Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
to
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2009
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 0-15946
EBIX, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of incorporation)
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77-0021975
(I.R.S. Employer Identification Number) |
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5 Concourse Parkway, Suite 3200
Atlanta, Georgia
(Address of principal executive offices)
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30328
(Zip Code) |
Registrants telephone number, including area code: (678) 281-2020
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, par value $0.10 per share
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark whether the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of the registrants knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. Yes o No þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of March 11, 2010, the number of shares of Common Stock
outstanding was 34,949,450. As of June 30, 2009 (the last business day of the registrants most recently completed second fiscal quarter),
the aggregate market value of Common Stock held by non-affiliates, based upon the last sale price
of the shares as reported on the NASDAQ Global Capital Market on such
date, was approximately $172,823,447 (for this purpose, the Company has assumed that
directors, executive officers and holders of more than 10% of the Companys common stock are
affiliates).
EBIX, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
2
SAFE HARBOR REGARDING FORWARD-LOOKING STATEMENTS
As used herein, the terms Ebix, the Company, we, our and us refer to Ebix, Inc., a
Delaware corporation, and its consolidated subsidiaries as a combined entity, except where it is
clear that the terms mean only Ebix, Inc.
This Form 10-K and certain information incorporated herein by reference contains
forward-looking statements and information within the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section
21E of the Securities Exchange Act of 1934. This information includes assumptions made by, and
information currently available to management, including statements regarding future economic
performance and financial condition, liquidity and capital resources, acceptance of the Companys
products by the market, and managements plans and objectives. In addition, certain statements
included in this and our future filings with the Securities and Exchange Commission (SEC), in
press releases, and in oral and written statements made by us or with our approval, which are not
statements of historical fact, are forward-looking statements. Words such as may, could,
should, would, believe, expect, anticipate, estimate, intend, seeks, plan,
project, continue, predict, will, should, and other words or expressions of similar
meaning are intended by the Company to identify forward-looking statements, although not all
forward-looking statements contain these identifying words. These forward-looking statements are
found at various places throughout this report and in the documents incorporated herein by
reference. These statements are based on our current expectations about future events or results
and information that is currently available to us, involve assumptions, risks, and uncertainties,
and speak only as of the date on which such statements are made.
Our actual results may differ materially from those expressed or implied in these
forward-looking statements. Factors that may cause such a difference, include, but are not limited
to those discussed in Part I, Item IA, Risk Factors, below, as well as: the willingness of
independent insurance agencies to outsource their computer and other processing needs to third
parties; pricing and other competitive pressures and the companys ability to gain or maintain
share of sales as a result of actions by competitors and others; changes in estimates in critical
accounting judgments; changes in or failure to comply with laws and regulations, including
accounting standards, taxation requirements (including tax rate changes, new tax laws and revised
tax interpretations) in domestic or foreign jurisdictions; exchange rate fluctuations and other
risks associated with investments and operations in foreign countries (particularly in Australia
and India wherein we have significant operations); equity markets, including market disruptions and
significant interest rate fluctuations, which may impede our access to, or increase the cost of,
external financing; and international conflict, including terrorist acts.
Except as expressly required by the federal securities laws, the Company undertakes no
obligation to update any such factors, or to publicly announce the results of, or changes to any of
the forward-looking statements contained herein to reflect future events, developments, changed
circumstances, or for any other reason.
Readers should carefully review the disclosures and the risk factors described in this and
other documents we file from time to time with the SEC, including future reports on Forms 10-Q and
8-K, and any amendments thereto.
You may obtain our SEC filings at our website, www.ebix.com under the Investor Information
section, or over the Internet at the SECs web site, www.sec.gov.
3
PART I
Company Overview
Ebix, Inc. (Ebix, the Company we or our) was founded in 1976 as Delphi Systems, Inc.,
a California corporation. In December 2003 the Company changed its name to Ebix, Inc. The Company
is listed on the NASDAQ Global Market.
Ebix, Inc. is a leading international supplier of software and e-commerce solutions to the
insurance industry. Ebix provides a series of application software products for the insurance
industry ranging from carrier systems, agency systems and exchanges to custom software development
for all entities involved in the insurance and financial industries.
Our goal is to be the leading powerhouse of backend insurance transactions in the world. The
Companys technology vision is to focus on convergence of all insurance channels, processes and
entities in a manner such that data can seamlessly flow once a data entry has been made.
Ebix strives to work collaboratively with clients to develop innovative technology strategies
and solutions that address specific business challenges. Ebix combines the newest technologies with
its capabilities in consulting, systems design and integration, IT and business process
outsourcing, applications software, and Web and application hosting to meet the individual needs of
organizations.
Recently, we made a number of strategic acquisitions.
We acquired E-Z Data, Inc. (E-Z Data) effective October 1, 2009. E-Z Data was a leading
industry provider of on-demand customer relationship management (CRM) solutions for insurance
companies, brokers, agents, investment dealers, and financial advisors. We acquired the business
operations and intellectual property of E-Z Data for an aggregate purchase price of $50.53 million
paid to E-Z Datas shareholders consisting of cash consideration in the amount of $25.53 million
paid at closing and $25.00 million in shares of our common stock valued at the average market
closing price for the three most recent days prior to September 30, 2009. We funded the cash
portion of the purchase price for this business acquisition using the proceeds from the Companys
two convertible promissory notes issued in late August 2009.
We acquired Peak Performance Solutions, Inc. (Peak) effective October 1, 2009. Pursuant to
the terms of the stock purchase agreement, we paid Peaks shareholders $8.0 million in cash for all
of Peaks outstanding stock. Peak provides comprehensive, end-to-end insurance software and
technology solutions to insurance companies and self-insured entities for workers compensation
claims processing, risk management administration, and managed care tracking. Peaks shareholders
also retain the right to earn up to $1.5 million of future additional cash compensation, if certain
revenue targets are achieved during the 2010 calendar year. We funded this acquisition with
internal resources using available cash reserves.
Effective May 1, 2009, we acquired Facts, Inc. (Facts) a leading provider of fully automated
software solutions for healthcare payers specializing in claims processing, employee benefits, and
managed care. Facts products are available in either an
application service provider (ASP) or self-hosted model. We paid the
Facts shareholders $7.0 million in cash for all of Facts stock. We financed this acquisition with
internal resources using available cash reserves.
We acquired ConfirmNet Corporation (ConfirmNet) on November 24, 2008. Pursuant to the terms
of the plan of merger and agreement, Ebix paid ConfirmNet shareholders $7.4 million for all of
ConfirmNets stock. The ConfirmNet shareholders earned an additional $3.1 million for meeting
certain revenue objectives which was paid in the first quarter of 2009, and retain the right to
earn up to an additional $3.2 million at the one year anniversary date of the acquisition if
certain revenue targets of the ConfirmNet division of Ebix are met.
We acquired Acclamation Systems, Inc, (Acclamation) on August 1, 2008. Pursuant to the terms
of this agreement, on August 1, 2008, Ebix paid Acclamation shareholders $22 million for all of
Acclamations stock.
Acclamations shareholders also retain the right to earn up to $3 million in additional cash
consideration over the two year period following the effective date of the acquisition if specific
revenue targets of Ebixs Health Benefits division are achieved. The Company financed this
acquisition using a combination of available cash reserves and the proceeds from the issuance of
convertible debt.
4
Effective April 28, 2008 Ebix acquired Periculum Services Group (Periculum) a provider of
certificate of insurance tracking services. The Company acquired all of the stock of Periculum for
a payment of $1.1 million and Periculums shareholders
earned, and the Company paid an additional $200 thousand for meeting
certain revenue objectives. Ebix financed this acquisition using available cash. The operating results of
Periculum, which is a component of our BPO channel, have been included in the Companys reported
net income starting in the second quarter of 2008.
Effective January 2, 2008 Ebix completed the acquisition of Telstra eBusiness Services Pty
Limited (Telstra), a premier insurance exchange located in Melbourne, Australia. The purchase
price was $43.8 million and was financed with a combination of available cash reserves, proceeds
from the issuance of convertible debt, proceeds from the sales of unregistered shares of the
Companys common stock, and funding from the Companys revolving line of credit.
On November 1, 2007, Ebix completed the acquisition of IDS Jenquest, Inc. (IDS), a leader in
the certificate of insurance tracking industry located in Hemet, California. The purchase price was
$11.25 million and was primarily financed from internal sources using our own cash reserves. IDS
shareholders retained the right to earn up to $1.0 million in additional payments over one year if
certain revenue or operating income targets of the IDS division of Ebix were met. The earn-out of
$1.0 million was achieved in the fourth quarter of 2008 and payment was remitted in the first
quarter of 2009.
The Company has its headquarters in Atlanta, Georgia, and it also has domestic operations in
Walnut Creek, San Diego and Hemet, California; Pittsburgh, Pennsylvania; Portland, Michigan; New
York, New York; St Louis, Missouri; Park City, Utah; Herndon, Virginia; Pasadena, California;
Columbus, Ohio; and Dallas, Texas. The Company also has offices in Brazil, Australia, New Zealand,
Singapore, Japan, China, and India. In these offices, Ebix employs insurance and technology
professionals who provide products, services, support and consultancy to more than 3,000 customers
on six continents. Ebixs focus on quality has enabled its development unit in India to be awarded
Level 5 status of the Carnegie Mellon Software Engineering Institutes Capability Maturity Model
Integrated (CMMI). Ebix has also earned ISO 9001:2000 certifications for both its development and
call center units in India.
The Companys revenues are derived from four (4) product or service groups. Presented in
tabular format below is the breakout of our revenue streams for each of those product or service
groups for the year ended December 31, 2009 and 2008:
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For the Year Ended |
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December 31, |
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2009 |
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2008 |
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Carrier Systems |
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10,624 |
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11,314 |
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Exchanges |
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60,764 |
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42,711 |
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BPO |
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14,698 |
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8,380 |
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Broker Systems |
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11,599 |
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$ |
12,347 |
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Totals |
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97,685 |
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74,752 |
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Information on the geographic dispersion of the Companys revenues, net income and fixed
assets is furnished in Note 15 to the consolidated financial statements, included elsewhere in this
Form 10-K.
Industry Overview
The insurance industry has undergone significant consolidation over the past several years
driven by the need for, and benefits from, economies of scale and scope in providing insurance in a
competitive environment. The insurance markets have also seen a steady increase in the desire to
reduce paper based processes and improve efficiency both at the back-end side and also at the
consumer end side. Such consolidation has involved both
insurance carriers and insurance brokers and is directly impacting the manner in which
insurance products are distributed. Management believes the insurance industry will continue to
experience significant change and increased efficiencies through online exchanges and reduced paper
based processes are becoming increasingly a norm across the world insurance markets. Changes in the
insurance industry are likely to create new opportunities for the Company.
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Products and Services
The
Companys product and service strategy focuses on (a) worldwide
sale, customization, development, implementation and support of its
property and casualty (P&C) back-end
insurance carrier system platforms; (b) worldwide sales and
support of P&C and management systems (c) expansion of connectivity between consumers,
agents, carriers,
and third party providers through its exchange family of products in the life, health, annuity and
P&C sectors worldwide namely the EbixExchange
family of products; and, (d) business
process outsourcing services, which include certificate origination, certificate tracking, , claims
adjudication call center, and back office support.
Ebixs revenue is generated through four main channels in which the Company conducts its
operations specifically: Exchanges, Carrier Systems, Broker Systems, and Business Process
Outsourcing. The revenue streams for each of these channels are further described below.
Exchanges: Ebix operates data exchanges in the areas of life insurance, annuities, employee
health benefits, and P&C insurance. Each of these exchanges connects
multiple entities within the insurance markets enabling the participant to seamlessly and
efficiently carry and process data from one end to another. Ebixs life, annuity, and employee
health benefit exchanges currently operate primarily in the United States while the P&C exchanges
operate primarily in Australia and New Zealand. Exchange revenue is primarily derived from
transaction fees charged for each data transaction processed on an Ebix Exchange, with a
transaction being defined as the exchange of data between any two entities using an exchange.
These exchanges have been designed to completely adhere to industry and regulatory data standards.
Accordingly, insurance companies work with Ebix or third party vendors to interface an exchange
with their back-end systems. Since each exchange is built based on industry standards, the
system/exchange interfaces can be built by Ebix or any other third party vendor, at the clients
option. If the interfaces are built by Ebix revenue, is derived in the form of professional
services charged on time and materials basis.
Carrier Systems: Ebixs exclusive focus in the area of carrier systems is on designing and
deploying back-end end systems for P&C insurance companies Revenue from these services is derived
from two main sources specifically subscription revenues or license revenues from clients and
time and material fees charged to customize these products to an insurance companys specific
functional requirements.
Broker Systems: Ebixs exclusive focus in the area of broker systems is on designing and
deploying back-end systems for P&C insurance brokers across the world. Ebix has three back-end
systems in this area, namely eGlobal, which targets multinational P&C insurance brokers;
WinBeat, which targets P&C brokers in the Australian and New Zealand markets; and, EbixASP, which
is a system for the P&C insurance brokers in the United States. Revenue from eGlobal is derived
from two main sources specifically license based revenues and time and material fees charged to
customize the product to a brokers specific functional requirements. Revenue from WinBeat is
derived from monthly subscription fees charged to each P&C broker in Australia and New Zealand that
has deployed the service. Revenue from EbixASP comes from monthly subscription fees charged to each
P&C broker in the United States using the service. All these three products are presently being
redesigned, coded and rebuilt on the most current technologies prevalent today.
Business Process Outsourcing (BPO): Ebixs primary focus in this channel pertains to the
creation and tracking of certificates of insurance issued in the United States and Australian
markets. Ebix provides a software-based service service for issuance of certificates which the
Company markets to its P&C broker clients in the United States, to issue certificates of insurance
that fully adhere to industry standards such as ACORD. Ebix derives transaction-based revenues for
each certificate that is issued by the broker for their clients using the Ebix service.
Ebix also provides a service to track certificates of insurance for corporate clients in the
United States and Australia that generates transactional-based revenue based for each certificate
tracked by the Company for its clients.
6
Ebix also provides software development, customization, and consulting services to a
variety of entities in the insurance industry including carriers, brokers, exchanges and standard
making bodies.
Product Development
The Company has consistently focused on maintaining high quality product development
standards. Our India development facility is certified for Carnegie Mellons highest rating level,
CMMi 5. Product development activities include research and the development of platform and/or
client specific software enhancements such as adding functionality, improving usefulness,
increasing responsiveness, adapting to newer software and hardware technologies, or developing and
maintaining the Companys websites.
The Company has expended $11.4 million, $9.0 million, and $7.6 million during the years ending
December 31, 2009, 2008, and 2007, respectively, on product development initiatives. The Companys
product development efforts are focused on the continued enhancement and redesign of the its
Exchange, broker systems, carrier systems, BPO service lines to keep our technology edge in the
markets, the development new technologies for insurance carriers, brokers and agents, and the
redesign, coding, development of new services for international and domestic markets.
Competition
Ebix is in a unique position of being the only company worldwide in insurance software markets
that provides services in all four of its revenue channels. This also means that in
each of these areas Ebix has different competitors. In fact, in most of these areas Ebix has a
different competitor in each country in which we operate. In the area of insurance data exchanges
Ebix has a different competitor on each line of exchange in each country.
Further in support of Ebixs competitive advantage is the fact that the Company has centralized
worldwide product management, intellectual property rights development, software and system
development operations in Singapore and India. With its strong
focus on quality, Ebix-India has consistently delivered on time for all customer needs across the
world. India is rich in technical skills and the cost structures are significantly lower in India
as compared to the United States. Ebix has continued to develop India as a learning center of
excellence with a strong focus on hiring skilled professional graduates having recently obtained
their masters degrees in computer application and training them on insurance systems and software
applications. This focus on building a knowledge base combined with the ability to hire more
professional resources at the lower cost structures in India, has
helped Ebix consistently ensure a strong focus on protecting knowledge as well as delivering projects on time and in a cost
effective fashion.
The following is a closer and more detailed examination of our competition in each of these
four main channels.
Exchanges: Ebix operates a number of exchanges and the competition for each of those
exchanges varies within each of the regions that Ebix operates in.
Life Insurance Exchange Ebix operates two life insurance exchanges in the United States
-namely Winflex and LifeSpeed. Winflex is an exchange for pre-sale life insurance illustrations
between brokers and carriers, while LifeSpeed is an order entry platform for life insurance. Both
of these exchanges are presently deployed only in the United States with the Company having
distinct plans to deploy them in other parts of the world. Ebix has two main competitors in the
life exchange area namely Blue Frog and iPipeline. Ebixs differentiates itself from its
competitors by virtue of having an end-to-end solution offering in the market with its exchanges
being interfaced with other broker systems and CRM services like EbixCRM. Ebixs exchanges also
have the largest aggregation of life insurance brokers and carriers transacting business in the
United States.
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Annuity Exchange Ebix operates an annuity exchange in the United States namely
Annuitynet. This exchange is an order entry platform for annuity transactions between brokers,
carriers, broker general agents (BGAs), and other entities involved in annuity transactions.
This exchange is presently deployed only in the United States with the company having distinct
plans to deploy it in other parts of the world, such as Latin America. Ebix has one main
competitor in the annuity exchange area namely Blue Frog. Again, Ebixs differentiates itself
from its competitors by virtue of having an end-to-end solution offering in the market with its
exchanges being interfaced with broker systems and CRM services like Ebix CRM. Ebix exchanges also
benefit from transacting the largest amounts of premiums in annuity business on any single exchange
in the United States.
Employee Benefits Ebix currently provides employee benefit services through two of its
platforms namely Facts and LuminX. Collectively, these platforms service approximately nine
million lives. These platforms are sold to health carriers and third party administrators. These
platforms provide the full gamut of services such as employee enrollment, claims adjudication,
accounting, and employee benefits administration accounting. Ebix has a number of competitors of
varying sizes in this area. Trizetto is currently the largest player in the market while there are
other similar size competitors, such as ADAM, Benefit Mall, and Health Axis. This service is
presently deployed in the United States with the company already having started marketing it in
other parts of the world such as Asia, the Middle East, Australia, New Zealand and the United
Kingdom.
P&C Exchanges Ebix operates two P&C exchanges in Australia and New Zealand. Both of these
exchanges are targeted to the areas of personal and commercial lines, and facilitate the exchange
of insurance data between brokers and insurance carriers. Ebix has distinct plans to deploy these
exchanges in Asia, Europe and the United States. There are presently no competitors in the P&C
exchange area in Australia and New Zealand, however, competition may eventually evolve in these
markets. Our competitive differentiation is by virtue of having an end-to-end solution offering in
the market with its exchanges being interfaced with broker systems such as eGlobal, WinBeat and
Lumley.
Carrier Systems: Ebix has a number of carrier system offerings for P&C carriers namely Ebix
Advantage and Ebix Advantageweb. Ebix Advantage is sold only in the United States and is designed
primarily for this market. Ebix Advantage is targeted at small, medium and large P&C carriers in the
United States that operate in the personal, commercial, and specialty line areas of insurance. Ebix
Advantageweb is designed for the international markets and is targeted at the small, medium and
large P&C carriers in the United States and international markets that operate in the personal,
commercial, and specialty line areas of insurance. Ebix Advantage is designed to be multicurrency
and multilingual and is deployed in United Kingdom and the United States. Competition to both
these products comes from large companies, such as CSC, Guidewire, Rebus, PMSC, and specialty
medical malpractice players like Delphi.
Broker Systems: Ebix has a number of broker system offerings for P&C brokers world-wide;
namely eGlobal, WinBeat and EbixASP. The competition for these broker systems varies within each
of the regions that Ebix conducts this type of business.
eGlobal is sold across the world and has a customer base that currently spans six continents.
The product is multilingual and multicurrency and available in a number of languages such as
English, Chinese, Japanese, French, Portuguese, and Spanish. eGlobal is targeted to the medium and large P&C
brokers around the world. eGlobal competition tends to be different in each country with no single
competitor having a global offering. eGlobal tends to compete with home grown systems and regional
players in each country. Its uniqueness comes from of the fact that the product is multilingual,
multicurrency and yet still has a common code base around the world with features that are easily
activated and deactivated.
WinBeat is a back-end broker system that is currently sold in Australia and New Zealand. It is
targeted at small P&C brokers in these countries. The product at present is available only in
English and can be deployed in a few hours with minimal training. WinBeats competition in
Australia and New Zealand comes from local vendors such as Lumley and Sirius, a international
vendor. Ebix plans to deploy WinBeat in a number of emerging insurance markets such as India and
China.
Between eGlobal and WinBeat, Ebix broker systems customer base in Australia spans 834 of the
960 P&C brokers in Australia giving it in excess of 85% of the customer base in this country. Ebix
broker systems customer
base in New Zealand spans 1,500 of the 1,875 P&C brokers in New Zealand giving it 80% of the
customer base in this county.
8
EbixASP is Ebixs P&C broker systems offering for the US markets. The service is designed
around the ACORD insurance standards used in the United States. EbixASP has three main competitors
in the US specifically Vertafore, Applied and XDimensional.
BPO Services: Ebix has a number of BPO services that it offers in the insurance markets, each
of which are enabled by the Companys proprietary software. Ebixs BPO service offerings are mainly
in the areas of insurance certificate issuance and insurance certificate tracking. Ebixs BPO
service offerings currently cater to eighty-five of the Fortune 500 companies in the United States.
Furthermore, internationally Ebix has recently launched its BPO services in Australia and New
Zealand. Ebix intends to eventually take this offering to many other parts of the world.
Ebixs BPO service offering in the insurance certificate issuance area has one main competitor
in the United States, namely CSR 24. Due to the highly fragmented market, the EbixBPO service
offering in the insurance certificate tracking area has a number of smaller competitors such as
Datamonitor, CMS, and Exigis.
Intellectual Property
Ebix generally seeks protection under federal, state and foreign laws for strategic or
financially important intellectual property developed in connection with our business. We regard
our software as proprietary while adhering to open architecture industry standards and attempt to
protect it with copyrights, trade secret laws and restrictions on the disclosure and transferring
of title. Certain intellectual property, where appropriate, is protected by contracts, licenses,
registrations, confidentiality or other agreements or protections. Despite these precautions, it
may be possible for third parties to copy aspects of the Companys products or, without
authorization, to obtain and use information which the Company regards as trade secrets.
Employees
As of December 31, 2009, the Company had 958 employees, distributed as follows: 59 in sales
and marketing, 651 in product development, 173 in back-end operations, and 75 in administration,
general management and finance. None of the Companys employees is presently covered by a
collective bargaining agreement. Management considers employee relations to be competitively good.
9
Executive Officers of the Registrant
Following are the persons serving as our executive officers as of March 16, 2010, together
with their ages, positions and brief summaries of their business experience:
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Officer Since |
Robin Raina |
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43 |
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Chairman, President, and Chief Executive Officer |
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1998 |
Robert F. Kerris |
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56 |
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Chief Financial Officer and Corporate Secretary |
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2007 |
There are no family relationships among our executive officers, nor are there any arrangements
or understandings between any of the officers and any other persons pursuant to which they were
selected as officers.
ROBIN RAINA, 43, has been a director at Ebix since 2000 and Chairman of the Board at Ebix
since May 2002. Mr. Raina joined Ebix, Inc. in October 1997 as our Vice PresidentProfessional
Services and was promoted to Senior Vice PresidentSales and Marketing in February 1998. Mr. Raina
was promoted to Executive Vice President, Chief Operating Officer in December 1998. Mr. Raina was
appointed President effective August 2, 1999, Chief Executive Officer effective September 23, 1999
and Chairman in May 2002. Mr. Raina holds an industrial engineering degree from Thapar University
in Punjab, India.
ROBERT F. KERRIS, 56, joined the Company as Chief Financial Officer on October 22, 2007. Prior
to joining the Company, Mr. Kerris was Chief Financial Officer at Aelera Corporation. He held this
position from May 2006 to October 2007. Previously he was a Financial Vice President at Equifax,
Inc. from November 2003 to April 2006, Corporate Controller at Interland, Inc. from September 2002
to October 2003, and held senior financial management positions at AT&T, BellSouth, and Northern
Telecom. Mr. Kerris is a licensed certified public accountant and holds an accounting and economics
degree from North Carolina State University.
Our principal executive offices are located at 5 Concourse Parkway, Suite 3200, Atlanta,
Georgia 30328, and our telephone number is (678) 281-2020. Our official Web site address is
http://www.ebix.com. We make available, free of charge, at http://www.ebix.com, the charters for
the committees of our board of directors, our code of conduct and ethics, and, as soon as
practicable after we file them with the SEC, our annual reports on Form 10-K and our quarterly
reports on Form 10-Q. We have not in the past posted current reports on Form 8-K, and amendments to
these reports, however, we intend to do so in the near future. We will begin posting filings under
Section 16 of the Exchange Act on our Web site. Any waiver of the terms of our code of conduct and
ethics for the chief executive officer, the chief financial officer, any accounting officer, and
all other executive officers will be disclosed on our Web site.
The reference to our Web site does not constitute incorporation by reference of any
information contained at that site.
You should carefully consider the risks, uncertainties and other factors described below,
along with all of the other information included or incorporated by reference in this prospectus,
including our financial statements and the related notes, before you decide whether to buy shares
of our common stock. The following risks and uncertainties are not the only ones facing us.
Additional risks and uncertainties of which we are currently unaware which we believe are not
material also could materially adversely affect our business, financial condition, results of
operations or cash flows. In any case, the value of our common stock could decline, and you could
lose all or a portion of your investment. See also, Safe Harbor Regarding Forward-Looking
Statements.
10
Risks Related To Our Business and Industry
Because the support revenue that we have traditionally relied upon has been steadily declining, it
is important that new sources of revenue continue to be developed.
We made a strategic decision approximately six years ago to eliminate our reliance on legacy
products and related support services and instead focus on more current technology and services. As
a result, our revenue from the support services we offer in connection with our legacy software
products has been decreasing over the course of the past few years. This downward trend in our
support revenue makes us dependent upon our other sources of revenue.
Our business may be materially adversely impacted by U.S. and global market and economic
conditions particularly adverse conditions in the insurance industry.
For the foreseeable future, we expect to continue to derive most of our revenue from products
and services we provide to the insurance industry. Given the concentration of our business
activities in financial industries, we may be particularly exposed to economic downturns in this
industry. U.S. and global market and economic conditions have been, and continue to be, disrupted
and volatile, and in recently the volatility has reached unprecedented levels. General business and
economic conditions that could affect us and our customers include fluctuations in debt and equity
capital markets, liquidity of the global financial markets, the availability and cost of credit,
investor and consumer confidence, the exchange rate between the U.S. dollar and foreign currencies,
and the strength of the economies in which our customers operate. A poor economic environment could
result in significant decreases in demand for our products and services, including the delay or
cancellation of current or anticipated projects, or could present difficulties in collecting
accounts receivables from our customers due to their deteriorating financial condition. Our
existing customers may be acquired by or merged into other institutions that use our competitors or
decide to terminate their relationships with us for other reasons. As a result, our sales could
decline if an existing customer is merged with or acquired by another company or closed. All of
these conditions could adversely affect our operating results and financial position.
Our business may be adversely affected by the impacts of proposed health care legislation in the
United States.
Third-party insurance benefit administrators (TPAs) demand for services from our health
benefits exchange operating segment may be significantly reduced due to the diminished role of
TPAs envisioned as a result of pending health care legislation expected to be implemented in the
United States during 2010.
We may not be able to secure additional financing to support capital requirements when needed.
We may need to raise additional funds in the future in order to fund more aggressive brand
promotion or more rapid market penetration, to develop new or enhanced services, to respond to
competitive pressures, to make acquisitions or for other purposes. Any required additional
financing may not be available on terms favorable to us, or at all, particularly in light of
current conditions in the credit markets. If adequate funds are not available on acceptable terms,
we may be unable to meet our strategic business objectives or compete effectively, and the future
growth of our business could be adversely impacted. If additional funds are raised by our issuing
equity securities, stockholders may experience dilution of their ownership and economic interests,
and the newly issued securities may have rights superior to those of our common stock. If
additional funds are raised by our issuing debt, we may be subject to significant market risks
related to interest rates, and operating risks regarding limitations on our activities.
Our recent acquisitions of E-Z Data, Peak, Facts, ConfirmNet,
Acclamation, and Telstra, as
well as any future acquisitions that we may undertake could be difficult to integrate, disrupt our
business, dilute stockholder value and adversely impact our operating results.
The acquisitions of E-Z Data, Peak, Facts, ConfirmNet, Acclamation, and Telstra, and other
potential future acquisitions, subject the Company to a variety of risks, including risks
associated with an inability to efficiently integrate acquired operations, prohibitively higher
incremental cost of operations, outdated or incompatible technologies, labor difficulties, or an
inability to realize anticipated synergies, whether within anticipated
timeframes or at all; one or more of which risks, if realized, could have an adverse impact on
our operations. Among the issues related to integration such acquisitions are:
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potential incompatibility of business cultures; |
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potential delays in integrating diverse technology platforms; |
11
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potential difficulties in coordinating geographically separated organizations; |
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potential difficulties in re-training sales forces to market all of our products across
all of our intended markets; |
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potential difficulties implementing common internal business systems and processes; |
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potential conflicts in third-party relationships; and |
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potential loss of customers and key employees and the diversion of the attention of
management from other ongoing business concerns. |
We may not be able to develop new products or services necessary to effectively respond to rapid
technological changes. Disruptions in our business-critical systems and operations could interfere
with our ability to deliver products and services to our customers.
To be successful, we must adapt to rapidly changing technological and market needs, by
continually enhancing and introducing new products and services to address our customers changing
demands. The marketplace in which we operate is characterized by:
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rapidly changing technology; |
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evolving industry standards; |
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frequent new product and service introductions; |
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shifting distribution channels; and |
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changing customer demands. |
Our future success will depend on our ability to adapt to this rapidly evolving marketplace.
We could incur substantial costs if we need to modify our services or infrastructure in order to
adapt to changes affecting our market, and we may be unable to effectively adapt to these changes.
The markets for our products are highly competitive and are likely to become more competitive, and
our competitors may be able to respond more quickly to new or emerging technology and changes in
customer requirements.
We operate in highly competitive markets. In particular, the online insurance distribution
market, like the broader electronic commerce market, is rapidly evolving and highly competitive.
Our insurance software business also experiences competition from certain large hardware suppliers
that sell systems and system components to independent agencies and from small independent
developers and suppliers of software, who sometimes work in concert with hardware vendors to supply
systems to independent agencies. Pricing strategies and new product introductions and other
pressures from existing or emerging competitors could result in a loss of customers or a rate of
increase or decrease in prices for our services different than past experience. Our internet
business may also face indirect competition from insurance carriers that have subsidiaries which
perform in-house agency and brokerage functions.
12
Some of our current competitors have longer operating histories, larger customer bases,
greater brand recognition and significantly greater financial and marketing resources than we do.
In addition, we believe we will face increasing competition as the online financial services
industry develops and evolves. Our current and future competitors may be able to:
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undertake more extensive marketing campaigns for their brands and services; |
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devote more resources to website and systems development; |
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adopt more aggressive pricing policies; and |
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make more attractive offers to potential employees, online companies and third-party
service providers. |
We regard our intellectual property in general and our software in particular, as critical
to our success.
We rely on copyright laws and nondisclosure, license, and confidentiality arrangements to
protect our proprietary rights as well as the intellectual property rights of third parties whose
content we license. However, it is not possible to prevent all unauthorized uses of these rights.
We cannot provide assurances that the steps we have taken to protect our intellectual property
rights, and the rights of those from whom we license intellectual property, are adequate to deter
misappropriation or that we will be able to detect unauthorized uses and take timely and effective
steps to remedy this unauthorized conduct. In particular, a significant portion of our revenues are
derived internationally including jurisdiction where protecting intellectual property rights may
prove even more challenging. To prevent or respond to unauthorized uses of our intellectual
property, we might be required to engage in costly and time-consuming litigation and we may not
ultimately prevail. In addition, our offerings could be less differentiated from those of our
competitors, which could adversely affect the fees we are able to charge.
If we infringe on the proprietary rights of others, our business operations may be disrupted, and
any related litigation could be time consuming and costly.
Third parties may claim that we have violated their intellectual property rights. Any of these
claims, with or without merit, could subject us to costly litigation and divert the attention of
key personnel. To the extent that we violate a patent or other intellectual property right of a
third party, we may be prevented from operating our business as planned, and we may be required to
pay damages, to obtain a license, if available, to use the right or to use a non-infringing method,
if possible, to accomplish our objectives. The cost of such activity could have a material adverse
effect on our business.
We depend on the continued services of our senior management and our ability to attract and retain
other key personnel.
Our future success is substantially dependent on the continued services and continuing
contributions of our senior management and other key personnel particularly Robin Raina, our
president and chief executive officer. Since becoming Chief Executive Officer of the Company in
1999, his strategic direction for the Company and implementation of such direction has proven
instrumental in our profitable turnaround and growth. The loss of the services of any of our
executive officers or other key employees could harm our business.
Our future success depends on our ability to continue to attract, retain and motivate highly
skilled employees. If we are not able to attract and retain key skilled personnel, our business
will be harmed. Competition for personnel in our industry is intense.
Our international operations are subject to a number of risks that could affect our revenues,
operating results, and growth.
We market our products and services internationally and plan to continue to expand our
internet services to locations outside of the United States. We currently conduct operations in
Australia, New Zealand, and Singapore, and have product development activities and call center
services in India. Our international operations are subject to other inherent risks which could
have a material adverse effect on our business, including:
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the impact of recessions in foreign economies on the level of consumers insurance
shopping and purchasing behavior; |
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greater difficulty in collecting accounts receivable; |
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difficulties and costs of staffing and managing foreign operations; |
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reduced protection for intellectual property rights in some countries; |
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seasonal reductions in business activity; |
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burdensome regulatory requirements; |
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trade and financing barriers, and differing business practices; |
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significant fluctuations in exchange rates; |
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potentially adverse tax consequences; and |
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political and economic instability. |
Furthermore, our entry into additional international markets requires significant management
attention and financial resources, which could divert managements attention from existing business
operations.
13
Our financial position and operating results may be adversely affected by the changing U.S. Dollar
rates and fluctuations in other currency exchange rates.
We will be exposed to currency exchange risk with respect to the U.S. dollar in relation to
the foreign currencies in the countries because a significant portion of our operating expenses are
incurred in foreign countries. This exposure may increase if we expand our operations in overseas.
We currently have a series of forward hedges in place to hedge against adverse fluctuations in the
currency exchange rates between the U.S. dollar and Indian rupee. We will monitor changes in our
exposure to exchange rate risk that result from changes in our business situation.
Risks Relating to Regulation and Litigation
Federal Trade Commission laws and regulations that govern the insurance industry could expose us
or the agents, brokers and carriers with whom we participate in our online marketplace to legal
penalties.
We perform functions for licensed insurance agents, brokers and carriers and need to comply
with complex regulations that vary from state to state and nation to nation. These regulations can
be difficult to comply with, and can be ambiguous and open to interpretation. If we fail to
properly interpret or comply with these regulations, we, the insurance agents, brokers or carriers
doing business with us, our officers, or agents with whom we contract could be subject to various
sanctions, including censure, fines, cease-and-desist orders, loss of license or other penalties.
This risk, as well as other laws and regulations affecting our business and changes in the
regulatory climate or the enforcement or interpretation of existing law, could expose us to
additional costs, including indemnification of participating insurance agents, brokers or carriers,
and could require changes to our business or otherwise harm our business. Furthermore, because the
application of online commerce to the consumer insurance market is relatively new, the impact of
current or future regulations on our business is difficult to anticipate. To the extent that there
are changes in regulations regarding the manner in which insurance is sold, our business could be
adversely affected.
Risks Related to Our Conduct of Business on the Internet
Any disruption of our internet connections could affect the success of our internet-based
products.
