e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2009
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 000-28430
SS&C TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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06-1169696
(I.R.S. Employer Identification No.) |
80 Lamberton Road
Windsor, CT 06095
(Address of principal executive offices, including zip code)
860-298-4500
(Registrants 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 o No þ
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 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):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ (Do not check if a smaller reporting company) | Smaller reporting company o |
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
There were 1,000 shares of the registrants common stock outstanding as of August
13, 2009.
SS&C TECHNOLOGIES, INC.
INDEX
This Quarterly Report on Form 10-Q may contain 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. For this purpose, any statements
contained herein that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, the words believes,
anticipates, plans, expects, should, and similar expressions are intended to
identify forward-looking statements. The important factors discussed under the
caption Item 1A. Risk Factors in the Companys Annual Report on Form 10-K for the
year ended December 31, 2008, among others, could cause actual results to differ
materially from those indicated by forward-looking statements made herein and
presented elsewhere by management from time to time. The Company does not undertake
an obligation to update its forward-looking statements to reflect future events or
circumstances.
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
SS&C TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
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June 30, |
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December 31, |
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2009 |
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2008 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
39,067 |
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$ |
29,299 |
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Accounts receivable, net of allowance for
doubtful accounts of $1,706 and $1,444,
respectively |
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37,854 |
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38,318 |
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Prepaid expenses and other current assets |
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4,196 |
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4,327 |
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Deferred income taxes |
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373 |
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3,777 |
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Total current assets |
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81,490 |
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75,721 |
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Property and equipment |
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Leasehold improvements |
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4,986 |
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4,852 |
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Equipment, furniture, and fixtures |
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22,657 |
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20,978 |
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27,643 |
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25,830 |
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Less accumulated depreciation |
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(14,528 |
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(11,800 |
) |
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Net property and equipment |
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13,115 |
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14,030 |
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Goodwill |
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834,013 |
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822,409 |
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Intangible and other assets, net of
accumulated amortization of $98,601 and
$82,520, respectively |
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209,261 |
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215,193 |
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Total assets |
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$ |
1,137,879 |
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$ |
1,127,353 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities |
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Current portion of long-term debt |
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$ |
2,293 |
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$ |
2,101 |
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Accounts payable |
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1,749 |
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1,821 |
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Income taxes payable |
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2,232 |
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4,898 |
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Accrued employee compensation and benefits |
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6,883 |
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13,640 |
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Other accrued expenses |
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11,848 |
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11,561 |
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Interest payable |
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2,007 |
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2,007 |
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Deferred maintenance and other revenue |
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36,226 |
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30,844 |
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Total current liabilities |
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63,238 |
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66,872 |
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Long-term debt, net of current portion |
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407,554 |
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406,625 |
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Other long-term liabilities |
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8,960 |
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9,991 |
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Deferred income taxes |
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48,550 |
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56,612 |
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Total liabilities |
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528,302 |
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540,100 |
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Commitments and contingencies (Note 7) |
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Stockholders equity |
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Common stock |
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Additional paid-in capital |
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580,472 |
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577,861 |
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Accumulated other comprehensive income |
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(5,566 |
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(17,890 |
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Retained earnings |
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34,671 |
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27,282 |
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Total stockholders equity |
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609,577 |
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587,253 |
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Total liabilities and stockholders equity |
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$ |
1,137,879 |
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$ |
1,127,353 |
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See accompanying notes to Condensed Consolidated Financial Statements.
3
SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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June 30, |
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June 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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Revenues: |
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Software licenses |
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$ |
3,983 |
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$ |
6,029 |
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$ |
9,803 |
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$ |
12,684 |
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Maintenance |
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16,066 |
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16,281 |
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31,606 |
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32,638 |
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Professional services |
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5,393 |
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8,111 |
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10,589 |
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13,379 |
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Software-enabled services |
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41,809 |
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41,774 |
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78,975 |
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82,017 |
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Total revenues |
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67,251 |
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72,195 |
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130,973 |
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140,718 |
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Cost of revenues: |
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Software licenses |
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2,123 |
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2,307 |
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4,171 |
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4,606 |
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Maintenance |
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6,853 |
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6,644 |
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13,327 |
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13,260 |
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Professional services |
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3,512 |
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4,572 |
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7,489 |
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8,132 |
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Software-enabled services |
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22,033 |
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22,893 |
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42,606 |
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45,341 |
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Total cost of revenues |
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34,521 |
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36,416 |
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67,593 |
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71,339 |
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Gross profit |
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32,730 |
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35,779 |
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63,380 |
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69,379 |
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Operating expenses: |
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Selling and marketing |
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5,039 |
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4,945 |
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10,267 |
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9,940 |
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Research and development |
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6,757 |
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6,780 |
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12,624 |
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13,744 |
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General and administrative |
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5,099 |
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6,778 |
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10,181 |
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12,597 |
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Total operating expenses |
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16,895 |
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18,503 |
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33,072 |
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36,281 |
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Operating income |
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15,835 |
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17,276 |
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30,308 |
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33,098 |
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Interest expense, net |
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(9,294 |
) |
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(10,409 |
) |
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(18,644 |
) |
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(20,837 |
) |
Other expense, net |
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(1,479 |
) |
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(1,004 |
) |
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(922 |
) |
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(779 |
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Income before income taxes |
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5,062 |
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5,863 |
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10,742 |
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11,482 |
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Provision for income taxes |
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1,571 |
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|
2,077 |
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3,353 |
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3,960 |
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Net income |
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$ |
3,491 |
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$ |
3,786 |
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$ |
7,389 |
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$ |
7,522 |
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See accompanying notes to Condensed Consolidated Financial Statements.
4
SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Six Months Ended |
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June 30, |
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June 30, |
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2009 |
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2008 |
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Cash flow from operating activities: |
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Net income |
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$ |
7,389 |
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$ |
7,522 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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17,598 |
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17,724 |
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Amortization of loan origination costs |
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1,145 |
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|
1,173 |
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Equity losses on long-term investment |
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|
1,039 |
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Loss on sale or disposal of property and equipment |
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3 |
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|
1 |
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Deferred income taxes |
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(5,628 |
) |
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(5,732 |
) |
Stock-based compensation expense |
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2,794 |
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|
3,308 |
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Provision for doubtful accounts |
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|
327 |
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|
395 |
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Changes in operating assets and liabilities, excluding effects from
acquisitions: |
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Accounts receivable |
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1,649 |
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(3,148 |
) |
Prepaid expenses and other assets |
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1,634 |
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(641 |
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Accounts payable |
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(145 |
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|
538 |
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Accrued expenses |
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(7,136 |
) |
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(5,668 |
) |
Income taxes payable |
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(2,549 |
) |
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|
2,717 |
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Deferred maintenance and other revenues |
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3,824 |
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5,784 |
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Net cash provided by operating activities |
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20,905 |
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|
25,012 |
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Cash flow from investing activities: |
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Additions to property and equipment |
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(621 |
) |
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(4,125 |
) |
Proceeds from sale of property and equipment |
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3 |
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2 |
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Cash paid for business acquisitions, net of cash acquired |
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(10,327 |
) |
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Net cash used in investing activities |
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(10,945 |
) |
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(4,123 |
) |
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Cash flow from financing activities: |
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Repayment of debt |
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|
(1,153 |
) |
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|
(11,159 |
) |
Transactions involving SS&C Technologies Holdings, Inc. common stock |
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|
(184 |
) |
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|
269 |
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Net cash used in financing activities |
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|
(1,337 |
) |
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(10,890 |
) |
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|
|
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Effect of exchange rate changes on cash |
|
|
1,145 |
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|
336 |
|
|
|
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|
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|
|
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Net increase in cash and cash equivalents |
|
|
9,768 |
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|
|
10,335 |
|
Cash and cash equivalents, beginning of period |
|
|
29,299 |
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|
|
19,175 |
|
|
|
|
|
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Cash and cash equivalents, end of period |
|
$ |
39,067 |
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|
$ |
29,510 |
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|
See accompanying notes to Condensed Consolidated Financial Statements.
5
SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America. These accounting principles
were applied on a basis consistent with those of the audited consolidated financial
statements contained in the Companys Annual Report on Form 10-K for the year ended
December 31, 2008, filed with the Securities and Exchange
Commission on March 31, 2009. In the opinion of
the Company, the accompanying unaudited condensed consolidated financial statements
contain all adjustments (consisting of only normal recurring adjustments, except as noted
elsewhere in the notes to the condensed consolidated financial statements) necessary to
state fairly its financial position as of June 30, 2009, the results of its operations for
the three months and six months ended June 30, 2009 and 2008 and its cash flows for the
six months ended June 30, 2009 and 2008. These statements do not include all of the
information and footnotes required by generally accepted accounting principles for annual
financial statements. The financial statements contained herein should be read in
conjunction with the audited consolidated financial statements and footnotes as of and for
the year ended December 31, 2008 which were included in the Companys Annual Report on
Form 10-K, filed with the Securities and Exchange Commission. The December 31, 2008
consolidated balance sheet data were derived from audited financial statements, but do not
include all disclosures required by generally accepted accounting principles for annual
financial statements. The results of operations for the three months and six months ended
June 30, 2009 are not necessarily indicative of the expected results for the full year.
2. The Transaction
SS&C Technologies, Inc. (the Company or SS&C) was acquired on November 23, 2005
through a merger transaction with SS&C Technologies Holdings, Inc. (Holdings), a
Delaware corporation formed by investment funds associated with The
Carlyle Group (Carlyle) and
formerly known as Sunshine Acquisition Corporation. The acquisition was accomplished
through the merger of Sunshine Merger Corporation into the Company, with the Company being
the surviving company and a wholly-owned subsidiary of Holdings (the Transaction).
3. Equity and Stock-based Compensation
In April 2008, the Board of Directors of Holdings approved a 7.5-for-1 stock split of the
common stock of Holdings to be effected in the form of a stock dividend, effective as of
April 23, 2008. In November 2008, the Board of Directors of Holdings approved a 1-for-7.5
reverse stock split of the common stock of Holdings, effectively reversing the April 2008 forward split. All share data in this Form
10-Q have been retroactively revised to reflect the reverse stock split.
In February 2009, the Board of Directors of Holdings approved the immediate vesting of the
2006, 2007 and 2008 performance-based options that did not otherwise vest during 2006,
2007 or 2008 and established the Companys annual EBITDA target range for 2009. As of that
date, the Company estimated the weighted-average fair value of the performance-based
options that were vested by the Board and those that vest upon the attainment of the 2009
EBITDA target range to be $31.00. In estimating the common stock value, the Company valued
the Company using the income approach and the guideline company method. The Company used
the following weighted-average assumptions to estimate the option value: expected term to
exercise of 2.5 years; expected volatility of 38.0%; risk-free interest rate of 1.2%; and
no dividend yield. Expected volatility is based on the historical volatility of the
Companys peer group. Expected term to exercise is based on the Companys historical stock
option exercise experience, adjusted for the Transaction.
