in duration and are not subject to significant seasonality.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in thousands, except per share data) Revenue from ongoing support services is recognized as work is performed.Revenue fromRecognition for third-party hardware and software
— Third-party hardware sales isare recognized upon delivery andor installation, and revenue from third-party software sales is recognized upon delivery. Maintenance revenue is recognized ratably over the term of the maintenance agreement Revenue from third-party hardware and software sales is recorded at gross amount for transactions in which the Company iscontrol the primary obligor underthird-party hardware and software prior to fulfilling the arrangement as well as, in some cases, possesses other attributes such as latitude in determining prices and selecting suppliers.performance obligation. In specific circumstances where the Company doesdo not meet the above criteria, particularly when the contract stipulates that the Companyrevenue is not the primary obligor, the Company recognizes revenuerecognized on a net basis. Revenue from third-party hardware and software sales was less than 10% of revenue in each of fiscal years 2018, 2017 and 2016. In certain arrangements, the Company may earn revenue from other third-party services which is recorded at a gross or net amount according to certain indicators.Maintenance revenue is recognized ratably overas it controls 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 subjectservices before transferring them 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.
customer. Arrangements with Multiple Performance Obligations — Many of the Company’s agreements include multiple deliverables.performance obligations. The Company’s multiple element arrangements are comprised of a variety of different combinations of the deliverables mentioned above. For multiple element arrangements within the scope of software revenue recognition guidance, the Company allocates revenuethe transaction price for each contract to each elementperformance obligation identified in the contract based upon its relative fair value as determined by Vendor Specific Objective Evidence (“VSOE”). In the absence of fair value for a delivered element the Company uses the residual method. 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 upon commencement of the maintenance services. 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. Under the guidance for revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance, the Company allocates revenue to each element based uponon the relative fair value. Fair value would be allocated by using a hierarchy of 1) VSOE, 2) third-party evidence ofstandalone selling price for that element, or 3) 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.(SSP). The Company determines ESPSSP for the purposes of allocating the considerationtransaction price to individual elements of an arrangementeach performance obligation by considering several external and internal factors including, but not limited to, transactions where the specific performance obligation sold separately, historical actual pricing practices margin objectives,and geographies in which the Company offers its services and internal costs.in accordance with ASC 606. The determination of ESPSSP requires the exercise of judgement. If a specific performance obligation is judgmentalsold for a broad range of amounts (that is, the selling price is highly variable) or if the Company has not yet established a price for that good or service, and the good or service has not previously been sold on a standalone basis (that is, made through consultationthe selling price is uncertain), the Company applies the residual approach whereby all other performance obligations within a contract are first allocated a portion of the transaction price based upon their respective SSPs with any residual amount of transaction price allocated to the remaining specific performance obligation.Billing terms and approvalconditions generally vary by management.contract category. Amounts are typically billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., monthly or quarterly) or upon achievement of contractual milestones. In cases where timing of revenue recognition significantly differs from the timing of invoicing, the Company considers whether a significant financing component exists. The Company elected to use the practical expedient in assessing the financing component in contracts where the time between cash collection and performance is less than one year. Accounts Receivable — Billed — Billed accounts receivables include all outstanding invoices to customers, as well as amounts allowed to be billed according to contractual billing terms with customers.Accounts Receivable — Unbilled — Unbilled accounts receivable include all revenue amounts that had not been billed as of the balance sheet date due to contractual billing terms with customers. Unbilled accounts receivable that are expected to be billed beyond the next 12 months are considered long-term unbilled receivables and included in other noncurrent assets.— Deferred revenue represents billings to customers for which revenue has not yet been recognized. Deferred revenue that is expected to be recognized beyond the next 12 months is considered long-term deferred revenue and included in other noncurrent liabilities. Assets Recognized from the Costs to Obtain a Contract with a Customer — Incremental costs of obtaining a contract (e.g., sales commissions) are capitalized and amortized on apro-rata basis over the contract period if the Company expects to recover those costs. Commissions on renewals are commensurate with the commission from the initial arrangement. Incremental costs of obtaining a contract include only those costs the Company incurs to obtain a contract that it would not have incurred if the contract had not been obtained. The Company has determined that certain sales commissions programs meet the requirements to be capitalized, which prior to the
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in thousands, except per share data) adoption of ASC 606, were previously expensed as incurred. Additionally, as a practical expedient, the Company expenses costs to obtain a contract as incurred if the amortization period would have been a year or less. The amortization of these costs is included in selling, general and administrative expenses in the Company’s consolidated statements of income. In certain 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 direct costs incurred at the inception of the contract. These costs include expenses 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 managed services period, or over the recognition period of the undelivered item. Revenue associated with these capitalized costs is deferred and is recognized over the same period. 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. Billed accounts receivables include all outstanding invoices to customers, as well as amounts allowed to be billed according to contractual or other arrangements with customers.
Cost of revenue consists of all costs associated with providing software licenses and services to customers, third party hardware and software including identified losses on contracts. Estimated losses on contracts accounted for using the percentage of completion method of accountingsatisfied over time as work performed are recognized in the period in which the loss is identified. Cost of revenue includes license fees and royalty payments to software suppliers.Cost of revenue also includes costs of third-party products associated with selling third-party computer hardware and software products to customers and other third-party services, when the related revenue is recorded at the gross amount. Customers purchasing third-party products and services from the Company generally do so in conjunction with the purchase of the Company’s software and services.
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. 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.
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in thousands, except per share data) 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 financial institutions 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 and the rest of the world. Most of the Company’s customers are among the largest communications and media companies in the world (or are owned by them). The Company’s business is subject to the effects of general global economic conditions and market conditions in the communications industry. The Company performs ongoing credit analyses of its customer base and generally does not require collateral. The Company evaluates accounts receivable to determine if they ultimately 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. The allowance for doubtful accounts is for estimated losses resulting from accounts receivable for which their collection is not reasonably probable. The allowance for doubtful accounts as of September 30, 2020 and 2019, was $23,419 and $36,121, respectively. As of September 30, 2018,2020, the Company had one1 customer with an accounts receivable balance of more than 10% of total accounts receivable, amounting to 19%22%, which was lower than its respective portion of total revenue. As of September 30, 2017,2019, the Company had one1 customer with an accounts receivable balance of more than 10% of total accounts receivable, amounting to 27%16%, which was lower than its respective portion of total revenue. 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 and the effect of dilutive outstanding equity-based awards using the treasury stock method. The Company includes participating securities (unvested restricted shares that contain non-forfeitable rights to dividends or dividend equivalents) in the computation of earnings per share pursuantp ursuant to thetwo-class method, which calculates earnings per share for common shares and participating securities.
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 value. If a derivative meets the definition of a cash flow hedge and is so designated, changes in the fair value of the derivative are recognized in other comprehensive income (loss) income until the hedged item is recognized in earnings. The ineffective portion of a derivative designated as a cash flow hedge is recognized in earnings. If a derivative does not meet the definition of a cash flow hedge, the changes in the fair value are included in earnings.
Recent Accounting Standards In November 2018,March 2020, the Financial Accounting Standards Board, or FASB, issued Accounting Standard Update, or ASUNo. 2020-04: “Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in thousands, except per share data) The ASU provides temporary optional expedients and exceptions on certain contract modifications, hedge relationships and other transactions that reference London Inter-bank Offered Rate (“LIBOR”) or other reference rates expected to be discontinued due to the reference rate reform. This ASU is effective as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of adoption of this ASU on its consolidated financial statements. In December 2019, the FASB issued Accounting Standard Update, or ASUNo. 2019-12: “Simplifying the Accounting for Income Taxes ”. The ASU simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intra period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This ASU will be effective for the Company on October 1, 2021, and early adoption is permitted. The Company currently expects that adoption of this ASU will not have a material impact on its consolidated financial statements. In November 2018, the FASB, issued ASUNo. 2018-18 , “Collaborative Arrangements ”. The ASU clarifies the interaction between collaborative arrangements and the new revenue standards. This ASU will be effective for the Company on October 1, 2020, and early adoption is permitted2020. The Company is currently evaluating the impact ofexpects that adoption of this ASU will not have a material impact on its consolidated financial statements. In August 2018, the Financial Accounting Standards Board, or FASB issued an ASU No. 2018-15 , “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”. The ASU amends the definition of hosting arrangement and requires a customer in a hosting arrangement that is a service contract to capitalize certain implementation costs as if the arrangement was aninternal-use software project. This ASU will be effective for the Company on October 1, 2020, and early adoption is permitted2020. The Company is currently evaluating the impact ofexpects that adoption of this ASU will not have a material impact on its consolidated financial statements.In August 2018, the Financial Accounting Standards Board, or FASB issued an ASU No. 2018-13 , “Fair“Fair Value Measurement”Measurement”. The ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. This ASU will be effective for the Company on October 1, 2020, and early adoption is permitted with specific limitations.2020. The Company is currently evaluating the impact ofexpects that adoption of this ASU may result in changes to its financial statements disclosure but will not have a material impact on its consolidated financial statements.In August 2018, the FASB issued an ASU No. 2018-14, “Changes to the Disclosure Requirements for Defined Benefit Plans” . The ASU makes minor changes to the disclosure requirement for employers that sponsor defined pension and/or other post retirementpost-retirement benefit plans. This ASU will be effective for the Company on October 1, 2020, and early adoption is permitted.2020. The Company expects that the adoption of this ASU will not have a material impact on its consolidated financial statements.In June 2018,August 2017, the FASB issued an ASU 2018-07,No. 2017-12, “ Targeted Improvements to Nonemployee Share-Based Payment Accounting for Hedging Activities . The ASU alignsamends existing guidance to simplify the measurementapplication of hedge accounting in certainsituations and classification for share-based paymentsallows companies to nonemployeesbetter align their hedge accounting with the guidance for share-based payments to employees, with certain exceptions.their risk management activities. This ASU will be effective for the Company on October 1, 2019, and early adoption is permitted with specific limitations.2020. The Company currently expects thethat adoption of this ASU will not have a material impact on its consolidated financial statements. In December 2017, SEC issued Staff Accounting Bulletin No. 118 (“SAB No. 118”) due to the new tax legislation in the United States (The Tax Cuts and Jobs Act or “The Act”) which allows the Company to record provisional amounts during aone-year measurement period. The Act, which was enacted in December 22, 2017, reduces the US federal corporate tax rate from 35% to 21%, requires companies to pay aone-time transition tax on earnings of certain foreign subsidiaries and creates new taxes on certain foreign sourced earnings. As of September 30, 2018, the Company has not completed its accounting for the tax effects of enactment of the Act and made a reasonable estimate of the effects on its existing deferred tax balances and theone-time transition tax. The Company will continue to make and refine its calculations as additional analysis is completed and as it gains a more thorough understanding of the tax law, see also Note 11.
In August 2017, the FASB issued an ASU2017-12, “Targeted Improvements to Accounting for Hedging Activities”. The ASU amends existing guidance to simplify the application of hedge accounting in certain situations and allows companies to better align their hedge accounting with their risk management activities. The ASU will be effective on October 2020 and earlier adoption by one year is permitted. The Company is currently evaluating the impact of adoption of this ASU on its consolidated financial statements.
