UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 8, 2016
SS&C Technologies Holdings, Inc.
(Exact name of Registrant as Specified in Its Charter)
Delaware | 001-34675 | 71-0987913 | ||
(State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) | ||
80 Lamberton Road, Windsor, CT | 06095 | |||
(Address of Principal Executive Offices) | (Zip Code) |
Registrants telephone number, including area code: (860) 298-4500
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 8.01. | Other Events |
Revised Historical Financial Statements
SS&C Technologies Holdings, Inc. (the Company or we or us or our) is filing this Current Report on Form 8-K to provide supplemental guarantor financial information pursuant to Rule 3-10 of Regulation S-X regarding certain subsidiaries that guarantee our 5.875% senior notes due 2023 (collectively, the Subsidiary Guarantors). We are disclosing condensed consolidating financial information of the Subsidiary Guarantors: (1) in a new footnote to our historical consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2015, filed with the U.S. Securities and Exchange Commission (SEC) on February 29, 2016 (the SS&C Form 10-K); (2) in a new footnote to Advent Software, Inc.s (Advents) historical consolidated financial statements in the annual report on Form 10-K for the year ended December 31, 2014, filed with SEC on February 24, 2015 (the Advent 10-K); and (3) in a new footnote to Advents historical consolidated financial statements in Exhibit 99.2 to our Amended Current Report on Form 8-K filed with the SEC on September 17, 2015 (the SS&C Form 8-K/A).
We are filing our historical consolidated financial statements as Exhibit 99.1 and Advents historical consolidated financial statements as Exhibits 99.2 and 99.3 to this Current Report on Form 8-K solely to include the new footnote referenced above related to the Subsidiary Guarantors, and are incorporating them herein by reference. All other information provided in the SS&C Form 10-K, the Advent Form 10-K and the SS&C Form 8-K/A remains unchanged, and this Form 8-K does not modify or update the disclosures in the reports in any way other than the inclusion of required supplemental guarantor financial information. The revised historical financial statements should be read in conjunction with other information that we and Advent have filed with the SEC.
Item 9.01. | Financial Statements and Exhibits |
(d) Exhibits
23.1 Consent of PricewaterhouseCoopers LLP, with respect to SS&C Technologies Holdings, Inc.
23.2 Consent of PricewaterhouseCoopers LLP, with respect to Advent Software, Inc.
99.1 Consolidated Financial Statements and Notes thereto updated to disclose condensed consolidating guarantor financial information with respect to SS&C Technologies Holdings, Inc. (which replaces and supersedes Part IV, Item 15(a)(1) of the SS&C Form 10-K filed with the SEC on February 29, 2016).
99.2 Consolidated Financial Statements and Notes thereto updated to disclose condensed consolidating guarantor financial information with respect to Advent Software, Inc. (which replaces and supersedes Part II, Item 8 of the Advent Form 10-K filed with the SEC on February 24, 2015).
99.3 Consolidated Financial Statements and Notes thereto updated to disclose condensed consolidating guarantor financial information with respect to Advent Software, Inc. (which replaces and supersedes Exhibit 99.2 to SS&C Form 8-K/A filed with the SEC on September 17, 2015).
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
SS&C TECHNOLOGIES HOLDINGS, INC. | ||||||
Date: April 8, 2016 | By: | /s/ Patrick J. Pedonti | ||||
Patrick J. Pedonti | ||||||
Senior Vice President and Chief Financial Officer |
EXHIBIT INDEX
Exhibit No. |
Description | |
23.1 | Consent of PricewaterhouseCoopers LLP, with respect to SS&C Technologies Holdings, Inc. | |
23.2 | Consent of PricewaterhouseCoopers LLP, with respect to Advent Software, Inc. | |
99.1 | Audited Consolidated Financial Statements and Notes thereto updated to disclose condensed consolidating guarantor financial information with respect to SS&C Technologies Holdings, Inc. (which replaces and supersedes Part IV, Item 15(a)(1) of the SS&C Form 10-K filed with the SEC on February 29, 2016). | |
99.2 | Audited Consolidated Financial Statements and Notes thereto updated to disclose condensed consolidating guarantor financial information with respect to Advent Software, Inc. (which replaces and supersedes Part II, Item 8 of the Advent Form 10-K filed with the SEC on February 24, 2015). | |
99.3 | Unaudited Consolidated Financial Statements and Notes thereto updated to disclose condensed consolidating guarantor financial information with respect to Advent Software, Inc. (which replaces and supersedes Exhibit 99.2 to SS&C Form 8-K/A filed with the SEC on September 17, 2015). |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-205705, No. 333-197943, No. 333-187599, No. 333-167796 and No. 333-165810) and Form S-3 (No. 333-205026) of SS&C Technologies Holdings, Inc. of our report dated February 26, 2016, except with respect to our opinion on the consolidated financial statements insofar as it relates to the guarantor and non-guarantor financial information within Note 16 as to which the date is April 8, 2016 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Current Report on Form 8-K dated April 8, 2016.
/s/ PricewaterhouseCoopers LLP |
Hartford, Connecticut |
April 8, 2016 |
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-205705, No. 333-197943, No. 333-187599, No. 333-167796 and No. 333-165810) and Form S-3 (No. 333-205026) SS&C Technologies Holdings, Inc. of our report dated February 24, 2015, except with respect to our opinion on the consolidated financial statements insofar as it relates to the guarantor and non-guarantor financial information within Note 18, as to which the date is April 8, 2016 relating to the financial statements of Advent Software, Inc., which appears in this Current Report on Form 8-K dated April 8, 2016.
/s/ PricewaterhouseCoopers LLP |
San Jose, California |
April 8, 2016 |
Exhibit 99.1
SS&C TECHNOLOGIES HOLDINGS, INC
PART IV
Item 15. | Exhibits and Financial Statement Schedules |
(a)
1. | Financial Statements |
The following financial statements are filed as part of this annual report:
Document |
Page | |||
Report of Independent Registered Public Accounting Firm |
F-2 | |||
Consolidated Balance Sheets as of December 31, 2015 and 2014 |
F-3 | |||
Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2015, 2014 and 2013 |
F-4 | |||
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013 |
F-5 | |||
Consolidated Statements of Changes in Stockholders Equity for the years ended December 31, 2015, 2014 and 2013 |
F-6 | |||
Notes to Consolidated Financial Statements |
F-7 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of SS&C Technologies Holdings, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of SS&C Technologies Holdings, Inc. and its subsidiaries at December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the Report of Management on Internal Control over Financial Reporting appearing under Item 9A of SS&C Technologies Holdings, Inc.s Annual Report on Form 10-K for the year ended December 31, 2015. Our responsibility is to express opinions on these financial statements and on the Companys internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it presents debt issuance costs in the consolidated balance sheets in 2015.
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in the Report of Management on Internal Control Over Financial Reporting, management has excluded Advent Software, Inc. (Advent) from its assessment of internal control over financial reporting as of December 31, 2015 because they were acquired by the Company in a purchase business combination during 2015. We have also excluded Advent from our audit of internal control over financial reporting. Advent, and its related entities are wholly owned subsidiaries of the Company whose total assets and total revenues represent 2% and 16%, respectively, of the consolidated financial statement amounts as of and for the year ended December 31, 2015.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
February 26, 2016, except with respect to our opinion on the consolidated financial statements insofar as it relates to the guarantor and non-guarantor financial information discussed in Note 16, as to which the date is April 8, 2016
F-2
SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2015 |
December 31, 2014 |
|||||||
(In thousands, except share and per share data) | ||||||||
ASSETS | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 434,159 | $ | 109,577 | ||||
Accounts receivable, net of allowance for doubtful accounts of $2,957 and $2,241, respectively (Note 3) |
169,951 | 94,359 | ||||||
Prepaid expenses and other current assets |
27,511 | 14,927 | ||||||
Prepaid income taxes |
40,627 | 11,857 | ||||||
Deferred income taxes |
| 2,975 | ||||||
Restricted cash |
2,818 | 1,477 | ||||||
|
|
|
|
|||||
Total current assets |
675,066 | 235,172 | ||||||
Property, plant and equipment: |
||||||||
Land |
2,655 | 2,655 | ||||||
Building and improvements |
37,855 | 28,521 | ||||||
Equipment, furniture, and fixtures |
97,274 | 79,564 | ||||||
|
|
|
|
|||||
137,784 | 110,740 | |||||||
Less: accumulated depreciation |
(70,641 | ) | (56,463 | ) | ||||
|
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|
|
|||||
Net property, plant and equipment |
67,143 | 54,277 | ||||||
Deferred income taxes |
2,199 | 1,135 | ||||||
Goodwill |
3,549,212 | 1,573,227 | ||||||
Intangible and other assets, net of accumulated amortization of $536,929 and $416,708, respectively (Note 2) |
1,508,622 | 402,344 | ||||||
|
|
|
|
|||||
Total assets |
$ | 5,802,242 | $ | 2,266,155 | ||||
|
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|
|
|||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities: |
||||||||
Current portion of long-term debt (Note 6) |
$ | 32,281 | $ | 20,470 | ||||
Accounts payable |
11,957 | 12,004 | ||||||
Income taxes payable |
1,428 | 1,116 | ||||||
Accrued employee compensation and benefits |
83,894 | 53,975 | ||||||
Deferred income taxes |
| 110 | ||||||
Interest payable |
28,903 | | ||||||
Other accrued expenses |
36,231 | 30,666 | ||||||
Deferred revenue |
222,024 | 73,254 | ||||||
|
|
|
|
|||||
Total current liabilities |
416,718 | 191,595 | ||||||
Long-term debt, net of current portion (Note 6) |
2,719,070 | 599,268 | ||||||
Other long-term liabilities |
51,434 | 26,446 | ||||||
Deferred income taxes |
509,574 | 102,176 | ||||||
|
|
|
|
|||||
Total liabilities |
3,696,796 | 919,485 | ||||||
|
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|
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Commitments and contingencies (Note 12) |
||||||||
Stockholders equity (Notes 2 and 4): |
||||||||
Common stock: |
||||||||
Class A non-voting common stock, $0.01 par value per share, 5,000,000 shares authorized; 2,703,846 shares issued and outstanding |
27 | 27 | ||||||
Common stock, $0.01 par value per share, 200,000,000 shares and 100,000,000 shares authorized, respectively; 96,552,226 shares and 82,268,722 shares issued, respectively, and 95,765,787 shares and 81,482,283 shares outstanding, respectively, of which 12,438 and 17,188 are unvested, respectively |
966 | 822 | ||||||
Additional paid-in capital |
1,794,115 | 964,845 | ||||||
Accumulated other comprehensive income |
(83,170 | ) | (15,121 | ) | ||||
Retained earnings |
411,493 | 414,082 | ||||||
|
|
|
|
|||||
2,123,431 | 1,364,655 | |||||||
Less: cost of common stock in treasury, 786,439 shares |
(17,985 | ) | (17,985 | ) | ||||
|
|
|
|
|||||
Total stockholders equity |
2,105,446 | 1,346,670 | ||||||
|
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|
|
|||||
Total liabilities and stockholders equity |
$ | 5,802,242 | $ | 2,266,155 | ||||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
Year Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
(In thousands, except per share data) | ||||||||||||
Revenues: |
||||||||||||
Software-enabled services |
$ | 670,170 | $ | 592,528 | $ | 552,565 | ||||||
Maintenance and term licenses |
246,422 | 115,609 | 112,889 | |||||||||
|
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|
|||||||
Total recurring revenues |
916,592 | 708,137 | 665,454 | |||||||||
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|
|||||||
Perpetual licenses |
31,467 | 26,328 | 19,207 | |||||||||
Professional services |
52,226 | 33,396 | 28,041 | |||||||||
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|
|
|||||||
Total non-recurring revenues |
83,693 | 59,724 | 47,248 | |||||||||
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|||||||||
Total revenues |
1,000,285 | 767,861 | 712,702 | |||||||||
|
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|
|
|||||||
Cost of revenues: |
||||||||||||
Software-enabled services |
373,394 | 342,625 | 322,719 | |||||||||
Maintenance and term licenses |
113,865 | 41,424 | 41,215 | |||||||||
|
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|
|
|
|
|||||||
Total recurring cost of revenues |
487,259 | 384,049 | 363,934 | |||||||||
Perpetual licenses |
3,116 | 3,531 | 5,133 | |||||||||
Professional services |
41,975 | 23,151 | 19,733 | |||||||||
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|
|||||||
Total non-recurring cost of revenues |
45,091 | 26,682 | 24,866 | |||||||||
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|
|||||||
Total cost of revenues |
532,350 | 410,731 | 388,800 | |||||||||
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|||||||
Gross profit |
467,935 | 357,130 | 323,902 | |||||||||
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Operating expenses: |
||||||||||||
Selling and marketing |
94,950 | 48,592 | 41,885 | |||||||||
Research and development |
110,415 | 57,287 | 53,862 | |||||||||
General and administrative |
97,832 | 50,879 | 45,187 | |||||||||
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|
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Total operating expenses |
303,197 | 156,758 | 140,934 | |||||||||
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|
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Operating income |
164,738 | 200,372 | 182,968 | |||||||||
Interest income |
1,976 | 1,705 | 1,116 | |||||||||
Interest expense |
(79,333 | ) | (27,177 | ) | (42,395 | ) | ||||||
Other income, net |
3,878 | 2,754 | 3,498 | |||||||||
Loss on extinguishment of debt |
(30,417 | ) | | | ||||||||
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Income before income taxes |
60,842 | 177,654 | 145,187 | |||||||||
Provision for income taxes (Note 5) |
17,980 | 46,527 | 27,292 | |||||||||
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Net income |
$ | 42,862 | $ | 131,127 | $ | 117,895 | ||||||
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Basic earnings per share |
$ | 0.47 | $ | 1.57 | $ | 1.45 | ||||||
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Basic weighted average number of common shares outstanding |
91,098 | 83,314 | 81,195 | |||||||||
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Diluted earnings per share |
$ | 0.45 | $ | 1.50 | $ | 1.38 | ||||||
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Diluted weighted average number of common and common equivalent shares outstanding |
95,448 | 87,331 | 85,616 | |||||||||
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Net income |
$ | 42,862 | $ | 131,127 | $ | 117,895 | ||||||
Other comprehensive loss, net of tax: |
||||||||||||
Foreign currency exchange translation adjustment |
(68,049 | ) | (45,495 | ) | (21,144 | ) | ||||||
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Total comprehensive loss, net of tax |
(68,049 | ) | (45,495 | ) | (21,144 | ) | ||||||
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Comprehensive (loss) income |
$ | (25,187 | ) | $ | 85,632 | $ | 96,751 | |||||
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The accompanying notes are an integral part of these consolidated financial statements.
F-4
SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
(In thousands) | ||||||||||||
Cash flow from operating activities: |
||||||||||||
Net income |
$ | 42,862 | $ | 131,127 | $ | 117,895 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
150,834 | 99,831 | 99,780 | |||||||||
Stock-based compensation expense |
44,079 | 11,483 | 8,386 | |||||||||
Income tax benefit related to exercise of stock options |
(32,960 | ) | (15,454 | ) | (24,194 | ) | ||||||
Amortization and write-offs of loan origination costs |
8,126 | 5,839 | 5,830 | |||||||||
Loss on extinguishment of debt |
3,954 | | | |||||||||
Loss on sale or disposition of property and equipment |
336 | 687 | 317 | |||||||||
Deferred income taxes |
(39,806 | ) | (13,583 | ) | (11,069 | ) | ||||||
Provision for doubtful accounts |
1,137 | 610 | 666 | |||||||||
Changes in operating assets and liabilities, excluding effects from acquisitions: |
||||||||||||
Accounts receivable |
(12,160 | ) | 3,902 | 814 | ||||||||
Prepaid expenses and other current assets |
(6,019 | ) | (6,419 | ) | (4,695 | ) | ||||||
Accounts payable |
(5,586 | ) | 1,525 | (4,032 | ) | |||||||
Accrued expenses |
4,073 | 10,140 | 1,695 | |||||||||
Income taxes prepaid and payable |
11,514 | 21,560 | 18,060 | |||||||||
Deferred revenue |
60,240 | 1,284 | (1,184 | ) | ||||||||
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|
|||||||
Net cash provided by operating activities |
230,624 | 252,532 | 208,269 | |||||||||
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Cash flow from investing activities: |
||||||||||||
Additions to property and equipment |
(13,600 | ) | (15,040 | ) | (11,921 | ) | ||||||
Proceeds from sale of property and equipment |
64 | 42 | 67 | |||||||||
Cash paid for business acquisitions, net of cash acquired (Note 11) |
(2,730,956 | ) | (86,911 | ) | (3,657 | ) | ||||||
Additions to capitalized software |
(4,273 | ) | (3,517 | ) | (2,399 | ) | ||||||
Net changes in restricted cash |
453 | 983 | | |||||||||
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|
|||||||
Net cash used in investing activities |
(2,748,312 | ) | (104,443 | ) | (17,910 | ) | ||||||
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|
|||||||
Cash flow from financing activities: |
||||||||||||
Cash received from debt borrowings, net of original issue discount |
3,068,075 | 75,000 | | |||||||||
Repayments of debt |
(903,448 | ) | (212,000 | ) | (239,000 | ) | ||||||
Proceeds from exercise of stock options |
30,092 | 24,110 | 27,817 | |||||||||
Withholding taxes related to equity award net share settlement |
(6,939 | ) | | | ||||||||
Payment of contingent consideration |
| (500 | ) | | ||||||||
Income tax benefit related to exercise of stock options |
32,960 | 15,454 | 24,194 | |||||||||
Proceeds from common stock issuance, net |
717,802 | | | |||||||||
Purchase of common stock for treasury |
| (11,223 | ) | (943 | ) | |||||||
Payment of fees related to refinancing activities |
(46,025 | ) | (512 | ) | (1,917 | ) | ||||||
Dividends paid on common stock |
(45,451 | ) | (10,494 | ) | | |||||||
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|||||||
Net cash provided by (used in) financing activities |
2,847,066 | (120,165 | ) | (189,849 | ) | |||||||
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Effect of exchange rate changes on cash and cash equivalents |
(4,796 | ) | (2,817 | ) | (2,200 | ) | ||||||
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|||||||
Net increase in cash and cash equivalents |
324,582 | 25,107 | (1,690 | ) | ||||||||
Cash and cash equivalents, beginning of period |
109,577 | 84,470 | 86,160 | |||||||||
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Cash and cash equivalents, end of period |
$ | 434,159 | $ | 109,577 | $ | 84,470 | ||||||
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Supplemental disclosure of cash paid for: |
||||||||||||
Interest |
$ | 42,221 | $ | 21,330 | $ | 36,551 | ||||||
Income taxes, net of refunds |
$ | 42,210 | $ | 33,414 | $ | 21,584 |
Supplemental disclosure of non-cash investing activities:
See Note 11 for a discussion of acquisitions.
The accompanying notes are an integral part of these consolidated financial statements.