During the three months ended June 30, 2009, the Company recorded total stock-based
compensation expense of $1.5 million, of which $0.7 million related to the
performance-based options based upon managements assessment of the probability that the
Companys EBITDA for 2009 will fall within the targeted range and $0.8 million related to
time-based options. During the six months ended June 30, 2009, the Company recorded total
stock-based compensation expense of $2.8 million, of which $1.0 million related to the
performance-based options based upon managements assessment of the probability that the
Companys EBITDA for 2009 will fall within the targeted range and $0.1 million related to
the performance-based options that were immediately vested by the Board of Directors of
Holdings in February. Time-based options represented the remaining $1.7 million of
compensation expense recorded during the six months ended June 30, 2009. The annual EBITDA
targets for 2010 and 2011 will be determined by the Board of Directors of Holdings at the
beginning of each respective year.
6
During the three months and six months ended June 30, 2008, the Company recorded
compensation expense of $1.1 million and $1.6 million, respectively, related to the
performance-based options based upon managements assessment of the probability that the
Companys EBITDA for 2008 would fall within the targeted range. Additionally, the Company
recorded compensation expense of $0.9 million and $1.7 million related to time-based
options during the three months and six months ended June 30, 2008, respectively.
The amount of stock-based compensation expense recognized in the Companys condensed
consolidated statements of operations for the three months and six months ended June 30,
2009 and 2008 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Statements of operations classification: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of maintenance |
|
$ |
31 |
|
|
$ |
38 |
|
|
$ |
56 |
|
|
$ |
62 |
|
Cost of professional services |
|
|
57 |
|
|
|
66 |
|
|
|
104 |
|
|
|
107 |
|
Cost of software-enabled services |
|
|
307 |
|
|
|
460 |
|
|
|
560 |
|
|
|
753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
395 |
|
|
|
564 |
|
|
|
720 |
|
|
|
922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
|
258 |
|
|
|
323 |
|
|
|
495 |
|
|
|
530 |
|
Research and development |
|
|
164 |
|
|
|
211 |
|
|
|
298 |
|
|
|
344 |
|
General and administrative |
|
|
708 |
|
|
|
921 |
|
|
|
1,281 |
|
|
|
1,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
1,130 |
|
|
|
1,455 |
|
|
|
2,074 |
|
|
|
2,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense |
|
$ |
1,525 |
|
|
$ |
2,019 |
|
|
$ |
2,794 |
|
|
$ |
3,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of stock option activity as of and for the six months ended June 30, 2009 is as
follows:
|
|
|
|
|
|
|
Shares of Holdings |
|
|
Under Option |
Outstanding at January 1, 2009 |
|
|
1,513,193 |
|
Granted |
|
|
30,005 |
|
Cancelled/forfeited |
|
|
(19,907 |
) |
Exercised |
|
|
(24,533 |
) |
|
|
|
|
|
Outstanding at June 30, 2009 |
|
|
1,498,758 |
|
|
|
|
|
|
4. Comprehensive Income
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income, requires that items defined as
comprehensive income, such as foreign currency translation adjustments and unrealized
gains (losses) on interest rate swaps, be separately classified in the financial
statements and that the accumulated balance of other comprehensive income be reported
separately from retained earnings and additional paid-in capital in the equity section of
the balance sheet.
The following table sets forth the components of comprehensive income (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net income |
|
$ |
3,491 |
|
|
$ |
3,786 |
|
|
$ |
7,389 |
|
|
$ |
7,522 |
|
Foreign currency translation gains (losses) |
|
|
18,646 |
|
|
|
844 |
|
|
|
11,541 |
|
|
|
(5,143 |
) |
Unrealized gains (losses) on interest rate
swaps, net of tax |
|
|
432 |
|
|
|
2,323 |
|
|
|
783 |
|
|
|
(243 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
22,569 |
|
|
$ |
6,953 |
|
|
$ |
19,713 |
|
|
$ |
2,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
5. Debt
At June 30, 2009 and December 31, 2008, debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Senior credit facility, term loan
portion, weighted-average interest rate
of 2.59% and 3.54%, respectively |
|
$ |
204,491 |
|
|
$ |
203,726 |
|
11 3/4% senior subordinated notes due 2013 |
|
|
205,000 |
|
|
|
205,000 |
|
Capital leases |
|
|
356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
409,847 |
|
|
|
408,726 |
|
Current portion of long-term debt |
|
|
(2,293 |
) |
|
|
(2,101 |
) |
|
|
|
|
|
|
|
Long-term debt |
|
$ |
407,554 |
|
|
$ |
406,625 |
|
|
|
|
|
|
|
|
Capitalized financing costs of $0.6 million were amortized to interest expense during each
of the three months ended June 30, 2009 and 2008. Capitalized financing costs of $1.1
million and $1.2 million were amortized to interest expense during the six months ended
June 30, 2009 and 2008, respectively.
The estimated fair value of the Companys senior subordinated notes due 2013 was $200.9
million and $180.2 million at June 30, 2009 and December 31, 2008, respectively. The
estimated fair value of the Companys senior subordinated notes was based on quoted market prices
and is presented to satisfy the disclosure requirements of SFAS No. 107, Disclosures
about Fair Values of Financial Instruments (SFAS 107).
6. Derivatives and Hedging Activities
In
March 2008, the Financial Accounting Standards Board
(FASB) issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 requires
entities to provide enhanced disclosure about how and why the entity uses derivative
instruments, how the instruments and related hedged items are accounted for under SFAS No.
133, Accounting for Derivative Instruments and Hedging
Activities, (SFAS 133) and how
the instruments and related hedged items affect the financial position, results of
operations, and cash flows of the entity. The Company adopted SFAS 161 during the quarter
ended March 31, 2009.
The Company uses interest rate swap agreements to manage the floating rate portion of its
debt portfolio and follows the provisions of SFAS No. 133, which requires that all
derivative instruments be recorded on the balance sheet at fair value.
Quarterly variable interest payments were recognized as an increase in interest expense as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Interest
rate swaps |
|
$ |
907 |
|
|
$ |
813 |
|
|
$ |
1,746 |
|
|
$ |
731 |
|
Changes in
the fair value of the interest rate swaps are not included in earnings but are
reported as a component of accumulated other comprehensive income (AOCI). For the three
months and six months ended June 30, 2008 and 2009, the change in the fair value of the
interest rate swaps was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Amount of gain
(loss) recognized
in AOCI, net of tax |
|
$ |
432 |
|
|
$ |
2,323 |
|
|
$ |
783 |
|
|
$ |
(243 |
) |
The market
value of the swaps recorded in AOCI may be recognized in the statement of operations if certain terms of the senior credit
facility change, if the loan is extinguished or if the swaps agreements are terminated
prior to maturity. As of June 30, 2009, the Company held one
receive-variable/pay-fixed interest rate swap with a notional value of $100 million.
8
On January 1, 2008, the Company adopted the provisions of SFAS No. 157, Fair Value
Measurements (SFAS 157), with respect to the valuation of its interest rate swap
agreements. The Company did not adopt the provisions of SFAS No. 157 as they relate to
nonfinancial assets pursuant to FASB Staff Position (FSP) FAS 157-2, Effective Date
of FASB Statement No. 157.
The major categories of assets that are measured at fair value for which the Company has
not applied the provisions of SFAS No. 157 include the measurement of fair value in the
first step of a goodwill impairment test under SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS 157 clarifies how companies are required to use a fair value
measure for recognition and disclosure by establishing a common definition of fair value,
a framework for measuring fair value, and expanding disclosures about fair value
measurements. The adoption of SFAS 157 did not have a material impact on the Companys
results of operations or financial position. In October 2008, the FASB issued FSP FAS
157-3 Determining the Fair Value of a Financial Asset When the Market for That Asset is
Not Active (FSP FAS 157-3), which is effective upon issuance for all financial
statements that have not been issued. FSP FAS 157-3 clarifies the application of SFAS 157
in a market that is not active. The adoption of FSP FAS 157-3 did not have a material
impact on the Companys financial
position, financial performance or cash flows.
SFAS No. 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value. These tiers include: Level 1, defined as observable inputs
such as quoted prices in active markets; Level 2, defined as inputs other than quoted
prices in active markets that are either directly or indirectly observable; and Level 3,
defined as unobservable inputs in which little or no market data exists, therefore
requiring an entity to develop its own assumptions.
The Company determines the fair value of its interest rate swaps
based on the amount at which each could be settled, which is referred to in SFAS No. 157 as the exit price. This
price is based upon observable market assumptions and appropriate valuation adjustments
for credit risk. The Company has categorized its interest rate swaps as Level 2 under SFAS
No. 157. The fair value of the Companys remaining interest rate swap was a liability of
$5.4 million and $6.6 million at June 30, 2009 and December 31, 2008, respectively. Of
these amounts, $3.6 million and $3.3 million, respectively, is included in other accrued
expenses and $1.8 million and $3.3 million, respectively, is included in other long-term
liabilities.
7. Commitments and Contingencies
On May 1, 2009, the Company and its parent, SS&C Technologies Holdings, Inc. (collectively
SS&C) were served with a class action and verified derivative complaint filed against them
and other defendants in the U.S. District Court for the Southern District of New York in In re
Tremont Securities Law, State Law and Insurance Litigation. On June 4, 2009, SS&C filed a
motion to dismiss the plaintiffs claims, on which the court has not yet ruled. Subsequent to
SS&Cs filing of the motion to dismiss, the plaintiffs offered to dismiss their claims against
SS&C without prejudice, subject to agreement on the terms and execution of a stipulation of
dismissal and tolling agreement (extending the statute of limitations on the plaintiffs claims for
a limited period) and approval of the court. The plaintiffs derivative claims against SS&C
alleged breach of fiduciary duty and professional negligence in its duties as administrator to two
of the Rye group of funds, which the plaintiffs alleged provided Bernard L. Madoff with
infusions of assets and were operated through defendant Tremont Group Holdings, Inc. as part
of the MassMutual Financial Group. The plaintiffs complaint sought class certification,
compensatory damages against all defendants, jointly and severally, prejudgment interest,
punitive damages and costs.
From time
to time, the Company is subject to certain other legal proceedings and claims that arise in
the normal course of its business. In the opinion of management, the Company is not
involved in any such litigation or proceedings by third parties that management believes
could have a material adverse effect on the Company or its business.
8. Acquisitions
On March 20, 2009, the Company purchased substantially all the assets of Evare, LLC
(Evare), for approximately $3.5 million in cash, plus the assumption of certain
liabilities. Evare is a managed utility service provider for financial data acquisition,
enrichment, transformation and delivery.
The net assets and results of operations of Evare have been included in the Companys
consolidated financial statements from March 21, 2009. The purchase price was allocated to
tangible and intangible assets based on their fair value at the date of acquisition. The
fair value of the intangible assets, consisting of trade name and client relationships and
client contracts, was determined using the income approach. Specifically, the
relief-from-royalty method was utilized for the trade name and the discounted cash flows
method was utilized for the contractual relationships. The intangible assets are amortized
each year based on the ratio that current cash flows for the intangible asset bear to the
total of current and expected future cash flows for the intangible asset. The trade name
is amortized over approximately seven years, and the contractual relationships are
amortized over approximately four years, the estimated lives of the assets. The remainder
of the purchase price was allocated to goodwill and is tax deductible.
On May 29, 2009, the Company purchased the assets and related business associated with
Unisys Corporations MAXIMIS software (MAXIMIS) for approximately $6.9 million in cash,
plus the assumption of certain liabilities. MAXIMIS is a real-time, intranet-enabled
investment accounting application with comprehensive support for domestic and
international securities trading.