In January 2017, the FASB, issued an Accounting Standard Update, or ASU 2017-01,No. 2017-04, “ClarifyingSimplifying the Definition of a Business”Test for Goodwill Impairment” . The ASU revises and narrowssimplifies the definitionaccounting for goodwill impairment by removing Step 2 of a business and provides a framework that gives entities a basis for making reasonable judgments about whether a transaction involves an asset or a business.the goodwill impairment test. This ASU iswill be effective for the Company with respect to transactions occurring on or after October 1, 2018.2020. The Company currently expects thethat adoption of this ASU will not have a materialan impact on its consolidated financial statements. In August 2016, the FASB issued an ASU2016-15, “Classification
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and Cash Payments”.TheASU intends to reduce diversityshare amounts in practice in how certain transactions are classified in the statement of cash flows. The ASU is effective for the Company on October 1, 2018. The Company currently expects adoption of this ASU will result in reclassification of certain cash payments of contingent considerations included in acquisition agreements from investing activities to financing activities and will not have a material impact on its statement of cash flows.thousands, except per share data) In June 2016, the FASB issued an ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments . The ASU which introduces an impairment model that is based on expected losses rather than incurred losses and will apply to financial assets subject to credit losses and measured at amortized cost, and certainoff-balance sheet credit exposures. TheThis ASU will be effective for the Company on October 2020 and earlier adoption by one year is permitted.1, 2020. The Company is currently evaluatingexpects that the impact of adoption of this ASU will not have a material impact on its consolidated financial statements.Adoption of New Accounting Standards In February 2016, the FASB issued an ASU No. 2016-02, “Leases” . The ASU increases transparency and comparability by providing additional information to users of financial statements regarding an entity’s leasing activities. The ASU requires reporting entities to recognize lease assets and lease liabilities on the balance sheet for most leases, including operating leases, with a term greater than twelve months. This ASU, which will be effective for the Company onAs of October 1, 2019, must be adopted using a modified retrospective method and its early adoption is permitted. The Company is currently evaluating the impact of adoption of this ASU on its consolidated financial statements.In January 2016, the FASB issued an ASU2016-01, “Financial Instruments – Overall”. The ASU updates certain aspects of recognition and measurement of financial assets and financial liabilities. The ASU affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. This ASU is effective for the Company on October 1, 2018. The Company expects adoption ofadopted this ASU may result in changes in its financial statements presentation but will not affect the content of its consolidated financial statements.
In May 2014, the FASB issued an ASU2014-09, “Revenue from Contracts with Customers”. The ASU on revenue from contracts with customers, or the new revenue standard, which outlines a single comprehensive
model for entities to use in accounting for revenue arising from contracts with customers. The new revenue standard supersedes most current revenue recognition guidance and will be effective for the Company beginning in the first quarter of fiscal year 2019. The Company developed a transition plan, including changes to policies, processes and internal controls, as well as system enhancements to generate the information necessary for new disclosure requirements and recently completed an assessment to identify the potential areas of impact that this new revenue recognition standard will have on its consolidated financial statement and internal control environment. As part of the assessment, the Company reviewed a representative sample of its contracts across its various customers and geographies to identify potential differences that could result from applying the requirements of the new standard. Entities have the option of adopting the new revenue standard using either a full retrospective or a modified approach with the cumulative effect of applying the standard recognized at the date of initial application. The Company will adopt the new revenue standard on October 1, 2018 using the modified retrospective transition approach. Prior period amounts were not adjusted. The estimated cumulative adjustmentCompany elected the package of practical expedients which does not require reassessment of prior conclusions related to retained earnings willidentifying leases, lease classification or initial direct costs. The Company also elected the practical expedient not to separate
non-lease components from lease components and instead to account for each separate lease component and thenon-lease components associated with that lease component as a single lease component for its real estate and vehicle leases. The adoption of this ASU did not have an immaterial effect toa material impact on its consolidated statement of income and on its consolidated statement of cash flow.The impact of adopting this ASU on the Company’s ConsolidatedBalance Sheets was asfollows : | | | | | | | | | | | | | | | Balance as of September 30, 2019 | | | Adjustments due to ASC 842 | | |
| | | | | | | | | | | | | | | Prepaid expenses and other current assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accrued expenses and other current liabilities | | | | | | | | | | | | | Lease liabilities (current) | | | | | | | | | | | | | Lease liabilities (non-current) | | | | | | | | | | | | | Other noncurrent liabilities | | | | | | | | | | | | |
See Note 16 to the consolidated financial statements.Adoption of New Accounting Standards
statements for further details. In March 2016,June 2018, the FASB issued an ASU 2016-09,No. 2018-07, “ Compensation—Stock Compensation” payments.Improvements to Nonemployee Share-Based Payment Accounting . The ASU simplifies several aspects related to howaligns the measurement and classification for share-based payments are accountedto with the guidance for and presented in the financial statements, including income taxes, accounting for forfeitures and classification in the statements of cash flows.share-based payments to employees, with certain exceptions. The Company prospectively adopted this ASU effective October 1, 2017 and as a result did not adjust2019. As of the prior period amounts that are presented in its consolidated statementsdate of cash flows.In September 2015, the FASB issued an ASU2015-16, “Business combination” on simplifying the accounting for measurement-period adjustments in connection with business combinations. The ASU eliminates the requirement to restate prior period financial statements for measurement-period adjustments and requires that the cumulative impact of a measurement-period adjustment be recognized in the reporting period in which the adjustment is identified. The Company prospectively adopted this ASU effective October 1, 2017. Thereadoption there was no material impact on the Company’s consolidated financial statements.
statements .Entities acquired by the Company during the last three fiscal years have been consolidated into the Company’s results of operations since their respective acquisition dates. These acquisitions, individually and in the aggregate, were not material in any fiscal year. During fiscal year 2018,2020, the Company acquired 3companies ando ther intangible assets for total consideration of approximately $291,459, among them the largest
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in thousands, except per share data) is Openet, which offers cloud-native capabilities, network pedigree, and deep 5G charging, policy and data management expertise and whose solutions complement the Amdocs portfolio. During fiscal year 2019, we acquired three technology companies for an aggregatetotal consideration of $355,142 in cash: Vubiquity,approximately $64,963, among them the largest is TTS Wireless a leading provider of premium contentmobile network engineering services, specializing in network optimization, planning and technology solutions, projekt202, a leader in experience-driven software design and development, and UXP systems (“UXP”) whose User Lifecycle Management solution is a leading platform for empowering digital user relationships and digital identity.software-enabled solutions. See Note 9 to the consolidated financial statement. The following table provides information ab out Accounts receivable, both billed and unbilled and deferred revenue: | | | | | | | | | | | | | | |
| | |
| | Accounts receivable — billed (net of allowances for doubtful accounts of $23,419 and $36,121 as of September 30, 2020 and 2019, respectively) | | $ | | | | $ | | | Accounts receivable — unbilled (current) | | $ | | | | $ | | | Accounts receivable — unbilled (non-current) | | $ | | | | $ | | | | | | | | | | | | Total Accounts receivable — unbilled | | $ | | | | $ | | | Deferred revenue (current) | | $ | | ) | | $ | | ) | Deferred revenue (non-current) | | $ | | ) | | $ | | ) | | | | | | | | | | | | $ | | ) | | $ | | ) |
Revenue recognized during the year ended September 30, 2020, which was included in deferred revenue (current) as of September 30, 2019 was $104,648. Revenue recognized during the year ended September 30, 2019, which was included in deferred revenue (current) as of October 1, 2018 was $93,508. Remaining Performance Obligations from Contracts with Customer As of September 30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations that are unsatisfied or partially unsatisfied was approximately $5.1 billion. Remaining performance obligations typically include the remainingnon-cancelable, committed and fixed portion of contracts for their entire duration and therefore it is not comparable to what the Company considers to be next 12 months backlog. Given the profile of contract terms, the majority of this amount is expected to be recognized as revenue over the next three years. Disaggregation of Revenue The Company considers information that is regularly reviewed by its chief operating decision makers in evaluating financial performance to disaggregate revenue, seeNote 22 — Segment Information and Sales to Significant Customers. Note 5 — Fair Value Measurements The Company accounts for certain assets and liabilities 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 liabilities required or permitted to be recorded at fair value, the Company considers the principal or most NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in thousands, except per share data) advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability. 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:
Quoted prices in active markets for identical assets or liabilities;
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
Unobservable inputs thatt hat are supported by little or no market activity that is 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, 20182020 and 2017: | | | | | | | | | | | | | | | | | | | As of September 30, 2018 | | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Available-for-sale securities: | | | | | | | | | | | | | | | | | Corporate bonds | | $ | — | | | $ | 47,531 | | | $ | — | | | $ | 47,531 | | Money market funds | | | 30,883 | | | | — | | | | — | | | | 30,883 | | U.S. government treasuries | | | 23,258 | | | | — | | | | — | | | | 23,258 | | U.S. agency securities | | | — | | | | 16,033 | | | | — | | | | 16,033 | | Asset backed obligations | | | — | | | | 9,177 | | | | — | | | | 9,177 | | Supranational and sovereign debt | | | — | | | | 4,434 | | | | — | | | | 4,434 | | | | | | | | | | | | | | | | | | | Totalavailable-for-sale securities | | | 54,141 | | | | 77,175 | | | | — | | | | 131,316 | | | | | | | | | | | | | | | | | | | Derivative financial instruments, net | | | — | | | | (27,842 | ) | | | — | | | | (27,842 | ) | | | | | | | | | | | | | | | | | | Other liabilities | | | — | | | | — | | | | (37,954 | ) | | | (37,954 | ) | | | | | | | | | | | | | | | | | | Total | | $ | 54,141 | | | $ | 49,333 | | | $ | (37,954 | ) | | $ | 65,520 | | | | | | | | | | | | | | | | | | | | | | | As of September 30, 2017 | | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Available-for-sale securities: | | | | | | | | | | | | | | | | | Corporate bonds | | $ | — | | | $ | 98,385 | | | $ | — | | | $ | 98,385 | | U.S. government treasuries | | | 84,363 | | | | — | | | | — | | | | 84,363 | | U.S. agency securities | | | — | | | | 60,646 | | | | — | | | | 60,646 | | Money market funds | | | 52,504 | | | | — | | | | — | | | | 52,504 | | Asset backed obligations | | | — | | | | 47,074 | | | | — | | | | 47,074 | | Commercial paper and certificates of deposit | | | — | | | | 33,448 | | | | — | | | | 33,448 | | Supranational and sovereign debt | | | — | | | | 8,777 | | | | — | | | | 8,777 | | | | | | | | | | | | | | | | | | | Totalavailable-for-sale securities | | | 136,867 | | | | 248,330 | | | | — | | | | 385,197 | | | | | | | | | | | | | | | | | | | Derivative financial instruments, net | | | — | | | | 27,352 | | | | — | | | | 27,352 | | | | | | | | | | | | | | | | | | | Other liabilities | | | — | | | | — | | | | (21,972 | ) | | | (21,972 | ) | | | | | | | | | | | | | | | | | | Total | | $ | 136,867 | | | $ | 275,682 | | | $ | (21,972 | ) | | $ | 390,577 | | | | | | | | | | | | | | | | | | |
2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Available-for-sale securities: | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | — | | | | 752 | | | | — | | | | 752 | | | | | | | | | | | | | | | | | | | Total available-for-sale securities | | | | | | | 752 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Derivative financial instruments, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Available-for-sale securities: | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | Total available-for-sale securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Derivative financial instruments, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | ) | | $ | | | | | | | | | | | | | | | | | | | |
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,s preads,non-binding market prices that are corroborated by observable market data and other observable market information. The Company’s
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in thousands, except per share data) 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 year 2018 or fiscal year 2017.2020. Level 3 amountsliabilities relate to certain acquisition-related liabilities, which were generally valued using a Monte-Carlo simulation model. These liabilities were included in both accrued expenses and other current liabilities and also in other noncurrent liabilities as of September 30, 20182020 and 2017. $17,6922019. The decrease in Level 3 liabilities is mainly a result of payments of certain acquisition-related liabilities during fiscal year 2020. Level 3 assets relate to equity investments, which were valued based on price changes in orderly transactions for similar private investments of the same issuer. The increase in Level 3 liabilities during fiscal year 2018assets is as a result of changes in the fair value was recorded in the consolidated statementsstatement of income and the rest of the increase was recorded against goodwill.income. Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued personnel costs, short-term financing arrangementsexpenses and other current liabilities, accrued personnel costs and short-term financing arrangements approximate their fair value because of the relatively short maturity of these items.