Any system failure, including network, software or hardware failure, that causes an
interruption in our network or a decrease in the responsiveness of our website could result in
reduced user traffic and reduced revenue. Continued growth in internet usage could cause a decrease
in the quality of internet connection service. Websites have experienced service interruptions as a
result of outages and other delays occurring throughout the internet network infrastructure. In
addition, there have been several incidents in which individuals have intentionally caused service
disruptions of major e-commerce websites. If these outages, delays or service disruptions
frequently occur in the future, usage of our website could grow more slowly than anticipated or
decline and we may lose revenues and
customers. If the internet data center operations that host any of our websites were to
experience a system failure, the performance of our website would be harmed. These systems are also
vulnerable to damage from fire, floods, and earthquakes, acts of terrorism, power loss,
telecommunications failures, break-ins and similar events. The controls implemented by our
third-party service providers may not prevent or timely detect such system failures. Our property
and business interruption insurance coverage may not be adequate to fully compensate us for losses
that may occur. In addition, our users depend on internet service providers, online service
providers and other website operators for access to our website. Each of these providers has
experienced significant outages in the past, and could experience outages, delays and other
difficulties due to system failures unrelated to our systems.
14
Concerns regarding security of transactions or the transmission of confidential information over
the Internet or security problems we experience may prevent us from expanding our business or
subject us to legal exposure.
If we do not maintain sufficient security features in our online product and service
offerings, our products and services may not gain market acceptance, and we could also be exposed
to legal liability. Despite the measures that we have or may take, our infrastructure will be
potentially vulnerable to physical or electronic break-ins, computer viruses or similar problems.
If a person circumvents our security measures, that person could misappropriate proprietary
information or disrupt or damage our operations. Security breaches that result in access to
confidential information could damage our reputation and subject us to a risk of loss or liability.
We may be required to make significant expenditures to protect against or remediate security
breaches. Additionally, if we are unable to adequately address our customers concerns about
security, we may have difficulty selling our products and services.
Uncertainty in the marketplace regarding the use of internet users personal information, or
legislation limiting such use, could reduce demand for our services and result in increased
expenses.
Concern among consumers and legislators regarding the use of personal information gathered
from internet users could create uncertainty in the marketplace. This could reduce demand for our
services, increase the cost of doing business as a result of litigation costs or increased service
delivery costs, or otherwise harm our business. Legislation has been proposed that would limit the
uses of personal identification information of internet users gathered online or require online
services to establish privacy policies. Many state insurance codes limit the collection and use of
personal information by insurance agencies, brokers and carriers or insurance service
organizations. Moreover, the Federal Trade Commission has settled a proceeding against one online
service that agreed in the settlement to limit the manner in which personal information could be
collected from users and provided to third parties.
Future government regulation of the internet could place financial burdens on our businesses.
Because of the internets popularity and increasing use, new laws and regulations directed
specifically at e-commerce may be adopted. These laws and regulations may cover issues such as the
collection and use of data from website visitors and related privacy issues; pricing; taxation;
telecommunications over the internet; content; copyrights; distribution; and domain name piracy.
The enactment of any additional laws or regulations, including international laws and regulations,
could impede the growth of revenue from our Internet operations and place additional financial
burdens on our business.
Risks Related To Our Common Stock
The price of our common stock may be extremely volatile.
In some future periods, our results of operations may be below the expectations of public
market investors, which could negatively affect the market price of our common stock. Furthermore,
the stock market in general has experienced extreme price and volume fluctuations in recent months.
We believe that, in the future, the market price of our common stock could fluctuate widely due to
variations in our performance and operating results or because of any of the following factors:
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announcements of new services, products, technological innovations, acquisitions or
strategic relationships by us or our competitors; |
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trends or conditions in the insurance, software, business process outsourcing and
internet markets; |
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changes in market valuations of our competitors; and |
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general political, economic and market conditions. |
15
In addition, the market prices of securities of technology companies, including our own, have
been volatile and have experienced fluctuations that have often been unrelated or disproportionate
to a specific companys operating performance. As a result, investors may not be able to sell
shares of our common stock at or above the price at which an investor paid. In the past, following
periods of volatility in the market price of a companys securities, securities class action
litigation has often been instituted against that company. If any securities litigation is
initiated against us, we could incur substantial costs and our managements attention could be
diverted from our business.
Quarterly and annual operating results may fluctuate, which could cause our stock price to be
volatile.
Our quarterly and annual operating results may fluctuate significantly in the future due to a
variety of factors that could affect our revenues or our expenses in any particular period. Results
of operations during any particular period are not necessarily an indication of our results for any
other period. Factors that may adversely affect our periodic results may include the loss of a
significant insurance agent, carrier or broker relationship or the merger of any of our
participating insurance carriers with one another. Our operating expenses are based in part on our
expectations of our future revenues and are partially fixed in the short term. We may be unable to
adjust spending quickly enough to offset any unexpected revenue shortfall.
Provisions in our articles of incorporation, bylaws, and Delaware law may make it difficult for a
third party to acquire us, even in situations that may be viewed as desirable by our shareholders.
Our certificate of incorporation and bylaws, and provisions of Delaware law may delay, prevent
or otherwise make it more difficult to acquire us by means of a tender offer, a proxy contest, open
market purchases, removal of incumbent directors and otherwise. These provisions, which are
summarized below, are expected to discourage types of coercive takeover practices and inadequate
takeover bids and to encourage persons seeking to acquire control of us to first negotiate with us.
We are subject to the business combination provisions of Section 203 of the Delaware General
Corporation Law. In general, those provisions prohibit a publicly held Delaware corporation from
engaging in various business combination transactions with any interested stockholder for a
period of three years after the date of the transaction in which the person became an interested
stockholder, unless:
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The transaction is approved by the board of directors prior to the date the interested
stockholder obtained interested stockholder status; |
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Upon consummation of the transaction that resulted in the stockholders becoming an
interested stockholder, the stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced; or |
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On or subsequent to the date the business combination is approved by the board of
directors and authorized at an annual or special meeting of stockholders by the affirmative
vote of at least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder. |
These provisions could prohibit or delay mergers or other takeover or change of control
attempts with respect to us and, accordingly, may discourage attempts to acquire us.
16
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Item 1B. |
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UNRESOLVED STAFF COMMENTS |
None.
The Companys corporate headquarters, including substantially all of our corporate
administration and finance functions, is located in Atlanta, Georgia where we lease 15,422 square
feet of commercial office space. In addition the Company and its subsidiaries lease office space of
5,500 square feet in Park City, Utah, 4,148 square feet in Dallas, Texas, 12,000 square feet in
Herndon, Virginia, 10,800 square feet in Hemet, California, 2,156 square feet in Walnut Creek,
California, 11,500 square feet in Pittsburgh, Pennsylvania, 673 square feet in St Louis, Missouri,
5,300 square feet in Portland, Michigan, 7,000 square feet in San Diego, California, 7,800 square
feet in Miami, Florida, 25,482 square feet in Pasadena, California, 4,384 square feet in Lynchburg,
Virginia, and 5,289 square feet in Columbus, Ohio. Additionally, the Company leases office space in
New Zealand, Australia, Singapore, Canada, Japan, and China for support and
sales offices. The Company owns four facilities in India with total square footage of approximately
65,000 square feet and leases an additional two. The Indian facilities provide software development
and call center services for customers. Management believes its facilities are adequate for its
current needs and that necessary suitable additional or substitute space will be available as
needed at favorable rates.
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Item 3. |
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LEGAL PROCEEDINGS |
In the normal course of business, the Company is a party to various legal proceedings. The
Company does not expect that any currently pending proceedings will have a material adverse effect
on its business, results of operations or financial condition.
17
PART II
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Item 4. |
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MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES |
Market Information
At December 31, 2009 the principal market for the Companys common stock was the NASDAQ Global
Capital Market. The Companys common stock trades under the
symbol EBIX. As of March 16, 2010,
there were 89 holders of record of the Companys common stock. Effective January 29, 2007 the
principal market for the Companys common stock was changed to the NASDAQ Global Market.
The following tables set forth the high and low closing bid prices for the Companys common
stock for each calendar quarter in 2009 and 2008 and take into account the Companys subsequent
three-for-one stock split on January 4, 2010.
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Year Ended December 31, 2009 |
|
High* |
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Low* |
|
First quarter |
|
$ |
8.57 |
|
|
$ |
5.91 |
|
Second quarter |
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|
11.33 |
|
|
|
7.71 |
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Third quarter |
|
|
18.45 |
|
|
|
10.41 |
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Fourth quarter |
|
|
21.92 |
|
|
|
14.89 |
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|
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|
* |
|
Adjusted to reflect the effect of the 3-for-1 stock split dated January 4, 2010 |
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Year Ended December 31, 2008 |
|
High* |
|
|
Low* |
|
First quarter |
|
$ |
8.61 |
|
|
$ |
6.89 |
|
Second quarter |
|
|
10.53 |
|
|
|
8.28 |
|
Third quarter |
|
|
12.79 |
|
|
|
8.57 |
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Fourth quarter |
|
|
10.20 |
|
|
|
6.34 |
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* |
|
Adjusted to reflect the effect of the 3-for-1 stock split dated January 4, 2010 |
Holders
As
of March 11, 2010, there were 34,949,450 shares of the Companys common stock outstanding
Dividends
The Company has not paid any cash dividends on its common stock to date. The Company currently
anticipates that it will retain any future earnings for the expansion and operation of its
business. Accordingly, the Company does not anticipate paying cash dividends on its common stock in
the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
As of December 31, 2009,
we maintained the 1996 Stock Incentive Plan as amended and restated
in 2006, each of which was approved by our stockholders. We also maintained the
2001 Stock Incentive Plan, which was not approved by our stockholders. As discussed below, our
Board of Directors has terminated the 2001 Stock Incentive Plan. The table below provides
information as of December 31, 2009 related to these plans.
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|
|
|
|
|
|
Number |
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|
|
Number of Securities |
|
|
|
|
|
|
of Securities |
|
|
|
to be Issued Upon |
|
|
Weighted-Average |
|
|
Remaining Available |
|
|
|
Exercise of |
|
|
Exercise Price of |
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|
for Future Issuance |
|
|
|
Outstanding Options |
|
|
Outstanding Options |
|
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Under Equity |
|
Plan Category |
|
Warrants and Rights |
|
|
Warrants and Rights |
|
|
Compensation Plans |
|
Equity Compensation
Plans Approved by
Security Holders: |
|
|
|
|
|
|
|
|
|
|
|
|
1996 Stock Incentive Plan as amended and restated
in 2006 |
|
|
4,548,261 |
|
|
$ |
1.69 |
|
|
|
2,303,577 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4,548,261 |
|
|
$ |
1.69 |
|
|
|
2,303,577 |
|
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18
Recent Sales or Issuances of Unregistered Securities
On October, 1, 2009, and as part of the consideration for the purchase of E-Z Data, Inc. (E-Z
Data), we issued at closing $25 million in shares of Ebix common stock valued at the average
market closing price for the three most recent days prior to September 30, 2009. This resulted in
the issuance 1,488,984 shares of our common stock, 744,492 shares to each its two shareholders,
Dale Okuno and Dilip Sontakey, both accredited investors within the meaning of Rule 501 of
Regulation D. The Company relied upon Section 4(2) of the Securities Act of 1933 and Regulation D
promulgated there under in making this sale in a private placement to accredited investors who
acquired the shares for investment purposes. Under the terms of the agreement the E-Z Data sellers
hold a put option exercisable during the thirty-day period immediately following the two-year
anniversary date of the business acquisition, which if exercised would enable them to sell the
underlying shares of common stock back to the Company at a 10% discount off of the of the average
market closing price for the three most recent days prior to September 30, 2009. Pursuant to the
acquisition agreement, Ebix was obligated to file with the SEC a registration statement for the
underlying shares of our common stock and use our reasonable best efforts to cause the SEC to
declare the registration statement effective. This registration statement, number 333-163459,
became effective on February 26, 2010.
On August 26, 2009, we entered into an unsecured Convertible Note Purchase Agreement (the
Whitebox Agreement) with Whitebox VSC, Ltd (Whitebox). As a result of the transactions consummated by the
Whitebox Agreement the Company issued a Convertible Promissory Note
(the Whitebox Note) with a date of August 26,
2011 (the Maturity Date) in the original principal amount
of $19.0 million, which is convertible
into shares of Ebix common stock at a price of $16.00 per share, subject to certain adjustments as
set forth in the Whitebox Note. The Whitebox Note has a 0.0% stated interest rate. In
accordance with the terms of the Whitebox Note, as understood between the Company and the holder,
upon a conversion election by the holder the Company must satisfy the related original principal
balance in cash and may satisfy the conversion spread (that being the excess of the conversion
value over the related original principal component) in either cash or stock at option of the
Company. Previous to this transaction Whitebox has and
continued to be a beneficial of the Company, with a beneficial
ownership percentage of approximately 9.8%.
On August 26, 2009, we entered into an unsecured Convertible Note Purchase Agreement (the
IAM Agreement) with IAM Mini-Fund 14 Limited (IAM or the Holder). As a result of the transactions
consummated by the IAM Agreement the Company issued a Convertible
Promissory Note (the IAM Note) with a
date of August 26, 2011 (the Maturity Date) in the
original principal amount of $1.0 million, which
is convertible into shares of our common stock at a price of $16.00 per share, subject to certain
adjustments as set forth in the IAM Note. The IAM Note has a 0.0% stated interest
rate. In accordance with the terms of the IAM Note, as understood between the Company and the
holder, upon a conversion election by the holder the Company must satisfy the related original
principal balance in cash and may satisfy the conversion spread (that being the excess of the
conversion value over the related original principal component) in either cash or stock at option
of the Company.
On
August 25, 2009, we entered into an unsecured Convertible Note Purchase Agreement (the
Rennes Agreement) with the Rennes Foundation (Rennes or the Holder). As a result of the transactions
consummated by the Rennes Agreement the Company issued a Convertible
Promissory Note (the Rennes Note) with a
date of August 25, 2011 (the Maturity Date) in the
original principal amount of $5.0 million, which
is convertible into shares of Ebix common stock at a price of $16.67 per share, subject to certain
adjustments as set forth in the Rennes Note. The Rennes Note has a 0.0% stated interest
rate. In accordance with the terms of the Rennes Note, as understood between the Company and the
holder, upon a conversion election by the holder the Company must satisfy the related original
principal balance in cash and may satisfy the conversion spread (that being the excess of the
conversion value over the related original principal component) in either cash or stock at option
of the Company. Previous to this transaction Rennes has been and continues to be a beneficial
owner of the Company, with a beneficial ownership percentage of
approximately 9.9%. Rolf Herter, a
member of our Board of Directors, is also a director of the Rennes Foundation.
19
On July 11, 2008, we entered
into a secured convertible note purchase agreement with Whitebox in the amount of $15.0 million, with a maturity date of July 11, 2010, in the original
principal amount of $15.0 million, which amount
is convertible into our common stock at a price of $9.33 per share, subject to certain
adjustments as set forth in the Note. The Company has the option to cause a mandatory conversion
and the subsequent surrender of the Note at a Conversion Price of $9.33 per share, if the average
price of the Companys common stock on the trading market exceeds $18.67 for any consecutive 30
trading days. The Note accrues interest at the rate of 2.5% per annum, payable on an annual basis
on July 11th of each year, each date of conversion (as to the principal amount being converted) and
the maturity date. The Company relied upon Section 4(2) of the Securities Act of 1933 and
Regulation D promulgated there under in making this sale to an accredited investor who acquired the
Note for investment purposes. Through December 31, 2009 Whitebox converted $10.7 million of
principal and accrued interest into 1,144,356 shares of the Companys common stock. Furthermore,
on February 3, 2010 Whitebox, in connection with the Note, converted the remaining principal in the
amount of $4.39 million and accrued interest in the amount of $62 thousand into 476,662 shares of
the Companys common stock.
On April 18, 2008, we entered into a share purchase agreement pursuant to which Fisher Funds
Management, acquired 180,000 shares of our unregistered common stock at $8.19 per share, for an
aggregate offering price of approximately $1.5 million, for the benefit of several accredited
investors identified in Footnote 5 of the table at Selling Stockholders in the prospectus which
is a part of this registration statement. The Company relied upon Section 4(2) of the Securities
Act of 1933 and Regulation D promulgated there under in making this sale in a private placement to
accredited investors who acquired the shares for investment purposes. Pursuant to the share
purchase agreements, Ebix was obligated to file with the SEC a registration statement for the
underlying shares of our common stock and use our reasonable best efforts to cause the SEC to
declare the registration statement effective. This registration statement, number 333-150371,
became effective on February 18, 2009.
On April 7, 2008, we entered into a share purchase agreement pursuant to which Ashford Capital
Management, Inc., a registered investment advisor, acquired 990,000 shares of our unregistered
common stock at $8.10 per share, for an aggregate offering price of approximately $8.0 million, for
the benefit of several accredited investors identified in the table at Selling Stockholders in
the prospectus which is a part of this registration statement. The Company relied upon Section 4(2)
of the Securities Act of 1933 and Regulation D promulgated there under in making this sale in a
private placement to accredited investors who acquired the shares for investment purposes. Pursuant
to the share purchase agreements, Ebix was obligated to file with the SEC a registration statement
for the underlying shares of our common stock and use our reasonable best efforts to cause the SEC
to declare the registration statement effective. This registration statement, number 333-150371,
became effective on February 18, 2009.
On April 2, 2008, we entered into a share purchase agreement pursuant to which the Rennes
Foundation, an accredited investor within the meaning of Rule 501 of Regulation D, acquired
360,000 shares of our unregistered common stock at $8.41 per share, for an aggregate offering price
of approximately $3.0 million. Mr. Rolf Herter, a director of the Rennes Foundation, is a Director
of the Company. The Company relied upon Section 4(2) of the Securities Act of 1933 and Regulation D
promulgated there under in making this sale in a private placement to accredited investors who
acquired the shares for investment purposes. Pursuant to the share purchase agreements, Ebix was
obligated to file with the SEC a registration statement for the underlying shares of our common
stock and use our reasonable best efforts to cause the SEC to declare the registration statement
effective. This registration statement, number 333-150371, became effective on February 18, 2009.
Use of Proceeds from the Recent Sales of Unregistered Securities
The proceeds of the above cited recent sales of unregistered shares of our common stock and
the issuances of convertible debt were used to finance our acquisitions of E-Z Data in October
2009, Acclamation in August 2008, and Telstra eBusiness Services in January 2008, and to repurchase
shares of our common stock from Brit Insurance Holdings, Inc. in April 2008.
Repurchase of Common Stock from Brit
On April 16, 2008, the Company entered into a Stock Purchase Agreement with Brit Insurance
Holdings PLC (Brit) for the repurchase of 1,200,000 shares of the companys common stock held by
Brit, and consummated the transaction on April 17, 2008. The price was $6.67 per share, for an
aggregate purchase price of $24.0 million. The Company financed this share repurchase using a combination
of the proceeds of its April 2008 sales of common stock ($11.0 million), cash on hand ($8.0
million) and additional borrowings under its revolving line of credit ($5.0 million).
20
Recent Purchases of Equity Securities
As authorized by our Board of Directors, during the year ended December 31, 2009, we
repurchased 80,622 shares of our common stock for an aggregate total purchase price of $505
thousand.
|
|
|
Item 5. |
|
SELECTED FINANCIAL DATA |
The following data for fiscal years 2009, 2008, and 2007 should be read in conjunction with
Managements Discussion and Analysis of Financial Condition and Results of Operations and with
our consolidated financial statements and the related notes and other financial information
included herein.
Consolidated Financial Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands, except per share data) |
|
Results of Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
97,685 |
|
|
$ |
74,752 |
|
|
$ |
42,841 |
|
|
$ |
29,253 |
|
|
$ |
24,100 |
|
Operating income |
|
|
39,256 |
|
|
|
29,264 |
|
|
|
12,801 |
|
|
|
6,712 |
|
|
|
4,650 |
|
Net income |
|
$ |
38,822 |
|
|
$ |
27,314 |
|
|
$ |
12,666 |
|
|
$ |
5,965 |
|
|
$ |
4,322 |
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic* |
|
$ |
1.24 |
|
|
$ |
0.93 |
|
|
$ |
0.45 |
|
|
$ |
0.24 |
|
|
$ |
0.17 |
|
Diluted* |
|
$ |
1.03 |
|
|
$ |
0.76 |
|
|
$ |
0.40 |
|
|
$ |
0.21 |
|
|
$ |
0.15 |
|
Shares used in
computing per share
data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic* |
|
|
31,398 |
|
|
|
29,514 |
|
|
|
27,917 |
|
|
|
24,912 |
|
|
|
25,101 |
|
Diluted* |
|
|
38,014 |
|
|
|
36,780 |
|
|
|
31,604 |
|
|
|
28,233 |
|
|
|
28,089 |
|
Financial Position: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
262,167 |
|
|
$ |
141,167 |
|
|
$ |
108,510 |
|
|
$ |
47,352 |
|
|
$ |
27,981 |
|
Short-term debt |
|
|
52,487 |
|
|
|
37,192 |
|
|
|
16,161 |
|
|
|
11,006 |
|
|
|
969 |
|
Long-term debt |
|
|
|
|
|
|
15,000 |
|
|
|
20,486 |
|
|
|
934 |
|
|
|
1,844 |
|
Redeemable
common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,461 |
|
Stockholders equity |
|
$ |
170,743 |
|
|
$ |
70,142 |
|
|
$ |
60,678 |
|
|
$ |
26,166 |
|
|
$ |
17,501 |
|
|
|
|
* |
|
Adjusted to reflect the effect of the 3-for-1 stock split dated January 4, 2010 |
21
|
|
|
Item 6. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
As used herein, the terms Ebix, the Company, we, our and us refer to Ebix, Inc., a
Delaware corporation, and its consolidated subsidiaries as a combined entity.
The information contained in this section has been derived from our historical financial
statements and should be read together with our historical financial statements and related notes
included elsewhere in this document. The discussion below contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and
uncertainties including, but not limited to: demand and acceptance of services offered by us, our
ability to achieve and maintain acceptable cost levels, rate levels and actions by competitors,
regulatory matters, general economic conditions, and changing business strategies. Forward-looking
statements are subject to a number of factors that could cause actual results to differ materially
from our expressed or implied expectations, including, but not limited to our performance in future
periods, our ability to generate working capital from operations, the adequacy of our insurance
coverage, and the results of litigation or investigation. Our forward-looking statements can be
identified by the use of terminology such as anticipates, expects, intends, believes,
will or the negative thereof or variations thereon or comparable terminology. Except as required
by law, we undertake no obligation to publicly update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.
OVERVIEW
Ebix, Inc. is a leading international supplier of on-demand software and e-commerce solutions
to the insurance industry. Ebix provides a series of application software products for the
insurance industry ranging from carrier systems, agency systems and exchanges to custom software
development for all entities involved in the insurance and financial industries. Approximately 80%
of the Companys revenues are of a recurring nature. Rather than license our products in
perpetuity, we typically either license them for a few years with ongoing support revenues, or license them
on a limited term basis using a subscription hosting or ASP model. Our goal is to be the leading
powerhouse of backend insurance transactions in the world. The Companys technology vision is to
focus on convergence of all insurance channels, processes and entities in a manner such that data
can seamlessly flow once a data entry has been made. Our customers include many of the top
insurance and financial sector companies in the world.
The insurance industry has undergone significant consolidation over the past several years
driven by the need for, and benefits from, economies of scale and scope in providing insurance in a
competitive environment. The insurance markets have also seen a steady increase in the desire to
reduce paper based processes and improve efficiency both at the back-end side and also at the
consumer end side. Such consolidation has involved both insurance carriers and insurance brokers
and is directly impacting the manner in which insurance products are distributed. Management
believes the world-wide insurance industry will continue to experience significant change and the
need for increased efficiencies through online exchanges and streamlined processes. The changes in
the insurance industry are likely to create new opportunities for the Company.
Management focuses on a variety of key indicators to monitor operating and financial
performance. These performance indicators include measurements of revenue growth, operating income,
operating margin, income from continuing operations, diluted earnings per share, and cash provided
by operating activities. We monitor these indicators, in conjunction with our corporate governance
practices, to ensure that business vitality is maintained and effective control is exercised.
The key performance indicators for the twelve months ended December 31, 2009, 2008, and 2007
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Performance Indicators |
|
|
|
Twelve Months Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands, |
|
|
|
except per share data) |
|
Revenue |
|
$ |
97,685 |
|
|
$ |
74,752 |
|
|
$ |
42,841 |
|
Revenue growth |
|
|
31 |
% |
|
|
74 |
% |
|
|
46 |
% |
Operating income |
|
$ |
39,256 |
|
|
$ |
29,264 |
|
|
$ |
12,801 |
|
Operating margin |
|
|
40 |
% |
|
|
39 |
% |
|
|
30 |
% |
Net Income |
|
$ |
38,822 |
|
|
$ |
27,314 |
|
|
$ |
12,666 |
|
Diluted earnings per share * |
|
$ |
1.03 |
|
|
$ |
0.76 |
|
|
$ |
0.40 |
|
Cash provided by operating activities |
|
$ |
33,876 |
|
|
$ |
26,825 |
|
|
$ |
15,039 |
|
|
|
|
* |
|
Adjusted to reflect the effect of the 3-for-1 stock split dated January 4, 2010 |
22
RESULTS OF OPERATIONS
Ebix, Inc. Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Operating revenue: |
|
$ |
97,685 |
|
|
$ |
74,752 |
|
|
$ |
42,841 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Costs of services provided |
|
|
21,274 |
|
|
|
14,161 |
|
|
|
7,114 |
|
Product development |
|
|
11,362 |
|
|
|
8,962 |
|
|
|
7,609 |
|
Sales and marketing |
|
|
5,040 |
|
|
|
4,344 |
|
|
|
4,116 |
|
General and administrative |
|
|
16,798 |
|
|
|
14,715 |
|
|
|
8,602 |
|
Amortization and depreciation |
|
|
3,955 |
|
|
|
3,306 |
|
|
|
2,599 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
58,429 |
|
|
|
45,488 |
|
|
|
30,040 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
39,256 |
|
|
|
29,264 |
|
|
|
12,801 |
|
Interest income (expense), net |
|
|
(871 |
) |
|
|
(1,151 |
) |
|
|
151 |
|
Other non-operating income |
|
|
89 |
|
|
|
|
|
|
|
|
|
Foreign exchange gain |
|
|
1,358 |
|
|
|
586 |
|
|
|
247 |
|
|
|
|
|
|
|
|
|
|
|
Income before taxes |
|
|
39,832 |
|
|
|
28,699 |
|
|
|
13,199 |
|
Income tax expense |
|
|
(1,010 |
) |
|
|
(1,385 |
) |
|
|
(533 |
) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
38,822 |
|
|
$ |
27,314 |
|
|
$ |
12,666 |
|
|
|
|
|
|
|
|
|
|
|
TWELVE MONTHS ENDED DECEMBER 31, 2009 AND 2008
Operating Revenue
The Company derives its revenues primarily from professional and support services, which
includes revenue generated from software development projects and associated fees for consulting,
implementation, training, and project management provided to customers with installed systems,
subscription and transaction fees pertaining to services delivered over our exchanges or from our
ASP platforms, and business process outsourcing revenue. Ebixs
revenue streams come four product channels. Presented in the table below is the breakout of our
revenues for each of those product channels the years ended December 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended |
|
|
|
December 31, |
|
(dollar amounts in thousands) |
|
2009 |
|
|
2008 |
|
Carrier Systems |
|
$ |
10,624 |
|
|
$ |
11,314 |
|
Exchanges |
|
$ |
60,764 |
|
|
$ |
42,711 |
|
BPO |
|
$ |
14,698 |
|
|
$ |
8,380 |
|
Broker Systems |
|
$ |
11,599 |
|
|
$ |
12,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
97,685 |
|
|
$ |
74,752 |
|
|
|
|
|
|
|
|
During the twelve months ended December 31, 2009 our total revenue increased $22.9 million or
30.7%, to $97.7 million in 2009 compared to $74.8 million in 2008. The increase in revenues is a
result of both the impact of strategic business acquisitions made during 2009 and 2008 particularly
in the area of exchanges, and in our BPO channel, as well as organic growth realized in our BPO and
Exchange channels. We are able to quickly integrate business acquisitions into our existing
operations and thereby rapidly leverage product cross-selling opportunities. The specific
components of our revenue and the changes experienced during the past year are discussed further
below.
Exchange division revenues increased $18.1 million, which was primarily due to net
increases of approximately $9.2 million from the health insurance sector and $8.9 million from the
life & annuity sector.
23
BPO division revenues increased $6.3 million primarily due to greater demand for our
insurance certificate creation and tracking services. The Company was able to increase sales in
this product channel in spite of the downturn in the housing industry which drove down the
transaction volume derived from clients associated with the construction industry.
Broker Systems division revenue decreased $748 thousand which was primarily caused by
a $943 thousand reduction in support and maintenance revenues associated with our legacy products
as we continue to migrate customers off of these older platforms, and the strengthening of U.S. dollar
against the Australian dollar which appreciated by 7.8% during the year and resulted in an
approximate drop of $571 thousand of reported revenues from our broker systems operations in
Australia. The revenue declines were partially offset by $335 thousand of sales growth from our in
our broker system operations in New Zealand. The revenue decline largely can be associated to the
overall downturn in the worldwide insurance markets in 2009, resulting in brokers spending less
money on back end systems.
Carrier Systems division revenue decreased $690 thousand due to temporary delays in
capital spending decisions as related to investments in back-end systems by large insurance
companies. During 2010 we expect these insurance carriers to deploy new technologies and increase
their spending for system development, and that our revenues from this channel will improve during
the forthcoming year.
Costs of Services Provided
Costs of services provided, which includes costs associated with customer support, consulting,
implementation, and training services, increased $7.1 million or 50.2%, from $14.2 million in 2008
to $21.3 million in 2009. This net cost increase is primarily attributable to approximately $6.1
million of additional personnel, professional services, and facility costs associated with our
recent acquisitions of ConfirmNet, Facts, Peak, and E-Z Data. Also contributing to the increases
in the costs of services provided was approximately $395 thousand of additional personnel related
costs in support of existing operations.
Product Development Expenses
Product development expenses increased $2.4 million or 26.8%, from $9.0 million in 2008 to
$11.4 million in 2009. The Companys product development efforts are focused on the development new
technologies for insurance carriers, brokers and agents, and the development of new exchanges for
international and domestic markets. This increase is primarily due to costs associated with new
product development activities in support of our exchange and BPO channels.
Sales and Marketing Expenses
Sales and marketing expenses increased $696 thousand or 16%, from $4.3 million in 2008 to $5.0
million in 2009. This increase is primarily attributable to additional personnel and marketing
costs in support of the increased revenues being generated by our exchange and BPO channel
amounting to $1.1 million, partially offset by approximately $347 thousand in reduced direct
mailing, consulting, and travel costs.
General and Administrative Expenses
General and administrative expenses increased $2.1 million or 14.2%, from $14.7 million in
2008 to $16.8 million in 2009. This increase is the result of additional expenses associated with
increased employee count, audit and legal fees, tax advisory services, share-based compensation,
and discretionary bonuses amounting approximately $1.7 million in the aggregate.
24
Amortization and Depreciation Expenses
Amortization and depreciation expenses increased $649 thousand, or 19.6%, from $3.3 million in
2008 to $3.9 million in 2009. Additional amortization cost amounting to $507 thousand was
recognized in connection with the amortization of acquired intangible assets associated with the
business combinations completed during 2008 and
2009. Also the Company recorded $211 thousand of additional depreciation expenses incurred by
Facts, Peak, and E-Z Data operations which were acquired during 2009.
Interest Income
Interest income decreased $276 thousand or 58.1% from $475 thousand in 2008 to $199 thousand
in 2009 primarily due to a lower effective interest rate earned on deposited funds which dropped
from 4.52% in 2008 to 1.45% in 2009.
Interest Expense
Interest expense decreased $556 thousand or 34.2% from $1.6 million in 2008 to $1.1 million in
2009. This decrease is primarily due to a reduction of $540 thousand in the average outstanding
balance on our revolving line of credit in conjunction with a 2.36% drop in the interest rate on
the credit facility from 4.00% to 1.64%, which together facilitated a $539 thousand reduction in
interest expense.
Foreign Exchange Gain
Foreign exchange gains increased $772 thousand or 131.7% from $586 thousand in 2008 to $1.4
million in 2009. This improvement is primarily due to the $498 thousand increase in the fair value
of the derivative instruments the Company put in place during 2009 to hedge the impact of
fluctuations in the exchange rate between the U.S. dollar and the Indian rupee as pertaining to the
U.S. dollar denominated invoices issued by our Indian subsidiary whose functional currency is the
Indian rupee. The remaining $274 thousand of increase foreign exchange gains result from the
settlement of transactions denominated in other than our subsidiarys functional currency.
Income Taxes
Income tax expense decreased $375 thousand, or 27.1%, from $1.4 million in 2008 to $1.0
million in 2009. Our effective tax rate was 2.5% for the twelve months ended December 31, 2009,
down from 4.8% for the same period in 2008. Primarily affecting the decrease in income tax expense
and our consolidated effective tax rate was the $2.82 million release of a portion of the
preexisting valuation allowance that had been held against cumulative legacy net operating loss
(NOL) carryforwards in the United States, partially offset by a $2.04 million charge to
increase the Companys reserves for uncertain tax filing positions as evaluated by management. Also
facilitating the relatively low consolidated world-wide effective tax rate was the utilization of
$14.6 million of NOLs to offset 2009 U.S. taxable income and advantages the Company realizes from
conducting activities in certain foreign low tax jurisdictions.
TWELVE MONTHS ENDED DECEMBER 31, 2008 AND 2007
Operating Revenue
Total revenueThe Companys revenues are derived primarily from the services sector with a
smaller portion coming from the software licensing business. Service sector revenue includes
transaction fees, hosting fees, implementation, software development and customization,
maintenance, consulting, training and project management services provided to the Companys
customers using our data exchanges, ASP platforms, and other services. Software licensing revenue
includes revenue derived from the licensing of our proprietary platforms and the licensing of third
party software applications. During the twelve months ended December 31, 2008 our total revenue
increased $31.9 million or 74%, to $74.8 million in 2008 compared to $42.8 million in 2007. The
increase in operating revenue is a result of both organic and acquisitive growth with the effect of
recently completed business combinations having greater impact. We have consistently demonstrated
the ability to quickly integrate business acquisition into existing operations and thereby rapidly
leverage product cross-selling opportunities. The specific components of our revenue and the
changes experienced during the past year are discussed further below.
25
Services revenue increased $33.7 million or 86%, from $39.4 million in 2007 to $73.1 million
in 2008. Essentially all divisions and sales channels achieved revenue increases during 2008, as
further discussed below.
Carrier Systems division revenue increased $0.5 million due primarily to system
development work being done for large insurance carrier customers of
our EbixAdvantage division.
Exchange division revenues increased $23.0 million which includes revenue increases of
approximately $15.7 million from the EbixExchange-Australia (formerly Telstra eBusiness Services;
acquired in January 2008), $4.9 million from the EbixHealth (formerly Acclamation; acquired in
August 2008). EbixExchange-U.S. (which includes our annuity and life insurance exchanges) achieved
a $3.7 million increase in revenues during 2008.
BPO division revenues increased $7.1 million which includes revenue increases of
approximately $5.5 million from EbixBPOs-Hemet, CA operations (formerly IDS; acquired in November
2007), $596 thousand from the EbixBPOs-Portland, MI operations (formerly Periculum; acquired in
April 2008), and $1.1 million from EbixBPOs-San Diego, CA operations (formerly ConfirmNet;
acquired in November 2008). EbixBPOs-Hemet, CA operation represents the headquarters of the newly
formed EbixBPO division.
Broker Systems division revenue increased $1.3 million primarily from growth in our
Australian operations. Partially offsetting these increases to our services revenue is a $412
thousand reduction in support and maintenance revenues associated with our legacy products. We
expect that the support and maintenance services associated with the Companys legacy products will
continue to decrease due to our pronounced philosophy of finishing legacy support as an offering in
the future.
Software licensing revenue decreased $1.8 million or 53%, from $3.5 million in 2007 to $1.6
million in 2008. This decrease is primarily associated with two significant contracts executed in
2007 by our Infinity division (an operating component of Carrier Systems division). The customer
arrangements involved the sale of source code and application software licenses.
Costs of services provided
Costs of services provided, which includes costs associated with customer support, consulting,
implementation, and training services, increased $7.0 million or 99%, from $7.1 million in 2007 to
$14.2 million in 2008. This increase is related to the full year inclusion related costs incurred
by IDS and Telstra (acquired in November 2007 and January 2008, respectively) which added $4.4
million to the costs of providing customer services, and to the recent acquisitions of Periculum,
Acclamation and Confirmnet (acquired in April 2008, August 2008 and November 2008, respectively)
which added $2.2 million to the costs of providing services to our customers. Overall our costs of
services provided as a percentage of revenues increased to 18.9% in 2008 from 16.6% in 2007.