The net assets and results of operations of MAXIMIS have been included in the Companys
consolidated financial statements from May 29, 2009. The purchase price was allocated to
tangible and intangible assets based on their fair value at the date of acquisition. The
fair value of the intangible assets, consisting of completed technology, trade name and
client relationships and client contracts, was determined using the income approach.
Specifically, the relief-from-royalty method was utilized for the completed technology and
trade name and the discounted cash flows method was utilized for the
9
contractual relationships. The intangible assets are amortized each year based on the
ratio that current cash flows for the intangible asset bear to the total of current and
expected future cash flows for the intangible asset. The completed technology is amortized
over approximately 5.5 years, the trade name is amortized over approximately 7.5 years,
and the contractual relationships are amortized over approximately 6.5 years, the
estimated lives of the assets. The remainder of the purchase price was allocated to
goodwill and is tax deductible.
The following summarizes the allocation of the purchase price for the acquisitions of
MAXIMIS and Evare (in thousands):
|
|
|
|
|
|
|
|
|
|
|
MAXIMIS |
|
|
Evare |
|
|
Accounts receivable, net of $11 reserve for Evare |
|
$ |
|
|
|
$ |
928 |
|
Tangible assets acquired, net of cash received |
|
|
143 |
|
|
|
1,090 |
|
Completed technology |
|
|
1,485 |
|
|
|
|
|
Trade name |
|
|
110 |
|
|
|
150 |
|
Acquired client relationships and contracts |
|
|
5,420 |
|
|
|
1,720 |
|
Goodwill |
|
|
766 |
|
|
|
500 |
|
Deferred revenue |
|
|
(910 |
) |
|
|
(28 |
) |
Other liabilities assumed |
|
|
(108 |
) |
|
|
(810 |
) |
|
|
|
|
|
|
|
Consideration paid, net of cash received |
|
$ |
6,906 |
|
|
$ |
3,550 |
|
|
|
|
|
|
|
|
The Company reported revenues of $0.5 million and $2.5 million from MAXIMIS and Evare,
respectively, from their respective acquisition dates through June 30, 2009. The following
unaudited pro forma condensed consolidated results of operations is provided for
illustrative purposes only and assumes that the acquisitions of
MAXIMIS and Evare occurred at the beginning of the periods presented. This unaudited pro forma information (in thousands) should not be
relied upon as being indicative of the historical results that would have been obtained if
the acquisition had actually occurred on that date, nor of the results that may be
obtained in the future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Revenues |
|
$ |
68,481 |
|
|
$ |
75,782 |
|
|
$ |
134,025 |
|
|
$ |
147,865 |
|
Net income |
|
|
4,266 |
|
|
|
4,505 |
|
|
|
8,216 |
|
|
|
8,770 |
|
During the three months ended June 30, 2009, the Company received a $0.1 million reimbursement
from the escrow account established in connection with the
acquisition of Micro Design Services, LLC (MDS) in
October 2008.
9.
Goodwill
The change in the carrying value of goodwill for the six months ended June 30, 2009 was as follows (in thousands):
|
|
|
|
|
Balance at December 31, 2008 |
|
$ |
822,409 |
|
2009 acquisitions |
|
|
1,266 |
|
Adjustments to previous acquisitions |
|
|
(129 |
) |
Effect of foreign currency translation |
|
|
10,467 |
|
Balance at June 30, 2009 |
|
$ |
834,013 |
|
10. Product and Geographic Sales Information
The Company operates in one reportable segment, as defined by SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. The Company manages its business
primarily on a geographic basis. The Company attributes net sales to an individual country
based upon location of the customer. The Companys geographic regions consist of the
United States, Canada, Americas, excluding the United States and Canada, Europe and Asia
Pacific and Japan. The European region includes European countries as well as the Middle
East and Africa.
Revenues by geography were (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
United States |
|
$ |
43,205 |
|
|
$ |
42,306 |
|
|
$ |
84,135 |
|
|
$ |
82,197 |
|
Canada |
|
|
9,947 |
|
|
|
11,742 |
|
|
|
19,663 |
|
|
|
23,031 |
|
Americas excluding United States and Canada |
|
|
972 |
|
|
|
480 |
|
|
|
3,250 |
|
|
|
2,980 |
|
Europe |
|
|
10,353 |
|
|
|
15,336 |
|
|
|
19,825 |
|
|
|
28,364 |
|
Asia Pacific and Japan |
|
|
2,774 |
|
|
|
2,331 |
|
|
|
4,100 |
|
|
|
4,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
67,251 |
|
|
$ |
72,195 |
|
|
$ |
130,973 |
|
|
$ |
140,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Revenues by product group were (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Portfolio management/accounting |
|
$ |
55,101 |
|
|
$ |
58,995 |
|
|
$ |
106,490 |
|
|
$ |
114,420 |
|
Trading/treasury operations |
|
|
5,958 |
|
|
|
6,780 |
|
|
|
12,076 |
|
|
|
13,465 |
|
Financial modeling |
|
|
2,197 |
|
|
|
2,305 |
|
|
|
4,296 |
|
|
|
4,486 |
|
Loan management/accounting |
|
|
1,022 |
|
|
|
1,159 |
|
|
|
2,290 |
|
|
|
2,401 |
|
Property management |
|
|
1,222 |
|
|
|
1,391 |
|
|
|
2,492 |
|
|
|
2,775 |
|
Money market processing |
|
|
1,068 |
|
|
|
815 |
|
|
|
1,901 |
|
|
|
1,760 |
|
Training |
|
|
683 |
|
|
|
750 |
|
|
|
1,428 |
|
|
|
1,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
67,251 |
|
|
$ |
72,195 |
|
|
$ |
130,973 |
|
|
$ |
140,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. Supplemental Guarantor Condensed Consolidating Financial Statements
On November 23, 2005, in connection with the Transaction, the Company issued $205 million
aggregate principal amount of 113/4% senior subordinated notes due 2013. The senior
subordinated notes are jointly and severally and fully and unconditionally guaranteed on
an unsecured senior subordinated basis, in each case, subject to certain exceptions, by
substantially all wholly owned domestic subsidiaries of the Company (collectively
Guarantors). All of the Guarantors are 100% owned by the Company. All other
subsidiaries of the Company, either direct or indirect, do not guarantee the senior
subordinated notes (Non-Guarantors). The Guarantors also unconditionally guarantee the
senior secured credit facilities. There are no significant restrictions on the ability of
the Company or any of the subsidiaries that are Guarantors to obtain funds from its
subsidiaries by dividend or loan.
Condensed consolidating financial information as of June 30, 2009 and December 31, 2008
and the three months and six months ended June 30, 2009 and 2008 are presented. The
condensed consolidating financial information of the Company and its subsidiaries are as
follows:
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2009 |
|
|
|
|
|
|
|
Total |
|
|
Total Non- |
|
|
Consolidating |
|
|
|
|
|
|
SS&C |
|
|
Guarantors |
|
|
Guarantors |
|
|
Adjustments |
|
|
Total |
|
Cash and cash equivalents |
|
$ |
12,766 |
|
|
$ |
3,978 |
|
|
$ |
22,323 |
|
|
$ |
|
|
|
$ |
39,067 |
|
Accounts receivable, net |
|
|
22,151 |
|
|
|
5,787 |
|
|
|
9,916 |
|
|
|
|
|
|
|
37,854 |
|
Income taxes receivable |
|
|
833 |
|
|
|
|
|
|
|
|
|
|
|
(833 |
) |
|
|
|
|
Prepaid expenses and other current assets |
|
|
1,209 |
|
|
|
640 |
|
|
|
2,347 |
|
|
|
|
|
|
|
4,196 |
|
Deferred income taxes |
|
|
|
|
|
|
92 |
|
|
|
343 |
|
|
|
(62 |
) |
|
|
373 |
|
Property and equipment, net |
|
|
8,177 |
|
|
|
802 |
|
|
|
4,136 |
|
|
|
|
|
|
|
13,115 |
|
Investment in subsidiaries |
|
|
146,060 |
|
|
|
|
|
|
|
|
|
|
|
(146,060 |
) |
|
|
|
|
Intercompany balances |
|
|
126,329 |
|
|
|
(11,230 |
) |
|
|
(115,099 |
) |
|
|
|
|
|
|
|
|
Deferred taxes, long-term |
|
|
|
|
|
|
365 |
|
|
|
408 |
|
|
|
(773 |
) |
|
|
|
|
Goodwill, intangible and other assets, net |
|
|
745,698 |
|
|
|
34,370 |
|
|
|
263,206 |
|
|
|
|
|
|
|
1,043,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,063,223 |
|
|
$ |
34,804 |
|
|
$ |
187,580 |
|
|
$ |
(147,728 |
) |
|
$ |
1,137,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
1,898 |
|
|
$ |
|
|
|
$ |
395 |
|
|
$ |
|
|
|
$ |
2,293 |
|
Accounts payable |
|
|
788 |
|
|
|
108 |
|
|
|
853 |
|
|
|
|
|
|
|
1,749 |
|
Accrued expenses and other liabilities |
|
|
15,312 |
|
|
|
1,155 |
|
|
|
4,271 |
|
|
|
|
|
|
|
20,738 |
|
Income taxes payable |
|
|
|
|
|
|
1,721 |
|
|
|
1,344 |
|
|
|
(833 |
) |
|
|
2,232 |
|
Deferred income taxes |
|
|
9 |
|
|
|
53 |
|
|
|
|
|
|
|
(62 |
) |
|
|
|
|
Deferred maintenance and other revenue |
|
|
24,704 |
|
|
|
4,475 |
|
|
|
7,047 |
|
|
|
|
|
|
|
36,226 |
|
Long-term debt, net of current portion |
|
|
369,871 |
|
|
|
|
|
|
|
37,683 |
|
|
|
|
|
|
|
407,554 |
|
Other long-term liabilities |
|
|
2,869 |
|
|
|
|
|
|
|
6,091 |
|
|
|
|
|
|
|
8,960 |
|
Deferred income taxes, long-term |
|
|
38,195 |
|
|
|
|
|
|
|
11,128 |
|
|
|
(773 |
) |
|
|
48,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
453,646 |
|
|
|
7,512 |
|
|
|
68,812 |
|
|
|
(1,668 |
) |
|
|
528,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
609,577 |
|
|
|
27,292 |
|
|
|
118,768 |
|
|
|
(146,060 |
) |
|
|
609,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
1,063,223 |
|
|
$ |
34,804 |
|
|
$ |
187,580 |
|
|
$ |
(147,728 |
) |
|
$ |
1,137,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 |
|
|
|
|
|
|
|
Total |
|
|
Total Non- |
|
|
Consolidating |
|
|
|
|
|
|
SS&C |
|
|
Guarantors |
|
|
Guarantors |
|
|
Adjustments |
|
|
Total |
|
Cash and cash equivalents |
|
$ |
10,329 |
|
|
$ |
5,180 |
|
