SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2002
Commission file number 0-27459
Digital Insight Corporation
(Exact name of registrant as specified in its charter)
Delaware 77-0493142
(State of incorporation) (IRS Employer
Identification Number)
26025 Mureau Road, Calabasas, CA 91302
(Address of principal executive offices, including zip code)
(818) 871-0000
(Registrant's telephone number, including area code)
___________________________________________
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 X No ___
---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common Stock, $0.001 par value
32,035,700 shares outstanding as of April 30, 2002
DIGITAL INSIGHT CORPORATION
FORM 10-Q
INDEX
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1 Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001 ................... 1
Consolidated Statements of Operations for the three months ended March 31, 2002 and
2001 ................................................................................... 2
Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and
2001 ................................................................................... 3
Notes to Consolidated Financial Statements ............................................... 4
ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations ....... 10
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk .................................. 14
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings ........................................................................... 15
ITEM 2 Changes in Securities and Use of Proceeds (not applicable) ..................................
ITEM 3 Defaults upon Senior Securities (not applicable) ............................................
ITEM 4 Submission of Matters to a Vote of Security Holders (not applicable) ........................
ITEM 5 Other Information (not applicable) ..........................................................
ITEM 6 Exhibits and Reports on Form 8-K ............................................................ 16
SIGNATURES .............................................................................................. 17
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
DIGITAL INSIGHT CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share information)
March 31, December 31,
2002 2001
----------------- -----------------
ASSETS
------
Current assets:
Cash and cash equivalents ....................................................... $ 10,396 $ 15,334
Short-term investments .......................................................... 43,840 38,300
Accounts receivable, net of allowance for doubtful accounts of $1,304 and
$518 at March 31, 2002 and December 31, 2001, respectively ................. 21,563 19,133
Accumulated implementation costs ................................................ 5,011 4,973
Other current assets ............................................................ 3,937 2,893
--------------- --------------
Total current assets ..................................................... 84,747 80,633
Property and equipment, net of accumulated depreciation of $26,380 and $24,093
at March 31, 2002 and December 31, 2001, respectively ...................... 33,606 37,784
Goodwill, net of accumulated amortization of $38,910 at March 31, 2002 and
December 31, 2001 .......................................................... 101,690 80,174
Intangible assets, net of accumulated amortization of $12,882 and $12,932 at March
31, 2002 and December 31, 2001, respectively ............................... 23,568 18,208
Accumulated implementation costs .................................................. 5,850 5,941
Long-term investments ............................................................. 10,377 13,334
Other assets ...................................................................... 511 554
--------------- --------------
Total assets ............................................................. $ 260,349 $ 236,628
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable ............................................................... $ 2,158 $ 3,142
Accrued compensation and related benefits ...................................... 6,922 3,465
Customer deposits and deferred revenue ......................................... 7,913 7,434
Other accrued liabilities ...................................................... 10,017 7,465
Line of credit ................................................................. 4,000 -
Current portion of capital lease obligations ................................... 890 1,202
Current portion of long-term debt .............................................. 7,279 3,529
--------------- --------------
Total current liabilities ................................................ 39,179 26,237
Capital lease obligations ......................................................... 263 411
Long-term debt .................................................................... 5,000 5,882
Customer deposits and deferred revenue ............................................ 7,722 7,207
--------------- --------------
Total liabilities ........................................................ 52,164 39,737
--------------- --------------
Stockholders' equity:
Common stock, $.001 par value; 100,000,000 shares authorized; 32,029,304 and
29,638,479 shares issued and outstanding at March 31, 2002 and December
31, 2001, respectively ..................................................... 32 30
Additional paid-in capital ..................................................... 383,021 337,461
Stockholders' notes receivable ................................................. (126) (124)
Deferred stock-based compensation .............................................. (959) (1,409)
Accumulated deficit ............................................................ (173,783) (139,067)
--------------- --------------
Total stockholders' equity ................................................ 208,185 196,891
--------------- --------------
Total liabilities and stockholders' equity ................................ $ 260,349 $ 236,628
=============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
1
DIGITAL INSIGHT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Three months ended
March 31,
-------------------------------
2002 2001
------------- -------------
Revenues .......................................................................... $ 30,124 $ 20,416
Cost of revenues (including amortization of deferred stock-based compensation of
$182 and $201 for the three months ended March 31, 2002 and 2001,
respectively) .................................................................. 16,031 13,630
------------- -------------
Gross profit ...................................................................... 14,093 6,786
------------- -------------
Operating expenses:
Sales, general and administrative (including amortization of deferred
stock-based compensation of $217 and $333 for the three months ended
March 31, 2002 and 2001, respectively) .................................... 8,985 7,995
Research and development (including amortization of deferred stock-based
compensation of $51 and $1,709 for the three months ended March 31, 2002
and 2001, respectively) ................................................... 4,573 7,497
Amortization of goodwill and intangible assets ............................... 1,443 8,882
Restructuring and asset impairment charges (including amortization of
deferred stock-based compensation of $940 for the three months ended
March 31, 2001) ........................................................... 4,980 3,276
------------- -------------
Total operating expenses ................................................. 19,981 27,650
------------- -------------
Loss from operations .............................................................. (5,888) (20,864)
Interest and other income, net .................................................... 208 838
------------- -------------
Net loss before cumulative effect of change in accounting method .................. (5,680) (20,026)
Cumulative effect of change in accounting method .................................. (29,036) -
------------- -------------
Net loss .......................................................................... $ (34,716) $ (20,026)
============= =============
Basic and diluted net loss per share before cumulative effect of change in
accounting method .............................................................. $ (0.18) $ (0.69)
Per share cumulative effect of change in accounting method ........................ (0.93) -
------------- -------------