Product development expenses
Product development expenses increased $1.4 million or 18%, from $7.6 million in 2007 to $9.0
million in 2008. The Companys product development efforts continue to be focused on the
enhancement of the EbixExchange, EbixLife, Insurance Certificate- BPO, AnnuityNet, and LifeSpeed
BRICS, and eGlobal, product and service lines, the development new technologies for insurance
carriers, brokers and agents, and the development of new exchanges for international and domestic
markets. During the year we experienced an $872 thousand increase in support of product development
costs in our Exchange division, and a $211 thousand increase in product development costs in
support of our Carrier Systems division. Overall our product development expenses as a percentage
of revenues decreased from to 12.0% in 2008 from 17.8% in 2007.
Sales and marketing expenses
Sales and marketing expenses increased $228 thousand or 6%, from $4.2 million in 2007 to $4.3
million in 2008. This increase is attributable to $1 million of additional costs attributable to
the recent acquisitions of Telstra and Acclamation, offset by approximately $775 thousand of cost
reductions in our U.S. operations as a result of deploying more efficient means of reaching out to
our market base and cost reductions in support of our legacy products. Overall our sales and
marketing expenses as a percentage of revenues decreased to 5.8% in 2008 from 9.6% in 2007.
26
General and administrative expense
General and administrative expenses increased $6.1 million or 71%, from $8.6 million in 2007
to $14.7 million in 2008. Approximately $4.2 million of this increase is associated with payroll,
communications, and facility costs attributable to the recent acquisitions of Telstra and
Acclamation. We also experienced increases in general and administrative expenses in our U.S.
headquarters aggregating to approximately $2.0 million, which were principally associated with
increases in discretionary share-based compensation, travel related costs, audit and legal fees,
and investor relations costs. Overall our general and administrative expenses as a percentage of
revenue slightly decreased to 19.7% in 2008 from 20.1% in 2007.
Amortization and depreciation expenses
Amortization and depreciation expenses increased $707 thousand, or 27%, from $2.6 million in
2007 to $3.3 million in 2008. The increase is primarily due to the amortization of the customer
relationship and developed technology intangible assets that were acquired in connection with our
acquisitions of Telstra, Acclamation, and ConfirmNet which increased amortization expenses by $469
thousand, $97 thousand, and $43 thousand respectively.
Interest Expense (net)
Interest expense (net of interest income) increased $1.0 million, from $151 thousand in 2007
to $1.2 million in 2008. The increase is primarily due to additional borrowings on the Companys
revolving line of credit in the amount of $9.3 million at an average interest of 4.55% giving rise
to approximately $423 thousand of additional interest expense, and the issuance of two convertible
debt promissory notes in the aggregate amount of $35 million ($20 million in December 2007 and $15
million in July 2008) at an interest rate of 2.5% resulting in approximately $672 thousand of
incremental interest expense.
Income Taxes
Income tax expense increased $852 thousand, or 160%, from $533 thousand in 2007 to $1.4
million in 2008. The Companys effective tax rate was 4.83% for the twelve months ended December
31, 2008, down from 4.04% for the same period in 2007. Primarily affecting the increase in income
tax expense and our consolidated effective tax rate was the impact of statutory tax rates
associated with the change in the mix of taxable income amongst the various domestic and foreign
tax jurisdictions in which the Company operated. Favorably impacting our consolidated effective tax
rate is result of advantages the Company has from conducting activities in certain foreign low tax
jurisdictions. Furthermore, in the United States, the Company utilized $9.3 million of available
net operating losses to offset the current years U.S. domestic taxable income.
LIQUIDITY AND CAPITAL RESOURCES
Our ability to generate significant cash flows from operating activities is one of our
fundamental financial strengths. Our principal sources of liquidity are the cash flows provided by
our operating activities, our revolving credit facility, and cash and cash equivalents on hand. Due
to the effect of temporary or timing differences resulting from the differing treatment of items
for tax and accounting purposes and minimum alternative tax obligations in the U.S. and India,
future cash outlays for income taxes are expected to exceed current income tax expense but will not
adversely impact the Companys liquidity position. We intend to utilize cash flows generated by our
ongoing operating activities, in combination with renewing our revolving credit facility and the
possible issuance of additional equity or debt securities to fund capital expenditures and organic
growth initiatives, to make acquisitions, to retire outstanding indebtedness, and to possibly
repurchase shares of our common stock as market and operation conditions warrant.
We believe that anticipated cash flows provided by our operating activities, together with
current cash balances and access to our credit facilities and the capital markets, if required,
will be sufficient to meet our projected cash requirements for the next twelve months, and the
foreseeable future thereafter, although any projections of future cash needs, cash flows, and the
general market condition for credit and equity securities may be subject to substantial
uncertainty. In the event additional liquidity needs arise, we may raise funds from a combination
of sources, including the potential issuance of debt or equity securities.
27
We continue to strategically evaluate our ability to sell additional equity or debt
securities, to expand existing or obtain new credit facilities from lenders, and to restructure our
debt in order to strengthen our financial position. The sale of additional equity or convertible
debt securities could result in additional dilution to our shareholders. We regularly evaluate our
liquidity requirements, including the need for additional debt or equity offerings, when
considering potential business acquisitions, development of new products or services, or the
retirement of debt. During 2010 the Company intends to utilize its cash and other financing
resources towards making strategic accretive acquisitions in the insurance data exchange arena.
However, there are no assurances that such financing facilities will be available in amounts or on
terms acceptable to us, if at all.
In February 2010 the Company entered into a new credit facility
with Bank of America (BOA). The new financing is comprised of a two-year, $25 million secured revolving
credit facility, and a $10 million secured term loan which amortizes over a two year period with
quarterly principal and interest payments commencing on March 31, 2010 and a final payment of all
remaining outstanding principal and accrued interest due on
February 12, 2012. The credit facility also includes an accordion
feature providing for an expansion of $10.0 million with the
participation of an additional commercial bank participating in the
facility with BOA as administrative agent. The initial
interest rate applicable to the entire BOA credit facility is LIBOR plus 1.75%.
Regarding the $20.0 million December 18, 2007 convertible note with Whitebox, on October 7,
2009 Ebix elected to exercise its mandatory conversion option. As specified by the applicable
section of the convertible note agreement, since the price of the Companys common stock remained
above the $14.22 per share threshold price for 30 consecutive trading days the Company caused
Whitebox to surrender the underlying 2.5% Secured Convertible Promissory Note due December 18,
2009, and to convert the remaining principal in the amount of $5.3 million together
with accrued interest thereon in the amount of $105 thousand into 762,810 shares of the Companys
common stock at a conversion price of $7.09 per share.
Regarding the $15.0 million July 11, 2008 convertible note with Whitebox, through December 31,
2009 Whitebox converted $10.7 million of principal and accrued interest into 1,144,356 shares of
the Companys common stock. Furthermore On February 3, 2010 Whitebox fully converted the remaining
principal on the Note in the amount of $4.39 million and accrued interest in the amount of $62
thousand into 476,662 shares of the Companys common stock.
Our cash and cash equivalents were $19.2 million and $9.5 million at December 31, 2009 and
2008, respectively.
Our current ratio improved to 0.62 at December 31, 2009 as compared to 0.47 at December 31,
2008, although a working capital deficit in the amount of $28.6 million exists at the end of the
year. The improvement in our short-term liquidity position is primarily the result of
additional trade receivables generated by our increased revenue streams, and increased cash provided
by our ongoing operating activities. The existing working capital deficit is essentially the result
of an accounting reclassification, driven by two factors. Firstly, due to the current
classification of our existing two-year revolving line of credit which was to mature in February
2010; and secondly, the current classification of the convertible notes issued in August 2009 and
maturing in August 2011, but which are required to be classified as current due to the fact that
the underlying shares are considered to be in the money given their respective conversion prices as
compared to the price of the Companys common stock on December 31, 2009 and the Companys
obligation to settle the principal amount of any conversion in cash. We believe that our ability
to generate sustainable significant cash flows from operations will enable the Company to continue
to fund its current liabilities from current assets including available cash balances for the
foreseeable future.
Operating Activities
For the twelve months ended December 31, 2009, the Company generated $33.9 million of net cash
flow from operating activities compared to $26.8 million for the year ended December 31, 2008, a
26.5% increase. The major source of cash provided by operating activities for 2009 was net income
of $38.8 million, net of $(9.7) million in working capital requirements, $3.9 million of
depreciation and amortization, and $1.4 million of non-cash compensation.
28
For the twelve months ended December 31, 2008, the Company generated $26.8 million of net cash
flow from operating activities compared to $15.0 million for the year ended December 31, 2007, a
76% increase. The major source of cash provided by operating activities for 2008 was net income of
$27.3 million, net of $(2.9) million in working capital requirements, $3.3 million of depreciation
and amortization, and $703 thousand of non-cash compensation.
Investing Activities
Net cash used for investing activities totaled $47.4 million for the twelve months ended
December 31, 2009 of which $7.9 million was used for the October 2009 acquisition of Peak (net of
$187 thousand of cash acquired), $25.4 million was used for the cash consideration portion of the
E-Z Data acquisition purchase price (net of $206 of cash acquired), $6.2 million was used for the
May 2009 acquisition of Facts (net of $796 thousand of cash acquired), $1.0 million was used to
fulfill earn-out payment obligations to the former shareholders of IDS (a November 2007 business
acquisition), $3.3 million was used to fulfill earn-out payment obligations to the former
shareholders of ConfirmNet (a November 2008 business acquisition), $3.1 million was used for
purchases of operating equipment to enhance the performance of our technology platforms, and $263
thousand was used investments in marketable securities (specifically bank certificates of deposit).
Net cash used for investing activities totaled $73.3 million for the twelve months ended
December 31, 2008, of which $43.0 million was used for the January 2008 purchase of Telstra (net of
1.3 million of cash acquired), $21.4 million was used for the August 2008 purchase of Acclamation
(net of the $635 thousand of cash acquired), $1.1 million was used for the April 2008 purchase of
Periculum (net of the 30 thousand of cash acquired), $7.3 million was used for the November 2008
purchase of ConfirmNet (net of $61 thousand cash acquired), $500 thousand was used to fulfill an
earn-out payment to for shareholders of Infinity (a 2006 business acquisition) and $614 thousand
was used for capital expenditures pertaining to the enhancement of our technology platforms and the
purchases of operating equipment.
Financing Activities
During the twelve months ended December 31, 2009 the net cash provided by financing activities
was $23.2 million. This financing cash inflow was comprised of $25.0 million from the proceeds two
convertible debt issuances and $1.6 million from exercise of stock options. Partially offsetting
these financing cash inflows was $1.8 million of payments against our line of credit (net of $27.1
million of draws), $1.0 million was used to service existing long-term debt and capital lease
obligations, and $507 thousand to complete open market repurchases of our common stock.
Net cash provided by financing activities for the twelve months ended December 31, 2008
totaled $12.3 million. During the 2008 reporting period the Company borrowed $9.3 million from our
revolving line of credit, received $15.0 million from the issuance of convertible debt, and
received $12.5 million from unregistered sales of our common stock. The proceeds of these financing
inflows were primarily used for operating and working capital needs, and to complete the
acquisition of Acclamation in August 2008. Also, in April of 2008 the Company used $24.2 million to
repurchase 1.2 million shares of our common stock, at $20.00 per share, from Brit. In addition
during the year the Company used $1.0 million to repurchase shares of our common stock on the open
market, $503 thousand to service existing long-term debt and capital lease obligations, and
received $1.2 million from the exercise of stock options.
Revolving Credit Facility
As of December 31, 2009 the Company had a $25.0 million revolving line of credit facility with
Bank of America Corporation. The line provides for a variable interest rate at Libor plus 1.3%, is
secured by a first security interest in substantially all of the Companys assets. The underlying
Loan and Security Agreement was set to expire on August 31, 2009, however, as a result of further
amendments to the Second Amended and Restated Loan and Security Agreement (the amended loan
agreement) which was effective as of August 27, 2009, the revolving credit line facility was
extended to February 15, 2010 at the same Libor plus 1.3% interest rate. The amended loan agreement
also contains certain restrictive covenants concerning the incurrence of new debt and consummation
of
new business acquisitions. The Company was in full compliance with all such financial and
restrictive covenants as of December 31, 2009. There are no outstanding events of default.
29
As of December 31, 2009 the outstanding balance on the line was $23.1 million and the facility
carried an interest rate of 1.53%, thereby leaving $1.9 million available under that credit
facility. During the year ending December 31, 2009 the Company borrowed $27.1 million from the
revolving line of credit facility and repaid $28.9 million against the credit line.
In February 2010 the Company entered into a new credit facility with Bank of America. This
arrangement is further described in Note 18 Subsequent Events to the accompanying Consolidated
Financial Statements.
Contractual Obligations and Commercial Commitments
The following table summarizes our significant contractual purchase obligations and other
long-term obligations as of December 31, 2009. The table excludes commitments that are contingent
based on events or factors uncertain at this time.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Period |
|
|
|
|
|
|
|
Less Than |
|
|
|
|
|
|
|
|
|
|
More than |
|
|
|
Total |
|
|
1 Year |
|
|
1 - 3 Years |
|
|
3 - 5 Years |
|
|
5 years |
|
|
|
(in thousands) |
|
Short and Long-term Debt |
|
$ |
52,487 |
|
|
$ |
27,487 |
|
|
$ |
25,000 |
|
|
$ |
|
|
|
$ |
|
|
Operating leases |
|
|
10,410 |
|
|
|
3,118 |
|
|
|
4,526 |
|
|
|
2,616 |
|
|
|
150 |
|
Capital Leases |
|
|
1,267 |
|
|
|
596 |
|
|
|
574 |
|
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
64,164 |
|
|
$ |
31,201 |
|
|
$ |
30,100 |
|
|
$ |
2,713 |
|
|
$ |
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off Balance Sheet Transactions
We do not engage in off-balance sheet financing activities.
Inflation
We do not believe that the rate of inflation has had a material effect on our operating
results. However, inflation could adversely affect our future operating results.
RECENT ACCOUNTING PRONOUNCEMENTS
The following are recently issued accounting pronouncements that are pertinent to the
Companys business:
In October 2009, the FASB issued amended revenue recognition guidance for arrangements with
multiple deliverables. The new guidance eliminates the requirement that all undelivered elements
have Vendor Specific Objective Evidence (VSOE) or Third Party Evidence (TPE) before an entity
can recognize the portion of an overall arrangement fee that is attributable to items that already
been delivered. In the absence of VSOE or TPE of the standalone selling price for one or more
delivered or undelivered elements in a multiple-element arrangement, the overall arrangement fee
will be allocated to each element (both delivered and undelivered items) based on their relative
estimated selling price.
In September 2009, FASB issued new guidance related to revenue arrangement with multiple
deliverables which: (a) provides application guidance on whether multiple deliverables exist in an
arrangement with a customer, and if so, how the arrangement consideration should be separated and
allocated; (b) requires an entity to allocate revenue using estimated selling prices of
deliverables if vendor-specific objective evidence or third party evidence of selling prices is not
available; and, (c) eliminates the use of the residual method to allocate revenue. This guidance
is to be applied on a prospective basis for revenue arrangements entered into in fiscal years
beginning on or after June 15, 2010, with earlier application permitted. Alternatively, an entity
can elect to adopt new guidance
on a retrospective basis. The Company will adopt this new guidance in 2011 and currently is
in process of assessing its impact.
30
Also in September 2009, the FASB issued new guidance related to certain revenue arrangements
that include software elements which removes tangible products from the scope of previously issued
authoritative guidance on software revenue recognition and provides guidance on determining whether
software deliverables in an arrangement that include tangible products are within the scope of
existing software revenue guidance. This guidance is to be applied on a prospective basis for
revenue arrangements entered into in fiscal years beginning on or after June 15, 2010, with earlier
application permitted. Alternatively, an entity can elect to adopt new guidance on a retrospective
basis. The Company will adopt this new guidance in 2011 but does not expect its adoption to have a
material impact on our consolidated financial position, results of operations or cash flows, as the
sale of tangible products are not a significant component of the Companys revenues.
In May 2009, the FASB issued new accounting guidance related to accounting and disclosure of
subsequent events, which provides guidance to establish general standards of accounting for, and
disclosures of, events that occur after the balance sheet date but before financial statements are
issued or are available to be issued. The new guidance is effective for interim or fiscal periods
ending after June 15, 2009. Accordingly, the Company adopted the provisions of the guidance
effective from June 30, 2009. The adoption of this guidance did not have a material impact on our
consolidated financial position, results of operations or cash flows. The provisions of this new
guidance will result in additional disclosures with respect to subsequent events.
In April 2009, FASB issued new accounting guidance related to interim disclosure about the
fair value of the financial instruments. The guidance requires disclosures about fair value of
financial instruments in interim as well as annual financial statements. This guidance is effective
for periods ending after June 15, 2009. Accordingly, the Company adopted the guidance on September,
2009. The adoption of this guidance did not have a material impact on our consolidated financial
position, results of operations or cash flows. However, the provisions of the guidance did result
in additional disclosures with respect to the fair value of the Companys financial instruments.
See Note 11, Derivative Instruments, for these additional disclosures.
Furthermore in the April 2009 the FASB issued additional guidance regarding the
determination of fair which provides clarification in order to make fair value measurements more
consistent and reaffirms the objective of fair value measurements, specifically how much an asset
would be sold for in an orderly transaction (as opposed to a distressed or forced transaction) at
the date of the financial statements under current market conditions and emphasizes the need to use
judgment to ascertain if a formerly active market has become inactive and how to determine fair
values when markets have become inactive. The Company has adopted this accounting guidance, and its
adoption did not have material impact on our consolidated financial position and results of
operations.
In December 2007, the FASB issued new accounting guidance pertaining to the accounting for
business combinations and related disclosures. This new guidance addresses the recognition and
accounting for identifiable assets acquired, liabilities assumed, and non-controlling interests in
business combinations. The guidance also establishes expanded disclosure requirements for business
and improves the relevance, representational faithfulness, and comparability of the information
that a reporting entity provides in its financial reports about a business combination and its
effects. The guidance was effective for fiscal years beginning after December 15, 2008, and we
applied this new pronouncement to the 2009 acquisitions of EZ Data, Facts and Peak Performance.
31
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted accounting
principles (GAAP), as promulgated in the United States, requires our management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses
and related disclosures of contingent assets and liabilities in our Consolidated Financial
Statements and accompanying notes. We believe the most complex and sensitive judgments, because of
their significance to the Consolidated Financial Statements, result primarily from the need to make
estimates and assumptions about the effects of matters that are inherently uncertain. The
following accounting policies involve the use of critical accounting estimates because they are
particularly
dependent on estimates and assumptions made by management about matters that are uncertain at
the time the accounting estimates are made. In addition, while we have used our best estimates
based on facts and circumstances available to us at the time, different estimates reasonably could
have been used in the current period, or changes in the accounting estimates that we used are
reasonably likely to occur from period to period which may have a material impact on our financial
condition and results of operations. For additional information about these policies, see Note 1 of
the Notes to the Consolidated Financial Statements in this Form 10-K. Although we believe that our
estimates, assumptions and judgments are reasonable, they are limited based upon information
presently available. Actual results may differ significantly from these estimates under different
assumptions, judgments or conditions.
Revenue Recognition
The Company derives its revenues primarily from professional and support services, which
includes revenue generated from software development projects and associated fees for consulting,
implementation, training, and project management provided to customers with installed systems,
subscription and transaction fees pertaining to services delivered over our exchanges or from our
application service provider (ASP) platforms, and business process outsourcing revenue. Sales and
value-added taxes are not included in revenues, but rather are recorded as a liability until the
taxes assessed are remitted to the respective taxing authorities.
In accordance with Financial Accounting Standard Board (FASB) and Securities and Exchange
Commission Staff Accounting (SEC) accounting guidance on revenue recognition the Company considers
revenue earned and realizable when: (a) persuasive evidence of the sales arrangement exists, (b)
the arrangement fee is fixed or determinable, (c) service delivery or performance has occurred, (d)
customer acceptance has been received, if contractually required, and (e) collectability of the
arrangement fee is probable. The Company typically uses signed contractual agreements as persuasive
evidence of a sales arrangement. We apply the provisions of the relevant FASB accounting
pronouncements related to all transactions involving the license of software where the software
deliverables are considered more than inconsequential to the other elements in the arrangement. For
contracts that contain multiple deliverables, we analyze the revenue arrangements in accordance
with the appropriate authoritative guidance, which provides criteria governing how to determine
whether goods or services that are delivered separately in a bundled sales arrangement should be
considered as separate units of accounting for the purpose of revenue recognition.
Deliverables are accounted for separately if they meet all of the
following criteria: (a) the delivered item has value to the customer
on a stand-alone basis; (b) there is objective and reliable evidence
of the fair value of the undelivered items; and (c) if the arrangement
includes a general right of return relative to the delivered items, the delivery or
performance of the undelivered items is probable and
substantially controlled by the Company.
The Company begins to recognize revenue from license fees for its ASP products upon delivery
and the customers acceptance of the software implementation and customizations if applicable.
Transaction services fee revenue for this use of our exchanges or ASP platforms is recognized as
the transactions occur and are generally billed in arrears. Service fees for hosting arrangements
are recognized over the requisite service period. Revenue derived from the licensing of third
party software products in connection with sales of the Companys software licenses and is
recognized upon delivery together with the Companys licensed software products. Training, data
conversion, installation, and consulting services fees are recognized as revenue when the services
are performed. Revenue for maintenance and support services is recognized ratably over the term of
the support agreement. Revenues derived from initial setup or registration fees are recognized
ratably over the term of the agreement in accordance with FASB and SEC accounting guidance on
revenue recognition.
Deferred revenue includes maintenance and support payments or billings that have been received
and recorded prior to performance and, in certain cases, cash collections; initial setup or
registration fees under hosting agreements; software license fees received in advance of delivery,
acceptance, and/or completion of the earnings process; and amounts received under multi-element
arrangements in which objective evidence of the fair value for the undelivered elements does not
exist. In these instances revenue is recognized when the fair value of the undelivered elements is
determinable or when all contractual elements have been completed and delivered.
32
Allowance for Doubtful Accounts Receivable
Management specifically analyzes accounts receivable and historical bad debts, write-offs,
customer concentrations, customer credit-worthiness, current economic trends and changes in our
customer payment terms when evaluating the adequacy of the allowance for doubtful accounts.
Valuation of Goodwill
Goodwill represents the cost in excess of the fair value of the identifiable net assets of
acquired businesses. The Company applies the provisions of the FASBs accounting guidance on
goodwill and other intangible assets which addresses how goodwill and other acquired intangible
assets should be accounted for in financial statements. In this regard we test these intangible
assets for impairment annually or more frequently if indicators of potential impairment are
present. Such potential impairment indicators include a significant change in the business climate,
legal factors, operating performance indicators, competition, and the sale or disposition of a
significant portion of the business. The testing involves comparing the reporting unit and
intangible asset carrying values to their respective fair values; we determine fair value by
applying the discounted cash flow method using the present value of future estimated net cash
flows.
These projections of cash flows are based on our views of growth rates, anticipated future
economic conditions and the appropriate discount rates relative to risk and estimates of residual
values. We believe that our estimates are consistent with assumptions that marketplace participants
would use in their estimates of fair value. Our estimates of fair value for each reporting unit are
corroborated by market multiple comparables. The use of different estimates or assumptions for our
projected discounted cash flows (e.g., growth rates, future economic conditions, discount rates and
estimates of terminal values) when determining the fair value of our reporting units could result
in different values and may result in a goodwill impairment charge. During the twelve months ended
December 31, 2009, 2008, and 2007, we had no impairment of our reporting unit goodwill balances.
For additional information about goodwill, see Note 1 of the Notes to Consolidated Financial
Statements in this Form 10-K.
Income Taxes
We account for income taxes in accordance with FASB accounting guidance on the accounting and
disclosure of income taxes, which involves estimating the Companys current tax exposure together
with assessing temporary differences resulting from differing treatment of items for tax and
accounting purposes. These differences result in deferred tax assets and liabilities, which are
included in our Consolidated Balance Sheets. We then assess the likelihood that our net deferred
tax assets will be recovered from future taxable income in the years in which those temporary
differences are expected to be recovered or settled, and, to the extent we believe that recovery is
not likely, we must establish a valuation allowance. In this regard a partial valuation allowance
is currently set against some of our accumulated domestic net operating loss carryforwards because
we believe it is more likely than not that a portion of this deferred tax asset may not be
realizable due to uncertainty as to future taxable income being generated by our EbixHealth
division as a result of the impact of pending healthcare legislation.
The Company has not provided deferred U.S. taxes on its unremitted foreign earnings because it
considers them to be permanently re-invested.
The
Company follows the provisions of FASB accounting guidance on
accounting for uncertain income tax positions. This guidance clarified the accounting for
uncertainty in income taxes by prescribing the minimum recognition threshold a tax position is
required to meet before being recognized in the financial statements. The guidance utilizes a
two-step approach for evaluating tax positions. Recognition
(Step 1) occurs when an enterprise
concludes that a tax position, based solely on its technical merits is more likely than not to be
sustained upon examination. Measurement (Step 2) is only addressed if Step 1 has been satisfied.
Under Step 2, the tax benefit is measured at the largest amount of benefit, determined on a
cumulative probability basis that is more likely than not to be realized upon final settlement.
Foreign Currency Translation
Our reporting
currency is the U.S. dollar. The functional currency of the Companys foreign
subsidiaries is generally the local currency of the country in which the subsidiary operates. The assets and
liabilities of foreign subsidiaries are translated into U.S. Dollars at the rates of exchange at
the balance sheet dates. Income and expense accounts are translated at the average exchange rates
in effect during the period. Gains and losses resulting from translation adjustments are included
as a component of other comprehensive income in the accompanying consolidated financial statements.
Foreign exchange transaction gains and losses that are derived from transactions denominated in
other than the subsidiarys functional currency is included in the determination of net income.
33
Quarterly Financial Information (unaudited):
The following is the unaudited quarterly financial information for 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
|
(in thousands, except per share data) |
|
Year Ended December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
20,668 |
|
|
$ |
22,421 |
|
|
$ |
23,292 |
|
|
$ |
31,304 |
|
Gross Profit |
|
|
16,367 |
|
|
|
17,889 |
|
|
|
18,827 |
|
|
|
23,328 |
|
Operating income |
|
|
8,357 |
|
|
|
9,260 |
|
|
|
9,783 |
|
|
|
11,856 |
|
Net income |
|
|
8,335 |
|
|
|
8,956 |
|
|
|
9,434 |
|
|
|
12,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic * |
|
$ |
0.28 |
|
|
$ |
0.29 |
|
|
$ |
0.30 |
|
|
$ |
0.36 |
|
Diluted * |
|
$ |
0.23 |
|
|
$ |
0.24 |
|
|
$ |
0.25 |
|
|
$ |
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
16,639 |
|
|
$ |
17,803 |
|
|
$ |
20,168 |
|
|
$ |
20,142 |
|
Gross Profit |
|
|
13,703 |
|
|
|
14,578 |
|
|
|
16,228 |
|
|
|
16,083 |
|
Operating income |
|
|
6,143 |
|
|
|
6,905 |
|
|
|
8,119 |
|
|
|
8,097 |
|
Net income |
|
|
5,670 |
|
|
|
6,336 |
|
|
|
7,398 |
|
|
|
7,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic * |
|
$ |
0.18 |
|
|
$ |
0.22 |
|
|
$ |
0.26 |
|
|
$ |
0.27 |
|
Diluted * |
|
$ |
0.16 |
|
|
$ |
0.18 |
|
|
$ |
0.21 |
|
|
$ |
0.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
9,018 |
|
|
$ |
9,816 |
|
|
$ |
11,807 |
|
|
$ |
12,201 |
|
Gross Profit |
|
|
7,452 |
|
|
|
8,098 |
|
|
|
9,966 |
|
|
|
10,211 |
|
Operating income |
|
|
2,238 |
|
|
|
2,298 |
|
|
|
3,712 |
|
|
|
4,553 |
|
Net income |
|
|
1,962 |
|
|
|
2,513 |
|
|
|
3,693 |
|
|
|
4,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic * |
|
$ |
0.08 |
|
|
$ |
0.09 |
|
|
$ |
0.13 |
|
|
$ |
0.15 |
|
Diluted * |
|
$ |
0.07 |
|
|
$ |
0.08 |
|
|
$ |
0.11 |
|
|
$ |
0.13 |
|
|
|
|
* |
|
Adjusted for all periods presented to reflect the effect of the 3-for-1 stock split dated January 4, 2010 |
34
|
|
|
Item 6A: |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The Company is subject to certain market risks, including foreign currency exchange rates and
interest rates. The Companys exposure to foreign currency exchange rates risk is related our
foreign-based operations where transactions are denominated in foreign currencies and are subject
to market risk with respect to fluctuations in the relative value of currencies. Most of the
Companys operations are based in the U.S. and, accordingly, the majority of our transactions are
denominated in U.S. dollars, however, the Company has operations in Australia, New Zealand,
Singapore, and India, and we conduct transactions in the local currencies of each location. There
can be no assurance that fluctuations in the value of foreign currencies will not have a material
adverse effect on the Companys business, operating results, revenues or financial condition.
During the years of 2009, 2008, and 2007 the net change in the cumulative foreign currency
translation account, which is a component of stockholders equity, was an unrealized gain(loss) of
$11.5 million, $(15.1)million, and $1.8 million, respectively. The Company considered the historical
trends in currency exchange rate and determined that it was reasonably possible that adverse
changes in our respective foreign currency exchange rates of 20% could be experienced in the near
term. Such an adverse change in currency exchange rates would have resulted in reduction to pre-tax
income of approximately $2.6 million, $2.9 million and $122 thousand for the years ended December
31, 2009, 2008 and 2007, respectively.
The Companys exposure to interest rate risk relates to its interest expense on outstanding
debt obligations and to its interest income on existing cash balances. As of December 31, 2009 the
Company had $52.5 million of outstanding debt obligations which consisted of a $23.1 million
balance on our revolving line of credit, a $4.4 million
promissory note from 2008 with Whitebox, a $20.0 million
convertible promissory notes from 2009 with Whitebox and IAM, and a $5.0
million convertible promissory note with Rennes. The 2008 Whitebox convertible note,
was subsequently exercised fully on February 3, 2010 and had an
interest rate fixed at 2.5%, and the 2009
Whitebox, IAM, and Rennes convertible notes are non-interest bearing, therefore these instruments
present no risk as to exposures to financial market fluctuations. The Companys revolving line of
credit bears interest at the rate of LIBOR + 1.3%, and stood at 1.53% at December 31, 2009. The
Company is exposed to market risk in relation to this line of credit in regards to the potential
increase to interest income arising from adverse changes in interest rates. This interest rate risk
is estimated as the potential decrease in earnings resulting from a hypothetical 30% increase in
the LIBOR rate. Such an adverse change in the LIBOR rate would have resulted in a reduction to
pre-tax income of approximately $28 thousand and $134 thousand for the years ending December 31,
2009 and 2008, respectively. The Companys average cash balances during 2009 were $13.8 million and
its existing cash balances as of December 31, 2009 was $19.2 million. The Company is exposed to
market risk in relation to these cash balances in regards to the potential loss of interest income
arising from adverse changes in interest rates. This interest rate risk is estimated as the
potential decrease in earnings resulting from a hypothetical 20% decrease in interest rates earned
on deposited funds. Such an adverse change in these interest rates would have resulted in a
reduction to pre-tax income of approximately $40 thousand and $91 thousand for the years ended
December 31, 2009 and 2008, respectively.
35
During the year ended December 31, 2009, we entered into a series of one-year forward foreign
exchange contracts to hedge the intercompany receivables originated by our Indian subsidiary that
are denominated in United States dollars. These U.S dollars / Indian rupee hedges are intended to
partially offset the impact of movement in exchange rates on future operating costs, and to reduce
the risk that our earnings and cash flows will be adversely affected by changes in foreign currency
exchange rates. As of December 31, 2009, the notional value of these contracts which are scheduled
to mature in May and December 2010 is $13.7 million. Changes in the fair value of these derivative
instruments are recognized in our consolidated income statement. We use these instruments as
economic hedges, intended to mitigate the effects of changes in foreign exchange rates, and not for
speculative purposes. These derivative instruments do not subject us to material balance sheet risk
due to exchange rate movements because gains and losses on these derivatives are intended to offset
gains and losses on the intercompany receivables being hedged. For
the twelve months ended December
31, 2009, we recognized a gain of $498 thousand included in Foreign exchange gain
in the consolidated statements of income. Based upon a sensitivity analysis performed
against our forward foreign exchange contracts at December 31, 2009, which measures the
hypothetical change in the fair value of the contracts resulting from 20% shift in the value of
exchange rates of the Indian rupee relative to the U.S. dollar, a 20% appreciation in the U.S.
dollar against the Indian rupee (and a corresponding increase in the value of the hedged assets)
would lead to a decrease in the fair value of our forward foreign exchange contracts by $2.18
million. Conversely, a 20% depreciation in the U.S. dollar against the Indian rupee would lead to
an increase in the fair value of our forward foreign exchange contracts by $3.27 million. We
regularly review our hedging strategies and may in the future, as a part of this review,
determine the need to change our hedging activities. Either of the two possibilities is likely to
be offset by the change in value of the corresponding accounts receivable against which these
hedges were set up.
During the year ending December 31, 2009 in connection with the acquisition of E-Z Data
the Company issued a put option to the sellers which is exercisable during the thirty-day period
immediately following the two-year anniversary date of the business acquisition, which if exercised
would enable them to sell the underlying shares of common stock back to the Company at a 10%
discount off of the per-share value established on the effective date of the acquisition.
Using a Black-Scholes model we determined that the initial fair value for the put option was
$6.6 million and that its fair value on December 31, 2009 had decreased by $89 thousand.
The inputs used in the valuation of the put option include term, stock price volatility,
current stock price, exercise price, and the risk free rate of return, with the volatility
factor being the input subject to the most variation. Therefore, as pertaining to the put
option, the Company is exposed to market risk as regarding the rate
and magnitude of change of our stock price and corresponding variances to the volatility factor used in the Black-Scholes
valuation model. We evaluated this risk by estimating the potential adverse impact of a 10%
increase in the volatility factor and determined that such a change in the volatility factor
would have resulted in an approximate $700 thousand increase to the put option liability and a
corresponding reduction to pre-tax income as of and for the year ended December 31, 2009.
|
|
|
Item 7. |
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
See also the Quarterly Financial Information included under Item 7. Managements Discussion
and Analysis of Financial Condition and Results of Operations.
36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Ebix, Inc.:
We have audited the accompanying consolidated balance sheets of Ebix, Inc. and subsidiaries (the Company) as of December 31, 2009 and 2008,
and the related consolidated statements of income, stockholders equity and comprehensive income, and cash flows for each of the two
years in the period ended December 31, 2009. We have also audited the accompanying consolidated financial statement schedule for the years
ended December 31, 2009 and 2008 listed in the index at Item 15. These consolidated financial statements and schedule are the responsibility
of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based
on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedule are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements and schedule. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Ebix, Inc. and subsidiaries at December 31, 2009 and 2008 and the results of their operations and their cash flows for each of the two
years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles. Also, in our opinion,
the related consolidated financial statement schedule for the years ended December 31, 2009 and 2008, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Companys
internal control over financial reporting as of December 31, 2009 and 2008, based on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 16, 2010
expressed an unqualified opinion thereon.
/s/ Cherry, Bekaert & Holland, L.L.P.
Atlanta, Georgia
March 16, 2010
37
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheet of Ebix, Inc. and subsidiaries as
of December 31, 2007, and the related consolidated statements of income, stockholders equity and
comprehensive income, and cash flows for the year then ended. Our audit also included the 2007
financial statement schedule listed in the Index at Item 15. These financial statements and
schedule are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Ebix, Inc. and subsidiaries at December 31, 2007,
and the consolidated results of their operations and their cash flows for year ended December 31,
2007, in conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion, the related 2007 financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As
disclosed in Notes 1 and 9 to the consolidated financial statements, effective January 1,
2007, the Company adopted Financial Accounting Interpretation No. 48, Accounting for Uncertainty
in Income Taxes.