Note 56 — Available-For-Sale Securities In fiscal year 2019 the Company sold most of itssecurities, in total amount of $101,287, the realized losses recognized from this sale were immaterial and were recorded in the consolidated statements of income. In Fiscal year 2020, the Company didn’t have any sale ofAvailable-for-sale securities. securities consist of the following interest-bearing investments: | | | | | | | | | | | | | | | | | | | As of September 30, 2018 | | | | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Fair Value | | Corporate bonds | | $ | 48,252 | | | $ | — | | | $ | 721 | | | $ | 47,531 | | Money market funds | | | 30,883 | | | | — | | | | — | | | | 30,883 | | U.S. government treasuries | | | 23,656 | | | | — | | | | 398 | | | | 23,258 | | U.S. agency securities | | | 16,297 | | | | — | | | | 264 | | | | 16,033 | | Asset backed obligations | | | 9,312 | | | | — | | | | 135 | | | | 9,177 | | Supranational and sovereign debt | | | 4,508 | | | | — | | | | 74 | | | | 4,434 | | | | | | | | | | | | | | | | | | | Total(1) | | $ | 132,908 | | | $ | — | | | $ | 1,592 | | | $ | 131,316 | | | | | | | | | | | | | | | | | | |
investments :(1) | securities with maturities longer than 90 days from the date of acquisition were classified as short-term interest-bearing investments and securities with maturities of 90 days or less from the date of acquisition were included in cash and cash equivalents on the Company’s balance sheet. As of September 30, 2018, $100,4332020, $752 of securities were classified as short-term interest-bearing investments and $30,883$558,633 of securities were classified as cash and cash equivalents.
|
| | | | | | | | | | | | | | | | | | | As of September 30, 2017 | | | | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Fair Value | | Corporate bonds | | $ | 98,367 | | | $ | 176 | | | $ | 158 | | | $ | 98,385 | | U.S. government treasuries | | | 84,558 | | | | — | | | | 195 | | | | 84,363 | | U.S. agency securities | | | 60,794 | | | | — | | | | 148 | | | | 60,646 | | Money market funds | | | 52,504 | | | | — | | | | — | | | | 52,504 | | Asset backed obligations | | | 47,108 | | | | — | | | | 34 | | | | 47,074 | | Commercial paper and certificates of deposit | | | 33,448 | | | | — | | | | — | | | | 33,448 | | Supranational and sovereign debt | | | 8,819 | | | | — | | | | 42 | | | | 8,777 | | | | | | | | | | | | | | | | | | | Total(1) | | $ | 385,598 | | | $ | 176 | | | $ | 577 | | | $ | 385,197 | | | | | | | | | | | | | | | | | | |
| securities with maturities longer than 90 days from the date of acquisition were classified as short-term interest-bearing investments and securities with maturities of 90 days or less
|
| from the date of acquisition were included in cash and cash equivalents on the Company’s balance sheet. As of September 30, 2017, $329,997 of securities were classified as short-term interest-bearing investments and $55,200 of2019, all the securities were classified as cash and cash equivalents.equivalents . |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in thousands, except per share data) As of September 30, 2018,2020, the immaterial unrealized losses attributable to the Company’s securities were primarily due to credit spreads and interest rate movements. The Company assessed whether such unrealized losses for the investments in its portfolio were other-than-temporary. Based on this assessment, the Company did not recognize any credit losses in fiscal years 2018, 20172020, 2019 and 2016.2018. Realized gains and losses on securities were included in earning and are derived using the(FIFO) method for determining the cost of securities.As of September 30, 2018,2020, the Company’s securities had the following maturity dates: | | | | | | | Market Value | | Due within one year | | $ | 63,069 | | 1 to 2 years | | | 44,615 | | 2 to 3 years | | | 20,255 | | 3 to 4 years | | | 2,382 | | Thereafter | | | 995 | | | | | | | | | $ | 131,316 | | | | | | |
| | | | | | | | | | | $ | 558,633 | | | | | 0 | | | | | 752 | | | | | 0 | | | | | 0 | | | | | | | | | $ | 559,385 | | | | | | |
Note 67 — 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’sCompa ny’s derivatives expose it to credit risks from possible non-performance by counterparties. The Company utilizes standard counterparty master netting agreements that net certain foreign currency transactions in the event of the insolvency of one of the parties to the transaction. These master netting arrangements permit the Company to net amounts due from the Company to counterparty with amounts due to the Company from the same counterparty. Although all of the Company’s recognized derivative assets and liabilities are subject toenforceable master netting arrangements, the Company has elected to present these assets and liabilities on a gross basis. Taking into account the Company’s right to net certain gains with losses, the maximum amount of loss due to credit risk that the Company would incur if all 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 $659$20,636 as of September 30, 2018.2020. 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, 2018.2020. Notional values are in U.S. dollars and are translated and calculated based on forward rates as of September 30, 20182020 for forward contracts, and based on spot rates as of September 30, 20182020 for options. | | | | | | | Notional Value* | | Foreign exchange contracts | | $ | 1,147,934 | |
| | | | | | | | | Foreign exchange contracts | | | | |
| 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. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in thousands, except per share data) The Company records all derivative instruments on the balance sheets heet at fair value. For further information, see Note 45 to the consolidated financial statements. The fair value of the open foreign exchange contracts recorded as an asset or a liability by the Company on its consolidated balance sheets as of September 30, 20182020 and September 30, 2017,2019, is as follows: | | | | | | | | | | | As of September 30, | | | | 2018 | | | 2017 | | Derivatives designated as hedging instruments | | | | | | | | | Prepaid expenses and other current assets | | $ | 221 | | | $ | 30,141 | | Other noncurrent assets | | | 25 | | | | 1,091 | | Accrued expenses and other current liabilities | | | (17,681 | ) | | | (2,317 | ) | Other noncurrent liabilities | | | (10,030 | ) | | | (1,035 | ) | | | | | | | | | | | | | (27,465 | ) | | | 27,880 | | Derivatives not designated as hedging instruments | | | | | | | | | Prepaid expenses and other current assets | | | 2,758 | | | | 2,840 | | Accrued expenses and other current liabilities | | | (3,135 | ) | | | (3,368 | ) | | | | | | | | | | | | | (377 | ) | | | (528 | ) | | | | | | | | | | Net fair value | | $ | (27,842 | ) | | $ | 27,352 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Derivatives designated as hedging instruments | | | | | | | | | Prepaid expenses and other current assets | | $ | | | | $ | | | | | | | | | | | | Accrued expenses and other current liabilities | | | | ) | | | | ) | Other noncurrent liabilities | | | | | | | | ) | | | | | | | | | | | | | | | | | | | Derivatives not designated as hedging instruments | | | | | | | | | Prepaid expenses and other current assets | | | | | | | | | Accrued expenses and other current liabilities | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | | | | | | | | |
In order to reduce the impact of changes in foreign currency exchange rates on its results, the Company enters into foreign currency exchange forward and option 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 approximately three years. A significant portion of the forward and option contracts outstanding as of September 30, 20182020 is scheduled 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 (loss) income,, a separate component of equity, and subsequently reclassified into earnings in 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 option 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 revenue from customers, are recognized immediately in interest and other (expense) income,expense, net. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in thousands, except per share data) The effect of the Company’s cash flow hedging instruments in the consolidated statements of income for the fiscal years ended September 30, 2018, 20172020, 2019 and 2016,2018, respectively, which partially offsets the foreign currency impact from the underlying exposures, is summarized as follows: | | | | | | | | | | | | | | | Gains (Losses) Reclassified from Other Comprehensive (Loss)Income (Effective Portion) Year Ended September 30, | | | | 2018 | | | 2017 | | | 2016 | | Line item in consolidated statements of income: | | | | | | | | | | | | | Revenue | | $ | (1,129 | ) | | $ | (1,021 | ) | | $ | (192 | ) | Cost of revenue | | | 15,877 | | | | 21,783 | | | | (2,131 | ) | Research and development | | | 3,127 | | | | 4,282 | | | | (643 | ) | Selling, general and administrative | | | 3,462 | | | | 3,305 | | | | (1,175 | ) | | | | | | | | | | | | | | Total | | $ | 21,337 | | | $ | 28,349 | | | $ | (4,141 | ) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Gains (Losses) Reclassified from Other Comprehensive Income (Loss) (Effective Portion) Year Ended September 30, | | | | | | | | | | | | Line item in consolidated statements of income: | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | ) | | | | | | | | | ) | | | | | | | | | | | | | ) | | | | | Selling, general and administrative | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | ) | | $ | | | | | | | | | | | | | | | |
The activity related to the changes in net unrealized gains (losses) gains on cash flow hedges recorded in accumulated other comprehensive income (loss) income,, net of tax, is as follows: | | | | | | | | | | | | | | | Year Ended September 30, | | | | 2018 | | | 2017 | | | 2016 | | Net unrealized gain (loss) on cash flow hedges, net of tax, beginning of period | | $ | 24,508 | | | $ | 12,514 | | | $ | (12,152 | ) | Changes in fair value of cash flow hedges, net of tax | | | (31,908 | ) | | | 36,765 | | | | 20,911 | | Reclassification of (gain) loss into earnings, net of tax | | | (19,208 | ) | | | (24,771 | ) | | | 3,755 | | | | | | | | | | | | | | | Net unrealized (loss) gain on cash flow hedges, net of tax, end of period | | $ | (26,608 | ) | | $ | 24,508 | | | $ | 12,514 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Net unrealized gain (loss) on cash flow hedges, net of tax, beginning of period | | $ | | | | $ | | ) | | $ | | | Changes in fair value of cash flow hedges, net of tax | | | | | | | | | | | | ) | Reclassification of (gain) loss into earnings, net of tax | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | Net unrealized gain (loss) on cash flow hedges, net of tax, end of period | | $ | | | | $ | | | | $ | | ) | | | | | | | | | | | | | |
Net unrealized gain (loss) from cash flow hedges recognized in other comprehensive income (loss) income were ($34,260)$26,408, $20,035 and $(34,260), $39,692or $21,903, $19,228 and $27,578, or ($31,908)$(31,908), $36,765 and $20,911, net of taxes, during the fiscal years ended September 30, 2018, 20172020, 2019 and 2016, 2018, Of the net gains related to derivatives designated as cash flow hedges and recorded in accumulated other comprehensive income (loss) income as of September 30, 2018,2020, a net lossgain of ($16,592)$15,721 will be reclassified into earnings during fiscal 20192021 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. 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 years ended September 30, 2018, 20172020, 2019 and 2016,2018, was not material. 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in thousands, except per share data) Other Risk Management Derivatives The Company also enters into foreign currency exchange forward and option 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 transactions. These instruments are generally short-term ini n nature, with typical maturities of less than 12 months, 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 statements of income for the fiscal years ended September 30, 2018, 20172020, 2019 and 2016, 2018, respectively, which partially offsets the foreign currency impact from the underlying exposure, is summarized as follows: | | | | | | | | | | | | | | | (Losses) Gains Recognized in Income Year Ended September 30, | | | | 2018 | | | 2017 | | | 2016 | | Line item in statements of income: | | | | | | | | | | | | | Revenue | | $ | — | | | $ | — | | | $ | (67 | ) | Cost of revenue | | | (4,577 | ) | | | 4,639 | | | | 2,187 | | Research and development | | | (736 | ) | | | 957 | | | | 284 | | Selling, general and administrative | | | (950 | ) | | | 1,723 | | | | 560 | | Interest and other (expense) income, net | | | 7,038 | | | | (10,514 | ) | | | (9,674 | ) | Income taxes | | | 1,581 | | | | (1,653 | ) | | | (1,076 | ) | | | | | | | | | | | | | | Total | | $ | 2,356 | | | $ | (4,848 | ) | | $ | (7,786 | ) | | | | | | | | | | | | | |