F-5
SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013
Class A | ||||||||||||||||||||||||||||||||||||
Common Stock | Common Stock | Accumulated | ||||||||||||||||||||||||||||||||||
Number | Number | Other | ||||||||||||||||||||||||||||||||||
of | of | Additional | Comprehensive | Total | ||||||||||||||||||||||||||||||||
Issued | Issued | Paid-in | Retained | Income | Treasury | Stockholders | ||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Earnings | (Loss) | Stock | Equity | ||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||
Balance, at December 31, 2012 |
1,429 | $ | 14 | 78,141 | $ | 781 | $ | 853,455 | $ | 175,554 | $ | 51,518 | $ | (5,819 | ) | $ | 1,075,503 | |||||||||||||||||||
Net income |
| | | | | 117,895 | | | 117,895 | |||||||||||||||||||||||||||
Foreign exchange translation adjustment |
| | | | | | (21,144 | ) | | (21,144 | ) | |||||||||||||||||||||||||
Stock-based compensation expense |
| | | | 8,386 | | | | 8,386 | |||||||||||||||||||||||||||
Exercise of options |
1,275 | 13 | 2,312 | 23 | 27,781 | | | | 27,817 | |||||||||||||||||||||||||||
Income tax benefit related to exercise of stock options |
| | | | 24,194 | | | | 24,194 | |||||||||||||||||||||||||||
Issuance of common stock |
| | 25 | | | | | | | |||||||||||||||||||||||||||
Purchase of common stock |
| | | | | | | (943 | ) | (943 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance, at December 31, 2013 |
2,704 | $ | 27 | 80,478 | $ | 804 | $ | 913,816 | $ | 293,449 | $ | 30,374 | $ | (6,762 | ) | $ | 1,231,708 | |||||||||||||||||||
Net income |
| | | | | 131,127 | | | 131,127 | |||||||||||||||||||||||||||
Foreign exchange translation adjustment |
| | | | | | (45,495 | ) | | (45,495 | ) | |||||||||||||||||||||||||
Stock-based compensation expense |
| | | | 11,483 | | | | 11,483 | |||||||||||||||||||||||||||
Exercise of options |
| | 1,790 | 18 | 24,092 | | | | 24,110 | |||||||||||||||||||||||||||
Income tax benefit related to exercise of stock options |
| | | | 15,454 | | | | 15,454 | |||||||||||||||||||||||||||
Cash dividends declared - $0.125 per share (Note 4) |
| | | | | (10,494 | ) | | | (10,494 | ) | |||||||||||||||||||||||||
Purchase of common stock |
| | | | | | | (11,223 | ) | (11,223 | ) | |||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
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|
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|
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|
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|
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Balance, at December 31, 2014 |
2,704 | $ | 27 | 82,268 | $ | 822 | $ | 964,845 | $ | 414,082 | $ | (15,121 | ) | $ | (17,985 | ) | $ | 1,346,670 | ||||||||||||||||||
Net income |
| | | | | 42,862 | | | 42,862 | |||||||||||||||||||||||||||
Foreign exchange translation adjustment |
| | | | | | (68,049 | ) | | (68,049 | ) | |||||||||||||||||||||||||
Stock-based compensation expense |
| | | | 43,746 | | | | 43,746 | |||||||||||||||||||||||||||
Exercise of options, net of withholding taxes |
| | 2,207 | 22 | 23,131 | | | | 23,153 | |||||||||||||||||||||||||||
Non-cash purchase price consideration (Note 11) |
| | | | 11,753 | | | | 11,753 | |||||||||||||||||||||||||||
Income tax benefit related to exercise of stock options |
| | | | 32,960 | | | | 32,960 | |||||||||||||||||||||||||||
Cash dividends declared - $0.50 per share (Note 4) |
| | | | | (45,451 | ) | | | (45,451 | ) | |||||||||||||||||||||||||
Issuance of common stock |
| | 12,077 | 122 | 717,680 | | | | 717,802 | |||||||||||||||||||||||||||
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Balance, at December 31, 2015 |
2,704 | $ | 27 | 96,552 | $ | 966 | $ | 1,794,115 | $ | 411,493 | $ | (83,170 | ) | $ | (17,985 | ) | $ | 2,105,446 | ||||||||||||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
F-6
SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SS&C Technologies Holdings, Inc., or Holdings, is our top-level holding company. SS&C Technologies, Inc., or SS&C, is our primary operating company and a wholly-owned subsidiary of SS&C Technologies Holdings, Inc. The Company means SS&C Technologies Holdings, Inc. and its consolidated subsidiaries, including SS&C.
Note 1Organization
The Company provides software products and software-enabled services to the financial services industry, primarily in North America. The Company also has operations in Europe, Asia, Australia and Africa. The Companys portfolio of over 90 products and software-enabled services allows its clients to automate and integrate front-office functions such as trading and modeling, middle-office functions such as portfolio management and reporting, and back-office functions such as accounting, performance measurement, reconciliation, reporting, processing and clearing. The Company provides its products and related services in eight vertical markets in the financial services industry:
1. | Alternative investments; |
2. | Insurance and pension funds; |
3. | Asset and wealth management; |
4. | Financial institutions; |
5. | Commercial lenders; |
6. | Real estate property management; |
7. | Municipal finance; and |
8. | Financial markets. |
Note 2Summary of Significant Accounting Policies
Use of Estimates
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used for, but not limited to, collectability of accounts receivable, costs to complete certain contracts, valuation of acquired assets and liabilities, valuation of stock options, income tax accruals and the value of deferred tax assets. Estimates are also used to determine the remaining economic lives and carrying value of fixed assets, goodwill and intangible assets. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant accounts, transactions and profits between the consolidated companies have been eliminated in consolidation. Unconsolidated investments in entities over which the Company does not have control but has the ability to exercise influence over operating and financial policies, if any, are accounted for under the equity method of accounting. Earnings and losses from such investments are recorded on a pre-tax basis, if any.
Reclassifications
In connection with the acquisition of Advent and the related increase in term license revenues, the Company condensed its presentation of revenues on its Consolidated Statements of Comprehensive Income to illustrate its two types of revenue streams: recurring revenues and non-recurring revenues. Recurring revenues consist of software-enabled services and maintenance and term licenses. Non-recurring revenues consist of professional services and perpetual licenses.
The Companys prior presentation required that revenues from term license agreements be allocated between license revenue and maintenance revenue, with the license portion being reported together with revenue from perpetual license agreements as Software licenses, and the maintenance portion being reported together with maintenance revenue related to perpetual licenses as Maintenance. The Company reclassified $10.0 million and $9.5 million from Software licenses to Maintenance and term licenses for the years ended December 31, 2014 and 2013, respectively. In connection with the reclassification of revenues, the Company reclassified the related costs of revenues, which were immaterial. The revised presentation better illustrates the nature of the Companys revenues and costs of revenues by indicating the recurring nature of the license portion of revenue from maintenance and term license agreements. The Company has not changed its accounting methods for revenue recognition.
F-7
Revenue Recognition
The Companys payment terms for software licenses typically require that the total fee be paid upon signing of the contract. Maintenance services are typically due in full at the beginning of the maintenance period. Professional services and software-enabled services are typically due and payable monthly in arrears. Normally, the Companys arrangements do not provide for any refund rights, and payments are not contingent on specific milestones or customer acceptance conditions. For arrangements that do contain such provisions, the Company defers revenue until the rights or conditions have expired or have been met.
Unbilled accounts receivable primarily relates to professional services and software-enabled services revenue that has been earned as of month end but is not invoiced until the subsequent month, and to software license revenue that has been earned and is realizable but not invoiced to clients until future dates specified in the client contract.
Deferred revenue consists of payments received related to product delivery, maintenance and other services, which have been paid by customers prior to the recognition of revenue. Deferred revenue relates primarily to cash received for maintenance contracts in advance of services being performed over the contractual term.
Software-enabled Services Revenue
The Company primarily offers software-enabled outsourcing services in which the Company utilizes its own software to offer comprehensive fund administration services for alternative investment managers, including fund manager services, transfer agency services, funds-of-funds services, tax processing and accounting. The Company also offers subscription-based on-demand software applications that are managed and hosted at our facilities. The software-enabled services arrangements provide an alternative for clients who do not wish to install, run and maintain complicated financial software. Under these arrangements, the client does not have the right to take possession of the software, rather, the Company agrees to provide access to its applications, remote use of its equipment to process transactions, access to clients data stored on its equipment, and connectivity between its environment and the clients computing systems.
Software-enabled services are generally provided under non-cancelable contracts with initial terms of one to five years that require monthly or quarterly payments, and are subject to automatic annual renewal at the end of the initial term unless terminated by either party.
The Company recognizes software-enabled services revenues on a monthly basis as the software-enabled services are provided and when pervasive evidence of an arrangement exists, the price is fixed or determinable and collectability is reasonably assured. The Company does not recognize any revenue before services are performed. Certain contracts contain additional fees for increases in market value, pricing and trading activity. Revenues related to these additional fees are recognized in the month in which the activity occurs based upon the Companys summarization of account information and trading volume.
Maintenance and Term Licenses Revenue Agreements
Maintenance agreements generally require the Company to provide technical support and software updates (on a when-and-if-available basis) to its clients. Such services are generally provided under one-year renewable contracts. Maintenance revenues are recognized ratably over the term of the maintenance agreement.
The Company also sells term licenses ranging from one to seven years, many of which include bundled maintenance services. For those arrangements with bundled maintenance services, VSOE does not exist for the maintenance element and therefore the total fee is recognized ratably over the contractual term of the arrangement.
Perpetual Licenses Revenue
The Company follows the principles of accounting standards relating to software revenue recognition, which provide guidance on applying GAAP in recognizing revenue on software transactions. Accounting standards require that revenue recognized from software transactions be allocated to each element of the transaction based on the relative fair values of the elements, such as software products, specified upgrades, enhancements, post-contract client support, installation or training. The determination of fair value is based upon vendor-specific objective evidence (VSOE). The Company recognizes perpetual licenses revenues allocated to software products and enhancements generally upon delivery of each of the related products or enhancements, assuming all other revenue recognition criteria are met. In the rare occasion that a perpetual license agreement includes the right to a specified upgrade or product, the Company defers all revenues under the arrangement until the specified upgrade or product is delivered, since typically VSOE does not exist to support the fair value of the specified upgrade or product.
F-8
The Company generally recognizes revenue from sales of software or products including proprietary software upon product shipment and receipt of a signed contract, provided that collection is probable and all other revenue recognition criteria are met. The Company sells perpetual software licenses in conjunction with professional services for installation and maintenance. For these arrangements, the total contract value is attributed first to the maintenance arrangement based on its fair value, which is derived from stated renewal rates. The contract value is then attributed to professional services based on estimated fair value, which is derived from the rates charged for similar services provided on a stand-alone basis. The Companys software license agreements generally do not require significant modification or customization of the underlying software, and, accordingly, implementation services provided by the Company are not considered essential to the functionality of the software. The remainder of the total contract value is then attributed to the software license based on the residual method.
The Company occasionally enters into license agreements requiring significant customization of the Companys software. The Company accounts for the license fees under these agreements on the percentage-of-completion basis. This method requires estimates to be made for costs to complete the agreement utilizing an estimate of development man-hours remaining. Revenue is recognized each period based on the hours incurred to date compared to the total hours expected to complete the project. Due to uncertainties inherent in the estimation process, it is at least reasonably possible that completion costs may be revised. Such revisions are recognized in the period in which the revisions are determined. Provisions for estimated losses on uncompleted contracts are determined on a contract-by-contract basis, and are made in the period in which such losses are first estimated or determined.
Professional Services Revenue
The Company provides consulting and training services to its clients. Revenues for such services are generally recognized over the period during which the services are performed. The Company typically charges for professional services on a time-and-materials basis. However, some contracts are for a fixed fee. For the fixed-fee arrangements, an estimate is made of the total hours expected to be incurred to complete the project. Due to uncertainties inherent in the estimation process, it is at least reasonably possible that completion costs may be revised. Such revisions are recognized in the period in which the revisions are determined. Revenues are recognized each period based on the hours incurred to date compared to the total hours expected to complete the project.
Research and Development
Research and development costs associated with computer software are charged to expense as incurred. Capitalization of internally developed computer software costs begins upon the establishment of technological feasibility based on a working model. Net capitalized software costs of $4.7 million and $4.2 million are included in the December 31, 2015 and 2014 balance sheets, respectively, under Intangible and other assets.
The Companys policy is to amortize these costs upon a products general release to the client. Amortization of capitalized software costs is calculated by the greater of (a) the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product or (b) the straight-line method over the remaining estimated economic life of the product, including the period being reported on, typically two to five years. It is reasonably possible that those estimates of anticipated future gross revenues, the remaining estimated economic life of the product, or both could be reduced significantly due to competitive pressures. Amortization expense related to capitalized software development costs was $2.4 million, $1.8 million, and $1.0 million for each of the years ended December 31, 2015, 2014, and 2013, respectively.
Stock-based Compensation
Using the fair value recognition provisions of relevant accounting literature, stock-based compensation cost is measured at the grant date based on the estimated fair value of the award and is recognized as expense over the appropriate service period. Determining the fair value of stock-based awards requires considerable judgment, including estimating the expected term of stock options, expected volatility of the Companys stock price, and the number of awards expected to be forfeited. Differences between actual results and these estimates could have a material effect on the Companys financial results. A deferred income tax asset is recorded over the vesting period as stock compensation expense is recorded for non-qualified option awards. The realizability of the deferred tax asset is ultimately based on the actual value of the stock-based award upon exercise. If the actual value is lower than the fair value determined on the date of grant, then there could be an income tax expense for the portion of the deferred tax asset that is not realizable.
F-9
Other Income, Net
Other income, net for 2015 consists primarily of foreign currency transaction gains of $3.4 million and the liquidation of an investment. Other income, net for 2014 consists primarily of foreign currency transaction gains of $2.9 million. The gains were partially offset by an increase of $0.4 million to the contingent consideration liability for the acquisition of Prime Management Limited (Prime). Other income, net for 2013 consists primarily of foreign currency transaction gains of $3.4 million.
Income Taxes
The Company accounts for income taxes in accordance with the relevant accounting literature. An asset and liability approach is used to recognize deferred tax assets and liabilities for the future tax consequences of items that are recognized in the Companys financial statements and tax returns in different years. A valuation allowance is established against net deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the net deferred tax assets will not be realized.
The Company accounts for uncertain tax positions using a two-step approach. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes.
Cash and Cash Equivalents
The Company considers all highly liquid marketable securities with original maturities of three months or less at the date of acquisition to be cash equivalents. The Company held $303.1 million in cash equivalents at December 31, 2015 and did not hold any cash equivalents at December 31, 2014.
Restricted Cash
Restricted cash includes monies held by a bank as security for letters of credit issued due to lease requirements for office space. The letters of credit are expected to be renewed within the next twelve months, and as such, the restricted cash is classified as a current asset on the Consolidated Balance Sheet. Additionally, movements of restricted cash are included in other investing activities on the Consolidated Statement of Cash Flows.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment is calculated using a combination of straight-line and accelerated methods over the estimated useful lives of the assets as follows:
Description |
Useful Life | |
Land | | |
Buildings and improvements | 40 years | |
Equipment and software | 3-5 years | |
Furniture and fixtures | 7-10 years | |
Leasehold improvements | Shorter of lease term or estimated useful life |
Depreciation expense for the years ended December 31, 2015, 2014 and 2013 was $18.9 million, $14.3 million and $14.7 million, respectively.
Maintenance and repairs are expensed as incurred. The costs of sold or retired assets are removed from the related asset and accumulated depreciation accounts and any gain or loss is included in other income (expense), net.
Goodwill and Intangible Assets
The Company tests goodwill annually for impairment as of December 31st (and in interim periods if certain events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount). The Company has completed the required impairment tests for goodwill and has determined that no impairment existed as of December 31, 2015 or 2014. The first step of the impairment analysis, which is based on our reporting unit structure, indicated that the fair value significantly exceeded the carrying value at December 31, 2015. There were no other indefinite-lived intangible assets as of December 31, 2015 or 2014.
F-10
The following table summarizes changes in goodwill (in thousands):
Balance at December 31, 2013 |
$ | 1,541,386 | ||
2014 acquisition |
66,511 | |||
Effect of foreign currency translation |
(34,670 | ) | ||
|
|
|||
Balance at December 31, 2014 |
1,573,227 | |||
2015 acquisitions |
2,031,451 | |||
Adjustments to prior acquisitions |
(67 | ) | ||
Effect of foreign currency translation |
(55,399 | ) | ||
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|
|||
Balance at December 31, 2015 |
$ | 3,549,212 | ||
|
|
Customer relationships, completed technology and other identifiable intangible assets are amortized over lives ranging from three to 17 years based on the ratio that current cash flows for the intangible asset bear to the total of current and expected future cash flows for the intangible asset. Amortization expense associated with customer relationships, completed technology and other amortizable intangible assets was $129.5 million, $83.7 million and $84.1 million for the years ended December 31, 2015, 2014 and 2013, respectively.
A summary of the components of intangible assets is as follows (in thousands):
December 31, | ||||||||
2015 | 2014 | |||||||
Customer relationships |
$ | 1,459,550 | $ | 604,638 | ||||
Completed technology |
497,030 | 154,043 | ||||||
Trade names |
61,573 | 39,876 | ||||||
Other |
2,680 | 2,774 | ||||||
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|
|
|
|||||
2,020,833 | 801,331 | |||||||
Less: accumulated amortization |
(530,792 | ) | (412,897 | ) | ||||
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|
|
|||||
$ | 1,490,041 | $ | 388,434 | |||||
|
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|
|
Total estimated amortization expense, related to intangible assets, for each of the next five years, as of December 31, 2015, is expected to approximate (in thousands):
Year Ending December 31, |
||||
2016 |
$ | 192,618 | ||
2017 |
185,093 | |||
2018 |
180,220 | |||
2019 |
164,541 | |||
2020 |
154,122 | |||
|
|
|||
$ | 876,594 | |||
|
|
Impairment of Long-Lived Assets
The Company evaluates the recoverability of its long-lived assets when there is evidence that events or changes in circumstances have made recovery of the assets carrying value unlikely. An impairment loss would be recognized when the sum of the expected future undiscounted net cash flows is less than the carrying amount of the asset. The Company has identified no such impairment losses in the years ended December 31, 2015 and 2014.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash, cash equivalents, marketable securities, and trade receivables. The Company has cash investment policies that limit investments to investment grade securities. Concentrations of credit risk, with respect to trade receivables, are limited due to the fact that the Companys client base is highly diversified. As of December 31, 2015 and 2014, the Company had no significant concentrations of credit.
F-11
International Operations and Foreign Currency
The functional currency of each foreign subsidiary is generally the local currency. Accordingly, assets and liabilities of foreign subsidiaries are translated to U.S. dollars at period-end exchange rates, and capital stock accounts are translated at historical rates. Revenues and expenses are translated using the average rates during the period. The resulting translation adjustments are excluded from net earnings and accumulated as a separate component of stockholders equity. Foreign currency transaction gains and losses are included within other income (expense) in the results of operations in the periods in which they occur.
Comprehensive Income
Items defined as comprehensive income, such as foreign currency translation adjustments, are separately classified in the financial statements. The accumulated balance of other comprehensive income is reported separately from retained earnings and additional paid-in capital in the equity section of the Consolidated Balance Sheet. Total comprehensive income consists of net income and other accumulated comprehensive income disclosed in the equity section of the Consolidated Balance Sheet.
Recent Accounting Pronouncements
In November 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes. This ASU eliminates the requirement to present deferred tax assets and liabilities as current and noncurrent on the balance sheet. Instead, all deferred tax assets and liabilities are now classified as noncurrent. ASU 2015-17 is effective for fiscal years beginning after December 15, 2016 with early adoption permitted. In connection with the Companys early adoption of this standard in the period ended December 31, 2015, the Company has classified all deferred taxes as non-current. For the period ended December 31, 2014, future income tax benefits and payables are presented as current and non-current. For both periods, future income tax benefits and payables within the same tax paying component of a particular jurisdiction are offset for presentation in the Consolidated Balance Sheet.
In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments. The amendments in this ASU require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in ASU 2015-16 require that the acquirer record, in the same periods financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years with early adoption permitted. In connection with the Companys early adoption of this standard in the period ended December 31, 2015, the Company made certain immaterial measurement period adjustments related to acquisitions during the year ended December 31, 2015. The impact of the adoption did not have a material impact on its financial statements.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. This ASU more closely aligns the treatment of debt issuance costs with debt discounts and premiums and requires debt issuance costs be presented as a direct deduction from the carrying amount of the related debt. The amendments in this ASU are effective for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years with early adoption permitted. Retrospective application is required once adopted. In connection with the Companys early adoption of this standard in the third quarter of 2015, the Company reclassified $19.2 million of deferred financing fees from intangible and other assets to a reduction in long-term debt, net of current portion in its Condensed Consolidated Balance Sheet as of December 31, 2014. In addition, the Company recorded deferred financing fees of $55.8 million as a reduction in long-term debt, net of current portion, in its Condensed Consolidated Balance Sheet as of September 30, 2015. The change did not impact the results of operations or cash flows.
In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern. This ASU establishes specific guidance to an organizations management on their responsibility to evaluate whether there is substantial doubt about the organizations ability to continue as a going concern. The provisions of ASU 2014-15 are effective for interim and annual periods beginning after December 15, 2016. This ASU is not expected to have an impact on the Companys financial position, results of operations or cash flows.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The objective of ASU 2014-09 is to clarify the principles for recognizing revenue by removing inconsistencies and weaknesses in revenue requirements; providing a more robust framework for addressing revenue issues; improving comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets; and providing more useful information to users of financial statements through improved revenue disclosure requirements. The guidance was initially effective January 1, 2017 and early adoption was not permitted. In July 2015, the FASB approved a one-year deferral of the effective date to January 1, 2018, with an option of applying the standard
F-12
on the original effective date. As a result, the provisions of this ASU are now effective for interim and annual periods beginning after December 15, 2017. The Company is currently evaluating the impact of this standard on its financial position, results of operations and cash flows.