Basic and diluted net loss per share .............................................. $ (1.11) $ (0.69)
============= =============
Weighted average shares used in computing basic and diluted net loss per share .... 31,214 28,924
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
2
DIGITAL INSIGHT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three months ended March 31,
-------------------------------
2002 2001
------------- -------------
Cash flows from operating activities:
Net loss ................................................................. $ (34,716) $ (20,026)
Adjustments to reconcile net loss to net cash used in operating
activities:
Cumulative effect of change in accounting method ....................... 29,036 -
Restructuring and asset impairment charges ............................. 4,980 -
Depreciation and amortization of property and equipment ................ 3,153 2,341
Amortization of goodwill and intangible assets ......................... 1,443 8,882
Amortization of deferred stock-based compensation ...................... 450 3,183
Interest income on stockholders' notes receivable ...................... (2) (2)
Changes in operating assets and liabilities:
Accounts receivable ................................................ (1,277) (576)
Accumulated implementation costs ................................... 414 (529)
Other current assets ............................................... (559) 98
Other assets ....................................................... 43 133
Accounts payable ................................................... (2,593) (2,543)
Accrued compensation and related benefits .......................... (856) 554
Customer deposits and deferred revenue ............................. (1,063) (1,104)
Other accruals ..................................................... (1,221) 1,780
------------- -------------
Net cash used in operating activities .......................... (2,768) (7,809)
------------- -------------
Cash flows from investing activities:
Acquisition of Virtual Financial Services, Inc. ........................ (4,518) -
Purchase of investments ................................................ (12,500) (17,447)
Proceeds from maturity of investments .................................. 9,917 -
Acquisition of property and equipment .................................. (1,333) (3,364)
------------- -------------
Net cash used in investing activities .......................... (8,434) (20,811)
------------- -------------
Cash flows from financing activities:
Principal payments on debt ............................................. (1,342) (1,801)
Proceeds from debt ..................................................... 4,000 5,000
Net proceeds from issuance of common stock ............................. 3,606 265
------------- -------------
Net cash provided by financing activities ...................... 6,264 3,464
------------- -------------
Net decrease in cash and cash equivalents ................................... (4,938) (25,156)
Cash and cash equivalents at beginning of the period ........................ 15,334 71,523
------------- -------------
Cash and cash equivalents at end of the period .............................. $ 10,396 $ 46,367
============= =============
Supplementary disclosures of cash flow information:
Cash paid during the period for interest ................................. $ 199 $ 114
Effect of acquisition:
Accounts receivable ...................................................... (1,153) -
Other assets ............................................................. (985) -
Goodwill and intangibles ................................................. (57,352) -
Accounts payable, accrued compensation and benefits and other accruals ... 4,815 -
Customer deposits and deferred revenue ................................... 2,057 -
Other accruals ........................................................... 2,394 -
Current portion of long-term debt ........................................ 3,750 -
Common stock issued in acquisition ....................................... 41,956 -
The accompanying notes are an integral part of these consolidated financial
statements.
3
DIGITAL INSIGHT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The Company and Summary of its Significant Accounting Policies
The Company
Digital Insight Corporation (the "Company"), which incorporated in March
1997 in Delaware, provides Internet banking services to credit unions, banks and
savings and loans. Its Internet banking services include Internet banking and
bill payment services for individual customers, business banking for commercial
customers, a target marketing program to increase financial services to end
users, and customized web site design and implementation and other services. In
addition, the Company, through its acquisition of Anytime Access, Inc. ("ATA"),
is a provider of services that allow credit unions, banks and insurance
companies to outsource their consumer loan origination and processing functions.
Substantially all of the Company's revenues are derived from these services.
On January 28, 2002, the Company completed the acquisition of Virtual
Financial Services, Inc. ("ViFi"), pursuant to an Agreement and Plan of Merger,
dated as of January 3, 2002. This acquisition was accounted for under the
purchase method of accounting and the results of operations of ViFi have been
included in the Company's financial results since the date of acquisition.
The accompanying consolidated financial statements for the three months
ended March 31, 2002 and 2001 have been prepared in accordance with generally
accepted accounting principles ("GAAP") and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Certain information and footnote disclosures
normally included in financial statements in accordance with GAAP have been
omitted or condensed in accordance with quarterly reporting requirements of the
Securities and Exchange Commission (the "SEC"). Independent accountants have not
audited these consolidated financial statements. The consolidated financial
statements, however, include all adjustments (consisting of normal recurring
adjustments), which are, in the opinion of management, necessary for a fair
statement of the consolidated financial condition, results of operations and
cash flows for such periods. However, these results are not necessarily
indicative of results for any other interim period or for the full year. The
accompanying consolidated balance sheet as of December 31, 2001 has been derived
from the audited consolidated financial statements, but does not include all
disclosures required by GAAP.
Management believes that the disclosures included in the accompanying
interim consolidated financial statements and footnotes are adequate to make the
information not misleading, but should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
annual report on Form 10-K for the year ended December 31, 2001.
Long-lived assets (excluding goodwill)
The Company assesses potential impairments to its long-lived assets,
excluding goodwill, periodically in accordance with the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting For the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of" as
amended by SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-lived Assets." An impairment review is performed whenever events or changes
in circumstances indicate that the carrying value may not be recoverable.
Factors considered by the Company include, but are not limited to: significant
under performance relative to expected historical or projected future operating
results; significant changes in the manner of use of the acquired assets or the
strategy for the Company's overall business; significant negative industry or
economic trends; a significant decline in the Company's stock price for a
sustained period of time; and the Company's market capitalization relative to
net book value. When the Company determines that the carrying value of a
long-lived asset (excluding goodwill) may not be recoverable based upon the
existence of one or more of the above indicators of impairment, the Company
estimates the future undiscounted cash flows expected to result from the use of
the asset and its eventual disposition. If the sum of the expected future
undiscounted cash flows is less than the carrying amount of the asset, then the
Company recognizes an impairment loss. The impairment loss is measured as the
amount by which the carrying amount of the asset exceeds the fair value of the
asset, determined either based on the market value if available, or discounted
cash flows, if not.
4
New accounting standards
As of January 1, 2002, the Company adopted SFAS No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No.