/s/ Habif, Arogeti & Wynne LLP
Atlanta, Georgia
March 28, 2008
38
Ebix, Inc. and Subsidiaries
Consolidated Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue: |
|
$ |
97,685 |
|
|
$ |
74,752 |
|
|
$ |
42,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Costs of services provided |
|
|
21,274 |
|
|
|
14,161 |
|
|
|
7,114 |
|
Product development |
|
|
11,362 |
|
|
|
8,962 |
|
|
|
7,609 |
|
Sales and marketing |
|
|
5,040 |
|
|
|
4,344 |
|
|
|
4,116 |
|
General and administrative |
|
|
16,798 |
|
|
|
14,715 |
|
|
|
8,602 |
|
Amortization and depreciation |
|
|
3,955 |
|
|
|
3,306 |
|
|
|
2,599 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
58,429 |
|
|
|
45,488 |
|
|
|
30,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
39,256 |
|
|
|
29,264 |
|
|
|
12,801 |
|
Interest income |
|
|
199 |
|
|
|
475 |
|
|
|
509 |
|
Interest expense |
|
|
(1,070 |
) |
|
|
(1,626 |
) |
|
|
(358 |
) |
Other non-operating income |
|
|
89 |
|
|
|
|
|
|
|
|
|
Foreign exchange gain |
|
|
1,358 |
|
|
|
586 |
|
|
|
247 |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
39,832 |
|
|
|
28,699 |
|
|
|
13,199 |
|
Income tax provision |
|
|
(1,010 |
) |
|
|
(1,385 |
) |
|
|
(533 |
) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
38,822 |
|
|
$ |
27,314 |
|
|
$ |
12,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share* |
|
$ |
1.24 |
|
|
$ |
0.93 |
|
|
$ |
0.45 |
|
Diluted earnings per common share* |
|
$ |
1.03 |
|
|
$ |
0.76 |
|
|
$ |
0.40 |
|
Basic weighted average shares outstanding* |
|
|
31,398 |
|
|
|
29,514 |
|
|
|
27,917 |
|
Diluted weighted average shares outstanding* |
|
|
38,014 |
|
|
|
36,780 |
|
|
|
31,604 |
|
|
|
|
* |
|
Adjusted for all periods presented to reflect the effect of the 3-for-1 stock split dated
January 4, 2010; see Note 2 |
See accompanying notes to consolidated financial statements.
39
Ebix, Inc. and Subsidiaries
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands, |
|
|
|
except share amounts) |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
19,227 |
|
|
$ |
9,475 |
|
Short-term investments |
|
|
1,799 |
|
|
|
1,536 |
|
Trade
accounts receivable, less allowances of $565 and $453, respectively |
|
|
22,861 |
|
|
|
13,562 |
|
Other current assets |
|
|
2,628 |
|
|
|
951 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
46,515 |
|
|
|
25,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
7,865 |
|
|
|
3,774 |
|
Goodwill |
|
|
157,245 |
|
|
|
88,488 |
|
Intangibles, net |
|
|
20,505 |
|
|
|
10,235 |
|
Indefinite-lived intangibles |
|
|
29,223 |
|
|
|
11,589 |
|
Other assets |
|
|
814 |
|
|
|
1,557 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
262,167 |
|
|
$ |
141,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
11,060 |
|
|
$ |
8,245 |
|
Accrued payroll and related benefits |
|
|
3,634 |
|
|
|
2,709 |
|
Short term debt |
|
|
23,100 |
|
|
|
24,945 |
|
Current portion of convertible debt, net of discount of $706 and $0, respectively |
|
|
28,681 |
|
|
|
11,518 |
|
Current portion of long term debt and capital lease obligation |
|
|
596 |
|
|
|
912 |
|
Deferred revenue |
|
|
7,754 |
|
|
|
5,383 |
|
Other current liabilities |
|
|
272 |
|
|
|
142 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
75,097 |
|
|
|
53,854 |
|
|
|
|
|
|
|
|
Convertible debt |
|
|
|
|
|
|
15,000 |
|
Other long term debt and capital lease obligation, less current portion |
|
|
671 |
|
|
|
290 |
|
Other liabilities |
|
|
2,965 |
|
|
|
941 |
|
Deferred tax liability, net |
|
|
5,147 |
|
|
|
|
|
Put option liability |
|
|
6,596 |
|
|
|
|
|
Deferred revenue |
|
|
269 |
|
|
|
330 |
|
Deferred rent |
|
|
679 |
|
|
|
610 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
91,424 |
|
|
|
71,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies, Note 7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Convertible Series D Preferred stock, $.10 par value, 500,000 shares authorized, no shares issued and outstanding at December 31, 2009 and 2008 |
|
|
|
|
|
|
|
|
Common stock*, $.10 par value, 60,000,000 shares authorized, 34,474,608 issued and 34,434,099 outstanding at December 31, 2009 and 30,019,365
issued and 29,840,130 outstanding at December 31, 2008 |
|
|
3,443 |
|
|
|
981 |
|
Additional paid-in capital |
|
|
158,404 |
|
|
|
111,641 |
|
Treasury
stock* (40,509 and 179,235 shares as of December 31, 2009 and December 31, 2008 respectively) |
|
|
(76 |
) |
|
|
(1,178 |
) |
Retained earnings (accumulated deficit) |
|
|
8,623 |
|
|
|
(30,199 |
) |
Accumulated other comprehensive income (loss) |
|
|
349 |
|
|
|
(11,103 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
170,743 |
|
|
|
70,142 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
262,167 |
|
|
$ |
141,167 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Adjusted for all periods presented to reflect the
effect of the 3-for-1 stock split dated January 4, 2010; see
Note 2 |
See accompanying notes to consolidated financial statements.
40
Ebix, Inc. and Subsidiaries
Consolidated Statements of Stockholders Equity and Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
Common Stock* |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury |
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Comprehensive |
|
|
|
|
|
|
|
|
|
|
Issued |
|
|
|
|
|
|
Stock |
|
|
Treasury |
|
|
Paid-in |
|
|
Retained |
|
|
(Loss) |
|
|
|
|
|
|
Comprehensive |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Stock |
|
|
Capital* |
|
|
Earnings |
|
|
Income |
|
|
Total |
|
|
Income |
|
|
|
(In thousands, except share amounts) |
|
Balance, January 1, 2007 |
|
|
25,714,602 |
|
|
$ |
286 |
|
|
|
(80,010 |
) |
|
$ |
(149 |
) |
|
$ |
94,914 |
|
|
$ |
(70,179 |
) |
|
$ |
839 |
|
|
$ |
25,711 |
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,666 |
|
|
|
|
|
|
|
12,666 |
|
|
$ |
12,666 |
|
Cumulative translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,841 |
|
|
|
1,841 |
|
|
|
1,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock (net of issuance costs) |
|
|
4,472,298 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
18,895 |
|
|
|
|
|
|
|
|
|
|
|
18,943 |
|
|
|
|
|
Exercise of stock options |
|
|
370,197 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
641 |
|
|
|
|
|
|
|
|
|
|
|
644 |
|
|
|
|
|
Restricted stock compensation |
|
|
99,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153 |
|
|
|
|
|
|
|
|
|
|
|
153 |
|
|
|
|
|
Compensation related to the vesting of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168 |
|
|
|
|
|
|
|
|
|
|
|
168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007 |
|
|
30,656,106 |
|
|
|
337 |
|
|
|
(80,010 |
) |
|
$ |
(149 |
) |
|
$ |
114,771 |
|
|
$ |
(57,513 |
) |
|
$ |
2,680 |
|
|
$ |
60,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,314 |
|
|
|
|
|
|
|
27,314 |
|
|
$ |
27,314 |
|
Cumulative translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,108 |
) |
|
|
(15,108 |
) |
|
|
(15,108 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock (net of issuance costs) |
|
|
1,530,000 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
12,502 |
|
|
|
|
|
|
|
|
|
|
|
12,519 |
|
|
|
|
|
Exercise of stock options |
|
|
308,457 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
1,236 |
|
|
|
|
|
|
|
|
|
|
|
1,240 |
|
|
|
|
|
Restricted stock compensation |
|
|
200,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
591 |
|
|
|
|
|
|
|
|
|
|
|
591 |
|
|
|
|
|
Compensation related to the vesting of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
107 |
|
|
|
|
|
Repurchase of common stock |
|
|
(3,631,500 |
) |
|
|
(41 |
) |
|
|
(99,225 |
) |
|
|
(1,029 |
) |
|
|
(24,216 |
) |
|
|
|
|
|
|
|
|
|
|
(25,286 |
) |
|
|
|
|
Conversion of principal and interest on Convertible promissory notes |
|
|
1,217,691 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
8,610 |
|
|
|
|
|
|
|
|
|
|
|
8,639 |
|
|
|
|
|
Effect 3-1 stock split |
|
|
|
|
|
|
635 |
|
|
|
|
|
|
|
|
|
|
|
(635 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
(261,954 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,325 |
) |
|
|
|
|
|
|
1,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
|
30,019,365 |
|
|
$ |
981 |
|
|
|
(179,235 |
) |
|
$ |
(1,178 |
) |
|
$ |
111,641 |
|
|
$ |
(30,199 |
) |
|
$ |
(11,103 |
) |
|
$ |
70,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,822 |
|
|
|
|
|
|
|
38,822 |
|
|
|
38,822 |
|
Cumulative translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,452 |
|
|
|
11,452 |
|
|
|
11,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
50,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
302,163 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
1,555 |
|
|
|
|
|
|
|
|
|
|
|
1,565 |
|
|
|
|
|
Restricted stock compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,153 |
|
|
|
|
|
|
|
|
|
|
|
1,153 |
|
|
|
|
|
Compensation related to the vesting of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216 |
|
|
|
|
|
|
|
|
|
|
|
216 |
|
|
|
|
|
Repurchase of common stock |
|
|
(48,672 |
) |
|
|
(2 |
) |
|
|
(31,950 |
) |
|
|
(205 |
) |
|
|
(298 |
) |
|
|
|
|
|
|
|
|
|
|
(505 |
) |
|
|
|
|
Retirement of treasury stock |
|
|
(170,676 |
) |
|
|
|
|
|
|
170,676 |
|
|
|
1,307 |
|
|
|
(1,307 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of principal and interest on Convertible promissory notes |
|
|
2,790,186 |
|
|
|
93 |
|
|
|
|
|
|
|
|
|
|
|
22,262 |
|
|
|
|
|
|
|
|
|
|
|
22,355 |
|
|
|
|
|
Effect 3-1 stock split |
|
|
|
|
|
|
2,295 |
|
|
|
|
|
|
|
|
|
|
|
(2,295 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed interest on issuance of convertible debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
534 |
|
|
|
|
|
|
|
|
|
|
|
534 |
|
|
|
|
|
Shares subscribed for business acquisitions |
|
|
1,488,984 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
24,950 |
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
|
|
Vesting of restricted stock |
|
|
93,258 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
|
34,474,608 |
|
|
$ |
3,443 |
|
|
|
(40,509 |
) |
|
$ |
(76 |
) |
|
$ |
158,404 |
|
|
$ |
8,623 |
|
|
$ |
349 |
|
|
$ |
170,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Adjusted for all periods presented to reflect the effect of the 3-for-1 stock
split dated January 4, 2010; see Note 2 |
See accompanying notes to consolidated financial statements.
41
Ebix, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
38,822 |
|
|
$ |
27,314 |
|
|
$ |
12,666 |
|
Cumulative effect of adoption of FIN 48 |
|
|
|
|
|
|
|
|
|
|
(455 |
) |
Adjustments to reconcile net income before cumulative effect of the adoption of FIN 48 to cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
3,955 |
|
|
|
3,306 |
|
|
|
2,599 |
|
Provision for doubtful accounts |
|
|
321 |
|
|
|
298 |
|
|
|
121 |
|
Provision for deferred taxes |
|
|
(2,615 |
) |
|
|
(1,846 |
) |
|
|
|
|
Unrealized foreign exchange gain on forward contracts |
|
|
(500 |
) |
|
|
|
|
|
|
|
|
Unrealized gain on put option |
|
|
(89 |
) |
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
1,369 |
|
|
|
698 |
|
|
|
317 |
|
Changes in current assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(8,619 |
) |
|
|
(163 |
) |
|
|
(803 |
) |
Other assets |
|
|
(577 |
) |
|
|
737 |
|
|
|
(1,952 |
) |
Accounts payable and accrued expenses |
|
|
1,127 |
|
|
|
(1,284 |
) |
|
|
377 |
|
Accrued payroll and related benefits |
|
|
587 |
|
|
|
84 |
|
|
|
(32 |
) |
Deferred rent |
|
|
27 |
|
|
|
(109 |
) |
|
|
568 |
|
Other liabilities |
|
|
109 |
|
|
|
60 |
|
|
|
1,491 |
|
Deferred revenue |
|
|
(40 |
) |
|
|
(2,270 |
) |
|
|
142 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
33,877 |
|
|
|
26,825 |
|
|
|
15,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Finetre, net of cash acquired |
|
|
|
|
|
|
|
|
|
|
(15 |
) |
Investment in Infinity, net of cash acquired |
|
|
|
|
|
|
(500 |
) |
|
|
(2,870 |
) |
Investment in IDS, net of cash acquired |
|
|
(1,000 |
) |
|
|
|
|
|
|
(11,253 |
) |
Investment in Telstra, net of cash acquired |
|
|
|
|
|
|
(42,942 |
) |
|
|
|
|
Investment in Periculum, net of cash acquired |
|
|
(200 |
) |
|
|
(1,067 |
) |
|
|
|
|
Investment in Acclamation, net of cash acquired |
|
|
(85 |
) |
|
|
(21,388 |
) |
|
|
|
|
Investment in Confirmnet, net of cash acquired |
|
|
(3,279 |
) |
|
|
(7,294 |
) |
|
|
|
|
(Purchases)/maturities of marketable securities, net |
|
|
(263 |
) |
|
|
(507 |
) |
|
|
280 |
|
Investment in Facts, net of cash acquired |
|
|
(6,215 |
) |
|
|
|
|
|
|
|
|
Investment in Peak Performance, net of cash acquired |
|
|
(7,894 |
) |
|
|
|
|
|
|
|
|
Investment in EZ Data, net of cash acquired |
|
|
(25,362 |
) |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(3,129 |
) |
|
|
(615 |
) |
|
|
(1,754 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(47,427 |
) |
|
|
(74,313 |
) |
|
|
(15,612 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of common stock, net of issuance costs |
|
|
|
|
|
|
12,519 |
|
|
|
18,945 |
|
Proceeds from / Repayment to line of credit, net |
|
|
(1,846 |
) |
|
|
9,295 |
|
|
|
16,400 |
|
Proceeds from the issuance of convertible debt |
|
|
25,000 |
|
|
|
15,000 |
|
|
|
20,000 |
|
Payments to acquire treasury stock |
|
|
|
|
|
|
(1,029 |
) |
|
|
|
|
Payments on line of credit |
|
|
|
|
|
|
|
|
|
|
(10,750 |
) |
Repurchase of common stock |
|
|
(505 |
) |
|
|
(24,246 |
) |
|
|
|
|
Payments of long term debt |
|
|
(742 |
) |
|
|
(500 |
) |
|
|
(966 |
) |
Payments for capital lease obligations |
|
|
(293 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
Proceeds from exercise of common stock options |
|
|
1,565 |
|
|
|
1,239 |
|
|
|
646 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
23,179 |
|
|
|
12,275 |
|
|
|
44,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rates on cash and cash equivalents |
|
|
123 |
|
|
|
(3,749 |
) |
|
|
1,034 |
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
9,752 |
|
|
|
(38,962 |
) |
|
|
44,733 |
|
Cash and cash equivalents at the beginning of the year |
|
|
9,475 |
|
|
|
48,437 |
|
|
|
3,704 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the year |
|
$ |
19,227 |
|
|
$ |
9,475 |
|
|
$ |
48,437 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
1,125 |
|
|
$ |
1,370 |
|
|
$ |
386 |
|
Income taxes paid |
|
|
4,752 |
|
|
|
1,937 |
|
|
|
7 |
|
Supplemental schedule of noncash financing activities:
During the year ended December 31, 2009 the holder of the convertible notes, Whitebox VSC, Ltd.,
converted $22.3 million of principal and accrued interest into 2,790,186 shares of the Companys
common stock.
During the year ended December 31, 2009 the Company issued
shares of common stock valued at $25.0 million in connection
with the acquisition of E-Z Data.
See accompanying notes to consolidated financial statements.
42
Ebix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1: Description of Business and Summary of Significant Accounting Policies
Description of BusinessEbix, Inc. and subsidiaries (Ebix or the Company) provides a
series of software products for the insurance and financial industries ranging from carrier
systems, agency systems and exchanges to custom software development for carriers, brokers, and
agents. Products include data exchanges, carrier systems, agency systems, and feature fully
customizable and scalable on-demand software designed to improve the way insurance professionals
manage all aspects of distribution, including: marketing, sales, service, accounting and
management. The Company has its headquarters in Atlanta, Georgia and also operated in eight other
countries during 2009 including Australia, Canada, China, India, Japan, New Zealand, Singapore, and
the UK. International revenue accounted for 25%, 35% and 27% of total revenue in 2009, 2008 and
2007, respectively.
The Companys revenues are derived from four product channels. Presented in the table below is
the breakout of our revenue streams for each of those product channels the years ended December 31,
2009, 2008, and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended |
|
|
|
December 31, |
|
(dollar amounts in thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Carrier Systems |
|
$ |
10,624 |
|
|
$ |
11,314 |
|
|
$ |
10,844 |
|
Exchanges |
|
$ |
60,764 |
|
|
$ |
42,711 |
|
|
$ |
19,709 |
|
Business Process Outsourcing (BPO) |
|
$ |
14,698 |
|
|
$ |
8,380 |
|
|
$ |
1,250 |
|
Broker Systems |
|
$ |
11,599 |
|
|
$ |
12,347 |
|
|
$ |
11,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
97,685 |
|
|
$ |
74,752 |
|
|
$ |
42,841 |
|
|
|
|
|
|
|
|
|
|
|
Summary of Significant Accounting Policies
Basis of PresentationThe consolidated financial statements include the accounts of Ebix and
its wholly-owned subsidiaries which include:
Ebix.com, International, Inc., a Delaware corporation
Ebix International, LLC, a Delaware limited liability company
EbixLife Inc., a Utah corporation
Finetre Corporation, an Indiana corporation
Ebix BPO Division San Diego, a California corporation
Jenquest, Inc., a California corporation
Acclamation Systems, Inc., a Pennsylvania corporation
FACTS Services Inc., a Florida corporation
E-Z Data, Acquisition Sub, LLC, a California limited liability company
Peak Performance Solutions, Inc., a Delaware limited liability company
Ebix Software India Private Limited
Ebix Australia Pty,. Ltd.
Ebix Australia (VIC) Pty. Ltd.
Ebix Insurance Agency, Inc., an Illinois corporation
Ebix New Zealand
Ebix New Zealand Holdings
Ebix Singapore PTE LTD
Ebix Software Asia SEZ, Private Limited
EIH Holdings KB
EIH Holdings AB
Ebix Asia Holdings Inc.
Ebix Exchange PTY LTD
43
The effect of inter-company balances and transactions has been eliminated.
Use of EstimatesThe preparation of consolidated financial statements in conformity with U.S.
generally accepted accounting principles 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 reported amounts of revenue and expenses
during the reporting periods. Management has made material estimates primarily with respect to
revenue recognition and deferred revenue, accounts receivable, acquired intangible assets, and the
provision for income taxes. Actual results may be materially different from those estimates.
Segment ReportingSince the Company, from the perspective of its chief
operating decision maker, allocates resources and evaluates business performance as a single
entity that provides software and related services to a single industry on a worldwide basis, the
Company reports as a single segment. The applicable enterprise-wide
disclosures are included in Note 15.
Cash and Cash EquivalentsThe Company considers all highly liquid investments with an
original maturity of three months or less at the time of purchase to be cash equivalents. Such
investments are stated at cost, which approximates fair value. The Company does maintain cash
balances in banking institutions in excess of federally insured amounts and therefore is exposed to
the related potential credit risk associated with such cash deposits.
Short-term InvestmentsThe Companys short-term investments consist of certificates of
deposits with established commercial banking institutions with readily determinable fair values.
Ebix accounts for investments that are reasonably expected to be realized in cash, sold or consumed
during the year as short-term investments that are available-for-sale. The carrying amount of
investments in marketable securities approximates fair value. The carrying value of our short-term
investments was $1.8 million and $1.5 million at December 31, 2009 and 2008 respectively.
Fair Value of Financial InstrumentsThe
Company believes the carrying amount of cash and cash
equivalents, short-term investments, accounts receivable, accounts payable, accrued expenses,
accrued payroll and related benefits, line of credit and capital
lease obligations is a reasonable estimate of their fair
value due to the short remaining maturity of these items and/or their fluctuating interest rates.
We also believe that the Companys convertible debt, as reported
net of the associated unamortized discount, is being carried at its
approximate fair value.
Revenue Recognition and Deferred Revenue The Company derives its revenues primarily from
professional and support services, which includes revenue generated from software development
projects and associated fees for consulting, implementation, training, and project management
provided to customers with installed systems, subscription and transaction fees pertaining to
services delivered over our exchanges or from our application service provider (ASP) platforms,
and business process outsourcing revenue. Sales and value-added taxes are not included in revenues,
but rather are recorded as a liability until the taxes assessed are remitted to the respective
taxing authorities.
In accordance with FASB and Securities and Exchange Commission Staff Accounting (SEC)
accounting guidance on revenue recognition the Company considers revenue earned and realizable
when: (a) persuasive evidence of the sales arrangement exists, (b) the arrangement fee is fixed or
determinable, (c) service delivery or performance has occurred, (d) customer acceptance has been
received, if contractually required, and (e) collectability of the arrangement fee is probable. The
Company typically uses signed contractual agreements as persuasive evidence of a sales arrangement.
We apply the provisions of the relevant FASB accounting pronouncements related to all transactions
involving the license of software where the software deliverables are considered more than
inconsequential to the other elements in the arrangement. For contracts that contain multiple
deliverables, we analyze the revenue arrangements in accordance with the appropriate authoritative
guidance, which provides criteria governing how to determine whether goods or services that are
delivered separately in a bundled sales arrangement should be considered as separate units of
accounting for the purpose of revenue recognition. Deliverables are accounted for separately if they meet all of the following criteria: a) the
delivered item has value to the customer on a stand-alone basis; b) there is objective and reliable
evidence of the fair value of the undelivered items; and c) if the arrangement includes a general
right of return relative to the delivered items, the delivery or performance of the undelivered
items is probable and substantially controlled by the Company.
44
The Company begins to recognize revenue from license fees for its ASP products upon delivery
and the customers acceptance of the software implementation and customizations if applicable.
Transaction services fee revenue for this use of our exchanges or ASP platforms is recognized as
the transactions occur and are generally billed in arrears. Revenues from BPO arrangements, which
include call center services, services are primarily performed on a time and material basis, and
insurance certificate creation and tracking services are recognized the services are performed.
Service fees for hosting arrangements are recognized over the requisite service period. Revenue
derived from the licensing of third party software products in connection with sales of the
Companys software licenses and is recognized upon delivery together with the Companys licensed
software products. Training, data conversion, installation, and consulting services fees are
recognized as revenue when the services are performed. Revenue for maintenance and support services
is recognized ratably over the term of the support agreement. Revenues derived from initial setup
or registration fees are recognized ratably over the term of the agreement in accordance with FASB
and SEC accounting guidance on revenue recognition.
Software development arrangements involving significant customization, modification or
production are accounted for in accordance with the appropriate technical accounting guidance
issued by the FASB using the percentage-of-completion method. The Company recognizes revenue using
periodic reported actual hours worked as a percentage of total expected hours required to complete
the project arrangement and applies the percentage to the total arrangement fee.
Deferred revenue includes maintenance and support payments or billings that have been received
and recorded prior to performance and, in certain cases, cash collections; initial setup or
registration fees under hosting agreements; software license fees received in advance of delivery,
acceptance, and/or completion of the earnings process; and amounts received under multi-element
arrangements in which objective evidence of the fair value for the undelivered elements does not
exist. In these instances revenue is recognized when the fair value of the undelivered elements is
determinable or when all contractual. Approximately $4.1 million and $2.7 million of deferred
revenue were included in accounts receivable at December 31, 2009 and 2008 respectively.
Allowance for Doubtful Accounts ReceivableManagement specifically analyzes accounts
receivable and historical bad debts, write-offs, customer concentrations, customer
credit-worthiness, current economic trends and changes in our customer payment terms when
evaluating the adequacy of the allowance for doubtful accounts. Bad debt expense was $321 thousand
and $298 thousand during the twelve months ended December 31, 2009 and 2008, respectively. The
Company currently has $393 thousand of accounts receivable that has been outstanding for more than
a year over, all which is fully covered by the allowance for doubtful accounts.
Costs of Services ProvidedCosts of services provided consist of data processing costs,
customer support costs including personnel costs to maintain our proprietary databases, costs to
provide customer call center support, hardware and software expense associated with transaction
processing systems, telecommunication and computer network expense, and occupancy costs associated
with facilities where these functions are performed. Depreciation expense is not included in costs
of services provided.
Goodwill and Indefinite-Lived Intangible Assets Goodwill represents the cost in excess of
the fair value of the identifiable net assets of acquired businesses. In accordance with the relevant FASB accounting guidance goodwill is
tested for impairment at the reporting unit level on an annual basis or on an
interim basis if an event occurred or circumstances change that would indicate that fair value of a
reporting unit below decreased below its carrying value. Potential impairment indicators include a
significant change in the business climate, legal factors, operating performance indicators,
competition, and the sale or disposition of a significant portion of the business. The testing
involves comparing the reporting unit and intangible asset carrying values to their respective fair
values; we determine fair value by applying the discounted cash flow method using the present value
of future estimated net cash flows. If the fair value of a reporting unit exceeds its carrying
value, then no further testing is required. However, if a reporting units fair value were to be
less than its carrying value, we would then determine the amount of the impairment charge, if any,
which would be the amount that the carrying value of the reporting units goodwill exceeded its
implied value. Projections of cash flows are based on our views of growth rates, anticipated future
economic conditions and the appropriate discount rates relative to risk and estimates of residual
values. We believe that our estimates are consistent with assumptions that marketplace participants
would use in their estimates of fair value. The use of different estimates or assumptions for our
projected discounted cash flows (e.g., growth rates, future economic conditions, discount
rates and estimates of terminal values) when determining the fair value of our reporting units
could result in different values and may result in a goodwill impairment charge. We perform our
annual goodwill impairment test as of September 30 each year. During the years ended December 31,
2009, 2008, and 2007, we had no impairment of our reporting unit goodwill balances.
45
During 2009 the Company recorded $56.0 million of goodwill in connection with the recent
acquisitions of E-Z Data, Inc. (E-Z Data), Peak Performance Solutions, Inc.
(Peak), and Facts Services, Inc. (Facts). During 2008 the Company recorded $58.3 million of
adjustments to goodwill in connection with the prior acquisitions of
Telstra eBusiness Services (Telstra), Periculum Services
Group (Periculum),
Acclamation Systems, Inc. (Acclamation), and ConfirmNet Corporation (ConfirmNet).
Changes in the carrying amount of goodwill for the year ended December 31, 2009 and
December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Beginning Balance |
|
$ |
88,488 |
|
|
$ |
36,408 |
|
Additions |
|
|
60,118 |
|
|
|
59,822 |
|
Foreign currency translation adjustments |
|
|
8,639 |
|
|
|
(7,742 |
) |
|
|
|
|
|
|
|
Ending Balance |
|
$ |
157,245 |
|
|
$ |
88,488 |
|
|
|
|
|
|
|
|
The Companys indefinite-lived assets are associated with the estimated fair value of the
contractual customer relationships existing with nine property and casualty insurance carriers in
Australia using our property and casualty (P&C) data exchange and with ten corporate customers
using our client relationship management (CRM) platform in the United States. Prior to the
underlying business acquisitions Ebix had contractual relationships with these carriers and
corporate clients. The contracts are renewable at little or no cost, and Ebix intends to continue
to renew these contracts indefinitely and has the ability to do so. The proprietary technology
supporting the data exchange and CRM platform, and used to deliver services to these carriers and
corporate clients cannot feasibly be effectively replaced in the foreseeable future, and
accordingly the cash flows forthcoming from these customers are expected to continue indefinitely.
With respect to the determination of the indefinite life, the Company considered the expected use
of these intangible assets, historical experience in renewing or extending similar arrangements,
and the effects of competition, and concluded that there were no indications from these factors to
suggest that the expected useful life of these customer relationships would be finite. The Company
concluded that no legal, regulatory, contractual, or competitive factors limited the useful life
these intangible assets and therefore their life was considered to be indefinite, and accordingly
the Company expects these customer relationships to remain the same for the foreseeable future.
The fair values of these indefinite-lived intangible assets were based on the analysis of
discounted cash flow (DCF) models extended out fifteen to twenty years. In that indefinite-lived
does not imply an infinite life, but rather means that the subject customer relationships are
expected to extend beyond the foreseeable time horizon, we utilized fifteen to twenty year DCF
projections, as the valuation models that were applied consider a fifteen to twenty year time frame
to be an indefinite period. Indefinite-lived intangible assets are not amortized, but rather are
tested for impairment annually. We perform our annual impairment testing of indefinite-lived
intangible assets as of September 30th of each year. During the years ended December
31, 2009, 2008, and 2007, we had no impairments to the recorded balances of our indefinite-lived
intangible assets. We perform the impairment test for our indefinite-lived intangible assets by
comparing the assets fair value to its carrying value. An impairment charge is recognized if the
assets estimated fair value is less than its carrying value. In connection with the acquisition of
Telstra during the first quarter of 2008 and the related purchase price allocation, an
indefinite-lived asset in the amount of $14.7 million was recorded with respect to the contractual
customer relationships existing with the property and casualty insurance carriers in Australia. In
connection with the acquisition of E-Z Data during the fourth quarter of 2009 and the related
purchase price allocation, an indefinite-lived asset in the amount of $14.2 million was recorded
with respect to the contractual customer relationships existing with corporate customers using our
CRM platform in the United States.
46
Purchased Intangible AssetsPurchased intangible assets represent the estimated fair value of
acquired intangible assets through synergistic combination of the business that we purchase in the
U.S. and foreign countries in which we operate. These purchased intangible assets include customer
relationships, developed technology, and trademarks acquired. We amortize these intangible assets
on a straight-line basis over their estimated useful lives, as follows:
|
|
|
|
|
|
|
Life |
|
Category |
|
(yrs) |
|
Customer relationships |
|
|
4-20 |
|
Developed technology |
|
|
3-7 |
|
Trademarks |
|
|
5-10 |
|
Non-compete agreements |
|
|
5 |
|
Intangible assets for the year ended December 31, 2009 and December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Intangible assets: |
|
|
|
|
|
|
|
|
Customer relationships |
|
$ |
19,773 |
|
|
$ |
11,373 |
|
Developed technology |
|
|
7,935 |
|
|
|
4,762 |
|
Trademarks |
|
|
218 |
|
|
|
656 |
|
Non-compete agreements |
|
|
418 |
|
|
|
|
|
Backlog |
|
|
140 |
|
|
|
140 |
|
|
|
|
|
|
|
|
Total intangibles |
|
|
28,484 |
|
|
|
16,931 |
|
Accumulated amortization |
|
|
(7,979 |
) |
|
|
(6,696 |
) |
|
|
|
|
|
|
|
Intangibles, net |
|
$ |
20,505 |
|
|
$ |
10,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangibles: |
|
|
|
|
|
|
|
|
Customer/territorial relationships |
|
$ |
29,223 |
|
|
$ |
11,589 |
|
Income TaxesThe Company follows the asset and liability method of accounting for income
taxes pursuant to the pertinent guidance issued by the FASB. Deferred income taxes are recorded to
reflect the tax consequences on future years of differences between the tax basis of assets and
liabilities, and operating loss and tax credit carry forwards, and their financial reporting
amounts at each period end using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. In assessing the
realizability of the deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. A valuation allowance is
recorded for the portion of the deferred tax assets that are not expected to be realized based on
the levels of historical taxable income and projections for future taxable income over the periods
in which the temporary differences will be deductible.
The Company follows the provisions of FASB accounting guidance on accounting for uncertain
income tax positions. The guidance utilizes a two-step approach for evaluating tax positions.
Recognition (Step 1) occurs when an enterprise concludes that a tax position, based solely on its
technical merits is more likely than not to be sustained upon examination. Measurement (Step 2)
is only addressed if Step 1 has been satisfied. Under Step 2, the tax benefit is measured at the
largest amount of benefit, determined on a cumulative probability basis that is more likely than
not to be realized upon final settlement. As used in this context, the term more likely than not
is interpreted to mean that the likelihood of occurrence is greater than 50%.
Foreign Currency TranslationThe functional currency of the Companys foreign subsidiaries is
generally the local currency of the country in which the subsidiary operates. The assets and
liabilities of foreign subsidiaries are translated into U.S. Dollars at the rates of exchange at
the balance sheet dates. Income and expense accounts are translated at the average exchange rates
in effect during the period. Gains and losses resulting from translation adjustments are included
as a component of other comprehensive income in the accompanying consolidated balance sheets.
Foreign exchange transaction gains and losses that are derived from transactions denominated in a
currency other than the subsidiarys functional currency are included in the determination of net
income.
AdvertisingAdvertising costs are expensed as incurred. Advertising costs amounted to $548
thousand, $413 thousand and $207 thousand in 2009, 2008 and 2007, respectively, and are included in
sales and marketing expenses in the accompanying consolidated statements of income.
47
Property and EquipmentProperty and equipment is stated at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed using the straight-line method over
the assets estimated useful lives. Leasehold improvements are amortized over the shorter of the
expected life of the improvements or the remaining lease term. Repairs and maintenance are charged
to expense as incurred and major improvements that
extend the life of the asset are capitalized and depreciated over the expected life remaining
life of the related asset. Gains and losses resulting from sales or retirements are recorded as
incurred, at which time related costs and accumulated depreciation are removed from the Companys
accounts. Fixed assets acquired in acquisitions are recorded at fair value. The estimated useful
lives applied by the Company for property and equipment are as follows:
|
|
|
|
|
|
|
Life |
|
Asset Category |
|
(yrs) |
|
Computer equipment |
|
|
5 |
|
Computer software |
|
|
3-5 |
|
Furniture, fixtures and other |
|
|
7 |
|
Buildings |
|
|
30 |
|
Leasehold improvements |
|
Life of the lease |
|
Recent Accounting Pronouncements In October 2009, the FASB issued amended revenue
recognition guidance for arrangements with multiple deliverables. The new guidance eliminates the
requirement that all undelivered elements have Vendor Specific Objective Evidence (VSOE) or Third
Party Evidence (TPE) before an entity can recognize the portion of an overall arrangement fee
that is attributable to items that already been delivered. In the absence of VSOE or TPE of the
standalone selling price for one or more delivered or undelivered elements in a multiple-element
arrangement, the overall arrangement fee will be allocated to each element (both delivered and
undelivered items) based on their relative estimated selling price.
In September 2009, FASB issued new guidance related to revenue arrangement with multiple
deliverables which: (a) provides application guidance on whether multiple deliverables exist in an
arrangement with a customer, and if so, how the arrangement consideration should be separated and
allocated; (b) requires an entity to allocate revenue using estimated selling prices of
deliverables if vendor-specific objective evidence or third party evidence of selling prices is not
available; and, (c) eliminates the use of the residual method to allocate revenue. This guidance
is to be applied on a prospective basis for revenue arrangements entered into in fiscal years
beginning on or after June 15, 2010, with earlier application permitted. Alternatively, an entity
can elect to adopt new guidance on a retrospective basis. The Company will adopt this new guidance
in 2011 and currently is in process of assessing its impact.
Also in September 2009, the FASB issued new guidance related to certain revenue arrangements
that include software elements which removes tangible products from the scope of previously issued
authoritative guidance on software revenue recognition and provides guidance on determining whether
software deliverables in an arrangement that include tangible products are within the scope of
existing software revenue guidance. This guidance is to be applied on a prospective basis for
revenue arrangements entered into in fiscal years beginning on or after June 15, 2010, with earlier
application permitted. Alternatively, an entity can elect to adopt new guidance on a retrospective
basis. The Company will adopt this new guidance in 2011 but does not expect its adoption to have a
material impact on our consolidated financial position, results of operations or cash flows, as the
sale of tangible products are not a significant component of the Companys revenues.