Basic and Diluted Earnings per Share
Earnings per share (EPS) is calculated in accordance with the relevant standards. Basic EPS includes no dilution and is computed by dividing income available to the Companys common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares consist of stock options, stock appreciation rights (SARs) and restricted stock units (RSUs) and restricted stock awards (RSAs) using the treasury stock method. Common equivalent shares are excluded from the computation of diluted earnings per share if the effect of including such common equivalent shares is anti-dilutive because their total assumed proceeds exceed the average fair value of common stock for the period. The Company has two classes of common stock, each with identical participation rights to earnings and liquidation preferences, and therefore the calculation of EPS as described above is identical to the calculation under the two-class method.
The following table sets forth the weighted average common shares used in the computation of basic and diluted EPS (in thousands):
Year Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Weighted average common shares outstanding used in calculation of basic EPS |
91,098 | 83,314 | 81,195 | |||||||||
Weighted average common stock equivalents |
4,350 | 4,017 | 4,421 | |||||||||
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|
|
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|
|||||||
Weighted average common and common equivalent shares outstanding used in calculation of diluted EPS |
95,448 | 87,331 | 85,616 | |||||||||
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|
|
Weighted average stock options, SARs, RSUs and RSAs representing 3,500,828, 1,841,840 and 133,598 shares were outstanding for the years ended December 31, 2015, 2014 and 2013, respectively, but were not included in the computation of diluted EPS because the effect of including them would be anti-dilutive.
Note 3Accounts Receivable, net
Accounts receivable are as follows (in thousands):
December 31, | ||||||||
2015 | 2014 | |||||||
Accounts receivable |
$ | 130,394 | $ | 58,223 | ||||
Unbilled accounts receivable |
42,514 | 38,377 | ||||||
Allowance for doubtful accounts |
(2,957 | ) | (2,241 | ) | ||||
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|
|
|||||
Total accounts receivable, net |
$ | 169,951 | $ | 94,359 | ||||
|
|
|
|
The following table represents the activity for the allowance for doubtful accounts during the years ended December 31, 2015, 2014 and 2013 (in thousands):
Year Ended December 31, | ||||||||||||
Allowance for Doubtful Accounts: |
2015 | 2014 | 2013 | |||||||||
Balance at beginning of period |
$ | 2,241 | $ | 2,500 | $ | 2,359 | ||||||
Charge to costs and expenses |
1,137 | 610 | 666 | |||||||||
Write-offs, net of recoveries |
(273 | ) | (785 | ) | (510 | ) | ||||||
Other adjustments |
(148 | ) | (84 | ) | (15 | ) | ||||||
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|
|
|
|
|
|||||||
Balance at end of period |
$ | 2,957 | $ | 2,241 | $ | 2,500 | ||||||
|
|
|
|
|
|
Management establishes the allowance for doubtful accounts based on historical bad debt experience. In addition, management analyzes client accounts, client concentrations, client creditworthiness, current economic trends and changes in the clients payment terms when evaluating the adequacy of the allowance for doubtful accounts.
F-13
Note 4Stockholders Equity
Public offering. In June 2015, the Company completed a public offering of its common stock. The offering included 12,075,000 newly issued shares of common stock sold by the Company (including 1,575,000 shares of common stock sold pursuant to the underwriters option to purchase additional shares) at an offering price of $61.50 per share for which the Company received total net proceeds of approximately $717.8 million.
Authorized shares. In March 2015, the Companys stockholders approved an increase in the number of authorized shares of the Companys common stock from 100,000,000 shares to 200,000,000 shares.
Dividends. In 2015, the Company paid quarterly cash dividends of $0.125 per share of common stock on March 16, 2015, June 15, 2015 and September 15, 2015 and December 15, 2015 to stockholders of record as of the close of business on March 2, 2015, June 1, 2015, September 1, 2015 and December 1, 2015, respectively, totaling $45.5 million.
Stock repurchase program. In November 2014, the Companys Board of Directors authorized the continued repurchase of up to $200 million of the Companys common stock on the open market or in privately negotiated transactions. Under the repurchase programs, the Company purchased a total of 274,726 shares for approximately $11.2 million during the year ended December 31, 2014 and a total of 23,900 shares for approximately $0.9 million during the year ended December 31, 2013. There were no repurchases in 2015. The Company uses the cost method to account for treasury stock purchases. Under the cost method, the price paid for the stock is charged to the treasury stock account.
The following table summarizes information about quarterly share repurchases:
Fiscal 2014 Price Range |
||||||||||||
Quarter |
Shares | High | Low | |||||||||
First |
90,226 | $ | 39.99 | $ | 38.06 | |||||||
Second |
95,800 | 44.48 | 39.04 | |||||||||
Third |
88,700 | 43.95 | 42.72 | |||||||||
Fourth |
| | | |||||||||
|
|
|||||||||||
Total |
274,726 | 44.48 | 38.06 |
Note 5Income Taxes
The sources of income before income taxes were as follows (in thousands):
Year Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
U.S. |
$ | 15,897 | $ | 124,032 | $ | 90,332 | ||||||
Foreign |
44,945 | 53,622 | 54,855 | |||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
$ | 60,842 | $ | 177,654 | $ | 145,187 | ||||||
|
|
|
|
|
|
The income tax provision consists of the following (in thousands):
Year Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Current: |
||||||||||||
Federal |
$ | 36,345 | $ | 36,205 | $ | 24,604 | ||||||
Foreign |
15,204 | 13,603 | 6,339 | |||||||||
State |
6,237 | 10,302 | 6,532 | |||||||||
|
|
|
|
|
|
|||||||
Total |
57,786 | 60,110 | 37,475 | |||||||||
|
|
|
|
|
|
|||||||
Deferred: |
||||||||||||
Federal |
(25,083 | ) | (9,697 | ) | (6,986 | ) | ||||||
Foreign |
(9,367 | ) | (5,318 | ) | (987 | ) | ||||||
State |
(5,356 | ) | 1,432 | (2,210 | ) | |||||||
|
|
|
|
|
|
|||||||
Total |
(39,806 | ) | (13,583 | ) | (10,183 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
$ | 17,980 | $ | 46,527 | $ | 27,292 | ||||||
|
|
|
|
|
|
F-14
The reconciliation between the expected tax expense and the actual tax provision is computed by applying the U.S. federal corporate income tax rate of 35% to income before income taxes as follows (in thousands):
Year Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Computed expected tax expense |
$ | 21,295 | $ | 62,179 | $ | 50,816 | ||||||
Increase (decrease) in income tax expense resulting from: |
||||||||||||
State income taxes (net of federal income tax benefit) |
2,656 | 7,217 | 2,621 | |||||||||
Foreign operations |
(11,281 | ) | (26,232 | ) | (17,942 | ) | ||||||
Rate change impact on tax liabilities |
(1,021 | ) | | (2,679 | ) | |||||||
Effect of valuation allowance |
3,242 | 1,351 | 785 | |||||||||
Uncertain tax positions |
3,903 | 3,933 | (2,661 | ) | ||||||||
Tax credits |
(3,493 | ) | (993 | ) | (3,325 | ) | ||||||
Non-deductible transaction costs |
2,354 | | | |||||||||
Other |
325 | (928 | ) | (323 | ) | |||||||
|
|
|
|
|
|
|||||||
Provision for income taxes |
$ | 17,980 | $ | 46,527 | $ | 27,292 | ||||||
|
|
|
|
|
|
The components of deferred income taxes at December 31, 2015 and 2014 are as follows (in thousands):
2015 | 2014 | |||||||||||||||
Deferred Tax Assets |
Deferred Tax Liabilities |
Deferred Tax Assets |
Deferred Tax Liabilities |
|||||||||||||
Tax credit carryforwards |
$ | 31,257 | $ | | $ | 4,771 | $ | | ||||||||
Deferred compensation |
23,625 | | 13,956 | | ||||||||||||
Net operating loss carryforwards |
23,249 | | 11,788 | | ||||||||||||
Accrued expenses |
9,589 | | 4,236 | | ||||||||||||
Property and equipment |
1,766 | | | 3,031 | ||||||||||||
Impaired investment interest |
846 | | 842 | | ||||||||||||
Other |
773 | | | 209 | ||||||||||||
Customer relationships |
| 390,348 | | 71,557 | ||||||||||||
Acquired technology |
| 125,022 | | 5,295 | ||||||||||||
Other intangible assets |
| 26,520 | | 29,403 | ||||||||||||
Deferred revenue |
| 20,689 | | 174 | ||||||||||||
Trade names |
| 12,379 | | 5,772 | ||||||||||||
Unremitted foreign earnings |
| 5,502 | | 5,709 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
91,105 | 580,460 | 35,593 | 121,150 | ||||||||||||
Valuation allowance |
(18,020 | ) | | (12,619 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 73,085 | $ | 580,460 | $ | 22,974 | $ | 121,150 | ||||||||
|
|
|
|
|
|
|
|
At December 31, 2015 and 2014, the Company had accrued a deferred income tax liability of $5.5 million and $5.7 million, respectively, on unremitted earnings of its Canadian subsidiary. At December 31, 2015, the Company had not accrued a deferred income tax liability of approximately $3.3 million on unremitted earnings of $50.2 million that are permanently reinvested in its other foreign subsidiaries. It is not practicable to estimate the amount of foreign tax credits that would be available to offset the $3.3 million tax liability due to complexities surrounding the foreign tax credit.
At December 31, 2015, the Company had domestic federal net operating loss carryforwards of $0.6 million, which expire in 2034 and domestic state net operating loss carryforwards of $83.8 million, which will begin to expire in 2019. At December 31, 2015, the Company had foreign net operating loss carryforwards of $66.1 million, of which $63.6 million can be carried forward indefinitely. The remaining $2.5 million will begin to expire in 2016.
At December 31, 2015, the Company had tax credit carryforwards of $31.3 million relating to domestic and foreign jurisdictions, of which $29.1 million relate to domestic tax credits that are expected to be utilized before they begin to expire in 2017, $1.3 million relate to domestic tax credits that are not expected to be utilized before they begin to expire in 2022 and $0.9 million relate to minimum alternative tax credit carryforwards at the Companys India operations that are expected to be utilized before they begin to expire in 2021. The Company recorded $36.0 million of domestic tax credit carryforwards related to acquisitions during 2015.
F-15
The Company has recorded valuation allowances of $18.0 million at December 31, 2015 related to certain foreign net operating loss carryforwards and tax credit carryforwards and $12.6 million at December 31, 2014 related to certain foreign net operating loss carryforwards. Of the $18.0 million valuation allowance recorded at December 31, 2015, $16.2 million relates to foreign net operating losses that do not expire. The change in the valuation allowance from 2014 to 2015 is primarily due to a valuation allowance recorded on domestic tax credit carryforwards and foreign net operating losses generated in 2015.
The Company operates under tax holidays in some foreign jurisdictions, which begin to expire in 2017. The availability of the tax holidays are subject to fulfillment of certain conditions. The impact of the tax holidays decreased foreign taxes by $0.7 million, which had a benefit of $0.01 per share (diluted) for the year ended December 31, 2015.
The following table summarizes the activity related to the Companys unrecognized tax benefits for the years ended December 31, 2015 and 2014 (in thousands):
Balance at January 1, 2014 |
$ | 7,640 | ||
Increases related to current year tax positions |
3,668 | |||
Decreases related to prior tax positions |
(68 | ) | ||
Increases related to acquired tax positions |
4,606 | |||
Lapse in statute of limitation |
| |||
Foreign exchange translation adjustment |
(189 | ) | ||
|
|
|||
Balance at December 31, 2014 |
15,657 | |||
Increases related to current year tax positions |
4,880 | |||
Increases related to prior tax positions |
1,179 | |||
Increases related to acquired tax positions |
37,456 | |||
Settlements |
(2,883 | ) | ||
Lapse in statute of limitation |
(60 | ) | ||
Foreign exchange translation adjustment |
(489 | ) | ||
|
|
|||
Balance at December 31, 2015 |
$ | 55,740 | ||
|
|
The Company accrued potential penalties and interest on the unrecognized tax benefits of $0.8 million and $0.3 million during 2015 and 2014, respectively, and has recorded a total liability for potential penalties and interest, including penalties and interest related to acquired unrecognized tax benefits, of $3.5 million and $2.9 million at December 31, 2015 and 2014, respectively. The Companys unrecognized tax benefits increased significantly from 2014 to 2015 due to positions taken on tax returns of acquired companies. The Companys unrecognized tax benefits as of December 31, 2015 relate to domestic and foreign taxing jurisdictions and are recorded in other long-term liabilities on the Companys Consolidated Balance Sheet at December 31, 2015.
The Company is subject to examination by tax authorities throughout the world, including such major jurisdictions as the U.S., Canada, United Kingdom, India, California, Connecticut and New York. In these major jurisdictions, the Company is no longer subject to examination by tax authorities prior to tax years ending 2009, 2011, 2012, 2012, 2000, 2012 and 2011, respectively. The Companys U.S. federal income tax returns are currently under audit for the tax periods ended December 31, 2009 through 2013. The Companys California state income tax returns are currently under audit for the tax periods ended December 31, 2001 through 2007 and December 31, 2012 through 2013. The Companys New York state income tax returns are currently under audit for the tax periods ended December 31, 2011 through 2014.
Note 6Debt
At December 31, 2015 and 2014, debt consisted of the following (in thousands):
December 31, | ||||||||
2015 | 2014 | |||||||
Senior secured credit facilities, weighted-average interest rate of 3.94% |
$ | 2,220,000 | $ | | ||||
5.875% senior notes due 2023 |
600,000 | | ||||||
Prior facility, weighted-average interest rate of 2.93% |
| 645,000 | ||||||
Unamortized original issue discount and debt issuance costs |
(68,649 | ) | (25,262 | ) | ||||
|
|
|
|
|||||
2,751,351 | 619,738 | |||||||
Less current portion of long-term debt |
32,281 | 20,470 | ||||||
|
|
|
|
|||||
Long-term debt |
$ | 2,719,070 | $ | 599,268 | ||||
|
|
|
|
F-16
Senior Secured Credit Facilities
On July 8, 2015, in connection with its acquisition of Advent Software, Inc. (Advent), the Company entered into a credit agreement with SS&C, SS&C European Holdings S.A.R.L., an indirect wholly-owned subsidiary of SS&C (SS&C Sarl) and SS&C Technologies Holdings Europe S.A.R.L., an indirect wholly-owned subsidiary of SS&C (SS&C Tech Sarl) as the borrowers (Credit Agreement). The Credit Agreement has four tranches of term loans (together the Term Loans): (i) a $98 million term A-1 facility with a five year term for borrowings by SS&C Sarl (Term A-1 Loan); (ii) a $152 million term A-2 facility with a five year term for borrowings by SS&C Tech Sarl (Term A-2 Loan); (iii) a $1.82 billion term B-1 facility with a seven year term for borrowings by SS&C (Term B-1 Loan); and (iv) a $410 million term B-2 facility with a seven year term for borrowings by SS&C Sarl (Term B-2 Loan).
In addition, the Credit Agreement has a revolving credit facility with a five year term available for borrowings by SS&C with $150 million in commitments (Revolving Credit Facility). The Revolving Credit Facility contains a $25 million letter of credit sub-facility, of which $0 has been drawn.
The Term Loans and Revolving Credit Facility bear interest, at the election of the borrowers, at the base rate (as defined in the Credit Agreement) or LIBOR, plus the applicable interest rate margin for the credit facility. The Term A-1 Loan, Term A-2 Loan and the Revolving Credit Facility initially bear interest at either LIBOR plus 2.75% or at the base rate plus 1.75%, and are subject to a step-down at any time SS&Cs consolidated net senior secured leverage ratio is less than 3.0 times, to 2.50% in the case of the LIBOR margin and 1.50% in the case of the base rate margin. The Term B-1 Loan and Term B-2 Loan initially bear interest at either LIBOR plus 3.25%, with LIBOR subject to a 0.75% floor, or at the base rate plus 2.25%, and are subject to a step-down at any time SS&Cs consolidated net leverage ratio is less than 4.0 times, to 3.00% in the case of the LIBOR margin and 2.00% in the case of the base rate margin.
A portion of the initial proceeds from the Term Loans was used to satisfy the consideration required to fund the acquisition of Advent and to repay all amounts outstanding under the Companys then-existing credit facility (Prior Facility), which was subsequently terminated. At the time of the termination of the Prior Facility, all liens and other security interests that SS&C had granted to the lenders under the Prior Facility were released. The refinancing of the Prior Facility was evaluated in accordance with FASB Accounting Standards Codification 470-50, Debt-Modifications and Extinguishments, for modification and extinguishment accounting. The Company accounted for the refinancing as a debt modification with respect to amounts that remained obligations of the same lender in the syndicate with minor changes in cash flows and as a debt extinguishment with respect to amounts that were obligations of lenders that exited the syndicate or remained in the syndicate but experienced a change in cash flows of greater than 10%. See Loss on extinguishment of debt section below.
The Company is required to make scheduled quarterly payments of 0.25% of the original principal amount of the Term B-1 Loan and Term B-2 Loan, with the balance due and payable on the seventh anniversary of its incurrence. The Company is required to make scheduled quarterly payments of 1.25% of the original principal amount of the Term A-1 Loan and Term A-2 Loan until September 30, 2017 and quarterly payments of 2.50% of the original principal amount of the Term A-1 Loan and Term A-2 Loan from December 31, 2017 until June 30, 2020 with the balance due and payable on the fifth anniversary of the incurrence thereof. No amortization is required under the Revolving Credit Facility.
The Companys obligations under the Term Loans are guaranteed by (i) Holdings and each of its existing and future U.S. wholly-owned restricted subsidiaries, in the case of the Term B-1 Loan and the Revolving Credit Facility and (ii) Holdings, SS&C and each of its existing and future wholly-owned restricted subsidiaries, in the case of the Term A-1 Loan, the Term A-2 Loan and the Term B-2 Loan.
The obligations of the U.S. loan parties under the Credit Agreement are secured by substantially all of the assets of such persons (subject to customary exceptions and limitations), including a pledge of all of the capital stock of substantially all of the U.S. wholly-owned restricted subsidiaries of such persons (with customary exceptions and limitations) and 65% of the capital stock of certain foreign restricted subsidiaries of such persons (with customary exceptions and limitations). All obligations of the non-U.S. loan parties under the Credit Agreement are secured by substantially all of Holdings and the other guarantors assets (subject to customary exceptions and limitations), including a pledge of all of the capital stock of substantially all of Holdings wholly-owned restricted subsidiaries (with customary exceptions and limitations).
The Credit Agreement includes negative covenants that, among other things and subject to certain thresholds and exceptions, limit the Companys ability and the ability of its restricted subsidiaries to incur debt or liens, make investments (including in the form of loans and acquisitions), merge, liquidate or dissolve, sell property and assets, including capital stock of its subsidiaries, pay dividends on its capital stock or redeem, repurchase or retire its capital stock, alter the business the Company conducts, amend, prepay, redeem or
F-17
purchase subordinated debt, or engage in transactions with its affiliates. The Credit Agreement also contains customary representations and warranties, affirmative covenants and events of default, subject to customary thresholds and exceptions. In addition, the Credit Agreement contains a financial covenant for the benefit of the Revolving Credit Facility as well as the Term A-1 Loan and the Term A-2 Loan, requiring the Company to maintain a consolidated net senior secured leverage ratio. As of December 31, 2015, the Company was in compliance with the financial and non-financial covenants.
Senior Notes
On July 8, 2015, in connection with the acquisition of Advent, the Company issued $600.0 million aggregate principal amount of 5.875% Senior Notes due 2023 (Senior Notes). The Senior Notes are guaranteed by SS&C and each of the Companys wholly-owned domestic subsidiaries that borrows or guarantees obligations under the Credit Agreement. The guarantees are full and unconditional and joint and several. The Senior Notes are unsecured senior obligations that are equal in right of payments to all existing and future senior debt, including the Credit Agreement.
The Company is required to use commercially reasonable efforts to file with the SEC an exchange offer registration statement pursuant to which the Company will offer in exchange for the Senior Notes, new notes identical in all material respects to the Senior Notes, and cause the exchange offer registration statement to be declared effective within 365 days following the issuance of the Senior Notes. If the Company is not able to complete the exchange offer registration statement in the period stated or at all (or a shelf registration statement with the SEC to cover resales of the Senior Notes is not declared effective), the interest rate on the notes will increase 0.25% per year. The amount of additional interest will increase an additional 0.25% per year for any subsequent 90-day period in which the Company has not yet completed and have declared effective a registration statement, up to a maximum additional interest rate of 1.00% per year.
