SEC Company Response from AMDOCS LTD (DOX) (CIK 0001062579) (DOX) — Feb 9, 2011
AMDOCS LTD (DOX) (CIK 0001062579)
Date: Feb. 9, 2011 · CIK: 0001062579 · Accession: 0000950123-11-010980
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-14840
Referenced dates: January 26, 2011
Letter
February 9, 2011
Robert A. Schwed
VIA EDGAR AND HAND DELIVERY
U.S. Securities and Exchange Commission
Division of Corporation Finance
100 F. Street, N.E.
Washington, DC 20549
Attention: Patrick Gilmore
+1 212 937 7276(t)
+1 212 230 8888(f)
robert.schwed@wilmerhale.com
Re:
Amdocs Limited
Form 20-F for the Fiscal Year Ended September 30, 2010
Filed December 7, 2010
Amendment No. 1 to Form 20-F for the Fiscal Year Ended
September 30, 2010
Filed December 9, 2010
File No. 001-14840
Ladies and Gentlemen:
On behalf of our client Amdocs Limited (“Amdocs” or the “Company”), we are submitting the following responses of the Company to the comments of the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) set forth in a letter dated January 26, 2011 from Mr. Patrick Gilmore, Accounting Branch Chief. The comment letter relates to the Company’s Annual Report on Form 20-F for the fiscal year ended September 30, 2010 filed December 7, 2010 (the “Form 20-F”) and the Company’s Amendment No. 1 to the Form 20-F filed December 9, 2010 (the “Amended Form 20-F”).
For convenient reference, we have included below each of the Staff’s comments set forth in the comment letter and have keyed the Company’s responses to the numbering of the comments and the headings used in the comment letter. All of the responses are based on information provided to us by representatives of the Company.
The Company has not prepared an amendment to the Form 20-F or the Amended Form 20-F because the Company believes that any amendments filed to address the Staff’s comments relate to matters that are not individually or in the aggregate material to investors and that any such amendments would, on the whole, be more confusing than useful to investors and others.
Form 20-F for the Fiscal Year Ended September 30, 2010
Item 5. Operating and Financial Review and Prospects
1.
We note the disclosure in your Form 6-K filed on November 4, 2010 regarding the suspension of a portion of Clearwire’s implementation program. We further note that you anticipate that this suspension will put “pressure on [y]our profitability.” Please tell
Wilmer Cutler Pickering Hale and Dorr llp, 399 Park Avenue, New York, New York 10022
Beijing Berlin Boston Brussels Frankfurt London Los Angeles New York Oxford Palo Alto Waltham Washington
U.S. Securities and Exchange Commission
February 9, 2011
Page 2
us how you considered disclosing whether this event is reasonably likely to have a material unfavorable impact on future revenues, gross margin or operating income and how you considered including a discussion of this event in your Form 20-F. Refer to Section III.B.3 of Release No. 33-8350 for additional guidance.
Response:
Shortly prior to November 4, 2010, the earnings press release date, the Company became aware of the change in Clearwire’s business priorities, and was notified by Clearwire that a portion of the implementation program had been suspended, thus creating uncertainty as to the Company’s profitability in the short term until the re-scoping of the agreement could be concluded. In its guidance for the first quarter of fiscal 2011, the Company reflected this development as was disclosed in the Form 6-K filed on November 4, 2010.
In its decision not to include a detailed discussion of the Clearwire situation in the Operating and Financial Review and Prospects section of the Form 20-F, the Company took into account the following considerations:
–
The uncertainty was expected to affect primarily near-term profitability, mainly in the first quarter of fiscal 2011, resolution of which was dependent on the re-scoping of the agreement and any required cost adjustments;
–
The suspension of the Clearwire agreement related only to a certain portion of the agreement, which would not have a material impact on the Company’s revenue in fiscal 2011;
–
Furthermore, the Clearwire contract suspension was a result of a change in Clearwire’s business priorities and is limited to Clearwire. It has had, and is expected to have, no impact on the Company’s business with its other customers.
Therefore, the Company concluded that a material effect on its liquidity, capital resources or results of operations was not reasonably likely to occur and no additional disclosure was required in the Form 20-F.