Note 7 — Accounts Receivable, Net
Accounts receivable, net consists of the following:
| | | | | | | | | | | As of September 30, | | | | 2018 | | | 2017 | | Accounts receivable — billed | | $ | 728,716 | | | $ | 664,099 | | Accounts receivable — unbilled | | | 263,997 | | | | 229,695 | | Less — allowances | | | (21,211 | ) | | | (28,726 | ) | | | | | | | | | | Accounts receivable, net | | $ | 971,502 | | | $ | 865,068 | | | | | | | | | | |
| | | | | | | | | | | | | | | (Losses) Gains Recognized in Income Year Ended September 30, | | | | | | | | | | | | Line item in statements of income: | | | | | | | | | | | | | | | $ | | ) | | $ | | | | $ | | ) | | | | | ) | | | | | | | | ) | Selling, general and administrative | | | | ) | | | | | | | | ) | Interest and other expense, net | | | | | | | | | | | | | | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | $ | | ) | | $ | | | | $ | | | | | | | | | | | | | | | |
Note 8 — Property and Equipment, Net The components of property and equipment, net are: | | | | | | | | | | | As of September 30, | | | | 2018 | | | 2017 | | Computers, related equipment and software | | $ | 1,027,825 | | | $ | 978,040 | | Building and land | | | 97,782 | | | | — | | Leasehold improvements | | | 222,812 | | | | 213,166 | | Furniture, fixtures and other | | | 43,518 | | | | 56,324 | | | | | | | | | | | Property and equipment, gross | | | 1,391,937 | | | | 1,247,530 | | Less accumulated depreciation | | | (895,352 | ) | | | (891,845 | ) | | | | | | | | | | Property and equipment, net | | $ | 496,585 | | | $ | 355,685 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Computers, related equipment and software | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | Furniture, fixtures and other | | | | | | | | | | | | | | | | | | Property and equipment, gross | | | | | | | | | Less accumulated depreciation | | | | ) | | | | ) | | | | | | | | | | Property and equipment, net | | $ | | | | $ | | | | | | | | | | | |
(1) | For more details, see also note 2. |
Total depreciation expense for fiscal years 2020,2019and 2018, 2017 was $ 117,632,$ 111,387and 2016, was $105,439, $105,027 and $113,717, $ 105,439,As of September 30, 2018,2020 and 2017,2019, the unamortizedcosts, net of accumulated depreciation of software assets developed for internal use were $152,366$179,837 and $127,080, respectively,$171,331
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and are presented under Computer equipmentshare amounts in the table above.thousands, except per share data) In fiscal year 2018, the Company purchased a land and capitalized costs related to the new building, see also Note 2.
Note 9 — Goodwill and Intangible Assets, Net The following table presents details of the Company’s total goodwill: | | | | | As of October 1, 2016 | | $ | 2,211,639 | | Goodwill resulting from acquisitions | | | 18,535 | | Other | | | (8,965 | ) | | | | | | As of September 30, 2017 | | | 2,221,209 | | Goodwill resulting from acquisitions(1) | | | 227,283 | | Other | | | (3,597 | ) | | | | | | As of September 30, 2018 | | $ | 2,444,895 | | | | | | |
| | | | | | | $ | | | Goodwill resulting from acquisitions(1) | | | | | | | | | | | | | | | | | $ | | | Goodwill resulting from acquisitions(2) | | | | | | | | | ) | | | | | | | | $ | | | | | | | |
(1) | Mainly relates to the acquisitionsacquisition of Vubiquity, projekt202TTS. In allocating the total purchase price forT TS , based on estimated fair values, the Company recorded $8,218 of goodwill, $29,500 of customer relationships to be amortized over approximately six years, $2,100 of core technology to be amortized over approximately six years and UXP. $1,300 of trade mark to be amortizedover four years. | | |
(2) | Mainly relates to the acquisition of Openet. In allocating the total preliminary purchase price for Vubiquity,Openet, based on estimated fair values, the Company recorded $146,912 $102,898 of goodwill, $38,630$40,409 of customer relationships to be amortized over approximately nineeight years, $45,692$53,614 of core technology to be amortized over approximately five years $10,104and $2,594 of trade mark to be amortized over eighttwo years. In allocating the total preliminary purchase price of projekt202, based on estimated fair values, the Company recorded $34,032 of goodwill and $19,835 of customer relationships to be amortized over four years. In allocating the total preliminary purchase price of UXP, based on estimated fair values, the Company recorded $41,468 of goodwill, $31,552 of core technology to be amortized over five years and $6,552 of customer relationships to be amortized over approximately five years. |
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 one1 operating segment, and this segment comprises its only reporting unit. In calculating the fair value of the reporting unit, the Company uses its market capitalization and a discounted cash flow methodology. There was no0 impairment of goodwill in fiscal years 2018, 20172020, 2019 or 2016.2018 The following table presents details regarding the Company’s total definite-lived purchased intangible assets: | | | | | | | | | | | | | | | Gross | | | Accumulated Amortization | | | Net | | September 30, 2018 | | | | | | | | | | | | | Core technology | | $ | 721,384 | | | $ | (576,936 | ) | | $ | 144,448 | | Customer relationships | | | 563,656 | | | | (453,137 | ) | | | 110,519 | | Intellectual property rights and purchased computer software | | | 51,996 | | | | (51,996 | ) | | | — | | Other | | | 43,646 | | | | (33,364 | ) | | | 10,282 | | | | | | | | | | | | | | | Total | | $ | 1,380,682 | | | $ | (1,115,433 | ) | | $ | 265,249 | | | | | | | | | | | | | | | September 30, 2017 | | | | | | | | | | | | | Core technology | | $ | 604,673 | | | $ | (513,501 | ) | | $ | 91,172 | | Customer relationships | | | 497,296 | | | | (414,654 | ) | | | 82,642 | | Intellectual property rights and purchased computer software | | | 51,996 | | | | (51,996 | ) | | | — | | Other | | | 33,542 | | | | (30,030 | ) | | | 3,512 | | | | | | | | | | | | | | | Total | | $ | 1,187,507 | | | $ | (1,010,181 | ) | | $ | 177,326 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | (735,534 | ) | | $ | | | | | | | | | | (517,670 | ) | | | | | | | | | | | | (37,391 | ) | | | | | | | | | | | | | | | | | | | | $ | | | | $ | (1,290,595 | ) | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | (690,961 | ) | | $ | | | | | | | | | | (483,313 | ) | | | | | | | | | | | | (35,544 | ) | | | | | | | | | | | | | | | | | | | | $ | | | | $ | (1,209,818 | ) | | $ | | | | | | | | | | | | | | | |
The following table presents the amortization expense ofexpenses related to the Company’s definite-lived purchased intangible assets includedwere $80,777, $94,385 and $105,785 for the years ended 2020, 2019 and 2018, respectively. NOTES TO THECONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in each financial statement caption reported in the consolidated statements of income: | | | | | | | | | | | | | | | Year Ended September 30, | | | | 2018 | | | 2017 | | | 2016 | | Cost of revenue | | $ | 572 | | | $ | 1,405 | | | $ | 1,609 | | Amortization of definite-lived purchased intangible assets | | | 105,213 | | | | 108,453 | | | | 96,465 | | | | | | | | | | | | | | | Total | | $ | 105,785 | | | $ | 109,858 | | | $ | 98,074 | | | | | | | | | | | | | | |
thousands, except per share data) The estimated future amortization expense of definite-liveddefi nite-lived purchased intangible assets as of September 30, 20182020 is as follows: | | | | | | | Amount | | Fiscal year: | | | | | 2019 | | $ | 92,693 | | 2020 | | | 61,527 | | 2021 | | | 42,554 | | 2022 | | | 30,380 | | 2023 | | | 14,682 | | Thereafter | | | 23,413 | | | | | | | Total | | $ | 265,249 | | | | | | |
Note 10 — Non-recurring charges During fiscal year 2018 the CompanyC ompany incurred non-recurring charges of a loss incurred to settle a long-running legal dispute in total amount of $55,000 including legal costs of which $50,000 was paid in November 2018, see also Note 16, and also incurred restructuring charges of $30,057 primarily related to employee severance expenses, which partially were paid inexpenses. During fiscal year 2019 the Company paid the settlement amount of $50,000 and $5,000 in legal and other fees.During fiscal years 2020, 2019 and 2018 the Company paid most of the restructuring charges, and the remaining amount will be paid over the next several quarters. The provision (benefit) for income taxes consists of the following: | | | | | | | | | | | | | | | Year Ended September 30, | | | | 2018 | | | 2017 | | | 2016 | | Current | | $ | 42,047 | | | $ | 69,535 | | | $ | 77,682 | | Deferred | | | 25,098 | | | | 6,551 | | | | (2,315 | ) | | | | | | | | | | | | | | | | $ | 67,145 | | | $ | 76,086 | | | $ | 75,367 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | | | 30,239 | | | | (13,950 | ) | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | |
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. The Company maintained a tax receivable balance of $55,198$58,336 and $38,445$53,143 as of September 30, 20182020 and 2017,2019, respectively, which is included in Prepaid expenses and other current assets.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in thousands, except per share data) Deferred income taxes are comprised of the following components: | | | | | | | | | | | As of September 30, | | | | 2018 | | | 2017 | | Deferred tax assets: | | | | | | | | | Deferred revenue | | $ | 30,596 | | | $ | 44,571 | | Employee compensation and benefits | | | 72,218 | | | | 87,204 | | Intangible assets, computer software and intellectual property | | | 9,793 | | | | 14,997 | | Tax credits, net capital and operating loss carryforwards | | | 184,450 | | | | 155,478 | | Other | | | 49,732 | | | | 78,114 | | | | | | | | | | | Total deferred tax assets | | | 346,789 | | | | 380,364 | | Valuation allowances | | | (112,727 | ) | | | (94,573 | ) | | | | | | | | | | Total deferred tax assets, net | | | 234,062 | | | | 285,791 | | | | | | | | | | | Deferred tax liabilities: | | | | | | | | | Anticipated withholdings on subsidiaries’ earnings | | | (68,394 | ) | | | (74,419 | ) | Intangible assets, computer software and intellectual property | | | (114,094 | ) | | | (136,238 | ) | Other | | | (31,750 | ) | | | (32,736 | ) | | | | | | | | | | Total deferred tax liabilities | | | (214,238 | ) | | | (243,393 | ) | | | | | | | | | | Net deferred tax assets | | $ | 19,824 | | | $ | 42,398 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | Employee compensation and benefits | | | | | | | | | Intangible assets, computer software and intellectual property | | | | | | | | | Tax credits, net capital and operating loss carryforwards | | | | | | | | | | | | 71,204 | | | | — | | | | | | | | | | | | | | | | | | | | Total deferred tax assets | | | | | | | | | | | | (69,455 | ) | | | (85,533 | ) | | | | | | | | | | Total deferred tax assets, net | | | | | | | | | | | | | | | | | | Deferred tax liabilities: | | | | | | | | | Anticipated withholdings on subsidiaries’ earnings | | | (81,489 | ) | | | (70,961 | ) | Intangible assets, computer software and intellectual property | | | (114,772 | ) | | | (104,926 | ) | | | | (69,215 | ) | | | — | | | | | (90,825 | ) | | | (81,736 | ) | | | | | | | | | | Total deferred tax liabilities | | | (356,301 | ) | | | (257,623 | ) | | | | | | | | | | Net deferred tax (liabilities) assets | | $ | | ) | | $ | | | | | | | | | | | |
