TRANSACTION SYSTEMS ARCHITECTS, INC.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
CERTAIN CAUTIONARY STATEMENTS AND
RISK FACTORS
Transaction Systems Architects, Inc. and its subsidiaries (collectively,
the Company) or their representatives from time to time may make or may have
made certain forward-looking statements, whether orally or in writing,
including without limitation, any such statements made or to be made in the
Management's Discussion and Analysis contained in its various SEC filings or
orally in conferences or teleconferences. The Company wishes to ensure that
such statements are accompanied by meaningful cautionary statements, so as to
ensure to the fullest extent possible the protections of the safe harbor
established in the Private Securities Litigation Reform Act of 1995.
ACCORDINGLY, THE FORWARD-LOOKING STATEMENTS ARE QUALIFIED IN THEIR ENTIRETY
BY REFERENCE TO AND ARE ACCOMPANIED BY THE FOLLOWING MEANINGFUL CAUTIONARY
STATEMENTS IDENTIFYING CERTAIN IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENTS.
This list of factors is likely not exhaustive. The Company operates in a
rapidly changing and evolving business involving electronic commerce and
payments, and new risk factors will likely emerge. Management cannot predict
all of the important risk factors, nor can it assess the impact, if any, of
such risk factors on the Company's business or the extent to which any
factor, or combination of factors, may cause actual results to differ
materially from those in any forward-looking statements.
ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT FORWARD-LOOKING STATEMENTS
WILL BE ACCURATE INDICATORS OF FUTURE ACTUAL RESULTS AND IT IS LIKELY THAT
ACTUAL RESULTS WILL DIFFER FROM RESULTS PROJECTED IN FORWARD-LOOKING
STATEMENTS. SUCH DIFFERENCES MAY BE MATERIAL.
TSA is dependent on its BASE24 products
TSA has derived a substantial majority of its total revenues from
licensing its BASE24 family of software products and providing services and
maintenance related to those products. The BASE24 products and related
services and maintenance are expected to provide the majority of TSA's
revenues in the foreseeable future. TSA's results will depend upon continued
market acceptance of its BASE24 products and related services as well as
TSA's ability to continue to adapt and modify them to meet the changing needs
of its customers. Any reduction in demand for, or increase in competition
with respect to, BASE24 products would have a material adverse effect on
TSA's financial condition and results of operations.
TSA is subject to risks of conducting international operations
TSA has derived a majority of its total revenues from sales to
customers outside the United States. International operations generally are
subject to certain risks, including:
- difficulties in staffing and management,
- reliance on independent distributors,
- fluctuations in foreign currency exchange rates,
- compliance with foreign regulatory requirements,
- variability of foreign economic conditions, and
- changing restrictions imposed by U.S. export laws.
There can be no assurance that TSA will be able to manage the risks related
to selling its products and services in international markets.
TSA is dependent on the banking industry
TSA's business is concentrated in the banking industry, making TSA
susceptible to a downturn in that industry. For example, a decrease in bank
spending for software and related services could result in a smaller overall
market for electronic payment software. Furthermore, banks are continuing to
consolidate, decreasing the overall potential number of buyers for TSA's
products and services. These factors as well as others negatively affecting
the banking industry could have a material adverse effect on TSA's financial
condition and results of operations.
TSA's future results depend on the success of Compaq and TSA's
relationship with Compaq
Historically, TSA has derived a substantial portion of its total
revenues from the licensing of software products that operate on Compaq
computers. TSA's BASE24 product line as well as TSA's CoACH and MoneyNet
products run exclusively on Compaq computers. The BASE24 product line is
expected to provide a majority of TSA's revenues in the foreseeable future.
TSA's future results depend on market acceptance of Compaq computers and the
financial success of Compaq. Any reduction in demand for these computers or
in Compaq's ability to deliver products on a timely basis could have a
material adverse effect on TSA's financial condition and results of
operations.
Although TSA has several written agreements with Compaq, none of
those agreements governs the primary relationship between TSA and Compaq,
which is that TSA's major product line, BASE24, runs exclusively on Compaq
computers. The cooperation and past affiliation between TSA and Compaq have
facilitated TSA's ability to develop and market Compaq-compatible products.