Furthermore, although the resolution of the Clearwire agreement was made following the filing of the Form 20-F and was not part of the Company’s considerations regarding the required disclosure in the Form 20-F, eventually, during December 2010, the Company successfully re-scoped its contract with Clearwire to address the changes in the customer’s strategic direction. The Company continues to support Clearwire’s entire subscriber base and to maintain a strong, long-term managed services relationship.
U.S. Securities and Exchange Commission
February 9, 2011
Page 3
The impact of the re-scoping was not material to the Company and was consistent with the considerations listed above.
Item 8. Financial Information
Financial Statements
Note 2 — Summary of Significant Accounting Policies
Revenue Recognition, page F-11
2.
We note that you allocate revenue in your arrangements with multiple deliverables based upon vendor-specific objective evidence (“VSOE”). We further note your disclosure on page 39 that VSOE is based on normal pricing and discounting practices when elements are sold separately. Please describe, in detail, your methodology and assumptions for establishing VSOE of fair value. In your response, as it relates to on-going support services and maintenance, describe the process used to evaluate the various factors that affect how you establish VSOE of fair value. For instance, does the price charged for the on-going support services and maintenance vary from customer to customer? If so, please explain how you determined that you can reasonably estimate the fair value of on going support services and maintenance. In this regard, if your agreements include stated future renewal rates, tell us what percentage of your customers actually renew at these stated rates and provide the range of typical renewal rates that are stated in your contracts. If stated future renewal rates are not included in your agreements, tell us the percentage range allowed for your pricing of on-going support services and maintenance that you consider to be representative of VSOE.
Response:
When the Company’s arrangements include multiple elements, revenue is allocated to the various elements based on VSOE of fair value as defined by ASC 985-605-25-6 and disclosed in the Form 20-F. These multiple element arrangements typically include a combination of Amdocs offerings of software products and related services including maintenance and on-going support.
The Company establishes VSOE of fair value for the separate elements present in its contracts with customers based on the price that is charged when such elements are sold separately. The Company has an established history of selling these separate elements individually. In order to determine that VSOE of fair value for these elements exists, the Company performs separate stratified ‘Bell-Shaped Curve’ analysis, as described below, using the entire population of standalone deals of the separate elements during the period of the study. This analysis determines VSOE of fair value when a substantial majority of the standalone deals in the study fall within a range of plus or minus 15% from the midpoint. The
U.S. Securities and Exchange Commission
February 9, 2011
Page 4
Company’s VSOE of fair value study is performed on an annual basis and is applied consistently.
The Company considers various factors in relation to the pricing of these elements when analyzing the population of standalone deals. These factors include: geographic region, differing maintenance support offering by product type (solution), and pricing points based on size of license deals. When such factors or pricing patterns are identified, the Company creates separate strata for the data when performing the ‘Bell-Shaped Curve’ analysis.
The Company’s maintenance provides its customers with post contract support including upgrades on a when-and-if-available basis, service packs, bug fixes and/or corrections and patches as well as web, telephone, email and help desk services. The Company’s standalone renewals for maintenance services are typically priced based on a percentage of the license list price for each software product. The Company’s arrangements generally do not include stated renewal rates. A large majority of the maintenance services offered by the Company are performed on its CES solutions; the Company also provides support for other solutions that make up an insignificant portion of sales. As a result of the different solutions and varying maintenance support services between these solutions, the Company identified separate strata based on product type being supported when performing the ‘Bell-Shaped Curve’ analysis. Additionally, the population of standalone maintenance renewals used in the study was further stratified within the Company’s CES solutions as the prices the Company charges vary based on the size of the license deals being supported. Within these strata the Company was able to establish VSOE of fair value for the services as a substantial majority of the standalone deals fell within a range of plus or minus 15% from the midpoint.
The Company’s on-going support services typically include post-production on-site support and development services. The Company’s standalone sales of on-going support services are priced based on labor units of effort (i.e. man-month rate or hourly rate). The Company identified three separate strata for its on-going support services based on the geographic location of the customer as a result of differences in pricing throughout these regions. Within these strata the Company was able to establish VSOE of fair value for the services as a substantial majority of the standalone deals fell within a range of plus or minus 15% from the midpoint.
U.S. Securities and Exchange Commission
February 9, 2011
Page 5
3.