In May 2009, the FASB issued new accounting guidance related to accounting and disclosure of
subsequent events, which provides guidance to establish general standards of accounting for, and
disclosures of, events that occur after the balance sheet date but before financial statements are
issued or are available to be issued. The new guidance is effective for interim or fiscal periods
ending after June 15, 2009. Accordingly, the Company adopted the provisions of the guidance
effective from June 30, 2009. The adoption of this guidance did not have a material impact on our
consolidated financial position, results of operations or cash flows. The provisions of this new
guidance will result in additional disclosures with respect to subsequent events.
In April 2009, FASB issued new accounting guidance related to interim disclosure about the
fair value of the financial instruments. The guidance requires disclosures about fair value of
financial instruments in interim as well as annual financial statements. This guidance is effective
for periods ending after June 15, 2009. Accordingly, the Company adopted the guidance on September,
2009. The adoption of this guidance did not have a material impact on our consolidated financial
position, results of operations or cash flows. However, the provisions of the guidance
did result in additional disclosures with respect to the fair value of the Companys financial
instruments. See Note 11, Derivative Instruments, for these additional disclosures.
48
Furthermore in the April 2009 the FASB issued additional guidance regarding the
determination of fair which provides clarification in order to make fair value measurements more
consistent and reaffirms the objective of fair value measurements, specifically how much an asset
would be sold for in an orderly transaction (as opposed to a distressed or forced transaction) at
the date of the financial statements under current market conditions and emphasizes the need to use
judgment to ascertain if a formerly active market has become inactive and how to determine fair
values when markets have become inactive. The Company has adopted this accounting guidance, and its
adoption did not have material impact on our consolidated financial position and results of
operations.
In December 2007, the FASB issued new accounting guidance pertaining to the accounting for
business combinations and related disclosures. This new guidance addresses the recognition and
accounting for identifiable assets acquired, liabilities assumed, and non-controlling interests in
business combinations. The guidance also establishes expanded disclosure requirements for business
and improves the relevance, representational faithfulness, and comparability of the information
that a reporting entity provides in its financial reports about a business combination and its
effects. The guidance was effective for fiscal years beginning after December 15, 2008, and we
applied this new pronouncement to the 2009 acquisitions of EZ Data, Facts and Peak Performance.
Note
2: Earnings per Share and Stock Splits
The basic and diluted earnings per share (EPS), and the basic and diluted weighted average
shares outstanding for all periods presented in the accompanying Consolidated Statements of Income
have been adjusted to reflect the retroactive effect of the Companys three-for-one stock split
dated October 9, 2008 and the three-for-one stock split dated
January 4, 2010. The earnings per share information on a comparative
basis both prior to and after the subsequent event pertaining to the January 4, 2010 three-for-one
stock split is presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended |
|
|
|
December 31, |
|
|
|
(In thousands, except per share amounts) |
|
Earnings
per share: |
|
2009 |
|
|
2008 |
|
|
2007 |
|
As Reported |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
1.24 |
|
|
$ |
0.93 |
|
|
$ |
0.45 |
|
Diluted earnings per common share |
|
$ |
1.03 |
|
|
$ |
0.76 |
|
|
$ |
0.40 |
|
Basic weighted average shares outstanding |
|
|
31,398 |
|
|
|
29,514 |
|
|
|
27,917 |
|
Diluted weighted average shares outstanding |
|
|
38,014 |
|
|
|
36,780 |
|
|
|
31,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental (non-GAAP) pre-split information: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
3.71 |
|
|
$ |
2.78 |
|
|
$ |
1.36 |
|
Diluted earnings per common share |
|
$ |
3.10 |
|
|
$ |
2.28 |
|
|
$ |
1.20 |
|
Basic weighted average shares outstanding |
|
|
10,466 |
|
|
|
9,838 |
|
|
|
9,306 |
|
Diluted weighted average shares outstanding |
|
|
12,671 |
|
|
|
12,260 |
|
|
|
10,535 |
|
49
To calculate diluted earnings per share, interest expense related to convertible debt
excluding imputed interest, was added back to net income as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended |
|
|
|
December 31, |
|
|
|
(in thousands) |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Net income |
|
$ |
38,822 |
|
|
$ |
27,314 |
|
|
$ |
12,666 |
|
Convertible debt interest (excludes imputed interest) |
|
|
466 |
|
|
|
634 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
Net income for diluted earnings per share purposes |
|
$ |
39,288 |
|
|
$ |
27,948 |
|
|
$ |
12,684 |
|
|
|
|
|
|
|
|
|
|
|
Diluted
shares outstanding * |
|
|
38,014 |
|
|
|
36,780 |
|
|
|
31,604 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share * |
|
$ |
1.03 |
|
|
$ |
0.76 |
|
|
$ |
0.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Reflects the effect of the 3-for-1 stock split dated January 4, 2010 |
Basic EPS is equal to net income divided by the weighted average number of shares of
common stock outstanding for the period. Diluted EPS takes into consideration common stock
equivalents which for the Company consist of stock options, restricted stock, and convertible debt.
With respect to stock options, diluted EPS is calculated as if the Company had additional common
stock outstanding from the beginning of the year or the date of
grant or issuance, net of assumed repurchased shares using the treasury stock method. With
respect to convertible debt, diluted EPS is calculated as if the debt instrument had been converted
at the beginning of the reporting period or the date of issuance, whichever is later. Diluted EPS
is equal to net income plus interest expense on convertible debt, divided by the combined sum of
the weighted average number of shares outstanding and common stock equivalents. At December 31,
2009 there were approximately 135,000 shares potentially issuable with respect to stock options which could dilute
EPS in the future but which was excluded from the diluted EPS calculation because presently their
effect is anti-dilutive. Diluted shares outstanding determined as follows for each years ending
December 31, 2009, 2008, and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended |
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Basic wtd. avg. shares outstanding |
|
|
31,398,263 |
|
|
|
29,514,183 |
|
|
|
27,916,848 |
|
Incremental shares |
|
|
6,616,094 |
|
|
|
7,266,174 |
|
|
|
3,687,156 |
|
|
|
|
|
|
|
|
|
|
|
Diluted shares outstanding |
|
|
38,014,357 |
|
|
|
36,780,357 |
|
|
|
31,604,004 |
|
|
|
|
|
|
|
|
|
|
|
50
On July 29, 2008 the Board of Directors approved and declared a 3-for-1 stock split on shares
of Ebixs common stock (the Stock Split) effective October 9, 2008 (the Split Date) outstanding
as of the close of business on September 29, 2008. As a result of the Stock Split, every share of
the Companys common stock was converted into three shares common stock. Each stockholders
percentage ownership in the Company and proportional voting power remained unchanged after the
Stock Split. Furthermore, as a result of the Stock Split approximately 6.5 million additional
shares of common stock were issued and the Companys issued and outstanding common stock was
increased to approximately 9.8 million shares. The issuance of the additional shares was accounted
for as a stock dividend by the transfer of approximately $635 thousand from additional paid-in
capital to common stock. Shares reserved for issuance under the Companys
1996 Incentive Compensation Program, as amended and restated in 2006, and for the Companys 2.5%
convertible promissory notes were similarly adjusted. Information presented in these Consolidated
Financial Statements and accompanying notes have been retroactively adjusted for all periods
presented to reflect the retroactive effect of the stock split.
On October 10, 2009 the Companys Board of Directors approved a 3-for-1 stock split on
shares of its common stock (the 2010 Stock Split). The 2010 Stock Split was effective as of
January 4, 2010 for all shares outstanding as of the close of business on December 21, 2009 (the
record date). As a result of the 2010 Stock Split, every share of the Companys common stock
was converted into three shares of the Companys common stock. Each stockholders percentage
ownership in the Company and proportional voting power remains unchanged after the 2010 Stock
Split. Furthermore, as a result of the 2010 Stock Split approximately 23.0 million additional
shares of common stock were issued and the Companys issued and outstanding common stock
increased to approximately 34.5 and 34.4 million shares, respectively. The issuance of the
additional shares has been accounted for as a stock dividend by the transfer of approximately
$2.3 million from additional paid-in capital to common stock. Shares reserved for issuance under
the Companys 1996 Incentive Compensation Program, as amended and restated in 2006,
and for the Companys outstanding convertible promissory notes issued in
August 2009 were similarly adjusted.
Note 3: Business Acquisitions
The Companys business acquisitions are accounted for under the purchase method of accounting
in accordance with the FASBs accounting guidance on the accounting for business combinations.
Accordingly, the consideration paid by the Company for the businesses it purchases is allocated to
the assets and liabilities acquired based upon their estimated fair values as of the date of the
acquisition. The excess of the purchase price over the estimated fair values of assets acquired and
liabilities assumed is recorded as goodwill.
2009 Acquisitions
E-Z Data, Inc. Effective October 1, 2009, the Company acquired E-Z Data, Inc.
E-Z Data, with principal offices in Pasadena, CA, is a provider of on-demand customer relationship
management (CRM) solutions for insurance companies, brokers, agents, investment dealers, and
financial advisors. The Company acquired the business operations and intellectual property of E-Z
Data for an aggregate purchase price of $50.53 million paid to E-Z Datas shareholders consisting
of cash consideration in the amount of $25.53 million paid at closing and $25.00 million in shares
of our common stock valued at the average market closing price for the three most recent days prior
to September 30, 2009. Furthermore, under the terms of the agreement the E-Z Data sellers hold a
put option exercisable during the thirty-day period immediately following the two-year anniversary
date of the business acquisition, which if exercised would enable them to sell the underlying
shares of common stock back to the Company at a 10% discount off of the per-share value established
on the effective date of the closing of Ebixs acquisition of E-Z Data. This put option is
described in more detail in Note 11. The Company funded the cash portion of the purchase price for
this business acquisition using the proceeds from the Companys two convertible promissory notes
issued in late August 2009. The Company has added the E-Z Datas product line to its EbixExchange
division thereby providing access to the majority of the life and annuity desktop applications
across the United States. In summary in regards to the E-Z Data acquisition the Company recorded
goodwill in the amount of $43.8 million, an indefinite-life intangible asset of $14.2 million with
respect to existing contractual relationships with corporate clients, definite lived intangible
assets with respect to acquired retail customer relationships in the amount of $3.8 million and to
non-compete agreements in the amount of $418 thousand, and acquired developed technology in the
amount of $2.3 million.
Peak Performance Solutions, Inc. Effective October 1, 2009, Ebix acquired Peak
effective October 1, 2009. Pursuant to the terms of the stock purchase
agreement, the Company paid Peaks shareholders $8.0 million in cash for all of Peaks outstanding
stock. Peak, with operations based out of Columbus, OH, provides comprehensive, end-to-end
insurance software and technology solutions to insurance companies and self-insured entities for
workers compensation claims processing, risk management administration, and managed care tracking.
Peaks shareholders also retain the right to earn up to $1.5 million of future additional cash
compensation, if certain revenue targets are achieved during the 2010 calendar year, which was
accrued fully on December 31, 2009. The Company funded this acquisition with internal resources
using available cash reserves. In summary in regards to the Peak acquisition the Company recorded
goodwill in the amount of $7.5 million, and definite lived assets with respect to acquired customer
relationships in the amount of $2.1 million and acquired developed technology in the amount of $509
thousand.
51
Facts Services, Inc. Effective May 1, 2009, Ebix, Inc. acquired Facts, a Miami, Florida
based provider of fully automated software solutions for healthcare payers specializing in claims
processing, employee benefits, and managed care. Facts products are available in either an ASP or
self-hosted model. The Company paid the Facts shareholders $7.0 million for all of Facts stock.
The Company has combined Facts operations with its Pittsburgh health services division operating
under the name of EbixHealth, which includes operating results of Facts starting in the second
quarter of 2009. Ebix financed this acquisition with internal resources using available cash
reserves. The Company has recognized $4.7 million of goodwill and $2.2 million of intangible assets
in connection with the acquisition of Facts. The recognized goodwill pertains to the value of the
expected synergies to be derived from combining the operations of Facts with Ebix, and the value of
the acquired workforce.
2008 Acquisitions
ConfirmNet CorporationEffective November 1, 2008 Ebix acquired ConfirmNet
a provider of insurance certificate creation and tracking services. The Company paid
ConfirmNet shareholders $7.36 million for all of ConfirmNets stock, and the ConfirmNet
shareholders earned an additional $3.1 million for meeting certain revenue objectives which was
paid in the first quarter of 2009, and retain the right to earn up to an additional $3.5 million
if certain revenue targets for the year 2009 of the ConfirmNet
division are met,
of which $3.2 million was accrued at
December 31,
2009 and was recorded as an increase to goodwill. Also during the
year ended December 31, 2009, as a result of completing the valuation
of acquired assets, the Company reduced goodwill by $617 thousand.
Acclamation Systems, Inc.Effective August 1, 2008 Ebix acquired Acclamation
a developer of supplier software and e-commerce solutions to the health insurance
industry, effective August 1, 2008. The Company acquired all of the stock of Acclamation for a
payment of $22 million in cash and additional future payments of up to $3 million over a two year
period subsequent to the effective date of the acquisition if certain customer revenue targets for
Ebixs Health Benefits division are achieved. No accrual was made for any potential earnout as of
December 31, 2009. The Company also incurred approximately $85 thousand of costs primarily
consisting of legal, accounting, due diligence, and filing fees directly related to the closing of
the acquisition. Ebix financed this acquisition with a combination of the proceeds from the
issuance of convertible debt and available cash reserves. During the
year ending December 31, 2009, as a result of
the final working capital settlement,
the Company
recorded a $347 thousand increase to goodwill.
Periculum Services GroupEffective April 28, 2008 Ebix acquired Periculum
a provider of certificate of insurance tracking services. The Company acquired all of
the stock of Periculum for a payment of $1.1 million and
Periculums shareholders earned, and were paid, an additional
$200 thousand for meeting certain revenue objectives which was
recorded as an increase to goodwill during the year ended December
31, 2009.
Telstra eBusiness ServicesEffective January 2, 2008 Ebix acquired Telstra eBusiness Services
(Telstra) an insurance exchange located in Melbourne, Australia. The Company purchased all of the
stock of Telstra for a payment of $50 million Australian dollars (US $43.9 million). Telstra was a
wholly owned subsidiary of Telstra Services Solutions Holding Limited. The Company also incurred
approximately $368 thousand of expenses primarily consisting of legal, accounting, due diligence,
and filing fees directly related to the closing of the acquisition. Ebix financed this acquisition
with a combination of $1.6 million of available cash reserves, $16.5 million from the Companys
line of credit, $20.0 million of convertible debt, and $5.7 million from sales of the Companys
common stock. The operating results of Telstra have been included in the Companys reported net
income since the first quarter of 2008. The acquisition also gave rise to the elimination of
certain personnel of Telstra and as a the Company recognized a liability of $198 thousand related
to this elimination of personnel that was undertaken as part of the final integration plan that was
implemented immediately after the closing of the acquisition. The Company recognized an
indefinite-life intangible and associated estimated fair value with respect to the
contractual/territorial relationships existing with the property and casualty insurance carriers in
Australia. These contractual/territorial rights are perpetual in nature and, therefore, the useful
lives are considered indefinite. Indefinite-lived intangible assets are not amortized, but rather
are tested for impairment annually. In summary the Company recorded an indefinite-life intangible
asset with respect to the insurance carriers in the amount of $14.7 million, definite lived assets
with respect to acquired customer relationships in the amount of $2.6 million (with an
estimated useful life of 20 years), and acquired developed technology in the amount of $523
thousand (with an estimated useful life of 3 years).
During the year ended December 31, 2009, as a result of completing
the valuation of acquired intangible and tangible assets, the
Company recorded a $1.0 million increase to goodwill.
52
2007 Acquisition
IDS JenquestEffective November 1, 2007, Ebix acquired IDS Jenquest (IDS) a provider of
certificate of insurance tracking services. The Company paid IDS shareholders $11.25 million for
substantially all of IDSs stock. IDS shareholders retained the right to earn up to $1.0 million in
additional payments over one year if certain revenue or operating income targets of the IDS
division of Ebix were met. The earn-out of $1.0 million was achieved in the fourth quarter of 2008
and payment was remitted in the first quarter of 2009.
The following table summarizes the estimated fair value of the net assets acquired and the
liabilities assumed at the acquisition dates for those business combinations completed during 2009
and 2008:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Current assets |
|
$ |
1,919 |
|
|
$ |
7,638 |
|
Property and equipment |
|
|
2,065 |
|
|
|
817 |
|
Intangible assets |
|
|
11,276 |
|
|
|
5,809 |
|
Indefinite-lived intangibles |
|
|
14,240 |
|
|
|
14,748 |
|
Goodwill |
|
|
55,970 |
|
|
|
58,322 |
|
|
|
|
|
|
|
|
Total assets acquired |
|
|
85,470 |
|
|
|
87,334 |
|
Less: liabilities assumed |
|
|
(19,811 |
) |
|
|
(12,558 |
) |
|
|
|
|
|
|
|
Net assets acquired |
|
$ |
65,659 |
|
|
$ |
74,776 |
|
|
|
|
|
|
|
|
The following table summarizes the separately identified intangible assets acquired as a
result of the acquisitions that occurred during 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
Fair Value |
|
|
Useful Life |
|
|
Fair Value |
|
|
Useful Life |
|
Intangible asset category |
|
(in thousands) |
|
|
(in years) |
|
|
(in thousands) |
|
|
(in years) |
|
Customer relationships |
|
$ |
7,755 |
|
|
|
12.6 |
|
|
$ |
4,885 |
|
|
|
15.0 |
|
Developed technology |
|
|
3,103 |
|
|
|
5.0 |
|
|
|
924 |
|
|
|
3.9 |
|
Non-compete agreements |
|
|
418 |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquired intangible assets |
|
$ |
11,276 |
|
|
|
10.2 |
|
|
$ |
5,809 |
|
|
|
13.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated aggregated future amortization expense for the intangible assets recorded as part of
the Facts, Peak, E-Z Data, Confirmnet, Acclamation, Periculum, Telstra, IDS, and other prior
acquisitions is as follows:
|
|
|
|
|
Estimated Amortization Expenses: |
|
|
|
|
For the year ended December 31, 2010 |
|
$ |
3,317,000 |
|
For the year ended December 31, 2011 |
|
$ |
2,635,000 |
|
For the year ended December 31, 2012 |
|
$ |
2,348,000 |
|
For the year ended December 31, 2013 |
|
$ |
2,299,000 |
|
For the year ended December 31, 2014 |
|
$ |
2,036,000 |
|
For the years ending after December 31, 2014 |
|
$ |
7,870,000 |
|
The Company recorded $2.4 million, $2.3 million, $1.9 million of amortization expense related
to acquired intangible assets for the year ended December 31, 2009, 2008, and 2007, respectively.
Note
4: Pro Forma Financial Information (re: 2009 and 2008 acquisitions)
The following unaudited pro forma financial information for the year 2009 includes twelve months of pro forma financial results from the
acquisitions of Facts, E-Z Data, and Peak, as if these acquisitions had been made on January 1, 2008, whereas the Companys reported
financial statements for the year 2009 include only eight months of actual financial results for Facts, three months for E-Z Data,
and three months for Peak.
Similarly, the unaudited pro forma financial information for the year 2008 includes twelve months of pro forma financial results from the
acquisitions of Facts, E-Z Data Peak, Acclamation, ConfirmNet, and Periculum as if these acquisitions had been made on January 1, 2008,
whereas the Companys reported financial statements for the year 2008 include no financial information for the 2008 operating results
of Facts, Peak, and E-Z Data, and includes only five months of actual financial results for Acclamation, two months for ConfirmNet, and
eight months for Periculum.
53
This unaudited pro forma financial information is provided for informational purposes only and
does not project the Companys results of operations for any future period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported |
|
|
Pro Forma |
|
|
As Reported |
|
|
Pro Forma |
|
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
|
|
|
|
(unaudited) |
|
|
|
|
|
(unaudited) |
|
|
|
(In thousands) |
|
Revenue |
|
$ |
97,685 |
|
|
$ |
118,433 |
|
|
$ |
74,752 |
|
|
$ |
118,598 |
|
Net Income |
|
$ |
38,822 |
|
|
$ |
37,302 |
|
|
$ |
27,314 |
|
|
$ |
28,266 |
|
Basic EPS* |
|
$ |
1.24 |
|
|
$ |
1.19 |
|
|
$ |
0.93 |
|
|
$ |
0.91 |
|
Diluted EPS* |
|
$ |
1.03 |
|
|
$ |
0.99 |
|
|
$ |
0.76 |
|
|
$ |
0.76 |
|
|
|
|
* |
|
Adjusted to reflect the
effect of the 3-for-1 stock split dated January 4, 2010; see
Note 2. |
Note 5: Short-term Debt
As of December 31, 2009 the Companys short term debt consists of a $25.0 million revolving
line of credit facility with Bank of America Corporation. The line provides for a variable interest
rate at Libor plus 1.3% and is secured by a first security interest in substantially all of the
Companys assets. The underlying Loan and Security Agreement was set to expire on August 31, 2009,
however, as a result of further amendments to the Second Amended and Restated Loan and Security
Agreement (the Amended Loan Agreement) which was effective as of August 27, 2009, the revolving
credit line facility was extended to February 15, 2010 at the same Libor plus 1.3% interest rate.
The Amended Loan Agreement contains financial covenants that require a minimum annual profitability
of $1.0 million, limits the funded debt to EBITDA coverage ratio to a maximum of 2.50, and requires
at least $7.5 million of current assets at the end of each quarter. The Amended Loan Agreement
contains restrictive covenants concerning the incurrence of new debt and consummation of new
business acquisitions. The Company was in full compliance with all such financial and restrictive
covenants as of December 31, 2009. There have been no outstanding events of default.
As of December 31, 2009 the outstanding balance on the line was $23.1 million and the facility
carried an interest rate of 1.53%. During the year ending December 31, 2009 the Company borrowed
$27.1 million from the revolving line of credit facility and repaid $28.9 million against the
credit line. During the year ending December 31, 2008 the Company borrowed $9.3 million from the
revolving line of credit facility, and at year end 2008 the balance on the credit facility was
$24.9 million.
In February 2010 the Company entered into a new credit facility with Bank of America. This
arrangement is further described in Note 18.
Note 6: Convertible Debt
The
counterparties to our convertible debt arrangements are
significant shareholders of the Companys common stock.
During August 2009 the Company issued three convertible promissory notes raising a total of
$25.0 million. Specifically on August 26, 2009 the Company entered into a Convertible Note Purchase
Agreement with Whitebox VSC, Ltd (Whitebox) in an original amount of
$19.0 million, which amount is
convertible into shares of common stock at a conversion price of $16.00 per share, subject to
certain adjustments as set forth in the note. The note has a 0.0% stated interest rate. No warrants
were issued with this convertible note. The note is payable in full at its maturity date of
August 26, 2011. Also on August 26, 2009 the Company entered into a Convertible Note Purchase Agreement
with IAM Mini-Fund 14 Limited, a fund managed by Whitebox, in an
original amount of $1.0 million,
which amount is shares of common stock at a conversion price of $16.00 per share, subject to
certain adjustments as set forth in the note. The note has a 0.0% stated interest rate. No warrants
were issued with this convertible note. The note is payable in full at its maturity date of
August 26, 2011. Finally, on August 25, 2009 the Company entered into a Convertible Note Purchase
Agreement with the Rennes Foundation in an original amount of
$5.0 million, which amount is
potentially convertible into 300,000 shares of common stock at a conversion price of $16.67 per
share, subject to certain adjustments as set forth in the note. The note has a 0.0% stated interest
rate. No warrants were issued with this convertible note. The note is payable in full at its
maturity date of August 25, 2011. With respect to each of these convertible notes, and in
accordance with the terms of the notes, as understood between the Company and each of the holders,
upon a conversion election by the holder the Company must satisfy the related original
principal balance in cash and may satisfy the conversion spread (that being the excess of the
conversion value over the related original principal component) in either cash or stock at option
of the Company.
54
In regards to the convertible promissory notes issued in August 2009 and discussed in the
preceding paragraph, in May 2008 the FASB issued new accounting guidance related to the accounting
for convertible debt instruments that may be partially or wholly settled in cash upon conversion.
This guidance requires us to account separately for the liability and equity components of these
types of convertible debt instruments in a manner that reflects the Companys nonconvertible debt
borrowing rate when interest cost is recognized in subsequent periods. This guidance requires
bifurcation of the debt and equity components, re-classification of the then derived equity
component, and then accretion of the resulting discount on the debt as part of interest expense
recognized in the income statement. The guidance is effective for fiscal years beginning after
December 15, 2008. The application of this accounting guidance resulted in the Company recording
$24.15 million as the carrying amount of the debt component, and $852 thousand as debt discount and
the carrying amount for the equity component. The bifurcation of these convertible debt instruments
was based on the calculated fair value of similar debt instruments at August 2009 that do not have
a conversion feature and associated equity component. The annual interest rate determined for such
similar debt instruments in August 2009 was 1.75%. The resulting discount is being amortized to
interest expense over the two year term of the convertible notes. At December 31, 2009, the
carrying value of the Convertible Notes was $24.29 million and the unamortized debt discount was
$706 thousand. The liability component of these convertible notes is classified as a current
liability and is presented in the current portion of convertible debt in the Companys Consolidated
Balance Sheets because at December 31, 2009 our closing stock price was $16.28 per share,
therefore, these notes are considered to be current liabilities based on the relative conversion
prices. We recognized non-cash interest expense of $146 thousand during 2009 related to the
amortization of the discount on the liability component. At December 31, 2009 the if-converted
value of the notes exceeds their principal amounts by $229 thousand. For federal income tax
purposes, the issuance of the convertible notes is considered to be an issuance of debt with an
original issue discount. The amortization of this discount in future periods is not deductible for
tax purposes. Therefore, upon issuance of the debt, we recorded an adjustment of $318 thousand to
increase our deferred tax liabilities (included in other liabilities) and a corresponding reduction
of the related equity component which is in included in additional paid-in capital. Because the
principal amount of the convertible notes must be settled in cash upon conversion, the convertible
notes will only impact diluted earnings per share when the average price of our common stock
exceeds the conversion price, and then only to the extent of the incremental shares associated with
the conversion spread. We include the effect of the additional shares that may be issued from
conversion in our diluted net income per share calculation using the treasury stock method.
Previously the Company had two convertible debt instruments outstanding. Specifically on July
11, 2008, the Company entered into a Secured Convertible Note Purchase Agreement with Whitebox in
the original principal amount of $15.0 million, which amount is convertible into shares of common
stock at a conversion price of $9.33 per share, subject to certain adjustments as set forth in the
note. The note bears an interest rate of 2.5% per annum which is payable on an annual basis on July
11th of each year, each date of conversion (as to the principal amount being converted), and the
maturity date. No warrants were issued with this convertible note. The note is payable in full at
its maturity date of July 11, 2010. The Company has the option to cause a mandatory conversion and
the subsequent surrender of the note at a conversion price of $9.33 per share, if the average price
of the Companys common stock on the trading market exceeds $18.67 for any consecutive 30 trading
days. Through December 31, 2009 Whitebox converted $10.7 million of principal and accrued interest
into 1,144,356 shares of the Companys common stock.
Furthermore, on December 18, 2007, the Company entered into a Secured Convertible Note
Purchase Agreement (the Agreement) with Whitebox in the original principal amount of $20.0
million, which amount is convertible into shares of common stock at a conversion price of $7.09 per
share, subject to certain adjustments as set forth in the note. The note bore an interest rate of
2.5% per annum, payable on an annual basis on December 18th of each year, each date of conversion
(as to the principal amount being converted) and the maturity date. No warrants were issued with
this convertible note. The Company had the option to cause a mandatory conversion and the
subsequent surrender of the note at a conversion price of $7.09 per share, if the average price of
the Companys Common Stock on the trading market exceeds $14.22 for any consecutive 30 trading
days. Pursuant to Agreement, Ebix was obligated to file with the SEC this registration statement
for the underlying shares of our common stock and use its reasonable best efforts to cause the SEC
to declare the registration statement effective. This registration statement, number 333-150371,
became effective on February 18, 2009. On October 7, 2009 the Company exercised its rights
as provided in the Agreement and elected to exercise its mandatory conversion option.
Accordingly the Company caused Whitebox to surrender the underlying 2.5% Secured Convertible
Promissory Note due December 18, 2009, and to convert the remaining principal on said Note in the
amount of $5.3 million together with accrued interest thereon in the amount of $105 thousand into
762,810 shares of the Companys common stock at the conversion price of $7.09 per share.
55
Note 7: Commitments and Contingencies
Lease CommitmentsThe Company leases office space under non-cancelable operating leases with
expiration dates ranging through 2015, with various renewal options. Capital leases range from
three to five years and are primarily for computer equipment. There were multiple assets under
various individual capital leases at December 31, 2009 and 2008, respectively.
Commitments for minimum rentals under non-cancellable leases and debt obligations as of
December 31, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
Debt |
|
|
Capital Leases |
|
|
Operating Leases |
|
|
|
(in thousands) |
|
2010 |
|
$ |
27,487 |
|
|
$ |
744 |
|
|
$ |
3,118 |
|
2011 |
|
|
25,000 |
|
|
|
374 |
|
|
|
2,560 |
|
2012 |
|
|
|
|
|
|
177 |
|
|
|
1,966 |
|
2013 |
|
|
|
|
|
|
87 |
|
|
|
1,529 |
|
2014 |
|
|
|
|
|
|
20 |
|
|
|
1,087 |
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
52,487 |
|
|
$ |
1,402 |
|
|
$ |
10,410 |
|
|
|
|
|
|
|
|
|
|
|
Less: sublease income |
|
|
|
|
|
|
|
|
|
|
(142 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net lease payments |
|
|
|
|
|
$ |
1,402 |
|
|
$ |
10,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: amount representing interest |
|
|
|
|
|
|
(135 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of obligations under capital leases |
|
|
|
|
|
$ |
1,267 |
|
|
|
|
|
Less: current portion |
|
|
(52,487 |
) |
|
|
(596 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term obligations |
|
$ |
|
|
|
$ |
671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental expense for office facilities and certain equipment subject to operating leases
for 2009, 2008 and 2007 was $2.7 million, $2.3 million, and $1.9 million, respectively.
Sublease income for 2009, 2008 and 2007 was $141 thousand, $175 thousand, and $258 thousand,
respectively.
ContingenciesThe Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the Companys consolidated financial position,
results of operations or liquidity.
Self InsuranceFor most of the Companys U.S. employees, the Company is currently
self-insured for its health insurance and has a stop loss policy that limits the individual
liability to $100 thousand per person and the aggregate liability to 125% of the expected claims
based upon the number of participants and historical claims. As of December 31, 2009, the amount
accrued on the Companys consolidated balance sheet was $132 thousand. The maximum potential
estimated cumulative liability for the annual contract period, which ends in September 2010, is
$1.4 million.
Note 8: Share-based Compensation
Stock OptionsThe Company accounts for
compensation expense associated with stock options issued to employees, Directors, and non-employees based on their fair value, which
is calculated using an option pricing model, and is recognized over the service period, which is
usually the vesting period. At December 31, 2009, the Company had two share-based compensation
plans. No stock options were granted to employees during 2009, 2008, or 2007; however, options were
granted to Directors in 2009 and 2008 but no options were granted to Directors during 2007. Stock
compensation expense of $216 thousand, $107 thousand, and $168 thousand was recognized during the
year ending December 31, 2009, 2008, and 2007 respectively on outstanding and unvested options.
56
The fair value of options granted during the twelve months ended 2009, 2008 and 2007 is
estimated on the date of grant using the Black-Scholes option pricing model. The following table
includes the weighted- average assumptions used in estimating the fair values and the resulting
weighted-average fair value of stock options granted in the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Weighted average fair values of stock options granted |
|
$ |
17.58 |
|
|
$ |
21.38 |
|
|
$ |
N/A |
|
Expected volatility |
|
63.2 |
% |
|
|
51.4 |
% |
|
|
N/A |
|
Expected dividends |
|
|
|
|
|
|
|
|
|
|
N/A |
|
Weighted average risk-free interest rate |
|
1.16 |
% |
|
|
2.58 |
% |
|
|
N/A |
|
Expected life of stock options |
|
3.5 years |
|
|
3.5 years |
|
|
|
N/A |
|
A summary of stock option activity for the years ended December 31, 2009, 2008 and 2007 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Contractual |
|
|
Aggregate Intrinsic |
|
|
|
Within Plans |
|
|
Outside Plan |
|
|
Exercise Price |
|
|
Term (Years) |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Outstanding at December 31, 2006 |
|
|
5,137,686 |
|
|
|
34,875 |
|
|
$ |
1.38 |
|
|
|
5.38 |
|
|
$ |
8,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(358,947 |
) |
|
|
(11,250 |
) |
|
$ |
1.74 |
|
|
|
|
|
|
|
|
|
Canceled |
|
|
(31,032 |
) |
|
|
|
|
|
$ |
5.42 |
|
|
|
|
|
|
|
|
|
Moved to within Plan |
|
|
1,125 |
|
|
|
(1,125 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007 |
|
|
4,748,832 |
|
|
|
22,500 |
|
|
$ |
1.32 |
|
|
|
4.46 |
|
|
$ |
32,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
270,000 |
|
|
|
|
|
|
$ |
7.13 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(300,024 |
) |
|
|
(8,433 |
) |
|
$ |
4.01 |
|
|
|
|
|
|
|
|
|
Canceled |
|
|
|
|
|
|
(8,442 |
) |
|
$ |
5.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008 |
|
|
4,718,808 |
|
|
|
5,625 |
|
|
$ |
1.47 |
|
|
|
3.71 |
|
|
$ |
30,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
135,000 |
|
|
|
|
|
|
$ |
17.58 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(302,163 |
) |
|
|
|
|
|
$ |
5.18 |
|
|
|
|
|
|
|
|
|
Canceled |
|
|
(9,009 |
) |
|
|
|
|
|
$ |
8.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009 |
|
|
4,542,636 |
|
|
|
5,625 |
|
|
$ |
1.69 |
|
|
|
2.91 |
|
|
$ |
66,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009 |
|
|
4,238,736 |
|
|
|
5,625 |
|
|
$ |
0.97 |
|
|
|
2.91 |
|
|
$ |
64,981 |
|
The aggregate intrinsic value for stock options outstanding and exercisable is defined as
the difference between the market value of the Companys stock as of the end of the period and the
exercise price of the stock options. The total intrinsic value of stock options exercised during
2009, 2008 and 2007 was $2.0 million, $1.9 million and $1.3 million, respectively. As a result of
the stock options exercised, the Company recorded additional paid-in-capital of $1.6 million, $1.2
million, and $641 thousand in 2009, 2008 and 2007, respectively.
At December 31, 2009 there exists 1,875 fully vested non statutory incentive stock options
granted to individuals that were not employees, officers or directors of the Company.
Cash received from option exercise under all share-based payment arrangements for the years
ended December 31, 2009, 2008, and 2007, was $1.5 million, $1.2 million, and $645 thousand,
respectively. The actual tax benefit realized for the deductions from option exercise of the
share-based payment arrangements totaled $1.2 million, $1.4 million, and $0.8 million,
respectively, for the years ended December 31, 2009, 2008, and 2007.
57
Restricted StockPursuant
to the Companys restricted stock agreements, the restricted stock vests in three equal
annual installments. The restricted stock also vests with respect to any unvested shares upon the
applicable employees death, disability or retirement, the Companys termination of the employee
other than for cause or a change in control of the Company.
A summary of the status of the Companys non-vested restricted stock grant
shares is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date |
|
|
|
Shares |
|
|
Fair Value |
|
|
|
|
|
|
(in thousands) |
|
Non vested at December 31, 2006 |
|
|
182,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
99,006 |
|
|
$ |
417 |
|
Vested |
|
|
(75,003 |
) |
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non vested at December 31, 2007 |
|
|
206,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
200,556 |
|
|
$ |
1,614 |
|
Vested |
|
|
(108,003 |
) |
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non vested at December 31, 2008 |
|
|
299,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
236,616 |
|
|
$ |
1,934 |
|
Vested |
|
|
(130,446 |
) |
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non vested at December 31, 2009 |
|
|
405,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 there was $2.2 million of total unrecognized compensation cost
related to non-vested share based compensation arrangements granted under the 2006 Incentive
Compensation Program. That cost is expected to be recognized over a weighted-average period of 1.94
years. The total fair value of shares vested during the years ended December 31, 2009, 2008, and
2007 was $742 thousand, $259 thousand, and $120 thousand, respectively.