At any time after July 15, 2018, the Company may redeem some or all of the Senior Notes, in whole or in part, at the redemption prices set forth in the indenture governing the Senior Notes plus accrued and unpaid interest to the redemption date. At any time on or before July 15, 2018, the Company may to redeem up to 35% of the aggregate principal amount of the Senior Notes at a redemption price equal to 105.875% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net proceeds of one or more equity offerings.
The indenture governing the Senior Notes contains a number of covenants that restrict, subject to certain thresholds and exceptions, the Companys ability and the ability of its restricted subsidiaries to incur debt or liens, make certain investments, pay dividends, repurchase or redeem subordinated debt, dispose of certain assets, engage in mergers or acquisitions or engage in transactions with its affiliates. Any event of default under the Credit Agreement that leads to an acceleration of those amounts due also results in a default under the indenture governing the Senior Notes.
As of December 31, 2015, there were $600.0 million in principal amount of Senior Notes outstanding.
Debt issuance costs
In connection with the Credit Agreement and the Senior Notes, the Company capitalized an aggregate of $45.8 million in financing costs. Capitalized financing costs of $6.4 million, $4.4 million and $4.4 million were amortized to interest expense in the years ended December 31, 2015, 2014 and 2013, respectively, and the Company amortized to interest expense $1.8 million, $1.4 million and $1.4 million of the original issue discount associated with the Credit Agreement and Prior Facility for the years ended December 31, 2015, 2014 and 2013, respectively. The unamortized balance of capitalized financing costs is included in intangible and other assets in the Companys Consolidated Balance Sheet.
Loss on extinguishment of debt
The Company recorded a $30.4 million loss on extinguishment of debt in 2015 in connection with the repayment and termination of its Prior Facility. The loss on early extinguishment of debt includes the write-off of a portion of the unamortized capitalized financing costs and the unamortized original issue discounts related to the Prior Facility for amounts accounted for as a debt extinguishment, as well as a portion of the financing costs related to the Credit Agreement for amounts accounted for as a debt modification.
F-18
Future maturities of debt
At December 31, 2015, annual maturities of long-term debt during the next five years and thereafter are as follows (in thousands):
Year ending December 31, | ||||
2016 |
$ | 32,281 | ||
2017 |
35,405 | |||
2018 |
44,781 | |||
2019 |
44,781 | |||
2020 and thereafter |
2,662,752 | |||
|
|
|||
$ | 2,820,000 | |||
|
|
Note 7Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.
The authoritative guidance relating to fair value measurements and disclosure establishes a valuation hierarchy for disclosure of the inputs to the valuations used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows.
| Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. |
| Level 2 inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, including interest rates, yield curves and credit risks, or inputs that are derived principally from or corroborated by observable market data through correlation. |
| Level 3 inputs are unobservable inputs based on the Companys own assumptions used to measure assets and liabilities at fair value. |
A financial assets or liabilitys classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
As of December 31, 2015 and 2014, the Company did not have any significant nonfinancial assets and nonfinancial liabilities that are measured at fair value on a non-recurring basis.
Recurring Fair Value Measurements
The Company did not have any material financial assets or liabilities that were measured at fair value as of December 31, 2015 and 2014.
Fair value of debt
The carrying amounts and fair values of financial instruments are as follows (in thousands):
December 31, 2015 | December 31, 2014 | |||||||||||||||
Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
|||||||||||||
Financial liabilities: |
||||||||||||||||
Senior secured credit facilities |
$ | 2,220,000 | $ | 2,202,105 | $ | | $ | | ||||||||
5.875% senior notes due 2023 |
600,000 | 616,500 | | | ||||||||||||
Prior facility |
| | 645,000 | 641,141 |
The above fair values, which are Level 2 liabilities, were computed based on comparable quoted market prices. The fair values of cash, accounts receivable, net, short-term borrowings, and accounts payable approximate the carrying amounts due to the short-term maturities of these instruments.
F-19
Note 8Leases
The Company is obligated under noncancelable operating leases for office space and office equipment. Total rental expense was $24.4 million, $16.7 million and $17.7 million for the years ended December 31, 2015, 2014 and 2013, respectively. The lease for the corporate facility in Windsor, Connecticut expires in 2022. Future minimum lease payments under the Companys operating leases, excluding future sublease income, as of December 31, 2015, are as follows (in thousands):
Year Ending December 31, |
||||
2016 |
$ | 30,470 | ||
2017 |
28,446 | |||
2018 |
25,725 | |||
2019 |
22,254 | |||
2020 and thereafter |
87,802 | |||
|
|
|||
$ | 194,697 | |||
|
|
The Company subleases office space to other parties under noncancelable leases. The Company received rental income under these leases of $0.2 million, $0.2 million and $1.2 million for the years ended December 31, 2015, 2014 and 2013 respectively. Future minimum lease receipts under these leases as of December 31, 2015 are as follows (in thousands):
Year Ending December 31, |
||||
2016 |
$ | 1,798 | ||
2017 |
1,828 | |||
2018 |
1,764 | |||
2019 |
1,273 | |||
2020 and thereafter |
1,632 | |||
|
|
|||
$ | 8,295 | |||
|
|
Note 9Defined Contribution Plans
The Company has a 401(k) Retirement Plan (the Plan) that covers substantially all domestic employees. Each employee may elect to contribute to the Plan, through payroll deductions, up to 50% of his or her cash compensation, subject to certain limitations. The Plan provides for a Company match of employees contributions in an amount equal to 50% of an employees contributions up to $4,000 per year. The Company offers employees a selection of various public mutual funds and several other investment options through a brokerage account but does not include Company common stock as an investment option in its Plan.
During the years ended December 31, 2015, 2014 and 2013, the Company incurred $5.8 million, $4.1 million and $3.9 million, respectively, of matching contribution expenses related to the Plan.
Note 10Stock-based Compensation
In February 2014, the Companys Board of Directors adopted an equity-based incentive plan (the 2014 Plan), which authorizes stock options to be granted for up to 3,000,000 shares of the Companys common stock, Under the 2014 Plan, which became effective in May 2014 upon stockholder approval, the exercise price of stock options is set on the grant date and may not be less than the fair market value per share on such date. Generally, stock options expire ten years from the date of grant. The Company has granted time-based stock options under the 2014 Plan.
In April 2008, the Companys Board of Directors adopted, and its stockholders approved, an equity-based incentive plan (the 2008 Plan), which authorizes equity awards to be granted for up to 10,914,967 shares of the Companys common stock, which is calculated based on an initial authorization of 1,416,661 shares of the Companys common stock and an annual increase to be added on the first day of each of the Companys fiscal years during the term of the 2008 Plan beginning in fiscal 2009 equal to the lesser of (i) 1,416,661 shares of common stock, (ii) 2% of the outstanding shares on such date or (iii) an amount determined by the Companys board of directors. Under the 2008 Plan, which became effective in July 2008, the exercise price of awards is set on the grant date and may not be less than the fair market value per share on such date. Generally, awards expire ten years from the date of grant. The Company has granted time-based options and RSUs under the 2008 Plan.
In August 2006, the Companys Board of Directors adopted an equity-based incentive plan (the 2006 Plan), which authorizes equity awards to be granted for up to 11,173,819 shares of the Companys common stock. Under the 2006 Plan, the exercise price of awards is set on the grant date and may not be less than the fair market value per share on such date. Generally, awards expire ten years from the date of grant. The Company has granted RSAs of its common stock and both time-based and performance-based options under the 2006 Plan.
F-20
The Company generally settles stock option exercises with newly issued common shares.
Restricted stock units. During the year ended December 31, 2015, the Company granted 10,395 RSUs under the 2008 Plan, which vest 25% on the first anniversary of the grant date and continue to vest 1/12th of the remaining balance each quarter thereafter for three years. The RSUs vest in full upon a change in control, subject to certain conditions. At December 31, 2015, there was approximately $17.8 million of unearned non-cash stock-based compensation related to the RSUs that the Company expects to recognize as expense over a remaining period of 3.5 years.
Restricted stock awards. During the years ended December 31, 2015 and 2013, the Company granted 1,500 and 25,000 RSAs of its common stock, respectively, under the 2006 Plan, which vest 25% on the first anniversary of the grant date and continue to vest 1/12th of the remaining balance each quarter thereafter for three years. The RSAs vest in full upon a change in control, subject to certain conditions. During 2014, there were no RSAs granted. At December 31, 2015, there was approximately $0.4 million of unearned non-cash stock-based compensation related to the RSAs that the Company expects to recognize as expense over a remaining period of 22 months. At December 31, 2014, there was approximately $0.6 million of unearned non-cash stock-based compensation related to the RSAs that the Company expects to recognize as expense over a remaining period of 32 months.
Time-based options. Time-based options granted under the 2006 Plan, the 2008 Plan or the 2014 Plan generally vest 25% on the first anniversary of the grant date and 1/36th of the remaining balance each month thereafter for 36 months. All outstanding time-based options vest upon a change in control, subject to certain conditions. Time-based options granted during 2015, 2014 and 2013 have a weighted-average grant date fair value of $14.57, $12.77 and $9.86 per share, respectively, based on the Black-Scholes option pricing model. Compensation expense is recorded on a straight-line basis over the requisite service period. The fair value of time-based options vested during the years ended December 31, 2015, 2014 and 2013 was approximately $43.5 million, $11.3 million and $8.2 million, respectively. At December 31, 2015, there was approximately $109.6 million of unearned non-cash stock-based compensation related to time-based options that the Company expects to recognize as expense over a weighted average remaining period of approximately three years.
For the time-based options valued using the Black-Scholes option-pricing model, the Company used the following weighted-average assumptions:
Time-Based awards | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Expected term to exercise (years) |
4.0 | 4.0 | 4.0 | |||||||||
Expected volatility |
26.63 | % | 29.04 | % | 28.04 | % | ||||||
Risk-free interest rate |
1.42 | % | 1.36 | % | 1.16 | % | ||||||
Expected dividend yield |
0.74 | % | 0.84 | % | 0 | % |
Expected volatility prior to March 2014 was based on a combination of the Companys historical volatility as a public company and historical volatility of the Companys peer group. Beginning in March 2014 on the four-year anniversary of the Companys initial public offering, expected volatility is based on the Companys historical volatility as a public company. Expected term to exercise is based on the Companys historical stock option exercise experience.
F-21
Total stock options, SARs, RSUs and RSAs. The amount of stock-based compensation expense recognized in the Companys Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013 was as follows (in thousands):
2015 | 2014 (1) | 2013 (1) | ||||||||||||||||||||||||||||||||||||||
Statement of Comprehensive Income |
Options, SARs |
RSUs | RSAs | Total | Options, SARs |
RSAs | Total | Options, SARs |
RSAs | Total | ||||||||||||||||||||||||||||||
Cost of software-enabled services |
$ | 6,460 | $ | 372 | $ | 17 | $ | 6,849 | $ | 3,940 | $ | | $ | 3,940 | $ | 2,925 | $ | | $ | 2,925 | ||||||||||||||||||||
Cost of maintenance and term licenses |
1,022 | 366 | | 1,388 | 282 | | 282 | 273 | | 273 | ||||||||||||||||||||||||||||||
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Cost of recurring revenues |
7,482 | 738 | 17 | 8,237 | 4,222 | | 4,222 | 3,198 | | 3,198 | ||||||||||||||||||||||||||||||
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Cost of professional services |
1,166 | 222 | | 1,388 | 443 | | 443 | 338 | | 338 | ||||||||||||||||||||||||||||||
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Cost of non-recurring revenues |
1,166 | 222 | | 1,388 | 443 | | 443 | 338 | | 338 | ||||||||||||||||||||||||||||||
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Total cost of revenues |
8,648 | 960 | 17 | 9,625 | 4,665 | | 4,665 | 3,536 | | 3,536 | ||||||||||||||||||||||||||||||
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Selling and marketing (2) |
10,637 | 3,806 | 222 | 14,665 | 2,043 | 222 | 2,265 | 1,385 | 90 | 1,475 | ||||||||||||||||||||||||||||||
Research and development |
5,676 | 2,912 | | 8,588 | 1,165 | | 1,165 | 901 | | 901 | ||||||||||||||||||||||||||||||
General and administrative |
8,270 | 2,931 | | 11,201 | 3,388 | | 3,388 | 2,331 | 143 | 2,474 | ||||||||||||||||||||||||||||||
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Total operating expenses |
24,583 | 9,649 | 222 | 34,454 | 6,596 | 222 | 6,818 | 4,617 | 233 | 4,850 | ||||||||||||||||||||||||||||||
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Total stock-based compensation expense |
$ | 33,231 | $ | 10,609 | $ | 239 | $ | 44,079 | $ | 11,261 | $ | 222 | $ | 11,483 | $ | 8,153 | $ | 233 | $ | 8,386 | ||||||||||||||||||||
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(1) | There was no stock-based compensation expense associated with RSUs in 2014 and 2013. |
(2) | For the year ended December 31, 2013, includes stock-based compensation expense of $0.1 million associated with restricted Class A stock. At December 31, 2013, there was no unearned non-cash stock based compensation related to the RSAs. |
The associated future income tax benefit recognized was $20.7 million, $3.8 million and $2.7 million for the years ended December 31, 2015, 2014 and 2013, respectively.
For the year ended December 31, 2015, the amount of cash received from the exercise of stock options was $30.1 million, with an associated tax benefit realized of $44.2 million. The intrinsic value of options exercised during the year ended December 31, 2015 was approximately $120.9 million. For the year ended December 31, 2014, the amount of cash received from the exercise of stock options was $24.1 million, with an associated tax benefit realized of $18.8 million. The intrinsic value of options exercised during the year ended December 31, 2014 was approximately $56.1 million. For the year ended December 31, 2013, the amount of cash received from the exercise of stock options was $27.8 million, with an associated tax benefit realized of $31.8 million. The intrinsic value of options exercised during the year ended December 31, 2013 was approximately $87.8 million.
In connection with its acquisition of Advent, the Company assumed Advents outstanding unvested equity awards which were converted into 2.5 million unvested stock options and SARs and 0.7 million unvested RSUs. The awards were converted into rights to receive SS&C common stock. All other terms and conditions of the awards remained unchanged. During the year ended December 31, 2015, the Company recognized stock-based compensation expense of $26.3 million related to these assumed awards, of which $11.5 million related to one-time charges for the accelerated vesting of certain awards.
F-22
The following table summarizes stock option and SAR activity as of and for the years ended December 31, 2015, 2014 and 2013:
Shares | Weighted Average Exercise Price |
|||||||
Outstanding at December 31, 2012 |
13,411,130 | $ | 12.47 | |||||
Granted(1) |
2,024,170 | 40.81 | ||||||
Cancelled/forfeited |
(332,327 | ) | 20.27 | |||||
Exercised |
(3,587,331 | ) | 7.75 | |||||
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Outstanding at December 31, 2013 |
11,515,642 | 18.70 | ||||||
Granted(2) |
2,198,825 | 55.74 | ||||||
Cancelled/forfeited |
(203,586 | ) | 30.51 | |||||
Exercised |
(1,790,233 | ) | 13.47 | |||||
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Outstanding at December 31, 2014 |
11,720,648 | 26.24 | ||||||
Equity awards assumed from Advent |
2,480,953 | 50.27 | ||||||
Granted(3) |
3,818,295 | 67.91 | ||||||
Cancelled/forfeited |
(630,844 | ) | 50.50 | |||||
Exercised |
(2,249,870 | ) | 15.45 | |||||
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Outstanding at December 31, 2015 |
15,139,182 | 41.28 | ||||||
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(1) | Of the grants during 2013, 1,798,420 were granted under the 2008 Plan and 225,750 were granted under the 2006 Plan. |
(2) | Of the grants during 2014, 450,000 were granted under the 2014 Plan, 1,632,825 were granted under the 2008 Plan and 116,000 were granted under the 2006 Plan. |
(3) | Of the grants during 2015, 515,000 were granted under the 2014 Plan, 2,739,845 were granted under the 2008 Plan and 563,450 were granted under the 2006 Plan. |
The following table summarizes RSU activity as of and for the year ended December 31, 2015 is as follows (in thousands):
Number of Shares | ||||
Outstanding at January 1, 2015 |
| |||
Equity awards assumed from Advent |
660,017 | |||
Granted |
10,395 | |||
Cancelled/forfeited |
(69,194 | ) | ||
Vested |
(122,492 | ) | ||
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Outstanding at December 31, 2015 |
478,726 | |||
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The following table summarizes information about stock options outstanding that are expected to vest and stock options outstanding that are exercisable at December 31, 2015:
Outstanding, Vested Options Currently Exercisable |
Outstanding Options Expected to Vest | |||||||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||||||
Weighted | Average | Weighted | Average | |||||||||||||||||||||||||
Average | Aggregate | Remaining | Average | Aggregate | Remaining | |||||||||||||||||||||||
Exercise | Intrinsic | Contractual | Exercise | Intrinsic | Contractual | |||||||||||||||||||||||
Shares |
Price | Value | Term | Shares | Price | Value | Term | |||||||||||||||||||||
(In thousands) | (Years) | (In thousands) | (Years) | |||||||||||||||||||||||||
6,788,912 |
$ | 21.20 | $ | 319,682 | 4.66 | 8,350,270 | $ | 57.61 | $ | 89,728 | 9.12 |
Note 11Acquisitions
Primatics Financial
On November 16, 2015, SS&C purchased all of the outstanding stock of Primatics for approximately $127.6 million, plus the costs of effecting the transaction and the assumption of certain liabilities. Primatics provides cloud-based integrated risk, compliance and financing solution for the banking industry.
The net assets and results of operations of Primatics have been included in the Companys consolidated financial statements from November 16, 2015. The fair value of the intangible assets, consisting of customer relationships, completed technology and trade
F-23
name, was determined using the income approach. Specifically, the relief-from-royalty method was utilized for the completed technology and trade name and the excess earnings method was utilized for the customer relationships. The intangible assets are amortized each year based on the ratio that the projected cash flows for the intangible assets bear to the total of current and expected future cash flows for the intangible assets. The completed technology is amortized over approximately ten years, customer relationships are amortized over approximately one to 15 years and trade name are amortized over approximately ten years, in each case the estimated lives of the assets. The remainder of the purchase price was allocated to goodwill and is not tax deductible.
There are $6.5 million in revenues from Primatics operations included in the Consolidated Statement of Comprehensive Income for the year ended December 31, 2015.
Varden Technologies
On September 1, 2015, SS&C purchased the assets of Varden for approximately $25.3 million, plus the costs of effecting the transaction and the assumption of certain liabilities. Varden provides cloud-based client and advisor communication solutions for investment firms.
The net assets and results of operations of Varden have been included in the Companys consolidated financial statements from September 1, 2015. The fair value of the intangible assets, consisting of customer relationships, completed technology, trade name and a non-compete agreement, was determined using the income approach. Specifically, the relief-from-royalty method was utilized for the completed technology and trade name, the excess earnings method was utilized for the customer relationships and the lost profits method was utilized for the non-compete agreement. The intangible assets are amortized each year based on the ratio that the projected cash flows for the intangible assets bear to the total of current and expected future cash flows for the intangible assets. The completed technology is amortized over approximately eight years, customer relationships and trade name are amortized over approximately ten years and the non-compete agreement is amortized over approximately three years, in each case the estimated lives of the assets. The remainder of the purchase price was allocated to goodwill and is tax deductible.
There are $2.5 million in revenues from Varden operations included in the Consolidated Statement of Comprehensive Income for the year ended December 31, 2015.
Advent Software, Inc.
On July 8, 2015, the Company purchased all of the outstanding stock of Advent for approximately $2.6 billion in cash, equating to $44.25 per share plus the costs, fees and expenses associated with the transaction, in part, using the equity and debt financing discussed in Notes 4 and 6. Advent provides software and services for the global investment management industry.
The net assets and results of operations of Advent have been included in the Companys consolidated financial statements from July 8, 2015. The fair value of the intangible assets, consisting of customer relationships, completed technology and trade name, was determined using the income approach. Specifically, the relief-from-royalty method was utilized for the completed technology and trade name, and the excess earnings method was utilized for the customer relationships. The intangible assets are amortized each year based on the ratio that the projected cash flows for the intangible assets bear to the total of current and expected future cash flows for the intangible assets. The completed technology is amortized over approximately twelve years, customer relationships are amortized over approximately twelve years and trade name is amortized over approximately ten years, in each case the estimated lives of the assets. The remainder of the purchase price was allocated to goodwill and is not tax deductible.