We note your discussion on pages F-13 and F-15 regarding the early adoption of the October 2009 FASB guidance related to revenue arrangements with multiple deliverables. Please address the following:
•
Describe the significant factors, inputs, assumptions, and methods used to determine third-party evidence of selling price (“TPE”) for the significant deliverables in your multiple deliverable arrangements. Please update your disclosure in future filings accordingly. Refer to ASC 605-25-50-2(e).
•
Tell us whether you typically determine fair value of the elements in your arrangements using VSOE, TPE or estimated selling price (“ESP”).
•
We note that your policy for determining ESP references “pricing practices” and “margin objectives.” Please clarify whether you typically apply a gross profit margin to your estimated costs in order to determine ESP and how gross profit margins and costs are determined. Refer to ASC 605-25-55-44.
Response:
For a majority of the Company’s existing multiple deliverable arrangements, the Company allocates transaction consideration for purposes of revenue recognition to each identified unit of accounting based upon its relative fair value, determined using VSOE. When the Company is not able to establish VSOE for any one of the elements in its arrangements that are outside the scope of authoritative software revenue recognition guidance, the Company attempts to establish the selling price of that element based on TPE. However, the Company has not been able to use TPE as its solutions are highly differentiated and the Company is not able to obtain reliable information on the offerings of its competitors.
Accordingly, for individual elements of an arrangement that are outside the scope of authoritative software revenue recognition guidance, when VSOE is unavailable the Company allocates transaction consideration to each identified unit of accounting by allowing the use of ESP.
In determining ESP, the Company considers its common pricing practices applied to similar deals, which generally uses the costs to provide the tangible product or service plus a margin. The Company determines the total cost of the tangible product or service based on its standard pricing methodologies applied consistently throughout all of its agreements. The Company also considers the appropriate margins to be applied based on an analysis of margin objectives as well as historical margins of similar deals. The determination of ESP is made through consultation with and approval by management and the methodology for determining ESP is regularly reviewed to ensure that the best estimate of ESP is used.
U.S. Securities and Exchange Commission
February 9, 2011
Page 6
In addition, the Company notes that the adoption of the new authoritative guidance for revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance did not have a material impact on its results of operations or financial position in fiscal 2010.
Note 9 — Goodwill and Intangible Assets, Net, page F-24
4.
We note your disclosure on page F-25 regarding your purchased intangible assets. Please tell us how you considered disclosing the weighted-average amortization period in total and by major intangible asset class as required by ASC 350-30-50-1.
Response:
ASC 350-30-50-1 requires disclosure of the weighted-average amortization period in total and by major intangible asset class for intangible assets in the period of acquisition. Since the Company’s acquisitions in fiscal years 2010 and 2009, individually and in the aggregate, were considered not to be material, the Company did not provide a disclosure regarding its acquisitions in these years, including the required disclosure regarding the intangibles assets. Additionally, since the intangible assets acquired in fiscal years 2010 and 2009 individually and in the aggregate were considered not to be material, representing 1.6% and 1.0% of the total assets as of September 30, 2010 and 2009, respectively, the Company did not disclose the weighted-average amortization period in total and by major intangible assets class for intangible asset acquired during fiscal 2010 and 2009. The Company notes that it provided a range for the amortization period for all intangible assets acquired by major class. The Company also disclosed the estimated future amortization expense for each of the five succeeding fiscal years and thereafter, for the remaining balance of total intangible assets. If at the time of future filings the intangible assets acquired in a particular period are material, the Company will include such disclosure.
Note 11 — Income Taxes, page F-26
5.
Please tell us how you considered separately disclosing income before income tax expense for domestic and foreign operations. Refer to Rule 4-08(h) of Regulation S-X.