In the aggregate the total compensation expense recognized in connection with the restricted
grants was $1.2 million, $594 thousand, and $321 thousand during each of the years ending December
31, 2009, 2008 and 2007 respectively.
As
of December 31, 2009 the Company has 2,203,577 shares of common stock reserved for stock option
and restricted stock grants.
58
Note 9: Income Taxes
Income before income taxes consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Domestic |
|
$ |
14,501 |
|
|
$ |
7,921 |
|
|
$ |
12,823 |
|
Foreign |
|
|
25,331 |
|
|
|
20,778 |
|
|
|
376 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
39,832 |
|
|
$ |
28,699 |
|
|
$ |
13,199 |
|
|
|
|
|
|
|
|
|
|
|
The income tax provision (benefit) consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
1,176 |
|
|
$ |
172 |
|
|
$ |
160 |
|
State |
|
|
758 |
|
|
|
397 |
|
|
|
58 |
|
Foreign |
|
|
3,992 |
|
|
|
2,962 |
|
|
|
530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,926 |
|
|
|
3,531 |
|
|
|
748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(2,926 |
) |
|
|
(611 |
) |
|
|
(186 |
) |
State |
|
|
(444 |
) |
|
|
(69 |
) |
|
|
(29 |
) |
Foreign |
|
|
(1,546 |
) |
|
|
(1,466 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,916 |
) |
|
|
(2,146 |
) |
|
|
(215 |
) |
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes |
|
$ |
1,010 |
|
|
$ |
1,385 |
|
|
$ |
533 |
|
|
|
|
|
|
|
|
|
|
|
59
The income tax provision at the Federal statutory rate differs from the effective rate
because of the following items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Statutory rate |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
Change in valuation allowance |
|
|
(18.2 |
)% |
|
|
(9.8 |
)% |
|
|
(33.1 |
)% |
Tax impact of foreign subsidiaries |
|
|
(19.5 |
)% |
|
|
(20.3 |
)% |
|
|
1.0 |
% |
State income taxes, net of federal benefit |
|
|
1.2 |
% |
|
|
1.4 |
% |
|
|
0.8 |
% |
Uncertain tax matters |
|
|
5.1 |
% |
|
|
1.2 |
% |
|
|
0.8 |
% |
Permanent differences |
|
|
(0.7 |
)% |
|
|
(0.8 |
)% |
|
|
0.5 |
% |
Other |
|
|
0.6 |
% |
|
|
(0.9 |
)% |
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
Effective rate |
|
|
2.5 |
% |
|
|
4.8 |
% |
|
|
4.0 |
% |
|
|
|
|
|
|
|
|
|
|
Current deferred income tax assets and liabilities are included in other current assets
and liabilities, and long-term deferred tax assets and liabilities are presented separately on a
net basis in the liability section at December 31, 2009 and 2008 in the accompanying Consolidated
Balance Sheets. The individual balances in current and long-term deferred tax assets and
liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Current deferred income tax assets, net of valuation allowance |
|
$ |
625 |
|
|
$ |
197 |
|
Long-term deferred income tax assets, net of valuation allowance |
|
|
8,869 |
|
|
|
3,900 |
|
|
|
|
|
|
|
|
Total deferred income tax assets |
|
|
9,494 |
|
|
|
4,097 |
|
Current deferred income tax liabilities |
|
|
(147 |
) |
|
|
(83 |
) |
Long-term deferred income tax liabilities |
|
|
(14,016 |
) |
|
|
(2,877 |
) |
|
|
|
|
|
|
|
Net deferred income tax asset/(liability) |
|
$ |
(4,669 |
) |
|
$ |
1,137 |
|
|
|
|
|
|
|
|
Deferred income taxes reflect the impact of temporary differences between amounts of assets
and liabilities for financial reporting purposes and such amounts as measured by the applicable
local jurisdiction tax laws. Temporary differences and carry forwards which comprise the deferred
tax assets and liabilities as of December 31, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
|
|
Deferred |
|
|
Deferred |
|
|
|
Assets |
|
|
Liabilities |
|
|
Assets |
|
|
Liabilities |
|
|
|
(In thousands) |
|
Depreciation and amortization |
|
$ |
284 |
|
|
$ |
|
|
|
$ |
116 |
|
|
$ |
|
|
Share-based compensation |
|
|
356 |
|
|
|
|
|
|
|
213 |
|
|
|
|
|
Accruals and prepaids |
|
|
1,085 |
|
|
|
223 |
|
|
|
1,100 |
|
|
|
193 |
|
Bad debts |
|
|
208 |
|
|
|
|
|
|
|
193 |
|
|
|
|
|
Discount on convertible debt |
|
|
|
|
|
|
281 |
|
|
|
|
|
|
|
|
|
Acquired intangible assets |
|
|
792 |
|
|
|
13,659 |
|
|
|
710 |
|
|
|
2,767 |
|
Net operating loss carryforwards |
|
|
13,766 |
|
|
|
|
|
|
|
15,693 |
|
|
|
|
|
Tax credit carryforwards |
|
|
3,434 |
|
|
|
|
|
|
|
1,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,925 |
|
|
|
14,163 |
|
|
|
19,779 |
|
|
|
2,960 |
|
Valuation allowance |
|
|
(10,431 |
) |
|
|
|
|
|
|
(15,682 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred taxes |
|
$ |
9,494 |
|
|
$ |
14,163 |
|
|
$ |
4,097 |
|
|
$ |
2,960 |
|
After carefully evaluating current projections of future taxable income in the United
States and the expected results of the recently implemented limited risk distributorship structure
as between the Companys U.S. operations and its Singapore subsidiary, management determined that
it was appropriate to partially release its preexisting valuation allowance that had been held
against related cumulative legacy net operating loss (NOL) carryforwards. Consequently during
the fourth quarter $2.8 million of the valuation allowance was released which resulted in a
favorable impact to reported net earnings. The Company is maintaining a valuation allowance in the
amount of $3.6 million against its remaining legacy NOL carryovers due primarily to uncertainties
related to the potential adverse impact to our health benefits exchange operating segment
associated with pending health care legislation expected to be implemented in the United States
during 2010. In connection with outstanding and fully vested stock
options issued prior to January 1, 2006 approximately $973 thousand of the
$3.6 million valuation allowance will subsequently be allocated to
additional paid in capital, if it is recognized. The remaining valuation allowance in the amount of $6.8 million is being maintained
to fully offset the deferred tax assets associated with cumulative NOLs that were obtained as a
result of previous business acquisitions and for which realization of these assets is not assured
due to uncertainties principally associated with limitations on the usage of these acquired NOLs
posed by Section 382 of the U.S. internal revenue code. The effect of the change in the valuation
allowance on the effective tax rate is shown net of
utilized and expiring net operating loss carry forwards. Changes in the valuation allowance
could have a material impact on the Companys future effective tax rate.
60
At December 31, 2009, the Company had remaining available domestic net operating loss (NOL)
carry-forwards of $36.6 million (net of $14.6 million utilized to offset taxable income for 2009),
which are available to offset future federal and certain state income taxes. A portion of these
NOLs will expire in each year 2018 through 2027.
The Companys consolidated effective tax rate is reduced because of the blend of reduced tax
rates in foreign jurisdictions where a significant portion of our income resides. Furthermore, the
Companys world-wide product development operations and intellectual property ownership has been
centralized into our Singapore and India subsidiaries. Our operations in India benefit from a tax
holiday which will continue thru 2015; as such local India taxable income, other than passive
interest and rental income, is not taxed. After the tax holiday expires taxable income generated by
our India operations will be taxed at 50% of the normal 33.99% corporate tax rate for a period of five
years. This tax holiday had the effect of reducing tax expense by $5.5 million.
The Companys BPO operations in India are subject to a 16.99% Minimum Alternative Tax (MAT).
The tax paid under the MAT provisions is carried forward for a period of seven years and set off
against future tax liabilities computed under the regular corporate income tax provisions using the
33.99% corporate income tax rate. During the year ended December 31, 2009, the Company accrued or
paid $1.4 million in MAT. The accompanying Consolidated Balance Sheets as of December 31, 2009
includes a long-term deferred tax asset in the amount of $2.6 million associated with cumulative
future MAT tax credit entitlement.
Goodwill related to asset acquisitions are deductible for tax purposes but are not deductible
for financial reporting purposes, except to the extent there is an impairment of goodwill. Included
in deferred tax liabilities is the tax effect of the amortization of goodwill for tax purposes.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and
various states and foreign jurisdictions. With the exception of NOL carryforwards, the Company is
no longer subject to U.S. federal or state tax examinations by tax authorities for years before
2006 due to the expiration of the statue of limitations.
The Company follows the provisions of FASB accounting guidance on accounting for uncertain income tax positions.
Accordingly liabilities are recognized for a tax position, where based solely on its technical merits, it is believed to be
more likely than not fully sustainable upon examination. This liability is included in other long-term liabilities in the
accompanying Consolidated Balance Sheets. During the fourth quarter of 2009 the Company completed a comprehensive analysis
of its tax filing positions taken both domestically and in foreign jurisdictions in the context of its recently implemented
limited risk distributorship structure and determined the need to increase its reserve for uncertain tax positions.
In undertaking this analysis the Company, using its best estimates, evaluated the sustainability of certain
tax positions taken in foreign jurisdictions in both current and prior years but which are no longer applicable in the new
limited risk distributorship structure. Accordingly reported net income for 2009 reflects the unfavorable impact of a charge in
the amount of $2.04 million in connection with the increase of the Companys reserves for uncertain tax filing positions.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
(in thousands) |
|
Balance at January 1, 2009 |
|
$ |
914 |
|
Additions for tax positions related to current year |
|
$ |
1,163 |
|
Additions for tax positions of prior years |
|
$ |
1,361 |
|
Reductions for tax position of prior years |
|
$ |
(484 |
) |
|
|
|
|
Balance at December 31, 2009 |
|
$ |
2,954 |
|
|
|
|
|
61
The Company recognizes interest accrued and penalties related to unrecognized tax benefits as
part of income tax expense. As of December 31, 2009 approximately $534 thousand of estimated
interest and penalties is included in other long-term liabilities in the accompanying Consolidated
Balance Sheets.
Note 10: Stock Repurchases
The Board of Directors of Ebix, Inc. previously authorized a share repurchase plan to acquire
up to $5 million of the Companys current outstanding shares of common stock. Under the terms of
the Boards authorization, the Company retains the right to repurchase up to $5 million in shares
but does not have to repurchase this entire amount. The repurchase plans terms have been
structured to comply with the SECs Rule 10b-18, and are subject to market conditions and
applicable legal requirements. The program does not obligate the Company to acquire any specific
number of shares and may be suspended or terminated at any time. All purchases will be on the open
market and are expected to be funded from existing cash. Treasury stock is recorded at its acquired
cost. Through December 31, 2009, the Company has repurchased 291,357 shares of its common stock
under this plan for total consideration of $1.9 million.
Note 11: Derivative Instruments
The Company uses derivative instruments that are not designated as hedges under the FASB
accounting guidance related to the accounting for derivative instruments and hedging activity, to
hedge the fluctuations in foreign exchange rates for recognized balance sheet items such as
intercompany receivables. As of December 31, 2009 the Company has in place seven annual foreign
currency hedge contracts maturing between May and December 2010 with a notional
value totaling $13.7 million. The intended purpose of these hedging instruments is to offset the
income statement impact of recorded foreign exchange transaction gains and losses resulting from
U.S. dollar denominated invoices issued by our Indian subsidiary whose functional currency is the
Indian rupee. The change in the fair value of these derivatives was recorded in foreign exchange
gains (losses), in the consolidated statements of income and was $0, $0 and $498 thousand for year
ended December 31, 2007, 2008 and 2009, respectively. As of December 31, 2009 the aggregate fair
value of these derivative instruments, which are included in other current assets, in the Company
consolidated balance sheet was $500 thousand. The Company has classified its the foreign currency
hedge, which is measured at fair value on a recurring basis, as a level 2 instrument (i.e. wherein
fair is determined based on observable inputs other ran quoted market prices) which we believe is
the most appropriate level within the fair value hierarchy based on the inputs used to determine
its the fair value at the measurement date.
Also in connection with the acquisition of E-Z Data effective October 1, 2009, Ebix issued a
put option to the sellers which is exercisable during the thirty-day period immediately following
the two-year anniversary date of the business acquisition, which if exercised would enable them to
sell the underlying shares of common stock back to the Company at a 10% discount off of the
per-share value established on the effective date of the closing of Ebixs acquisition of E-Z Data.
In accordance with the relevant authoritative accounting literature a portion of the total
purchase consideration was allocated to this put liability based on its initial fair value which
was determined to be $6.6 million using a Black-Scholes model. The inputs used in the valuation
of the out option include term, stock price volatility, current stock price, exercise price, and
the risk free rate of return. At December 31, 2009 the fair value of the put option was
recalculated and was determined to have dropped $89 thousand, which amount is appropriately shown
as other non-operating income in the Consolidated Statement of Income
for the year then ended. The Company has classified the put option as
a level 2 instrument.
Note 12: Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses at December 31, 2009 and December 31, 2008, consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Trade accounts payable |
|
$ |
1,766 |
|
|
$ |
1,352 |
|
Accrued professional fees |
|
|
109 |
|
|
|
51 |
|
Acquisition earnout payable |
|
|
4,700 |
|
|
|
4,049 |
|
Income taxes payable |
|
|
1,392 |
|
|
|
2,017 |
|
Sales taxes payable |
|
|
766 |
|
|
|
416 |
|
Amounts due to sellers of acquired entities |
|
|
2,181 |
|
|
|
|
|
Other accrued liabilities |
|
|
146 |
|
|
|
360 |
|
|
|
|
|
|
|
|
Total |
|
$ |
11,060 |
|
|
$ |
8,245 |
|
|
|
|
|
|
|
|
62
Note 13: Property and Equipment
Property and equipment at December 31, 2009 and 2008 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Computer equipment |
|
$ |
6,937 |
|
|
$ |
3,698 |
|
Buildings |
|
|
2,271 |
|
|
|
451 |
|
Land |
|
|
105 |
|
|
|
100 |
|
Leasehold improvements |
|
|
1,557 |
|
|
|
1,387 |
|
Furniture, fixtures and other |
|
|
2,507 |
|
|
|
2,090 |
|
|
|
|
|
|
|
|
|
|
|
13,377 |
|
|
|
7,726 |
|
Less accumulated depreciation and amortization |
|
|
(5,512 |
) |
|
|
(3,952 |
) |
|
|
|
|
|
|
|
|
|
$ |
7,865 |
|
|
$ |
3,774 |
|
|
|
|
|
|
|
|
Depreciation expense was $1.6 million, $1.0 million, and $719 thousand in 2009, 2008 and 2007,
respectively.
Note 14: Cash Option Profit Sharing Plan and Trust
The Company maintains a 401(k) Cash Option Profit Sharing Plan, which allows participants to
contribute a percentage of their compensation to the Profit Sharing Plan and Trust up to the
Federal maximum. The Companys contributions to the Plan were $226 thousand, $161 thousand, and
$130 thousand for the years ending December 31, 2009, 2008, 2007 respectively.
Note 15: Geographic Information
The Company operates with one reportable segment whose results are regularly reviewed by the
Companys chief operating decision maker as to performance and allocation of resources.
The following enterprise wide information is provided. The
following information relates to geographic locations (all amounts in thousands):
Year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North |
|
|
|
|
|
|
New |
|
|
|
|
|
|
|
|
|
|
|
|
America |
|
|
Australia |
|
|
Zealand |
|
|
India |
|
|
Singapore |
|
|
Total |
|
Revenue |
|
$ |
73,431 |
|
|
$ |
21,120 |
|
|
$ |
1,257 |
|
|
$ |
|
|
|
$ |
1,877 |
|
|
$ |
97,685 |
|
Fixed assets |
|
$ |
4,352 |
|
|
$ |
896 |
|
|
$ |
42 |
|
|
$ |
2,532 |
|
|
$ |
43 |
|
|
$ |
7,865 |
|
Goodwill and intangible assets |
|
$ |
147,509 |
|
|
$ |
479 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
58,985 |
|
|
$ |
206,973 |
|
Headcount (unaudited) |
|
|
412 |
|
|
|
66 |
|
|
|
9 |
|
|
|
460 |
|
|
|
11 |
|
|
|
958 |
|
63
Year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North |
|
|
|
|
|
|
New |
|
|
|
|
|
|
|
|
|
|
|
|
America |
|
|
Australia |
|
|
Zealand |
|
|
India |
|
|
Singapore |
|
|
Total |
|
Revenue |
|
$ |
48,340 |
|
|
$ |
23,580 |
|
|
$ |
922 |
|
|
$ |
|
|
|
$ |
1,910 |
|
|
$ |
74,752 |
|
Fixed assets |
|
$ |
2,553 |
|
|
$ |
421 |
|
|
$ |
28 |
|
|
$ |
734 |
|
|
$ |
38 |
|
|
$ |
3,774 |
|
Goodwill and intangible assets |
|
$ |
68,739 |
|
|
$ |
41,573 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
110,312 |
|
Headcount (unaudited) |
|
|
308 |
|
|
|
63 |
|
|
|
9 |
|
|
|
251 |
|
|
|
6 |
|
|
|
637 |
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North |
|
|
Australia/ |
|
|
|
|
|
|
|
|
|
|
|
|
America |
|
|
New Zealand |
|
|
India |
|
|
Singapore |
|
|
Total |
|
Revenue |
|
$ |
31,474 |
|
|
$ |
9,480 |
|
|
$ |
48 |
|
|
$ |
1,839 |
|
|
$ |
42,841 |
|
Fixed assets |
|
$ |
2,231 |
|
|
$ |
215 |
|
|
$ |
870 |
|
|
$ |
40 |
|
|
$ |
3,356 |
|
Goodwill and intangible assets |
|
$ |
36,053 |
|
|
$ |
7,673 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
43,726 |
|
Headcount (unaudited) |
|
|
218 |
|
|
|
43 |
|
|
|
124 |
|
|
|
6 |
|
|
|
391 |
|
Note 16: Related Party Transactions
We consider Bank of America/Merrill Lynch (BAML) to be a
related party because BAML provides
commercial financing to the Company and is also a customer to whom the Company
sells products and services. Revenues recognized from BAML were $957 thousand,
$849 thousand, and $919 thousand for each of the years ending December 31,
2009, 2008, and 2007, respectively. Accounts receivable due from BAML was $232
thousand and $103 thousand at December 31, 2009 and 2008, respectively.
Consistent with Ebixs corporate mission of giving back to the communities in which we operate
our business, and as previously authorized by the Companys Board of Directors, during the year
ended December 31, 2009 Ebix donated $23 thousand to the Robin Raina Foundation, a non-profit
501(c) charity in support of fifty
very under priviledged children living in the poverty stricken areas
of Delhi, India; this amount includes $10
thousand in matching contributions made by our employees.
Note 17: Quarterly Financial Information (unaudited)
The following is the unaudited quarterly financial information for 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
|
(in thousands, except share data) |
|
Year Ended December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
20,668 |
|
|
$ |
22,421 |
|
|
$ |
23,292 |
|
|
$ |
31,304 |
|
Gross Profit |
|
|
16,367 |
|
|
|
17,889 |
|
|
|
18,827 |
|
|
|
23,328 |
|
Operating income |
|
|
8,357 |
|
|
|
9,260 |
|
|
|
9,783 |
|
|
|
11,856 |
|
Net income |
|
|
8,335 |
|
|
|
8,956 |
|
|
|
9,434 |
|
|
|
12,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic* |
|
$ |
0.28 |
|
|
$ |
0.29 |
|
|
$ |
0.30 |
|
|
$ |
0.36 |
|
Diluted* |
|
$ |
0.23 |
|
|
$ |
0.24 |
|
|
$ |
0.25 |
|
|
$ |
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
16,639 |
|
|
$ |
17,803 |
|
|
$ |
20,168 |
|
|
$ |
20,142 |
|
Gross Profit |
|
|
13,703 |
|
|
|
14,578 |
|
|
|
16,228 |
|
|
|
16,083 |
|
Operating income |
|
|
6,143 |
|
|
|
6,905 |
|
|
|
8,119 |
|
|
|
8,097 |
|
Net income |
|
|
5,670 |
|
|
|
6,336 |
|
|
|
7,398 |
|
|
|
7,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic* |
|
$ |
0.18 |
|
|
$ |
0.22 |
|
|
$ |
0.26 |
|
|
$ |
0.27 |
|
Diluted* |
|
$ |
0.16 |
|
|
$ |
0.18 |
|
|
$ |
0.21 |
|
|
$ |
0.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
9,018 |
|
|
$ |
9,816 |
|
|
$ |
11,807 |
|
|
$ |
12,201 |
|
Gross Profit |
|
|
7,452 |
|
|
|
8,098 |
|
|
|
9,966 |
|
|
|
10,211 |
|
Operating income |
|
|
2,238 |
|
|
|
2,298 |
|
|
|
3,712 |
|
|
|
4,553 |
|
Net income |
|
|
1,962 |
|
|
|
2,513 |
|
|
|
3,693 |
|
|
|
4,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic* |
|
$ |
0.08 |
|
|
$ |
0.09 |
|
|
$ |
0.13 |
|
|
$ |
0.15 |
|
Diluted* |
|
$ |
0.07 |
|
|
$ |
0.08 |
|
|
$ |
0.11 |
|
|
$ |
0.13 |
|
|
|
|
* |
|
Adjusted for all periods to reflect the effect of the 3-for-1 stock split dated January
4, 2010; see Note 2 |
64
Note 18: Subsequent Events thru March 16, 2010
|
|
Completion of Business Acquisition |
|
|
|
Effective January 15, 2010 Ebix acquired Brazilian based MCN Technology & Consulting (MCN).
MCN provides IT products and consulting services for insurance companies, financial institutions
and insurance brokers in Latin America. Ebix acquired all of the outstanding stock and the
business operations of MCN for a cash purchase price of $3.0 million and funded the transaction
using existing available internal cash resources. |
|
|
|
Stock Repurchases |
|
|
|
During January and February of 2010 the Company paid $999 thousand to repurchase 69,070 shares
of its common stock. All repurchases were done under a previously authorized share repurchase
plan approved by the Board of Directors. |
|
|
|
Conversions of Portions of Outstanding Debt |
|
|
|
On February 3, 2010 Whitebox, in connection with the $15 million Secured Convertible Promissory
Note (the Note) dated July 11, 2008, fully converted the remaining principal on the Note in
the amount of $4.39 million and accrued interest in the amount of $62 thousand into 476,662
shares of the Companys common stock. |
|
|
|
Entry into a Material Definitive Agreement |
|
|
|
On February 12, 2010, Ebix entered into a credit agreement providing for a new $35 million
secured credit facility (the Secured Credit Facility) with Bank of America N.A. as
administrative agent as well as the initial lender (the Lender). The new financing is
comprised of a two-year, $25 million secured revolving credit facility, and a $10 million
secured term loan which amortizes over a two year period with quarterly principal and
interest payments commencing on March 31, 2010 and a final payment of all remaining outstanding
principal and accrued interest due on February 12, 2012. The new $35 million credit facility
replaces the former $25 million facility that had been with the same Lender. The initial
interest rate applicable to the Secured Credit Facility is LIBOR plus 1.75%. |
|
|
|
Item 8. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
65
|
|
|
Item 8A: |
|
CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures: The Company maintains controls and procedures designed to
ensure that it is able to collect the information we are required to disclose in the reports we
file with the SEC, and to process, summarize and disclose this information within the time periods
specified in the rules of the SEC. As of the end of the period covered by this report and
pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (Exchange Act), the Companys
management, including the Chief Executive Officer and Chief Financial Officer, conducted an
evaluation of the effectiveness and design of our disclosure controls and procedures to ensure that
information required to be disclosed by the Company in the reports that it files under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time
periods specified by the SECs rules and forms. Based upon that evaluation, the Companys Chief
Executive Officer and Chief Financial Officer concluded as of December 31, 2009 that the Companys
disclosure controls and procedures were effective in recording, processing, summarizing and
reporting information required to be disclosed, within the time periods specified in the SECs
rules and forms.
Managements Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over
financial reporting for the Company. As of December 31, 2009, being the date of our most recently
completed fiscal year end, in order to evaluate the effectiveness of the design and operation of
our disclosure controls and procedures and our internal control over financial reporting, as
required by Section 404 of the Sarbanes-Oxley Act, Management has conducted an assessment,
including testing, using the criteria in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys system of
internal control over financial reporting is 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 standards. 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.
Managements assessment of and conclusion on the effectiveness of internal control over
financial reporting did not include an assessment of the internal controls for the recently
acquired businesses of Facts Services, Inc., E-Z Data, Inc., and Peak Performance Solutions, Inc.,
which financial information is included in the accompanying Consolidated Financial Statements of
Ebix, Inc from the effective date of their acquisitions during 2009. In the aggregate these
combined units represented approximately 9.1% of the Companys consolidated revenue for 2009. The
effectiveness of the controls for these business operations will be evaluated by management during
2010.
The term internal control over financial reporting is defined as a process designed by, or
under the supervision of, our principal executive and principal financial officers, or persons
performing similar functions, and effected by our board of directors, management and other
personnel, 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:
|
(1) |
|
Pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect our transactions and dispositions of assets; |
|
(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 are being made only in
accordance with authorizations of our management and directors; and, |
|
(3) |
|
Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a material
effect on our financial statements. |
Based upon this evaluation and assessment, our Chief Executive Officer and Chief Financial
Officer concluded that as of December 31, 2009 our disclosure controls and procedures and our
internal control over financial reporting are effective to ensure, among other things, that the
information required to be disclosed by us in the reports that we file or submit under the
Securities and Exchange Act of 1934 is recorded, processed, summarized, and reported accurately.
Cherry, Bekaert & Holland, L.L.P., the independent registered public accounting firm that
audited our Consolidated Financial Statements included in this Annual Report on Form 10-K, audited
the effectiveness of our internal control over financial reporting as of December 31, 2009. Cherry,
Bekaert &Holland, L.L.P has issued their report which is included in this Annual Report on Form
10-K.
66
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Stockholders of Ebix, Inc.:
We have audited Ebix, Inc.s internal control over financial reporting as of December 31, 2009, based on criteria established in
Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).
Ebix, Inc.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 Managements Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audit also includes performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys 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 companys 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 companys 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.
As indicated in the accompanying Managements Report on Internal Control over Financial Reporting,
managements assessment of and conclusion on the effectiveness of internal control over financial
reporting did not include the internal controls of Facts Services, Inc., E-Z Data, Inc., and Peak
Performance Solutions, Inc., which are included in the 2009 consolidated financial statements of
Ebix, Inc. and which in the aggregate constituted approximately 9.1% of Ebix consolidated revenues
for the year ending December 31, 2009. Our audit of internal control over financial reporting of
Ebix, Inc. also did not include an evaluation of the internal control over financial reporting of
Facts Services, Inc., E-Z Data, Inc., and Peak Performance Solutions, Inc.
In our opinion, Ebix, Inc. maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
balance sheets of Ebix, Inc. as of December 31, 2009 and 2008, and the related consolidated statements of income, stockholders
equity and comprehensive income, and cash flows for each of the two years in the period ended December 31, 2009, and the related
consolidated financial statement schedules as of December 31, 2009 and 2008, and our report dated March 16, 2010 expressed an unqualified
opinion thereon.
/s/
Cherry, Bekaert & Holland, L.L.P.
Atlanta, Georgia
March 16, 2010
67
Changes in Internal Control over Financial Reporting
There have been no changes in the Companys internal controls over financial reporting during
the last fiscal year that have materially affected, or are reasonably likely to materially affect,
the Companys internal controls over financial reporting.
|
|
|
Item 8B. |
|
OTHER INFORMATION |
Not Applicable.
68
PART III
All references to any amount of stock, restricted stock, options or the prices of any of these in
this Part III represent not the amounts at December 31, 2009, but the amounts at December 31, 2009
when factoring-in the Companys three-for-one stock split on January 4, 2010.
|
|
|
Item 9. |
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The directors and executive officers of the Company who will serve until the Companys 2010
Annual Meeting are as follows:
ROBIN RAINA, 43, has been a director at Ebix since 2000 and Chairman of the Board at Ebix
since May 2002. Mr. Raina joined Ebix, Inc. in October 1997 as our Vice PresidentProfessional
Services and was promoted to Senior Vice PresidentSales and Marketing in February 1998. Mr. Raina
was promoted to Executive Vice President, Chief Operating Officer in December 1998. Mr. Raina was
appointed President effective August 2, 1999, Chief Executive Officer effective September 23, 1999
and Chairman in May 2002. Mr. Raina holds an industrial engineering degree from Thapar University
in Punjab, India. His strategic direction for the Company and
implementation of such direction has proven instrumental for the
Companys turnaround and growth.
ROBERT F. KERRIS, 56, joined the Company as Chief Financial Officer on October 22, 2007. Prior
to joining the Company, Mr. Kerris was Chief Financial Officer at Aelera Corporation. He held this
position from May 2006 to October 2007. Previously he was a Financial Vice President at Equifax,
Inc. from November 2003 to April 2006, Corporate Controller at Interland, Inc. from September 2002
to October 2003, and held senior financial management positions at AT&T, BellSouth, and Northern
Telecom. Mr. Kerris is a licensed certified public accountant and holds an accounting and economics
degree from North Carolina State University.
HANS U. BENZ, 63, has been a director at EBIX since 2005. From 2001 to 2005 Mr. Benz was
President of the holding of the BISON GROUP, a Swiss corporation that develops and implements
process oriented business solution software in Europe. Prior to this position and from 1995 to 2001
he was President of a Swiss banking software development company belonging to the UBS Group.
Previously Mr. Benz was with the private bank of Coutts & Co., Zürich as Senior Vice President and
was also head of their global IT organization as a part of their larger worldwide NatWest IT
organization. His former business experience extends from wholesale and retail industry to the
Swiss private insurance industry as founding partner in a national data center. He has extensive
experience in the software ERP and finance sectors, international marketing, strategic planning, IT
planning, executive compensation, and defining strategic vision.
PAVAN BHALLA, 47, has been a director since June 2004. Mr. Bhalla currently serves as Vice
President of Finance for Hewitt Associates, and has been in this role since December 2008. Prior to
this position he was Hewitt Associates Corporate Controller and served in that position from July
2006 to November 2008. Previously Mr. Bhalla served as Senior Vice President of Finance for MCI
Inc. from August 2003 until joining Hewitt Associates, Inc. Before joining MCI in August 2003, Mr. Bhalla
spent over seven years with BellSouth Corporation serving in a variety of executive positions,
including Chief Financial Officer of BellSouth Long Distance Inc.
from 1999 to 2002. Mr. Bhalla holds a masters degree in business
administration and finance from the University of Chicagos Booth
School of Business. He has extensive hands on relevant experience in
corporate finance, international operations, executive compensation and strategic planning with
public companies.
NEIL D. ECKERT, 47, has been a director since 2005. Mr. Eckert was nominated by Brit to serve
on the Companys board of Directors under an agreement between the Company and Brit. Mr. Eckert is
currently a director of Brit Insurance Holdings, plc. Until April 2005, he served as Chief
Executive Officer of Brit and had been such since 1999. In 1995, he co-founded Brit as a listed
investment trust company. Mr. Eckert is also Non-Executive Chairman of Design Technology and
Innovation Limited, a patenting and intellectual property company, and a director of Ri3K, an
internet hub for reinsurance. He is also Chief Executive Officer of Climate Exchange, a London
Stock Exchange AIM listed company trading carbon credits, and Chairman of Trading Emissions plc and
Econerby plc both publicly listed companies. Mr. Eckert has an extensive background with
experience of operating as the CEO of two different public companies and has executive experience
in strategic planning, hands-on understanding of insurance industry, sales and marketing, corporate
finance, executive compensation and international matters.
ROLF HERTER, 46, has been a director since 2005. Mr. Herter is the managing partner of
Streichenberg, Attorneys at Law in Zurich, Switzerland. Streichenberg is a mid-sized commercial law
firm, and Mr. Herter has
been managing partner since 2004. Mr. Herters practice consists, among others, of
representation for information technology companies, both private and publicly held. He has served
on the board of directors of several companies and is currently serving as a member of the board of
directors of IC Companys Switzerland AG and Roccam Rocca Asset Management AG. He also serves as a
supervisor of investments for several Swiss and German companies. Mr. Herter has extensive
experience in the legal sector with expertise in managing multiple companies in terms of
investments, capital structure, organization restructuring and governance, and with a expertise in
European affairs
69
HANS UELI KELLER, 58, has been a director since 2004. Mr. Keller has spent over 20 years with
Zurich-based Credit Suisse, a global financial services company, serving as Executive Board Member
from 1997 to 2000, head of retail banking from 1993 to 1996, and head of marketing from 1985 to
1992. He is presently also serving as Chairman of the Board of both Swisscontent Corp. AG and Engel
& Voelkers Commercial, Switzerland. He has extensive executive experience in sales and marketing,
corporate finance, strategic planning, executive compensation, and international distribution.
CORPORATE GOVERNANCE
The following table lists our four board committees, the directors who served on them as of
the end of 2009 and the number of committee meetings held in 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Governance and |
Name |
|
Audit |
|
Compensation |
|
Nominating |
Mr. Bhalla |
|
C |
|
|
|
|
Mr. Benz |
|
|
|
|
|
|
Mr. Eckert |
|
|
|
|
|
C |
Mr. Herter |
|
|
|
|
|
|
Mr. Keller |
|
|
|
C |
|
|
Mr. Raina* |
|
|
|
|
|
|
2009 Meetings |
|
4 |
|
4 |
|
1 |
|
|
|
C |
|
= Chair |
|
|
|
= Member |
|
* |
|
= Executive Officer/Director |
In addition the Companys full Board of Directors met five times during 2009.
AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Directors has determined that Pavan Bhalla, the Chairman of the Audit Committee,
meets the qualifications of an audit committee financial expert pursuant to SEC rules. The Board
has also determined that Mr. Bhalla qualifies as an independent director in accordance with
NASDAQ listing requirements and special standards established by the SEC for members of audit
committees. Stockholders should understand that the designation of an audit committee financial
expert is a disclosure requirement of the SEC related to Mr. Bhallas experience and understanding
with respect to certain accounting and auditing matters. The designation does not impose upon Mr.
Bhalla any duties, obligations or liability that are greater than are generally imposed on him as a
member of the Audit Committee and the Board, and his designation as an audit committee financial
expert pursuant
to this SEC requirement does not affect the duties, obligations or liability of any other
member of the Audit Committee or the Board.
70
CODE OF ETHICS
The Company has adopted a Code of Ethics that applies to the Chief Executive Officer, Chief
Financial Officer and any other senior financial officers. This Code of Ethics is posted on the
Companys website at www.ebix.com, where it may be found by navigating to Ebix Inc.s Code of
Ethics under Corporate Governance within the Investor section of the website. The Company intends
to satisfy the disclosure requirement under Form 8-K regarding an amendment to, or waiver from, a provision of this Code of Ethics by
posting such information on the Companys website, at the address and location specified above.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Companys officers and
directors and persons who beneficially own more than ten percent of a registered class of our
equity securities to file with the Securities and Exchange Commission reports of securities
ownership on Form 3 and changes in such ownership on Forms 4 and 5. Officers, directors and more
than ten percent beneficial owners also are required by rules promulgated by the Securities and
Exchange Commission to furnish the Company with copies of all such Section 16(a) reports that they
file. Based solely upon a review of the copies of Forms 3, 4, and 5 furnished to the Company or
representations by certain executive officers and directors that no such reports were required for
them, the Company believes that, during 2009 all of the Companys directors, officers and more than
ten-percent beneficial owners filed all such reports on a timely basis except for Hans Benz who
filed a Form 4 on December 3, 2009 for a transaction undertaken by him on November 23, 2009.
|
|
|
Item 10: |
|
EXECUTIVE COMPENSATION |
EXECUTIVE COMPENSATION
Compensation Disclosure and Analysis
Objectives and Goals
The objectives of the committee has been to adopt a compensation approach that is basically
simple, internally equitable and externally competitive, and that attracts, motivates and retains
qualified people capable of contributing to the growth, success and profitability of the Company,
thereby contributing to long-term stockholder value.
