Attached files
file | filename |
---|---|
EX-31.1 - EXHIBIT 31.1 - SUNGARD DATA SYSTEMS INC | c91952exv31w1.htm |
EX-32.1 - EXHIBIT 32.1 - SUNGARD DATA SYSTEMS INC | c91952exv32w1.htm |
EX-10.7 - EXHIBIT 10.7 - SUNGARD DATA SYSTEMS INC | c91952exv10w7.htm |
EX-12.1 - EXHIBIT 12.1 - SUNGARD DATA SYSTEMS INC | c91952exv12w1.htm |
EX-31.2 - EXHIBIT 31.2 - SUNGARD DATA SYSTEMS INC | c91952exv31w2.htm |
EX-32.2 - EXHIBIT 32.2 - SUNGARD DATA SYSTEMS INC | c91952exv32w2.htm |
EX-10.4 - EXHIBIT 10.4 - SUNGARD DATA SYSTEMS INC | c91952exv10w4.htm |
EX-10.6 - EXHIBIT 10.6 - SUNGARD DATA SYSTEMS INC | c91952exv10w6.htm |
EX-10.5 - EXHIBIT 10.5 - SUNGARD DATA SYSTEMS INC | c91952exv10w5.htm |
Table of Contents
United States
Securities and Exchange Commission
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2009
OR
o | Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission file numbers:
SunGard Capital Corp.
|
000-53653 | |
SunGard Capital Corp. II
|
000-53654 | |
SunGard Data Systems Inc.
|
1-12989 |
SunGard® Capital Corp.
SunGard® Capital Corp. II
SunGard® Data Systems Inc.
SunGard® Capital Corp. II
SunGard® Data Systems Inc.
(Exact name of registrant as specified in its charter)
Delaware | 20-3059890 | |
Delaware | 20-3060101 | |
Delaware | 51-0267091 | |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
680 East Swedesford Road, Wayne, Pennsylvania 19087
(Address of principal executive offices, including zip code)
(Address of principal executive offices, including zip code)
484-582-2000
(Registrants telephone number, including area code)
(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.
SunGard Capital Corp.
|
Yes þ No o | |
SunGard Capital Corp. II
|
Yes þ No o | |
SunGard Data Systems Inc.
|
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
SunGard Capital Corp.
|
Yes o No o | |
SunGard Capital Corp. II
|
Yes o No o | |
SunGard Data Systems Inc.
|
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.
SunGard Capital Corp.
Large accelerated filer o. | Accelerated filer o. | Non-accelerated filer þ. (Do not check if a smaller reporting company) |
Smaller reporting company o. |
SunGard Capital Corp.II
Large accelerated filer o. | Accelerated filer o. | Non-accelerated filer þ. (Do not check if a smaller reporting company) |
Smaller reporting company o. |
SunGard Data Systems Inc.
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).
SunGard Capital Corp.
|
Yes o No þ | |
SunGard Capital Corp. II
|
Yes o No þ | |
SunGard Data Systems Inc.
|
Yes o No þ |
The number of shares of the registrants common stock outstanding as of September 30, 2009:
SunGard Capital Corp.
|
254,801,732 shares of Class A common stock and 28,311,258 shares of Class L common stock | |
SunGard Capital Corp. II
|
100 shares of common stock (100% owned by SunGard Capital Corp.) | |
SunGard Data Systems Inc.
|
100 shares of common stock |
SunGard Capital Corp.
SunGard Capital Corp. II
SunGard Data Systems Inc.
And Subsidiaries
SunGard Capital Corp. II
SunGard Data Systems Inc.
And Subsidiaries
Index
Page | ||||||||
SunGard Capital Corp. |
||||||||
2 | ||||||||
3 | ||||||||
4 | ||||||||
SunGard Capital Corp. II |
||||||||
5 | ||||||||
6 | ||||||||
7 | ||||||||
SunGard Data Systems Inc. |
||||||||
8 | ||||||||
9 | ||||||||
10 | ||||||||
11 | ||||||||
23 | ||||||||
32 | ||||||||
32 | ||||||||
33 | ||||||||
33 | ||||||||
33 | ||||||||
33 | ||||||||
33 | ||||||||
33 | ||||||||
33 | ||||||||
35 | ||||||||
Exhibit 10.4 | ||||||||
Exhibit 10.5 | ||||||||
Exhibit 10.6 | ||||||||
Exhibit 10.7 | ||||||||
Exhibit 12.1 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
Table of Contents
Part I. FINANCIAL INFORMATION
Explanatory Note
This Form 10-Q is a combined quarterly report being filed separately by three registrants: SunGard
Capital Corp. (SCC), SunGard Capital Corp. II (SCCII) and SunGard Data Systems Inc.
(SunGard). SCC and SCC II are collectively referred to as the Parent Companies. Unless the
context indicates otherwise, any reference in this report to the Company, we, us and our
refer to the Parent Companies together with their direct and indirect subsidiaries, including
SunGard. Each registrant hereto is filing on its own behalf all of the information contained in
this quarterly report that relates to such registrant. Each registrant hereto is not filing any
information that does not relate to such registrant, and therefore makes no representation as to
any such information.
1
Table of Contents
Item 1. Financial Statements
SunGard Capital Corp.
Consolidated Balance Sheets
(In millions except share and per-share amounts)
(Unaudited)
Consolidated Balance Sheets
(In millions except share and per-share amounts)
(Unaudited)
December 31, | September 30, | |||||||
2008 | 2009 | |||||||
Assets |
||||||||
Current: |
||||||||
Cash and cash equivalents |
$ | 975 | $ | 479 | ||||
Trade receivables, less allowance for doubtful accounts of $15 and $69 |
701 | 855 | ||||||
Earned but unbilled receivables |
81 | 188 | ||||||
Prepaid expenses and other current assets |
122 | 148 | ||||||
Clearing broker assets |
309 | 376 | ||||||
Retained interest in accounts receivable sold |
285 | | ||||||
Deferred income taxes |
22 | 8 | ||||||
Total current assets |
2,495 | 2,054 | ||||||
Property and equipment, less accumulated depreciation of $689 and $887 |
898 | 932 | ||||||
Software products, less accumulated amortization of $793 and $1,021 |
1,159 | 1,080 | ||||||
Customer base, less accumulated amortization of $668 and $885 |
2,616 | 2,361 | ||||||
Other tangible and intangible assets, less accumulated amortization of $29 and $24 |
207 | 205 | ||||||
Trade name |
1,075 | 1,026 | ||||||
Goodwill |
7,328 | 7,434 | ||||||
Total Assets |
$ | 15,778 | $ | 15,092 | ||||
Liabilities and Equity |
||||||||
Current: |
||||||||
Short-term and current portion of long-term debt |
$ | 322 | $ | 57 | ||||
Accounts payable |
87 | 96 | ||||||
Accrued compensation and benefits |
314 | 262 | ||||||
Accrued interest expense |
159 | 94 | ||||||
Other accrued expenses |
409 | 389 | ||||||
Clearing broker liabilities |
310 | 358 | ||||||
Deferred revenue |
977 | 972 | ||||||
Total current liabilities |
2,578 | 2,228 | ||||||
Long-term debt |
8,553 | 8,287 | ||||||
Deferred income taxes |
1,595 | 1,487 | ||||||
Total liabilities |
12,726 | 12,002 | ||||||
Commitments and contingencies |
||||||||
Noncontrolling interest in preferred stock of SCCII (held by management
subject to a put option for death or disability) |
60 | 47 | ||||||
Class L common stock held by management subject to a put option for death or disability |
111 | 85 | ||||||
Class A common stock held by management subject to a put option for death or disability |
12 | 10 | ||||||
Stockholders equity: |
||||||||
Class L common stock, convertible, par value $.001 per share; cumulative 13.5% per annum,
compounded quarterly; aggregate liquidation preference of $3,612 million and
$4,005 million; 50,000,000 shares authorized, 28,472,965 and 28,552,325 shares issued |
| | ||||||
Class A common stock, par value $.001 per share; 550,000,000 shares authorized,
256,260,680 and 256,975,139 shares issued |
| | ||||||
Capital in excess of par value |
2,613 | 2,670 | ||||||
Treasury stock, 208,071 and 241,067 shares of Class L common stock; and
1,873,932 and 2,173,407 shares of Class A common stock |
(24 | ) | (27 | ) | ||||
Accumulated deficit |
(912 | ) | (1,125 | ) | ||||
Accumulated other comprehensive loss |
(219 | ) | (118 | ) | ||||
Total SunGard Capital Corp. stockholders equity |
1,458 | 1,400 | ||||||
Noncontrolling interest in preferred stock of SCCII |
1,411 | 1,548 | ||||||
Total equity |
2,869 | 2,948 | ||||||
Total Liabilities and Equity |
$ | 15,778 | $ | 15,092 | ||||
The
accompanying notes are an integral part of these consolidated financial statements.
2
Table of Contents
SunGard Capital Corp.
Consolidated Statements of Operations
(In millions)
(Unaudited)
Consolidated Statements of Operations
(In millions)
(Unaudited)
Three
Months Ended September 30, |
Nine
Months Ended September 30, |
|||||||||||||||
2008 | 2009 | 2008 | 2009 | |||||||||||||
Revenue: |
||||||||||||||||
Services |
$ | 1,267 | $ | 1,198 | $ | 3,679 | $ | 3,687 | ||||||||
License and resale fees |
78 | 93 | 235 | 236 | ||||||||||||
Total products and services |
1,345 | 1,291 | 3,914 | 3,923 | ||||||||||||
Reimbursed expenses |
49 | 46 | 139 | 118 | ||||||||||||
1,394 | 1,337 | 4,053 | 4,041 | |||||||||||||
Costs and expenses: |
||||||||||||||||
Cost of sales and direct operating |
728 | 642 | 2,024 | 2,038 | ||||||||||||
Sales, marketing and administration |
245 | 262 | 815 | 792 | ||||||||||||
Product development |
84 | 77 | 241 | 225 | ||||||||||||
Depreciation and amortization |
70 | 74 | 207 | 215 | ||||||||||||
Amortization of acquisition-related intangible assets |
131 | 150 | 361 | 404 | ||||||||||||
Merger costs |
| | | 1 | ||||||||||||
1,258 | 1,205 | 3,648 | 3,675 | |||||||||||||
Income from operations |
136 | 132 | 405 | 366 | ||||||||||||
Interest income |
4 | 5 | 13 | 6 | ||||||||||||
Interest expense and amortization of deferred financing fees |
(142 | ) | (165 | ) | (433 | ) | (471 | ) | ||||||||
Other income (expense) |
(24 | ) | (15 | ) | (49 | ) | 6 | |||||||||
Loss before income taxes |
(26 | ) | (43 | ) | (64 | ) | (93 | ) | ||||||||
Benefit from (provision for) income taxes |
(7 | ) | 3 | 11 | 12 | |||||||||||
Net loss |
(33 | ) | (40 | ) | (53 | ) | (81 | ) | ||||||||
Income attributable to the noncontrolling interest |
(39 | ) | (46 | ) | (117 | ) | (132 | ) | ||||||||
Net loss attributable to SunGard Capital Corp |
$ | (72 | ) | $ | (86 | ) | $ | (170 | ) | $ | (213 | ) | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
Table of Contents
SunGard Capital Corp.