Response:
The Company is domiciled in the Island of Guernsey (“Guernsey”), and therefore the Company considers its “domestic” location to be Guernsey. Guernsey has a zero percent tax rate as shown in the Company’s rate reconciliation on page F-27 of the Form 20-F. In analyzing the required disclosure of separately disclosing income before income tax expense for foreign and domestic operations, the Company took into account the following considerations:
U.S. Securities and Exchange Commission
February 9, 2011
Page 7
–
The Company does not transact business with any Guernsey customers;
–
T
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CORRESP
1
filename1.htm
corresp
February 9, 2011
Robert A. Schwed
VIA EDGAR AND HAND DELIVERY
U.S. Securities and Exchange Commission
Division of Corporation Finance
100 F. Street, N.E.
Washington, DC 20549
Attention: Patrick Gilmore
+1 212 937 7276(t)
+1 212 230 8888(f)
robert.schwed@wilmerhale.com
Re:
Amdocs Limited
Form 20-F for the Fiscal Year Ended September 30, 2010
Filed December 7, 2010
Amendment No. 1 to Form 20-F for the Fiscal Year Ended
September 30, 2010
Filed December 9, 2010
File No. 001-14840
Ladies and Gentlemen:
On behalf of our client Amdocs Limited (“Amdocs” or the “Company”), we are
submitting the following
responses of the Company to the comments of the staff (the “Staff”) of the Securities and Exchange
Commission (the “Commission”) set forth in a letter dated January 26, 2011 from Mr. Patrick
Gilmore, Accounting Branch Chief. The comment letter relates to the Company’s Annual Report on
Form 20-F for the fiscal year ended September 30, 2010 filed December 7, 2010 (the “Form 20-F”) and
the Company’s Amendment No. 1 to the Form 20-F filed December 9, 2010 (the “Amended Form 20-F”).
For convenient reference, we have included below each of the Staff’s comments set forth in the
comment letter and have keyed the Company’s responses to the numbering of the comments and the
headings used in the comment letter. All of the responses are based on information provided to us
by representatives of the Company.
The Company has not prepared an amendment to the Form 20-F or the Amended Form 20-F because the
Company believes that any amendments filed to address the Staff’s comments relate
to matters that are not individually or in the aggregate material to investors and that any such amendments would, on the whole, be more confusing than useful to investors and others.
Form 20-F for the Fiscal Year Ended September 30, 2010
Item 5. Operating and Financial Review and Prospects
1.
We note the disclosure in your Form 6-K filed on November 4, 2010 regarding the suspension of
a portion of Clearwire’s implementation program. We further note that
you anticipate that this suspension will put “pressure on [y]our profitability.” Please
tell
Wilmer Cutler Pickering Hale and Dorr llp, 399 Park Avenue, New York, New York 10022
Beijing Berlin Boston Brussels Frankfurt London Los Angeles New York Oxford
Palo Alto Waltham Washington
U.S. Securities and Exchange Commission
February 9, 2011
Page 2
us how you considered disclosing whether this event is reasonably likely to have a
material unfavorable impact on future revenues, gross margin or operating income and how you
considered including a discussion of this event in your Form 20-F. Refer to Section III.B.3
of Release No. 33-8350 for additional guidance.
Response:
Shortly prior to November 4, 2010, the earnings press release date, the Company
became aware of the change in Clearwire’s business priorities, and was notified by
Clearwire that a portion of the implementation program had been suspended, thus
creating uncertainty as to the Company’s profitability in the short term until the
re-scoping of the agreement could be concluded. In its guidance for the first quarter
of fiscal 2011, the Company reflected this development as was disclosed in the Form 6-K
filed on November 4, 2010.
In its decision not to include a detailed discussion of the Clearwire
situation in the Operating and Financial Review and Prospects section of the
Form 20-F, the Company took into account the following considerations:
–
The uncertainty was expected to affect
primarily near-term profitability, mainly in the first quarter of
fiscal 2011, resolution of which was dependent on the re-scoping of
the agreement and any required cost adjustments;
–
The suspension of the Clearwire agreement
related only to a certain portion of the agreement, which would not
have a material impact on the Company’s revenue in fiscal 2011;
–
Furthermore, the Clearwire contract
suspension was a result of a change in Clearwire’s business priorities
and is limited to Clearwire. It has had, and is expected to have, no
impact on the Company’s business with its other customers.
Therefore, the Company concluded that a material effect on its liquidity,
capital resources or results of operations was not reasonably likely to
occur and no additional disclosure was required in the Form 20-F.
Furthermore, although the resolution of the Clearwire agreement was made
following the filing of the Form 20-F and was not part of the Company’s
considerations regarding the required disclosure in the Form 20-F, eventually,
during December 2010, the Company successfully re-scoped its contract with
Clearwire to address the changes in the customer’s strategic direction. The
Company continues to support Clearwire’s entire subscriber
base and to maintain a strong, long-term managed services relationship.