However, this cooperation is not mandated by contract. The cessation of such
cooperation would adversely affect TSA's business. None of TSA's agreements
with Compaq would protect TSA if Compaq's cooperation ceased or if Compaq
were unable to deliver products on a timely basis. The written agreements
cover such discrete matters as funding of market development efforts.
TSA must manage its growth effectively
TSA is experiencing a period of growth which is placing demands on
its managerial and operations resources. TSA's inability to manage its growth
effectively or to maintain its current level of growth could have a material
adverse effect on its financial condition and results of operations.
TSA may not be able to attract and retain key personnel
TSA's success depends on certain of its executive officers, the loss
of one or more of whom could have a material adverse effect on TSA's
financial condition and results of operations. None of TSA's U.S.-based
executive officers is a party to an employment agreement. TSA believes that
its future success also depends on its ability to attract and retain
highly-skilled technical, managerial and marketing personnel, including, in
particular, additional personnel in the areas of research and development and
technical support. Competition for personnel is intense. There can be no
assurance that TSA will be successful in attracting and retaining the
personnel it requires.
The market for electronic payment software and services is highly competitive
Many applications software vendors offer products that are directly
competitive with BASE24 and other products of TSA. TSA also experiences
competition from software developed internally by potential customers and
experiences competition for its consulting services from professional
services organizations. In addition, processing companies provide services
similar to those made possible by TSA's products. Many of TSA's current and
potential competitors have significantly greater financial, marketing,
technical and
other competitive resources than TSA. Current and potential competitors,
including providers of transaction-based software, processing, or
professional services, may establish cooperative relationships with one
another or with third parties to compete more effectively against TSA. It is
also possible that new competitors may emerge and acquire market share. In
either case, TSA's financial condition and results of operations could be
adversely affected.
TSA's future success depends on its ability to timely develop and
market product enhancements and new products
The market for software in general is characterized by rapid change
in computer hardware and software technology and is highly competitive with
respect to the need for timely product innovation and new product
introductions. TSA believes that its future success depends upon its ability
to enhance its current applications and develop new products that address the
increasingly complex needs of customers. In particular, TSA believes that it
must continue to respond quickly to users' needs for additional functionality
and multi-platform support. The introduction and marketing of new or enhanced
products requires TSA to manage the transition from current products in order
to minimize disruption in customer purchasing patterns. There can be no
assurance that TSA will continue to be successful in the timely development
and marketing of product enhancements or new products that respond to
technological advances, that its new products will adequately address the
changing needs of the domestic and international markets or that it will
successfully manage the transition from current products.
TSA is continually developing new products, product versions and
individual features within a large, complex software system. Development
projects can be lengthy and are subject to changing requirements, programming
difficulties and unforeseen factors which can result in delays in the
introduction of new products and features. Delays could have a material
adverse effect on TSA's financial condition and results of operations.
In addition, new products, versions or features, when first released
by TSA, may contain undetected errors that, despite testing by TSA, are
discovered only after a product has been installed and used by customers. To
date, undetected errors have not caused significant delays in product
introduction and installation or required substantial design modifications.
However, there can be no assurance that TSA will avoid problems of this type
in the future.
A majority of TSA's license fee revenue is generated by licenses for
software products designed to run on Compaq's fault-tolerant mainframe
computers. TSA has developed, and continues to develop, certain products for
other platforms. However, revenues from these products have not been
significant to date. There can be no assurance that TSA will be successful in
selling these software products or other products under development. TSA's
failure in this regard could have a material adverse effect on its financial
condition and results of operations.
TSA is dependent on proprietary technology
TSA relies on a combination of trade secret and copyright laws,
nondisclosure and other contractual and technical measures to protect its
proprietary rights in its products. There can be no assurance that these
provisions will be adequate to protect its proprietary rights. In addition,
the laws of certain foreign countries do not protect intellectual property
rights to the same extent as the laws of the United States. Although TSA
believes that its intellectual property rights do not infringe upon the
proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against TSA.
Fluctuations in quarterly operating results may result in volatility in
TSA's stock price
TSA's quarterly revenues and operating results may fluctuate
depending on the timing of executed contracts, license upgrades and the
delivery of contracted business during the quarter. In addition, quarterly
operating results may fluctuate due to the extent of commissions associated
with third party product sales, timing of TSA's hiring of additional staff,
new product development and other expenses. No assurance can be given that
operating results will not vary due to these factors.