The effective income tax rate varied from the statutory Guernsey tax rate as follows: | | | | | | | | | | | | | | | Year Ended September 30, | | | | 2018 | | | 2017 | | | 2016 | | Statutory Guernsey tax rate | | | 0 | % | | | 0 | % | | | 0 | % | Foreign taxes(1) | | | 15.9 | | | | 14.8 | | | | 15.5 | | | | | | | | | | | | | | | Effective income tax rate | | | 15.9 | % | | | 14.8 | % | | | 15.5 | % | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Statutory Guernsey tax rate | | | 0 | % | | | 0 | % | | | 0 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | Effective income tax rate | | | 14.7 | % | | | 15.6 | % | | | 15.9 | % | | | | | | | | | | | | | |
As a Guernsey company subject to a corporate tax rate of zero0 percent, the Company’s overall effective tax rate is attributable to foreign taxes. The Company’s income before income tax expense is considered to be foreign income. | In fiscal year 2018, foreign taxes included a benefit of $9,564 due to conclusions of tax audits in certain jurisdictions, which resulted in an increase to the Company’s tax credits carryforwards and a reduction to the Company’s provision for gross unrecognized tax benefits. In addition, foreign taxes in fiscal year 2018 included a benefit of $18,022 that was attributable to the expiration of the periods set forth in statutes of limitations related to unrecognized tax benefits accumulated over several years in certain jurisdictions.
Foreign taxes in fiscalfor the year 2018 also included a tax expenses of $12,032ended Sep 30, 2020: |
In fiscal year 2020, foreign taxes included a total amount of releases of grossunrecognized tax benefits of $ 47,582relating to effectively settled arrangements with tax authorities, changes in facts and circumstances resulting in a change in measurement of certain positions and expiration of the periods set forth in statutes of limitations in certain jurisdictions. The majority of the release was offset by decrease in tax assets and increase in tax liabilities and as a result a net benefit of $ 14,971was included within income tax expense for fiscal year 2020.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in thousands, except per share data) Foreign taxes in fiscal year 2020 also included a be nefit of $15,438 resulting from the release of valuation allowances on deferred tax assets at certain of the Company’s subsidiaries, which will, more likely than not, be realized due to the Company’s projections of future taxable income. On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to provide certain relief as a result of theCOVID-19 outbreak. Some of the key incometax-related provisions of the CARES Act include modification in the usage of net operating losses, interest deductions and payroll benefits. Furthermore,o ther governments have offered and may continue to offer support to companies who operate in those countries. Foreign taxes in fiscal year 2020 also included a tax benefit of $4,964 resulting from tax enactmentsrelated to theCOVID-19 in certain jurisdictions. | Foreign taxes for the creationyear ended Sep 30, 2019: |
In fiscal year 2019, foreign taxes included a benefit of $26,529 that was primarily attributable to the expiration of the periods set forth in statutes of limitations and to a lesser extent from the conclusions of tax audits related to unrecognized tax benefits accumulated over several years in certain jurisdictions. Foreign taxes in fiscal year 2019 also included a benefit of $12,650 resulting from the release of valuation allowances on deferred tax assets at certain of the Company’s subsidiaries, which will, more likely than not, be realized due to the Company’s projections of future taxable income. | Foreign taxes for the Company’s subsidiaries, which may not be realized based on the Company’s projections of future taxable income.year ended Sep 30, 2018: |
In fiscal year 2018, foreign taxes included a benefit of $9,564 due to conclusions of tax audits in certain jurisdictions, which resulted in an increase to the Company’s tax credits carryforwards and a reduction to the Company’s provision for gross unrecognized tax benefits. In addition, foreign taxes in fiscal year 2018 included a benefit of $18,022 that was attributable to the expiration of the periods set forth in statutes of limitations related to unrecognized tax benefits accumulated over several years in certain jurisdictions. Foreign taxes in fiscal year 2018 also included a tax expenses of $12,032 resulting from the creation of valuation allowances on deferred tax assets at certain of the Company’s subsidiaries, which may not be realized based on the Company’s projections of future taxable income. In addition, foreign taxes in fiscal year 2018 included a provisional expense of $2,321 relating to changes in tax law in the United States pursuant to SAB No. 118 (see Note 2).118. The provisional expense is attributable to deemed repatriation of foreign income partially offset by a benefit resulting from there-evaluation of the Company’s deferred tax assets and liabilities due to the expected lower blended effective U.S. federal tax rate when the assets and liabilities are expected to be utilized. As an indirect consequence to the changes in tax law in the United States the Company no longer makes a permanently reinvest assertion relating to one of its subsidiaries, therefore, a provisional tax liability of $4,059 was recorded related to the tax implications of remitting earnings that were previously asserted as permanently reinvested. During fiscal year 2018, as a result of funding decisions for the construction of the Company’s new campus in Israel, see also Note 2, the Company recorded a tax benefit of $28,795 related to the release of withholding and income tax reserves for unremitted earnings. In fiscal year 2017,
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in thousands, except per share data) As of September 30, 2020 and 2019, the Company continues to indefinitely reinvest certain undistributed earnings of its foreign taxes includedsubsidiary and as a benefit of $9,450 due to conclusions of tax audits in certain jurisdictions, which resulted in a reduction to the Company’s provision for gross unrecognized tax benefits. Foreign taxes in fiscal year 2017 also included a net benefit of $11,037 due to a reduction of taxes payable, partially offset by a reduction ofresult has not recorded deferred tax asset on operating loss carryforwardsliabilities in an amount of certain of the Company’s subsidiaries resulting from internal structural changes in certain jurisdictions in which the Company operates. In addition, foreign taxes in fiscal year 2017 included a benefit of $28,774 that was attributable to the expiration of the periods set forth in statutes of limitations related to unrecognized tax benefits accumulated over several years in certain jurisdictions. Foreign taxes in fiscal year 2017 also included a benefit of $12,754 resulting from the release of valuation allowances on deferred tax assets at certain of the Company’s subsidiaries, which will, more likely than not, be realized due to the Company’s projections of future taxable income.$28,795. During fiscal year 2018,2020, the net increasedecrease in valuation allowances was $18,154, which$16,078. The valuation allowances, related to the uncertainty of realizing tax benefits primarily for tax credits, net capital and operating loss carryforwards related to certain of the Company’s subsidiaries. As of September 30, 2018,2020, the Company had tax credits, net capital and operating loss carryforwards of $894,997$829,260 of which $322,816$245,843 have expiration dates through 2038,2040, and the remainder do not expire. During fiscal year 2017,2019, the net decrease in valuation allowances was $2,297, which$ 27,194. The valuation allowances, related to the uncertainty of realizing tax benefits primarily for tax credits, net capital and operating loss carryforwards related to certain of the Company’s subsidiaries. As of September 30, 2017,2019, the Company had tax credits, net capital and operating loss carryforwards of $707,761, $ 797,091of which $180,882 $ 244,711have expiration dates through 2036,2039, and the remainder do not expire. The aggregate changes in the balance of the Company’s gross unrecognized tax benefits were as follows: | | | | | | | | | | | | | | | Year Ended September 30, | | | | 2018 | | | 2017 | | | 2016 | | Balance at beginning of fiscal year | | $ | 193,024 | | | $ | 196,668 | | | $ | 126,706 | | Additions based on tax positions related to the current year | | | 20,329 | | | | 22,319 | | | | 65,009 | | Additions (reduction) for tax positions of prior years | | | (3,805 | ) | | | 12,261 | | | | 41,183 | | Settlements with tax authorities | | | (3,880 | ) | | | (9,450 | ) | | | (31,624 | ) | Lapse of statute of limitations | | | (18,022 | ) | | | (28,774 | ) | | | (4,606 | ) | | | | | | | | | | | | | | Balance at end of fiscal year | | $ | 187,646 | | | $ | 193,024 | | | $ | 196,668 | | | | | | | | | | | | | | |
follows : | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at beginning of fiscal year | | $ | | | | $ | | | | $ | | | Additions based on tax positions related to the current year | | | | | | | | | | | | | Additions for tax positions of prior years | | | | | | | | | | | | | Reductions for tax positions of prior years | | | | | | | | | | | | | Settlements with tax authorities(1) | | | | ) | | | | ) | | | | ) | Lapse of statute of limitations | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | Balance at end of fiscal year | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | |
| The changes in the year ended September 30, 2020, in the balance of the Company’s gross unrecognized tax benefits that relate to settlements with tax authorities is $29,400, the majority of which was offset by income tax payments and increase in Tax Payables and Deferred Tax Liabilities. |
The total amount of unrecognized tax benefits, which includes interest and penalties, was $187,646$168,186 as of September 30, 2018,2020, and $193,024$169,322 as of September 30, 2017,2019, all of which would affect the effective tax rate if realized. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. As of September 30, 2018,2020, the Company had accrued $30,807 $15,812 in income taxes payable for interest and penalties relating to unrecognized tax benefits,benefits. Total amount of which $2,579interest and penalty releases, net that was recognized in the statements of income in fiscal year 2018, net of interest and penalty reversals.2020 was $15,396. As of September 30, 2017,2019, the Company had accrued $28,228 $31,108 in income taxes payable for interest and penalties relating to unrecognized tax benefits, of which a benefit of $2,910$4,679 was recognized in the statements of income in fiscal year 2017,2019, net of interest and penalty reversals. The Company is currently under tax audit in several jurisdictions for the tax years 2007 and onwards. Timing of the resolution of audits is highly uncertain and therefore, as of September 30, 2018,2020, the Company cannot estimate the change in unrecognized tax benefits resulting from these audits within the next 12 months.