There are $155.8 million in revenues from Advent operations included in the Consolidated Statement of Comprehensive Income for the year ended December 31, 2015.
DST Global Solutions
On November 30, 2014, SS&C purchased the assets of DSTGS for approximately $95.0 million, plus the costs of effecting the transaction and the assumption of certain liabilities. DSTGS provides investment management software and services.
The net assets and results of operations of DSTGS have been included in the Companys consolidated financial statements from December 1, 2014. The purchase price was allocated to tangible and intangible assets based on their fair value at the date of acquisition. The fair value of the intangible assets, consisting of completed technology, customer relationships and trade name, was determined using the income approach. Specifically, the discounted cash flows method was utilized for customer relationships, and the relief-from-royalty method was utilized for the completed technology and trade name. The completed technology is amortized over approximately seven and eight years, customer relationships are amortized over approximately 10 to 15 years and trade names are amortized over approximately 10 years, in each case the estimated lives of the assets. The remainder of the purchase price was allocated to goodwill and is primarily not tax deductible.
F-24
The following summarizes the allocation of the purchase price for the acquisitions of Primatics, Varden, Advent and DSTGS (in thousands):
Primatics | Varden | Advent | DSTGS | |||||||||||||
Accounts receivable |
$ | 9,337 | $ | 1,186 | $ | 57,326 | $ | 8,866 | ||||||||
Fixed assets |
2,956 | 26 | 15,898 | 2,074 | ||||||||||||
Other assets |
3,439 | | 20,510 | 3,392 | ||||||||||||
Acquired client relationships and contracts |
36,980 | 9,000 | 823,000 | 17,200 | ||||||||||||
Completed technology |
33,900 | 3,700 | 311,000 | 34,200 | ||||||||||||
Trade names |
4,100 | 300 | 18,000 | 4,300 | ||||||||||||
Non-compete agreements |
| 100 | | | ||||||||||||
Goodwill |
61,685 | 12,925 | 1,956,841 | 66,444 | ||||||||||||
Deferred revenue |
(5,330 | ) | (835 | ) | (90,126 | ) | (10,185 | ) | ||||||||
Deferred income taxes |
(24,943 | ) | | (424,489 | ) | (11,626 | ) | |||||||||
Other liabilities assumed |
(6,943 | ) | (3,268 | ) | (91,428 | ) | (19,703 | ) | ||||||||
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Consideration paid, net of cash acquired |
$ | 115,181 | $ | 23,134 | $ | 2,596,532 | $ | 94,962 | ||||||||
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Additionally, the Company acquired Prime in October 2013 for approximately $4.0 million.
The consideration paid, net of cash acquired for Advent above includes $11.8 million of non-cash consideration related to the fair value of unvested acquired equity awards with a pre-acquisition service period. This amount is excluded from Cash paid for business acquisitions, net of cash acquired for the year ended December 31, 2015 on the Companys Consolidated Statement of Cash Flows.
The consideration paid, net of cash acquired above for DSTGS includes a working capital adjustment of $7.9 million, which was paid in the second quarter of 2015. This amount is included in Cash paid for business acquisitions, net of cash acquired for the year ended December 31, 2015 on the Companys Consolidated Statement of Cash Flows.
The fair value of acquired accounts receivable balances approximates the contractual amounts due from acquired customers, except for approximately $0.4 million, $2.6 million and $0.5 million of contractual amounts that are not expected to be collected as of the acquisition date and that were also reserved by the companies acquired Primatics, Advent and DSTGS, respectively.
The goodwill associated with each of the transactions above is a result of expected synergies from combining the operations of businesses acquired with the Company and intangible assets that do not qualify for separate recognition, such as an assembled workforce.
The following unaudited pro forma condensed consolidated results of operations are provided for illustrative purposes only and assume that the acquisitions of Primatics, Varden and Advent occurred on January 1, 2014 and DSTGS occurred on January 1, 2013. This unaudited pro forma information (in thousands, except per share data) should not be relied upon as being indicative of the historical results that would have been obtained if the acquisitions had actually occurred on that date, nor of the results that may be obtained in the future.
2015 | 2014 | |||||||
Revenues |
$ | 1,303,843 | $ | 1,208,148 | ||||
Net income (loss) |
$ | 43,772 | $ | (49,718 | ) | |||
Basic EPS |
$ | 0.48 | $ | (0.60 | ) | |||
Basic weighted average number of common shares outstanding |
91,098 | 83,314 | ||||||
Diluted EPS |
$ | 0.46 | $ | (0.60 | ) | |||
Diluted weighted average number of common and common equivalent shares outstanding |
95,448 | 83,314 |
F-25
Pending acquisitions
On August 18, 2015, the Company announced the acquisition of Citigroups Alternative Investor Services business, which includes Hedge Fund Services and Private Equity Fund Services, for $425 million, subject to certain adjustments. The transaction is subject to approvals by relevant regulatory authorities and other customary closing conditions. The transaction is expected to close in the first quarter of 2016.
Note 12Commitments and Contingencies
Millennium Actions
Several actions (the Millennium Actions) were filed in various jurisdictions against the Companys subsidiaries, GlobeOp Financial Services Ltd and GlobeOp Financial Services LLC (GlobeOp), alleging claims and damages with respect to a valuation agent services agreement performed by GlobeOp for the Millennium Global Emerging Credit Fund, Ltd. and Millennium Global Emerging Credit Master Fund Ltd. All substantive claims related to the Millennium Actions have been settled or resolved in favor of GlobeOp. The only remaining issue involves the allocation of attorneys fees and costs in an arbitration proceeding that was conducted in the United Kingdom, which issue is currently pending before the arbitration tribunal.
In addition to the foregoing legal proceedings, from time to time, the Company is subject to other legal proceedings and claims. In the opinion of the Companys management, the Company is not involved in any other such litigation or proceedings with third parties that management believes would have a material adverse effect on the Company or its business.
Note 13Product and Geographic Sales Information
The Company operates in one reportable segment. There were no sales to any individual clients during the periods in the three-year period ended December 31, 2015 that represented 10% or more of net sales. The Company attributes net sales to an individual country based upon location of the client.
The Company manages its business primarily on a geographic basis. The Companys reportable regions consist of the United States, Canada, Americas excluding the United States and Canada, Europe and Asia Pacific and Japan. The European region includes European countries as well as the Middle East and Africa.
Revenues by geography for the years ended December 31, were (in thousands):
2015 | 2014 | 2013 | ||||||||||
United States |
$ | 682,293 | $ | 514,803 | $ | 466,670 | ||||||
Canada |
55,562 | 63,037 | 60,980 | |||||||||
Americas, excluding United States and Canada |
22,186 | 15,745 | 16,760 | |||||||||
United Kingdom |
107,081 | 99,163 | 97,079 | |||||||||
Europe, excluding United Kingdom |
68,347 | 49,929 | 51,561 | |||||||||
Asia-Pacific and Japan |
64,816 | 25,184 | 19,652 | |||||||||
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$ | 1,000,285 | $ | 767,861 | $ | 712,702 | |||||||
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Long-lived assets as of December 31, were (in thousands):
2015 | 2014 | 2013 | ||||||||||
United States |
$ | 64,141 | $ | 60,373 | $ | 62,577 | ||||||
Canada |
5,493 | 6,376 | 6,881 | |||||||||
Americas, excluding United States and Canada |
1,301 | 1,499 | 66 | |||||||||
Europe |
4,336 | 10,204 | 9,426 | |||||||||
Asia-Pacific and Japan |
5,715 | 4,738 | 5,078 | |||||||||
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$ | 80,986 | $ | 83,190 | $ | 84,028 | |||||||
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F-26
Revenues by product group for the years ended December 31, were (in thousands):
2015 | 2014 | 2013 | ||||||||||
Portfolio management/accounting |
$ | 918,888 | $ | 691,915 | $ | 640,075 | ||||||
Trading/treasury operations |
31,992 | 32,705 | 32,949 | |||||||||
Financial modeling |
9,078 | 8,664 | 8,366 | |||||||||
Loan management/accounting |
14,205 | 8,382 | 6,683 | |||||||||
Property management |
16,176 | 15,217 | 14,622 | |||||||||
Money market processing |
8,677 | 9,421 | 8,279 | |||||||||
Training |
1,269 | 1,557 | 1,728 | |||||||||
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$ | 1,000,285 | $ | 767,861 | $ | 712,702 | |||||||
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Note 14Selected Quarterly Financial Data (Unaudited)
Unaudited quarterly results for 2015 and 2014 were:
First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter (1) | Quarter | |||||||||||||
(In thousands, except per share data) | ||||||||||||||||
2015 |
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Revenue |
$ | 205,735 | $ | 212,768 | $ | 280,894 | $ | 300,888 | ||||||||
Gross profit |
93,428 | 103,265 | 129,030 | 142,212 | ||||||||||||
Operating income |
43,133 | 58,351 | 14,952 | 48,302 | ||||||||||||
Net income (loss) |
26,246 | 39,128 | (34,610 | ) | 12,098 | |||||||||||
Basic earnings (loss) per share |
$ | 0.31 | $ | 0.46 | $ | (0.36 | ) | $ | 0.12 | |||||||
Diluted earnings (loss) per share |
$ | 0.30 | $ | 0.44 | $ | (0.36 | ) | $ | 0.12 |
(1) | During the third quarter of 2015, the Company recognized a loss on extinguishment of debt of $30.4 million and professional fees of $13.5 million associated with the Companys acquisition of Advent, both of which decreased net income for the period. |
First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
(In thousands, except per share data) | ||||||||||||||||
2014 |
||||||||||||||||
Revenue |
$ | 185,810 | $ | 188,722 | $ | 192,598 | $ | 200,731 | ||||||||
Gross profit |
84,311 | 86,489 | 91,215 | 95,115 | ||||||||||||
Operating income |
47,025 | 45,389 | 54,363 | 53,595 | ||||||||||||
Net income |
26,448 | 27,245 | 40,827 | 36,607 | ||||||||||||
Basic earnings per share |
$ | 0.32 | $ | 0.33 | $ | 0.49 | $ | 0.44 | ||||||||
Diluted earnings per share |
$ | 0.30 | $ | 0.31 | $ | 0.47 | $ | 0.42 |
Note 15Subsequent Event
Dividend declared. On February 24, 2016, the Companys Board of Directors declared a quarterly cash dividend of $0.125 per share of common stock payable on March 15, 2016 to stockholders of record as of the close of business on March 7, 2016.
Note 16Supplemental Guarantor Condensed Consolidating Financial Statements
On July 8, 2015, the Company issued $600.0 million aggregate principal amount of Senior Notes. The Senior Notes are jointly and severally and fully and unconditionally guaranteed, in each case subject to certain customary release provisions, by substantially all wholly-owned domestic subsidiaries of the Company that guarantee the Companys Senior Secured Credit Facilities (collectively Guarantors). All of the Guarantors are 100% owned by the Company. All other subsidiaries of the Company, either direct or indirect, do not guarantee the Senior Notes (Non-Guarantors). The Guarantors also unconditionally guarantee the Senior Secured Credit Facilities. There are no significant restrictions on the ability of the Company or any of the subsidiaries that are Guarantors to obtain funds from its subsidiaries by dividend or loan.
F-27
Condensed consolidating financial information as of December 31, 2015 and 2014 and for the years ended December 31, 2015, 2014 and 2013 are presented. The condensed consolidating financial information of the Company and its subsidiaries are as follows (in thousands):
December 31, 2015 | ||||||||||||||||||||
Parent | Guarantor Subsidiaries |
Non-guarantor Subsidiaries |
Consolidating and Eliminating Adjustments |
Consolidated | ||||||||||||||||
Cash and cash equivalents |
$ | | $ | 360,583 | $ | 73,576 | $ | | $ | 434,159 | ||||||||||
Accounts receivable, net |
| 127,446 | 42,505 | | 169,951 | |||||||||||||||
Prepaid expenses and other current assets |
| 15,920 | 11,591 | | 27,511 | |||||||||||||||
Prepaid income taxes |
| 38,155 | 2,472 | | 40,627 | |||||||||||||||
Restricted cash |
| 2,490 | 328 | | 2,818 | |||||||||||||||
Net property, plant and equipment |
| 31,940 | 35,203 | | 67,143 | |||||||||||||||
Investment in subsidiaries |
2,722,452 | 654,278 | | (3,376,730 | ) | | ||||||||||||||
Intercompany receivables |
| 100,992 | 34,220 | (135,212 | ) | | ||||||||||||||
Deferred income taxes, long-term |
| | 2,199 | | 2,199 | |||||||||||||||
Goodwill, intangible and other assets, net |
| 3,861,711 | 1,196,123 | | 5,057,834 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 2,722,452 | $ | 5,193,515 | $ | 1,398,217 | $ | (3,511,942 | ) | $ | 5,802,242 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Current portion of long-term debt |
$ | | $ | 17,243 | $ | 15,038 | $ | | $ | 32,281 | ||||||||||
Accounts payable |
| 7,367 | 4,590 | | 11,957 | |||||||||||||||
Intercompany payables |
| 34,220 | 100,992 | (135,212 | ) | | ||||||||||||||
Accrued expenses |
17,006 | 84,174 | 47,848 | | 149,028 | |||||||||||||||
Income taxes payable |
| | 1,428 | | 1,428 | |||||||||||||||
Deferred revenue |
| 202,252 | 19,772 | | 222,024 | |||||||||||||||
Long-term debt, net of current portion |
600,000 | 1,646,396 | 472,674 | | 2,719,070 | |||||||||||||||
Other long-term liabilities |
| 31,748 | 19,686 | | 51,434 | |||||||||||||||
Deferred income taxes, long-term |
| 447,663 | 61,9411 | | 509,574 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
617,006 | 2,471,063 | 743,939 | (135,212 | ) | 3,696,796 | ||||||||||||||
Total stockholders equity |
2,105,446 | 2,722,452 | 654,278 | (3,376,730 | ) | 2,105,446 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and stockholders equity |
$ | 2,722,452 | $ | 5,193,515 | $ | 1,398,217 | $ | (3,511,942 | ) | $ | 5,802,242 | |||||||||
|
|
|
|
|
|
|
|
|
|
F-28
December 31, 2014 | ||||||||||||||||||||
Parent | Guarantor Subsidiaries |
Non-guarantor Subsidiaries |
Consolidating and Eliminating Adjustments |
Consolidated | ||||||||||||||||
Cash and cash equivalents |
$ | | $ | 34,651 | $ | 74,926 | $ | | $ | 109,577 | ||||||||||
Accounts receivable, net |
| 46,374 | 47,985 | | 94,359 | |||||||||||||||
Prepaid expenses and other current assets |
| 3,452 | 11,475 | | 14,927 | |||||||||||||||
Prepaid income taxes |
| 8,279 | 3,578 | | 11,857 | |||||||||||||||
Deferred income taxes |
| 1,015 | 1,960 | | 2,975 | |||||||||||||||
Restricted cash |
| 1,149 | 328 | | 1,477 | |||||||||||||||
Net property, plant and equipment |
| 16,848 | 37,429 | | 54,277 | |||||||||||||||
Investment in subsidiaries |
1,346,670 | 823,473 | | (2,170,143 | ) | | ||||||||||||||
Intercompany receivables |
| 101,128 | 18,232 | (119,360 | ) | | ||||||||||||||
Deferred income taxes, long-term |
| | 1,135 | | 1,135 | |||||||||||||||
Goodwill, intangible and other assets, net |
| 882,358 | 1,093,213 | | 1,975,571 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 1,346,670 | $ | 1,918,727 | $ | 1,290,261 | $ | (2,289,503 | ) | $ | 2,266,155 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Current portion of long-term debt |
$ | | $ | 3,876 | $ | 16,594 | $ | | $ | 20,470 | ||||||||||
Accounts payable |
| 4,223 | 7,781 | | 12,004 | |||||||||||||||
Intercompany payables |
| 18,232 | 101,128 | (119,360 | ) | | ||||||||||||||
Accrued expenses |
| 35,161 | 49,590 | | 84,751 | |||||||||||||||
Income taxes payable |
| | 1,116 | | 1,116 | |||||||||||||||
Deferred revenue |
| 49,302 | 23,952 | | 73,254 | |||||||||||||||
Long-term debt, net of current portion |
| 433,398 | 165,870 | | 599,268 | |||||||||||||||
Other long-term liabilities |
| 8,421 | 18,025 | | 26,446 | |||||||||||||||
Deferred income taxes, long-term |
| 19,444 | 82,732 | | 102,176 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
| 572,057 | 466,788 | (119,360 | ) | 919,485 | ||||||||||||||
Total stockholders equity |
1,346,670 | 1,346,670 | 823,473 | (2,170,143 | ) | 1,346,670 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and stockholders equity |
$ | 1,346,670 | $ | 1,918,727 | $ | 1,290,261 | $ | (2,289,503 | ) | $ | 2,266,155 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
For the Year Ended December 31, 2015 | ||||||||||||||||||||
Parent | Guarantor Subsidiaries |
Non-guarantor Subsidiaries |
Consolidating and Eliminating Adjustments |
Consolidated | ||||||||||||||||
Revenues |
$ | | $ | 596,497 | $ | 405,371 | $ | (1,583 | ) | $ | 1,000,285 | |||||||||
Cost of revenues |
| 290,979 | 242,954 | (1,583 | ) | 532,350 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
| 305,518 | 162,417 | | 467,935 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating expenses: |
||||||||||||||||||||
Selling and marketing |
| 65,157 | 29,793 | | 94,950 | |||||||||||||||
Research and development |
| 70,090 | 40,325 | | 110,415 | |||||||||||||||
General and administrative |
| 74,011 | 23,821 | | 97,832 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
| 209,258 | 93,939 | | 303,197 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income |
| 96,260 | 68,478 | | 164,738 | |||||||||||||||
Interest expense, net |
(17,006 | ) | (41,432 | ) | (18,919 | ) | | (77,357 | ) | |||||||||||
Other (expense) income, net |
| (23,985 | ) | 27,863 | | 3,878 | ||||||||||||||
Loss on extinguishment of debt |
| (23,375 | ) | (7,042 | ) | | (30,417 | ) | ||||||||||||
Earnings from subsidiaries |
59,868 | 62,375 | | (122,243 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) before income taxes |
42,862 | 69,843 | 70,380 | (122,243 | ) | 60,842 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Provision for income taxes |
| 9,975 | 8,005 | | 17,980 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
$ | 42,862 | $ | 59,868 | $ | 62,375 | $ | (122,243 | ) | $ | 42,862 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other comprehensive (loss) gain, net of tax |
||||||||||||||||||||
Foreign currency exchange translation adjustment |
| (13,561 | ) | (54,488 | ) | | (68,049 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive (loss) gain, net of tax |
| (13,561 | ) | (54,488 | ) | | (68,049 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income (loss) |
$ | 42,862 | $ | 46,307 | $ | 7,887 | $ | (122,243 | ) | $ | (25,187 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