|
$ |
13,790 |
|
|
$ |
|
|
|
$ |
29,299 |
|
Accounts receivable, net |
|
|
19,945 |
|
|
|
6,397 |
|
|
|
11,976 |
|
|
|
|
|
|
|
38,318 |
|
Prepaid expenses and other current assets |
|
|
1,342 |
|
|
|
530 |
|
|
|
2,455 |
|
|
|
|
|
|
|
4,327 |
|
Deferred income taxes |
|
|
673 |
|
|
|
92 |
|
|
|
340 |
|
|
|
2,672 |
|
|
|
3,777 |
|
Property and equipment, net |
|
|
8,574 |
|
|
|
1,007 |
|
|
|
4,449 |
|
|
|
|
|
|
|
14,030 |
|
Investment in subsidiaries |
|
|
126,555 |
|
|
|
|
|
|
|
|
|
|
|
(126,555 |
) |
|
|
|
|
Intercompany balances |
|
|
134,025 |
|
|
|
(20,441 |
) |
|
|
(113,584 |
) |
|
|
|
|
|
|
|
|
Deferred income taxes, long-term |
|
|
|
|
|
|
606 |
|
|
|
489 |
|
|
|
(1,095 |
) |
|
|
|
|
Goodwill, intangible and other assets, net |
|
|
747,894 |
|
|
|
35,702 |
|
|
|
254,006 |
|
|
|
|
|
|
|
1,037,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,049,337 |
|
|
$ |
29,073 |
|
|
$ |
173,921 |
|
|
$ |
(124,978 |
) |
|
$ |
1,127,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
1,724 |
|
|
$ |
|
|
|
$ |
377 |
|
|
$ |
|
|
|
$ |
2,101 |
|
Accounts payable |
|
|
448 |
|
|
|
132 |
|
|
|
1,241 |
|
|
|
|
|
|
|
1,821 |
|
Accrued expenses |
|
|
20,127 |
|
|
|
1,472 |
|
|
|
5,609 |
|
|
|
|
|
|
|
27,208 |
|
Deferred income taxes |
|
|
|
|
|
|
125 |
|
|
|
|
|
|
|
(125 |
) |
|
|
|
|
Income taxes payable |
|
|
1,102 |
|
|
|
2 |
|
|
|
3,794 |
|
|
|
|
|
|
|
4,898 |
|
Deferred maintenance and other revenue |
|
|
20,643 |
|
|
|
2,788 |
|
|
|
7,413 |
|
|
|
|
|
|
|
30,844 |
|
Long-term debt, net of current portion |
|
|
370,551 |
|
|
|
|
|
|
|
36,074 |
|
|
|
|
|
|
|
406,625 |
|
Other long-term liabilities |
|
|
4,294 |
|
|
|
|
|
|
|
5,697 |
|
|
|
|
|
|
|
9,991 |
|
Deferred income taxes, long-term |
|
|
43,195 |
|
|
|
|
|
|
|
11,715 |
|
|
|
1,702 |
|
|
|
56,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
462,084 |
|
|
|
4,519 |
|
|
|
71,920 |
|
|
|
1,577 |
|
|
|
540,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
587,253 |
|
|
|
24,554 |
|
|
|
102,001 |
|
|
|
(126,555 |
) |
|
|
587,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
1,049,337 |
|
|
$ |
29,073 |
|
|
$ |
173,921 |
|
|
$ |
(124,978 |
) |
|
$ |
1,127,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2009 |
|
|
|
|
|
|
|
Total |
|
|
Total Non- |
|
|
Consolidating |
|
|
|
|
|
|
SS&C |
|
|
Guarantors |
|
|
Guarantors |
|
|
Adjustments |
|
|
Total |
|
Revenue |
|
$ |
28,512 |
|
|
$ |
18,340 |
|
|
$ |
20,806 |
|
|
$ |
(407 |
) |
|
$ |
67,251 |
|
Cost of revenue |
|
|
16,154 |
|
|
|
11,569 |
|
|
|
7,205 |
|
|
|
(407 |
) |
|
|
34,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
12,358 |
|
|
|
6,771 |
|
|
|
13,601 |
|
|
|
|
|
|
|
32,730 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling & marketing |
|
|
3,078 |
|
|
|
590 |
|
|
|
1,371 |
|
|
|
|
|
|
|
5,039 |
|
Research & development |
|
|
4,034 |
|
|
|
885 |
|
|
|
1,838 |
|
|
|
|
|
|
|
6,757 |
|
General & administrative |
|
|
4,051 |
|
|
|
260 |
|
|
|
788 |
|
|
|
|
|
|
|
5,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
11,163 |
|
|
|
1,735 |
|
|
|
3,997 |
|
|
|
|
|
|
|
16,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,195 |
|
|
|
5,036 |
|
|
|
9,604 |
|
|
|
|
|
|
|
15,835 |
|
Interest expense, net |
|
|
(6,394 |
) |
|
|
|
|
|
|
(2,900 |
) |
|
|
|
|
|
|
(9,294 |
) |
Other (expense) income, net |
|
|
178 |
|
|
|
(303 |
) |
|
|
(1,354 |
) |
|
|
|
|
|
|
(1,479 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(5,021 |
) |
|
|
4,733 |
|
|
|
5,350 |
|
|
|
|
|
|
|
5,062 |
|
(Benefit) provision for income taxes |
|
|
(1,461 |
) |
|
|
928 |
|
|
|
2,104 |
|
|
|
|
|
|
|
1,571 |
|
Equity in net income of subsidiaries |
|
|
7,051 |
|
|
|
|
|
|
|
|
|
|
|
(7,051 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3,491 |
|
|
$ |
3,805 |
|
|
$ |
3,246 |
|
|
$ |
(7,051 |
) |
|
$ |
3,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2008 |
|
|
|
|
|
|
|
Total |
|
|
Total Non- |
|
|
Consolidating |
|
|
|
|
|
|
SS&C |
|
|
Guarantors |
|
|
Guarantors |
|
|
Adjustments |
|
|
Total |
|
Revenue |
|
$ |
29,241 |
|
|
$ |
19,027 |
|
|
$ |
24,207 |
|
|
$ |
(280 |
) |
|
$ |
72,195 |
|
Cost of revenue |
|
|
16,585 |
|
|
|
11,112 |
|
|
|
8,999 |
|
|
|
(280 |
) |
|
|
36,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
12,656 |
|
|
|
7,915 |
|
|
|
15,208 |
|
|
|
|
|
|
|
35,779 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling & marketing |
|
|
3,087 |
|
|
|
409 |
|
|
|
1,449 |
|
|
|
|
|
|
|
4,945 |
|
Research & development |
|
|
3,651 |
|
|
|
1,073 |
|
|
|
2,056 |
|
|
|
|
|
|
|
6,780 |
|
General & administrative |
|
|
4,509 |
|
|
|
255 |
|
|
|
2,014 |
|
|
|
|
|
|
|
6,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
11,247 |
|
|
|
1,737 |
|
|
|
5,519 |
|
|
|
|
|
|
|
18,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,409 |
|
|
|
6,178 |
|
|
|
9,689 |
|
|
|
|
|
|
|
17,276 |
|
Interest expense, net |
|
|
(6,633 |
) |
|
|
|
|
|
|
(3,776 |
) |
|
|
|
|
|
|
(10,409 |
) |
Other (expense) income, net |
|
|
(998 |
) |
|
|
(37 |
) |
|
|
31 |
|
|
|
|
|
|
|
(1,004 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(6,222 |
) |
|
|
6,141 |
|
|
|
5,944 |
|
|
|
|
|
|
|
5,863 |
|
(Benefit) provision for income taxes |
|
|
(1,206 |
) |
|
|
1,442 |
|
|
|
1,841 |
|
|
|
|
|
|
|
2,077 |
|
Equity in net income of subsidiaries |
|
|
8,802 |
|
|
|
|
|
|
|
|
|
|
|
(8,802 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3,786 |
|
|
$ |
4,699 |
|
|
$ |
4,103 |
|
|
$ |
(8,802 |
) |
|
$ |
3,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2009 |
|
|
|
|
|
|
|
Total |
|
|
Total Non- |
|
|
Consolidating |
|
|
|
|
|
|
SS&C |
|
|
Guarantors |
|
|
Guarantors |
|
|
Adjustments |
|
|
Total |
|
Revenue |
|
$ |
55,023 |
|
|
$ |
36,984 |
|
|
$ |
39,839 |
|
|
$ |
(873 |
) |
|
$ |
130,973 |
|
Cost of revenue |
|
|
30,635 |
|
|
|
22,858 |
|
|
|
14,973 |
|
|
|
(873 |
) |
|
|
67,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
24,388 |
|
|
|
14,126 |
|
|
|
24,866 |
|
|
|
|
|
|
|
63,380 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling & marketing |
|
|
6,017 |
|
|
|
1,580 |
|
|
|
2,670 |
|
|
|
|
|
|
|
10,267 |
|
Research & development |
|
|
7,297 |
|
|
|
1,687 |
|
|
|
3,640 |
|
|
|
|
|
|
|
12,624 |
|
General & administrative |
|
|
7,712 |
|
|
|
481 |
|
|
|
1,988 |
|
|
|
|
|
|
|
10,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
21,026 |
|
|
|
3,748 |
|
|
|
8,298 |
|
|
|
|
|
|
|
33,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
3,362 |
|
|
|
10,378 |
|
|
|
16,568 |
|
|
|
|
|
|
|
30,308 |
|
Interest expense, net |
|
|
(12,814 |
) |
|
|
|
|
|
|
(5,830 |
) |
|
|
|
|
|
|
(18,644 |
) |
Other (expense) income, net |
|
|
629 |
|
|
|
(333 |
) |
|
|
(1,218 |
) |
|
|
|
|
|
|
(922 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(8,823 |
) |
|
|
10,045 |
|
|
|
9,520 |
|
|
|
|
|
|
|
10,742 |
|
(Benefit) provision for income taxes |
|
|
(2,155 |
) |
|
|
1,890 |
|
|
|
3,618 |
|
|
|
|
|
|
|
3,353 |
|
Equity in net income of subsidiaries |
|
|
14,057 |
|
|
|
|
|
|
|
|
|
|
|
(14,057 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,389 |
|
|
$ |
8,155 |
|
|
$ |
5,902 |
|
|
$ |
(14,057 |
) |
|
$ |
7,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2008 |
|
|
|
|
|
|
|
Total |
|
|
Total Non- |
|
|
Consolidating |
|
|
|
|
|
|
SS&C |
|
|
Guarantors |
|
|
Guarantors |
|
|
Adjustments |
|
|
Total |
|
Revenue |
|
$ |
58,380 |
|
|
$ |
36,825 |
|
|
$ |
46,271 |
|
|
$ |
(758 |
) |
|
$ |
140,718 |
|
Cost of revenue |
|
|
32,267 |
|
|
|
21,550 |
|
|
|
18,280 |
|
|
|
(758 |
) |
|
|
71,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
26,113 |
|
|
|
15,275 |
|
|
|
27,991 |
|
|
|
|
|
|
|
69,379 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling & marketing |
|
|
6,169 |
|
|
|
741 |
|
|
|
3,030 |
|
|
|
|
|
|
|
9,940 |
|
Research & development |
|
|
7,156 |
|
|
|
2,192 |
|
|
|
4,396 |
|
|
|
|
|
|
|
13,744 |
|
General & administrative |
|
|
8,549 |
|
|
|
429 |
|
|
|
3,619 |
|
|
|
|
|
|
|
12,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
21,874 |
|
|
|
3,362 |
|
|
|
11,045 |
|
|
|
|
|
|
|
36,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
4,239 |
|
|
|
11,913 |
|
|
|
16,946 |
|
|
|
|
|
|
|
33,098 |
|
Interest expense, net |
|
|
(12,941 |
) |
|
|
|
|
|
|
(7,896 |
) |
|
|
|
|
|
|
(20,837 |
) |
Other (expense) income, net |
|
|
(1,191 |
) |
|
|
11 |
|
|
|
401 |
|
|
|
|
|
|
|
(779 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(9,893 |
) |
|
|
11,924 |
|
|
|
9,451 |
|
|
|
|
|
|
|
11,482 |
|
(Benefit) provision for income taxes |
|
|
(1,731 |
) |
|
|
2,668 |
|
|
|
3,023 |
|
|
|
|
|
|
|
3,960 |
|
Equity in net income of subsidiaries |
|
|
15,684 |
|
|
|
|
|
|
|
|
|
|
|
(15,684 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,522 |
|
|
$ |
9,256 |
|
|
$ |
6,428 |
|
|
$ |
(15,684 |
) |
|
$ |
7,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2009 |
|
|
|
|
|
|
|
Total |
|
|
Total Non- |
|
|
Consolidating |
|
|
|
|
|
|
SS&C |
|
|
Guarantors |
|
|
Guarantors |
|
|
Adjustments |
|
|
Total |
|
Cash Flow from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,389 |
|
|
$ |
8,155 |
|
|
$ |
5,902 |
|
|
$ |
(14,057 |
) |
|
$ |
7,389 |
|
Non-cash adjustments |
|
|
(2,881 |
) |
|
|
1,689 |
|
|
|
3,374 |
|
|
|
14,057 |
|
|
|
16,239 |
|
Changes in operating assets and liabilities |
|
|
(4,446 |
) |
|
|
3,647 |
|
|
|
(1,924 |
) |
|
|
|
|
|
|
(2,723 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
62 |
|
|
|
13,491 |
|
|
|
7,352 |
|
|