141 established new standards for accounting and reporting requirements for
business combinations initiated after June 30, 2001 and prohibits the use of the
pooling-of-interest method for combinations initiated after June 30, 2001. SFAS
No. 142 changed the accounting for goodwill from an amortization method to an
impairment only approach. Under SFAS No. 142, goodwill will be tested at the
reporting unit level annually and whenever events or circumstances occur
indicating that goodwill might be impaired. Amortization of goodwill, including
goodwill from past business combinations, will cease. As discussed further in
Note 2, the Company recorded an impairment charge of approximately $29.0 million
from the adoption of SFAS No. 142.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Obligations
Associated with the Retirement of Long-lived Assets," which establishes
accounting standards for the recognition and measurement of an asset retirement
obligation and its associated asset retirement cost. It also provides accounting
guidance for legal obligations associated with the retirement of tangible
long-lived assets. SFAS No. 143 is effective for fiscal years beginning after
June 15, 2002, with early adoption permitted. The Company expects to adopt SFAS
No. 143 effective January 1, 2003 and does not expect that the adoption of this
new standard will have a significant impact on its results of operations and
financial position.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-lived Assets," which addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of. This Statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to
Be Disposed Of." This Statement also supersedes the accounting and reporting
provisions of APB Opinion No. 30 ("APB 30"), "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for
Segments of a Business to Be Disposed Of." This Statement also amends ARB No.
51, "Consolidated Financial Statements," to eliminate the exception to
consolidation for a temporarily controlled subsidiary. The Company adopted SFAS
No. 144 on January 1, 2002 and the adoption of this new standard did not have a
significant impact on its results of operations and financial position.
Reclassifications
Certain reclassifications have been made to the consolidated financial
statements as of December 31, 2001 and for the three months ended March 31, 2001
in order to conform to the 2002 presentation.
5
2. Goodwill, Intangible Assets, and Change in Accounting Method
The change in the balance of goodwill during the quarter ended March 31,
2002 is set forth below:
1View ATA ViFi Total
--------- --------- --------- ---------
Balance, December 31, 2001 (in thousands) ..................... $ 33,783 $ 85,301 $ - $ 119,084
Accumulated amortization, December 31, 2001 ............... (14,741) (24,169) - (38,910)
--------- --------- --------- ---------
Net balance, December 31, 2001 ............................ 19,042 61,132 - 80,174
Add: Goodwill related to purchase of ViFi (see Note 6) .... - - 50,552 50,552
Less: Cumulative effect of change in accounting method .... - (29,036) - (29,036)
--------- --------- --------- ---------
Balance, March 31, 2002 ................................. $ 19,042 $ 32,096 $ 50,552 $ 101,690
========= ========= ========= =========
Upon the adoption of SFAS No. 142, the Company evaluated the goodwill
related to its prior acquisitions, 1View Network Corporation ("1View") and ATA,
using the fair value approach prescribed by SFAS No. 142. The Company determined
that there was no impairment related to the 1View goodwill based on the
enterprise level analysis performed. 1View is included at the enterprise level
in the "Internet banking" reporting unit as there are no separately identifiable
cash flows.
Based on the analysis of the ATA goodwill at the "lending" reporting unit,
the Company determined that an impairment write-down was necessary. The amount
of the impairment was estimated based on a valuation process that combined
estimating the present value of the future cash flows of ATA along with
obtaining the market value to revenue multiples of comparable publicly traded
companies and applying these multiples to the projected and historical revenue
of ATA. This valuation process yielded a goodwill carrying value of $32.1
million which required the impairment write-down of $29.0 million. This amount
has been recorded in the consolidated statement of operations as a cumulative
effect of change in accounting method.
As of December 31, 2001 and March 31, 2002, all other intangible assets
were subject to amortization. A summary of the other intangible assets as of
December 31, 2001 and March 31, 2002 is set forth below:
Accumulated
December 31, 2001 (in thousands): Gross Balance Amortization Carrying Amount
--------------- -------------- -----------------
Assembled workforce ....................... $ 1,490 $ (1,407) $ 83
Customer relationships .................... 20,230 (5,374) 14,856
Acquired technology ....................... 9,040 (5,920) 3,120
Covenant not-to-compete ................... 380 (231) 149
-------- --------- --------
Total ................................... $ 31,140 $ (12,932) $ 18,208
======== ========= ========
Accumulated
March 31, 2002 (in thousands): Gross Balance Amortization Carrying Amount
--------------- -------------- -----------------
Customer relationships .................... 27,030 (6,511) 20,519
Acquired technology ....................... 9,040 (6,100) 2,940
Covenant not-to-compete ................... 380 (271) 109
-------- --------- --------
Total ................................... $ 36,450 $ (12,882) $ 23,568
======== ========= ========
During the quarter ended March 31, 2002, $6.8 million was added to the
customer relationship intangible asset as part of the purchase of ViFi and
amortization expense incurred related to all intangible assets was approximately
$1.4 million. Estimated intangible asset amortization expense remaining for the
year ended December 31, 2002 and for the next four years ended December 31 is as
follows (amounts in thousands):
2002 ....................................................... $ 4,341
2003 ....................................................... 5,646
2004 ....................................................... 5,646
2005 ....................................................... 5,330
2006 ....................................................... 1,373
6
The following table adjusts net loss and loss per share for the impact of
the implementation of SFAS No. 142 as follows:
Three months ended March 31,
2002 2001
---------- -----------
(In thousands)
Net loss before cumulative effect of change in accounting method ............. $ (5,680) $ (20,026)
Cumulative effect of change in accounting method ............................. (29,036) -
---------- -----------
Net loss ..................................................................... (34,716) (20,026)
Add back: goodwill amortization .............................................. - 6,377
---------- -----------
Adjusted net loss .......................................................... $ (34,716) $ (13,649)
========== ===========
Basic and diluted net loss per share before cumulative effect of change in
accounting method ........................................................ $ (0.18) $ (0.69)
Cumulative effect of change in accounting method ............................. (0.93) -
Add back: goodwill amortization .............................................. - 0.22
---------- -----------
Adjusted basic and diluted net loss per share .............................. $ (1.11) $ (0.47)
========== ===========
3. Revolving Line of Credit
In May 2001, the Company renewed its $10 million secured revolving credit
commitment (the "Revolver") from a bank, which matures in July 2002. Interest on
the outstanding borrowings is payable monthly. The interest rate on the Revolver
is equal to the bank's prime rate. At March 31, 2002, the bank's prime rate was
4.75%. The Revolver is collateralized by all of the Company's assets. As of
March 31, 2002, the Company had outstanding advances on the Revolver of $4
million. The Company had no outstanding advances as of December 31, 2001 on the
Revolver.