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in thousands, except per share data) It is reasonably possible that the amount of unrecognized tax benefits may decrease by $23,869 up to $15,446 during fiscal year 20192021 as a result of lapse of statutes of limitations in jurisdictions in which the Company operates.operates .Note 12 — Repurchase of Shares From time to time, the Company’s Board of Directors can adopt share repurchase plans authorizing the repurchase of the Company’s outstanding ordinary shares. The Company’s Board of Directors adopted a share repurchase plan, on February 2, 2016, which authorized the repurchase of up to $750,000 of the Company’s outstanding ordinary shares with no expiration date. On November 8, 2017, the Company’s Board of Directors adopted anothera share repurchase plan for the repurchase of up to an additional $800,000 of the Company’s outstanding ordinary shares with no expiration date. On November 12, 2019, the Company’s Board of Directors adopted another share repurchase plan authorizing the repurchase of up to an additional $800,000 of the Company’s outstanding ordinary shares with no expiration date. In April 2018,May 2020, the Company completed the repurchase of the remaining authorized amount of ordinary shares under the February 2016November 2017 plan and began executinginitiated repurchases underof the Company’s outstanding ordinary shares pursuant to the November 20172019 plan. In fiscalthe year 2018,ended September 30, 2020, the Company repurchased approximately 6,3375,668 ordinary shares at an average price of $66.14$63.66 per share (excluding broker and transaction fees). The November 20172019 plan permitpermits the Company to purchase its ordinary shares in the open market or through privately negotiated transactions at times and prices that it considers appropriate. As of September 30, 2018,2020, the Company had remaining authority to repurchase up to $637,127$678,344 of its outstanding ordinary shares under the November 20172019 plan. Note 13 — Financing Arrangements In December 2011, the Company entered into a $500,000the unsecured $500,000 five-year revolving credit facility with a syndicate of banks.banks (the “Revolving Credit Facility”). In December 2014, and in December 2017, the credit facility Revolving Credit Facility was amended and restated to, among other things, extend the maturity date of the facility to December 20192019. In December 2017, the Revolving Credit Facility was amended and restated again to, among other things, extend the maturity date of the facility to December 2022, respectively. The credit facility is available for general corporate purposes, including acquisitions and repurchases of ordinary shares that2022. In March 2020, the Company may consider from time to time. The interest rate for borrowings under the revolving credit facility is chosen at the Company’s option from severalpre-defined alternatives, depends on the circumstances of any advance and is based in part on the Company’s credit ratings. In March 2017, the Company borroweddrew an aggregate of $200,000$300,000 under the facilityRevolving Credit Facility and repaid it in April 2017. In March 2018,full in June 2020 in connection with the Company borrowed an aggregateissuance of $120,000 under the facility and repaid it in April 2018.our Senior Notes. As of September 30, 2018,2020, the Company was in compliance with the financial covenants under the revolving credit facility and had no0 outstanding borrowings under this facility.the Revolving Credit Facility. In addition, unassociated with the Revolving Credit Facility discussed above, in the second quarter of fiscal year 2020, the Company entered into a $50,000 short-term loan and repaid it in full in June 2020 in connection of our Senior Notes. In May 2020 the Company entered into an additional $ 100,000short-term loan which remained outstanding as of September 30, 2020. In June 2020, the Company issued an aggregate principal amount of $650,000 in Senior Notes that will mature in June 2030 and bear interest at a fixed rate of 2.538 percent per annum (the “Senior Notes”). The interest is payable semi-annually in June and December of each year, commencing in December 2020. The Company incurred issuance costs of $6,121 which are being amortized to interest expenses over the term of the Senior Notes using the effective interest rate. The Senior Notes are senior unsecured obligations of the Company and rank equally in right of payment with all existing and future senior indebtedness of the Company, including any indebtedness the Company may incur from time to time under the Revolving Credit Facility. The total interest expenses recognized in connection of the Senior Notes for the year ended September 4,562. The accrued interest on the Senior Notes is included in accrued expenses and other current liabilities andwas $ 4,418 as of September 30, 2020. As of September 30, 2018,2020, the noncurrent outstanding principal portion was $650,000.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in thousands, except per share data) The total estimated fair value of the Senior Notes as of September 30, 2020 was $ 674,512. The fair value was determined based on the closing trading price of Senior Notes as of September 30, 2020 and is deemed a Level 2 liability within the fair value measurement framework. As of September 30, 2020, the Company had additional uncommitted lines of credit available for general corporate and other specific purposes and had outstanding letters of credit and bank guarantees from various banks totaling $53,891.$93,554. These were supported by a combination of the uncommitted lines of credit that the Company maintains with various banks. Note 14 — Accrued Expenses and Other Current Liabilities Accrued expenses and other currentc urrent liabilities consist of the following: | | | | | | | | | | | As of September 30, | | | | 2018 | | | 2017 | | Ongoing accrued expenses | | $ | 256,012 | | | $ | 242,918 | | Project-related provisions | | | 155,739 | | | | 227,049 | | Taxes payable | | | 27,843 | | | | 34,143 | | Dividends payable(1) | | | 35,046 | | | | 31,736 | | Derivative instruments(2) | | | 20,821 | | | | 5,685 | | Other | | | 211,176 | | | | 126,556 | | | | | | | | | | | | | $ | 706,637 | | | $ | 668,087 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | Project-related provisions | | | | | | | | | | | | | | | | | | | | | | | | | | | Derivative instruments(2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | | | | | | | | |
| The amounts payable as a result of the July 31, 2018August 5, 2020 and the August 2, 20177, 2019 dividend declarations. See Note 1920 to the consolidated financial statements. |
| Includes derivatives that are designated as hedging instruments and derivatives that are not designated as hedging instruments. See Note 67 to the consolidated financial statements. |
Note 15 — Interest and other (expense) income,expense, net Interest and other (expense) income,expens e, net, consists of the following: | | | | | | | | | | | | | | | Year Ended September 30, | | | | 2018 | | | 2017 | | | 2016 | | Interest income | | $ | 6,602 | | | $ | 7,972 | | | $ | 6,815 | | Interest expense | | | (2,764 | ) | | | (1,600 | ) | | | (1,667 | ) | Foreign exchange loss | | | (6,173 | ) | | | (8,246 | ) | | | (1,998 | ) | Other, net | | | (4,431 | ) | | | (2,547 | ) | | | (1,593 | ) | | | | | | | | | | | | | | | | $ | (6,766 | ) | | $ | (4,421 | ) | | $ | 1,557 | | | | | | | | | | | | | | |
| For further details, see Note 13 to the consolidated financial statements. |
Note 16 — Contingencies and CommitmentsCommitments
The Company leases office space and vehicles undernon-cancelable operating leasesLeases
As discussed in various countries in which it does business. Future minimumnon-cancelable lease payments, which include rent and other paymentsNote 2, the Company adopted ASUNo. 2016-02, the operating lease expense is obligatedrecorded on a straight-line basis over the lease term.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in thousands, except per share data) Lease costs were as follows | Variable lease cost is immaterial |
Supplemental information related to make, based on the Company’s contractual obligationsoperating lease transactions was as follows: | | | | | | | | | | | | | | | | | Lease assets obtained in exchange for liabilities | | | | | |
| | | | | | | | | Weighted average remaining lease | | | | | Weighted average discount | | | | |
The following maturity analysis presents future undiscounted cash outflows for operating leases as of September 30, 2018 are2020 | | | | | For the year ended September 30, | | | | 2021 | | $ | | | 2022 | | | | | 2023 | | | | | 2024 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Present value of lease liabilities | | | | | | | | | |
Future minimum rental commitments undernon-cancelable operating leases as of September 30, 2019, which were accounted for per prior lease accounting (ASC 840), were as follows: | | | | | For the year ended September 30, | | | | 2019 | | $ | 75,159 | | 2020 | | | 68,847 | | 2021 | | | 57,903 | | 2022 | | | 47,849 | | 2023 | | | 20,670 | | Thereafter | | | 23,459 | | | | | | | | | $ | 293,887 | | | | | | |
| | | | | For the year ended September 30, | | | | 2020 | | | | | 2021 | | | | | 2022 | | | | | 2023 | | | | | 2024 | | | | | | | | | | | | | | | | | | | | | | | | |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in thousands, except per share data) As of September 30, 2020, the Company had no material finance leases. Rent expense per prior lease accounting (ASC 840), net of sublease income was approximately $57,559, $55,480 $65,692 and $53,164$63,603 for fiscal years 2019and2018, 2017Note 17 — Contingencies and 2016, respectively. The Company had immaterial committed future sublease income as of September 30, 2018.Commitments The Company is involved in various legal claims and proceedings arising in the normal course of its business. The Company accrues for a loss contingency when it determines that it is probable, after consultation with counsel, that a liability has been incurred and the amount of such loss can be reasonably estimated. At this time, the Company believes that the results of any such contingencies, either individually or in the aggregate, will not have a material adverse effect on the Company’s financial position, results of operations or cash flows. Since
Between 2014 Theand 2018, the Company has been defendingdefended a lawsuit against certain of its subsidiaries in the U.S. District Court in Oregon alleging breach of contract and trade secret misappropriation. According to the suit, the Company improperly utilized information received in connection with its electronic payment processing solution, which is one of several components of its mobile financial services offerings. During fiscal year 2016, the District Court denied the Company’s motions to dismiss and to compel arbitration with respect to certain of the claims, and the proceedings continued. The District Court scheduled a tentative jury trial date for late October 2018. The Company filed a motion for summary judgment with the District Court during fiscal year 2018 and the District Court partially granted the motion with respect to two trade secrets. In October 2018, while continuing to deny the plaintiff’s allegations, the Company entered into a settlement agreement with the plaintiff, which included a $50,000 $ 50,000settlement payment by the Company, in consideration for a mutual release of each party and its respective customers with no admission of liability or fault. As a result of the settlement, the lawsuit was dismissed with prejudice on November 13, 2018. In addition to2018. During fiscal year 2019the Company paid the settlement amount of $50,000, the Company also accrued$ 50,000and $ 5,000in legal fees and other associated costsfees which were accrued as of $5,000.September 30,2018. Certain of the Company’s subsidiaries are currently in a dispute with a state-owned telecom enterprise in Ecuador, which appears to have political aspects. The Company’s counterparty has claimed monetary damages. The dispute is over a contract,contracts, under which the Company was providing certain services, which hashave been terminated by the counterparty in connection with such dispute and which isare under scrutiny by certain local governmental authorities. The Company believes it has solid arguments and is vigorously defending its rights. To date, however, the Ecuadorian Courts have responded to such defense efforts, including motions alleging constitutional defects, in an inconsistentmanner. While we have encountered a dismissive approach byachieved some successes, the Ecuadorian Courts, with reasoning thatmajority of the Company believes is inconsistent with applicable law.procedures are still ongoing. The Company is unable to reasonably estimate the ultimate outcome of the above dispute.