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
Nine
Months Ended September 30, |
||||||||
2008 | 2009 | |||||||
Cash flow from operations: |
||||||||
Net loss |
$ | (53 | ) | $ | (81 | ) | ||
Reconciliation of net loss to cash flow provided by operations: |
||||||||
Depreciation and amortization |
568 | 619 | ||||||
Deferred income tax benefit |
(91 | ) | (82 | ) | ||||
Stock compensation expense |
21 | 22 | ||||||
Amortization of deferred financing costs and debt discount |
27 | 31 | ||||||
Other noncash items |
18 | (7 | ) | |||||
Accounts receivable and other current assets |
46 | 20 | ||||||
Accounts payable and accrued expenses |
(179 | ) | (138 | ) | ||||
Clearing broker assets and liabilities, net |
31 | (19 | ) | |||||
Deferred revenue |
| (1 | ) | |||||
Cash flow provided by operations |
388 | 364 | ||||||
Investment activities: |
||||||||
Cash paid for acquired businesses, net of cash acquired |
(174 | ) | (12 | ) | ||||
Cash paid for property and equipment and software |
(280 | ) | (255 | ) | ||||
Other investing activities |
2 | 3 | ||||||
Cash used in investment activities |
(452 | ) | (264 | ) | ||||
Financing activities: |
||||||||
Cash received from issuance of common stock |
3 | 1 | ||||||
Cash received from issuance of preferred stock |
1 | 1 | ||||||
Cash received from borrowings, net of fees |
1,326 | 211 | ||||||
Cash used to repay debt |
(75 | ) | (814 | ) | ||||
Cash used to purchase treasury stock |
(13 | ) | (4 | ) | ||||
Other financing activities |
(5 | ) | (3 | ) | ||||
Cash provided by (used in) financing activities |
1,237 | (608 | ) | |||||
Effect of exchange rate changes on cash |
(12 | ) | 12 | |||||
Increase (decrease) in cash and cash equivalents |
1,161 | (496 | ) | |||||
Beginning cash and cash equivalents |
427 | 975 | ||||||
Ending cash and cash equivalents |
$ | 1,588 | $ | 479 | ||||
Supplemental information: |
||||||||
Acquired businesses: |
||||||||
Property and equipment |
$ | 6 | $ | | ||||
Software products |
61 | 8 | ||||||
Customer base |
85 | 4 | ||||||
Goodwill |
106 | 4 | ||||||
Other tangible and intangible assets |
1 | | ||||||
Deferred income taxes |
(33 | ) | (1 | ) | ||||
Purchase price obligations and debt assumed |
(19 | ) | (1 | ) | ||||
Net current liabilities assumed |
(33 | ) | (2 | ) | ||||
Cash paid for acquired businesses, net of cash acquired of
$24 and $1, respectively |
$ | 174 | $ | 12 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
4
Table of Contents
SunGard Capital Corp. II
Consolidated Balance Sheets
(In millions except share and per-share amounts)
(Unaudited)
Consolidated Balance Sheets
(In millions except share and per-share amounts)
(Unaudited)
December 31, | September 30, | |||||||
2008 | 2009 | |||||||
Assets |
||||||||
Current: |
||||||||
Cash and cash equivalents |
$ | 975 | $ | 479 | ||||
Trade receivables, less allowance for doubtful accounts of $15 and $69 |
701 | 855 | ||||||
Earned but unbilled receivables |
81 | 188 | ||||||
Prepaid expenses and other current assets |
122 | 148 | ||||||
Clearing broker assets |
309 | 376 | ||||||
Retained interest in accounts receivable sold |
285 | | ||||||
Deferred income taxes |
22 | 8 | ||||||
Total current assets |
2,495 | 2,054 | ||||||
Property and equipment, less accumulated depreciation of $689 and $887 |
898 | 932 | ||||||
Software products, less accumulated amortization of $793 and $1,021 |
1,159 | 1,080 | ||||||
Customer base, less accumulated amortization of $668 and $885 |
2,616 | 2,361 | ||||||
Other tangible and intangible assets, less accumulated amortization of $29 and $24 |
207 | 205 | ||||||
Trade name |
1,075 | 1,026 | ||||||
Goodwill |
7,328 | 7,434 | ||||||
Total Assets |
$ | 15,778 | $ | 15,092 | ||||
Liabilities and Stockholders Equity |
||||||||
Current: |
||||||||
Short-term and current portion of long-term debt |
$ | 322 | $ | 57 | ||||
Accounts payable |
87 | 96 | ||||||
Accrued compensation and benefits |
314 | 262 | ||||||
Accrued interest expense |
159 | 94 | ||||||
Other accrued expenses |
399 | 390 | ||||||
Clearing broker liabilities |
310 | 358 | ||||||
Deferred revenue |
977 | 972 | ||||||
Total current liabilities |
2,568 | 2,229 | ||||||
Long-term debt |
8,553 | 8,287 | ||||||
Deferred income taxes |
1,595 | 1,486 | ||||||
Total liabilities |
12,716 | 12,002 | ||||||
Commitments and contingencies |
||||||||
Preferred stock held by management subject to a put option for death or disability |
51 | 36 | ||||||
Stockholders equity: |
||||||||
Preferred stock, par value $.001 per share; cumulative 11.5% per annum, compounded quarterly; aggregate liquidation preference of $1,444 million and $1,578 million; 14,999,000 shares authorized, 9,856,052 and 9,883,531 issued |
| | ||||||
Common stock, par value $.001 per share; 1,000 shares authorized, 100 shares issued and oustanding |
| | ||||||
Capital in excess of par value |
3,687 | 3,712 | ||||||
Treasury stock, 72,039 and 83,464 shares |
(8 | ) | (10 | ) | ||||
Accumulated deficit |
(449 | ) | (530 | ) | ||||
Accumulated other comprehensive loss |
(219 | ) | (118 | ) | ||||
Total stockholders equity |
3,011 | 3,054 | ||||||
Total Liabilities and Stockholders Equity |
$ | 15,778 | $ | 15,092 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
5
Table of Contents
SunGard Capital Corp. II
Consolidated Statements of Operations
(In millions)
(Unaudited)
Consolidated Statements of Operations
(In millions)
(Unaudited)
Three
Months Ended September 30, |
Nine
Months Ended September 30, |
|||||||||||||||
2008 | 2009 | 2008 | 2009 | |||||||||||||
Revenue: |
||||||||||||||||
Services |
$ | 1,267 | $ | 1,198 | $ | 3,679 | $ | 3,687 | ||||||||
License and resale fees |
78 | 93 | 235 | 236 | ||||||||||||
Total products and services |
1,345 | 1,291 | 3,914 | 3,923 | ||||||||||||
Reimbursed expenses |
49 | 46 | 139 | 118 | ||||||||||||
1,394 | 1,337 | 4,053 | 4,041 | |||||||||||||
Costs and expenses: |
||||||||||||||||
Cost of sales and direct operating |
728 | 642 | 2,024 | 2,038 | ||||||||||||
Sales, marketing and administration |
245 | 262 | 815 | 792 | ||||||||||||
Product development |
84 | 77 | 241 | 225 | ||||||||||||
Depreciation and amortization |
70 | 74 | 207 | 215 | ||||||||||||
Amortization of acquisition-related intangible assets |
131 | 150 | 361 | 404 | ||||||||||||
Merger costs |
| | | 1 | ||||||||||||
1,258 | 1,205 | 3,648 | 3,675 | |||||||||||||
Income from operations |
136 | 132 | 405 | 366 | ||||||||||||
Interest income |
4 | 5 | 13 | 6 | ||||||||||||
Interest expense and amortization of deferred financing fees |
(142 | ) | (165 | ) | (433 | ) | (471 | ) | ||||||||
Other income (expense) |
(24 | ) | (15 | ) | (49 | ) | 6 | |||||||||
Loss before income taxes |
(26 | ) | (43 | ) | (64 | ) | (93 | ) | ||||||||
Benefit from (provision for) income taxes |
(9 | ) | 3 | 9 | 12 | |||||||||||
Net loss |
$ | (35 | ) | $ | (40 | ) | $ | (55 | ) | $ | (81 | ) | ||||
The accompanying notes are an integral part of these consolidated financial statements.
6
Table of Contents
SunGard Capital Corp. II
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
Nine
Months Ended September 30, |
||||||||
2008 | 2009 | |||||||
Cash flow from operations: |
||||||||
Net loss |
$ | (55 | ) | $ | (81 | ) | ||
Reconciliation of net loss to cash flow provided by operations: |
||||||||
Depreciation and amortization |
568 | 619 | ||||||
Deferred income tax benefit |
(91 | ) | (82 | ) | ||||
Stock compensation expense |
21 | 22 | ||||||
Amortization of deferred financing costs and debt discount |
27 | 31 | ||||||
Other noncash items |
18 | (7 | ) | |||||
Accounts receivable and other current assets |
44 | 20 | ||||||
Accounts payable and accrued expenses |
(174 | ) | (138 | ) | ||||
Clearing broker assets and liabilities, net |
31 | (19 | ) | |||||
Deferred revenue |
| (1 | ) | |||||
Cash flow provided by operations |
389 | 364 | ||||||
Investment activities: |
||||||||
Cash paid for acquired businesses, net of cash acquired |
(174 | ) | (12 | ) | ||||
Cash paid for property and equipment and software |
(280 | ) | (255 | ) | ||||
Other investing activities |
2 | 3 | ||||||
Cash used in investment activities |
(452 | ) | (264 | ) | ||||
Financing activities: |
||||||||
Cash received from issuance of preferred stock |
1 | 1 | ||||||
Cash received from borrowings, net of fees |
1,326 | 211 | ||||||
Cash used to repay debt |
(75 | ) | (814 | ) | ||||
Cash used to purchase treasury stock |
(3 | ) | (1 | ) | ||||
Other financing activities |
(13 | ) | (5 | ) | ||||
Cash provided by (used in) financing activities |
1,236 | (608 | ) | |||||
Effect of exchange rate changes on cash |
(12 | ) | 12 | |||||
Increase (decrease) in cash and cash equivalents |
1,161 | (496 | ) | |||||
Beginning cash and cash equivalents |
427 | 975 | ||||||
Ending cash and cash equivalents |
$ | 1,588 | $ | 479 | ||||
Supplemental information: |
||||||||
Acquired businesses: |
||||||||
Property and equipment |
$ | 6 | $ | | ||||
Software products |
61 | 8 | ||||||
Customer base |
85 | 4 | ||||||
Goodwill |
106 | 4 | ||||||
Other tangible and intangible assets |
1 | | ||||||
Deferred income taxes |
(33 | ) | (1 | ) | ||||
Purchase price obligations and debt assumed |
(19 | ) | (1 | ) | ||||
Net current liabilities assumed |
(33 | ) | (2 | ) | ||||
Cash paid for acquired businesses, net of cash acquired of
$24 and $1, respectively |
$ | 174 | $ | 12 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
7
Table of Contents
SunGard Data Systems Inc.
Consolidated Balance Sheets
(In millions except share and per-share amounts)
(Unaudited)
Consolidated Balance Sheets
(In millions except share and per-share amounts)
(Unaudited)
December 31, | September 30, | |||||||
2008 | 2009 | |||||||
Assets |
||||||||
Current: |
||||||||
Cash and cash equivalents |
$ | 975 | $ | 479 | ||||
Trade receivables, less allowance for doubtful accounts of $15 and $69 |
701 | 855 | ||||||
Earned but unbilled receivables |
81 | 188 | ||||||
Prepaid expenses and other current assets |
122 | 148 | ||||||
Clearing broker assets |
309 | 376 | ||||||
Retained interest in accounts receivable sold |
285 | | ||||||
Deferred income taxes |
22 | 8 | ||||||
Total current assets |
2,495 | 2,054 | ||||||
Property and equipment, less accumulated depreciation of $689 and $887 |
898 | 932 | ||||||
Software products, less accumulated amortization of $793 and $1,021 |
1,159 | 1,080 | ||||||
Customer base, less accumulated amortization of $668 and $885 |
2,616 | 2,361 | ||||||
Other tangible and intangible assets, less accumulated amortization of $29 and $24 |
207 | 205 | ||||||
Trade name |
1,075 | 1,026 | ||||||
Goodwill |
7,328 | 7,434 | ||||||
Total Assets |
$ | 15,778 | $ | 15,092 | ||||
Liabilities and Stockholders Equity |
||||||||
Current: |
||||||||
Short-term and current portion of long-term debt |
$ | 322 | $ | 57 | ||||
Accounts payable |
87 | 96 | ||||||
Accrued compensation and benefits |
314 | 262 | ||||||
Accrued interest expense |
159 | 94 | ||||||
Other accrued expenses |
401 | 391 | ||||||
Clearing broker liabilities |
310 | 358 | ||||||
Deferred revenue |
977 | 972 | ||||||
Total current liabilities |
2,570 | 2,230 | ||||||
Long-term debt |
8,553 | 8,287 | ||||||
Deferred income taxes |
1,592 | 1,482 | ||||||
Total liabilities |
12,715 | 11,999 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Common stock, par value $.01 per share; 100 shares authorized, issued and oustanding |
| | ||||||
Capital in excess of par value |
3,731 | 3,741 | ||||||
Accumulated deficit |
(449 | ) | (530 | ) | ||||
Accumulated other comprehensive loss |
(219 | ) | (118 | ) | ||||
Total stockholders equity |
3,063 | 3,093 | ||||||
Total Liabilities and Stockholders Equity |
$ | 15,778 | $ | 15,092 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
8
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SunGard Data Systems Inc.
Consolidated Statements of Operations
(In millions)
(Unaudited)
Consolidated Statements of Operations
(In millions)
(Unaudited)
Three
Months Ended September 30, |
Nine
Months Ended September 30, |
|||||||||||||||
2008 | 2009 | 2008 | 2009 | |||||||||||||
Revenue: |
||||||||||||||||
Services |
$ | 1,267 | $ | 1,198 | $ | 3,679 | $ | 3,687 | ||||||||
License and resale fees |
78 | 93 | 235 | 236 | ||||||||||||
Total products and services |
1,345 | 1,291 | 3,914 | 3,923 | ||||||||||||
Reimbursed expenses |
49 | 46 | 139 | 118 | ||||||||||||
1,394 | 1,337 | 4,053 | 4,041 | |||||||||||||
Costs and expenses: |
||||||||||||||||
Cost of sales and direct operating |
728 | 642 | 2,024 | 2,038 | ||||||||||||
Sales, marketing and administration |
245 | 262 | 815 | 792 | ||||||||||||
Product development |
84 | 77 | 241 | 225 | ||||||||||||
Depreciation and amortization |
70 | 74 | 207 | 215 | ||||||||||||
Amortization of acquisition-related intangible assets |
131 | 150 | 361 | 404 | ||||||||||||
Merger costs |
| | | 1 | ||||||||||||
1,258 | 1,205 | 3,648 | 3,675 | |||||||||||||
Income from operations |
136 | 132 | 405 | 366 | ||||||||||||
Interest income |
4 | 5 | 13 | 6 | ||||||||||||
Interest expense and amortization of deferred financing fees |
(142 | ) | (165 | ) | (433 | ) | (471 | ) | ||||||||
Other income (expense) |
(24 | ) | (15 | ) | (49 | ) | 6 | |||||||||
Income (loss) before income taxes |
(26 | ) | (43 | ) | (64 | ) | (93 | ) | ||||||||
Benefit from (provision for) income taxes |
(9 | ) | 3 | 9 | 12 | |||||||||||
Net income (loss) |
$ | (35 | ) | $ | (40 | ) | $ | (55 | ) | $ | (81 | ) | ||||
The accompanying notes are an integral part of these consolidated financial statements.
9
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SunGard Data Systems Inc.
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
Nine Months Ended | ||||||||
September 30, | ||||||||
2008 | 2009 | |||||||
Cash flow from operations: |
||||||||
Net loss |
$ | (55 | ) | $ | (81 | ) | ||
Reconciliation of net loss to cash flow provided by operations: |
||||||||
Depreciation and amortization |
568 | 619 | ||||||
Deferred income tax benefit |
(91 | ) | (83 | ) | ||||
Stock compensation expense |
21 | 22 | ||||||
Amortization of deferred financing costs and debt discount |
27 | 31 | ||||||
Other noncash items |
18 | (7 | ) | |||||
Accounts receivable and other current assets |
44 | 20 | ||||||
Accounts payable and accrued expenses |
(174 | ) | (137 | ) | ||||
Clearing broker assets and liabilities, net |
31 | (19 | ) | |||||
Deferred revenue |
| (1 | ) | |||||
Cash flow provided by operations |
389 | 364 | ||||||
Investment activities: |
||||||||
Cash paid for acquired businesses, net of cash acquired |
(174 | ) | (12 | ) | ||||
Cash paid for property and equipment and software |
(280 | ) | (255 | ) | ||||
Other investing activities |
2 | 3 | ||||||
Cash used in investment activities |
(452 | ) | (264 | ) | ||||
Financing activities: |
||||||||
Cash received from borrowings, net of fees |
1,326 | 211 | ||||||
Cash used to repay debt |
(75 | ) | (814 | ) | ||||
Other financing activities |
(15 | ) | (5 | ) | ||||
Cash provided by (used in) financing activities |
1,236 | (608 | ) | |||||
Effect of exchange rate changes on cash |
(12 | ) | 12 | |||||
Increase (decrease) in cash and cash equivalents |
1,161 | (496 | ) | |||||
Beginning cash and cash equivalents |
427 | 975 | ||||||
Ending cash and cash equivalents |
$ | 1,588 | $ | 479 | ||||
Supplemental information: |
||||||||
Acquired businesses: |
||||||||
Property and equipment |
$ | 6 | $ | | ||||
Software products |
61 | 8 | ||||||
Customer base |
85 | 4 | ||||||
Goodwill |
106 | 4 | ||||||
Other tangible and intangible assets |
1 | | ||||||
Deferred income taxes |
(33 | ) | (1 | ) | ||||
Purchase price obligations and debt assumed |
(19 | ) | (1 | ) | ||||
Net current liabilities assumed |
(33 | ) | (2 | ) | ||||
Cash paid for acquired businesses, net of cash acquired of
$24 and $1, respectively |
$ | 174 | $ | 12 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
10
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SUNGARD CAPITAL CORP.