|
|
|
|
|
20,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Investment Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany transactions |
|
|
14,364 |
|
|
|
(14,793 |
) |
|
|
429 |
|
|
|
|
|
|
|
|
|
Additions to property and equipment |
|
|
(388 |
) |
|
|
(29 |
) |
|
|
(204 |
) |
|
|
|
|
|
|
(621 |
) |
Cash paid for business acquisitions, net
of cash acquired |
|
|
(10,456 |
) |
|
|
129 |
|
|
|
|
|
|
|
|
|
|
|
(10,327 |
) |
Proceeds from sale of property and
equipment |
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing
activities |
|
|
3,520 |
|
|
|
(14,693 |
) |
|
|
228 |
|
|
|
|
|
|
|
(10,945 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net repayments of debt |
|
|
(961 |
) |
|
|
|
|
|
|
(192 |
) |
|
|
|
|
|
|
(1,153 |
) |
Transactions involving SS&C Technologies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings, Inc. common stock |
|
|
(184 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(184 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(1,145 |
) |
|
|
|
|
|
|
(192 |
) |
|
|
|
|
|
|
(1,337 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
|
|
|
|
|
|
|
|
1,145 |
|
|
|
|
|
|
|
1,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash
equivalents |
|
|
2,437 |
|
|
|
(1,202 |
) |
|
|
8,533 |
|
|
|
|
|
|
|
9,768 |
|
Cash and cash equivalents, beginning of
period |
|
|
10,329 |
|
|
|
5,180 |
|
|
|
13,790 |
|
|
|
|
|
|
|
29,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
12,766 |
|
|
$ |
3,978 |
|
|
$ |
22,323 |
|
|
$ |
|
|
|
$ |
39,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2008 |
|
|
|
|
|
|
|
Total |
|
|
Total Non- |
|
|
Consolidating |
|
|
|
|
|
|
SS&C |
|
|
Guarantors |
|
|
Guarantors |
|
|
Adjustments |
|
|
Total |
|
Cash Flow from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,522 |
|
|
$ |
9,256 |
|
|
$ |
6,428 |
|
|
$ |
(15,684 |
) |
|
$ |
7,522 |
|
Non-cash adjustments |
|
|
(3,131 |
) |
|
|
1,158 |
|
|
|
4,197 |
|
|
|
15,684 |
|
|
|
17,908 |
|
Changes in operating assets and liabilities |
|
|
(3,277 |
) |
|
|
1,424 |
|
|
|
1,435 |
|
|
|
|
|
|
|
(418 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
1,114 |
|
|
|
11,838 |
|
|
|
12,060 |
|
|
|
|
|
|
|
25,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Investment Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany transactions |
|
|
12,053 |
|
|
|
(12,135 |
) |
|
|
82 |
|
|
|
|
|
|
|
|
|
Additions to property and equipment |
|
|
(1,737 |
) |
|
|
(547 |
) |
|
|
(1,841 |
) |
|
|
|
|
|
|
(4,125 |
) |
Proceeds from sale of property and
equipment |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing
activities |
|
|
10,318 |
|
|
|
(12,682 |
) |
|
|
(1,759 |
) |
|
|
|
|
|
|
(4,123 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net repayments of debt |
|
|
(5,883 |
) |
|
|
|
|
|
|
(5,276 |
) |
|
|
|
|
|
|
(11,159 |
) |
Transactions involving SS&C Technologies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings, Inc. common stock |
|
|
269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(5,614 |
) |
|
|
|
|
|
|
(5,276 |
) |
|
|
|
|
|
|
(10,890 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
|
|
|
|
|
|
|
|
336 |
|
|
|
|
|
|
|
336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash
equivalents |
|
|
5,818 |
|
|
|
(844 |
) |
|
|
5,361 |
|
|
|
|
|
|
|
10,335 |
|
Cash and cash equivalents, beginning of
period |
|
|
9,031 |
|
|
|
1,984 |
|
|
|
8,160 |
|
|
|
|
|
|
|
19,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
14,849 |
|
|
$ |
1,140 |
|
|
$ |
13,521 |
|
|
$ |
|
|
|
$ |
29,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
12. Recent Accounting Pronouncements
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification
(Codification) and the Hierarchy of GAAP (SFAS 168), which replaces SFAS No. 162, The Hierarchy
of GAAP and establishes the Codification as the single source of authoritative U.S. GAAP recognized by
the FASB to be applied by nongovernmental entities. SEC rules and interpretive releases are also sources of
authoritative GAAP for SEC registrants. SFAS 168 modifies the GAAP hierarchy to include only two levels of GAAP: authoritative and nonauthoritative. SFAS 168 is effective beginning for periods ending after September 15, 2009. As SFAS 168 is not intended to change or alter existing GAAP, it will not impact the Companys results of operations, cash flows or financial position.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165). SFAS 165
establishes general standards of accounting for, and disclosure of, events that occur
after the balance sheet date but before financial statements are issued or are available
to be issued. SFAS 165 is effective for the interim or annual financial periods ending
after June 15, 2009. The Company adopted SFAS 165 on June 30, 2009 and such adoption did
not have a material impact on the Companys condensed consolidated financial statements.
The Company evaluated subsequent events through the date the accompanying financial
statements were issued, which was August 14, 2009.
In
April 2009, the FASB issued FSP FAS 107-1 and Accounting
Principles Bulletin (APB) 28-1. This FSP amends SFAS No. 107,
Disclosures about Fair Value of Financial Instruments, to require disclosures about fair
value of financial instruments not measured on the balance sheet at fair value in interim
financial statements as well as in annual financial statements. Prior to this FSP, fair
values for these assets and liabilities were only disclosed annually. This FSP applies to
all financial instruments within the scope of SFAS 107 and requires all entities to
disclose the method(s) and significant assumptions used to estimate the fair value of
financial instruments. The Company adopted FSP FAS 107-1 effective with this filing and
such adoption did not have a material impact on its condensed consolidated financial
statements.
16
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
CRITICAL ACCOUNTING POLICIES
Certain of our accounting policies require the application of significant judgment by our
management, and such judgments are reflected in the amounts reported in our consolidated
financial statements. In applying these policies, our management uses its judgment to
determine the appropriate assumptions to be used in the determination of estimates. Those
estimates are based on our historical experience, terms of existing contracts, managements
observation of trends in the industry, information provided by our clients and information
available from other outside sources, as appropriate. Actual results may differ significantly
from the estimates contained in our consolidated financial statements. There have been no
material changes to our critical accounting estimates and assumptions or the judgments
affecting the application of those estimates and assumptions since the filing of our Annual
Report on Form 10-K for the year ended December 31, 2008. Our critical accounting policies are
described in our annual filing on Form 10-K and include:
|
|
Revenue Recognition |
|
|
|
Allowance for Doubtful Accounts |
|
|
|
Long-Lived Assets, Intangible Assets and Goodwill |
|
|
|
Acquisition Accounting |
|
|
|
Income Taxes |
|
|
|
Stock-based compensation |
Results of Operations for the Three Months and Six Months Ended June 30, 2009 and 2008
The following table sets forth revenues (in thousands) and changes in revenues for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Percent |
|
|
Six Months Ended June 30, |
|
|
Percent |
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses |
|
$ |
3,983 |
|
|
$ |
6,029 |
|
|
|
-34 |
% |
|
$ |
9,803 |
|
|
$ |
12,684 |
|
|
|
-23 |
% |
Maintenance |
|
|
16,066 |
|
|
|
16,281 |
|
|
|
-1 |
% |
|
|
31,606 |
|
|
|
32,638 |
|
|
|
-3 |
% |
Professional services |
|
|
5,393 |
|
|
|
8,111 |
|
|
|
-34 |
% |
|
|
10,589 |
|
|
|
13,379 |
|
|
|
-21 |
% |
Software-enabled
services |
|
|
41,809 |
|
|
|
41,774 |
|
|
|
0 |
% |
|
|
78,975 |
|
|
|
82,017 |
|
|
|
-4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
67,251 |
|
|
$ |
72,195 |
|
|
|
-7 |
% |
|
$ |
130,973 |
|
|
$ |
140,718 |
|
|
|
-7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the percentage of our revenues represented by each of the
following sources of revenues for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses |
|
|
6 |
% |
|
|
8 |
% |
|
|
8 |
% |
|
|
9 |
% |
Maintenance |
|
|
24 |
% |
|
|
23 |
% |
|
|
24 |
% |
|
|
23 |
% |
Professional services |
|
|
8 |
% |
|
|
11 |
% |
|
|
8 |
% |
|
|
10 |
% |
Software-enabled
services |
|
|
62 |
% |
|
|
58 |
% |
|
|
60 |
% |
|
|
58 |
% |
Revenues
Our revenues consist primarily of software-enabled services and maintenance revenues, and,
to a lesser degree, software license and professional services revenues. As a general
matter, our software license and professional services revenues tend to fluctuate based on
the number of new licensing clients, while fluctuations in our software-enabled services
revenues are attributable to the number of new software-enabled services clients as well
as the number of outsourced transactions provided to our existing clients and total assets
under management in our clients portfolios. Maintenance revenues vary
17
based on the rate by which we add or lose maintenance clients over time and, to a lesser
extent, on the annual increases in maintenance fees, which are generally tied to the
consumer price index.