F-29
For the Year Ended December 31, 2014 | ||||||||||||||||||||
Parent | Guarantor Subsidiaries |
Non- guarantor Subsidiaries |
Consolidating and Eliminating Adjustments |
Consolidated | ||||||||||||||||
Revenues |
$ | | $ | 400,554 | $ | 369,226 | $ | (1,919 | ) | $ | 767,861 | |||||||||
Cost of revenues |
| 187,040 | 225,610 | (1,919 | ) | 410,731 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
| 213,514 | 143,616 | | 357,130 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating expenses: |
||||||||||||||||||||
Selling and marketing |
| 31,012 | 17,580 | | 48,592 | |||||||||||||||
Research and development |
| 35,121 | 22,166 | | 57,287 | |||||||||||||||
General and administrative |
| 32,694 | 18,185 | | 50,879 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
| 98,827 | 57,931 | | 156,758 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income |
| 114,687 | 85,685 | | 200,372 | |||||||||||||||
Interest expense, net |
| (11,024 | ) | (14,448 | ) | | (25,472 | ) | ||||||||||||
Other (expense) income, net |
| (915 | ) | 3,669 | | 2,754 | ||||||||||||||
Earnings from subsidiaries |
131,127 | 67,974 | | (199,101 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) before income taxes |
131,127 | 170,722 | 74,906 | (199,101 | ) | 177,654 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Provision for income taxes |
| 39,595 | 6,932 | | 46,527 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
$ | 131,127 | $ | 131,127 | $ | 67,974 | $ | (199,101 | ) | $ | 131,127 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other comprehensive gain (loss), net of tax |
||||||||||||||||||||
Foreign currency exchange translation adjustment |
$ | | 4,522 | (50,017 | ) | | (45,495 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive gain (loss), net of tax |
| 4,522 | (50,017 | ) | | (45,495 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income (loss) |
$ | 131,127 | $ | 135,649 | $ | 17,957 | $ | (199,101 | ) | $ | 85,632 | |||||||||
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2013 | ||||||||||||||||||||
Parent | Guarantor Subsidiaries |
Non- guarantor Subsidiaries |
Consolidating and Eliminating Adjustments |
Consolidated | ||||||||||||||||
Revenues |
$ | | $ | 350,668 | $ | 364,499 | $ | (2,465 | ) | $ | 712,702 | |||||||||
Cost of revenues |
| 172,298 | 218,967 | (2,465 | ) | 388,800 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
| 178,370 | 145,532 | | 323,902 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating expenses: |
||||||||||||||||||||
Selling and marketing |
| 25,227 | 16,658 | | 41,885 | |||||||||||||||
Research and development |
| 31,970 | 21,892 | | 53,862 | |||||||||||||||
General and administrative |
| 28,171 | 17,016 | | 45,187 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
| 85,368 | 55,566 | | 140,934 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income |
| 93,002 | 89,966 | | 182,968 | |||||||||||||||
Interest expense, net |
| (21,428 | ) | (19,851 | ) | | (41,279 | ) | ||||||||||||
Other (expense) income, net |
| (1,280 | ) | 4,778 | | 3,498 | ||||||||||||||
Earnings from subsidiaries |
117,895 | 77,783 | | (195,678 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) before income taxes |
117,895 | 148,077 | 74,893 | (195,678 | ) | 145,187 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Provision (benefit) for income taxes |
| 30,182 | (2,890 | ) | | 27,292 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
$ | 117,895 | $ | 117,895 | $ | 77,783 | $ | (195,678 | ) | $ | 117,895 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other comprehensive (loss) income, net of tax |
||||||||||||||||||||
Foreign currency exchange translation adjustment |
$ | | (7,191 | ) | (13,953 | ) | | (21,144 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive (loss) income, net of tax |
| (7,191 | ) | (13,953 | ) | | (21,144 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income (loss) |
$ | 117,895 | $ | 110,704 | $ | 63,830 | $ | (195,678 | ) | $ | 96,751 | |||||||||
|
|
|
|
|
|
|
|
|
|
F-30
For the Year Ended December 31, 2015 | ||||||||||||||||||||
Parent | Guarantor Subsidiaries |
Non-guarantor Subsidiaries |
Consolidating and Eliminating Adjustments |
Consolidated | ||||||||||||||||
Cash Flow from Operating Activities: |
||||||||||||||||||||
Net income (loss) |
$ | 42,862 | $ | 59,868 | $ | 62,375 | $ | (122,243 | ) | $ | 42,862 | |||||||||
Non-cash adjustments |
| 97,829 | 37,871 | | 135,700 | |||||||||||||||
Earnings from subsidiaries |
(59,868 | ) | (62,375 | ) | | 122,243 | | |||||||||||||
Intercompany transactions |
| (11,122 | ) | 11,122 | | | ||||||||||||||
Changes in operating assets and liabilities |
17,006 | 56,657 | (21,601 | ) | | 52,062 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by operating activities |
| 140,857 | 89,767 | | 230,624 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash Flow from Investment Activities: |
||||||||||||||||||||
Additions to property and equipment |
| (7,878 | ) | (5,722 | ) | | (13,600 | ) | ||||||||||||
Proceeds from sale of property and equipment |
| 5 | 59 | | 64 | |||||||||||||||
Cash paid for business acquisitions, net of cash acquired |
| (2,723,168 | ) | (7,788 | ) | | (2,730,956 | ) | ||||||||||||
Additions to capitalized software |
| (1,651 | ) | (2,622 | ) | | (4,273 | ) | ||||||||||||
Net changes in restricted cash |
| 453 | | | 453 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash used in investing activities |
| (2,732,239 | ) | (16,073 | ) | | (2,748,312 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash Flow from Financing Activities: |
||||||||||||||||||||
Cash received from debt borrowings, net of original issue discount |
| 2,410,527 | 657,548 | | 3,068,075 | |||||||||||||||
Repayments of debt |
| (554,604 | ) | (348,844 | ) | | (903,448 | ) | ||||||||||||
Transactions involving Holdings common stock |
| 726,689 | 1,775 | | 728,464 | |||||||||||||||
Intercompany Transactions |
| 373,832 | (373,832 | ) | | | ||||||||||||||
Payment of fees related to refinancing activities |
| (39,130 | ) | (6,895 | ) | | (46,025 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by (used in) financing activities |
| 2,917,314 | (70,248 | ) | | 2,847,066 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Effect of exchange rate changes on cash and cash equivalents |
| | (4,796 | ) | | (4,796 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net increase (decrease) in cash and cash equivalents |
| 325,932 | (1,350 | ) | | 324,582 | ||||||||||||||
Cash and cash equivalents, beginning of period |
| 34,651 | 74,926 | 109,577 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents, end of period |
$ | | $ | 360,583 | $ | 73,576 | $ | | $ | 434,159 | ||||||||||
|
|
|
|
|
|
|
|
|
|
F-31
For the Year Ended December 31, 2014 | ||||||||||||||||||||
Parent | Guarantor Subsidiaries |
Non- guarantor |
Consolidating and Eliminating Adjustments |
Consolidated | ||||||||||||||||
Cash Flow from Operating Activities: |
||||||||||||||||||||
Net income (loss) |
$ | 131,127 | $ | 131,127 | $ | 67,974 | $ | (199,101 | ) | $ | 131,127 | |||||||||
Non-cash adjustments |
| 37,290 | 52,123 | | 89,413 | |||||||||||||||
Earnings from subsidiaries |
(131,127 | ) | (67,974 | ) | | 199,101 | | |||||||||||||
Intercompany transactions |
| 30,072 | (30,072 | ) | | | ||||||||||||||
Changes in operating assets and liabilities |
| 23,415 | 8,577 | | 31,992 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by operating activities |
| 153,930 | 98,602 | | 252,532 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash Flow from Investment Activities: |
||||||||||||||||||||
Additions to property and equipment |
| (9,051 | ) | (5,989 | ) | | (15,040 | ) | ||||||||||||
Proceeds from sale of property and equipment |
| 20 | 22 | | 42 | |||||||||||||||
Cash paid for business acquisitions, net of cash acquired |
| (2,363 | ) | (84,548 | ) | | (86,911 | ) | ||||||||||||
Additions to capitalized software |
| (964 | ) | (2,553 | ) | | (3,517 | ) | ||||||||||||
Net changes in restricted cash |
| (1 | ) | 984 | | 983 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash used in investing activities |
| (12,359 | ) | (92,084 | ) | | (104,443 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash Flow from Financing Activities: |
||||||||||||||||||||
Cash received from debt borrowings, net of original issue discount |
| 75,000 | | | 75,000 | |||||||||||||||
Repayments of debt |
| (132,175 | ) | (79,825 | ) | | (212,000 | ) | ||||||||||||
Transactions involving Holdings common stock |
| 16,738 | 1,109 | | 17,847 | |||||||||||||||
Intercompany transactions |
| (90,950 | ) | 90,950 | | | ||||||||||||||
Payment of contingent consideration |
| | (500 | ) | | (500 | ) | |||||||||||||
Payment of fees related to refinancing activities |
| | (512 | ) | | (512 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash (used in) provided by financing activities |
| (131,387 | ) | 11,222 | | (120,165 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Effect of exchange rate changes on cash and cash equivalents |
| | (2,817 | ) | | (2,817 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net increase in cash and cash equivalents |
| 10,184 | 14,923 | | 25,107 | |||||||||||||||
Cash and cash equivalents, beginning of period |
| 24,467 | 60,003 | 84,470 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents, end of period |
$ | | $ | 34,651 | $ | 74,926 | $ | | $ | 109,577 | ||||||||||
|
|
|
|
|
|
|
|
|
|
F-32
For the Year Ended December 31, 2013 | ||||||||||||||||||||
Parent | Guarantor Subsidiaries |
Non- guarantor |
Consolidating and Eliminating Adjustments |
Consolidated | ||||||||||||||||
Cash Flow from Operating Activities: |
||||||||||||||||||||
Net income (loss) |
$ | 117,895 | $ | 117,895 | $ | 77,783 | $ | (195,678 | ) | $ | 117,895 | |||||||||
Non-cash adjustments |
| 31,347 | 48,369 | | 79,716 | |||||||||||||||
Earnings from subsidiaries |
(117,895 | ) | (77,783 | ) | | 195,678 | | |||||||||||||
Intercompany transactions |
| (26,134 | ) | 26,134 | | | ||||||||||||||
Changes in operating assets and liabilities |
| 22,861 | (12,203 | ) | | 10,658 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by operating activities |
| 68,186 | 140,083 | | 208,269 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash Flow from Investment Activities: |
||||||||||||||||||||
Additions to property and equipment |
| (3,632 | ) | (8,289 | ) | | (11,921 | ) | ||||||||||||
Proceeds from sale of property and equipment |
| | 67 | | 67 | |||||||||||||||
Cash paid for business acquisitions, net of cash acquired |
| | (3,657 | ) | | (3,657 | ) | |||||||||||||
Additions to capitalized software |
| (421 | ) | (1,978 | ) | | (2,399 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash used in investing activities |
| (4,053 | ) | (13,857 | ) | | (17,910 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash Flow from Financing Activities: |
||||||||||||||||||||
Repayments of debt |
| (148,830 | ) | (90,170 | ) | | (239,000 | ) | ||||||||||||
Transactions involving Holdings common stock |
| 50,335 | 733 | | 51,068 | |||||||||||||||
Intercompany transactions |
| 35,846 | (35,846 | ) | | | ||||||||||||||
Payment of fees related to refinancing activities |
| (1,690 | ) | (227 | ) | | (1,917 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash used in financing activities |
| (64,339 | ) | (125,510 | ) | | (189,849 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Effect of exchange rate changes on cash and cash equivalents |
| | (2,200 | ) | | (2,200 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net decrease in cash and cash equivalents |
| (206 | ) | (1,484 | ) | | (1,690 | ) | ||||||||||||
Cash and cash equivalents, beginning of period |
24,673 | 61,487 | 86,160 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents, end of period |
$ | | $ | 24,467 | $ | 60,003 | $ | | $ | 84,470 | ||||||||||
|
|
|
|
|
|
|
|
|
|
F-33
Exhibit 99.2
ADVENT SOFTWARE, INC.
PART II
Item 8. | Financial Statements and Supplementary Data |
Page | ||||
Report of Independent Registered Public Accounting Firm |
F-2 | |||
Financial Statements: |
||||
Consolidated Balance Sheets as of December 31, 2014 and 2013 |
F-3 | |||
Consolidated Statements of Operations for the years ended December 31, 2014, 2013, and 2012 |
F-4 | |||
Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013, and 2012 |
F-5 | |||
Consolidated Statements of Stockholders (Deficit) Equity for the years ended December 31, 2014, 2013 and 2012 |
F-6 | |||
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012 |
F-7 | |||
Notes to Consolidated Financial Statements |
F-9 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Advent Software, Inc.,
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income, stockholders (deficit) equity and cash flows present fairly in all material respects, the financial position of Advent Software, Inc. and its subsidiaries at December 31, 2014 and December 31, 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP |
San Jose, California |
February 24, 2015, except with respect to our opinion on the consolidated financial statements insofar as it relates to the guarantor and non-guarantor financial information discussed in Note 18, as to which the date is April 8, 2016
F-2
ADVENT SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
December 31 | ||||||||
2014 | 2013 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 28,784 | $ | 33,828 | ||||
Short-term marketable securities |
7,298 | | ||||||
Accounts receivable, net of allowance for doubtful accounts of $36 and $231, respectively |
61,870 | 58,717 | ||||||
Deferred taxes, current |
28,275 | 24,898 | ||||||
Prepaid expenses and other |
24,984 | 30,114 | ||||||
Current assets of discontinued operation |
| 100 | ||||||
|
|
|
|
|||||
Total current assets |
151,211 | 147,657 | ||||||
Property and equipment, net |
27,995 | 31,698 | ||||||
Goodwill |
202,290 | 207,818 | ||||||
Other intangibles, net |
18,803 | 27,392 | ||||||
Long-term marketable securities |
1,874 | | ||||||
Deferred taxes, long-term |
18,358 | 23,020 | ||||||
Other assets |
13,245 | 17,372 | ||||||
Noncurrent assets of discontinued operation |
1,093 | 1,337 | ||||||
|
|
|
|
|||||
Total assets |
$ | 434,869 | $ | 456,294 | ||||
|
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS DEFICIT |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 12,041 | $ | 5,348 | ||||
Dividends payable |
6,750 | | ||||||
Accrued liabilities |
36,541 | 41,625 | ||||||
Deferred revenues |
197,144 | 186,107 | ||||||
Income taxes payable |
132 | | ||||||
Current portion of long-term debt |
20,000 | 20,000 | ||||||
Current liabilities of discontinued operation |
572 | 600 | ||||||
|
|
|
|
|||||
Total current liabilities |
273,180 | 253,680 | ||||||
Deferred revenues, long-term |
6,972 | 7,809 | ||||||
Long-term income taxes payable |
9,513 | 7,667 | ||||||
Long-term debt |
200,000 | 285,000 | ||||||
Other long-term liabilities |
7,821 | 11,171 | ||||||
Noncurrent liabilities of discontinued operation |
2,170 | 2,782 | ||||||
|
|
|
|
|||||
Total liabilities |
499,656 | 568,109 | ||||||
|
|
|
|
|||||
Commitments and contingencies (See Note 11) |
||||||||
Stockholders deficit: |
||||||||
Preferred stock; $0.01 par value: 2,000,000 shares authorized; none issued |
| | ||||||
Common stock; $0.01 par value: 120,000,000 shares authorized; 51,925,915 and 51,258,005 shares issued and outstanding |
519 | 513 | ||||||
Additional paid-in capital |
61,455 | 42,533 | ||||||
Accumulated deficit |
(130,234 | ) | (165,870 | ) | ||||
Accumulated other comprehensive income |
3,473 | 11,009 | ||||||
|
|
|
|
|||||
Total stockholders deficit |
(64,787 | ) | (111,815 | ) | ||||
|
|
|
|
|||||
Total liabilities and stockholders deficit |
$ | 434,869 | $ | 456,294 | ||||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
ADVENT SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Years Ended December 31 | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Net revenues: |
||||||||||||
Recurring revenues |
$ | 365,290 | $ | 349,881 | $ | 324,627 | ||||||
Non-recurring revenues |
31,530 | 33,078 | 34,192 | |||||||||
|
|
|
|
|
|
|||||||
Total net revenues |
396,820 | 382,959 | 358,819 | |||||||||
Cost of revenues: |
||||||||||||
Recurring revenues |
80,369 | 70,590 | 68,953 | |||||||||
Non-recurring revenues |
30,380 | 40,044 | 43,505 | |||||||||
Amortization of developed technology |
6,772 | 9,087 | 10,258 | |||||||||
|
|
|
|
|
|
|||||||
Total cost of revenues |
117,521 | 119,721 | 122,716 | |||||||||
|
|
|
|
|
|
|||||||
Gross margin |
279,299 | 263,238 | 236,103 | |||||||||
Operating expenses: |
||||||||||||
Sales and marketing |
74,996 | 79,065 | 74,688 | |||||||||
Product development |
69,532 | 69,718 | 67,014 | |||||||||
General and administrative |
43,010 | 54,737 | 37,763 | |||||||||
Amortization of other intangibles |
3,391 | 3,775 | 3,825 | |||||||||
Recapitalization costs |
| 6,041 | | |||||||||
Restructuring charges |
4,628 | 3,770 | 3,634 | |||||||||
|
|
|
|
|
|
|||||||
Total operating expenses |
195,557 | 217,106 | 186,924 | |||||||||
|
|
|
|
|
|
|||||||
Income from continuing operations |
83,742 | 46,132 | 49,179 | |||||||||
Interest expense |
(7,320 | ) | (7,285 | ) | (1,973 | ) | ||||||
Interest income and other expense, net |
359 | 72 | 353 | |||||||||
|
|
|
|
|
|
|||||||
Income from continuing operations before income taxes |
76,781 | 38,919 | 47,559 | |||||||||
Provision for income taxes |
26,518 | 10,167 | 17,328 | |||||||||
|
|
|
|
|
|
|||||||
Net income from continuing operations |
$ | 50,263 | $ | 28,752 | $ | 30,231 | ||||||
Discontinued operation: |
||||||||||||
Net (loss) income from discontinued operation (net of applicable taxes of $(32), $34 and $126, respectively) |
(51 | ) | 50 | 184 | ||||||||
|
|
|
|
|
|
|||||||
Net income |
$ | 50,212 | $ | 28,802 | $ | 30,415 | ||||||
|
|
|
|
|
|
|||||||
Basic net income per share: |
||||||||||||
Continuing operations |
$ | 0.98 | $ | 0.56 | $ | 0.60 | ||||||
Discontinued operation |
| | | |||||||||
|
|
|
|
|
|
|||||||
Total operations |
$ | 0.97 | $ | 0.56 | $ | 0.60 | ||||||
|
|
|
|
|
|
|||||||
Diluted net income per share: |
||||||||||||
Continuing operations |
$ | 0.94 | $ | 0.54 | $ | 0.58 | ||||||
Discontinued operation |
| | | |||||||||
|
|
|
|
|
|
|||||||
Total operations |
$ | 0.94 | $ | 0.54 | $ | 0.58 | ||||||
|
|
|
|
|
|
|||||||
Weighted average shares used to compute basic and diluted net income per share |
||||||||||||
Basic |
51,546 | 51,207 | 50,614 | |||||||||
Diluted |
53,608 | 53,378 | 52,425 |
The accompanying notes are an integral part of these consolidated financial statements.
Net income per share is based on actual calculated values and totals may not sum due to rounding.