U.S. Securities and Exchange Commission
February 9, 2011
Page 3
The impact of the re-scoping was not material to the Company and was consistent
with the considerations listed above.
Item 8. Financial Information
Financial Statements
Note 2 — Summary of Significant Accounting Policies
Revenue Recognition, page F-11
2.
We note that you allocate revenue in your arrangements with multiple deliverables based upon
vendor-specific objective evidence (“VSOE”). We further note your disclosure on page 39 that
VSOE is based on normal pricing and discounting practices when elements are sold separately.
Please describe, in detail, your methodology and assumptions for establishing VSOE of fair
value. In your response, as it relates to on-going support services and maintenance, describe
the process used to evaluate the various factors that affect how you establish VSOE of fair
value. For instance, does the price charged for the on-going support services and maintenance
vary from customer to customer? If so, please explain how you determined that you can
reasonably estimate the fair value of on going support services and maintenance. In this
regard, if your agreements include stated future renewal rates, tell us what percentage of
your customers actually renew at these stated rates and provide the range of typical renewal
rates that are stated in your contracts. If stated future renewal rates are not included in
your agreements, tell us the percentage range allowed for your pricing of on-going support
services and maintenance that you consider to be representative of VSOE.
Response:
When the Company’s arrangements include multiple elements, revenue is allocated to
the various elements based on VSOE of fair value
as defined by ASC 985-605-25-6 and disclosed in the Form 20-F. These multiple element
arrangements typically include a combination of Amdocs offerings of software products
and related services including maintenance and on-going support.
The Company establishes VSOE of fair value for the separate elements present
in its contracts with customers based on the price that is charged when such
elements are sold separately. The Company has an established history of
selling these separate elements individually. In order to determine that
VSOE of fair value for these elements exists, the Company performs separate
stratified ‘Bell-Shaped Curve’ analysis, as described below, using the
entire population of standalone deals of the separate elements during the
period of the study. This analysis determines VSOE of fair value when a
substantial majority of the standalone deals in the study
fall within a range of plus or minus 15% from the midpoint. The
U.S. Securities and Exchange Commission
February 9, 2011
Page 4
Company’s VSOE of fair value study is performed on an annual basis and is applied
consistently.
The Company considers various factors in relation to the pricing of these
elements when analyzing the population of standalone deals. These factors
include: geographic region, differing maintenance support offering by
product type (solution), and pricing points based on size of license deals.
When such factors or pricing patterns are identified, the Company creates
separate strata for the data when performing the ‘Bell-Shaped Curve’
analysis.
The Company’s maintenance provides its customers with post contract support
including upgrades on a when-and-if-available basis, service packs, bug
fixes and/or corrections and patches as well as web, telephone, email and
help desk services. The Company’s standalone renewals for maintenance
services are typically priced based on a percentage of the license list
price for each software product. The Company’s arrangements generally do not
include stated renewal rates. A large majority of the maintenance services
offered by the Company are performed on its CES solutions; the Company also
provides support for other solutions that make up an insignificant portion
of sales. As a result of the different solutions and varying maintenance
support services between these solutions, the Company identified separate
strata based on product type being supported when performing the
‘Bell-Shaped Curve’ analysis. Additionally, the population of standalone
maintenance renewals used in the study was further stratified within the
Company’s CES solutions as the prices the Company charges vary based on the
size of the license deals being supported. Within these strata the Company
was able to establish VSOE of fair value for the services as a substantial
majority of the standalone deals fell within a range of plus or minus 15%
from the midpoint.
The Company’s on-going support services typically include post-production
on-site support and development services. The Company’s standalone sales of
on-going support services are priced based on labor units of effort (i.e.
man-month rate or hourly rate). The Company identified three separate strata
for its on-going support services based on the geographic location of the
customer as a result of differences in pricing throughout these regions.
Within these strata the Company was able to establish VSOE of fair value for
the services as a substantial majority of the standalone deals fell within a
range of plus or minus 15% from the midpoint.
U.S. Securities and Exchange Commission
February 9, 2011
Page 5
3.