SUNGARD CAPITAL CORP. II
SUNGARD DATA SYSTEMS INC.
SUNGARD CAPITAL CORP. II
SUNGARD DATA SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation:
SunGard Data Systems Inc. (SunGard) was acquired on August 11, 2005 (the Transaction) by a
consortium of private equity investment funds associated with Bain Capital Partners, The Blackstone
Group, Goldman Sachs & Co., Kohlberg Kravis Roberts & Co., Providence Equity Partners, Silver Lake
and TPG (collectively, the Sponsors).
SunGard is a wholly owned subsidiary of SunGard Holdco LLC, which is wholly owned by SunGard
Holding Corp., which is wholly owned by SunGard Capital Corp. II (SCCII), which is a subsidiary
of SunGard Capital Corp. (SCC). All of these companies were formed for the purpose of
facilitating the Transaction and are collectively referred to as the Holding Companies. SCC,
SCCII and SunGard are separate reporting companies and, together with their direct and indirect
subsidiaries, are collectively referred to as the Company. These notes to consolidated financial
statements apply to SCC, SCCII and SunGard unless otherwise noted.
The Company has four reportable segments: Financial Systems (FS), Higher Education (HE),
Public Sector (PS) and Availability Services (AS). The Companys Software & Processing
Solutions business is comprised of the FS, HE and PS segments. The consolidated financial
statements include the accounts of the Company and its majority-owned subsidiaries. All
significant intercompany transactions and accounts have been eliminated.
The accompanying interim consolidated financial statements of the Company have been prepared
in conformity with accounting principles generally accepted in the United States of America
(GAAP), consistent in all material respects with those applied in the Form 10-12G/A for SCC and
SCCII and SunGards Annual Report on Form 10-K for the year ended December 31, 2008. Interim
financial reporting does not include all of the information and footnotes required by GAAP for
annual financial statements. The interim financial information is unaudited, but, in the opinion
of management, includes all adjustments, consisting only of normal recurring adjustments necessary
to provide a fair statement of results for the interim periods presented. Operating results for
the interim periods presented are not necessarily indicative of the results that may be expected
for the year ending December 31, 2009.
Subsequent events have been evaluated through November 5, 2009.
The
three- and nine-month periods ended September 30, 2009 include a
$12 million favorable out-of-period adjustment to benefit from
income taxes primarily related to our utilization of foreign tax
credit carryforwards from a prior year. The impact of the adjustment
is not material to the prior period financial statements and, as
such, is being corrected in the current period.
Recent Accounting Pronouncements
The Financial Accounting Standard Board issued new revenue recognition guidance for
arrangements with multiple deliverables. The new guidance modifies the fair value requirements for
revenue recognition by providing best estimate of selling price in addition to vendor specific
objective evidence, or VSOE, and vendor objective evidence, now referred to as third-party evidence, or TPE, for determining the selling
price of a deliverable. Since the Company will be able to use an estimate of the selling price for
the deliverables in an arrangement, all deliverables will be separate units of accounting, provided
(a) a delivered item has value to the customer on a standalone basis, and (b) if the arrangement
includes a general right of return relative to the delivered item, delivery or performance of the
undelivered item is considered probable and substantially in the control of the Company. As a
result of the requirement to use the best estimate of the selling
price when VSOE or TPE of the selling
price cannot be determined, the residual method is no longer permitted. The Company is currently
evaluating the impact of this revenue guidance, but would not expect the guidance to have a
material impact on the consolidated financial statements.
11
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2. Goodwill:
The following table summarizes changes in goodwill by segment (in millions):
Gross Goodwill | Goodwill Impairment | |||||||||||||||||||||||||||
FS | HE | PS | AS | Total | PS | Total | ||||||||||||||||||||||
Balance at December 31, 2008 |
$ | 3,431 | $ | 965 | $ | 813 | $ | 2,247 | $ | 7,456 | $ | (128 | ) | $ | (128 | ) | ||||||||||||
2009 acquisitions |
2 | | | | 2 | | | |||||||||||||||||||||
Adjustments related to prior
year acquisitions and the
Transaction |
45 | (1 | ) | (1 | ) | (11 | ) | 32 | | | ||||||||||||||||||
Effect of foreign currency
translation |
38 | | 7 | 27 | 72 | | | |||||||||||||||||||||
Balance at September 30, 2009 |
$ | 3,516 | $ | 964 | $ | 819 | $ | 2,263 | $ | 7,562 | $ | (128 | ) | $ | (128 | ) | ||||||||||||
Effective January 1, 2009, the Company shortened the remaining useful lives of certain
intangible assets to reflect revisions to estimated customer attrition rates. The impact of this
revision was an increase in amortization of acquisition-related intangible assets of $9 million and
$27 million in the three and nine months ended September 30, 2009, respectively, and estimated to
be approximately $36 million on an annual basis.
Generally accepted
accounting principles require the Company to perform an impairment test at
least annually. This is a two step test. In step one the estimated fair value of
the reporting unit is compared to its carrying value. Only if there is a
deficiency (the estimated fair value is less than the carrying value) is step
two required. In Step two the actual amount of the goodwill impairment is
calculated by comparing the implied fair value of the reporting unit’s
goodwill with the carrying amount of that goodwill. The implied fair value is
determined in the same manner as the amount of goodwill recognized in a
business combination.
The Company completed
step one of its annual goodwill impairment test as of July 1 for its reporting
units. For each reporting unit, the fair value of the reporting unit exceeded
its carrying value and, therefore, step two was not required. However there were
two reporting units where the excess of estimated fair value over the carrying
value of the reporting unit was 8%. The goodwill associated with these two
reporting units totals $2.1 billion at September 30, 2009.
Estimating the fair
value of a reporting unit requires various assumptions including the use of
projections of future cash flows and discount rates that reflect the risks
associated with achieving those cash flows. The assumptions about future cash
flows and growth rates are based on management’s assessment of a number
of factors including the reporting unit’s recent performance against
budget as well as performance in the market that the reporting unit serves.
Discount rate assumptions are based on an assessment of the risk inherent in
those future cash flows. Changes to the underlying businesses could affect the
future cash flows, which in turn could affect the fair value of the reporting
unit. A one percentage point decrease in the perpetual growth rate or a one
percentage point increase in the discount rate would cause these two reporting
units to fail the step one test and require a step two analysis, and some or
all of this goodwill could be impaired.
3. Clearing Broker Assets and Liabilities:
Clearing broker assets and liabilities are comprised of the following (in millions):
December 31, | September 30, | |||||||
2008 | 2009 | |||||||
Segregated customer cash and treasury bills |
$ | 148 | $ | 157 | ||||
Securities owned |
44 | 51 | ||||||
Securities borrowed |
87 | 146 | ||||||
Receivables from customers and other |
30 | 22 | ||||||
Clearing broker assets |
$ | 309 | $ | 376 | ||||
Payables to customers |
$ | 191 | $ | 184 | ||||
Securities loaned |
47 | 107 | ||||||
Customer securities sold short, not yet purchased |
3 | 22 | ||||||
Payable to brokers and dealers |
69 | 45 | ||||||
Clearing broker liabilities |
$ | 310 | $ | 358 | ||||
Segregated customer cash and treasury bills are held by the Company on behalf of
customers. Clearing broker securities consist of trading and investment securities at fair market
values, which are based on quoted market rates. Securities borrowed and loaned are collateralized
financing transactions which are cash deposits made to or received from other broker/dealers.
Receivables from and payables to customers represent amounts due or payable on cash and margin
transactions.
4. Debt and derivatives:
Receivables facility
In March 2009, SunGard entered into a syndicated three-year receivables facility. At September
30, 2009, $259 million was drawn. It may be repaid at any time at SunGards option and is therefore
accounted for as an on-balance sheet secured borrowing. At September 30, 2009, $722 million of
accounts receivable secure the borrowings under the receivables facility.
12
Table of Contents
Under the receivables facility, SunGard is generally required to pay interest on the amount of
each advance at the one month LIBOR rate (with a floor of 3%) plus 4.50% per annum. The facility is
subject to a fee on the unused portion of 1.00% per annum. The receivables facility contains
certain covenants, and SunGard is required to satisfy and maintain specified facility performance
ratios, financial ratios and other financial condition tests.
Credit facility
In June 2009, SunGard amended its existing Credit Agreement (Amended Credit Agreement) to
(a) extend the maturity date of $2.5 billion of its dollar-denominated term loans, £40 million of
pound sterling-denominated term loans, and 120 million of Euro-denominated term loans from
February 2014 to February 2016, (b) reduce existing revolving credit commitments to $829 million
and extend the termination date of $580 million of those commitments to May 2013, and (c) amend
certain other provisions including those related to negative and financial covenants.
As of September 30, 2009, the interest rate for the extended term loans, after adjusting for
interest rate swaps, was 4.10% and for the unextended term loans, after adjusting for interest rate
swaps, was 2.02%. The commitment fee on the daily unused portion of the 2013 and 2011 revolving
credit commitments was 0.75% and 0.50%, respectively.
Derivatives
In early 2009, the Company entered into three-year interest rate swaps that expire in February
2012 for an aggregate notional amount of $1.2 billion under which SunGard pays a stream of fixed
interest payments (at 1.78%) for the term of the swap, and in turn, receives variable interest
payments based on LIBOR.
The Company uses interest rate swap agreements to manage the amount of its floating rate debt
in order to reduce its exposure to variable rate interest payments associated with the senior
secured credit facilities. Each of these swap agreements is designated as a cash flow hedge. The
Company pays a stream of fixed interest payments for the term of the swap, and in turn, receives
variable interest payments based on LIBOR. The net receipt or payment from the interest rate swap
agreements is included in interest expense. The Company does not enter into interest rate swaps
for speculative or trading purposes. A summary of the Companys interest rate swaps follows:
Notional | ||||||||||
Amount (in | Interest rate | Interest rate | ||||||||
Inception | Maturity | millions) | paid | received | ||||||
February 2006 |
February 2011 | $ | 800 | 5.00% | LIBOR | |||||
January 2008 |
February 2011 | $ | 750 | 3.17% | LIBOR | |||||
February 2008 |
February 2010 | $ | 750 | 2.71% | LIBOR | |||||
January/February 2009 |
February 2012 | $ | 1,200 | 1.78% | LIBOR | |||||
Total / Weighted Average interest rate | $ | 3,500 | 3.01% | |||||||
The fair values of interest rate swaps designated as cash flow hedging instruments,
included in other accrued expenses on the consolidated balance sheets, is $98 million and $85
million as of December 31, 2008 and September 30, 2009, respectively.
The table below summarizes the impact of the effective portion of interest rate swaps on the
balance sheets and statements of operations for the three and nine months ended September 30, 2008
and 2009 (in millions):
Three months ended | Nine months ended | |||||||||||||||||
September 30, | September 30, | |||||||||||||||||
2008 | 2009 | 2008 | 2009 | Classification | ||||||||||||||
Gain (loss)
recognized in
Accumulated Other
Comprehensive Loss
(OCI) |
$ | (3 | ) | $ | (4 | ) | $ | 6 | $ | 8 | OCI | |||||||
Loss reclassified
from accumulated
OCI into income |
(9 | ) | (22 | ) | (21 | ) | (56 | ) | Interest expense and amortization of deferred financing costs |
The Company has no ineffectiveness related to its swap agreements.
The
Company expects to reclassify in the next twelve months approximately
$93 million from accumulated other comprehensive income into
earnings related to the Companys interest rate swaps based on
the borrowing rates at September 30, 2009.
13
Table of Contents
5. Fair Value Measurements:
The following table summarizes assets and liabilities measured at fair value on a
recurring basis at September 30, 2009 (in millions):
Fair Value Measures Using | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets |
||||||||||||||||
Clearing broker assets securities owned |
$ | 51 | $ | | $ | | $ | 51 | ||||||||
Liabilities |
||||||||||||||||
Clearing broker liabilities customer securities
sold short, not yet purchased |
$ | 22 | $ | | $ | | $ | 22 | ||||||||
Interest rate swap agreements |
| 85 | | 85 | ||||||||||||
$ | 22 | $ | 85 | $ | | $ | 107 | |||||||||
A Level 1 fair value measure is based upon quoted prices in active markets for identical
assets or liabilities. A Level 2 fair value measure is based upon quoted prices for similar assets
and liabilities in active markets or inputs that are observable. A Level 3 fair value measure is
based upon inputs that are unobservable (for example, cash flow modeling inputs based on
assumptions).
Clearing broker assets and liabilities securities owned and customer securities sold short,
not yet purchased are recorded at closing exchange-quoted prices. Fair values of the interest rate
swap agreements are calculated using a discounted cash flow model using observable applicable
market swap rates and assumptions and are compared to market valuations obtained from brokers.
During January 2009, the fair value of retained interest in accounts receivable sold (a Level 3
measurement) decreased to zero due to the termination of the Companys off-balance sheet accounts
receivable securitization program.
During
the third quarter of 2009, the Company recorded impairment charges of its FS
customer base and software assets of $16 million and
$10 million, respectively. These non-recurring fair value
measures are classified as Level 3 in the fair value hierarchy and
were valued using discounted cash flow models. The valuation inputs
included estimates of future cash flows, expectations about possible
variations in the amount and timing of cash flows and discount rates
based on the risk-adjusted cost of capital.