F-4
ADVENT SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Years Ended December 31 | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Net income |
$ | 50,212 | $ | 28,802 | $ | 30,415 | ||||||
Other comprehensive income (loss), net of taxes |
||||||||||||
Foreign currency translation |
(7,518 | ) | 970 | 3,156 | ||||||||
Unrealized (loss) gain on marketable securities (net of applicable taxes of $12, $(20) and $(11), respectively) |
(18 | ) | 9 | 4 | ||||||||
|
|
|
|
|
|
|||||||
Total other comprehensive (loss) income, net of taxes |
(7,536 | ) | 979 | 3,160 | ||||||||
|
|
|
|
|
|
|||||||
Total comprehensive income |
$ | 42,676 | $ | 29,781 | $ | 33,575 | ||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
ADVENT SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS (DEFICIT) EQUITY
(In thousands)
Common Stock | Additional Paid-In |
Accumulated |
Accumulated Comprehensive |
Total Stockholders |
||||||||||||||||||||
Shares | Amount | Capital | Deficit | Income (Loss) | Equity (Deficit) | |||||||||||||||||||
Balances, December 31, 2011 |
50,997 | $ | 510 | $ | 429,734 | $ | (154,053 | ) | $ | 6,870 | $ | 283,061 | ||||||||||||
Stock-based award activity |
786 | 8 | (331 | ) | | | (323 | ) | ||||||||||||||||
Common stock repurchased and retired |
(1,651 | ) | (16 | ) | (10,636 | ) | (30,623 | ) | | (41,275 | ) | |||||||||||||
Common stock issued under employee stock purchase plan |
325 | 3 | 6,658 | | | 6,661 | ||||||||||||||||||
Stock-based compensation |
| | 21,047 | | | 21,047 | ||||||||||||||||||
Tax shortfall from exercise of stock options |
| | (672 | ) | | | (672 | ) | ||||||||||||||||
Tax benefit from exercise of stock options |
| | 7,785 | | | 7,785 | ||||||||||||||||||
Net income |
| | | 30,415 | | 30,415 | ||||||||||||||||||
Unrealized gain on marketable securities |
| | | | 4 | 4 | ||||||||||||||||||
Foreign currency translation adjustments |
| | | | 3,156 | 3,156 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balances, December 31, 2012 |
50,457 | $ | 505 | $ | 453,585 | $ | (154,261 | ) | $ | 10,030 | $ | 309,859 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Stock-based award activity |
2,118 | 21 | 7,641 | | | 7,662 | ||||||||||||||||||
Common stock repurchased and retired |
(1,600 | ) | (16 | ) | (829 | ) | (40,411 | ) | | (41,256 | ) | |||||||||||||
Common stock issued under employee stock purchase plan |
283 | 3 | 6,290 | | | 6,293 | ||||||||||||||||||
Stock-based compensation |
| | 39,624 | | | 39,624 | ||||||||||||||||||
Tax shortfall from exercise of stock options |
| | (1,122 | ) | | | (1,122 | ) | ||||||||||||||||
Tax benefit from exercise of stock options |
| | 7,477 | | | 7,477 | ||||||||||||||||||
Cash dividends declared on common stock |
| | (470,133 | ) | | | (470,133 | ) | ||||||||||||||||
Net income |
| | | 28,802 | | 28,802 | ||||||||||||||||||
Unrealized gain on marketable securities |
| | | | 9 | 9 | ||||||||||||||||||
Foreign currency translation adjustments |
| | | | 970 | 970 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balances, December 31, 2013 |
51,258 | $ | 513 | $ | 42,533 | $ | (165,870 | ) | $ | 11,009 | $ | (111,815 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Stock-based award activity |
935 | 9 | (2,066 | ) | | | (2,057 | ) | ||||||||||||||||
Common stock repurchased and retired |
(515 | ) | (5 | ) | (560 | ) | (14,576 | ) | | (15,141 | ) | |||||||||||||
Common stock issued under employee stock purchase plan |
248 | 2 | 6,360 | | | 6,362 | ||||||||||||||||||
Stock-based compensation |
| | 25,904 | | | 25,904 | ||||||||||||||||||
Tax shortfall from exercise of stock options |
| | (818 | ) | | | (818 | ) | ||||||||||||||||
Tax benefit from exercise of stock options |
| | 10,257 | | | 10,257 | ||||||||||||||||||
Cash dividends declared on common stock |
| | (20,155 | ) | | | (20,155 | ) | ||||||||||||||||
Net income |
| | | 50,212 | | 50,212 | ||||||||||||||||||
Unrealized loss on marketable securities |
| | | | (18 | ) | (18 | ) | ||||||||||||||||
Foreign currency translation adjustments |
| | | | (7,518 | ) | (7,518 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balances, December 31, 2014 |
51,926 | $ | 519 | $ | 61,455 | $ | (130,234 | ) | $ | 3,473 | $ | (64,787 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
ADVENT SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31 | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | 50,212 | $ | 28,802 | $ | 30,415 | ||||||
Adjustment to net income for discontinued operation net income |
51 | (50 | ) | (184 | ) | |||||||
|
|
|
|
|
|
|||||||
Net income from continuing operations |
50,263 | 28,752 | 30,231 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities from continuing operations: |
||||||||||||
Stock-based compensation |
29,371 | 48,179 | 20,801 | |||||||||
Excess tax benefit from stock-based compensation |
(10,257 | ) | (7,477 | ) | (7,785 | ) | ||||||
Depreciation and amortization |
21,201 | 24,393 | 25,879 | |||||||||
Amortization of debt issuance costs |
1,446 | 947 | 381 | |||||||||
(Reduction of) provision for doubtful accounts |
(30 | ) | 278 | 403 | ||||||||
(Reduction of) provision for sales return reserves |
(521 | ) | (306 | ) | 1,154 | |||||||
Loss on disposal of fixed assets |
2,786 | | | |||||||||
Deferred income taxes |
11,439 | 4,589 | 5,230 | |||||||||
Other |
(1,226 | ) | 29 | (252 | ) | |||||||
Changes in operating assets and liabilities, net of effect of acquisitions: |
||||||||||||
Accounts receivable |
(3,123 | ) | 2,074 | 575 | ||||||||
Prepaid and other assets |
7,910 | (1,762 | ) | 822 | ||||||||
Accounts payable |
5,938 | 27 | (5,368 | ) | ||||||||
Accrued liabilities |
(11,492 | ) | (6,089 | ) | (2,055 | ) | ||||||
Deferred revenues |
10,720 | 11,047 | 7,151 | |||||||||
Income taxes payable |
733 | (6,117 | ) | 9,453 | ||||||||
|
|
|
|
|
|
|||||||
Net cash provided by operating activities from continuing operations |
115,158 | 98,564 | 86,620 | |||||||||
|
|
|
|
|
|
|||||||
Cash flows from investing activities: |
||||||||||||
Cash used in acquisitions, net of cash acquired |
| | (700 | ) | ||||||||
Purchases of property and equipment |
(8,973 | ) | (5,616 | ) | (6,369 | ) | ||||||
Capitalized software development costs |
(1,873 | ) | (1,995 | ) | (2,137 | ) | ||||||
Purchases of marketable securities |
(9,240 | ) | (57,863 | ) | (220,994 | ) | ||||||
Sales and maturities of marketable securities |
100 | 228,619 | 118,588 | |||||||||
Change in restricted cash |
(173 | ) | | 95 | ||||||||
|
|
|
|
|
|
|||||||
Net cash (used in) provided by investing activities from continuing operations |
(20,159 | ) | 163,145 | (111,517 | ) | |||||||
|
|
|
|
|
|
|||||||
Cash flows from financing activities: |
||||||||||||
Proceeds from common stock issued from exercises of stock options |
4,562 | 19,495 | 5,173 | |||||||||
Proceeds from common stock issued under the employee stock purchase plan |
6,362 | 6,293 | 6,661 | |||||||||
Excess tax benefits from stock-based compensation |
10,257 | 7,477 | 7,785 | |||||||||
Withholding taxes related to equity award net share settlement |
(6,619 | ) | (11,833 | ) | (5,496 | ) | ||||||
Proceeds from debt |
| 375,000 | 50,000 | |||||||||
Repayment of debt |
(85,000 | ) | (165,000 | ) | (5,000 | ) | ||||||
Debt issuance costs |
| (5,725 | ) | | ||||||||
Common stock repurchased and retired |
(15,141 | ) | (41,256 | ) | (41,275 | ) | ||||||
Payment of cash dividend |
(13,405 | ) | (470,133 | ) | | |||||||
|
|
|
|
|
|
|||||||
Net cash (used in) provided by financing activities from continuing operations |
(98,984 | ) | (285,682 | ) | 17,848 | |||||||
|
|
|
|
|
|
|||||||
Net cash transferred to discontinued operation |
(347 | ) | (375 | ) | (561 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents |
(712 | ) | (41 | ) | 302 | |||||||
Net change in cash and cash equivalents from continuing operations |
(5,044 | ) | (24,389 | ) | (7,308 | ) | ||||||
Cash and cash equivalents of continuing operations at beginning of period |
33,828 | 58,217 | 65,525 | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents of continuing operations at end of period |
$ | 28,784 | $ | 33,828 | $ | 58,217 | ||||||
|
|
|
|
|
|
|||||||
Supplemental disclosure of cash flow information: |
||||||||||||
Cash paid for income taxes, net of refunds |
$ | 11,370 | $ | 14,083 | $ | 2,988 | ||||||
Cash paid for interest |
$ | 5,882 | $ | 5,665 | $ | 1,737 | ||||||
Cash flow from discontinued operation: |
||||||||||||
Net cash used in operating activities |
$ | (347 | ) | $ | (375 | ) | $ | (561 | ) | |||
Net cash transferred from continuing operations |
$ | 347 | $ | 375 | $ | 561 |
The accompanying notes are an integral part of these consolidated financial statements.
F-7
ADVENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Business description: Advent Software, Inc. and its subsidiaries (collectively Advent or the Company) provide software products, Software-as-a-Service (SaaS), data and data interfaces and related maintenance and services that automate, integrate and support certain mission-critical functions of the front, middle and back offices of investment management organizations. Advents clients vary significantly in size and assets under management and include investment advisors, asset managers, brokerage firms, hedge funds, foundations and endowments and banks.
Basis of presentation: The consolidated financial statements include the accounts of Advent and its subsidiaries after elimination of all intercompany transactions and amounts. The Company has prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC).
Divestiture of the MicroEdge segment and discontinued operation reclassification: On October 1, 2009, Advent completed the sale of MicroEdge, Inc. (MicroEdge) a wholly-owned subsidiary of the Company. The assets, liabilities and results of MicroEdge have been reclassified as a discontinued operation in the consolidated financial statements for all periods presented. The results of operations and the related charges for the discontinued operation are classified as Net income (loss) from discontinued operation, net of applicable taxes in the accompanying consolidated statements of operations. Refer to Note 3 Discontinued Operation to these Notes to Consolidated Financial Statements for additional information on the Microedge discontinued operation.
Year End: Advents fiscal year begins on January 1 and ends on December 31.
Foreign currency translation: The functional currencies of the Companys foreign subsidiaries are their local currencies. All assets and liabilities denominated in foreign functional currencies are translated into U.S. dollars at the closing exchange rate on the balance sheet date and equity balances are translated at historical rates. Revenues, costs and expenses in foreign functional currencies are translated at the average rate of exchange during the period.
Foreign currency measurement: Assets and liabilities denominated in a currency other than the functional currency are re-measured into the functional currency using the closing exchange rate on the balance sheet date, with gains and losses recorded in Interest income and other expense, net in the consolidated statement of operations.
Use of estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information available as of the date of the financial statements and actual results could differ from those estimates. Advent believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements: Business combinations; Goodwill impairment; Revenue recognition and Deferred revenues; Income taxes; Restructuring charges and related accruals; Impairment of long-lived assets; Legal contingencies; Sales returns and accounts receivable allowances; and Stock-based compensation.
Cash equivalents: Cash equivalents are comprised of highly liquid investments purchased with an original or remaining maturity of 90 days or less at the date of purchase.
Marketable securities: Marketable securities consist primarily of U.S. government and U.S. Government Sponsored Entities (GSEs) securities and high credit quality corporate debt securities not otherwise classified as cash equivalents. All marketable securities are considered available-for-sale and are carried at fair value on the Companys consolidated balance sheets. Short-term marketable securities mature twelve months or less from the date of the balance sheet and long-term marketable securities mature greater than twelve months from the date of the balance sheet.
Advent periodically reviews the realizability of each short-term and long-term marketable security when impairment indicators exist with respect to the security. If an other-than-temporary impairment of value of the security exists, the carrying value of the security is written down to its estimated fair value. Factors considered in determining whether a loss is temporary include the
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length of time and extent to which fair value has been less than the cost basis, the financial condition, credit quality and near-term prospects of the investee, and Advents ability and intention to hold the securities for a period of time sufficient to allow for any anticipated recovery in market value.
Product development: Product development expenses consist primarily of salary, benefits and stock-based compensation for the Companys development and technical support staff, contractors fees and other costs associated with the enhancements of existing products and services and development of new products and services. Costs incurred for software development prior to technological feasibility are expensed as product development costs in the period incurred. Once the point of technological feasibility is reached, which is generally the completion of a working prototype that has no critical bugs and is a release candidate, development costs are capitalized until the product is ready for general release and are classified within Other intangibles, net in the accompanying consolidated balance sheets. The Company amortizes capitalized software development costs using the greater of the ratio of the products current gross revenues to the total of current gross revenues and expected gross revenues or on a straight-line basis over the estimated economic life of the related product, which is typically three years.
Capitalization of internal use software: Certain costs related to computer software developed or obtained for internal use (including for use in providing SaaS) are capitalized and classified within Property and equipment, net in the accompanying consolidated balance sheets. The Company capitalizes costs associated with customized internal-use software systems that have reached the application development stage. Such capitalized costs included external direct costs utilized in developing or obtaining the applications and payroll and payroll-related expenses for employees, who are directly associated with the development of the applications. Capitalization of such costs begins when the preliminary project stage is complete and ceases at the point in which the project is substantially complete and is ready for its intended purpose. Costs related to preliminary project activities and post implementation activities are expensed as incurred. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. The Company depreciates internal use software costs on a straight-line basis over the assets estimated useful lives, which typically range from three to seven years. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.
Property and equipment: Property and equipment are stated at cost, less accumulated depreciation and amortization in the Companys consolidated balance sheets. Advent calculates depreciation and amortization using the straight-line method over the assets estimated useful lives. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the estimated useful life of the assets or the remaining lease term. The cost and related accumulated depreciation applicable to property and equipment sold or no longer in service are eliminated from the accounts and any gains or losses are included in operating expenses. Useful lives by principal classifications are as follows:
Computer equipment and software | 3 to 7 years | |
Leasehold improvements | Shorter of useful life or remaining lease term | |
Furniture and fixtures | 3 to 5 years | |
Telephone system | 3 to 5 years |
Repairs and maintenance expenditures, which are not considered improvements and do not extend the useful life of the property and equipment, are expensed as incurred.
Goodwill impairment: Advent reviews its goodwill for impairment annually as of November 1, and more frequently if an event or circumstance indicates that an impairment loss has occurred. Goodwill is tested for impairment at the reporting unit level. Advent determined that it has one reporting unit for the goodwill impairment testing performed as of November 1, 2014 and 2013.
Advents test for goodwill impairment starts with a qualitative assessment to determine whether it is necessary to perform the quantitative goodwill impairment test. If Advent determines, based on the qualitative factors, that the fair value of the reporting unit is not more likely than not greater than the carrying amount, then the quantitative goodwill impairment test is required and is performed.
The quantitative test for goodwill impairment is a two-step process. The first step compares the fair value of each reporting unit with its respective carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, thus the second step of the impairment test is unnecessary. The second step, used to measure the amount of impairment loss, compares the implied fair value of each reporting units goodwill with the respective carrying amount of that goodwill. If the carrying amount of the reporting units goodwill exceeds its implied fair value, an impairment loss is recognized in an amount equal to the excess.
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Determining the fair value of a reporting unit is subjective and requires judgment at many points during the test including the development of future revenue and expense forecasts used to calculate future cash flows, the selection of risk-adjusted discount rates, and determination of market comparable entities.
Accounting for long-lived assets: Advent reviews its long-lived assets, including property and equipment and finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable.
Recoverability is measured by comparing the carrying amount of the assets to the expected future undiscounted net cash flows to be generated by those assets. If such assets are considered to be impaired, the impairment to be recognized is measured based on the amount by which the carrying amount of the asset exceeds its fair value.
Finite-lived intangible assets mainly represent completed technology, distributor licenses, customer lists, trademark/tradenames and non-compete agreements acquired in business combinations. These assets are amortized on a straight-line basis over their estimated useful lives as follows:
Purchased technology | 4 to 6 years | |
Customer relationships | 4 to 8 years | |
Other intangibles | 3 to 7 years |
Revenue recognition and deferred revenues: Advent recognizes revenue from term license, maintenance and other recurring revenues; perpetual license fees, professional services and other. Advent offers a wide variety of products and services to a large number of financially sophisticated customers. While many of the Companys license transactions, maintenance contracts, subscription-based transactions and professional services projects conform to a standard structure, many of the larger transactions are complex and may require significant review and judgment in the application of GAAP.
Software license fees. Advent recognizes revenue from the licensing of software when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed or determinable and collection of the resulting receivable is probable. Advent generally uses a signed license agreement as evidence of an arrangement. Sales through the Companys distributors are evidenced by a master agreement governing the relationship together with binding order forms and signed contracts from the distributors customers. Revenue is recognized once delivery to the distributors customer has taken place and when all other revenue recognition criteria have been met. Delivery occurs upon notification that software is available for electronic download through a fulfillment vendor, or when a product is delivered to a common carrier F.O.B shipping point, or upon confirmation that product delivered F.O.B shipping destination has been received. Some of the Companys arrangements include acceptance provisions; if such acceptance provisions are present, delivery is deemed to occur upon acceptance. Advent assesses whether the fee is fixed or determinable based on the payment terms associated with the transaction. Advent assesses whether the collectability of the resulting receivable is probable based on a number of factors, including the credit worthiness of the customer determined through a credit review process, including credit reporting agency reports, publicly available customer information, financial statements and other available information and pertinent country risk if the customer is located outside the United States. The Companys standard payment terms are due at 180 days or less, but payment terms may vary based on the country in which the agreement is executed. Software licenses are sold with maintenance, and often professional services.
Advent typically licenses its products on a per server, per user basis with the price per customer varying based on the selection of the products licensed, the assets under administration, the number of site installations and the number of authorized users.
Advent categorizes revenues in its consolidated statements of operations as recurring revenues and non-recurring revenues. Recurring revenues are comprised of term license, perpetual maintenance arrangements and other recurring revenue (which includes revenues from Black Diamond, Advent OnDemand and incremental Assets Under Administration fees from perpetual licenses). Non-recurring revenues are comprised of perpetual license fees, professional services and other revenue.
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Recurring Revenues:
Recurring product revenues for fiscal 2014, 2013 and 2012 were as follows (in thousands):
Fiscal Years | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Term license revenues |
$ | 194,169 | $ | 180,479 | $ | 159,940 | ||||||
Perpetual maintenance revenues |
64,100 | 65,412 | 67,063 | |||||||||
Other recurring revenues |
107,021 | 103,990 | 97,624 | |||||||||
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Total recurring revenues |
$ | 365,290 | $ | 349,881 | $ | 324,627 | ||||||
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| Term licenses |
Term license contracts include both the software license and maintenance. Advent offers multi-year term licenses by which a customer makes a binding commitment that typically spans three years. For multi-year term licenses, Advent has not established vendor specific objective evidence (VSOE) of fair value for the software license and maintenance components and, as a result, in situations where the Company is also performing related professional services, it defers all revenue and directly-related expenses under the arrangement until the implementation services and the remaining services are substantially complete. At the point professional services are substantially completed, Advent recognizes a pro-rata amount of the term license revenue, professional services fees earned and related expenses, based on the elapsed time from the start of the term license to the substantial completion of professional services. Advent determines this by applying management judgment. Term license revenue for the remaining contract years, the remaining deferred professional services revenue and related expenses are recognized ratably over the remaining contract length. When multi-year term licenses are sold and do not include related professional services, Advent recognizes the entire term license revenue ratably over the period of the contract term from the effective date of the license agreement assuming all other revenue recognition criteria have been met.
| Assets Under Administration Revenues |
Certain of Advents perpetual and term license contracts include asset-based fee structures that provide additional revenues based on the assets that the client administers using the Companys software, referred to as assets under administration (AUA). Contracts containing an AUA fee structure have a defined measurement period (quarterly or annually) which requires the client to self-report actual AUA in arrears of the specified period. The Company recognizes term AUA contract minimum fees over the period of service. AUA fees above the stated minimum fee for the same period are considered incremental fees. Because incremental fees are neither determinable nor due and payable until the conclusion of the measurement period and reported, they are both earned and recognized upon completion of the measurement period and receipt of the report, on a quarterly or annual basis. Incremental fees from both term AUA and perpetual AUA contracts are included in Recurring revenues in the consolidated statements of operations.
| Maintenance |
Advent offers annual maintenance programs on perpetual licenses that provide for technical support and updates to the Companys software products. Maintenance fees are bundled with perpetual license fees in the initial licensing period and charged separately for renewals of annual maintenance in subsequent years. Fair value for maintenance is based upon either renewal rates stated in the contracts or separate sales of renewals to customers. Revenue is recognized ratably, or daily, over the term of the maintenance period, which is typically one year. Other Recurring Revenues
| Other Recurring Revenues |
Other recurring revenues include revenues from the Companys SaaS services, data services and other recurring revenue transactions.
SaaS services include Advent OnDemand, Advent OnDemand with Data Management, and Black Diamond. Advent OnDemand is the hosting and SaaS delivery of the Companys suite of investment management solutions. Advent recognizes
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revenue ratably over the period of service which is generally one year. Advent OnDemand with Data Management services include access to software on a SaaS basis as well as full account aggregation, daily portfolio reconciliation, corporate actions processing and reference data management. The Company prices this comprehensive service offering based on the number of accounts managed for each customer. Advent measures the number of accounts quarterly in arrears and recognizes revenue for these services as they are performed. Black Diamond offers a platform that provides outsourced daily reconciliation and data management services as well as portfolio management and reporting delivered through an online web-based application. The Company prices Black Diamond services based on the number of customers accounts and the daily average of the assets under management (AUM) within those accounts. The Company measures the number of accounts and AUM within customer accounts monthly in arrears and recognizes revenues for these services as they are performed.