Customers may cancel contracts
TSA derives a substantial portion of its total revenues from
maintenance fees and monthly software license fees pursuant to contracts
which the customer has the right to cancel. A substantial number of
cancellations of these maintenance or monthly license fee contracts would
have a material adverse effect on TSA's financial condition and results of
operations.
TSA's stock price may be volatile
The stock market has from time to time experienced extreme price and
volume fluctuations, particularly in the high technology sector, which have
often been unrelated to the operating performance of particular companies.
Any announcement with respect to any variance in revenue or earnings from
levels generally expected by securities analysts for a given period could
have an immediate and significant effect on the trading price of the Class A
Common Stock. In addition, factors such as announcements of technological
innovations or new products by TSA, its competitors or other third parties,
as well as changing market conditions in the computer software or hardware
industries, may have a significant impact on the market price of the Class A
Common Stock.
TSA's charter contains provisions that may affect changes in control
TSA's Certificate of Incorporation contains provisions that may
discourage acquisition bids for TSA. The effect of such provisions may be to
limit the price that investors might be willing to pay in the future for
shares of the Class A Common Stock.
TSA's acquisition strategy involves numerous risks and challenges
TSA has expanded and will seek to continue to expand its operations
through the acquisition of additional businesses that complement it's core
skills and have the potential to increase it's overall value. TSA's future
growth may depend, in part, upon the continued success of its acquisition
strategy. TSA may not be able to successfully identify and acquire, on
favorable terms, compatible businesses. Acquisitions involve many risks,
which could have a material adverse effect on TSA's business, financial
condition and results of operations, including:
- Acquired businesses may not achieve anticipated revenues,
earnings or cash flow;
- Integration of acquired businesses and technologies may not be
successful and TSA may not realize anticipated economic,
operational and other benefits in a timely manner, particularly if
TSA acquires a business in a market in which TSA has limited or no
current expertise or with a corporate culture different from
TSA's;
- Potential dilutive effect on TSA's stockholders from continued
issuance of Common Stock as consideration for acquisitions;
- Adverse effect on net income of amortization expense related to
goodwill and other intangible assets and other acquisition-related
charges, costs and expenses on net income;
- Competing with other companies, many of which have greater
financial and other resources to acquire attractive companies
makes it more difficult to acquire suitable companies on
acceptable terms; and
- Disruption of TSA's existing business, distraction of management
and other resources and difficulty in maintaining TSA's current
business standards, controls and procedures.
TSA's Year 2000 program may not be successful
TSA's business could be adversely affected by Year 2000 related
problems. Year 2000 problems may arise in computer equipment and software, as
well as embedded electronic systems, because of the way these systems are
programmed to interpret certain dates that will occur around the change in
century. Many existing computer programs were designed and developed using or
reserving only two digits in date fields to identify the century, without
considering the ability of the program to properly distinguish the upcoming
century change in the Year 2000.
Management has initiated a Company-wide Year 2000 program to analyze:
- software developed by TSA which is licensed to customers;
- information technology systems utilized by TSA consisting of
applications developed in-house and purchased from third party
suppliers; and
- non-information technology systems and embedded technology which are
integral components of the infrastructure of TSA.
There could be a material adverse effect on the financial condition
and results of operations of TSA if the actions taken by TSA to mitigate its
risk associated with the Year 2000 prove to be inadequate. Risk factors
include, without limitation:
- the failure of existing or future customers to achieve Year 2000
compliance;
- the failure of computer hardware system providers on which TSA and
its customers rely or other vendors or service providers of TSA or its
customers to timely achieve Year 2000 compliance;
- TSA's products and systems not containing all necessary date code
changes;
- the failure of TSA's analysis and testing to detect operational
problems in information technology and non-information technology
systems utilized by TSA or in TSA's products or services, whether such
failure results from the technical inadequacy of TSA's validation and
testing efforts, the technological unfeasibility of testing certain
non-information technology systems, and the unavailability of customers
or other third parties to participate in testing;
- potential litigation arising out of Year 2000 issues, with respect to
providers of software and related technical and consulting services
such as TSA generally, and particularly in light of the numerous
interfaces between TSA's products and products and systems of third
parties which are required to successfully utilize TSA's products which
could involve TSA in expensive, multiple party litigation even though
TSA may have no responsibility for the alleged problem; and
- the failure to timely implement a contingency plan to the extent Year
2000 compliance is not achieved.