The following table presents the carrying amount and estimated fair value of the
Companys debt, including current portion, as of September 30, 2009 (in millions):
Carrying | Fair | |||||||
Value | Value | |||||||
Floating rate debt |
$ | 4,991 | $ | 4,839 | ||||
Fixed rate debt |
3,352 | 3,402 |
The fair value of the Companys floating rate and fixed rate long-term debt is primarily
based on market rates.
6. Comprehensive Income (Loss):
Comprehensive income consists of net income (loss) adjusted for other increases and
decreases affecting stockholders equity that are excluded from the determination of net income
(loss). The calculation of comprehensive income follows (in millions):
Three
Months Ended September 30, |
Nine
Months Ended September 30, |
|||||||||||||||
2008 | 2009 | 2008 | 2009 | |||||||||||||
Net loss |
$ | (35 | ) | $ | (40 | ) | $ | (55 | ) | $ | (81 | ) | ||||
Foreign currency
translation gains (losses) |
(121 | ) | 33 | (101 | ) | 93 | ||||||||||
Unrealized gains (losses)
on derivative instruments |
(3 | ) | (4 | ) | 6 | 8 | ||||||||||
Comprehensive income (loss) |
$ | (159 | ) | $ | (11 | ) | $ | (150 | ) | $ | 20 | |||||
14
Table of Contents
7. Equity:
A rollforward of SCCs equity follows:
SunGard Capital | Noncontrolling | |||||||||||
Corp. Shareholders | interest | Total | ||||||||||
Balance at December 31, 2008 |
$ | 1,458 | $ | 1,411 | $ | 2,869 | ||||||
Net income |
(213 | ) | 131 | (82 | ) | |||||||
Stock compensation expense |
22 | | 22 | |||||||||
Expiration of put options due to employee
terminations and other |
32 | 6 | 38 | |||||||||
Foreign currency translation |
93 | | 93 | |||||||||
Net unrealized gain (loss) on derivative
instruments |
8 | | 8 | |||||||||
Balance at September 30, 2009 |
$ | 1,400 | $ | 1,548 | $ | 2,948 | ||||||
During
the third quarter of 2009, the Company amended the terms of unvested
performance awards granted prior to 2009 by (i) reducing performance
targets for 2009 and 2010, (ii) reducing the number of shares
that vest at the reduced targets, (iii) delayed vesting of
earned shares, and, (iv) in the case of restricted stock units,
increasing the length of time for distribution of vested awards. All
performance award holders with the exception of executive management
participated in the amendments. All amended equity
awards were revalued at the modification date at the respective
current fair value. There
was no expense recognized in the quarter as a result of the modification.
15
Table of Contents
8. Segment Information:
The Company has four reportable segments: FS, HE and PS, which together form the
Companys Software & Processing Solutions business, and AS. The Company evaluates the performance
of its segments based on operating results before interest, income taxes, amortization of
acquisition-related intangible assets, stock compensation and certain other costs. The operating
results apply to each of SCC, SCCII and SunGard unless otherwise noted. The operating results for
each segment follow (in millions):
Three
Months Ended September 30, |
Nine
Months Ended September 30, |
|||||||||||||||
2008 | 2009 | 2008 | 2009 | |||||||||||||
Revenue: |
||||||||||||||||
Financial systems |
$ | 774 | $ | 724 | $ | 2,171 | $ | 2,232 | ||||||||
Higher education |
128 | 125 | 400 | 389 | ||||||||||||
Public Sector |
94 | 103 | 307 | 289 | ||||||||||||
Software & processing solutions |
996 | 952 | 2,878 | 2,910 | ||||||||||||
Availability services |
398 | 385 | 1,175 | 1,131 | ||||||||||||
$ | 1,394 | $ | 1,337 | $ | 4,053 | $ | 4,041 | |||||||||
Depreciation and amortization: |
||||||||||||||||
Financial systems |
$ | 16 | $ | 20 | $ | 50 | $ | 58 | ||||||||
Higher education |
3 | 3 | 8 | 10 | ||||||||||||
Public sector |
3 | 2 | 7 | 6 | ||||||||||||
Software & processing solutions |
22 | 25 | 65 | 74 | ||||||||||||
Availability services |
48 | 49 | 142 | 141 | ||||||||||||
Corporate administration |
| | | | ||||||||||||
$ | 70 | $ | 74 | $ | 207 | $ | 215 | |||||||||
Income (loss) from operations: |
||||||||||||||||
Financial systems |
$ | 138 | $ | 157 | $ | 388 | $ | 414 | ||||||||
Higher education |
31 | 33 | 91 | 95 | ||||||||||||
Public sector |
16 | 19 | 55 | 55 | ||||||||||||
Software & processing solutions |
185 | 209 | 534 | 564 | ||||||||||||
Availability services |
114 | 103 | 326 | 291 | ||||||||||||
Corporate and other items (1) |
(163 | ) | (180 | ) | (455 | ) | (488 | ) | ||||||||
Merger costs |
| | | (1 | ) | |||||||||||
$ | 136 | $ | 132 | $ | 405 | $ | 366 | |||||||||
Cash paid for property and equipment and software: |
||||||||||||||||
Financial systems |
$ | 24 | $ | 16 | $ | 63 | $ | 60 | ||||||||
Higher education |
5 | 2 | 21 | 6 | ||||||||||||
Public sector |
2 | 4 | 6 | 10 | ||||||||||||
Software & processing solutions |
31 | 22 | 90 | 76 | ||||||||||||
Availability services |
60 | 66 | 190 | 179 | ||||||||||||
Corporate administration |
| | | | ||||||||||||
$ | 91 | $ | 88 | $ | 280 | $ | 255 | |||||||||
(1) | Includes corporate administrative expenses, stock compensation expense, management fees paid to the Sponsors, other items and amortization of acquisition-related intangible assets of $131 million and $150 million for the three month periods ended September 30, 2008 and 2009, respectively, and $361 million and $404 million for the nine month periods ended September 30, 2008 and 2009, respectively. |
16
Table of Contents
Amortization of acquisition-related intangible assets by segment follows (in millions):
Three
Months Ended September 30, |
Nine
Months Ended September 30, |
|||||||||||||||
2008 | 2009 | 2008 | 2009 | |||||||||||||
Amortization of acquisition-related intangible assets: |
||||||||||||||||
Financial systems |
$ | 73 | (1) | $ | 91 | (1) | $ | 200 | (1) | $ | 227 | (1) | ||||
Higher education |
8 | 8 | 26 | 25 | ||||||||||||
Public sector |
15 | (1) | 8 | (1) | 36 | (1) | 23 | (1) | ||||||||
Software & processing solutions |
96 | 107 | 262 | 275 | ||||||||||||
Availability services |
34 | 42 | 96 | 127 | ||||||||||||
Corporate administration |
1 | 1 | 3 | 2 | ||||||||||||
$ | 131 | $ | 150 | $ | 361 | $ | 404 | |||||||||
(1) | 2008 includes approximately $11 million and $4 million of impairment charges related to customer base and software for subsidiaries in the FS and PS segments, respectively. 2009 includes approximately $16 million and $10 million of impairment charges related to customer base and software, respectively, for subsidiaries in the FS segment. |
The FS Segment is organized to align with customer-facing business areas. FS revenue by these
business areas follows (in millions):
Three
Months Ended September 30, |
Nine
Months Ended September 30, |
|||||||||||||||
2008 | 2009 | 2008 | 2009 | |||||||||||||
Trading Systems |
$ | 239 | $ | 161 | $ | 557 | $ | 610 | ||||||||
Wealth Management |
127 | 112 | 399 | 321 | ||||||||||||
Brokerage & Clearance |
61 | 68 | 196 | 207 | ||||||||||||
Global Trading |
| 72 | | 195 | ||||||||||||
Capital Markets |
72 | 68 | 242 | 192 | ||||||||||||
Institutional Asset Management |
60 | 53 | 172 | 151 | ||||||||||||
Corporations |
51 | 45 | 140 | 134 | ||||||||||||
Banks |
43 | 38 | 121 | 107 | ||||||||||||
All other |
121 | 107 | 344 | 315 | ||||||||||||
Total Financial Systems |
$ | 774 | $ | 724 | $ | 2,171 | $ | 2,232 | ||||||||
9. Related Party Transactions:
In accordance with the Management Agreement between the Company and affiliates of the
Sponsors, the Company recorded $4 million of management fees in sales, marketing and administration
expenses during each of the three months ended September 30, 2008 and 2009. In the nine month
periods ended September 30, 2008 and 2009, the Company recorded $14 million and $11 million,
respectively, of management fees in sales, marketing and administration expenses. At December 31,
2008 and September 30, 2009, $10 million and $4 million, respectively, was included in other
accrued expenses.
Certain of the Companys Sponsors and/or their affiliates were paid approximately $2 million
for customary fees and expenses in connection with the Amended Credit Agreement.
10. Supplemental Guarantor Condensed Consolidating Financial Statements:
SunGards senior notes are jointly and severally, fully and unconditionally guaranteed
on a senior unsecured basis and the senior subordinated notes are jointly and severally, 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 SunGard
(collectively, the Guarantors). Each of the Guarantors is 100% owned, directly or indirectly, by
SunGard. None of the other subsidiaries of SunGard, either direct or indirect, nor any of the
Holding Companies guarantee the senior notes and senior subordinated notes (Non-Guarantors). The
Guarantors also unconditionally guarantee the senior secured credit facilities.
17
Table of Contents
The following tables present the financial position, results of operations and cash flows of
SunGard (referred to as Parent Company for purposes of this note only), the Guarantor
subsidiaries, the Non-Guarantor subsidiaries and Eliminations as of December 31, 2008 and September
30, 2009, and for the three- and nine-month periods ended September 30, 2008 and 2009 to arrive at
the information for SunGard on a consolidated basis. SCC and SCCII are neither parties nor
guarantors to the debt issued as described in the notes to consolidated financial statements
included in the Form 10-12G/A for SCC and SCCII filed in June 2009 or the Form 10-K for SunGard
filed in March 2009.
Supplemental Condensed Consolidating Balance Sheet | ||||||||||||||||||||
December 31, 2008 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | ||||||||||||||||||
(in millions) | Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Assets |
||||||||||||||||||||
Current: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 511 | $ | 16 | $ | 448 | $ | | $ | 975 | ||||||||||
Intercompany balances |
(5,192 | ) | 5,268 | (76 | ) | | | |||||||||||||
Trade receivables, net |
(1 | ) | 406 | 377 | | 782 | ||||||||||||||
Prepaid expenses, taxes and other current assets |
1,680 | 75 | 660 | (1,677 | ) | 738 | ||||||||||||||
Total current assets |
(3,002 | ) | 5,765 | 1,409 | (1,677 | ) | 2,495 | |||||||||||||
Property and equipment, net |
1 | 619 | 278 | | 898 | |||||||||||||||
Intangible assets, net |
178 | 4,106 | 773 | | 5,057 | |||||||||||||||
Intercompany balances |
967 | (720 | ) | (247 | ) | | | |||||||||||||
Goodwill |
| 6,146 | 1,182 | | 7,328 | |||||||||||||||
Investment in subsidiaries |
13,686 | 2,298 | | (15,984 | ) | | ||||||||||||||
Total Assets |
$ | 11,830 | $ | 18,214 | $ | 3,395 | $ | (17,661 | ) | $ | 15,778 | |||||||||
Liabilities and Stockholders Equity |
||||||||||||||||||||
Current: |
||||||||||||||||||||
Short-term and current portion of long-term debt |
$ | 295 | $ | 9 | $ | 18 | $ | | $ | 322 | ||||||||||
Accounts payable and other current liabilities |
319 | 2,611 | 995 | (1,677 | ) | 2,248 | ||||||||||||||
Total current liabilities |
614 | 2,620 | 1,013 | (1,677 | ) | 2,570 | ||||||||||||||
Long-term debt |
8,227 | 9 | 317 | | 8,553 | |||||||||||||||
Intercompany debt |
(8 | ) | 416 | (162 | ) | (246 | ) | | ||||||||||||
Deferred income taxes |
(66 | ) | 1,483 | 175 | | 1,592 | ||||||||||||||
Total liabilities |
8,767 | 4,528 | 1,343 | (1,923 | ) | 12,715 | ||||||||||||||
Total stockholders equity |
3,063 | 13,686 | 2,052 | (15,738 | ) | 3,063 | ||||||||||||||
Total Liabilities and Stockholders Equity |
$ | 11,830 | $ | 18,214 | $ | 3,395 | $ | (17,661 | ) | $ | 15,778 | |||||||||
18
Table of Contents
Supplemental Condensed Consolidating Balance Sheet | ||||||||||||||||||||
September 30, 2009 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | ||||||||||||||||||
(in millions) | Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Assets |
||||||||||||||||||||
Current: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 7 | $ | (9 | ) | $ | 481 | $ | | $ | 479 | |||||||||
Intercompany balances |
(6,352 | ) | 5,549 | 803 | | | ||||||||||||||
Trade receivables, net |
| 738 | 305 | | 1,043 | |||||||||||||||
Prepaid expenses, taxes and other current
assets |