We note your discussion on pages F-13 and F-15 regarding the early adoption of the October
2009 FASB guidance related to revenue arrangements with multiple deliverables. Please address
the following:
•
Describe the significant factors, inputs, assumptions, and methods used to determine
third-party evidence of selling price (“TPE”) for the significant deliverables in your
multiple deliverable arrangements. Please update your disclosure in future filings
accordingly. Refer to ASC 605-25-50-2(e).
•
Tell us whether you typically determine fair value of the elements in your
arrangements using VSOE, TPE or estimated selling price (“ESP”).
•
We note that your policy for determining ESP references “pricing practices” and
“margin objectives.” Please clarify whether you typically apply a gross profit margin
to your estimated costs in order to determine ESP and how gross profit margins and
costs are determined. Refer to ASC 605-25-55-44.
Response:
For a majority of the Company’s existing multiple deliverable arrangements, the
Company allocates transaction consideration for purposes of revenue recognition to each
identified unit of accounting based upon its relative fair value, determined using
VSOE. When the Company is not able to establish VSOE for any one of the elements in its
arrangements that are outside the scope of authoritative software revenue recognition guidance, the Company attempts to establish the selling price of that element based
on TPE. However, the Company has not been able to use TPE as its solutions are highly
differentiated and the Company is not able to obtain reliable information on the
offerings of its competitors.
Accordingly, for individual elements of an arrangement that are outside the scope of authoritative software revenue recognition guidance, when VSOE is
unavailable the Company allocates transaction consideration to each
identified unit of accounting by allowing the use of ESP.
In determining ESP, the Company considers its common pricing practices
applied to similar deals, which generally uses the costs to provide the
tangible product or service plus a margin. The Company determines the total
cost of the tangible product or service based on its standard pricing
methodologies applied consistently throughout all of its agreements. The
Company also considers the appropriate margins to be applied based on an
analysis of margin objectives as well as historical margins of similar
deals. The determination of ESP is made through consultation with and
approval by management and the methodology for determining ESP is regularly
reviewed to ensure that the best estimate of ESP is used.
U.S. Securities and Exchange Commission
February 9, 2011
Page 6
In addition, the Company notes that the adoption of the new authoritative guidance for revenue arrangements
with multiple deliverables that are outside the scope of the software revenue recognition guidance did not
have a material impact on its results of operations or financial position in
fiscal 2010.
Note 9 — Goodwill and Intangible Assets, Net, page F-24
4.
We note your disclosure on page F-25 regarding your purchased intangible assets. Please tell
us how you considered disclosing the weighted-average amortization period in total and by
major intangible asset class as required by ASC 350-30-50-1.
Response:
ASC 350-30-50-1 requires disclosure of the weighted-average amortization period in
total and by major intangible asset class for intangible assets in the period of
acquisition. Since the Company’s acquisitions in fiscal years 2010 and 2009,
individually and in the aggregate, were considered not to be material, the Company did
not provide a disclosure regarding its acquisitions in these years, including the
required disclosure regarding the intangibles assets. Additionally, since the
intangible assets acquired in fiscal years 2010 and 2009 individually and in the
aggregate were considered not to be material, representing 1.6% and 1.0% of the total
assets as of September 30, 2010 and 2009, respectively, the Company did not disclose
the weighted-average amortization period in total and by major intangible assets class
for intangible asset acquired during fiscal 2010 and 2009. The Company notes that it
provided a range for the amortization period for all intangible assets acquired by
major class. The Company also disclosed the estimated future amortization expense for
each of the five succeeding fiscal years and thereafter, for the remaining balance of
total intangible assets. If at the time of future filings the intangible assets
acquired in a particular period are material, the Company will include such disclosure.
Note 11 — Income Taxes, page F-26
5.
Please tell us how you considered separately disclosing income before income tax expense for
domestic and foreign operations. Refer to Rule 4-08(h) of Regulation S-X.
Response:
The Company is domiciled in the Island of Guernsey (“Guernsey”), and therefore the
Company considers its “domestic” location to be Guernsey. Guernsey has a
zero percent tax rate as shown in the Company’s rate
reconciliation on page F-27 of the Form 20-F. In analyzing the required disclosure of
separately disclosing income before income tax expense for foreign and
domestic operations, the Company took into account the following
considerations:
U.S. Securities and Exchange Commission
February 9, 2011
Page 7
–
The Company does not transact business with
any Guernsey customers;
–
T