4. Restructuring and Asset Impairment Charges
In February 2001, the Company strategically restructured its business to
reduce operating expenses. The process included a review of potentially
redundant functions and facilities. The majority of these redundancies resulted
from the three acquisitions completed in 2000. As a result of this process, 58
employee positions were eliminated and the Company's facility in San Francisco,
California was closed. During the quarter ended March 31, 2001, the Company
recorded a restructuring charge of approximately $1,629,000 for severance
payments and related benefits for employees whose positions were eliminated,
approximately $940,000 in deferred stock-based compensation expense for the
acceleration of stock options and approximately $707,000 for exit costs as a
result of the closure of the San Francisco facility and related lease
termination.
During the quarter ended March 31, 2002, the Company initiated an
additional restructuring and cost reduction program. The Company plans to
restructure its operations by geographically consolidating certain business
functions. As a result of this cost reduction process, approximately 75 employee
positions will be eliminated and the Company plans to reduce space utilized at
three facilities during 2002. For the quarter ended March 31, 2002, the Company
recorded a severance charge of $850,000 related to estimated severance payments
for position reductions. The Company also recorded a charge of $1,230,000
related to the facilities closures which represents the difference between
estimated sublease income and the rental commitments of the Company and
estimated cost that will be paid to sublease the facilities.
Deferred
Employee Exit Stock-based
Related Costs Compensation Total
----------- ----------- ------------ ----------
Restructuring accrual (in thousands)
Restructuring accrual in 2001 .................. $ 1,629 $ 707 $ 940 $ 3,276
Restructuring accrual in 2002 .................. 850 1,230 - 2,080
Cash payments .................................. (1,379) (707) - (2,086)
Non-cash disposals ............................. - - (940) (940)
----------- ----------- ------------ ----------
Accrual at March 31, 2002 ..................... $ 1,100 $ 1,230 $ - $ 2,330
=========== =========== ============ ==========
7
During the quarter ended March 31, 2002, the Company recorded an asset
impairment charge of $2.9 million to reduce the carrying value of long-lived
assets consisting primarily of purchased computer software and equipment that
were abandoned or removed from operations during the quarter. The impaired
assets were written-down to their estimated fair value less costs to sell.
5. Reportable Segments and Major Customers
The Company manages its business through two reportable segments: the
Internet banking division and the lending division. The results of operations
from these reportable segments were as follows for the three months ended March
31, 2002 and 2001:
Internet
banking Lending Unallocated
Three months ended March 31, 2002: division (1) division (2) expenses (3) Total
------------- -------------- -------------- -----------
(In thousands)
Revenues ........................................ $ 26,508 $ 3,616 $ - $ 30,124
Gross profit .................................... $ 13,153 $ 940 $ - $ 14,093
Income (loss) from operations ................... $ 751 $ (216) $ (6,423) $ (5,888)
Total assets at March 31, 2002 .................. $ 175,993 $ 84,356 $ - $ 260,349
Internet
banking Lending Unallocated
Three months ended March 31, 2001: division (1) division (2) expenses (3) Total
------------- -------------- -------------- -----------
(In thousands)
Revenues ........................................ $ 16,998 $ 3,418 $ - $ 20,416
Gross profit .................................... $ 6,425 $ 361 $ - $ 6,786
Loss from operations ............................ $ (7,450) $ (1,256) $ (12,158) $ (20,864)
Total assets at March 31, 2001 .................. $ 163,897 $ 103,635 $ - $ 267,532
(1) Including amortization of deferred stock-based compensation of
$202,000 and $1.9 million for the three months ended March 31, 2002
and 2001, respectively.
(2) Including amortization of deferred stock-based compensation of
$248,000 and $272,000 for the three months ended March 31, 2002 and
2001, respectively.
(3) Represents amortization of goodwill and intangible assets and
restructuring and asset impairment charges.
For the three-month periods ended March 31, 2002 and 2001 no customer
comprised more than 10% of revenues.
6. Acquisition of ViFi
On January 28, 2002, the Company completed the acquisition of ViFi pursuant
to an Agreement and Plan of Merger, dated as of January 3, 2002. ViFi was a
privately-owned company based in Indianapolis, Indiana that provided retail and
commercial Internet banking, electronic bill payment, cash management services,
credit and debit card processing, online brokerage, document management, web
site design, target marketing and aggregation services via PC-based or wireless
access. As a result of the merger, all the outstanding shares of ViFi were
converted into an aggregate of $3,750,000 in cash, $3,750,000 in promissory
notes, and 1,901,907 shares of the Company's common stock with an estimated fair
value of approximately $41.1 million. The fair value of the common stock issued
was based on the average trading price of the Company's common stock for four
days before, four days after, and including the public announcement date. In
addition, we assumed options to purchase an aggregate of 111,978 shares of our
common stock with an estimated fair value of $876,000. The Company did not
acquire certain of the ViFi fixed assets and the credit card processing product
line which remained with the selling shareholder of ViFi.
The acquisition has been accounted for using the purchase method of
accounting. The purchase price was allocated to the estimated fair value of the
assets acquired and liabilities assumed. The estimated fair value of the
tangible assets acquired and liabilities assumed approximated the historical
cost basis and the purchase price allocation provided a goodwill balance of
$50.6 million and identifiable intangible assets comprised of customer
8
relationships of $6.8 million. In accordance with SFAS No. 142, goodwill will
not be amortized but rather will be periodically evaluated for impairment on at
least an annual basis. The customer relationship identifiable intangible asset
will be amortized on a straight-line basis over an estimated useful life of six
years.