1,783 | 76 | 516 | (1,843 | ) | 532 | ||||||||||||||
Total current assets |
(4,562 | ) | 6,354 | 2,105 | (1,843 | ) | 2,054 | |||||||||||||
Property and equipment, net |
1 | 614 | 317 | | 932 | |||||||||||||||
Intangible assets, net |
173 | 3,849 | 650 | | 4,672 | |||||||||||||||
Intercompany balances |
980 | (721 | ) | (259 | ) | | | |||||||||||||
Goodwill |
| 6,130 | 1,304 | | 7,434 | |||||||||||||||
Investment in subsidiaries |
14,500 | 2,663 | | (17,163 | ) | | ||||||||||||||
Total Assets |
$ | 11,092 | $ | 18,889 | $ | 4,117 | $ | (19,006 | ) | $ | 15,092 | |||||||||
Liabilities and Stockholders Equity |
||||||||||||||||||||
Current: |
||||||||||||||||||||
Short-term and current portion of long-term
debt |
$ | 45 | $ | 6 | $ | 6 | $ | | $ | 57 | ||||||||||
Accounts payable and other current liabilities |
230 | 2,731 | 1,055 | (1,843 | ) | 2,173 | ||||||||||||||
Total current liabilities |
275 | 2,737 | 1,061 | (1,843 | ) | 2,230 | ||||||||||||||
Long-term debt |
7,697 | 5 | 585 | | 8,287 | |||||||||||||||
Intercompany debt |
84 | 252 | (161 | ) | (175 | ) | | |||||||||||||
Deferred income taxes |
(57 | ) | 1,395 | 144 | | 1,482 | ||||||||||||||
Total liabilities |
7,999 | 4,389 | 1,629 | (2,018 | ) | 11,999 | ||||||||||||||
Total stockholders equity |
3,093 | 14,500 | 2,488 | (16,988 | ) | 3,093 | ||||||||||||||
Total Liabilities and Stockholders
Equity |
$ | 11,092 | $ | 18,889 | $ | 4,117 | $ | (19,006 | ) | $ | 15,092 | |||||||||
Supplemental Condensed Consolidating Schedule of Operations | ||||||||||||||||||||
Three Months Ended September 30, 2008 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | ||||||||||||||||||
(in millions) | Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Total revenue |
$ | | $ | 830 | $ | 550 | $ | 14 | $ | 1,394 | ||||||||||
Costs and expenses: |
||||||||||||||||||||
Cost of sales and direct operating |
| 343 | 371 | 14 | 728 | |||||||||||||||
Sales, marketing and administration |
20 | 144 | 81 | | 245 | |||||||||||||||
Product development |
| 45 | 39 | | 84 | |||||||||||||||
Depreciation and amortization |
| 51 | 19 | | 70 | |||||||||||||||
Amortization of acquisition-related
intangible assets |
1 | 92 | 38 | | 131 | |||||||||||||||
Merger costs |
| | | | | |||||||||||||||
21 | 675 | 548 | 14 | 1,258 | ||||||||||||||||
Income (loss) from operations |
(21 | ) | 155 | 2 | | 136 | ||||||||||||||
Net interest income (expense) |
(137 | ) | (14 | ) | 13 | | (138 | ) | ||||||||||||
Other income (expense) |
60 | 11 | (6 | ) | (89 | ) | (24 | ) | ||||||||||||
Income (loss) before income taxes |
(98 | ) | 152 | 9 | (89 | ) | (26 | ) | ||||||||||||
Provision (benefit) for income taxes |
(63 | ) | 73 | (1 | ) | | 9 | |||||||||||||
Net income (loss) |
$ | (35 | ) | $ | 79 | $ | 10 | $ | (89 | ) | $ | (35 | ) | |||||||
19
Table of Contents
Supplemental Condensed Consolidating Schedule of Operations | ||||||||||||||||||||
Three Months Ended September 30, 2009 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | ||||||||||||||||||
(in millions) | Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Total revenue |
$ | | $ | 842 | $ | 520 | $ | (25 | ) | $ | 1,337 | |||||||||
Costs and expenses: |
||||||||||||||||||||
Cost of sales and direct operating |
| 354 | 313 | (25 | ) | 642 | ||||||||||||||
Sales, marketing and administration |
23 | 137 | 102 | | 262 | |||||||||||||||
Product development |
| 44 | 33 | | 77 | |||||||||||||||
Depreciation and amortization |
| 54 | 20 | | 74 | |||||||||||||||
Amortization of acquisition-related
intangible assets |
1 | 99 | 50 | | 150 | |||||||||||||||
Merger costs |
| | | | | |||||||||||||||
24 | 688 | 518 | (25 | ) | 1,205 | |||||||||||||||
Income (loss) from operations |
(24 | ) | 154 | 2 | | 132 | ||||||||||||||
Net interest income (expense) |
(141 | ) | 13 | (32 | ) | | (160 | ) | ||||||||||||
Other income (expense) |
238 | (55 | ) | (15 | ) | (183 | ) | (15 | ) | |||||||||||
Income (loss) before income taxes |
73 | 112 | (45 | ) | (183 | ) | (43 | ) | ||||||||||||
Benefit from (provision for) income taxes |
(113 | ) | 126 | (10 | ) | | 3 | |||||||||||||
Net income (loss) |
$ | (40 | ) | $ | 238 | $ | (55 | ) | $ | (183 | ) | $ | (40 | ) | ||||||
Supplemental Condensed Consolidating Schedule of Operations | ||||||||||||||||||||
Nine Months Ended September 30, 2008 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | ||||||||||||||||||
(in millions) | Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Total revenue |
$ | | $ | 2,654 | $ | 1,505 | $ | (106 | ) | $ | 4,053 | |||||||||
Costs and expenses: |
||||||||||||||||||||
Cost of sales and direct operating |
| 1,205 | 925 | (106 | ) | 2,024 | ||||||||||||||
Sales, marketing and administration |
69 | 448 | 298 | | 815 | |||||||||||||||
Product development |
| 140 | 101 | | 241 | |||||||||||||||
Depreciation and amortization |
| 152 | 55 | | 207 | |||||||||||||||
Amortization of acquisition-related
intangible assets |
3 | 278 | 80 | | 361 | |||||||||||||||
Merger costs |
| | | | | |||||||||||||||
72 | 2,223 | 1,459 | (106 | ) | 3,648 | |||||||||||||||
Income (loss) from operations |
(72 | ) | 431 | 46 | | 405 | ||||||||||||||
Net interest income (expense) |
(392 | ) | (5 | ) | (23 | ) | | (420 | ) | |||||||||||
Other income (expense) |
238 | (1 | ) | (29 | ) | (257 | ) | (49 | ) | |||||||||||
Income (loss) before income taxes |
(226 | ) | 425 | (6 | ) | (257 | ) | (64 | ) | |||||||||||
Provision (benefit) for income taxes |
(171 | ) | 168 | (6 | ) | | (9 | ) | ||||||||||||
Net income (loss) |
$ | (55 | ) | $ | 257 | $ | | $ | (257 | ) | $ | (55 | ) | |||||||
20
Table of Contents
Supplemental Condensed Consolidating Schedule of Operations | ||||||||||||||||||||
Nine Months Ended September 30, 2009 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | ||||||||||||||||||
(in millions) | Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Total revenue |
$ | | $ | 2,532 | $ | 1,579 | $ | (70 | ) | $ | 4,041 | |||||||||
Costs and expenses: |
||||||||||||||||||||
Cost of sales and direct operating |
| 1,091 | 1,017 | (70 | ) | 2,038 | ||||||||||||||
Sales, marketing and administration |
68 | 434 | 290 | | 792 | |||||||||||||||
Product development |
| 126 | 99 | | 225 | |||||||||||||||
Depreciation and amortization |
| 160 | 55 | | 215 | |||||||||||||||
Amortization of acquisition-related
intangible assets |
2 | 302 | 100 | | 404 | |||||||||||||||
Merger costs |
1 | | | | 1 | |||||||||||||||
71 | 2,113 | 1,561 | (70 | ) | 3,675 | |||||||||||||||
Income (loss) from operations |
(71 | ) | 419 | 18 | | 366 | ||||||||||||||
Net interest income (expense) |
(411 | ) | 36 | (90 | ) | | (465 | ) | ||||||||||||
Other income (expense) |
402 | (66 | ) | 6 | (336 | ) | 6 | |||||||||||||
Income (loss) before income taxes |
(80 | ) | 389 | (66 | ) | (336 | ) | (93 | ) | |||||||||||
Benefit from (provision for) income taxes |
(1 | ) | 13 | | | 12 | ||||||||||||||
Net income (loss) |
$ | (81 | ) | $ | 402 | $ | (66 | ) | $ | (336 | ) | $ | (81 | ) | ||||||
Supplemental Condensed Consolidating Schedule of Cash Flows | ||||||||||||||||||||
Nine Months Ended September 30, 2008 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | ||||||||||||||||||
(in millions) | Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Cash Flow From Operations |
||||||||||||||||||||
Net income (loss) |
$ | (55 | ) | $ | 257 | $ | | $ | (257 | ) | $ | (55 | ) | |||||||
Non cash adjustments |
(203 | ) | 348 | 141 | 257 | 543 | ||||||||||||||
Changes in operating assets and liabilities |
(728 | ) | 810 | (181 | ) | | (99 | ) | ||||||||||||
Cash flow provided by (used in) operations |
(986 | ) | 1,415 | (40 | ) | | 389 | |||||||||||||
Investment Activities |
||||||||||||||||||||
Intercompany transactions |
261 | (1,115 | ) | 854 | | | ||||||||||||||
Cash paid for businesses acquired by the Company, net
of cash acquired |
| (110 | ) | (64 | ) | | (174 | ) | ||||||||||||
Cash paid for property and equipment and software |
| (193 | ) | (87 | ) | | (280 | ) | ||||||||||||
Other investing activities |
| (5 | ) | 7 | | 2 | ||||||||||||||
Cash provided by (used in) investment activities |
261 | (1,423 | ) | 710 | | (452 | ) | |||||||||||||
Financing Activities |
||||||||||||||||||||
Net borrowings (repayments) of long-term debt |
1,284 | 7 | (40 | ) | | 1,251 | ||||||||||||||
Other financing activities |
(15 | ) | | | | (15 | ) | |||||||||||||
Cash provided by (used in) financing activities |
1,269 | 7 | (40 | ) | | 1,236 | ||||||||||||||
Effect of exchange rate changes on cash |
| | (12 | ) | | (12 | ) | |||||||||||||
Increase (decrease) in cash and cash equivalents |
544 | (1 | ) | 618 | | 1,161 | ||||||||||||||
Beginning cash and cash equivalents |
39 | 2 | 386 | | 427 | |||||||||||||||
Ending cash and cash equivalents |
$ | 583 | $ | 1 | $ | 1,004 | $ | | $ | 1,588 | ||||||||||
21
Table of Contents
Supplemental Condensed Consolidating Schedule of Cash Flows | ||||||||||||||||||||
Nine Months Ended September 30, 2009 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | ||||||||||||||||||
(in millions) | Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Cash Flow From Operations |
||||||||||||||||||||
Net income (loss) |
$ | (81 | ) | $ | 402 | $ | (66 | ) | $ | (336 | ) | $ | (81 | ) | ||||||
Non cash adjustments |
(343 | ) | 451 | 138 | 336 | 582 | ||||||||||||||
Changes in operating assets and liabilities |
(165 | ) | (294 | ) | 322 | | (137 | ) | ||||||||||||
Cash flow provided by (used in) operations |
(589 | ) | 559 | 394 | | 364 | ||||||||||||||
Investment Activities |
||||||||||||||||||||
Intercompany transactions |
923 | (384 | ) | (539 | ) | | | |||||||||||||
Cash paid for businesses acquired by the Company, net
of cash acquired |
| (12 | ) | | | (12 | ) | |||||||||||||
Cash paid for property and equipment and software |
| (182 | ) | (73 | ) | | (255 | ) | ||||||||||||
Other investing activities |
| 1 | 2 | | 3 | |||||||||||||||
Cash provided by (used in) investment activities |
923 | (577 | ) | (610 | ) | | (264 | ) | ||||||||||||
Financing Activities |
||||||||||||||||||||
Net borrowings (repayments) of long-term debt |
(833 | ) | (7 | ) | 237 | | (603 | ) | ||||||||||||
Other financing activities |
(5 | ) | | | | (5 | ) | |||||||||||||
Cash provided by (used in) financing activities |
(838 | ) | (7 | ) | 237 | | (608 | ) | ||||||||||||
Effect of exchange rate changes on cash |
| | 12 | | 12 | |||||||||||||||
Increase (decrease) in cash and cash equivalents |
(504 | ) | (25 | ) | 33 | | (496 | ) | ||||||||||||
Beginning cash and cash equivalents |
511 | 16 | 448 | | 975 | |||||||||||||||
Ending cash and cash equivalents |
$ | 7 | $ | (9 | ) | $ | 481 | $ | | $ | 479 | |||||||||
22
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Introduction
The following discussion and analysis supplement the managements discussion and analysis in
the Form 10-12G/A for SCC and SCCII and SunGards Annual Report on Form 10-K for the year ended
December 31, 2008 and presume that readers have read or have access to the discussion and analysis
in these filings. The following discussion and analysis includes historical and certain
forward-looking information that should be read together with the accompanying Consolidated
Financial Statements, related footnotes, and the discussion below of certain risks and
uncertainties that could cause future operating results to differ materially from historical
results or from the expected results indicated by forward-looking statements. The following
discussion reflects the results of operations and financial condition of SCC, which are materially
the same as the results of operations and financial condition of SCCII and SunGard. Therefore, the
discussions provided are applicable to each of SCC, SCCII and SunGard unless otherwise noted.
Results of Operations:
The following table sets forth, for the periods indicated, certain amounts included in our
Consolidated Statements of Operations, the relative percentage that those amounts represent to
consolidated revenue (unless otherwise indicated), and the percentage change in those amounts from
period to period.