Guarantor’s Accounting and Disclosure Requirements for Guarantees In thet he ordinary course of its business, the Company provides certain customers with financial performance guarantees which, in certain cases, are backed by lines of credit. The Company is only liable for the amounts of those guarantees in the event of the Company’s nonperformance, which would permit the customer to exercise the guarantee. The Company generally offers its products with a limited warranty. 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 charges have been incurred after revenue was fully recognized and, as a result, the Company did not accrue any amounts for product warranty liability during fiscal years 2018, 20172020, 2019 and 2016.2018. The Company generally indemnifies itsi ts customers against claims made by third parties arising from the use of the Company’s software and certain other matters. To date, the Company has incurred and recorded immaterial costs as a result of such obligations in its consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in thousands, except per share data) Note 1718 — Employee Benefits The CompanyCo mpany accrues severance pay mainly 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 and the length of time that they have worked for the Israeli operations. The severance pay liability amounted to $258,262$ 270,985266,209as of September 30, 20182020 and 2017,2019, respectively, and is included as accrued employee costs in other noncurrent liabilities. This liability is partially funded by amounts on deposit with insurance companies that totaled $202,230 $ 211,566and $206,054 $ 206,752as of September 30, 20182020 and 2017,2019, respectively, and are included in other noncurrent assets. The accrued severance expenses were $28,472, $32,908 $ 33,354, $ 33,355and $34,165 $ 28,472for fiscal years 2020, 2019 and 2018, 2017 and 2016, 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 years 2018, 20172020, 2019 and 20162018 under such plans were not material compared to total operating expenses. 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 rateof 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 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 experienced gains and losses. The Company recognized the funded status of such plans in the balance sheet. The pension and other benefits costs related to the non-contributory defined benefit plans were immaterial in fiscal years 2018, 20172020, 2019 and 2016.2018. Note 1819 — Stock Option and Incentive Plan Janua ry 1998, the Company adopted the 1998 Stock Option and Incentive Plan, or Equity Incentive Plan, which provides for the grant of restricted stock awards, stock options and other equity-based awards to employees, officers, directors, and consultants. Since its adoption, the Equity Incentive Plan has been amended on several occasions to, among other things, increase the number of ordinary shares issuable under the Equity Incentive Plan. In January 2017, the maximum number of ordinary shares authorized by the Company’s Board of Directors to be granted under the Equity Incentive Plan was increased from 62,300 to 67,550. The issuance In January 2020, the maximum number of such additionalordinary shares authorized to be granted under the Equity Incentive Plan was registered with the SEC in February 2018. increased from 67,550 to 70,550. Awards granted under the Equity Incentive Plan generally vest over a period of three to four years subject to service based conditions or a combination of service and performance based conditions andstock options have a term of ten years. Also, in accordance with the Equity Incentive Plan, options are issued at or above the market price at the
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (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 fiscal year ended September 30, 2018: | | | | | | | | | | | Number of Share Options | | | Weighted Average Exercise Price | | Outstanding as of October 1, 2017 | | | 6,957 | | | $ | 49.52 | | Granted | | | 1,826 | | | | 65.94 | | Exercised | | | (1,800 | ) | | | 45.16 | | Forfeited | | | (566 | ) | | | 56.90 | | | | | | | | | | | Outstanding as of September 30, 2018(1) | | | 6,418 | | | $ | 54.76 | | | | | | | | | | | Exercisable as of September 30, 2018(1) | | | 2,323 | | | $ | 45.03 | | | | | | | | | | |
2020: | | | | | | | | | | | | | | Weighted Average Exercise Price | | Outstanding as of October 1, 2019 | | | | | | $ | | | | | | | | | | | | | | | | ) | | | | | | | | | ) | | | | | | | | | | | | | | Outstanding as of September 30, 2020(1) | | | | | | $ | | | | | | | | | | | | Exercisable as of September 30, 2020(1) | | | | | | $ | | | | | | | | | | | |
(1) | As of September 30, 2018,2020, the weighted average remaining contractual life of outstanding and exercisable options was 7.367.16 and 5.675.68 years, respectively. |
The following table summarizes information relating to awards of restricted shares, as well as changes during the fiscal year ended September 30, 2018: | | | | | | | | | | | Number of Shares | | | Weighted Average Grant Date Fair Value | | Outstanding as of October 1, 2017 | | | 1,396 | | | $ | 55.55 | | Granted | | | 431 | | | | 65.33 | | Vested | | | (670 | ) | | | 53.61 | | Forfeited | | | (135 | ) | | | 57.62 | | | | | | | | | | | Outstanding as of September 30, 2018 | | | 1,022 | | | $ | 60.68 | | | | | | | | | | |
2020: | | | | | | | | | | | | | | Weighted Average Grant Date Fair Value | | Outstanding as of October 1, 2019 | | | | | | $ | | | | | | | | | | | | | | | | ) | | | | | | | | | ) | | | | | | | | | | | | | | Outstanding as of September 30, 2020 | | | | | | $ | | | | | | | | | | | |
The total intrinsic value of options exercised during fiscal years 2020, 2019 and 2018 2017was $31,220, $13,081 and 2016 was $38,025, $47,321 and $65,292, respectively. The value of restricted shares vested during fiscal years 2020, 2019 and 2018 2017was $28,727, $28,430 and 2016 was $35,801, $36,922 and $39,490, respectively. The aggregate intrinsic value of outstanding and exercisable stock options as of September 30, 20182020 was $75,177$14,064 and $49,058,$12,938, respectively. Employee equity-based compensation pre-tax expense for the years ended September 30, 2018, 20172020, 2019 and 20162018 was as follows: | | | | | | | | | | | | | | | Year Ended September 30, | | | | 2018 | | | 2017 | | | 2016 | | Cost of revenue | | $ | 18,253 | | | $ | 19,215 | | | $ | 18,249 | | Research and development | | | 3,476 | | | | 3,536 | | | | 3,742 | | Selling, general and administrative | | | 25,747 | | | | 21,788 | | | | 20,709 | | | | | | | | | | | | | | | Total | | $ | 47,476 | | | $ | 44,539 | | | $ | 42,700 | | | | | | | | | | | | | | |
The total income tax benefit recognized
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | Selling, general and administrative | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and share amounts in the consolidated statements of income for stock-based compensation (including restricted shares) for fiscal years 2018, 2017 and 2016 was $6,047, $4,754 and $4,503, respectively.As of September 30, 2018, there was $34,975 of unrecognized compensation expense related to unvested stock options and unvested restricted shares. 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.
thousands, except per share data) The fair value of options granted was estimated on the date d ate 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, | | | | 2018 | | | 2017 | | | 2016 | | Risk-free interest rate(1) | | | 2.30 | % | | | 1.63 | % | | | 1.40 | % | Expected life of stock options(2) | | | 4.50 | | | | 4.50 | | | | 4.50 | | Expected volatility(3) | | | 15.0 | % | | | 16.2 | % | | | 18.5 | % | Expected dividend yield(4) | | | 1.51 | % | | | 1.47 | % | | | 1.40 | % | Fair value per option | | $ | 8.70 | | | $ | 7.62 | | | $ | 7.97 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Risk-free interest rate(1) | | | | % | | | | % | | | | % | Expected life of stock options(2) | | | | | | | | | | | | | | | | | % | | | | % | | | | % | Expected dividend yield(4) | | | | % | | | | % | | | | % | | | $ | | | | $ | | | | $ | | |
(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) | Expected life of stock options is based upon historical experience. |
(3) | Expected volatility is based on blended volatility. See Note 2 to the consolidated financial statements. |
(4) | Expected dividend yield is based on the Company’s history and future expectation of dividend payouts. |
The Company’s Board of Directors declared the following dividends during the fiscal years ended September 30, 2018, 20172020, 2019 and 2016: | | | | | | | | | | | | | Declaration Date | | Dividends Per Ordinary Share | | | Record Date | | Total Amount | | | Payment Date | July 31, 2018 | | $ | 0.250 | | | September 28, 2018 | | $ | 35,046 | | | October 19, 2018 | May 10, 2018 | | $ | 0.250 | | | June 29, 2018 | | $ | 35,363 | | | July 20, 2018 | January 30, 2018 | | $ | 0.250 | | | March 30, 2018 | | $ | 35,635 | | | April 20, 2018 | November 8, 2017 | | $ | 0.220 | | | December 29, 2017 | | $ | 31,558 | | | January 19, 2018 | | August 2, 2017 | | $ | 0.220 | | | September 29, 2017 | | $ | 31,736 | | | October 23, 2017 | May 9, 2017 | | $ | 0.220 | | | June 30, 2017 | | $ | 31,981 | | | July 14, 2017 | February 1, 2017 | | $ | 0.220 | | | March 31, 2017 | | $ | 32,223 | | | April 14, 2017 | November 8, 2016 | | $ | 0.195 | | | December 30, 2016 | | $ | 28,606 | | | January 13, 2017 | | July 26, 2016 | | $ | 0.195 | | | September 30, 2016 | | $ | 28,693 | | | October 21, 2016 | May 4, 2016 | | $ | 0.195 | | | June 30, 2016 | | $ | 28,836 | | | July 15, 2016 | February 2, 2016 | | $ | 0.195 | | | March 31, 2016 | | $ | 29,206 | | | April 15, 2016 | November 10, 2015 | | $ | 0.170 | | | December 31, 2015 | | $ | 25,565 | | | January 15, 2016 | |
2018: | | | | | | | | | | | | | | | | | | | Dividends Per Ordinary Share | | | | | | | | | | | | | | | $ | | | | | | | | $ | | | | | | | | | $ | | | | | | | | $ | | | | | | | | | $ | | | | | | | | $ | | | | | | | | | $ | | | | | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | | | | | $ | | | | | | | | | $ | | | | | | | | $ | | | | | | | | | $ | | | | | | | | $ | | | | | | | | | $ | | | | | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | | | | | $ | | | | | | | | | $ | | | | | | | | $ | | | | | | | | | $ | | | | | | | | $ | | | | | | | | | $ | | | | | | | | $ | | | | | | | | |
The amounts payable as a result of the August 5, 2020, August 7, 2019 and July 31, 2018 August 2, 2017 and July 26, 2016 declarations were included in accrued expenses and other current liabilities as of September 30, 2020, 2019 and 2018, 2017 and 2016, respectively. On November 8, 2018,10, 2020, the Company’s Board of Directors approved quarterly dividend payment of $0.25$0.3275 per share, and set December 31, 20182020 as the record date for determining the shareholders entitled to receive the dividend, which is payable on January 18, 2019.22, 2021. On November 8, 2018,10, 2020, the Company’s Board of Directors also approved, subject to shareholder approval at the January 20192021 annual general meeting of shareholders, an increase in the quarterly cash dividend to $0.285 $ 0.36per share, anticipated to be paid in April 2019.2021.