Simplicity. The committee believes that a compensation package with three major
elements of compensation is the simplest approach consistent with the Companys goals. The
Company generally does not utilize special personal perquisites such as private jets, payment
of country club dues, Company-furnished motor vehicles, permanent lodging or defrayment of
the cost of personal entertainment.
Internal Equity. Internal equity has generally been evaluated based on an assessment
of the relative contributions of the members of the management team. In 2009, the committee
did not undertake any formal audit or similar analysis of compensation equity with respect to
either the CEO relative to the other members of the management team or with respect to the
management team relative to the Companys employees generally. However, the committee
believes that the relative difference between CEO compensation and the compensation of the
Companys other executives is consistent with such differences found in the Companys
insurance services peer group and the market for executive level personnel for public
companies of similar size.
External Competitiveness. The committee believes it is important to management
retention and morale that compensation be competitive with our competitors. As a part of that
exercise, the committee hired an
outside compensation consultant to review the competitive landscape and to establish
transparent criterion for CEO compensation. Based on the consultants report and the
contributions provided by individual board members, based on their business experiences, the
compensation committee established a transparent plan for CEO compensation. The plan was
unanimously adopted by the board of directors.
71
Major Compensation Components
The principal components of compensation for our executive officers are base salary,
short-term incentives, generally in the form of cash bonus programs, and long-term incentives,
generally in the form of equity-based awards such as stock awards. We believe the Companys goals
are best met by utilizing an approach to compensation with these three distinct elements.
Base Salaries. The Companys base salaries are intended to be consistent with the
committees understanding of competitive practices, levels of executive responsibility,
qualifications necessary for the particular executive position, and the expertise and
experience of the executive officer. Salary adjustments reflect the committees belief as to
competitive trends, the performance of the individual and, to some extent, the overall
financial condition of the Company.
Base salaries for our executive officers are established based on the scope of their
responsibilities, prior relevant background, professional experience, and technical training.
Also in this regard, the compensation committee takes into account competitive market
compensation paid by the companies represented in the compensation data it reviews for
similar positions, and the overall market demand for such executives. Although the Company
considered the same factors in establishing the base salaries of each of its executive
officers, due to the different levels of roles played by each executive, the base salaries
are justifiably substantially different.
Short-Term Incentives. The short-term incentive for an executive is the opportunity to
earn an annual cash bonus. The committee has concluded that bonus payments should be
primarily based on the achievement of specific predetermined profit and expense control
targets while a smaller portion should be discretionary based on the committees evaluation
of an executives individual performance in specific qualitative areas.
The compensation committee determined that the Companys shareholders interests are
best served by retaining the Chief Executive Officer and Chief Financial Officer on a
performance based package with no guaranteed bonus arrangements, while linking the bonus to
growth in net income, diluted earnings per share, revenues, recurring revenue streams, and
operating cash flows. Specifically, the Companys Chief Executive Officer and Chief
Financial Officer receives annual performance bonuses measured as a percentage of pretax
income because the compensation committee believes that pretax net income is not only the
hallmark of sound, profitable growth looked to by investors, but also generates the cash that
fuels the Companys internal product development and diversification initiatives. While the
cash bonus formula for the executive officers focuses essentially on pretax net income, it
also takes into account growth in top line revenue, strengthening of the Companys cash
reserves, growth in the Companys recurring revenue streams, reduction in customer attrition
rates, retention and strengthening of the senior management team, product and geographic
diversification, and a strong internal control structure that ensure the highest level of
integrity.
Short-term incentive compensation is generally based on three performance criteria: (a)
profitability, (b) revenue growth, and (c) other specific performance criteria. Under the
short-term incentive plan for the fiscal year ended December 31, 2009, an incentive bonus of
$1,300,000 was awarded to Robin Raina, and a $45,000 bonus was paid to Robert Kerris.
Potential bonuses, as a percentage of base salary, were higher for our principal
executive officer and principal financial officer, reflecting their greater responsibility
for and greater ability to influence the achievement of targets.
72
The following table sets forth for each named executive officer, the bonus percentage
potentially attributable to performance targets and the percentage attributable to the
committees discretion. The committee has the authority to adjust, waive or reset targets.
The following chart sets forth information regarding the actual annual cash incentive
awards made to Robin Raina and Robert Kerris, the Companys named executive officers.
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Award |
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Target |
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Actual |
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Actual |
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Percentage |
|
|
Incentive |
|
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|
Annual |
|
|
Incentive |
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Subject to |
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|
Award as a |
|
|
Actual |
|
|
Incentive |
|
|
Award as a |
|
|
|
Objective/ |
|
|
Percentage |
|
|
Annual |
|
|
Award as a |
|
|
Percentage |
|
|
|
Subjective |
|
|
of Base |
|
|
Incentive |
|
|
Percentage |
|
|
of Base |
|
Short Term Incentive Plan Participant |
|
Criteria |
|
|
Salary |
|
|
Award |
|
|
of Target |
|
|
Salary |
|
(Name and Position) |
|
(%) |
|
|
(%) |
|
|
($) |
|
|
(%) |
|
|
(%) |
|
Robin Raina, Chairman of the Board and Chief Executive Officer |
|
|
100/- |
|
|
|
163 |
% |
|
|
1,300,000 |
|
|
|
100 |
% |
|
|
163 |
% |
Robert F. Kerris, Chief Financial Officer and Corporate Secretary |
|
|
100/- |
|
|
|
33 |
% |
|
|
45,000 |
|
|
|
100 |
% |
|
|
33 |
% |
Long-Term Incentives. While salary and short-term incentives are primarily designed
to compensate current and past performance, the primary goal of the long-term incentive
compensation program is to directly link management compensation with the long-term interests of
the stockholders.
Nevertheless, the compensation committee in consultation with the entire Board of
Directors, determined that it would be preferable to give cash instead of options or meaningful
numbers of restricted stock grants to the executives in order to restrict variable expenses and
to limit dilution of company stock. Accordingly, the executives have not been given any new
options in 2009 and have been given modest restricted stock in 2009.
Types of Equity Awards and Criteria for Award Type Selection. Prior to 2005, we relied
heavily on stock options to provide incentive compensation to our executive officers and
other key employees and to align their interests with those of our stockholders. Based on
changes in U.S. accounting rules and a general trend toward increased use of restricted stock
and decreased use of stock options, the committee has increased the number of awards using
restricted stock and decreased the number utilizing stock options. For the immediate future,
we intend to rely primarily on restricted stock grants to provide long-term incentive
compensation to our officers and key employees, without excluding the possibility of
continuing to also grant stock options as a form of incentive compensation.
Vesting and Holding Periods for Equity Incentive Compensation. As a means to encourage
long term thinking and encourage continued employment with us, the Companys equity awards
are usually subject to a multi-year vesting period. Historically, our grants of stock options
and restricted stock have vested over a three year period and the committee anticipates that
future awards will continue to be subject to multi-year vesting, most likely for similar
three year periods. Historically, the Company has not imposed minimum equity ownership
requirements for equity compensation awarded to its executive officers, nor has it required
any continued ownership of the securities issued pursuant to such awards after vesting. The
committee is still evaluating whether such a policy of minimum stock ownership levels or
award retention should be implemented and the potential parameters for any award retention
policy. It is anticipated that any such policy would provide for sales in the event of
hardship and sales sufficient to generate sufficient income to pay taxes in connection with
the award or other awards. The Committee does not anticipate making any determination on
whether to implement any such policies or the scope of any such policies before the summer of
2009.
The compensation committee does not use a specific formula to calculate the number of
stock options or restricted share awards to its executives nor does the compensation
committee explicitly set potential future award levels. In determining the specific amounts
to be granted to each executive, the compensation committee takes into account factors such
as the executives position, his or her contribution to the Companys performance, and the
overall package of cash and equity compensation for the executive.
73
Peer Group Analysis
The compensation committee of the Companys board of directors oversees and reviews the
Companys executive compensation practices and is responsible for ensuring that the compensation of
the executive officers of the Company is aligned with and supports the Companys growth objectives.
The components of the Companys
executive compensation include base salaries, discretionary cash bonus incentive awards,
long-term equity incentive compensation, and retirement benefits. In this context the Companys
Chief Executive Officer and Chief Financial Officer are referenced as named executive officers or
executive officers.
In 2009, the compensation committee compiled two distinct comparable groups to frame the
compensation committees deliberations on prospective executive compensation for the Companys
executive officers. One group is a conventionally arranged comparator group that is comprised of a
number of companies engaged in insurance and/or finance related activities in the United States
market within a range of net revenue and market capitalization that is comparable to Ebix (the
Insurance & Finance Group). In selecting this group of companies, the Committee focused on the
Chief Executive Officer of these companies being either a Founder Chief Executive Officer or a
Chief Executive Officer. However, only one such company matched the Companys net income growth
(measured either as one year increases or five year compound annual growth rates (CAGR)), five
year total shareholder return including reinvestment of dividends (TSR), or other relevant
measures. Because of the extent of the difference between the Companys growth and the performance
of these comparable companies, the compensation committee believed it important to review the
executive compensation practices at those companies that reflected the growth characteristics of
Ebix as nearly as could be determined. Accordingly, the compensation committee also searched
public filings for companies beyond just the insurance and finance industry with CAGR, TSR and
annual revenues similar to the Companys as well as those entities having had a Founder CEO who had
led a high growth trajectory for these companies (the Growth Group). The compensation committee
believes that the dual comparator groups approach is appropriate to accurately assess the
performance and compensation of the Companys executive officers. The Insurance and Finance Group
provides valuable information for use by the compensation committee concerning companies in the
same industry sector. The Growth Group provides valuable information for use by the compensation
committee about how the Company compared with other companies with similar performance.
Consideration was also given to the differences in size, scope, and complexity between the Company
and the various members of the respective comparator groups. Such considerations comprise the
judgmental factors that the compensation committee considers and are not based on a specific
formula or tied to a comparator group. For the surveys of the comparable groups, the compensation
committee considered peers to be companies, using data reported, that met the following criteria:
For the Insurance & Finance Group:
|
|
|
Market capitalization ranging from $36 million to $1.5 billion |
|
|
|
|
A Chief Executive Officer that is either a Founder CEO or a CEO who is
seen as a Founder CEO and/or has led a successful turnaround |
For the Growth Group:
|
|
|
Annualized two year revenue growth between 20% and 88% |
|
|
|
|
Market capitalization ranging between $100 million and $622 million |
|
|
|
|
A Chief Executive Officer of these companies that is either a Founder CEO
or a CEO who has successfully engineered a high growth trajectory. |
The compensation committee determined that the following companies met the criteria for
the Insurance & Finance Group:
|
|
|
Universal Insurance Holdings |
|
|
|
|
Chase Corporation |
|
|
|
|
Safety Insurance Group, Inc. |
|
|
|
|
First Mercury Financial Corporation |
|
|
|
|
Financial Federal Corporation
|
74
The compensation committee determined that the following companies met the criteria for
the Growth Group:
|
|
|
DG Fastchannel |
|
|
|
|
Integral Systems |
|
|
|
|
Eagle Bulk Shipping |
|
|
|
|
Willis Lease |
|
|
|
|
Phase Forward |
|
|
|
|
Ultimate Software Group |
|
|
|
|
Universal Insurance Holdings |
|
|
|
|
Netlogic Microsystems |
|
|
|
|
American Science & Engineering |
With respect to long-term compensation, all of the five comparable companies in the Insurance
and Finance Group award time vested options and/or restricted stock from time to time as long-term
incentives. The compensation committee, however, in consultation with the entire Board of
Directors, determined that it would be preferable to give cash instead of options or meaningful
numbers of restricted stock grants to the executives in order to restrict variable expenses and to
limit dilution of company stock. Accordingly, the executives have not been given any new options in
2009 and have been given modest restricted stock in 2009.
The compensation committees survey of the Insurance and Finance Group indicates that the
compensation of the Ebixs Chief Executive Officer was at or above the 15th percentile
for the Insurance and Finance Group. The performance of Ebix, however, for the same period defined
the 100% percentile for the Insurance and Finance Group in 1 year net growth, 1 year net margin, 1
year shareholder return, 5 year net income CAGR, 5 year revenue CAGR, and 5 year shareholder
return. The compensation committee also noted that the Companys net margin exceeded the net margin
of each other member of the Insurance and Finance Group.
The compensation committees survey of the Growth Group indicates that total compensation of
the Companys Chief Executive Officer was slightly above the 20th percentile. The
compensation committees report indicated that the Company was substantially above the 88th
percentile in the measure of annualized revenue growth and substantially above the
100th percentile in the important measure of net margins, profitability, and earnings,
with Ebix being the leader in all these categories. The Companys performance was not exceeded by
any member of the Growth Group except in the area of annualized growth where one company had
marginally higher growth than Ebix.
Against these groups, the base salary of the Companys Chief Executive Officer is above the
75th percentile mark. The compensation committee noted that the degree of difference
between the Companys base pay practices for its Chief Executive Officer and those of the officers
of other companies in the comparable company groups surveyed is justified when considering the
broader range of duties pertaining to Ebixs Chief Executive Officer.
Equity Awards in 2009
In 2009, no stock options and 14,680 shares of restricted stock were granted to the named
executive officers of the Company.
Other Compensation Components
Company executives are eligible to participate in the Companys health care, insurance and
other welfare and employee benefit programs, which are the same for all eligible employees,
including Ebixs executive officers.
Use of Employment and Severance Agreements
In the past, the committee has determined that competitive considerations merit the use of
employment contracts or severance agreements for certain members of senior management. Presently,
however, no member of senior management is employed under an employment contract.
75
Recapture and Forfeiture Policies
Historically the Company has not had formal policies with respect to the adjustment or
recapture of performance based awards where the financial measures on which such awards are based
or to be based are adjusted for changes in reported results such as, but not limited to, instances
where the Companys financial statements are
restated. The committee does not believe that repayment should be required where the Plan
participant has acted in good faith and the errors are not attributable to the participants gross
negligence or willful misconduct. In such later situations, the committee believes the Company has
or will have available negotiated or legal remedies. However, the committee may elect to take into
account factors such as the timing and amount of any financial restatement or adjustment, the
amounts of benefits received, and the clarity of accounting requirements lending to any restatement
in fixing of future compensation.
Deductibility of Compensation and Related Tax Considerations
As one of the factors in its review of compensation matters, the committee considers the
anticipated tax treatment to the Company and to the executives of various payments and benefits.
Section 162(m). Section 162(m) of the Internal Revenue Code of 1986, as amended (the
Code) generally limits to $1 million the amount that a publicly-held corporation is allowed
each year to deduct for the compensation paid to each of the corporations chief executive
officer and the corporations four most highly compensated executive officers, other than the
chief executive officer. However, performance-based compensation is not subject to the $1
million deduction limit. In general, to qualify as performance-based compensation, the
following requirements must be satisfied: (i) payments must be computed on the basis of an
objective, performance-based compensation standard determined by a committee consisting
solely of two or more outside directors, (ii) the material terms under which the
compensation is to be paid, including the business criteria upon which the performance goals
are based, and a limit on the maximum amount which may be paid to any participant pursuant to
any award with respect to any performance period, are approved by a majority of the
corporations stockholders, and (iii) the committee certifies that the applicable performance
goals were satisfied before payment of any performance-based compensation is made.
Although the Companys stock option plans generally have been structured with the goal of
complying with the requirements of Section 162(m), and the compensation committee believes
stock options awarded there under should qualify as performance-based compensation exempt
from limitations on deductibility under Section 162(m), the deductibility of any compensation
was not a condition to any compensation decision. The Company does not expect its ability to
deduct executive compensation to be limited by operation of Section 162(m). However, due to
interpretations and changes in the tax laws, some types of compensation payments and their
deductibility depend on the timing of an executives vesting or exercise of previously
granted rights and other factors beyond the compensation committees control which could
affect the deductibility of compensation.
The compensation committee will continue to carefully consider the impact of Section
162(m) when designing compensation programs, and in making compensation decisions affecting
the Companys Section 162(m) covered executives. We fully expect the majority of future stock
awards will be excludable from the Section 162(m) $1 million limit on deductibility, since
vesting of any such awards will likely be tied to performance-based criteria, or be part of
compensation packages which are less than $1 million dollars. Nonetheless, the compensation
committee believes that in certain circumstances factors other than tax deductibility are
more important in determining the forms and levels of executive compensation most appropriate
and in the best interests of the Company and its stockholders. Accordingly, it may award
compensation in excess of the deductibility limit, with or without requiring a detailed
analysis of the estimated tax cost of non-deductible awards to the Company. Given our dynamic
and rapidly changing industry and business, as well as the competitive market for outstanding
leadership talent, the compensation committee believes it is important to retain the
flexibility to design compensation programs consistent with its compensation philosophy for
the Company, even if some executive compensation is not fully deductible.
Section 280G. Code Section 280G generally denies a deduction for a significant portion
of certain compensatory payments made to corporate officers, certain shareholders and certain
highly-compensated employees if the payments are contingent on a change of control of the
employer and the aggregate amounts of the payments to the relevant individual exceed a
specified relationship to that individuals average compensation from the employer over the
preceding five years. In addition, Code Section 4999 imposes on that individual a 20% excise
tax on the same portion of the payments received for which the employer is denied a deduction
under Section 280G. In determining whether to approve an obligation to make payments for
which Section 280G would deny the Company a deduction or whether to approve an obligation to
indemnify (or gross-up) an executive against the effects of the Section 4999 excise
tax, the committee has adopted an approach similar to that described above with respect to
payments which may be subject to the deduction limitations of Section 162(m).
76
Chief Executive Officer Compensation
The compensation policies described above apply equally to the compensation of the Chief
Executive Officer (CEO).
Potential Payments for Mr. Raina Upon a Change of Control
In 2009 our independent directors unanimously approved the recommendation of the compensation
committee regarding changes to the compensation structure for Mr. Raina. Specifically in this
regard, the independent directors unanimously approved the Companys execution of and entry into
the Acquisition Bonus Agreement (the Agreement) between the Company and Mr. Raina. The Agreement
aligns both the interests of the Companys stockholders and its Mr. Raina. Considering the
continued healthy growth of the Company and the prevailing comparatively low price to earnings
multiple of Ebixs common stock, the Board has evaluated the potential threat of the Company itself
being an acquisition target. The Agreement serves in part to allow for stockholder value to be
maximized by dissuading a potentially hostile acquisition attempt at an unacceptable price. Also,
the Board acknowledges that Mr. Rainas retention is critical to the future success and growth of
Ebix, and as such, the Agreement helps to ensure that Mr. Raina will be appropriately awarded for
his contributions prior to any potential acquisition event as well as to further motivate Mr. Raina
to maximize the value received by all stockholders of Ebix if the Company were to be acquired.
Under the terms of the Agreement the occurrence of any of the following events shall
constitute an Acquisition Event: (a) more the 50% of the voting stock of Ebix is sold,
transferred, or exchanged; (b) a merger or consolidation of the Company occurs; (c) the sale,
exchange, or transfer of substantially all of the Companys assets; or (d) the Company is acquired
or dissolved; provided, however, an Acquisition Event also must qualify as a change in control
event as such term is defined in Treasury Regulation 1.409A-3.
Upon the occurrence of an Acquisition Event, Mr. Raina shall
receive from the acquiring company, in cash, an amount that is
determined by multiplying the Share Base by the Spread.
|
|
|
Spread is calculated by subtracting $23.84 (post
three-for-one split, $7.95) from the Net proceeds per share. |
|
|
|
|
Share Base shall be the positive number, if any, that is
determined when the number of Shares Deemed Held by Executive immediately
prior to the Closing Date is subtracted from the number of shares that is 20%
of the total shares of common stock outstanding immediately prior to the
Closing Date on a fully diluted basis, taking into account the effect of the
occurrence of the Liquidation Event on the vesting, conversion or exercise
terms of any outstanding securities or other instruments exercisable for, or
convertible into, shares of common stock; provided that the difference that is
so obtained shall be reduced by the number of shares, if any, sold by
Executive after the first public announcement by the Company or any other
party of any agreement, arrangement, Agreement, proposal or intent to engage
in a transaction which would constitute a Liquidation Event. |
The number of Shares Deemed Held by Executive immediately prior to the Closing Date shall
equal the number of shares of common stock of the Company then beneficially owned by Executive plus
any shares sold by Executive between the signing of this agreement and the Closing date, plus any
additional shares issuable to Executive (other than pursuant to this Agreement) immediately prior
to or upon the Closing Date upon the exercise of stock options or the conversion of convertible
securities, after giving effect to any acceleration of vesting that will occur due to the
occurrence of the Liquidation Event.
|
|
|
As defined in the Agreement, Net Proceeds shall equal the sum
of any cash consideration received for each share of Company common stock plus
the Fair Market Value of any securities received or receivable per share of
Company common stock held by the stockholders of the Company by virtue of an
Acquisition Event. |
The Fair Market Value of any securities received by Company stockholders shall be determined
as follows: (i) if such securities are listed and traded on a national securities exchange (as such
term is defined by the Securities Exchange Act of 1934) on the date of determination, the Fair
Market Value per share shall be the average of the closing prices of the securities on such
national securities exchange, over the twenty trading day period ending three trading days prior
to the closing date of an Acquisition Event; (ii) if such securities are traded in the
over-the-counter market, the Fair Market Value per share shall be the average of the closing bid
and asked prices on the day immediately prior to the closing date of an Acquisition Event; or (iii)
if such securities are not listed on a national securities exchange or, if such securities are
traded in the over-the-counter market but there shall be no published closing bid and asked prices
available on the date immediately prior to the Closing Date, then the Board shall determine the
Fair Market Value of such securities from all relevant available facts, which may include the
average of the closing bid and ask prices reflected in the over-the-counter market on a date within
a reasonable period either before or after the date of determination, or opinions of independent
experts as to value and may take into account any recent sales and purchases of such securities to
the extent they are representative.
77
In the event of a determination by an accounting firm of national standing that any payment or
distribution by the Company to or for the benefit of Mr. Raina, whether paid, payable, distributed
or distributable pursuant to the Agreement or otherwise would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986 as amended (or any successor provision) or any
interest or penalties with respect to such excise tax, then Mr. Raina shall be entitled to receive
an additional payment in an amount such that after the payment by Mr. Raina of all taxes (including
any interest or penalties imposed with respect to such taxes), Mr. Raina retains an amount equal to
any such tax.
The base price of $7.95 from which any Net Proceeds will be subtracted
represents the approximate price per share of the Companys common stock on March 25, 2009 when the independent
members of the Board agreed on the desirability of this type of agreement.
Compensation Committee Interlocks and Insider Participation.
The members of the Compensation Committee, Messrs. Benz and Keller, have never been officers
or employees of the Company, nor have they ever been considered insiders of the Company.
Committee Conclusion
Attracting and retaining talented and motivated management and employees is essential to
create long-term stockholder value. Offering a competitive, performance-based compensation program
with a large equity component helps to achieve this objective by aligning the interests of the
Companys CEO and other executive officers with those of stockholders. The committee believes that
Ebixs 2009 compensation program met these objectives. Likewise, based on our review, the committee
finds the total compensation (and, in the case of the severance and change-in-control scenarios,
the potential payouts) to the Companys CEO and other named executive officer in the aggregate to
be reasonable and not excessive.
Compensation Committee and Management Review and Authorization
The compensation committee has reviewed the above Compensation Disclosure and Analysis with
the Companys Chief Executive Officer and Chief Financial Officer. Based on a review of this
Compensation Disclosure and Analysis report and discussion with the compensation committee, the
Companys Chief Executive Officer and Chief Financial Officer have approved the inclusion of the
Compensation Disclosure and Analysis report in this Form 10-K.
78
Authorization
This report has been submitted by the compensation committee:
Hans U. Benz and Hans Ueli Keller
The foregoing report shall not be deemed incorporated by reference by any general statement
incorporating by reference this annual report into any filing under the Securities Act of 1933 or
under the Securities Exchange Act of 1934, except to the extent that we specifically incorporate
this information by reference, and shall not otherwise be deemed filed under such Acts.
Risk Considerations
Our Compensation
Committee has reviewed risks arising from our compensation policies and practices
for both our executives and non-executive employees and has determined that they are not reasonably likely to have a material adverse
effect on the Company.
Executive Compensation and Director Compensation Tables - All references to any amount of stock,
restricted stock, or options in the below tables represent the amounts at December 31, 2009 reflect
the effect of the Companys three-for-one stock split on January 4, 2010.
Summary Compensation Table
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
Deferred |
|
|
|
|
|
|
|
Name and |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Option |
|
|
Incentive Plan |
|
|
Compensation |
|
|
All Other |
|
|
|
|
Principal |
|
|
|
|
|
Salary |
|
|
Bonus |
|
|
Awards |
|
|
Awards |
|
|
Compensation |
|
|
Earnings |
|
|
Compensation |
|
|
|
|
Position |
|
Year |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
Total |
|
Robin Raina, President, |
|
|
2009 |
|
|
$ |
800,000 |
|
|
$ |
1,300,000 |
(7) |
|
|
358,321 |
(1) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
$ |
9,675 |
(5) |
|
$ |
2,467,996 |
|
Chief Executive Officer |
|
|
2008 |
|
|
$ |
550,000 |
|
|
$ |
1,900,000 |
|
|
$ |
307,319 |
(2) |
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
24,450 |
|
|
$ |
2,781,769 |
|
and Chairman of the Board |
|
|
2007 |
|
|
$ |
475,000 |
|
|
$ |
1,050,000 |
|
|
$ |
153,595 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,300 |
|
|
$ |
1,681,895 |
|
Richard J. Baum, Executive |
|
|
2009 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Vice PresidentChief |
|
|
2008 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
(4) |
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
|
|
|
$ |
|
|
Officer and Secretary |
|
|
2007 |
|
|
$ |
110,000 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
110,000 |
|
Carl Serger, Senior Vice |
|
|
2007 |
|
|
$ |
98,750 |
|
|
$ |
41,250 |
|
|
$ |
|
|
|
|
(4 |
) |
|
|
N/A |
|
|
|
N/A |
|
|
$ |
|
|
|
$ |
142,100 |
|
PresidentChief Financial
Officer and Secretary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Kerris, Senior Vice |
|
|
2009 |
|
|
$ |
135,000 |
|
|
$ |
45,000 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,025 |
(6) |
|
$ |
183,025 |
|
PresidentChief Financial |
|
|
2008 |
|
|
$ |
135,000 |
|
|
$ |
30,000 |
|
|
$ |
|
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
2,250 |
|
|
$ |
167,250 |
|
Officer and Secretary |
|
|
2007 |
|
|
$ |
25,962 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
|
|
|
$ |
25,962 |
|
Footnotes
|
|
|
(1) |
|
During March 2009, the Compensation Committee of the Board of Directors of the Company gave
final approval to award 44,040 shares of restricted stock to Robin Raina, the Companys
Chairman, Chief Executive Officer and President. This award was made pursuant to the 2006
incentive compensation program (the 2006 Program) approved by the Companys Board of
Directors. The number of shares of restricted stock issued to Mr. Raina represent
approximately 25% of the aggregate of his total salary and cash bonus compensation earned for
2008, divided by the market price of the Companys stock on March 25, 2009. This is the date
that the Compensation Committee of the Board of Directors approved the restricted stock grant.
The Company recognized compensation expense of approximately $89,737 related to these shares
during the year ended December 31, 2009. The Company recognized a total compensation expense
of $358,321 related to all share grants inclusive of the March 25, 2009 grant during the year
ended December 31, 2009. |
|
(2) |
|
During March 2008, the Compensation Committee of the Board of Directors of the
Company gave final approval to award 48,222 shares of restricted stock to Robin Raina, the
Companys Chairman, Chief Executive Officer and President. This award was made pursuant to the
2006 incentive compensation program (the 2006 Program) approved by the Companys Board of
Directors. The number of shares of restricted stock issued to Mr. Raina represents
approximately 25% of the aggregate of his total salary and cash bonus compensation earned for
2007, divided by the market price of the Companys stock on March 24, 2008. This is the date
that the Compensation Committee of the Board of Directors approved the restricted stock grant.
The Company recognized compensation expense of approximately $125,000 related to these shares
during the year ended December 31, 2009. The Company recognized a total compensation expense
of $307,319 related to all share grants inclusive of the March 24, 2008 grant during the year
ended December 31, 2008. |
|
(3) |
|
During May 2007, the Compensation Committee of the Board of Directors of the Company gave
final approval to award 76,509 shares of restricted stock to Robin Raina, the Companys
Chairman, Chief Executive Officer and President. Likewise, on November 11, 2007, the
Compensation Committee of the Board of Directors of the Company gave final approval to award
22,500 shares of restricted stock to Mr. Raina. These awards were made pursuant to the 2006
incentive compensation program (the 2006 Program) approved by the Companys Board of
Directors. These number of shares of restricted stock issued to Mr. Raina represent
approximately 23% and 12% of the aggregate of the his total salary and cash bonus compensation
earned for 2006 and 2007, respectively, divided by the market price of the Companys stock on
May 9, 2007 and November 11, 2007, respectively. These are the dates that the Compensation
Committee of the Board of Directors approved the restricted stock grants. The Company
recognized compensation expense of approximately $139,000 related to these shares during the
year ended December 31, 2009. The Company recognized a total compensation expense of $153,595
related to all share grants inclusive of the May 9, 2007 and November 11, 2007 grants during
the year ended December 31, 2008. |
79
|
|
|
(4) |
|
There was no FASB expense related to executive stock options as all of their options were
vested as of December 31, 2005. |
|
(5) |
|
For 2009, the Company made a matching grant pursuant to its 401(k) Plan of $3,675, and paid a
conveyance expense of $6,000. For 2008, the Company made a matching grant pursuant to its
401(k) Plan of $3,450 and paid additional dependent medical insurance of $11,000, a partial
property tax payment of $4,000 and a conveyance expense of $6,000. For 2007, the Company made
a matching grant pursuant to its 401(k) Plan of $3,300. |
|
(6) |
|
For 2009, the Company made a matching grant pursuant to its 401(k) Plan of $3,025. For
2009, the Company made a matching grant pursuant to its 401(k) Plan of $3,675. |
|
(7) |
|
$500,000 of
Mr. Rainas bonus has yet to be paid. as of March 16,
2010. This outstanding bonus pertains to the executives performance
during the year ending December 31, 2009. |
Grants of Plan-Based Award
|
|
|
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All |
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Other |
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Stock |
|
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|
|
|
|
Awards: |
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future |
|
|
Estimated Future |
|
|
Number |
|
|
Option |
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Under Non |
|
|
Payouts Under Equity |
|
|
of |
|
|
Awards: |
|
|
Exercise |
|
|
|
|
|
|
|
|
|
|
Equity Incentive |
|
|
Incentive Plan |
|
|
Shares |
|
|
Number of |
|
|
or Base |
|
|
|
|
|
|
|
|
|
|
Awards |
|
|
Awards |
|
|
of |
|
|
Securities |
|
|
Price of |
|
|
|
|
|
|
|
|
|
|
Thresh- |
|
|
|
|
|
|
Maxi- |
|
|
Thresh- |
|
|
|
|
|
|
Maxi- |
|
|
Stock or |
|
|
Underlying |
|
|
Option |
|
|
Full Grant |
|
|
|
Grant |
|
|
old |
|
|
Target |
|
|
mum |
|
|
old |
|
|
Target |
|
|
mum |
|
|
Units |
|
|
Options |
|
|
Awards |
|
|
Date Fair |
|
Name |
|
Date |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
(#) |
|
|
(#) |
|
|
(#) |
|
|
(#) |
|
|
(#) |
|
|
($/Sh) |
|
|
Value |
|
Robin Raina,
President, Chief
Executive Officer
and Chairman of the
Board |
|
|
03/25/09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,040 |
|
|
|
|
|
|
|
|
|
|
$ |
350,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carl Serger, Senior
Vice
PresidentChief
Financial Officer
and Secretary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Kerris,
Senior Vice
PresidentChief
Financial Officer
and Secretary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Equity Awards at Fiscal Year-End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
Stock Awards |
|
|
|
|
|
|
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|
|
|
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|
|
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|
Equity |
|
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Incentive |
|
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Equity |
|
|
Plan |
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|
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|
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|
|
|
|
|
|
Incentive |
|
|
Awards: |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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Plan |
|
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Market |
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|
Awards: |
|
|
or |
|
|
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|
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|
|
|
|
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|
Number |
|
|
Payout |
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of |
|
|
Value of |
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned |
|
|
Unearned |
|
|
|
|
|
|
|
|
|
|
|
Plan |
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Shares, |
|
|
Shares, |
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
|
|
|
|
|
|
|
|
|
Shares or |
|
|
Market |
|
|
Units or |
|
|
Units or |
|
|
|
Number of |
|
|
Number of |
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
Units of |
|
|
Value of |
|
|
Other |
|
|
Other |
|
|
|
Securities |
|
|
Securities |
|
|
Securities |
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Shares or |
|
|
Rights |
|
|
Rights |
|
|
|
Underlying |
|
|
Underlying |
|
|
Underlying |
|
|
|
|
|
|
|
|
|
|
That |
|
|
Units of |
|
|
That |
|
|
That |
|
|
|
Unexercised |
|
|
Unexercised |
|
|
Unexercised |
|
|
Option |
|
|
|
|
|
|
Have |
|
|
Stock That |
|
|
Have |
|
|
Have |
|
|
|
Options |
|
|
Options |
|
|
Unearned |
|
|
Exercise |
|
|
Option |
|
|
Not |
|
|
Have Not |
|
|
Not |
|
|
Not |
|
|
|
(#) |
|
|
(#) |
|
|
Options |
|
|
Price |
|
|
Expiration |
|
|
Vested |
|
|
Vested |
|
|
Vested |
|
|
Vested |
|
Name |
|
Exercisable |
|
|
Un-exercisable |
|
|
(#) |
|
|
($) |
|
|
Date |
|
|
(#)(1) |
|
|
($) |
|
|
(#) |
|
|
($) |
|
Robin Raina, President, Chief |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109,203 |
|
|
$ |
1,777,824 |
|
|
|
|
|
|
|
|
|
Executive Officer and
Chairman of the Board |
|
|
990,000 |
|
|
|
|
|
|
|
|
|
|
$ |
.5944 |
|
|
|
9-16-2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,125,000 |
|
|
|
|
|
|
|
|
|
|
$ |
.6222 |
|
|
|
8-23-2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216,567 |
|
|
|
|
|
|
|
|
|
|
$ |
.7222 |
|
|
|
2-1-2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188,442 |
|
|
|
|
|
|
|
|
|
|
$ |
.7222 |
|
|
|
2-1-2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
720,000 |
|
|
|
|
|
|
|
|
|
|
$ |
.7222 |
|
|
|
2-1-2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450,000 |
|
|
|
|
|
|
|
|
|
|
$ |
1.751 |
|
|
|
4-2-2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carl Serger, Senior Vice
PresidentChief Financial Officer and Secretary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Kerris, Senior Vice
PresidentChief Financial Officer and Secretary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
Footnote
|
|
|
(1) |
|
Robin Raina has been awarded restricted stock grants by the Compensation Committee: (i) a
grant of 75,186 shares of Company common stock on February 3, 2006 of which 0 shares were
unvested as of December 31, 2009; (ii) a grant of 76,509 shares of Company common stock on May
9, 2007 of which 25,506 shares were unvested as of December 31, 2009; a grant of 22,500 shares
of Company common stock on November 11, 2007 of which 7,506 shares were unvested as of
December 31, 2009; (iv) a grant of 48,222 shares of Company common stock on March 24, 2008 of
which 32,148 were unvested as of December 31, 2009; and a grant of 44,040 shares of which
44,040 were unvested as of December 31, 2009. |
Option Exercises and Stock Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
Stock Awards |
|
|
|
Number of |
|
|
Value |
|
|
Number of |
|
|
Value |
|
|
|
Shares |
|
|
Realized |
|
|
Shares |
|
|
Realized |
|
|
|
Acquired |
|
|
on |
|
|
Acquired |
|
|
on |
|
Name |
|
on Exercise |
|
|
Exercise |
|
|
on Vesting |
|
|
Vesting |
|
(a) |
|
(#) |
|
|
($) |
|
|
(#) |
|
|
($) |
|
Robin Raina,
President, Chief
Executive Officer
and Chairman of the
Board |
|
|
202,500 |
|
|
$ |
1,003,312 |
|
|
|
74,133 |
|
|
$ |
680,808 |
|
Robert Kerris,
Senior Vice
PresidentChief
Financial Officer
and Secretary |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Pension Benefits and Nonqualified Deferred Compensation
The Company does not generally offer non-tax qualified pension benefit plans or nonqualified
deferred compensation to its officers, and none of its named executive officers currently
participate or have participated in any non-tax qualified pension benefit plans or nonqualified
deferred compensation plan during the past fiscal year.