In accordance with the purchase method of accounting, the results of ViFi
have been included since the date that the acquisition was completed. If the
operating results of ViFi had been included since the beginning of the period
for the quarters ended March 31, 2002 and 2001, the pro forma results of the
Company would be as follows:
For the quarter ended
March 31, 2002 March 31, 2001
---------------- ----------------
(In thousands, except per share data)
Revenue ....................................................... $ 31,539 $ 24,006
Operating loss ................................................ $ (5,850) $ (21,251)
Net loss ...................................................... $ (34,681) $ (20,263)
Basic and diluted loss per share .............................. $ (1.09) $ (0.66)
Weighted average shares used in computing basic and
diluted loss per share .................................... 31,799 30,826
9
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
accompanying Consolidated Financial Statements and Notes thereto. The
forward-looking statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") relating to certain
matters involve risks and uncertainties, including anticipated financial
performance, business prospects, anticipated capital expenditures and other
similar matters, which reflect management's best judgment based on factors
currently known. Actual results and experience could differ materially from the
anticipated results or other expectations expressed in our forward-looking
statements as a result of a number of factors, including but not limited to
those discussed in the MD&A and under the caption "Risk Factors" in our Annual
Report on Form 10-K for the year ended December 31, 2001.
As of March 31, 2002, we had contracts with 1,587 financial institutions,
1,386 of which had contracted for Internet banking services, 505 of which had
contracted for cash management services and 159 of which had contracted for
on-line lending services. There were approximately 3.1 million active Internet
banking end users at the end of the quarter, up 72% from a year earlier and 28%
from the prior quarter. We had a total of 1,212 Internet banking clients with
live sites at March 31, 2002, which represented approximately 29.8 million
potential end users and an overall penetration rate of 10.4%. The total number
of potential end users of the 1,386 contracted Internet banking institutions was
approximately 32.8 million.
On January 28, 2002, we completed the acquisition of Virtual Financial
Services, Inc. ("ViFi"), pursuant to an Agreement and Plan of Merger, dated as
of January 3, 2002. ViFi was a privately-owned company based in Indianapolis,
Indiana that provided retail and commercial Internet banking, electronic bill
payment, cash management services, credit and debit card processing, online
brokerage, document management, web site design, target marketing and
aggregation services via PC-based or wireless access. As a result of the merger,
all the outstanding shares of ViFi were converted into an aggregate of
$3,750,000 in cash, $3,750,000 in promissory notes, and 1,901,907 shares of the
Company's common stock. In addition, we assumed options to acquire ViFi stock
that, as a result of the merger, converted into options to purchase an aggregate
of 111,978 shares of our common stock. Our results of operations include the
operations of ViFi subsequent to the acquisition date.
We manage our business through two reportable segments: the Internet
banking division and the lending division. The operations of these reportable
segments was as follows for the three months ended March 31, 2002 and 2001:
Internet
banking Lending Unallocated
Three months ended March 31, 2002: division (1) division (2) expenses (3) Total
------------ ------------ ------------ ---------
(In thousands)
Revenues .................................... $ 26,508 $ 3,616 $ - $ 30,124
Gross profit ................................ $ 13,153 $ 940 $ - $ 14,093
Income (loss) from operations ............... $ 751 $ (216) $ ( 6,423) $ (5,888)
Total assets at March 31, 2002 .............. $ 175,993 $ 84,356 $ - $ 260,349
Internet
banking Lending Unallocated
Three months ended March 31, 2001: division (1) division (2) expenses (3) Total
------------ ------------ ------------ ---------
(In thousands)
Revenues .................................... $ 16,998 $ 3,418 $ - $ 20,416
Gross profit ................................ $ 6,425 $ 361 $ - $ 6,786
Loss from operations ........................ $ (7,450) $ (1,256) $ (12,158) $ (20,864)
Total assets at March 31, 2001 .............. $ 163,897 $ 103,635 $ - $ 267,532
(1) Including amortization of deferred stock-based compensation of
$202,000 and $1.9 million for the three months ended March 31, 2002
and 2001, respectively.
(2) Including amortization of deferred stock-based compensation of
$248,000 and $272,000 for the three months ended March 31, 2002 and
2001, respectively.
(3) Represents amortization of goodwill and intangible assets and
restructuring and asset impairment charges.
For the three-month periods ended March 31, 2002 and 2001 no customer comprised
more than 10% of revenues.
10
Results of Operations
The discussion of the results of operations compares the three months ended
March 31, 2002 with the three months ended March 31, 2001.
Comparison of Three Months Ended March 31, 2002 and March 31, 2001
Results of Operations:
Revenues: Revenues for the three months ended March 31, 2002 were
approximately $30.1 million, an increase of 48% from the approximately $20.4
million reported for the same period of the prior year. Revenues for the quarter
ended March 31, 2002 included approximately $26.5 million related to the
Internet banking division compared to approximately $17.0 million for the
quarter ended March 31, 2001. This increase of approximately $9.5 million, or
56%, resulted from an increased number of financial institutions and end users
combined with sales of additional services to our existing customer base. Active
Internet banking end users increased 72% from March 31, 2001 to approximately
3.1 million users at March 31, 2002. The increase in active end users between
March 31, 2001 and 2002 includes approximately 460,000 active end users that
were added as a result of the ViFi acquisition in the first quarter of 2002.
Revenues for the quarter ended March 31, 2002 included approximately $3.6
million related to the lending division compared to approximately $3.4 million
for the quarter ended March 31, 2001. This increase of approximately $200,000,
or 6%, resulted from an increase of approximately 16,000 applications processed
in the first quarter of 2002 as compared to the prior year.
Cost of Revenues: Cost of revenues are comprised primarily of salaries and
related personnel expenses, network costs, expenses related to the operation of
our data centers and fees paid to third parties, including bill payment vendors,
data processing vendors and communication services providers. Cost of revenues
increased from approximately $13.6 million for the three months ended March 31,
2001 to approximately $16.0 million for the three months ended March 31, 2002,
representing an increase of 18%.
Cost of revenues for the quarter ended March 31, 2002 included
approximately $13.4 million related to the Internet banking division compared to
approximately $10.6 million for the quarter ended March 31, 2001. This increase
of approximately $2.8 million, or 26%, was primarily due to the cost to
implement and service additional financial institutions.