Three Months | Three Months | Percent | Nine Months | Nine Months | Percent | |||||||||||||||||||||||||||||||||||
Ended | Ended | Increase | Ended | Ended | Increase | |||||||||||||||||||||||||||||||||||
September 30, | September 30, | (Decrease) | September 30, | September 30, | (Decrease) | |||||||||||||||||||||||||||||||||||
2008 | 2009 | 2009 vs. 2008 | 2008 | 2009 | 2009 vs. 2008 | |||||||||||||||||||||||||||||||||||
percent | percent | percent | percent | |||||||||||||||||||||||||||||||||||||
of | of | of | of | |||||||||||||||||||||||||||||||||||||
(in millions) | revenue | revenue | revenue | revenue | ||||||||||||||||||||||||||||||||||||
Revenue |
||||||||||||||||||||||||||||||||||||||||
Financial systems (FS) |
$ | 774 | 56 | % | $ | 724 | 54 | % | (6 | )% | $ | 2,171 | 54 | % | $ | 2,232 | 55 | % | 3 | % | ||||||||||||||||||||
Higher education (HE) |
128 | 9 | % | 125 | 9 | % | (2 | )% | 400 | 10 | % | 389 | 10 | % | (3 | )% | ||||||||||||||||||||||||
Public sector (PS) |
94 | 7 | % | 103 | 8 | % | 10 | % | 307 | 8 | % | 289 | 7 | % | (6 | )% | ||||||||||||||||||||||||
Software & processing solutions |
996 | 71 | % | 952 | 71 | % | (4 | )% | 2,878 | 71 | % | 2,910 | 72 | % | 1 | % | ||||||||||||||||||||||||
Availability services (AS) |
398 | 29 | % | 385 | 29 | % | (3 | )% | 1,175 | 29 | % | 1,131 | 28 | % | (4 | )% | ||||||||||||||||||||||||
$ | 1,394 | 100 | % | $ | 1,337 | 100 | % | (4 | )% | $ | 4,053 | 100 | % | $ | 4,041 | 100 | % | | % | |||||||||||||||||||||
Costs and Expenses |
||||||||||||||||||||||||||||||||||||||||
Cost of
sales and direct operating |
$ | 728 | 52 | % | $ | 642 | 48 | % | (12 | )% | $ | 2,024 | 50 | % | $ | 2,038 | 50 | % | 1 | % | ||||||||||||||||||||
Sales, marketing and administration |
245 | 18 | % | 262 | 20 | % | 7 | % | 815 | 20 | % | 792 | 20 | % | (3 | )% | ||||||||||||||||||||||||
Product development |
84 | 6 | % | 77 | 6 | % | (8 | )% | 241 | 6 | % | 225 | 6 | % | (7 | )% | ||||||||||||||||||||||||
Depreciation and amortization |
70 | 5 | % | 74 | 6 | % | 6 | % | 207 | 5 | % | 215 | 5 | % | 4 | % | ||||||||||||||||||||||||
Amortization of acquisition-related intangible assets |
131 | 9 | % | 150 | 11 | % | 15 | % | 361 | 9 | % | 404 | 10 | % | 12 | % | ||||||||||||||||||||||||
Merger and other costs |
| | % | | | % | | % | | | % | 1 | | % | | % | ||||||||||||||||||||||||
$ | 1,258 | 90 | % | $ | 1,205 | 90 | % | (4 | )% | $ | 3,648 | 90 | % | $ | 3,675 | 91 | % | | % | |||||||||||||||||||||
Income from Operations |
||||||||||||||||||||||||||||||||||||||||
Financial systems (1) |
$ | 138 | 18 | % | $ | 157 | 22 | % | 14 | % | $ | 388 | 18 | % | $ | 414 | 19 | % | 7 | % | ||||||||||||||||||||
Higher education (1) |
31 | 24 | % | 33 | 26 | % | 6 | % | 91 | 23 | % | 95 | 24 | % | 4 | % | ||||||||||||||||||||||||
Public sector (1) |
16 | 17 | % | 19 | 18 | % | 19 | % | 55 | 18 | % | 55 | 19 | % | | % | ||||||||||||||||||||||||
Software & processing solutions (1) |
185 | 19 | % | 209 | 22 | % | 13 | % | 534 | 19 | % | 564 | 19 | % | 6 | % | ||||||||||||||||||||||||
Availability services (1) |
114 | 29 | % | 103 | 27 | % | (10 | )% | 326 | 28 | % | 291 | 26 | % | (11 | )% | ||||||||||||||||||||||||
Corporate administration |
(11 | ) | (1 | )% | (13 | ) | (1 | )% | 18 | % | (35 | ) | (1 | )% | (40 | ) | (1 | )% | 14 | % | ||||||||||||||||||||
Amortization of acquisition-related intangible assets |
(131 | ) | (9 | )% | (150 | ) | (11 | )% | 15 | % | (361 | ) | (9 | )% | (404 | ) | (10 | )% | 12 | % | ||||||||||||||||||||
Stock Compensation expense |
(7 | ) | (1 | )% | (8 | ) | (1 | )% | 14 | % | (21 | ) | (1 | )% | (22 | ) | (1 | )% | 5 | % | ||||||||||||||||||||
Other items (2) |
(14 | ) | (1 | )% | (9 | ) | (1 | )% | (36 | )% | (38 | ) | (1 | )% | (23 | ) | (1 | )% | (39 | )% | ||||||||||||||||||||
$ | 136 | 10 | % | $ | 132 | 10 | % | (3 | )% | $ | 405 | 10 | % | $ | 366 | 9 | % | (10 | )% | |||||||||||||||||||||
(1) | Percent of revenue is calculated as a percent of revenue from FS, HE, PS, Software and Processing Solutions, and AS, respectively. | |
(2) | Other items include certain purchase accounting adjustments and management fees paid to the Sponsors, partially offset by capitalized software development costs. |
23
Table of Contents
The following table sets forth, for the periods indicated, certain supplemental revenue
data, the relative percentage that those amounts represent to total revenue and the percentage
change in those amounts from period to period.
Three Months | Three Months | Percent | Nine Months | Nine Months | Percent | |||||||||||||||||||||||||||||||||||
Ended | Ended | Increase | Ended | Ended | Increase | |||||||||||||||||||||||||||||||||||
September 30, | September 30, | (Decrease) | September 30, | September 30, | (Decrease) | |||||||||||||||||||||||||||||||||||
2008 | 2009 | 2009 vs. 2008 | 2008 | 2009 | 2009 vs. 2008 | |||||||||||||||||||||||||||||||||||
percent | percent | percent | percent | |||||||||||||||||||||||||||||||||||||
of | of | of | of | |||||||||||||||||||||||||||||||||||||
(in millions) | revenue | revenue | revenue | revenue | ||||||||||||||||||||||||||||||||||||
Financial Systems |
||||||||||||||||||||||||||||||||||||||||
Services |
$ | 688 | 49 | % | $ | 642 | 48 | % | (7 | )% | $ | 1,921 | 47 | % | $ | 2,027 | 50 | % | 6 | % | ||||||||||||||||||||
License and resale fees |
46 | 3 | % | 43 | 3 | % | (7 | )% | 135 | 3 | % | 106 | 3 | % | (21 | )% | ||||||||||||||||||||||||
Total products and services |
734 | 53 | % | 685 | 51 | % | (7 | )% | 2,056 | 51 | % | 2,133 | 53 | % | 4 | % | ||||||||||||||||||||||||
Reimbursed expenses |
40 | 3 | % | 39 | 3 | % | (3 | )% | 115 | 3 | % | 99 | 2 | % | (14 | )% | ||||||||||||||||||||||||
$ | 774 | 56 | % | $ | 724 | 54 | % | (6 | )% | $ | 2,171 | 54 | % | $ | 2,232 | 55 | % | 3 | % | |||||||||||||||||||||
Higher Education |
||||||||||||||||||||||||||||||||||||||||
Services |
$ | 109 | 8 | % | $ | 102 | 8 | % | (6 | )% | $ | 340 | 8 | % | $ | 331 | 8 | % | (3 | )% | ||||||||||||||||||||
License and resale fees |
16 | 1 | % | 20 | 1 | % | 25 | % | 52 | 1 | % | 52 | 1 | % | | % | ||||||||||||||||||||||||
Total products and services |
125 | 9 | % | 122 | 9 | % | (2 | )% | 392 | 10 | % | 383 | 9 | % | (2 | )% | ||||||||||||||||||||||||
Reimbursed expenses |
3 | | % | 3 | | % | | % | 8 | | % | 6 | | % | (25 | )% | ||||||||||||||||||||||||
$ | 128 | 9 | % | $ | 125 | 9 | % | (2 | )% | $ | 400 | 10 | % | $ | 389 | 10 | % | (3 | )% | |||||||||||||||||||||
Public Sector |
||||||||||||||||||||||||||||||||||||||||
Services |
$ | 80 | 6 | % | $ | 73 | 5 | % | (9 | )% | $ | 262 | 6 | % | $ | 211 | 5 | % | (19 | )% | ||||||||||||||||||||
License and resale fees |
12 | 1 | % | 29 | 2 | % | 142 | % | 41 | 1 | % | 75 | 2 | % | 83 | % | ||||||||||||||||||||||||
Total products and services |
92 | 7 | % | 102 | 8 | % | 11 | % | 303 | 7 | % | 286 | 7 | % | (6 | )% | ||||||||||||||||||||||||
Reimbursed expenses |
2 | | % | 1 | | % | (50 | )% | 4 | | % | 3 | | % | (25 | )% | ||||||||||||||||||||||||
$ | 94 | 7 | % | $ | 103 | 8 | % | 10 | % | $ | 307 | 8 | % | $ | 289 | 7 | % | (6 | )% | |||||||||||||||||||||
Software & Processing Solutions |
||||||||||||||||||||||||||||||||||||||||
Services |
$ | 877 | 63 | % | $ | 817 | 61 | % | (7 | )% | $ | 2,523 | 62 | % | $ | 2,569 | 64 | % | 2 | % | ||||||||||||||||||||
License and resale fees |
74 | 5 | % | 92 | 7 | % | 24 | % | 228 | 6 | % | 233 | 6 | % | 2 | % | ||||||||||||||||||||||||
Total products and services |
951 | 68 | % | 909 | 68 | % | (4 | )% | 2,751 | 68 | % | 2,802 | 69 | % | 2 | % | ||||||||||||||||||||||||
Reimbursed expenses |
45 | 3 | % | 43 | 3 | % | (4 | )% | 127 | 3 | % | 108 | 3 | % | (15 | )% | ||||||||||||||||||||||||
$ | 996 | 71 | % | $ | 952 | 71 | % | (4 | )% | $ | 2,878 | 71 | % | $ | 2,910 | 72 | % | 1 | % | |||||||||||||||||||||
Availability Services |
||||||||||||||||||||||||||||||||||||||||
Services |
$ | 390 | 28 | % | $ | 381 | 28 | % | (2 | )% | $ | 1,156 | 29 | % | $ | 1,118 | 28 | % | (3 | )% | ||||||||||||||||||||
License and resale fees |
4 | | % | 1 | | % | (75 | )% | 7 | | % | 3 | | % | (57 | )% | ||||||||||||||||||||||||
Total products and services |
394 | 28 | % | 382 | 29 | % | (3 | )% | 1,163 | 29 | % | 1,121 | 28 | % | (4 | )% | ||||||||||||||||||||||||
Reimbursed expenses |
4 | | % | 3 | | % | (25 | )% | 12 | | % | 10 | | % | (17 | )% | ||||||||||||||||||||||||
$ | 398 | 29 | % | $ | 385 | 29 | % | (3 | )% | $ | 1,175 | 29 | % | $ | 1,131 | 28 | % | (4 | )% | |||||||||||||||||||||
Total Revenue |
||||||||||||||||||||||||||||||||||||||||
Services |
$ | 1,267 | 91 | % | $ | 1,198 | 90 | % | (5 | )% | $ | 3,679 | 91 | % | $ | 3,687 | 91 | % | | % | ||||||||||||||||||||
License and resale fees |
78 | 6 | % | 93 | 7 | % | 19 | % | 235 | 6 | % | 236 | 6 | % | | % | ||||||||||||||||||||||||
Total products and services |
1,345 | 96 | % | 1,291 | 97 | % | (4 | )% | 3,914 | 97 | % | 3,923 | 97 | % | | % | ||||||||||||||||||||||||
Reimbursed expenses |
49 | 4 | % | 46 | 3 | % | (6 | )% | 139 | 3 | % | 118 | 3 | % | (15 | )% | ||||||||||||||||||||||||
$ | 1,394 | 100 | % | $ | 1,337 | 100 | % | (4 | )% | $ | 4,053 | 100 | % | $ | 4,041 | 100 | % | | % | |||||||||||||||||||||
24
Table of Contents
Three Months Ended September 30, 2009 Compared To Three Months Ended September 30, 2008
Income from Operations:
Our total operating margin was 10% for each of the three months ended September 30, 2009 and
2008, reflecting improvement in margin in each of the software and processing businesses offset by
the increase in acquisition-related intangible asset amortization and the decline in the AS margin.
Financial Systems:
The FS operating margin was 22% and 18% for the three months ended September 30, 2009 and
2008, respectively, including the impacts of changes in currency
exchange rates, and reduced
activity in one of our trading systems businesses, a broker/dealer
with an inherently lower margin, and reduced employee-related and
consultant costs. The $19 million increase in income from
operations is primarily due to the impact of acquired businesses and lower foreign currency
transaction losses, partially offset by the impact of the decreases in professional services
revenue and in revenue at one of our broker/dealer businesses.
Higher Education:
The HE operating margin was 26% and 24% for the three months ended September 30, 2009 and
2008, respectively, primarily due to cost reductions, mainly employee-related and professional
services expenses, and a $1 million increase in software license fees, partially offset by the
impact of the decrease in professional services revenue.
Public Sector:
The PS operating margin was 18% and 17% for the three months ended September 30, 2009 and
2008, respectively, due primarily to improved performance in our U.K. business.
Availability Services:
The AS operating margin was 27% and 29% for the three months ended September 30, 2009 and
2008, respectively. The operating margin decline is primarily due
to facility expansions in Europe, which increased the fixed cost base in advance of anticipated
revenue growth, combined with declines in North American revenue and a continued shift from basic
and advanced recovery services to managed services and increased
employment-related expenses, offset in part by the impact of changes
in currency exchange rates.
Revenue:
Total revenue decreased $57 million or 4% for the three months ended September 30, 2009
compared to the third quarter of 2008. On a constant currency basis, organic revenue decreased 7%
in the third quarter of 2009 compared to the prior year period, primarily because of a decline in
revenue from one of our broker/dealer businesses and a decline in professional services revenue
across our software and processing businesses. Organic revenue is defined as revenue for businesses
owned for at least one year and further adjusted for the effects of businesses sold in the previous
twelve months. Approximately 5% of the organic revenue decline in the quarter was attributed to one
of our broker/dealer businesses. While we have seen some improvement in the tone from the first
half of 2009, spending remains cautious and the environment continues to be subject to pricing
pressure. We expect a challenging finish to 2009, and some difficulty in achieving positive organic
revenue growth in part due to comparatively strong third and fourth quarters in 2008 when organic
revenue growth on a constant currency basis was 11% and 8%, respectively.
Financial Systems:
FS revenue decreased $50 million or 6% in the third quarter of 2009 from the prior year
period. On a constant currency basis, organic revenue decreased 15% in the quarter. Approximately
$74 million or eight percentage points of the organic revenue decline was attributed to one of our
broker/dealer businesses. The broker/dealer revenue declined sequentially in two of the past three
quarters and is a function of market volatility and customer mix. In addition, our largest
broker/dealer customer, who currently trades through us on a sponsored access basis, has given us
notice that it plans to decrease its use of certain of our trading services in response to
potential regulatory changes. This decrease is expected to occur in the first quarter of 2010 and
result in a further decline in our quarterly total revenue of as much as $96 million from the third
quarter 2009 levels ($384 million annualized). The expected reduction in our annual income from
operations is expected to be more modest (between $35 and $40 million) because the revenue from
these services contains a high proportion of pass through expenses.