NOTES TO THE CONSOLIDATED FINANCIALSTATEMENTS (dollar and share amounts in thousands, except per share data) Note 2021 — Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share: | | | | | | | | | | | | | | | Year Ended September 30, | | | | 2018 | | | 2017 | | | 2016 | | Numerator: | | | | | | | | | | | | | Net income | | $ | 354,396 | | | $ | 436,826 | | | $ | 409,331 | | Net income and dividends attributable to participating restricted shares | | | (2,650 | ) | | | (3,517 | ) | | | (3,592 | ) | | | | | | | | | | | | | | Numerator for basic earnings per common share | | $ | 351,746 | | | $ | 433,309 | | | $ | 405,739 | | | | | | | | | | | | | | | Undistributed income allocated to participating restricted shares | | | 1,617 | | | | 2,512 | | | | 2,604 | | Undistributed income reallocated to participating restricted shares | | | (1,603 | ) | | | (2,488 | ) | | | (2,569 | ) | | | | | | | | | | | | | | Numerator for diluted earnings per common share | | $ | 351,760 | | | $ | 433,333 | | | $ | 405,774 | | | | | | | | | | | | | | | Denominator: | | | | | | | | | | | | | Weighted average number of shares outstanding — basic | | | 142,422 | | | | 146,017 | | | | 149,168 | | Weighted average number of participating restricted shares | | | (1,065 | ) | | | (1,176 | ) | | | (1,309 | ) | | | | | | | | | | | | | | Weighted average number of common shares — basic | | | 141,357 | | | | 144,841 | | | | 147,859 | | | | | | | | | | | | | | | Effect of assumed conversion of 0.5% convertible notes | | | — | | | | — | | | | 5 | | Effect of dilutive stock options granted | | | 1,282 | | | | 1,414 | | | | 2,002 | | | | | | | | | | | | | | | Weighted average number of common shares — diluted | | | 142,639 | | | | 146,255 | | | | 149,866 | | | | | | | | | | | | | | | Basic earnings per common share | | $ | 2.49 | | | $ | 2.99 | | | $ | 2.74 | | | | | | | | | | | | | | | Diluted earnings per common share | | $ | 2.47 | | | $ | 2.96 | | | $ | 2.71 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | Net income and dividends attributable to participating restricted shares | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | Numerator for basic earnings per common share | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | Undistributed income allocated to participating restricted shares | | | | | | | | | | | | | Undistributed income reallocated to participating restricted shares | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | Numerator for diluted earnings per common share | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted average number of shares outstanding — basic | | | | | | | | | | | | | Weighted average number of participating restricted shares | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | Weighted average number of common shares — basic | | | | | | | | | | | | | | | | | | | | | | | | | | Effect of dilutive stock options granted | | | | | | | | | | | | | Weighted average number of common shares — diluted | | | | | | | | | | | | | | | | | | | | | | | | | | Basic earnings per common share | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | Diluted earnings per common share | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | |
For the fiscal years ended September 30, 2020, 2019 and 2018, 20172,634, 3,547 and 2016, 1,357 1,281 and 1,785 shares, respectively, on a weighted average basis, were attributable to antidilutive outstanding stock options and therefore were not included in the calculation of diluted earnings per share. Note 2122 — 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, entertainment and media industry service providers.
NOTES TO THE CONSOLIDATED FINANCIALSTATEMENTS (dollar and share amounts in thousands, except per share data) 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, | | | | 2018 | | | 2017 | | | 2016 | | Revenue | | | | | | | | | | | | | North America (mainly United States) | | $ | 2,550,234 | | | $ | 2,546,290 | | | $ | 2,381,122 | | Europe | | | 572,196 | | | | 488,932 | | | | 513,295 | | Rest of the world | | | 852,407 | | | | 831,933 | | | | 823,812 | | | | | | | | | | | | | | | Total | | $ | 3,974,837 | | | $ | 3,867,155 | | | $ | 3,718,229 | | | | | | | | | | | | | | |
| | | | | | | | | | | As of September 30, | | | | 2018 | | | 2017 | | Long-lived Assets(1) | | | | | Europe | | $ | 187,884 | | | $ | 151,794 | | North America | | | 88,251 | | | | 71,980 | | Rest of the world: | | | | | Israel | | | 161,726 | | | | 66,628 | | India | | | 37,239 | | | | 43,118 | | Others | | | 21,485 | | | | 22,165 | | | | | | | | | | | Total | | $ | 496,585 | | | $ | 355,685 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | North America (mainly United States) | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | |
| Property and equipment, net. |
| For more details, see also note 2. |
Revenue and Customer InformationamdocsONE includes offerings in the domainsby nature of consumer experience and monetization, media and digital services, enterprise and connected society, service-driven networks and agile operations. It includes the Amdocs customer experience solutions (CES) portfolio and Amdocs Optima, as well as mobile financial services. amdocsONE also includes a comprehensive line of services such as advisory services, intelligent operations (managed services), autonomous network service assurance, digital business operations, quality engineering services (testing), and data and intelligence services. Directory includes comprehensive set of products and services mainly for media publishers.
Total revenue consists of the following:
| | | | | | | | | | | | | | | Year Ended September 30, | | | | 2018 | | | 2017 | | | 2016 | | amdocsONE | | $ | 3,930,186 | | | $ | 3,809,088 | | | $ | 3,629,698 | | Directory | | | 44,651 | | | | 58,067 | | | | 88,531 | | | | | | | | | | | | | | | Total | | $ | 3,974,837 | | | $ | 3,867,155 | | | $ | 3,718,229 | | | | | | | | | | | | | | |
activities | | | | | | | | | | | | | | | | | | | | | | | | | | | Managed services arrangements | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | |
Sales to Significant Customers
The Company had onefollowing table summarizes the percentage of sales to significant customer AT&T,groups which accounted for at least ten10 percent of its total revenue in each of fiscal years 2018, 20172020, 2019 and 2016. The percentage2018.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (dollar and 2016 was 27%, 33% and 33%, respectively.share amounts in thousands, except per share data) Note 2223 — 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, | | 2018 | | | | | | | | | | | | | | | | | Revenue | | $ | 1,002,588 | | | $ | 1,002,198 | | | $ | 992,340 | | | $ | 977,711 | | Operating income | | | 68,819 | | | | 105,518 | | | | 131,827 | | | | 122,143 | | Net income | | | 44,266 | | | | 91,530 | | | | 101,727 | | | | 116,873 | | Basic earnings per share | | | 0.31 | | | | 0.64 | | | | 0.71 | | | | 0.81 | | Diluted earnings per share | | | 0.31 | | | | 0.64 | | | | 0.70 | | | | 0.80 | | 2017 | | | | | | | | | | | | | | | | | Revenue | | $ | 979,724 | | | $ | 966,695 | | | $ | 966,009 | | | $ | 954,727 | | Operating income | | | 132,047 | | | | 129,912 | | | | 133,781 | | | | 121,593 | | Net income | | | 107,209 | | | | 119,264 | | | | 112,560 | | | | 97,793 | | Basic earnings per share | | | 0.74 | | | | 0.82 | | | | 0.77 | | | | 0.67 | | Diluted earnings per share | | | 0.73 | | | | 0.81 | | | | 0.76 | | | | 0.66 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Diluted earnings per share | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Diluted earnings per share | | | | | | | | | | | | | | | | |
Note 2324 — Subsequent EventIn October 2018,event
On November 10, 2020, the Company settledsigned an agreement for the divestiture of OpenMarket for approximately $300,000 cash with Infobip, a long-running legal dispute company in which was disclosed underOne Equity Partners is the non-recurring charges primary institutional investor, and expects to complete the divestiture within the next few months. With this transaction, Amdocs is divesting anon-strategic asset in fiscal year 2018. In November 2018, the company paid this settlementmobile messaging domain and remaining laser-focused on its core strategic growth initiatives.
NOTES TO THE CONSOLIDATED FINANCIALSTATEMENTS (dollar and share amounts in total amount of $50,000, see also Note 16.thousands, except per share data) VALUATION AND QUALIFYING ACCOUNTS (In thousands) | | | | | | | | | | | Accounts Receivable Allowances | | | Valuation Allowances on Net Deferred Tax Assets | | Balance as of October 1, 2015 | | $ | 33,837 | | | $ | 112,165 | | Charged to costs and expenses | | | 24,004 | | | | 13,800 | | Charged to other accounts | | | 1,415 | | | | 826 | | Deductions | | | (19,744 | )(2) | | | (29,921 | )(1) | | | | | | | | | | Balance as of September 30, 2016 | | | 39,512 | | | | 96,870 | | Charged to costs and expenses | | | 17,282 | | | | 16,425 | | Charged to other accounts | | | 1,985 | | | | 5,000 | (3) | Deductions | | | (30,053 | )(5) | | | (23,722 | )(4) | | | | | | | | | | Balance as of September 30, 2017 | | | 28,726 | | | | 94,573 | | Charged to costs and expenses | | | 6,134 | | | | 18,173 | | Charged to other accounts | | | 1,226 | | | | 6,121 | (3) | Deductions | | | (14,875 | )(6) | | | (6,140 | ) | | | | | | | | | | Balance as of September 30, 2018 | | $ | 21,211 | | | $ | 112,727 | | | | | | | | | | |
| | | | | | | | | | | | | | Allowances on Net Deferred | | Balance as of September 30, 2017 | | $ | | | | $ | | | Charged to costs and expenses | | | | | | | | | Charged to other accounts | | | | | | | | (1) | | | | | )(2) | | | | ) | | | | | | | | | | Balance as of September 30, 2018 | | | | | | | | | Charged to costs and expenses | | | | | | | | | Charged to other accounts | | | | | | | | (1) | | | | | )(4) | | | | )(3) | | | | | | | | | | Balance as of September 30, 2019 | | | | | | | | | Charged to costs and expenses | | | | | | | | | Charged to other accounts | | | | ) | | | | (1) | | | | | )(6) | | | | )(5) | | | | | | | | | | Balance as of September 30, 2020 | | $ | | | | $ | | | | | | | | | | | |
| Includes valuation allowances on deferred tax assets incurred in connection with an acquisition. |
| $9,2316,659 of accounts receivable allowances were written off against the related accounts receivables, and the remaining deductions in the accounts receivable allowances were released to earnings. |
| $7,588 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. |
(2) | $12,7273,539 of accounts receivable allowances were written off against the related accounts receivables, and the remaining deductions in the accounts receivable allowances were released to earnings. |
(3) | Includes valuation allowances on deferred tax assets incurred in connection with an acquisition.
|
(4) | $2,4162,283 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. |
(5) | $ 3,0084,969 of accounts receivable allowances were written off against the related accounts receivables, $5,291 of accounts receivable allowances $7,089 were nettedwritten off against deferred revenue and the remaining deductions in the accounts receivable allowances were released to earnings.earnings . |
(6) | $6,659 of accounts receivable allowances were written off against the related accounts receivables, and the remaining deductions in the accounts receivable allowances were released to earnings.
|
F-40
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