Cost of revenues for the quarter ended March 31, 2002 included
approximately $2.7 million related to the lending division compared to
approximately $3.1 million for the quarter ended March 31, 2001. This decrease
of approximately $400,000, or 13%, was due primarily to the effect of the shift
in mix from the historical call center applications to the lower cost Internet
applications.
Gross Profit: Gross profit increased from approximately $6.8 million for
the three months ended March 31, 2001 to approximately $14.1 million for the
three months ended March 31, 2002. Gross profit margin for the Internet banking
division increased to 50% for the quarter ended March 31, 2002 from 38% for the
quarter ended March 31, 2001. Gross profit margin for the lending division
increased to 26% for the quarter ended March 31, 2002 from 11% for the quarter
ended March 31, 2001.
Sales, General and Administrative: Sales, general and administrative
expenses consist primarily of salaries and related expenses for executive,
sales, marketing, finance, human resources and administrative personnel, and
other general corporate expenses. In addition, these expenses include marketing
expenses, such as trade shows and promotional costs.
Sales, general and administrative expenses increased 12%, from
approximately $8.0 million for the three months ended March 31, 2001 to
approximately $9.0 million for the three months ended March 31, 2002 due
primarily to additional sales and marketing costs associated with our end user
adoption program and other growth initiatives. As a percentage of revenues,
sales, general and administrative expenses decreased from 39% for the three
months ended March 31, 2001 to 30% for the three months ended March 31, 2002.
Research and Development: Research and development expenses consist
primarily of salaries, related personnel expenses and consultant fees related to
the design, development, testing and enhancement of both our products and our
data processing vendor interface software.
11
Research and development expenses decreased from approximately $7.5 million
for the three months ended March 31, 2001 to approximately $4.6 million for the
three months ended March 31, 2002. The decrease was primarily due to reduced
amortization of deferred stock-based compensation combined with reduced costs
associated with the usage of contract labor.
Amortization of Goodwill and Intangible Assets: Amortization expense for
goodwill and intangible assets decreased from approximately $8.9 million for the
three months ended March 31, 2001 to approximately $1.4 million for the three
months ended March 31, 2002. This decrease in expense is primarily attributable
to the Company's adoption of SFAS No. 142. Under SFAS No. 142, we have ceased
the amortization of goodwill and we now evaluate the balance of goodwill for
impairment on at least an annual basis. Goodwill amortization for the three
months ended March 31, 2001 amounted to approximately $6.4 million.
Restructuring and Asset Impairment Charges: In February 2001, we
strategically restructured our business to reduce operating expenses. The
process included a review of potentially redundant functions and facilities. The
majority of these redundancies resulted from the three acquisitions completed in
2000. As a result of this process, 58 employee positions were eliminated and our
facility in San Francisco, California was closed. During 2001, we recorded a
restructuring charge of approximately $1,629,000 for severance payments and
related benefits for employees whose positions were eliminated, approximately
$940,000 in deferred stock-based compensation expense for the acceleration of
stock options and approximately $707,000 for exit costs as a result of the
closure of the San Francisco facility and related lease termination.
During the quarter ended March 31, 2002, we initiated an additional
restructuring and cost reduction program. We plan to restructure our operations
by geographically consolidating certain business functions. As a result of this
cost reduction process, approximately 75 employee positions will be eliminated
and we plan to reduce space utilized at three facilities during 2002. The
restructuring will require an initial increase in staffing to manage the
consolidated operations, and we plan to reduce excess staff upon completion of
the Consolidation. The restructuring will require an initial increase in
staffing to manage the consolidated operations, and we plan to reduce excess
staff upon completion of the consolidation. For the quarter ended March 31,
2002, we recorded a severance charge of $850,000 related to estimated severance
payments for position reductions. We also recorded a charge of $1,230,000
related to the facilities closures which represents the difference between
estimated sublease income and our rental commitments and estimated costs that
will be paid to sublease the facilities.
During the quarter ended March 31, 2002, we recorded an asset impairment
charge of $2.9 million to reduce the carrying value of long-lived assets
consisting primarily of purchased computer software and equipment that were
abandoned or removed from operations during the quarter. The impaired assets
were written-down to their estimated fair value less costs to sell. There were
no such charges recorded during the quarter ended March 31, 2001.
Interest and Other Income, net: Interest and other income, net decreased
from approximately $838,000 for the three months ended March 31, 2001 to
approximately $208,000 for the three months ended March 31, 2002. This decrease
is due primarily to a decline in the average balance and average yield of our
investment portfolio during the quarter ended March 31, 2002 compared to the
quarter ended March 31, 2001. This decrease is also due to an increase in our
average debt balance during the quarter ended March 31, 2002 compared to the
quarter ended March 31, 2001.
Cumulative Effect of Change in Accounting Method: Due the adoption of SFAS
No. 142 on January 1, 2002, we recorded a cumulative effect of change in
accounting method of $29.0 million as described in Note 2 to the unaudited
consolidated financial statements. This amount represents a write-down of a
portion of the goodwill related to the ATA acquisition for which the carrying
value of the goodwill exceeded the estimated fair value determined by using the
fair value method of impairment assessment prescribed by SFAS No. 142.
Liquidity and Capital Resources
At March 31, 2002, we had cash and cash equivalents of approximately $10.4
million, short-term investments of approximately $43.8 million and long-term
investments of approximately $10.4 million. Of the short-term investments, a $10
million certificate of deposit is pledged as collateral against a multiple
disbursement note we signed in connection with an equipment line of credit with
a bank. The remaining investments are commercial paper. Our intent is to hold
these investments to maturity. For financial statement presentation we classify
our investments as short-term and long-term, based upon their maturity dates.
All of our investments, except for the $10 million certificate of deposit, are
readily marketable. At December 31, 2001 and March 31, 2002, $5.9 million and
$5.0 million, respectively, of this certificate of deposit was classified as
long-term investments due to withdrawal restrictions.