Revenues for the three months ended June 30, 2009 were $67.3 million, decreasing 7% from
$72.2 million in the same period in 2008. The decrease in revenues in the three months
ended June 30, 2009 includes the unfavorable impact from foreign currency translation of
$3.0 million resulting from the strength of the U.S. dollar relative to currencies such as
the Canadian dollar, the British pound, the Australian dollar and the euro. This impact
was offset by revenues from products and services that we acquired through our
acquisitions of MDS in October 2008, Evare in March 2009 and Maximis in May 2009, which
added $4.1 million in revenues in the aggregate. Excluding these items, revenues for businesses and
products that we have owned for at least 12 months, or organic
revenues, decreased 8.3%. Revenues
for the six months ended June 30, 2009 were $131.0 million, decreasing 7% from $140.7
million in the same period in 2008. The decrease in revenues includes the unfavorable
impact from foreign currency translation of $7.2 million, partially offset by
acquisitions, which added $6.1 million in the aggregate. Excluding these items, organic
revenues decreased 6.1%.
Software Licenses. Software license revenues were $4.0 million and $6.0 million for the
three months ended June 30, 2009 and 2008, respectively. Revenues of $0.4 million from
acquisitions partially offset a decrease of $2.3 million in organic software license
revenues and a decrease of $0.1 million related to foreign
currency translation. Software license revenues for the six months ended June 30, 2009 and 2008 were
$9.8 million and $12.7 million, respectively. Revenues of $0.8 million from acquisitions
partially offset a decrease of $3.3 million in organic software
license revenues and a decrease of $0.4 million related to foreign
currency translation.
Software license revenues will vary depending on the timing, size and nature of our
license transactions. For example, the average size of our software license transactions
and the number of large transactions may fluctuate on a period-to-period basis. For the
three months ended June 30, 2009, both the number and the average size of perpetual
license transactions decreased from those for the three months ended June 30, 2008, and
revenues from term licenses decreased approximately 7%. For the six months ended June 30,
2009, the average size of perpetual license transactions was consistent with those for the
six months ended June 30, 2008, while the number of perpetual license transactions
decreased. Revenues from term licenses for the six month period were consistent with the
prior year. Additionally, software license revenues will vary among the various products
that we offer, due to differences such as the timing of new releases and variances in
economic conditions affecting opportunities in the vertical markets served by such
products.
Maintenance. Maintenance revenues were $16.1 million and $16.3 million for the three
months ended June 30, 2009 and 2008, respectively. The decrease in revenues includes the
unfavorable impact from foreign currency translation of $0.5 million, offset by
acquisitions, which added $0.8 million in the aggregate. Excluding these items, organic
revenues decreased $0.5 million, or 3%. Maintenance revenues for the six months ended June
30, 2009 and 2008 were $31.6 million and $32.6 million, respectively. Revenues of $1.4
million from acquisitions were partially offset by a decrease of $1.2 million related to
foreign currency translation. Excluding these items, organic revenues decreased $1.2
million, or 4%. Client maintenance renewals and annual maintenance fee increases, which
are generally tied to the percentage change in the consumer price index, were not as
favorable as they have been historically. We typically provide maintenance services under
one-year renewable contracts that provide for an annual increase in fees. Future
maintenance revenue growth is dependent on our ability to retain existing clients, add new
license clients, and increase average maintenance fees.
Professional Services. Professional services revenues were $5.4 million and $8.1 million
for the three months ended June 30, 2009 and 2008, respectively.
Revenues of $0.7 million
from acquisitions were partially offset by a decrease of $0.3 million related to the
unfavorable impact from foreign currency translation. Organic
revenues decreased $3.1 million, exclusive of these items. Professional services revenues for the six months ended
June 30, 2009 and 2008 were $10.6 million and $13.4 million, respectively. The decrease in
revenues includes the unfavorable impact from foreign currency translation of $0.8
million, offset by acquisitions, which added $1.4 million. Excluding these items, organic
revenues decreased $3.4 million. The decrease in revenues for both periods was primarily
due to one significant professional services project that commenced during the first
quarter of 2008 and was completed during 2008. Our overall software license revenue levels
and market demand for professional services will continue to have an effect on our
professional services revenues.
Software-Enabled Services. Software-enabled services revenues were $41.8 million for each of
the three-month periods ended June 30, 2009 and 2008. The unfavorable impact from foreign
currency translation of $2.1 million was offset by our acquisition of Evare, which added $2.2
million. Excluding these items, organic revenues decreased $0.1 million. Software-enabled
services revenues for the six months ended June 30, 2009 and 2008 were $79.0 million and $82.0
million, respectively. The decrease in revenues includes the unfavorable impact from foreign
currency translation of $4.8 million, offset by our
18
acquisition of Evare, which added $2.5 million. Excluding these items, organic revenues
decreased $0.7 million. Future software-enabled services revenue growth is dependent on our
ability to retain existing clients, add new clients and increase average fees, as well as
growth in our clients assets under management.
Cost of Revenues
The total cost of revenues was $34.5 million and $36.4 million for the three months ended
June 30, 2009 and 2008, respectively. The gross margin was 49% for the three months ended
June 30, 2009 compared to 50% for the comparable period in 2008. Primarily as a result of
our workforce reduction in the fourth quarter of 2008, we reduced our costs of revenues by
$2.3 million as we aligned our costs with the anticipated decline in revenues. The impact
of foreign currency translation reduced cost of revenues by $1.5 million. Stock-based
compensation decreased by $0.2 million, as a lower valuation was ascribed to the 2009
performance-based options as compared to the 2008 performance-based options. These cost
reductions were partially offset by our acquisitions of MDS in October 2008, Evare and
Maximis, which added costs of $2.1 million. The total cost of revenues for the six months
ended June 30, 2009 and 2008 was $67.6 million and $71.3
million, respectively. The gross margin was 48% for the six months
ended June 30, 2009 compared to 49% for the comparable period in 2008. The impact of foreign currency translation
reduced cost of revenues by $3.9 million and we reduced our costs of revenues
by $3.2 million, mainly in cost of software-enabled services revenues and cost of
professional services revenues. Additionally, stock-based
compensation expense decreased $0.2 million. These cost reductions were partially
offset by our acquisitions, which added costs of $3.6 million.
Cost of Software Licenses. Cost of software license revenues consists primarily of
amortization expense of completed technology, royalties, third-party software, and the
costs of product media, packaging and documentation. The cost of software licenses was
$2.1 million and $2.3 million for the three months ended June 30, 2009 and 2008,
respectively. A decrease in costs of $0.3 million, primarily related
to amortization of intangible assets that existed at the date of the
Transaction, was partially offset by an increase of $0.2 million
related to acquisitions. The impact of foreign currency translation
further reduced costs by $0.1 million. The cost of software licenses for the six months ended June 30, 2009 and
2008 was $4.2 million and $4.6 million, respectively. A
decrease in costs of $0.5 million, primarily amortization, and a
decrease in costs of $0.2 million related to foreign currency
translation, was partially offset by an increase of $0.3 million
related to acquisitions.
Cost of Maintenance. Cost of maintenance revenues consists primarily of technical client
support, costs associated with the distribution of products and regulatory updates and
amortization of intangible assets. The cost of maintenance revenues was $6.9 million and
$6.6 million for the three months ended June 30, 2009 and 2008, respectively. The
increase in costs was due to our acquisitions, which added $0.3 million in costs,
partially offset by a decrease in costs of $0.2 million related to foreign currency
translation. Excluding these items, costs to support organic revenues
increased $0.2 million. Cost of maintenance revenues as a percentage of these revenues was 43% for the
three months ended June 30, 2009 compared to 41% for the three months ended June 30, 2008.
The cost of maintenance revenues was $13.3 million for the each of the six months ended
June 30, 2009 and 2008. An increase of $0.6 million due to
our acquisitions was offset by a decrease in costs of $0.6 million related to foreign currency translation. Cost of maintenance revenues as a percentage of these revenues was 42% for
the six months ended June 30, 2009 compared to 41% for the six
months ended June 30, 2008.
Cost of Professional Services. Cost of professional services revenues consists primarily
of the cost related to personnel utilized to provide implementation, conversion and
training services to our software licensees, as well as system integration, custom
programming and actuarial consulting services. The cost of professional services revenues
was $3.5 million and $4.6 million for the three months ended June 30, 2009 and 2008,
respectively. Cost reductions of $1.4 million and a decrease of $0.2 million related to
foreign currency translation were partially offset by our
acquisitions, which added $0.5 million in costs. The cost of professional services revenues for the six months ended June
30, 2009 and 2008 was $7.5 million and $8.1 million,
respectively. Cost reductions of $1.3 million and a decrease of $0.6 million related to foreign currency translation were
partially offset by our acquisitions, which added $1.3 million in costs. Cost of
professional services revenues in both prior year periods reflected increased
personnel-related costs to support a significant implementation project that was completed
during 2008.
Cost of Software-Enabled Services. Cost of software-enabled services revenues consists
primarily of the cost related to personnel utilized in servicing our software-enabled
services clients and amortization of intangible assets. The cost of software-enabled
services revenues was $22.0 million and $22.9 million for the three months ended June 30,
2009 and 2008, respectively. Primarily as a result of our workforce reduction in the
fourth quarter of 2008, we reduced our costs by $0.8 million. Additionally, the impact of
foreign currency translation reduced costs by $1.0 million and stock-based
19
compensation decreased by $0.2 million. These decreases were partially offset by our
acquisitions, which added $1.1 million in costs. The cost of software-enabled services
revenues for the six months ended June 30, 2009 and 2008 was $42.6 million and $45.3
million, respectively. A decrease in costs of $1.4 million and a
decrease of $2.5 million
related to foreign currency translation were partially offset by our acquisitions, which
added $1.4 million in costs. Additionally, stock-based
compensation expense decreased $0.2 million.
Operating Expenses
Total operating expenses were $16.9 million and $18.5 million for the three months ended
June 30, 2009 and 2008, respectively. The decrease in total operating expenses was
primarily due to a reduction of $1.8 million in costs, as we reduced spending in
anticipation of the decrease in organic revenues, and a decrease of
$0.7 million related
to foreign currency translation. Additionally, stock-based compensation expense decreased
$0.3 million, as a lower valuation was ascribed to the 2009 performance-based options as
compared to the 2008 performance-based options. These decreases were offset by our
acquisitions of MDS, Evare and Maximis, which added $1.1 million in costs, and $0.1
million in professional fees related to pursuing acquisitions. Total operating expenses
for the six months ended June 30, 2009 and 2008 were $33.1 million and $36.3 million,
respectively. A reduction of $2.9 million in costs, a decrease
of $1.7 million related to
foreign currency translation and a decrease of $0.3 million in stock-based compensation
expense were partially offset by our acquisitions, which added
$1.5 million, and $0.2 million in professional fees related
to pursuing acquisitions. Total operating expenses as a percentage of total revenues decreased to 25%
for 2009 periods from 26% for the 2008 periods.