Director Compensation
Following each Annual Meeting of our stockholders, non-employee members of the board of
directors are typically granted an option to purchase 27,000 shares of common stock at an exercise
price per share of 100% of the fair market value for each share of common stock on the date of the
grant.
On December 4, 2009,
the board of directors granted to each non-employee director 27,000 stock
options of which onefourth will vest during 2010, and the
remaining options will vest ratably each quarter in the years 2011,
2012 and 2013. Such grants were made pursuant to boards policy set forth on November 11, 2007. Each
non-employee director received an annual cash retainer of $14,000 during 2009. Mr. Keller and Benz
received $5,000 following the annual meeting of stockholders on October 30, 2009 for serving on
both the Audit and Compensation Committees. The Audit Committee Chairman, Mr. Bhalla received cash
compensation of $5,000 following the October 30, 2009 meeting.
On November 11, 2007, the board of directors met and decided to double the amount of options
granted to each non-employee director it to 27,000 stock options after each annual meeting of
stockholders. During 2007, however, no stock options or restricted stock were granted to any
non-employee director. On February 8, 2008, the board of directors granted to each non-employee
director 27,000 stock options. Such grants were made pursuant to boards policy set forth on
November 11, 2007. Each non-employee director received an annual cash retainer of $14,000 during
2007. Mr. Keller and Benz received $5,000 following the annual meeting of stockholders on November
15, 2007 for serving on both the Audit and Compensation Committees. The Audit Committee Chairman,
Mr. Bhalla received cash compensation of $5,000 following the November 15, 2007 meeting.
81
Director Compensation Chart
Director Compensation
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value |
|
|
|
|
|
|
Fees |
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
|
|
|
|
Earned or |
|
|
|
|
Option |
|
|
Non-Equity |
|
|
Nonqualified |
|
|
|
|
|
|
Paid in |
|
|
Stock |
|
Awards |
|
|
Incentive Plan |
|
|
Deferred |
|
All Other |
|
|
Name |
|
Cash |
|
|
Awards |
|
($) |
|
|
Compensation |
|
|
Compensation |
|
Compensation |
|
Total |
(a) |
|
($) |
|
|
($) |
|
(1) |
|
|
($) |
|
|
Earnings |
|
($) |
|
($) |
Pavan Bhalla |
|
$ |
19,000 |
|
|
None |
|
$ |
43,094 |
|
|
None |
|
None |
|
None |
|
$62,094 |
Hans Ueli Keller |
|
$ |
19,000 |
|
|
None |
|
$ |
43,094 |
|
|
None |
|
None |
|
None |
|
$62,094 |
Hanz U. Benz |
|
$ |
19,000 |
|
|
None |
|
$ |
43,094 |
|
|
None |
|
None |
|
None |
|
$62,094 |
Neil D. Eckert |
|
$ |
14,000 |
|
|
None |
|
$ |
43,094 |
|
|
None |
|
None |
|
None |
|
$57,094 |
Rolf Herter |
|
$ |
14,000 |
|
|
None |
|
$ |
43,094 |
|
|
None |
|
None |
|
None |
|
$57,094 |
|
|
|
(1) |
|
Amounts reflect the dollar amount recognized for financial statement reporting purposes for
the fiscal year ended December 31, 2009, in accordance with FASB ASC Topic 718 and thus may
include amounts from awards granted prior to 2009. |
The following table lists below the aggregate number of outstanding options held by each
director as of December 31, 2009:
|
|
|
|
|
|
|
Aggregate Stock Option |
|
|
|
Awards at Year End |
|
Pavan Bhalla |
|
|
138,375 |
|
Hans Ueli Keller |
|
|
122,850 |
|
Hanz U. Benz |
|
|
81,000 |
|
Neil D. Eckert |
|
|
108,000 |
|
Rolf Herter |
|
|
108,000 |
|
|
|
|
Item 11. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS |
Securities Authorized for Issuance Under Equity Compensation Plans
As of December 31, 2009, we maintained the 1996 Stock Incentive Plan, as amended and restated
in 2006. We also maintained the 2001 Stock Incentive Plan, which was not approved by our
stockholders. As discussed below, our Board of Directors has terminated the 2001 Stock Incentive
Plan. The table below provides information as of December 31, 2009 related to these plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
|
Number of Securities |
|
|
|
|
|
|
of Securities |
|
|
|
to be Issued Upon |
|
|
Weighted-Average |
|
|
Remaining Available |
|
|
|
Exercise of |
|
|
Exercise Price of |
|
|
for Future Issuance |
|
|
|
Outstanding Options |
|
|
Outstanding Options |
|
|
Under Equity |
|
Plan Category |
|
Warrants and Rights |
|
|
Warrants and Rights |
|
|
Compensation Plans |
|
Equity Compensation Plans Approved by Security Holders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1996 Stock Incentive Plan, as amended and restated in 2006 |
|
|
4,548,261 |
|
|
$ |
1.69 |
|
|
|
2,303,577 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4,548,261 |
|
|
$ |
1.69 |
|
|
|
2,303,577 |
|
|
|
|
|
|
|
|
|
|
|
82
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
Percent of |
|
Name of Beneficial Owner(1) |
|
Ownership(2) |
|
|
Class |
|
Fidelity Management and Research Company (3) |
|
|
4,987,353 |
|
|
|
14.3 |
% |
Rennes Foundation (4) |
|
|
3,474,093 |
|
|
|
9.9 |
% |
Whitebox Advisors, LLC (5) |
|
|
3,426,846 |
|
|
|
9.8 |
% |
Robin Raina (6) |
|
|
3,951,198 |
|
|
|
11.3 |
% |
Robin Raina Foundation (13) |
|
|
156,255 |
|
|
|
* |
|
Robert F. Kerris (7) |
|
|
|
|
|
|
* |
|
Pavan Bhalla (8) |
|
|
138,375 |
|
|
|
* |
|
Hans Ueli Keller (9) |
|
|
122,850 |
|
|
|
* |
|
Hans U. Benz (10) |
|
|
67,000 |
|
|
|
* |
|
Neil D. Eckert (11) |
|
|
108,000 |
|
|
|
* |
|
Rolf Herter (12) |
|
|
108,000 |
|
|
|
* |
|
Directors, executive officers and nominees as a group (7 persons) |
|
|
|
|
|
|
13.3 |
% |
|
|
|
* |
|
Less than 1%. |
|
(1) |
|
The following table sets
forth, as of March 11, 2010, the ownership of our Common Stock by
each of our directors, by each of our Named Executive Officers (as defined on page 12), by all
of our current executive officers and directors as a group, and by all persons known to us to
be beneficial owners of more than five percent of our Common Stock. The information set forth
in the table as to the current directors, executive officers and principal stockholders is
based, except as otherwise indicated, upon information provided to us by such persons. Unless
otherwise indicated, each person has sole investment and voting power with respect to the
shares shown below as beneficially owned by such person. |
|
(2) |
|
The number of shares beneficially owned reflects the Companys above-mentioned
three-for-one stock split in the form of a stock dividend on January 4, 2010. |
|
(3) |
|
Ownership consists of shares of our common stock beneficially owned by Fidelity Management
& Research Company, a wholly-owned subsidiary of FMR LLC (Fidelity), in its capacity as an
investment advisor, as disclosed on its joint Schedule 13G/A dated February 16,
2010, for the period ended December 31, 2009, and prior to our three-for-one stock split in
the form of a stock dividend, as filed with the SEC. Fidelity reports that sole dispositive
power resides in Edward C. Johnson, III and FMR LLC. The address of Fidelity is 82 Devonshire
Street, Boston, Massachusetts 02109. |
|
(4) |
|
The address of the Rennes Foundation is
Rätikonerstrasse 13, P.O. Box 125, 9490 Vaduz, Principality of Liechtenstein. The address and information set forth in the table as to this stockholder are
based on a Schedule 13G filed by this stockholder on April 2, 2008 and the rights pursuant to
that certain convertible note purchased by the Rennes Foundation from the Company on August
25, 2009 prior to our three-for-one stock split in the form of a stock dividend. |
|
(5) |
|
Ownership consists of shares of the Companys common stock beneficially owned by Whitebox
Advisors, LLC, a Delaware limited liability company (Whitebox), as an investment adviser
as disclosed on its filing on Schedule 13G dated February 16, 2010 for the period ended
December 31, 2009, and prior to our three-for-one stock split in the form of a stock dividend
as filed with the SEC. Whitebox reported that it has shared voting power with respect to
1,145,282 shares and shared investment power as to 1,145,282 shares. The address of Whitebox
is 3303 Excelsior Boulevard, Suite 300, Minneapolis, Minnesota 55416. |
83
|
|
|
(6) |
|
Mr. Rainas ownership includes 198,027 shares of restricted stock as well as options to
purchase 3,390,009 shares of our common stock which are exercisable as of March 16, 2010, or
that will become exercisable within 60 days after that date. The address of Mr. Raina is 5
Concourse Parkway, Suite 3200, Atlanta, Georgia 30328. |
|
(7) |
|
Mr. Kerris ownership includes 0 shares of restricted stock as well as options to
purchase 0 shares of our common stock which are exercisable as of March 16, 2010, or that will
become exercisable within 60 days after that date. |
|
(8) |
|
Mr. Bhallas ownership includes options to purchase 96,165 shares of our common stock which
are exercisable as of March 16, 2010, or that will become exercisable within 60 days after
that date. |
|
(9) |
|
Mr. Kellers ownership includes options to purchase 107,640 shares of our common stock which
are exercisable as of March 16, 2010, or that will become exercisable within 60 days after
that date. |
|
(10) |
|
Mr. Benzs ownership includes options to purchase 25,915 shares of our common stock which
are exercisable as of March 16, 2010, or that will become exercisable within 60 days after
that date. |
|
(11) |
|
Mr. Eckerts ownership includes options to purchase 66,915 shares of our common stock which
are exercisable as of March 16, 2010, or that will become exercisable within 60 days after
that date. |
|
(12) |
|
Mr. Herters ownership includes options to purchase 66,915 shares of our common stock which
are exercisable as of March 16, 2010, or that will become exercisable within 60 days after
that date. |
|
(13) |
|
Robin Raina Foundation a
501(c) charity ownership includes 156,255 shares which were donated
by Robin Raina from vested restricted stock grants previously issued
to Mr. Raina by the Company. The Federal Tax ID Number for the
foundation is 51-0497387. |
|
|
|
Item 12. |
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Rahul Raina, is the Companys Assistant Vice President of Business Process Outsourcing and the
brother of Robin Raina, our Chairman of the Board, President, and Chief Executive Officer. During
2009 he was paid a salary of $120,000, a bonus of $7,500 and received a restricted stock grant on
March 14, 2009 of 6,081 shares of common stock at a price of $8.22 per share, which was the fair
value of the stock on the date of the grant. During 2008 he was paid a salary of $120,000 and
received a restricted stock grant on April 14, 2008 of 10,881 shares of common stock at a price of
$8.28 per share, which was the fair value of the stock on the date of the grant. During 2007 Rahul
Raina was paid a salary of $120,000 and received a bonus of $111,000. Previously in 2003 Rahul
Raina was granted options to purchase 225,000 shares of our common stock. The options vest over
four years from the date of grant and expire ten years from the date of grant. The options had
originally been granted with an exercise price below the fair market value on the date of the
grant. In December 2006 these options were amended and the exercise price was increased from $0.32
per share to $0.74 per share, which is equal to the fair market value of the common stock
underlying the stock options at the original grant date. The option grant was valued using the
Black-Scholes option pricing model. This grant was not subject to any of our stockholder approved
stock incentive plans. The Company recognized compensation expense of $28,000 during 2007, and
$41,000 during 2006 related to these options. The expense for these options was fully recognized as
of December 31, 2007.
84
|
|
|
Item 13. |
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
On January 14, 2008, Ebix was informed by Miller Ray Houser & Stewart, LLP, (MRHS) the
Companys independent registered public accounting firm, that MRHS had been acquired by Habif,
Arogeti & Wynne, LLP (HAW) and that from henceforward HAW would serve as the Companys
independent registered public accounting firm. Habif, Arogeti & Wynne (HAW) served as Ebixs
registered public accountants for the year ended December 31, 2007. Cherry, Bekaert & Holland, LLP
(CBH) served as Ebixs registered public accountants for the year ended December 31, 2008.
The following table presents fees billed for professional services rendered for the audit of
our annual financial statements for 2008 and 2007 and fees billed for other services rendered
during 2009 and 2008 by CBH and HAW, our independent registered public accounting firms during
these periods.
|
|
|
|
|
|
|
|
|
Services Rendered by Cherry, Bekaert & Holland, LLP |
|
2009 |
|
|
2008 |
|
Audit Fees (1) |
|
$ |
343,250 |
|
|
$ |
262,500 |
|
Audit Related Fees |
|
$ |
|
|
|
$ |
|
|
Tax Fees |
|
$ |
|
|
|
$ |
|
|
All Other Fees (4) |
|
$ |
60,000 |
|
|
$ |
1,200 |
|
|
|
|
|
|
|
|
|
|
Services Rendered by Habif, Arogeti & Wynne, LLP |
|
2009 |
|
|
2008 |
|
Audit Fees (1) |
|
$ |
|
|
|
$ |
313,848 |
|
Audit Related Fees (2) |
|
$ |
37,821 |
|
|
$ |
156,128 |
|
Tax Fees (3) |
|
$ |
12,170 |
|
|
$ |
69,121 |
|
All Other Fees |
|
$ |
9,344 |
|
|
$ |
2,249 |
|
|
|
|
(1) |
|
Including fees for the audit of our annual financial statements included in our Form 10-K and
reviews of the financial statements in our Forms 10-Q, but excluding audit-related fees. |
|
(2) |
|
Includes fees related to the audit of a recently acquired business. |
|
(3) |
|
Includes fees for the analysis of any potential IRC Section 382 limitations on NOL
carryovers; also includes fees for the preparation of tax returns of an acquired business for
the period prior to the effective date of the business combination. |
|
(4) |
|
Fee for the research pertaining to the interpretation and treatment of a certain debt related
put option. |
The Audit Committee considered and pre-approved all of the above-referenced fees and services.
Pursuant to a policy adopted by our Board of Directors, the Audit Committee requires advance
approval of all audit services and permitted non-audit services to be provided by the independent
registered public accounting firm as required by the Securities Exchange Act of 1934.
85
PART IV
|
|
|
Item 14. |
|
EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
(a) 1. Financial Statements.
The following consolidated financial statements and supplementary data of the Company and its
subsidiaries, required by Part II, Item 8 are filed herewith:
|
|
|
Report of Independent Registered Public Accounting Firm |
|
|
|
|
Consolidated Balance Sheets as of December 31, 2009 and December 31, 2008 |
|
|
|
|
Consolidated Statements of Income for the years ended December 31, 2009, December
31, 2008, and December 31, 2007. |
|
|
|
|
Consolidated Statements of Stockholders Equity and Comprehensive Income for the
years ended December 31, 2009, December 31, 2008, and December 31, 2007. |
|
|
|
|
Consolidated Statements of Cash Flows for the years ended December 31, 2009,
December 31, 2008 and December 31, 2007. |
|
|
|
|
Notes to Consolidated Financial Statements |
2. Financial Statement Schedules.
The following consolidated financial statement schedule is filed herewith:
Schedule IIValuation and Qualifying Accounts for the years ended December 31, 2009, December
31, 2008 and December 31, 2007.
Schedules other than those listed above have been omitted because they are not applicable or
the required information is included in the financial statements or notes thereto.
3. Exhibits1
The exhibits filed herewith or incorporated by reference are listed on the Exhibit Index
attached hereto.
86
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this amendment to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
|
|
|
EBIX, INC.
(Registrant)
|
|
|
By: |
/s/ ROBIN RAINA
|
|
|
|
Robin Raina |
|
|
|
Chairman of the Board,
President and Chief Executive Officer |
|
|
Date: March 16, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ ROBIN RAINA
(Robin Raina)
|
|
Chairman of the Board, President, and
Chief Executive Officer
(principal executive officer)
|
|
March 16, 2010 |
|
|
|
|
|
/s/ ROBERT F. KERRIS
(Robert F. Kerris)
|
|
Senior Vice President and Chief Financial Officer (principal
financial and accounting officer)
|
|
March 16, 2010 |
|
|
|
|
|
/s/ HANS U. BENZ
(Hans U. Benz)
|
|
Director
|
|
March 16, 2010 |
|
|
|
|
|
/s/ PAVAN BHALLA
(Pavan Bhalla)
|
|
Director
|
|
March 16, 2010 |
|
|
|
|
|
/s/ NEIL D. ECKERT
(Neil D. Eckert)
|
|
Director
|
|
March 16, 2010 |
|
|
|
|
|
/s/ ROLF HERTER
(Rolf Herter)
|
|
Director
|
|
March 16, 2010 |
|
|
|
|
|
/s/ HANS UELI KELLER
(Han Ueli Keller)
|
|
Director
|
|
March 16, 2010 |
87
EXHIBIT INDEX
|
|
|
|
|
Exhibits |
|
2.1 |
|
|
Stock Purchase Agreement dated February 23, 2004 by and among the Company and the shareholders of
LifeLink Corporation (incorporated by reference to Exhibit 2.1 to the Companys Current Report of
Form 8-K dated February 23, 2004 (the February 2004 8-K)) and incorporated herein by reference. |
|
|
|
|
|
|
2.2 |
|
|
Secured Promissory Note, dated February 23, 2004, issued by the Company (incorporated by reference
to Exhibit 2.2 of the February 2004 8-K and incorporated herein by reference). |
|
|
|
|
|
|
2.3 |
|
|
Purchase Agreement, dated June 28, 2004, by and between Heart Consulting Pty Ltd. And Ebix
Australia Pty Ltd. (incorporated by reference to Exhibit 2.1 to the Companys Current Report of
Form 8-K dated July 14, 2004 (the July 14, 2004 8-K)) and incorporated herein by reference. |
|
|
|
|
|
|
2.4 |
|
|
Agreement, dated July 1, 2004, by and between Heart Consulting Pty Ltd. and Ebix, Inc.
(incorporated by reference to Exhibit 2.2 to the Companys Current Report of Form 8-K dated July
14, 2004 (the July 14, 2004 8-K)) and incorporated herein by reference. |
|
|
|
|
|
|
2.5 |
|
|
Agreement Plan of Merger by and among Ebix, Finetre and Steven F. Piaker, as shareholders
Representative dated September 22, 2006 (incorporated by reference to Exhibit 2.1 to the Companys
Current Report on 8-K/A dated October 2, 2006) and incorporated herein by reference. |
|
|
|
|
|
|
2.6 |
|
|
Asset Purchase Agreement, dated May 9, 2006, by and among Ebix, Inc., Infinity Systems Consulting,
Inc. and the Shareholders of Infinity Systems Consulting, Inc. (incorporated here by reference to
Exhibit 2.1 to the Companys Current Reort on Form 8-K/A dated May 9, 2006) and incorporated
herein by reference. |
|
|
|
|
|
|
2.7 |
|
|
Agreement and Plan of Merger dated October 31, 2007 by and among Ebix, Inc., Jenquest, Inc. IDS
Acquisition Sub. and Robert M. Ward as Shareholder Representative (incorporated here by reference
to Exhibit 2.1 to the Companys Current Report on Form 8-K/A dated November 7, 2007) and
incorporated herein by reference. |
|
|
|
|
|
|
2.8 |
|
|
Stock Purchase Agreement by and among Ebix, Inc., Acclamation Systems, Inc., and Joseph Ott
(incorporated here by reference to Exhibit 2.1 to the Companys Current Report on Form 8-K dated
August 5, 2008 and incorporated herein by reference). |
|
|
|
|
|
|
2.9 |
|
|
Stock Purchase Agreement by and amongst Ebix, Inc., ConfirmNet Corporation, Ebix Software India
Private Limited, ConfirmNet Acquisition Sub, Inc., and Craig Irving, as Shareholders
Representative (incorporated here by reference to Exhibit 2.1 to the Companys Current Report on
Form 8-K dated November 12, 2008 and incorporated herein by reference.) |
|
|
|
|
|
|
2.10 |
|
|
Agreement and Plan of Merger, dated September 30, 2009, by and amongst Ebix, E-Z Data, and Dale
Okuno and Dilip Sontakey, as Sellers (incorporated here by reference to Exhibit 2.1 to the
Companys Current Report on Form 8-K dated October 6, 2009 and incorporated herein by reference.) |
|
|
|
|
|
|
2.11 |
|
|
IP Asset Purchase Agreement, dated September 30, 2009, by and amongst Ebix Singapore PTE LTD.,
Ebix, Inc., E-Z Data, and Dale Okuno and Dilip Sontakey, as Shareholders dated September 30, 2009
(incorporated here by reference to Exhibit 2.2 to the Companys Current Report on Form 8-K dated
October 6, 2009 and incorporated herein by reference.) |
|
|
|
|
|
|
3.1 |
* |
|
Certificate of Incorporation, as amended, of Ebix, Inc. |
|
|
|
|
|
|
3.2 |
|
|
Bylaws of the Company (filed as Exhibit 3.2 to the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2000 and incorporated herein by reference). |
|
|
|
|
|
|
10.1 |
|
|
Delphi Information Systems, Inc. 1983 Stock Incentive Plan, as amended (filed as Exhibit 10.1 to
the Companys Registration Statement on Form S-1 (No. 33-45153) and incorporated herein by
reference). + |
|
|
|
|
|
|
10.2 |
|
|
Delphi Information Systems, Inc. Cash Option Profit Sharing Plan (filed as Exhibit 4.2 to the
Companys Registration Statement on Form S-8 (No. 33-19310) and incorporated herein by
reference). + |
|
|
|
|
|
|
10.3 |
|
|
Delphi Information Systems, Inc. 1989 Stock Purchase Plan (included in the prospectus filed as
part of the Companys Registration Statement on Form S-8 (No. 33-35952) and incorporated herein by
reference). + |
|
|
|
|
|
|
10.4 |
|
|
Delphi Information Systems, Inc. Non-Qualified Stock Option Plan for Directors (filed as Exhibit
10.4 to the Companys Annual Report on Form 10-K for the fiscal year ended March 31, 1992 and
incorporated herein by reference). + |
88
|
|
|
|
|
Exhibits |
|
10.5 |
|
|
Delphi Information Systems, Inc. 1996 Stock Incentive Plan (filed as Exhibit 4.3 to the Companys
Registration Statement on Form S-8 (File No. 333-23261) and incorporated herein by reference). + |
|
|
|
|
|
|
10.6 |
|
|
Lease agreement effective October, 1998 between the Company and 485 Properties LLC relating to
premises at Five Concourse Parkway, Atlanta, Georgia (filed as Exhibit 10.16 to the Companys
Transition Report on Form 10-K for the transition period from April 1, 1998 to December 31, 1998
and incorporated herein by reference). |
|
|
|
|
|
|
10.7 |
|
|
Delphi Information Systems, Inc. 1998 Non-Employee Directors Stock Option Plan (filed as Exhibit
A to the Companys proxy statement dated August 12, 1998 and incorporated herein by reference). + |
|
|
|
|
|
|
10.8 |
|
|
Delphi Information Systems, Inc. 1999 Stock Purchase Plan (filed as Exhibit 10.33 to the Companys
Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by
reference).+ |
|
|
|
|
|
|
10.9 |
|
|
Severance agreement, between the Company and Richard J. Baum, dated as of October 4, 2000 (filed
as Exhibit 10 to the Companys Quarterly Report on Form 10-Q for the quarter ended September 30,
2000 and incorporated herein by reference). + |
|
|
|
|
|
|
10.10 |
|
|
Sublease agreement dated October 11, 2000, between the Company and Eric Swallow and Deborah
Swallow, relating to the premises at 2055 N. Broadway, Walnut Creek, CA. (filed as Exhibit 10.27
to the Companys Annual Report on Form 10-K for the year ended December 31, 2000 and incorporated
herein by reference). |
|
|
|
|
|
|
10.11 |
|
|
First amendment to lease agreement dated June 26, 2001, between the Company and PWC Associates,
relating to premises of Building Two of the Parkway Center, Pittsburgh, PA. (filed as Exhibit
10.20 to the Companys Annual Report on Form 10-K for the year ended December 31, 2001 and
incorporated herein by reference). |
|
|
|
|
|
|
10.13 |
|
|
Share Exchange and Purchase Agreement between the Company and Brit Insurance Holdings PLC (filed
as Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31,
2001 and incorporated herein by reference). |
|
|
|
|
|
|
10.14 |
|
|
Registration Rights Agreement between the Company and Brit Holdings Limited (filed as Exhibit 10.2
to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 and
incorporated herein by reference). |
|
|
|
|
|
|
10.15 |
|
|
Share Purchase Agreement dated January 16, 2004, by and between Ebix, Inc. and CF Epic Insurance
and General Fund (filed as Exhibit 99.1 to the Companys S-3 (No. 333-112616), and incorporated
herein by reference). |
|
|
|
|
|
|
10.16 |
|
|
Second Amendment to the Lease Agreement dated June 3, 2003 between the Company and 485 Properties,
LLC relating to the premises at Five Concourse Parkway, Atlanta, Georgia (filed as Exhibit 10.1 to
the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and incorporated
herein by reference). |
|
|
|
|
|
|
10.17 |
|
|
Ebix, Inc. 1996 Stock Incentive Plan as amended by the first, second, third and fourth amendments
thereto (incorporated by reference to Exhibit 10.18 to the Companys Annual Report on Form 10-K
for the year ended December 31, 2004 and incorporated herein by reference). |
|
|
|
|
|
|
10.18 |
|
|
Amended and Restated Revolving Line of Credit from LaSalle Bank, National Association, Amended and
Restated Loan and Security Agreement and Pledge Agreement dated April 21, 2004 (incorporated by
reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the quarter ended
March 31, 2004 and incorporated herein by reference). |
|
|
|
|
|
|
10.19 |
|
|
First Amendment to the Loan and Security Agreement, dated July 1, 2004, between Ebix, Inc. and
LaSalle National Bank (incorporated by reference to Exhibit 10.20 to the Companys Annual Report
on Form 10-K for the year ended December 31, 2004 and incorporated herein by reference). |
89
|
|
|
|
|
Exhibits |
|
10.20 |
|
|
Second Amendment to Loan and Security Agreement between Ebix, Inc. and the Company, effective as
of December 31, 2004, between Ebix, Inc. and LaSalle National Bank. (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K dated February 23, 2005 and incorporated
herein by reference). |
|
|
|
|
|
|
10.21 |
|
|
Third Amendment to Loan and Security Agreement between Ebix, Inc. and the Company, effective as of
October 20, 2005, between Ebix, Inc. and LaSalle National Bank (incorporated by reference to
Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the period ended September 30,
2005 and incorporated herein by reference). |
|
|
|
|
|
|
10.22 |
|
|
Second Amended and Restated Loan and Security Agreement, dated August 31, 2006 between Ebix, Inc.
and LaSalle National Bank.(incorporated by reference to Exhibit 2.2 on Form 10-Q for the quarter
ended September 30, 2006 and incorporated herein by reference). |
|
|
|
|
|
|
10.23 |
|
|
Lease agreement dated January 1, 2002, between LifeLink Building LLC and LifeLink Corporation
(which was acquired by Ebix, Inc. in February 2004), relating to the premises at The LifeLink
Building located at 1918 Prospector Drive, Park City, UT 84060 (incorporated by reference to
Exhibit 10.23 to the Companys Annual Report on Form 10-K for the year ended December 31, 2004 and
incorporated herein by reference). |
|
|
|
|
|
|
10.24 |
|
|
Form of Restricted Stock Agreement under the Companys 1996 Stock Incentive Plan (incorporated by
reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated June 7, 2005 and
incorporated herein by reference). + |
|
|
|
|
|
|
10.25 |
|
|
Stock Purchase Agreement, dated April 28, 2005, by and between Ebix, Inc. and Craig Wm. Earnshaw
(incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated April
28, 2005 and incorporated herein by reference). |
|
|
|
|
|
|
10.26 |
|
|
Share Purchase Agreement made and entered into as of June 1, 2007, by and among Ebix, Inc, and
Luxor Capital Partners, LP, a Delaware limited partnership and Luxor Capital Partners Offshore,
Ltd, a Cayman Islands exempted company (incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K dated June 6, 2007 and incorporated herein by reference). |
|
|
|
|
|
|
10.27 |
|
|
Secured Convertible Note Purchase effective as of December 18, 2007, by and between Ebix, Inc.,
and Whitebox VSC Ltd., a limited partnership organized under the laws of the British Virgin
Islands, (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K
dated December 26, 2007 and incorporated herein by reference). |
|
|
|
|
|
|
10.28 |
|
|
2.5% Convertible Secured Promissory Note dated December 18, 2007 by Ebix, Inc. (incorporated by
reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated December 26, 2007 and
incorporated herein by reference). |
|
|
|
|
|
|
10.29 |
|
|
Share Purchase Agreement made and extended into as of April 2, 2008 by and among Ebix, Inc. and
Rennes Foundation (incorporated by reference to Exhibit 10.1 to the Companys Current Report on
Form 8-K filed April 14, 2008). |
|
|
|
|
|
|
10.30 |
|
|
Share Purchase Agreement made and entered into as of April 7, 2008 by and among Ebix, Inc. and
Ashford Capital Management, Inc. (incorporated by reference to Exhibit 10.30 to the Companys
Current Report on Form 8-K filed April 14, 2008). |
|
|
|
|
|
|
10.31 |
|
|
Stock Purchase Agreement made and entered into as of April 16, 2008 by and among Ebix, Inc. and
Brit Insurance Holdings, Inc. (incorporated by reference to Exhibit 10.31 to the Companys Form
8-K filed April 17, 2008). |
90
|
|
|
|
|
Exhibits |
|
10.32 |
|
|
Secured Convertible Note Purchase effective as of July 11, 2008, by and between Ebix, Inc., and
Whitebox VSC Ltd., a limited partnership organized under the laws of the British Virgin Islands
(incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated July
16, 2008 and incorporated herein by reference). |
|
|
|
|
|
|
10.33 |
|
|
2.5% Convertible Secured Promissory Note dated July 11, 2008 by Ebix, Inc. (incorporated by
reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated July 16, 2008 and
incorporated herein by reference). |
|
|
|
|
|
|
10.34 |
|
|
Amendment to Secured Promissory Note Dated December 18, 2008 entered into as of June 25, 2008
between Ebix, Inc., and Whitebox VSC Ltd., a limited partnership organized under the laws of the
British Virgin Islands (incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K dated July 1, 2008 and incorporated herein by reference). |
|
|
|
|
|
|
10.35 |
|
|
Acquisition Bonus Agreement by and between Ebix, Inc., and Robin Raina dated as of July 15, 2009
(incorporated by reference to Exhibit 99.1 to the Companys Current Report on Form 8-K dated July
21, 2009 and incorporated herein by reference).+ |
|
|
|
|
|
|
10.36 |
|
|
Third Amendment to the Second Amended and Restated Loan and Security Agreement between Ebix, Inc.
and Bank of America Corporation dated August 27, 2009 (incorporated by reference to Exhibit 2.1 to
the Companys Current Report on Form 8-K dated August 28, 2009 and incorporated herein by
reference). |
|
|
|
|
|
|
10.37 |
|
|
Second Amendment to Secured Promissory Note Due December 18, 2009 between Ebix, Inc. and Whitebox
VSC, Ltd dated August 24, 2009 (incorporated by reference to Exhibit 2.2 to the Companys Current
Report on Form 8-K dated August 28, 2009 and incorporated herein by reference). |
|
|
|
|
|
|
10.38 |
|
|
Amendment to Secured Promissory Note Due July 11, 2010 between Ebix, Inc. and Whitebox VSC, Ltd.
Dated August 24, 2009 (incorporated by reference to Exhibit 2.3 to the Companys Current Report on
Form 8-K dated August 28, 2009 and incorporated herein by reference). |
|
|
|
|
|
|
10.39 |
|
|
Convertible Note Purchase Agreement by and between Ebix, Inc. and Whitebox VSC, Ltd dated August
26, 2009 (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K
dated August 28, 2009 and incorporated herein by reference). |
|
|
|
|
|
|
10.40 |
|
|
Convertible Promissory Note by and between Ebix, Inc. and Whitebox VSC, Ltd dated August 26, 2009
(incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K dated
August 28, 2009 and incorporated herein by reference). |
|
|
|
|
|
|
10.41 |
|
|
Convertible Note Purchase Agreement by and between Ebix, Inc. and IAM Mini-Fund 14 Limited dated
August 26, 2009 (incorporated by reference to Exhibit 10.3 to the Companys Current Report on Form
8-K dated August 28, 2009 and incorporated herein by reference). |
|
|
|
|
|
|
10.42 |
|
|
Convertible Promissory Note by and between Ebix, Inc. and IAM Mini-Fund 14 Limited dated August
26, 2009 (incorporated by reference to Exhibit 10.4 to the Companys Current Report on Form 8-K
dated August 28, 2009 and incorporated herein by reference). |
|
|
|
|
|
|
10.43 |
|
|
Convertible Note Purchase Agreement by and between Ebix, Inc. and the Rennes Foundation dated
August 25, 2009 (incorporated by reference to Exhibit 10.5 to the Companys Current Report on Form
8-K dated August 28, 2009 and incorporated herein by reference). |
|
|
|
|
|
|
14.1 |
|
|
Ebix, Inc. Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14.1
to the Companys Registration Statement on Form S-1 dated November 4, 2008) and incorporated
herein by reference. |
|
|
|
|
|
|
21.1 |
* |
|
Subsidiaries of the Company. |
|
|
|
|
|
|
23.1 |
* |
|
Consent of Cherry, Bekaert and Holland L.L.P. |
|
|
|
|
|
|
23.2 |
* |
|
Consent of Habif, Arogeti, & Wynne, LLP. |
|
|
|
|
|
|
23.3 |
* |
|
Consent of BDO Seidman, LLP. |
|
|
|
|
|
91
|
|
|
|
|
Exhibits |
|
31.1 |
* |
|
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) (Section 302 of the
Sarbanes-Oxley Act of 2002). |
|
|
|
|
|
|
31.2 |
* |
|
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) (Section 302 of the
Sarbanes-Oxley Act of 2002). |
|
|
|
|
|
|
32.1 |
* |
|
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
32.2* |
|
|
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
* |
|
Filed herewith |
|
+ |
|
Management contract or compensatory plan or arrangement required to be included as an exhibit to
this annual report on Form 10-K. |
92
Schedule II
Ebix, Inc.
Schedule IIValuation and Qualifying Accounts
for the Years ended December 31, 2009, December 31, 2008 and December 31, 2007
Allowance for doubtful accounts receivable (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Beginning balance |
|
$ |
453 |
|
|
$ |
155 |
|
|
$ |
36 |
|
Provision for doubtful accounts |
|
|
330 |
|
|
|
298 |
|
|
|
121 |
|
Write-off of accounts receivable against allowance |
|
|
(227 |
) |
|
|
(87 |
) |
|
|
(2 |
) |
Other |
|
|
9 |
|
|
|
87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
565 |
|
|
$ |
453 |
|
|
$ |
155 |
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred tax assets (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Beginning balance |
|
$ |
(15,682 |
) |
|
$ |
(5,322 |
) |
|
$ |
(11,067 |
) |
Decrease (increase) |
|
|
5,251 |
|
|
|
(10,360 |
) |
|
|
5,745 |
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
(10,431 |
) |
|
$ |
(15,682 |
) |
|
$ |
(5,322 |
) |
|
|
|
|
|
|
|
|
|
|
93