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Table of Contents
Professional services revenue decreased $28 million or 17%. Revenue from license and resale
fees included software license revenue of $37 million and $35 million in the three months ended
September 30, 2009 and 2008, respectively.
Higher Education:
HE revenue decreased $3 million or 2% for the three months ended September 30, 2009 compared
to the corresponding period in 2008 due entirely to a decrease in organic revenue. HE services
revenue decreased $7 million, primarily due to a decrease in professional services. Revenue from
license and resale fees included software license revenue of $8 million in the three months ended
September 30, 2009, an increase of $1 million from the prior year period.
Public Sector:
PS revenue increased $9 million or 10% for the three months ended September 30, 2009 compared
to the corresponding period in 2008. On a constant currency basis, organic revenue increased 14%,
primarily due to an increase in resale fees in the U.K. business. Revenue from license and resale fees
included software license revenue of $6 million in the three months ended September 30, 2009, an
increase of $1 million from the prior year period.
Availability Services:
AS revenue decreased $13 million or 3% in the third quarter of 2009 from the prior year
period. On a constant currency basis, organic revenue was flat in the quarter. In North America,
revenue decreased 2% overall and organically where decreases in basic and advanced recovery
services were partially offset by growth in managed services and professional fees. Revenue in
Europe decreased 8%, but grew 8% on a constant currency basis.
Costs and Expenses:
Cost of sales and direct operating expenses as a percentage of total revenue was 48% and 52%
in the three-month periods ended September 30, 2009 and 2008, respectively, largely the result of
the lower volumes of the broker/dealer business previously mentioned. Also impacting the period
were lower employee-related and consultant expenses in the software and processing businesses,
partially offset by increased costs from acquired businesses, net of a business sold in 2008.
Sales, marketing and administration expenses as a percentage of total revenue was 20% and 18%
in the three-month periods ended September 30, 2009 and 2008, respectively. Increases in sales,
marketing and administration expenses were primarily due to increases in FS employment-related
expenses, and increased costs from acquired businesses, partially offset by reduced currency
transaction losses.
Because AS product development costs are insignificant, it is more meaningful to measure
product development expenses as a percentage of revenue from software and processing solutions.
For each of the three months ended September 30, 2009 and 2008, product development costs were 8%
of revenue from software and processing solutions.
Depreciation and amortization as a percentage of total revenue was 6% and 5% in the
three-month periods ended September 30, 2009 and 2008, respectively.
Amortization of acquisition-related intangible assets as a percentage of total revenue was 11%
and 9% in the three-month periods ended September 30, 2009 and 2008, respectively. The $19 million
increase in 2009 was primarily due to an $11 million increase in impairment charges, acquisitions
made in 2008 and from shortening the remaining useful lives of certain intangible assets.
Interest expense was $165 million and $142 million for the three months ended September 30,
2009 and 2008, respectively. The increase in interest expense was due primarily to increased
borrowings from the issuance of $500 million senior notes due 2015, a $500 million increase in the
term loan, borrowings under our receivables facility, partially offset by interest rate decreases
and decreased borrowings under our revolving credit facility.
Other expense was $15 million and $24 million for the three months ended September 30, 2009
and 2008, respectively. The change is primarily attributable to $13 million of foreign currency
translation losses related to our Euro denominated term loan in the three months ended September
30, 2009 compared to $17 million of losses on Euros purchased in advance of and fees associated
with unused alternative financing commitments for the acquisition of GL
TRADE and $5 million of losses on sales of receivables related to our terminated off-balance sheet
receivables facility in the same period in 2008.
26
Table of Contents
The
effective income tax rates in the three months ended
September 30, 2009 and 2008 were (21)%
and (27)%, respectively. Income tax expense in each period reflects changes in the overall
projected taxable position for the year and the expected mix of taxable income in various
jurisdictions, and limitations on our ability to utilize certain
foreign tax credits. The reported benefit from income taxes in 2009
includes a $12 million favorable out-of-period adjustment
primarily related to our utilization of foreign tax credit
carryforwards from a prior year.
Nine Months Ended September 30, 2009 Compared To Nine Months Ended September 30, 2008
Income from Operations:
Our total operating margin was 9% for the nine months ended September 30, 2009, compared to
10% for the nine months ended September 30, 2008 primarily due to a $32 million decrease in license
fees, the decline in the AS operating margin and the increase in acquisition-related intangible
asset amortization.
Financial Systems:
The FS operating margin was 19% and 18% for the nine months ended September 30, 2009 and 2008,
respectively. The $26 million increase is primarily related to the impact of acquired businesses,
cost reductions, mainly employee and consultant-related, and the impact of the increase in revenue
at one of our broker/dealer businesses, partially offset by a $25 million decrease in software
license fees and the impact from the decrease in professional services revenue.
Higher Education:
The HE operating margin was 24% and 23% for the nine months ended September 30, 2009 and 2008,
respectively. The operating margin increase is due primarily to the impact of cost savings in the
year, mainly employee and consultant-related and professional services expenses, partially offset
by a $2 million decrease in software license fees and the impact of the decrease in professional
services revenue.
Public Sector:
The PS operating margin was 19% and 18% for the nine months ended September 30, 2009 and 2008,
respectively, primarily due to an increase in resale fees in the U.K. business.
Availability Services:
The AS operating margin was 26% and 28% for the nine months ended September 30, 2009 and 2008,
respectively. The operating margin decline is primarily due to
facility expansions in Europe and North America, which increased the fixed cost base in advance of
anticipated revenue growth, combined with a continued shift from basic and advanced recovery
services to managed services and increased employment-related
expenses, offset in part by the impact of changes in currency
exchange rates.
Revenue:
Total revenue decreased $12 million for the nine months ended September 30, 2009 compared to
the same period in 2008. On a constant currency basis, organic revenue declined 1.5% in the first
nine months of 2009 compared to the prior year period, primarily because of a decline in
professional services revenue across our software and processing businesses and decreases in
processing revenue and software license fees, partially offset by higher revenue from one of our
broker/dealer businesses. This broker/dealer business added approximately 2% to organic revenue
growth in the period.
Financial Systems:
FS revenue increased $61 million or 3% in the first nine months of 2009 from the prior year
period. On a constant currency basis, organic revenue decreased 3% in the nine-month period or
decreased 7% when excluding the revenue from one of our broker/dealer businesses. While this
broker/dealer revenue increased year over year, sequentially it declined in two of the past three
quarters and is a function of market volatility and customer mix. Professional services
revenue decreased $100 million or 21%. Revenue from license and resale fees included software
license revenue of $92 million and $117 million in the nine months ended September 30, 2009 and
2008, respectively.
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Table of Contents
Higher Education:
HE revenue decreased $11 million or 3% for the nine months ended September 30, 2009 compared
to the corresponding period in 2008 due entirely to organic revenue growth. HE services revenue
decreased $9 million, primarily due to a decrease in professional services, partially offset by an
increase in support and processing revenue. Revenue from license and resale fees included software
license revenue of $17 million in the nine months ended September 30, 2009, a decrease of $2
million from the prior year period.
Public Sector:
PS revenue decreased $18 million or 6% for the nine months ended September 30, 2009 compared
to the corresponding period in 2008. On a constant currency basis, organic revenue increased 2%.
Revenue from license and resale fees included software license revenue of $18 million in each of
the nine months ended September 30, 2009 and 2008.
Availability Services:
AS revenue decreased $44 million or 4% for the nine months ended September 30, 2009 compared
to the prior year period. On a constant currency basis, organic revenue grew 1% in the first nine
months of 2009. In North America, revenue was flat overall, but decreased 1% organically where
decreases in basic and advanced recovery services exceeded growth in managed services and
professional services revenue. Revenue in Europe decreased 16%, but grew 7% on a constant currency
basis.
Costs and Expenses:
Cost of sales and direct operating expenses as a percentage of total revenue was 50% in each
of the nine-month periods ended September 30, 2009 and 2008. Higher volumes of the
broker/dealer business and increased costs from acquired businesses, net of a business sold in
2008, were partially offset by lower FS and PS employee-related and consultant expenses.
Sales, marketing and administration expenses as a percentage of total revenue was 20% in each
of the nine-month periods ended September 30, 2009 and 2008. Organic decreases in
sales, marketing and administration expenses, most notably decreases in FS employment-related and
consultant expenses, were partially offset by increases from acquired businesses.
Because AS product development costs are insignificant, it is more meaningful to measure
product development expenses as a percentage of revenue from software and processing solutions.
For each of the nine months ended September 30, 2009 and 2008, product development costs were 8% of
revenue from software and processing solutions.
Depreciation and amortization as a percentage of total revenue was 5% in each of the
nine-month periods ended September 30, 2009 and 2008.
Amortization of acquisition-related intangible assets as a percentage of total revenue was 10%
and 9% in the nine-month periods ended September 30, 2009 and 2008, respectively. The $43 million
increase in 2009 was due to acquisitions made in 2008, from shortening the remaining useful lives
of certain intangible assets and an $11 million increase in impairment charges.
Interest expense was $471 million and $433 million for the nine months ended September 30,
2009 and 2008, respectively. The increase in interest expense was due primarily to increased
borrowings from the issuance of $500 million senior notes due 2015, a $500 million increase in the
term loan, borrowings under our receivables facility and additional borrowings under our revolving
credit facility, partially offset by interest rate decreases.
Other income was $6 million for the nine months ended September 30, 2009 compared to other
expense of $49 million for the nine months ended September 30, 2008. The change is primarily
attributable to $7 million of foreign currency translation gains primarily related to our Euro
denominated term loan in the nine months ended September 30, 2009 compared to $17 million of losses
on Euros purchased in advance of and fees associated with unused alternative financing commitments
for the acquisition of GL TRADE, $15 million of translation losses related to our Euro denominated
term loan and $13 million of losses on sales of receivables related to our terminated off-balance
sheet receivables facility in the same period in 2008.
The
effective income tax rates in the nine months ended
September 30, 2009 and 2008 were %
and 17%, respectively. The rate in both periods reflects changes in the overall projected taxable
position for the year and the expected mix of taxable income in various jurisdictions, and
limitations on our ability to utilize certain foreign tax credits. The reported benefit from income taxes in 2009
includes a $12 million favorable out-of-period adjustment
primarily related to our utilization of foreign tax credit
carryforwards from a prior year.
28
Table of Contents
Liquidity and Capital Resources:
At September 30, 2009, cash and equivalents were $479 million, a decrease of $496 million from
December 31, 2008. Cash flow provided by operations was $364 million in the nine months ended
September 30, 2009 compared to $388 million in the nine months ended September 30, 2008. The
decrease in cash flow from operations is due primarily to a $36 million increase in working capital
requirements including higher requirements for the clearing broker/dealer.
Net cash used in investing activities was $264 million in the nine months ended September 30,
2009, comprised of cash paid for property and equipment and other assets, one business acquired in
each of our FS and PS segments and payment of a contingent purchase obligation.
Net cash used in financing activities was $608 million for the nine months ended September 30,
2009, primarily related to repayment at maturity of the $250 million senior secured notes and
repayment of $500 million of borrowings under the revolving credit facility, partially offset by
cash received from the new receivables facility (net of associated fees). At September 30, 2009,
no amount was outstanding under the revolving credit facility and $259 million was outstanding
under the receivables facility. In early 2009, we entered into interest rate swap agreements, with
an aggregate notional amount of $1.2 billion, which expire in February 2012 under which we pay
fixed interest payments (at 1.78%) for the term of the swaps and, in turn, receive variable
interest payments based on LIBOR.
At September 30, 2009, contingent purchase price obligations that depend upon the operating
performance of certain acquired businesses could total $58 million, all of which could be due in
the next 12 months. We also have outstanding letters of credit and bid bonds that total
approximately $34 million.
At September 30, 2009, we have outstanding $8.34 billion in aggregate indebtedness, with
additional borrowing capacity of $808 million under the revolving credit facility (after giving
effect to outstanding letters of credit).
On June 9, 2009, SunGard entered into an amendment to the Credit Agreement (Amended Credit
Agreement) which, among other things, (a) extends the maturity date of $2.5 billion of its
dollar-denominated term loans, £40 million of pound sterling-denominated term loans, and 120
million of Euro-denominated term loans from February 2014 to February 28, 2016, (b) reduces
existing revolving credit commitments to $829 million and extends the termination date of $580
million of revolving credit commitments to May 11, 2013, and (c) amends certain other provisions of
the Credit Agreement, including provisions relating to negative covenants and financial covenants.
As of September 30, 2009, the interest rate for the extended term loans, after adjusting for
interest rate swaps, was 4.10% and for the unextended term loans, after adjusting for interest rate
swaps, was 2.02%. The commitment fee on the daily unused portion of the 2013 and 2011 revolving
credit commitments was 0.75% and 0.50%, respectively. The amended credit agreement increased our
interest payments obligation from that reported in SunGards Form 10-K filed in March 2009 and the
Form 10-12G/A for SCC and SCCII filed in June 2009 by $44 million in 2009, $87 million for
2010-2011, $86 million for 2012-2013 and $289 million thereafter.
We expect our cash flows from operations, combined with availability under the revolving
credit facility and receivables facility, to provide sufficient liquidity to fund our current
obligations, projected working capital requirements and capital spending for a period that includes
the next 12 months.
Covenant Compliance
Adjusted EBITDA is used to determine compliance with certain covenants contained in the
indentures governing the senior notes due 2013 and 2015 and senior subordinated notes due 2015 and
in SunGards senior secured credit facilities. Adjusted EBITDA is defined as EBITDA further
adjusted to exclude unusual items and other adjustments permitted in calculating covenant
compliance under the indentures and SunGards senior secured credit facilities. We believe that the
inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA are
appropriate to provide additional information to investors to demonstrate compliance with the
financing covenants.
The breach of covenants in SunGards senior secured credit facilities that are tied to ratios
based on Adjusted
EBITDA could result in a default under that agreement and the lenders could elect to declare all
amounts borrowed due and payable. Any such acceleration would also result in a default under the
indentures. Additionally, under SunGards 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 Adjusted EBITDA.