Selling and Marketing. Selling and marketing expenses consist primarily of the personnel
costs associated with the selling and marketing of our products, including salaries,
commissions and travel and entertainment. Such expenses also include amortization of
intangible assets, the cost of branch sales offices, trade shows and marketing and
promotional materials. Selling and marketing expenses were $5.0 million and $4.9 million
for the three months ended June 30, 2009 and 2008, respectively, representing 7% of total
revenues in each of those periods. A decrease of $0.2 million related to foreign currency
translation and a reduction of $0.1 million in costs were offset by our acquisitions,
which added $0.4 million in costs. Selling and marketing expenses for the six months ended
June 30, 2009 and 2008 were $10.3 million and $9.9 million, respectively, representing 8%
and 7% of total revenues in those periods, respectively. A decrease
in costs of $0.6 million related to foreign currency translation was offset by our acquisitions, which
added $0.6 million in costs, and an increase in costs of
$0.4 million, primarily amortization expense.
Research and Development. Research and development expenses consist primarily of
personnel costs attributable to the enhancement of existing products and the development
of new software products. Research and development expenses were $6.8 million for each of
the three months ended June 30, 2009 and 2008, representing 10% and 9% of total revenues
in those periods, respectively. A decrease of $0.3 million in costs and a decrease of $0.3
million related to foreign currency translation were offset by our acquisitions, which
added $0.6 million in costs. Research and development expenses for the six months ended
June 30, 2009 and 2008 were $12.6 million and $13.7 million, respectively, representing
10% of total revenues in each those periods. A decrease of $1.0 million in costs and a
decrease of $0.7 million related to foreign currency translation were offset by our
acquisitions, which added $0.6 million in costs.
General and Administrative. General and administrative expenses consist primarily of
personnel costs related to management, accounting and finance, information management,
human resources and administration and associated overhead costs, as well as fees for
professional services. General and administrative expenses were $5.1 million and $6.8
million for the three months ended June 30, 2009 and 2008, respectively, representing 8%
and 9% of total revenues in those periods, respectively. The decrease in general and
administrative expenses was primarily related to a reduction of $1.7 million in costs,
primarily personnel-related, decrease of $0.2 million in stock-based compensation expense
and a decrease of $0.1 million related to foreign currency translation, partially offset
by our acquisitions, which added $0.2 million in costs, and professional fees of $0.1
million related to pursuing acquisitions. General and administrative expenses for the six months
ended June 30, 2009 and 2008 were $10.2 million and $12.6 million, respectively,
representing 8% and 9% of total revenues in those periods,
respectively. A reduction of
$2.2 million in costs, a decrease of $0.4 million related to foreign currency translation
and a decrease of $0.2 million in stock-based compensation expense were partially offset
by our acquisitions, which added $0.2 million in costs, and professional fees of $0.2
million related to pursuing acquisitions.
Interest Expense. Net interest expense for the three months ended June 30, 2009 and 2008
was $9.3 million and $10.4 million, respectively. Net interest expense was $18.6 million
and $20.8 million for the six months ended June 30, 2009 and 2008, respectively. Interest
expense is primarily related to interest expense on debt outstanding under our senior
credit
20
facility and 11 3/4% senior subordinated notes due 2013. The decrease in interest expense
is due to a decrease in outstanding debt and lower average interest rates for both 2009
periods.
Other Expense, Net. Other expense, net for the three months and six months ended June
30, 2009 consisted primarily of foreign currency losses. Other expense, net for the three
months ended June 30, 2008 consisted primarily of a $1.0 million loss we recorded relating
to our investment in a private company which we accounted for under the equity method of
accounting. Other expense, net for the six months ended June 30, 2008 consists primarily
of the $1.0 million loss on investment offset in part by foreign currency gains.
Provision for Income Taxes. We had effective tax rates of 31.2% and 34.5% for the six
months ended June 30, 2009 and 2008, respectively. The effective tax rate for the balance
of the year is expected to be between 30% and 35%.
Liquidity and Capital Resources
Our principal cash requirements are to finance the costs of our operations pending the
billing and collection of client receivables, to fund payments with respect to our
indebtedness, to invest in research and development and to acquire complementary
businesses or assets. We expect our cash on hand, cash flows from operations and
availability under the revolving credit portion of our senior credit facilities to provide
sufficient liquidity to fund our current obligations, projected working capital
requirements and capital spending for at least the next twelve months.
Our cash
and cash equivalents at June 30, 2009 were $39.1 million, an increase of $9.8 million from $29.3 million at December 31, 2008. Cash provided by operations was partially
offset by net repayments of debt, cash used for acquisitions and capital expenditures.
Net cash provided by operating activities was $20.9 million for the six months ended June
30, 2009. Cash provided by operating activities was primarily due to net income of $7.4
million adjusted for non-cash items of $16.2 million partially offset by changes in our
working capital accounts totaling $2.7 million. The changes in our working capital
accounts were driven by decreases in accrued expenses and income taxes payable, partially
offset by an increase in deferred revenues and decreases in accounts receivable and
prepaid expenses and other assets. The decrease in accrued expenses was primarily due to
the payment of annual employee bonuses. The increase in deferred revenues was primarily
due to the collection of annual maintenance fees and a significant term license fee billed
in June. The decrease in accounts receivable was primarily due to the timing of
collections.
Investing activities used net cash of $10.9 million for the six months ended June 30,
2009, primarily related to the $10.4 million cash paid for our acquisitions of MAXIMIS and
Evare, offset in part by a $0.1 million adjustment to the MDS purchase price. Capital
expenditures accounted for the remaining $0.6 million.
Financing activities used net cash of $1.3 million for the six months ended June 30, 2009,
representing net repayments of debt under our senior credit facilities and the repurchase
of Holdings common stock in connection with stock option exercises.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.
Senior Credit Facilities
Our borrowings under the senior credit facilities bear interest at either a floating base
rate or a Eurocurrency rate plus, in each case, an applicable margin. In addition, we pay
a commitment fee in respect of unused revolving commitments at a rate that will be
adjusted based on our leverage ratio. We are obligated to make quarterly principal
payments on the term loan totaling $2.1 million per year. Subject to certain exceptions,
thresholds and other limitations, we are required to prepay outstanding loans under the
senior credit facilities with the net proceeds of certain asset dispositions and certain
debt issuances and 50% of our excess cash flow (as defined in the agreements governing our
senior credit facilities), which percentage will be reduced based on our reaching certain
leverage ratio thresholds.
21
The obligations under our senior credit facilities are guaranteed by Holdings and all of
our existing and future material wholly-owned U.S. subsidiaries, with certain exceptions
as set forth in our credit agreement. The obligations of the Canadian borrower are
guaranteed by Holdings, us and each of our U.S. and Canadian subsidiaries, with certain
exceptions as set forth in the credit agreement. The obligations under the senior credit
facilities are secured by a perfected first priority security interest in all of our
capital stock and all of the capital stock or other equity interests held by Holdings, us
and each of our existing and future U.S. subsidiary guarantors (subject to certain
limitations for equity interests of foreign subsidiaries and other exceptions as set forth
in our credit agreement) and all of Holdings and our tangible and intangible assets and
the tangible and intangible assets of each of our existing and future U.S. subsidiary
guarantors, with certain exceptions as set forth in the credit agreement. The Canadian
borrowers borrowings under the senior credit facilities and all guarantees thereof are
secured by a perfected first priority security interest in all of our capital stock and
all of the capital stock or other equity interests held by Holdings, us and each of our
existing and future U.S. and Canadian subsidiary guarantors, with certain exceptions as
set forth in the credit agreement, and all of Holdings and our tangible and intangible
assets and the tangible and intangible assets of each of our existing and future U.S. and
Canadian subsidiary guarantors, with certain exceptions as set forth in the credit
agreement.
The senior credit facilities contain a number of covenants that, among other things,
restrict, subject to certain exceptions, our (and our restricted subsidiaries) ability to
incur additional indebtedness, pay dividends and distributions on capital stock, create
liens on assets, enter into sale and lease-back transactions, repay subordinated
indebtedness, make capital expenditures, engage in certain transactions with affiliates,
dispose of assets and engage in mergers or acquisitions. In addition, under the senior
credit facilities, we are required to satisfy and maintain a maximum total leverage ratio
and a minimum interest coverage ratio. We were in compliance with all covenants at June
30, 2009.
11 3/4% Senior Subordinated Notes due 2013
The 11 3/4% senior subordinated notes due 2013 are unsecured senior subordinated obligations
that are subordinated in right of payment to all existing and future senior debt,
including the senior credit facilities. The senior subordinated notes will be pari passu
in right of payment to all future senior subordinated debt.
The senior subordinated notes are redeemable in whole or in part, at our option, at any
time at varying redemption prices that generally include premiums, which are defined in
the indenture. In addition, upon a change of control, we are required to make an offer to
redeem all of the senior subordinated notes at a redemption price equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest.
The indenture governing the senior subordinated notes contains a number of covenants that
restrict, subject to certain exceptions, our ability and the ability of our restricted
subsidiaries to incur additional indebtedness, pay dividends, make certain investments,
create liens, dispose of certain assets and engage in mergers or acquisitions.
Covenant Compliance
Under the senior credit facilities, we are required to satisfy and maintain specified
financial ratios and other financial condition tests. As of June 30, 2009, we were in
compliance with the financial and non-financial covenants. Our continued ability to meet these
financial ratios and tests can be affected by events beyond our control, and we cannot assure
you that we will meet these ratios and tests. A breach of any of these covenants could result
in a default under the senior credit facilities. Upon the occurrence of any event of default
under the senior credit facilities, the lenders could elect to declare all amounts outstanding
under the senior credit facilities to be immediately due and payable and terminate all
commitments to extend further credit.
Consolidated EBITDA is a non-GAAP financial measure used in key financial covenants contained
in our senior credit facilities, which are material facilities supporting our capital
structure and providing liquidity to our business. Consolidated EBITDA is defined as earnings
before interest, taxes, depreciation and amortization (EBITDA), further adjusted to exclude
unusual items and other adjustments permitted in calculating covenant compliance under our
senior credit facilities. We believe that the inclusion of supplementary adjustments to EBITDA
applied in presenting Consolidated EBITDA is appropriate to provide additional information to
investors to demonstrate compliance with the specified financial ratios and other financial
condition tests contained in our senior credit facilities.
Management uses Consolidated EBITDA to gauge the costs of our capital structure on a
day-to-day basis when full financial statements are unavailable. Management further believes
that providing this information allows our investors greater transparency and a better
understanding of our ability to meet our debt service obligations and make capital
expenditures.
22
The breach of covenants in our senior credit facilities that are tied to ratios based on
Consolidated EBITDA could result in a default under that agreement, in which case the lenders
could elect to declare all amounts borrowed due and payable and to terminate any commitments
they have to provide further borrowings. Any such acceleration would also result in a default
under our indenture. Any default and subsequent acceleration of payments under our debt
agreements would have a material adverse effect on our results of operations, financial
position and cash flows. Additionally, under our debt agreements, our ability to engage in
activities such as incurring additional indebtedness, making investments and paying dividends
is also tied to ratios based on Consolidated EBITDA.
Consolidated EBITDA does not represent net income or cash flow from operations as those terms
are defined by GAAP and does not necessarily indicate whether cash flows will be sufficient to
fund cash needs. Further, our senior credit facilities require that Consolidated EBITDA be
calculated for the most recent four fiscal quarters. As a result, the measure can be
disproportionately affected by a particularly strong or weak quarter. Further, it may not be
comparable to the measure for any subsequent four-quarter period or any complete fiscal year.