12
The value of our commercial paper is sensitive to changes in the level of
U.S. interest rates and the market ratings of the underlying companies.
Therefore, if our commercial paper is sold prior to its maturity date, a gain or
loss may result.
In May 2001, we renewed a $10 million secured revolving credit commitment
from a bank, which matures in July 2002. Interest on the outstanding borrowings
is payable monthly. The interest rate on this credit commitment is equal to the
bank's prime rate. The credit commitment is collateralized by all of our assets.
As of December 31, 2001, we had no outstanding advances under the credit
commitment. As of March 31, 2002, we had $4 million of advances under this
credit commitment and the interest rate on the amount outstanding was 4.75%.
In August 2000, we obtained a $10 million equipment leasing line of credit
evidenced by a multiple disbursement note from a bank, collateralized by the
participating equipment and a $10 million certificate of deposit. The terms of
the note were revised in August 2001 to allow principal to be borrowed from time
to time prior to October 31, 2001. Interest will accrue at either (i) the bank's
prime rate less 1% or (ii) 1.5% above the rate stated on the certificate of
deposit pledged as collateral for the note. Under the revised terms, interest
and principal will be paid in 34 monthly installments, commencing November 30,
2001. As of March 31, 2002, we had $8.8 million in borrowings outstanding under
this note and the interest rate on the note was 3.15% per annum.
Net cash used in operating activities was approximately $2.8 million for
the three months ended March 31, 2002 and approximately $7.8 million for the
three months ended March 31, 2001. The decrease in cash used in operating
activities was primarily the result of the decrease in the loss from operations
from $20.9 million for the three months ended March 31, 2001 to $5.9 million for
the three months ended March 31, 2002.
Net cash used in investing activities was approximately $8.4 million for
the three months ended March 31, 2002 and approximately $20.8 million for the
three months ended March 31, 2001. The decrease in cash used in investing
activities was primarily the result of a decrease in the purchase of commercial
paper during the quarter ended March 31, 2002 as compared to the same period in
the prior year.
Net cash provided by financing activities was approximately $6.3 million
for the three months ended March 31, 2002 and approximately $3.5 million for the
three months ended March 31, 2001. The increase in cash provided by financing
activities was primarily due to proceeds from the issuance of common stock.
We have no material commitments other than our revolving credit commitment,
our multiple disbursement note, obligations under our operating and capital
leases, and minimum vendor purchase commitments. Future capital requirements
will depend upon many factors, including the timing of research and product
development efforts and the expansion of our marketing efforts. We expect to
continue to expend significant amounts on expansion of facility infrastructure,
ongoing research and development, computer and related data center equipment,
and personnel.
We believe that our cash, cash equivalents and short-term investment
balances will be sufficient to satisfy our cash requirements for at least the
next 12 months. We intend to invest our cash in excess of current operating
requirements in short-term, interest-bearing, investment grade securities.
New Accounting Standards
As of January 1, 2002, we adopted SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 established
new standards for accounting and reporting requirements for business
combinations initiated after June 30, 2001 and prohibits the use of the
pooling-of-interest method for combinations initiated after June 30, 2001. SFAS
No. 142 changed the accounting for goodwill from an amortization method to an
impairment only approach. Under SFAS No. 142, goodwill will be tested at the
reporting unit level annually and whenever events or circumstances occur
indicating that goodwill might be impaired. Amortization of goodwill, including
goodwill from past business combinations, will cease. We recorded an impairment
charge of approximately $29.0 million from the adoption of SFAS No. 142 as
described in the "results of operations - cumulative effect of change in
accounting method" section.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Obligations
Associated with the Retirement of Long-lived Assets," which establishes
accounting standards for the recognition and measurement of an asset retirement
obligation and its associated asset retirement cost. It also provides accounting
guidance for legal obligations associated with the retirement of tangible
long-lived assets. SFAS No. 143 is effective for fiscal years
13
beginning after June 15, 2002, with early adoption permitted. We expect to adopt
SFAS No. 143 effective January 1, 2003 and do not expect that the adoption of
this new standard will have a significant impact on our results of operations
and financial position.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-lived Assets," which addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of. This Statement supersedes FASB Statement
No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to Be Disposed Of." This Statement also supersedes the accounting and
reporting provisions of APB Opinion No. 30 ("APB 30"), "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for
Segments of a Business to Be Disposed Of." This Statement also amends ARB No.
51, "Consolidated Financial Statements," to eliminate the exception to
consolidation for a temporarily controlled subsidiary. We adopted SFAS No. 144
on January 1, 2002 and the adoption of this new standard did not have a
significant impact on our results of operations or financial position.
Recent Events
In August 1997, we adopted our 1997 Stock Plan. The 1997 Plan provides for
the granting of stock options and common stock to our employees and eligible
consultants. As of March 31, 2002, out of the 3 million shares authorized for
grant under the 1997 Plan, options to purchase 2,450,785 shares have been
granted, of which 1,312,596 have been exercised and 619,594 have been cancelled;
options to purchase 518,595 shares remained outstanding and 1,168,809 shares
were available for future grant. We had no need in recent years to grant any
additional options under the 1997 Plan following the adoption of our 1999 Stock
Plan and indeed had not planned to use the 1997 Plan for future grants.