29
Table of Contents
Adjusted EBITDA is calculated as follows (in millions):
Last Twelve | ||||||||||||||||||||
Three Months Ended | Nine Months Ended | Months | ||||||||||||||||||
September 30, | September 30, | September 30, | ||||||||||||||||||
2008 | 2009 | 2008 | 2009 | 2009 | ||||||||||||||||
Net income (loss) |
$ | (35 | ) | $ | (40 | ) | $ | (55 | ) | $ | (81 | ) | $ | (268 | ) | |||||
Interest expense, net |
138 | 160 | 420 | 465 | 626 | |||||||||||||||
Taxes |
9 | (3 | ) | (9 | ) | (12 | ) | 35 | ||||||||||||
Depreciation and amortization |
201 | 224 | 568 | 619 | 844 | |||||||||||||||
Goodwill impairment charge |
| | | | 128 | |||||||||||||||
EBITDA |
313 | 341 | 924 | 991 | 1,365 | |||||||||||||||
Purchase accounting adjustments (a) |
25 | 5 | 45 | 13 | 23 | |||||||||||||||
Non-cash charges (b) |
8 | 8 | 22 | 25 | 39 | |||||||||||||||
Unusual or non-recurring charges (c) |
9 | 3 | 17 | 13 | 47 | |||||||||||||||
Acquired EBITDA, net of disposed EBITDA (d) |
5 | | 13 | | 1 | |||||||||||||||
Pro forma
expense savings related to acquisitions (e) |
| | | 1 | 5 | |||||||||||||||
Other (f) |
7 | 16 | 31 | 6 | 48 | |||||||||||||||
Adjusted EBITDA senior secured
credit facilities |
367 | 373 | 1,052 | 1,049 | 1,528 | |||||||||||||||
Loss on sale of receivables (g) |
4 | | 13 | | 12 | |||||||||||||||
Adjusted EBITDA senior notes due
2013 and 2015
and senior subordinated notes due 2015 |
$ | 371 | $ | 373 | $ | 1,065 | $ | 1,049 | $ | 1,540 | ||||||||||
(a) | Purchase accounting adjustments include the adjustment of deferred revenue and lease reserves to fair value at the date of the Transaction and subsequent acquisitions made by the Company and certain acquisition-related compensation expense. | |
(b) | Non-cash charges include stock-based compensation and loss on the sale of assets. | |
(c) | Unusual or non-recurring charges include debt refinancing costs, severance and related payroll taxes, and certain other expenses associated with acquisitions made by the Company. | |
(d) | Acquired EBITDA net of disposed EBITDA reflects the EBITDA impact of businesses that were acquired or disposed of during the period as if the acquisition or disposition occurred at the beginning of the period. | |
(e) | Pro forma adjustments represent the full-year impact of savings resulting from post-acquisition integration activities. | |
(f) | Other includes gains or losses related to fluctuation of foreign currency exchange rates, management fees paid to the Sponsors and franchise and similar taxes reported in operating expenses, partially offset by interest charges relating to the off-balance sheet accounts receivable securitization facility. | |
(g) | The loss on sale of receivables under the off-balance sheet accounts receivable securitization facility was added back in calculating Adjusted EBITDA for purposes of the indentures governing the senior notes due 2013 and 2015 and the senior subordinated notes due 2015 but was not added back in calculating Adjusted EBITDA for purposes of the senior secured credit facilities. |
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The covenant requirements and actual ratios for the twelve months ended September 30, 2009 are
as follows:
Covenant | Actual | |||||||
Requirements | Ratios | |||||||
Senior secured credit facilities (1) |
||||||||
Minimum Adjusted EBITDA to consolidated interest expense ratio |
1.65x | 2.64x | ||||||
Maximum total debt to Adjusted EBITDA |
6.75x | 5.02x | ||||||
Senior notes due 2013 and senior subordinated notes due 2015 (2) |
||||||||
Minimum
Adjusted EBITDA to fixed charges ratio required to incur additional debt pursuant to ratio provisions |
2.00x | 2.62x |
(1) | The senior secured credit facilities require us to maintain an Adjusted EBITDA to consolidated interest expense ratio starting at a minimum of 1.65x for the four-quarter period ended December 31, 2008 and increasing over time to 1.70x by the end of 2009, to 1.80x by the end of 2010 and 2.20x by the end of 2013. Consolidated interest expense is defined in the senior secured credit facilities as consolidated cash interest expense less cash interest income further adjusted for certain non-cash or non-recurring interest expense and the elimination of interest expense and fees associated with SunGards receivables facility. Beginning with the four-quarter period ending December 31, 2008, we are required to maintain a consolidated total debt to Adjusted EBITDA ratio of 6.75x and decreasing over time to 6.25x by the end of 2009 and to 4.75x by the end of 2013. Consolidated total debt is defined in the senior secured credit facilities as total debt less certain indebtedness and further adjusted for cash and cash equivalents on SunGards balance sheet in excess of $50 million. Failure to satisfy these ratio requirements would constitute a default under the senior secured credit facilities. If the lenders failed to waive any such default, the repayment obligations under the senior secured credit facilities could be accelerated, which would also constitute a default under the indentures. | |
(2) | Our ability to incur additional debt and make certain restricted payments under the indentures, subject to specified exceptions, is tied to an Adjusted EBITDA to fixed charges ratio of at least 2.0x, except that we may incur certain debt and make certain restricted payments and certain permitted investments without regard to the ratio, such as the ability to incur up to an aggregate principal amount of $5.75 billion under credit facilities (inclusive of amounts outstanding under the senior credit facilities from time to time; as of September 30, 2009, we had $4.73 billion outstanding under the term loan facilities and available commitments of $808 million under the revolving credit facility), to acquire persons engaged in a similar business that become restricted subsidiaries and to make other investments equal to 6% of SunGards consolidated assets. Fixed charges is defined in the indentures governing the Senior Notes due 2013 and 2015 and the Senior Subordinated Notes due 2015 as consolidated interest expense less interest income, adjusted for acquisitions, and further adjusted for non-cash interest and the elimination of interest expense and fees associated with the receivables facility. |
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Certain Risks and Uncertainties
Certain of the matters we discuss in this Report on Form 10-Q may constitute forward-looking
statements. You can identify forward-looking statements because they contain words such as
believes, expects, may, will, should, seeks, approximately, intends, plans,
estimates, or anticipates or similar expressions which concern our strategy, plans or
intentions. All statements we make relating to estimated and projected earnings, margins, costs,
expenditures, cash flows, growth rates and financial results are forward-looking statements. In
addition, we, through our senior management, from time to time make forward-looking public
statements concerning our expected future operations and performance and other developments. All of
these forward-looking statements are subject to risks and uncertainties that may change at any
time, and, therefore, our actual results may differ materially from those we expected. We derive
most of our forward-looking statements from our operating budgets and forecasts, which are based
upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution
that it is very difficult to predict the impact of known factors, and, of course, it is impossible
for us to anticipate all factors that could affect our actual results. Some of the factors that we
believe could affect our results include: our high degree of leverage; general economic and market
conditions; the condition of the financial services industry, including the effect of any further
consolidation among financial services firms; the integration of acquired businesses, the
performance of acquired businesses, and the prospects for future acquisitions; the effect of war,
terrorism, natural disasters or other catastrophic events; the effect of disruptions to our systems
and infrastructure; the timing and magnitude of software sales; the timing and scope of
technological advances; customers taking their information availability solutions in-house; the
trend in information availability toward solutions utilizing more dedicated resources; the market
and credit risks associated with clearing broker operations; the ability to retain and attract
customers and key personnel; risks relating to the foreign countries where we transact business;
the ability to obtain patent protection and avoid patent-related liabilities in the context of a
rapidly developing legal framework for software and business-method patents; and a material
weakness in our internal controls. The factors described in this paragraph and other factors that
may affect our business or future financial results are discussed in our filings with the
Securities and Exchange Commission, including this Form 10-Q. We assume no obligation to update any
written or oral forward-looking statement made by us or on our behalf as a result of new
information, future events or other factors.
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, with a substantial
portion having initial maturities of three months or less. When necessary, we have borrowed to fund
acquisitions.
At September 30, 2009, we had total debt of $8.34 billion, including $4.99 billion of variable
rate debt. We have entered into interest rate swap agreements which fixed the interest rates for
$3.50 billion of our variable rate debt. Swap agreements with a notional value of $800 million
effectively fix our interest rates at 5.00% and expire in February 2011. Swap agreements expiring
in February 2010 and 2011 each have a notional value of $750 million and, effectively, fix our
interest rates at 2.71% and 3.17%, respectively. Swap agreements expiring in February 2012 have a
notional value of $1.2 billion and effectively fix our interest rates at 1.78%. Our remaining
variable rate debt of $1.49 billion is subject to changes in underlying interest rates, and,
accordingly, our interest payments will fluctuate. During the period when all of our interest rate
swap agreements are effective, a 1% change in interest rates would result in a change in interest
of approximately $15 million per year. Upon the expiration of each interest rate swap agreement in
February 2010, February 2011 and February 2012, a 1% change in interest rates would result in a
change in interest of approximately $22 million, $38 million and $50 million per year,
respectively.
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 defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the
period covered by this Report. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures as of the end of the period
covered by this Report were effective.
No change in our internal control over financial reporting occurred during our most recent
fiscal quarter that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
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Table of Contents
Part II Other Information:
Item 1. Legal Proceedings: None.
Item 1A. Risk Factors: There have been no material changes to SunGards Risk Factors as previously
disclosed in its Form 10-K for the year ended December 31, 2008. There have been no material
changes to SCCs or SCCIIs Risk Factors as previously disclosed in their Form 10-12G/A.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds: None.
Item 3. Defaults Upon Senior Securities: None.
Item 4. Submission of Matters to Vote of Security Holders: The stockholders of each of SunGard,
SCC and SCCII, approved by written consent dated September 16, 2009, the election of the following
persons as directors to serve in such capacity until his or her successor is designated and
qualified, or until he or she sooner dies, resigns, is removed or becomes disqualified: Chinh Chu,
Cristóbal Conde, John Connaughton, James H. Greene, Jr., Glenn Hutchins, James L. Mann, John
Marren, Sanjeev Mehra and Julie Richardson.
Item 5. Other Information:
(a) None.
(b) None.
Item 6. Exhibits:
Number | Document | |
10.1
|
Form of Amendment to the Performance Based Stock Option Award Agreements (incorporated by reference to the Exhibits filed with Schedule TO of SunGard Capital Corp. and SunGard Capital Corp. II, each filed August 13, 2009 (Commission File Nos. 5-84880 and 5-84881, respectively)). | |
10.2
|
Form of Amendment to the Performance-Based Restricted Stock Unit Award Agreements (incorporated by reference to the Exhibits filed with Schedule TO of SunGard Capital Corp. and SunGard Capital Corp. II, each filed August 13, 2009 (Commission File Nos. 5-84880 and 5-84881, respectively)). | |
10.3
|
Form of Amendment to the Performance-Based Class A Stock Option Award Agreements (incorporated by reference to the Exhibits filed with Schedule TO of SunGard Capital Corp. and SunGard Capital Corp. II, each filed August 13, 2009 (Commission File Nos. 5-84880 and 5-84881, respectively)). | |
10.4*
|
Forms of 2009 Senior Management Performance-Based Restricted Stock Unit Award Agreements. | |
10.5*
|
Forms of 2009 Senior Management Performance-Based Class A Stock Option Award Agreements. | |
10.6*
|
Form of 2009 Senior Management Time-Based Restricted Stock Unit Award Agreement. | |
10.7*
|
Form of 2009 Senior Management Time-Based Class A Stock Option Award Agreement. | |
12.1*
|
Computation of Ratio of Earnings to Fixed Charges. | |
31.1*
|
Certification of Cristóbal Conde, Chief Executive Officer of SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2*
|
Certification of Michael J. Ruane, Chief Financial Officer of SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1*
|
Certification of Cristóbal Conde, Chief Executive Officer of SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2*
|
Certification of Michael J. Ruane, Chief Financial Officer of SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002. |
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
SUNGARD CAPITAL CORP. SUNGARD CAPITAL CORP. II |
||||
Dated: November 5, 2009 | By: | /s/ Michael J. Ruane | ||
Michael J. Ruane | ||||
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
||||
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 hereunto duly authorized.
SUNGARD DATA SYSTEMS INC. |
||||
Dated: November 5, 2009 | By: | /s/ Michael J. Ruane | ||
Michael J. Ruane | ||||
Senior Vice President-Finance and Chief Financial Officer (Principal Financial Officer) |
34
Table of Contents
Exhibit Index
Number | Document | |
10.1
|
Form of Amendment to the Performance Based Stock Option Award Agreements (incorporated by reference to the Exhibits filed with Schedule TO of SunGard Capital Corp. and SunGard Capital Corp. II, each filed August 13, 2009 (Commission File Nos. 5-84880 and 5-84881, respectively)). | |
10.2
|
Form of Amendment to the Performance-Based Restricted Stock Unit Award Agreements (incorporated by reference to the Exhibits filed with Schedule TO of SunGard Capital Corp. and SunGard Capital Corp. II, each filed August 13, 2009 (Commission File Nos. 5-84880 and 5-84881, respectively)). | |
10.3
|
Form of Amendment to the Performance-Based Class A Stock Option Award Agreements (incorporated by reference to the Exhibits filed with Schedule TO of SunGard Capital Corp. and SunGard Capital Corp. II, each filed August 13, 2009 (Commission File Nos. 5-84880 and 5-84881, respectively)). | |
10.4*
|
Forms of 2009 Senior Management Performance-Based Restricted Stock Unit Award Agreements. | |
10.5*
|
Forms of 2009 Senior Management Performance-Based Class A Stock Option Award Agreements. | |
10.6*
|
Form of 2009 Senior Management Time-Based Restricted Stock Unit Award Agreement. | |
10.7*
|
Form of 2009 Senior Management Time-Based Class A Stock Option Award Agreement. | |
12.1*
|
Computation of Ratio of Earnings to Fixed Charges. | |
31.1*
|
Certification of Cristóbal Conde, Chief Executive Officer of SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2*
|
Certification of Michael J. Ruane, Chief Financial Officer of SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1*
|
Certification of Cristóbal Conde, Chief Executive Officer of SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2*
|
Certification of Michael J. Ruane, Chief Financial Officer of SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002. |
* Filed herewith.
35