Consolidated EBITDA is not a recognized measurement under GAAP, and investors should not
consider Consolidated EBITDA as a substitute for measures of our financial performance and
liquidity as determined in accordance with GAAP, such as net income, operating income or net
cash provided by operating activities. Because other companies may calculate Consolidated
EBITDA differently than we do, Consolidated EBITDA may not be comparable to similarly titled
measures reported by other companies. Consolidated EBITDA has other limitations as an
analytical tool, when compared to the use of net income (loss), which is the most directly
comparable GAAP financial measure, including:
|
|
|
Consolidated EBITDA does not reflect the provision of income tax expense in
our various jurisdictions; |
|
|
|
|
Consolidated EBITDA does not reflect the significant interest expense we
incur as a result of our debt leverage; |
|
|
|
|
Consolidated EBITDA does not reflect any attribution of costs to our
operations related to our investments and capital expenditures through
depreciation and amortization charges; |
|
|
|
|
Consolidated EBITDA does not reflect the cost of compensation we provide to
our employees in the form of stock option awards; and |
|
|
|
|
Consolidated EBITDA excludes expenses that we believe are unusual or
non-recurring, but which others may believe are normal expenses for the
operation of a business. |
The following is a reconciliation of net income to Consolidated EBITDA as defined in our
senior credit facilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
Twelve Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
Ended |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
June 30, 2009 |
|
Net income |
|
$ |
3,491 |
|
|
$ |
3,786 |
|
|
$ |
7,389 |
|
|
$ |
7,522 |
|
|
$ |
18,668 |
|
Interest expense, net |
|
|
9,294 |
|
|
|
10,409 |
|
|
|
18,644 |
|
|
|
20,837 |
|
|
|
38,937 |
|
Income taxes |
|
|
1,571 |
|
|
|
2,077 |
|
|
|
3,353 |
|
|
|
3,960 |
|
|
|
6,539 |
|
Depreciation and amortization |
|
|
9,025 |
|
|
|
8,726 |
|
|
|
17,598 |
|
|
|
17,724 |
|
|
|
34,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
23,381 |
|
|
$ |
24,998 |
|
|
$ |
46,984 |
|
|
$ |
50,043 |
|
|
$ |
99,056 |
|
Purchase accounting adjustments (1) |
|
|
(54 |
) |
|
|
(69 |
) |
|
|
(105 |
) |
|
|
(148 |
) |
|
|
(246 |
) |
Unusual or non-recurring charges (2) |
|
|
1,755 |
|
|
|
1,593 |
|
|
|
1,283 |
|
|
|
1,368 |
|
|
|
1,395 |
|
Acquired EBITDA and cost savings (3) |
|
|
857 |
|
|
|
|
|
|
|
2,025 |
|
|
|
|
|
|
|
5,007 |
|
Stock-based compensation |
|
|
1,525 |
|
|
|
2,019 |
|
|
|
2,794 |
|
|
|
3,308 |
|
|
|
6,809 |
|
Capital-based taxes |
|
|
342 |
|
|
|
299 |
|
|
|
676 |
|
|
|
715 |
|
|
|
1,173 |
|
Other (4) |
|
|
295 |
|
|
|
327 |
|
|
|
640 |
|
|
|
720 |
|
|
|
1,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated EBITDA |
|
$ |
28,101 |
|
|
$ |
29,167 |
|
|
$ |
54,297 |
|
|
$ |
56,006 |
|
|
$ |
114,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Purchase accounting adjustments include an adjustment to increase rent expense
by the amount that would have been recognized if lease obligations were not adjusted
to fair value at the date of the Transaction. |
23
|
|
|
(2) |
|
Unusual or non-recurring charges include foreign currency gains and losses,
expenses related to the withdrawn public
offering, severance expenses associated with workforce reduction, equity earnings and
losses on investments, proceeds from legal and other settlements and other one-time
expenses. |
|
(3) |
|
Acquired EBITDA and cost savings reflects the EBITDA impact of significant
businesses that were acquired during the period as if the acquisitions occurred at the
beginning of the period and cost savings to be realized from such acquisitions. |
|
(4) |
|
Other includes management fees and related expenses paid to Carlyle and the
non-cash portion of straight-line rent expense. |
Our covenant restricting capital expenditures for year ending December 31, 2009 limits
expenditures to $17.5 million. Actual capital expenditures through June 30, 2009 were
$0.6 million. Our covenant requirements for total leverage ratio and minimum interest
coverage ratio and the actual ratios for the twelve months ended June 30, 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Covenant |
|
Actual |
|
|
Requirements |
|
Ratios |
|
|
|
|
|
|
|
|
|
Maximum consolidated total leverage to Consolidated EBITDA Ratio |
|
|
5.50x |
|
|
|
3.32x |
|
Minimum Consolidated EBITDA to consolidated net interest coverage ratio |
|
|
2.00x |
|
|
|
3.12x |
|
Recent Accounting Pronouncements
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification
(Codification) and the Hierarchy of GAAP (SFAS 168), which replaces SFAS No. 162, The Hierarchy
of GAAP and establishes the Codification as the single source of authoritative U.S. GAAP recognized by
the FASB to be applied by nongovernmental entities. SEC rules and interpretive releases are also sources of
authoritative GAAP for SEC registrants. SFAS 168 modifies the GAAP hierarchy to include only two
levels of GAAP: authoritative and nonauthoritative. SFAS 168 is effective beginning for periods ending
after September 15, 2009. As SFAS 168 is not intended to change or alter existing GAAP, it will not
impact our results of operations, cash flows or financial position.
In
May 2009, the FASB issued SFAS No. 165. SFAS 165
establishes general standards of accounting for, and disclosure of, events that occur
after the balance sheet date but before financial statements are issued or are available
to be issued. SFAS 165 is effective for the interim or annual financial periods ending
after June 15, 2009. We adopted SFAS 165 on June 30, 2009 and such adoption did not have
a material impact on our condensed consolidated financial statements. We evaluated
subsequent events through the date the accompanying financial statements were issued,
which was August 14, 2009.
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1. This FSP amends SFAS No. 107,
Disclosures about Fair Value of Financial Instruments, to require disclosures about fair
value of financial instruments not measured on the balance sheet at fair value in interim
financial statements as well as in annual financial statements. Prior to this FSP, fair
values for these assets and liabilities were only disclosed annually. This FSP applies to
all financial instruments within the scope of SFAS 107 and requires all entities to
disclose the method(s) and significant assumptions used to estimate the fair value of
financial instruments. We adopted FSP FAS 107-1 effective with this filing and such
adoption did not have a material impact on our condensed consolidated financial
statements.
24
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We do not use derivative financial instruments for trading or speculative purposes. We
have invested our available cash in short-term, highly liquid financial instruments,
having initial maturities of three months or less. When necessary we have borrowed to fund
acquisitions.
At June 30, 2009, excluding capital leases, we had total debt of $409.5 million, including
$204.5 million of variable interest rate debt. We have entered into an interest rate swap
agreement having a notional value of $100 million that effectively fixes our interest rate
at 6.78% and expires in December 2010. During the period when this swap agreement is
effective, a 1% change in interest rates would result in a change in interest expense of
approximately $1.0 million per year. Upon the expiration of the interest rate swap
agreement in December 2010, a 1% change in interest rates would result in a change in
interest expense of approximately $2.0 million per year.
At June 30, 2009, $38.1 million of our debt was denominated in Canadian dollars. We expect
that our foreign denominated debt will be serviced through our Canadian operations.
During 2008, approximately 39% of our revenues were from clients located outside the
United States. A portion of the revenues from clients located outside the United States is
denominated in foreign currencies, the majority being the Canadian dollar. Revenues and
expenses of our foreign operations are denominated in their respective local currencies.
We continue to monitor our exposure to foreign exchange rates as a result of our foreign
currency denominated debt, our acquisitions and changes in our operations.
The foregoing risk management discussion and the effect thereof are forward-looking
statements. Actual results in the future may differ materially from these projected
results due to actual developments in global financial markets. The analytical methods
used by us to assess and minimize risk discussed above should not be considered
projections of future events or losses.
Item 4T. Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial
officer, evaluated the effectiveness of our disclosure controls and procedures as of June
30, 2009. The term disclosure controls and procedures, as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(Exchange Act), means controls and other
procedures of a company that are designed to ensure that information required to be
disclosed by the company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the
SECs rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be disclosed by a
company in the reports that it files or submits under the Exchange Act is accumulated and
communicated to the companys management, including its principal executive and principal
financial officers, as appropriate to allow timely decisions regarding required
disclosure. Management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving their objectives
and management necessarily applies its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Based on the evaluation of our
disclosure controls and procedures as of June 30, 2009, our chief executive officer and
chief financial officer concluded that, as of such date, our disclosure controls and
procedures were effective at the reasonable assurance level.
There have not been any changes in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the
quarter ended June 30, 2009, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
25
PART II OTHER INFORMATION
Item 1. Legal Proceedings
On May 1, 2009, we and our parent, SS&C Technologies Holdings, Inc. (collectively we or
us) were served with a class action and verified derivative complaint filed against us and other
defendants in the U.S. District Court for the Southern District of New York in In re Tremont
Securities Law, State Law and Insurance Litigation. On June 4, 2009, we filed a motion to
dismiss the plaintiffs claims, on which the court has not yet ruled. Subsequent to our filing of
the motion to dismiss, the plaintiffs offered to dismiss their claims against us without prejudice,
subject to agreement on the terms and execution of a stipulation of dismissal and tolling
agreement (extending the statute of limitations on the plaintiffs claims for a limited period) and
approval of the court. The plaintiffs derivative claims against us alleged breach of fiduciary
duty and professional negligence in our duties as administrator to two of the Rye group of funds,
which the plaintiffs alleged provided Bernard L. Madoff with infusions of assets and were
operated through defendant Tremont Group Holdings, Inc. as part of the MassMutual Financial
Group. The plaintiffs complaint sought class certification, compensatory damages against all
defendants, jointly and severally, prejudgment interest, punitive damages and costs.
From time to time, we are subject to certain other legal proceedings and claims that arise in the
normal course of our business. In the opinion of management, we are
not a party to any such litigation
that we believe could have a material effect on us or our business.
Item 1A. Risk Factors
There have been no material changes to our Risk Factors as previously disclosed in our
Annual Report on Form 10-K for the year ended December 31, 2008.
Item 6. Exhibits
The exhibits listed in the Exhibit Index immediately preceding such exhibits are filed as
part of this Quarterly Report on Form 10-Q.
26
SIGNATURE
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.
|
|
|
|
|
|
SS&C TECHNOLOGIES, INC.
|
|
Date: August 14, 2009 |
By: |
/s/ Patrick J. Pedonti
|
|
|
|
Patrick J. Pedonti |
|
|
|
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
27
Exhibit Index
|
|
|
Exhibit |
|
|
Number |
|
Description |
31.1
|
|
Certification of the Registrants Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2
|
|
Certification of the Registrants Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32
|
|
Certification of the Registrants Chief Executive Officer
and Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
28