In May 2002, however, we reevaluated our needs and have determined that it
would be in our best interest to use a specific number of these shares to meet
increased needs for options in response to our growth from acquisitions;
managerial upgrades at all levels; an expanded executive team, including the
recent appointment of a new chief financial officer and other senior level
executives; and the impact on the incentive value of outstanding options of the
significant decline in our share price at the end of April and early May
2002--all of which combined to significantly increase our needs under our only
other active stock plan for employees, our 1999 Stock Plan. Accordingly, we now
intend to grant options to non-executives under the 1997 Plan, in addition to
the ongoing grants under the 1999 Plan. Our current expectation is to grant
options under the 1997 Plan only to the extent of shares subject to options
granted that expire or terminate unexercised, or have expired or terminated
unexercised. As noted above, we currently have no fewer than 619,594 shares in
this category. This number may increase as additional outstanding options under
the 1997 Plan expire or terminate unexercised in the future. We also may face
additional needs to use further authority under the 1997 Plan to supplement the
1999 Plan in the future.
Under the 1999 Plan, out of 5,250,000 shares authorized for grant, options
to purchase 3,854,302 shares were outstanding and 779,708 shares were available
for future grant as of March 31, 2002. Under our non-active stock plans that we
assumed upon our acquisition of 1View, ATA and ViFi, 228,669 shares are subject
to outstanding options as of March 31, 2002.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to the impact of interest rate changes and changes in the
market values of our investments. Our interest income is sensitive to changes in
the general level of U.S. interest rates. In this regard, changes in U.S.
interest rates affect the interest earned on our cash equivalents. Our exposure
to market rate risk for changes in interest rates relates primarily to our
investment portfolio. We have not used derivative financial instruments in our
investment portfolio. We invest our excess cash in debt instruments of the U.S.
government and its agencies, and in high-quality corporate issuers and, by
policy, limit the amount of credit exposure to any one issuer. We protect and
preserve our invested funds by limiting default, market and reinvestment risk.
Investments in both fixed rate and floating rate interest earning instruments
carry a degree of interest rate risk. Fixed rate securities may have their fair
market value adversely impacted due to a rise in interest rates, while floating
rate securities may produce less income than expected if interest rates fall.
The fair value of our investment portfolio would not be significantly impacted
by either a 100 basis point increase or decrease in interest rates, due mainly
to the fixed-rate, short-term nature of the substantial majority of our
investment portfolio.
We are also exposed to the impact of interest rate changes as they affect
the Revolver and the multiple disbursement note. The interest rate charged on
these credit facilities varies with the bank's prime rate and, consequently, our
interest expense will fluctuate with changes in the general level of U.S.
interest rates. As of March 31, 2002, we had outstanding advances under the
Revolver and multiple disbursement note of $4 million and $8.8 million,
respectively. The rate on our multiple disbursement note was 3.15%. If interest
rates were to increase by 100 basis points, the impact on our multiple
disbursement note would not be significant.
There were no significant changes in our market risk during the quarter
ended March 31, 2002.
14
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
On December 6, 2001, we and three of our current and former officers and
directors as well as most of the managing underwriters in our previous public
offerings were named as defendants in a class-action lawsuit filed in the United
States District Court for the Southern District of New York. The lawsuit is
captioned In re Digital Insight Corp. Initial Public Offering Securities
Litigation, No. 01 CV 11231. The claims are based on allegations that the
underwriter defendants solicited and received from certain investors, in
exchange for allocating Digital Insight shares to the investors in connection
with the previous public offerings, additional, excessive and undisclosed
commissions and undisclosed commitments to purchase additional Digital Insight
shares in the aftermarket. The complaint alleges claims based on Sections 11 and
15 of the Securities Act of 1933 and on Sections 10(b) of the Securities
Exchange Act of 1934 against Digital Insight and the individual defendants, and
claims based Section 20(a) of the Securities Exchange Act of 1934 against the
individual defendants. The complaint also alleges claims solely against the
underwriter defendants under Section 12(2) of the Securities Act of 1933, and
Section 10(b) of the Securities Exchange Act of 1934. We dispute these claims
and intend to defend this lawsuit vigorously.
We are a party to a lawsuit filed by FundsXpress Financial Network, Inc. on
March 4, 2002 in the United States District Court for the Western District of
Texas, Austin Division. The plaintiff is a competing provider of Internet
banking services to financial institutions. The plaintiff has asserted claims of
trade secret misappropriation, conversion, tortious interference with contract,
copyright infringement, and unfair competition. The claims are based on
allegations that we conspired with ex-employees of the plaintiff to steal trade
secrets and other confidential proprietary information of the plaintiff for
purposes of destroying or severely damaging the plaintiff's ability to compete
with us. The plaintiff seeks a permanent injunction, compensatory damages of $25
million, exemplary damages of $50 million, cost and attorneys' fees.
Without any admission of liability or a waiver of any defenses, we have
agreed to a stipulation and an order regarding a preliminary injunction in which
we are enjoined from:
. Accessing, using or disclosing the plaintiff's trade secrets or
confidential information
. Infringing any of the plaintiff's copyrights
. Retaining any of the plaintiff's trade secrets, confidential
information or copyrighted works, or using such intellectual property
to sell our products or services to financial institutions
. Destroying the location or record of use of the plaintiff's
intellectual property
We also agreed to certain other stipulations, including the removal of any
access to the plaintiff's intellectual property, the return of such materials to
the plaintiff and an accounting of the location of the plaintiff's intellectual
property destroyed or returned. By agreeing to such stipulations, we have not
admitted to any actual or potential liability nor have we waived any of our
defenses. We dispute the plaintiff's claims and intend to defend this lawsuit
vigorously.
The outcome of any litigation is inherently uncertain and even a favorable
resolution of these lawsuits could result in distraction of our management
resources and significant litigation costs.
In addition to these lawsuits, we may be involved from time to time in
litigation arising in the normal course of our business. Although we are
currently not a party to any such litigation that we believe would have a
material adverse effect, individually or in the aggregate, on our business or
financial condition, it is possible that in the future we could become a party
to such proceedings.
15
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Third Amended and Restated Certificate of Incorporation of Registrant,
as currently in effect. Incorporated by reference to the exhibits filed with our
Registration Statement on Form S-1 (File No. 333-81547), which was declared
effective on September 30, 1999.
3.2 Restated Bylaws of Registrant, as currently in effect. Incorporated by
reference to the exhibits filed with our Registration Statement on Form S-1
(File No. 333-81547), which was declared effective on September 30, 1999.
3.3 First, Second and Third Amendments to the Bylaws of Registrant.
Incorporated by reference to the exhibits filed with our Annual Report on Form
10-K for the year ended December 31, 2001.
(b) Reports on Form 8-K
None
16
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIGITAL INSIGHT CORPORATION
Date: May 14, 2002 By: /s/ Elizabeth S.C.S. Murray
---------------------------
Elizabeth S.C.S. Murray
Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
17