Advents data services revenues include Advent Custodial Data, Advent Corporate Actions and Advent Index Data. The Company recognizes revenue from data services either ratably over the subscription period or as the transactions occur within the subscription, based on the terms of the arrangement.
The Company recognizes revenue from other recurring revenue transactions either ratably over the subscription period or as the transactions occur, based on the terms of the arrangement. The Companys SaaS-based products are included in Recurring revenues in the Companys consolidated statements of operations.
Non-Recurring Revenues:
Non-recurring services revenues for fiscal 2014, 2013 and 2012 were as follows (in thousands):
Fiscal Years | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Professional services and other revenues |
$ | 29,623 | $ | 30,866 | $ | 31,280 | ||||||
Perpetual license fees |
1,907 | 2,212 | 2,912 | |||||||||
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Total non-recurring revenues |
$ | 31,530 | $ | 33,078 | $ | 34,192 | ||||||
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| Professional services and other revenues |
Advent offers a variety of professional services that include project management, implementation, data conversion, integration, custom report writing and training. The Company establishes VSOE of fair value for professional services upon separate sales of these services to customers. Professional services are generally billed on a time and materials basis using hourly rates together with reimbursement for travel and accommodation expenses. The Company recognizes revenue as these professional services are performed except in the case of multi-year term license contracts which are described in the Term licenses section above. Certain professional services arrangements involve acceptance criteria. In these cases, revenue and related expenses are recognized upon acceptance. Occasionally, professional services are performed under a fixed fee arrangement. For these arrangements, the Company defers revenue and related expenses until the services are complete. Professional services and other revenues also include revenue from the Companys user conferences which is recognized upon completion of the conference.
| Perpetual licenses |
Advent allocates revenue to delivered elements, normally the license component of the arrangement, using the residual method, based on VSOE of fair value of the undelivered elements (generally the maintenance and professional services elements), which is specific to the Company. Advent determines the fair value of the undelivered elements based on the historical evidence of the Companys stand-alone sales of these elements to third parties and/or renewal rates. If VSOE of fair value does not exist for any undelivered elements, then the entire arrangement fee is deferred until delivery of that element has occurred unless the only undelivered element is maintenance. Revenues from perpetual licenses are included in Non-recurring revenues in the Companys consolidated statements of operations.
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Deferred revenues: Deferred revenue consists of billings or payments received in advance of revenue recognition and is recognized as the revenue recognition criteria are met. The Company generally invoices its customers annually or in monthly or quarterly installments and deferred revenues can be influenced by seasonality and timing of renewals. Deferred revenue that will be recognized during the succeeding 12-month periods is recorded as current deferred revenue, and the remaining portion is recorded as non-current deferred revenue.
The following table sets forth the composition of deferred revenues (in thousands):
December 31 | ||||||||
2014 | 2013 | |||||||
Term license deferred revenue |
$ | 107,814 | $ | 99,473 | ||||
Term implementations deferred revenue |
41,632 | 40,221 | ||||||
Perpetual license/maintenance deferred revenue |
28,883 | 32,657 | ||||||
Other recurring deferred revenue |
25,787 | 21,565 | ||||||
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Total |
$ | 204,116 | $ | 193,916 | ||||
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Directly related expenses: When Advent defers service revenues, it also defers the direct costs incurred in the delivery of those services to the extent those costs are recoverable through future revenues, on non-cancelable contracts, as prepaid contract expense. Advent recognizes those deferred costs as costs of professional services revenues proportionally and over the same period that the deferred revenue is recognized as service revenue. When Advent defers license revenue, the Company defers the direct incremental costs incurred as a result of selling the contract (i.e. sales commissions earned by the sales force as a part of their overall compensation) because those costs would not have been incurred but for the acquisition of that contract. Advent recognizes those costs as sales and marketing expense proportionally and over the same period as the license revenues.
Allowance for doubtful accounts and sales returns: Advent analyzes specific accounts receivable, historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in its customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. Advent had allowances for doubtful accounts of $36,000, $0.2 million and $0.1 million as of December 31, 2014, 2013 and 2012, respectively.
Advent also analyzes customer demand and acceptance of product and historical returns when evaluating the adequacy of the allowance for sales returns, which are not generally provided to customers. Allowances for sales returns are accounted for as reductions to net revenues and increases to reserves within deferred revenues. Advents standard practice is to enforce its contract terms and not allow its customers to return software. The Company has, however, allowed customers to return software on a limited case-by-case basis. The Company generally only provides a contractual limited right of return to the end-user customer under the Companys shrink-wrap and click-through licenses. Those agreements provide for a right of return within seven days of delivery or availability of the software.
Advent has the ability to estimate returns based on a long history of experience with relatively homogenous transactions and the fact that the return period is short. The Company has recorded sales return provisions as offsets to revenue in the period the sales return becomes probable. The estimates for returns are adjusted periodically based upon historical rates of returns, terminations and cancellations. Advent has a methodology for calculating the value of reserves that takes the previous 12 months of experience into account. Advent had allowances for sales returns of $2.1 million, $2.7 million and $3.0 million as of December 31, 2014, 2013 and 2012, respectively.
Advertising costs: The Company expenses advertising costs as incurred and classifies these costs as sales and marketing expense. Total advertising expenses were $0.5 million, $0.8 million and $0.6 million for fiscal 2014, 2013 and 2012, respectively.
Stock-based compensation: Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period.
Advent uses the Black-Scholes option pricing model to determine the fair value of stock options, stock appreciation rights (SARs) and employee stock purchase plan shares. The fair value of the Companys restricted stock units is calculated based on the fair market value of Advents stock on the date of grant. The determination of the fair value of stock-based payment awards on the
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date of grant using an option-pricing model is affected by Advents stock price as well as assumptions regarding a number of complex and subjective variables. These variables include Advents expected stock price volatility over the term of the awards, actual and projected employee exercise behaviors, risk-free interest rate and expected dividends.
As the stock-based compensation expense recognized on the consolidated statements of operations for fiscal 2014, 2013 and 2012 is based on awards ultimately expected to vest, such amount has been reduced for estimated forfeitures at the time of grant and is revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on the Companys historical experience over the last five years.
Advent assesses on a quarterly basis the adequacy of the Companys pool of windfall tax benefits to determine if there are any deficiencies which require recognition in the Companys consolidated statements of operations.
Restructuring charges and related accruals: Advent has developed and implemented formalized plans for restructuring the business to better align its resources to market conditions and recorded charges resulting from the restructuring plans. In connection with the restructuring plans, Advent has recorded estimated expenses for severance and benefits, lease cancellations, asset write-offs and other restructuring costs. Given the significance and timing of the execution of such activities, this process is complex and involves periodic reassessments of estimates made at the time the original decisions were made, including evaluating real estate market conditions for expected vacancy periods and sub-lease rental income. Advent continually evaluates the adequacy of the remaining liabilities under the restructuring initiatives. Although the Company believes that these estimates accurately reflect the costs of the restructuring plans, actual results may differ, thereby requiring Advent to record additional provisions or reverse a portion of such provisions.
Recapitalization costs: In conjunction with the Special Dividend declared in June 2013, debt modification and equity award modification, Advent incurred costs related to advisory fees from third parties including financial advisory, legal and valuation fees. Advent expenses recapitalization costs as incurred and are reported as a separate line item on the Companys consolidated statements of operations. Refer to Note 4 Special Dividend to these Notes to Consolidated Financial Statements for additional information.
Income taxes: Advent accounts for worldwide income taxes under an asset and liability approach that requires the expected future tax consequences of temporary differences between book and tax bases of assets and liabilities be recognized as deferred tax assets and liabilities. A valuation allowance is recorded to reduce the net deferred tax assets to an amount that is more likely than not to be realized.
The Company has elected to use the with and without approach in determining the order in which tax attributes are utilized. As a result, the Company will only recognize a tax benefit from stock-based awards in additional paid-in capital if an incremental tax benefit is realized after all other tax attributes currently available to the Company have been utilized. In addition, the Company has elected to account for the impact of stock-based awards on other tax attributes, such as the research tax credit, through the consolidated statements of operations.
Net income per share: Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding for that period. Diluted net income per share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential shares consist of incremental common shares issuable upon exercise of stock options and stock appreciation rights, vesting of restricted stock units and conversion of preferred stock (none outstanding) for all periods, except in situations where their inclusion would be anti-dilutive.
Comprehensive income: Comprehensive income consists of net income, foreign currency translation and unrealized gains or losses on available-for-sale marketable securities, net of tax, and is presented in the Companys consolidated statements of comprehensive income.
Segment information: The Company operates under a single reportable segment: Advent Investment Management. Refer to Note 15 Segment, Significant Customer and Geographic Information to these Notes to Consolidated Financial Statements, for additional information about the segment.
Sales outside the U.S., which are based on the location to which the product is shipped or services are delivered, represented 19%, 18%, and 17% of the Companys net revenues for fiscal 2014, 2013 and 2012, respectively. No single customer accounted for more than 10% of net revenues for fiscal 2014, 2013 and 2012.
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Certain risks and concentrations: Product revenues are concentrated in the investment management software industry, which is highly competitive and rapidly changing. Significant technological changes in the industry or customer requirements, or the emergence of competitive products with new capabilities or technologies could adversely affect operating results. Additionally, Advent derives a significant portion of its revenues from its Geneva, APX, Axys and Moxy applications and ancillary products and services, and therefore their market acceptance is essential to the Companys success.
Financial instruments that potentially subject the Company to concentrations of credit risks comprise, principally, cash, cash equivalents, trade accounts receivable and debt. Advent invests excess cash through banks, mutual funds, and brokerage houses primarily in highly liquid securities and has investment policies and procedures that attempt to minimize credit risk.
With respect to accounts receivable, Advent performs ongoing credit evaluations of its customers and does not require collateral. The Company maintains reserves for potential credit losses on customer accounts when deemed necessary. At December 31, 2014 and 2013, no single customer accounted for more than 10% of accounts receivable.
Common stock repurchases: Advent accounts for common stock repurchases by allocating the cash paid in excess of par value to additional paid-in capital and accumulated deficit. The Company calculates the average additional paid-in capital per outstanding share at the beginning of each monthly period in which stock was repurchased and records the difference between the repurchase price per share and the sum of the par value and average paid-in capital per share as an increase to accumulated deficit.
Fair value measurements: Advent measures its cash and cash equivalents, marketable securities, accounts receivable, accounts payable, accrued liabilities and debt at fair value. Additional disclosures regarding the Companys fair value measurements are included in Note 16 Fair Value Measurements.
Recent accounting pronouncements: With the exception of the below, there have been no recent accounting pronouncements or changes in accounting pronouncements during year ended December 31, 2014 that are of significance, or potential significance, to the Companys consolidated financial statements.
In April 2014 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This update raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures for discontinued operations and disposals that do not meet the definition of a discontinued operation. ASU 2014-08 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2014, which means that it will be effective for Advents fiscal year beginning January 1, 2015. Early adoption of ASU 2014-08 is permitted, but only for disposals or assets held for sale that have not been reported in previously issued (or available to be issued) financial statements. Advent has not early adopted the provisions of ASU 2014-08. Advent expects to adopt this new standard in the first quarter of fiscal year 2015 and does not expect the adoption to have a material impact on the Companys consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. Generally Accepted Accounting Principles when it becomes effective. ASU 2014-09 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2016, which means that it will be effective for Advents fiscal year beginning January 1, 2017. Companies may use either a full retrospective or a modified retrospective approach to adopt the standard and early adoption is not permitted. The Company is evaluating the impact of the adoption of ASU 2014-09 on its consolidated financial statements.
In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide that a Performance Target Could be Achieved after the Requisite Service Period. ASU 2014-12 requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. ASU 2014-12 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2015, which means that it will be effective for Advents fiscal year beginning January 1, 2016. Early adoption of ASU 2014-12 is permitted. The Company will adopt ASU 2014-12 effective January 1, 2016 and does not expect the adoption to have a material impact on the Companys consolidated financial statements.
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In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern. ASU 2014-15 requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entitys ability to continue as a going concern within one year after the date the financial statements are issued and provide related disclosures. ASU 2014-15 is effective for the annual reporting period ending after December 15, 2016, and for annual and interim periods thereafter, which means that it will be effective for Advents fiscal year beginning January 1, 2017. Early adoption of ASU 2014-15 is permitted. The Company will adopt ASU 2014-15 effective January 1, 2017 and does not expect the adoption to have a material impact on the Companys consolidated financial statements.
Note 2 - Cash Equivalents and Marketable Securities
Cash, cash equivalents and marketable securities primarily consist of money market mutual funds, U.S. government and U.S. Government Sponsored Entities (GSEs) securities, foreign government debt securities and high credit quality corporate debt securities. All marketable securities were considered available-for-sale and were carried at fair value on the Companys consolidated balance sheet. Short-term marketable securities mature twelve months or less, and long-term marketable securities mature greater than twelve months, from the date of the consolidated balance sheet.
At December 31, 2013, the Company had no marketable securities. Marketable securities at December 31, 2014 are summarized as follows (in thousands):
Balance at December 31, 2014 |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses Less than 12 Months |
Gross Unrealized Losses 12 Months or Longer |
Aggregate Fair Value |
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Corporate debt securities |
$ | 7,184 | $ | | $ | | $ | (22 | ) | $ | 7,162 | |||||||||
U.S. government debt securities |
1,347 | | | (6 | ) | 1,341 | ||||||||||||||
Municipal bonds |
671 | | | (2 | ) | 669 | ||||||||||||||
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Total |
$ | 9,202 | $ | | $ | | $ | (30 | ) | $ | 9,172 | |||||||||
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The following table summarizes the contractual maturities of marketable securities at December 31, 2014 (in thousands):
Amortized Cost |
Aggregate Fair Value |
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Matures in less than one year |
$ | 7,320 | $ | 7,298 | ||||
Matures in one to three years |
1,882 | 1,874 | ||||||
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Total |
$ | 9,202 | $ | 9,172 | ||||
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The following table summarizes marketable securities with unrealized losses by contractual maturity dates at December 31, 2014 (in thousands):
Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
|||||||||||||||||||
Corporate debt securities |
$ | 6,762 | $ | (22 | ) | $ | | $ | | $ | 6,762 | $ | (22 | ) | ||||||||||
US government debt securities |
1,342 | (6 | ) | | | 1,342 | (6 | ) | ||||||||||||||||
Municipal bonds |
669 | (2 | ) | | | 669 | (2 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 8,773 | $ | (30 | ) | $ | | $ | | $ | 8,773 | $ | (30 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-16
Advent regularly reviews its investment portfolio to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition, credit quality and near-term prospects of the investee, and Advents ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.
For fixed income securities that have unrealized losses as of December 31, 2014, the Company has determined that (i) it does not have the intent to sell any of these investments while in a loss position and (ii) it is not more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis. In addition, the Company has evaluated these fixed income securities and has determined that no credit losses exist. As of December 31, 2014, all securities in an unrealized loss position have been in an unrealized loss position for less than one year. The Companys management has determined that the unrealized losses on its fixed income securities as of December 31, 2014 were temporary in nature. Unrealized gains and losses are a component of Accumulated other comprehensive income in the accompanying consolidated balance sheet as of December 31, 2014.
During fiscal 2014, 2013 and 2012, $0.1 million, $228.6 million and $118.6 million, respectively, of marketable securities were sold or matured, which did not have any associated material gross realized gains or losses.
Note 3 - Discontinued Operation
During 2009, the Company discontinued the operations of its wholly-owned subsidiary, MicroEdge, Inc. (MicroEdge). In connection with the sale of MicroEdge, the Company vacated its MicroEdge facilities in New York and entered into a sub-lease agreement with the purchaser, whereby the purchaser contracted to sub-lease the premises through the end of the amended lease term in November 2018.
The following table sets forth an analysis of the components of the restructuring charges related to the Companys discontinued operation and the payments and non-cash charges made against the accrual during fiscal 2014 and 2013 (in thousands):
Facility Exit Costs |
||||
Balance of restructuring accrual at December 31, 2012 |
$ | 4,030 | ||
Restructuring charges |
(197 | ) | ||
Cash payments |
(598 | ) | ||
Adjustment of prior restructuring costs |
116 | |||
|
|
|||
Balance of restructuring accrual at December 31, 2013 |
$ | 3,351 | ||
Restructuring charges |
20 | |||
Cash payments |
(724 | ) | ||
Adjustment of prior restructuring costs |
95 | |||
|
|
|||
Balance of restructuring accrual at December 31, 2014 |
$ | 2,742 | ||
|
|
|||
|
|
Of the remaining restructuring accrual of $2.7 million at December 31, 2014, $0.7 million is included in Current liabilities of discontinued operation in the accompanying consolidated balance sheet. The facility exit costs related to the discontinued operation will be paid over the remaining lease term through November 2018.
Net revenues and income from the Companys discontinued operation were as follows for the periods presented (in thousands):
Fiscal Years | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Net revenues |
$ | | $ | | $ | | ||||||
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|||||||
Income from operation of discontinued operation (net of applicable taxes of ($32), $34 and $126, respectively) |
$ | (51 | ) | $ | 50 | $ | 184 | |||||
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
F-17
The following table sets forth the assets and liabilities of the MicroEdge discontinued operation included in the consolidated balance sheets of the Company (in thousands):
December 31 | ||||||||
2014 | 2013 | |||||||
Assets: |
||||||||
Prepaid rent |
$ | | $ | 100 | ||||
|
|
|
|
|||||
Total current assets of discontinued operation |
$ | | $ | 100 | ||||
|
|
|
|
|||||
|
|
|
|
|||||
Deferred taxes, long-term |
$ | 1,093 | $ | 1,337 | ||||
|
|
|
|
|||||
Total noncurrent assets of discontinued operation |
$ | 1,093 | $ | 1,337 | ||||
|
|
|
|
|||||
|
|
|
|
|||||
Liabilities: |
||||||||
Accrued expenses and taxes |
$ | 572 | $ | 600 | ||||
|
|
|
|
|||||
Total current liabilities of discontinued operation |
$ | 572 | $ | 600 | ||||
|
|
|
|
|||||
|
|
|
|
|||||
Accrued restructuring, long-term portion |
$ | 2,170 | $ | 2,782 | ||||
|
|
|
|
|||||
Total noncurrent liabilities of discontinued operation |
$ | 2,170 | $ | 2,782 | ||||
|
|
|
|
|||||
|
|
|
|
Note 4 - Special Dividend
On June 13, 2013, the Companys Board of Directors declared a one-time special cash dividend (the Special Dividend) of $9.00 per share payable on each Common Share to stockholders of record at the close of business on July 1, 2013 (the Dividend Record Date). Based on the 52,237,055 shares of common stock outstanding on the Dividend Record Date, the dividend totaled $470.1 million and was paid to stockholders on July 9, 2013. The dividend reduced additional paid-in capital as the Company did not have retained earnings.
The Company financed the Special Dividend with cash, cash equivalents and marketable securities as well as borrowings under its Restated Credit Agreement. Refer to Note 9, Debt for additional information about the Companys Restated Credit Agreement.
Note 5 - Balance Sheet Detail
Prepaid expenses and other
The following is a summary of prepaid expenses and other assets (in thousands):
December 31 | ||||||||
2014 | 2013 | |||||||
Prepaid contract expense |
$ | 9,766 | $ | 10,139 | ||||
Deferred commissions |
6,665 | 6,552 | ||||||
Prepaid income tax |
| 2,659 | ||||||
Debt issuance costs |
1,438 | 1,417 | ||||||
Other |
7,115 | 9,347 | ||||||
|
|
|
|
|||||
Total prepaid expenses and other |
$ | 24,984 | $ | 30,114 | ||||
|
|
|
|
F-18
Property and equipment, net
The following is a summary of property and equipment, net (in thousands):
December 31 | ||||||||
2014 | 2013 | |||||||
Computer systems |
$ | 29,426 | $ | 30,016 | ||||
Computer software |
39,293 | 31,515 | ||||||
Leasehold improvements |
29,549 | 35,978 | ||||||
Furniture and fixtures |
8,266 | 9,779 | ||||||
Construction in process |
1,955 | 1,359 | ||||||
|
|
|
|
|||||
Property and equipment, gross |
$ | 108,489 | $ | 108,647 | ||||
Accumulated depreciation |
(80,494 | ) | (76,949 | ) | ||||
|
|
|
|
|||||
Property and equipment, net |
$ | 27,995 | $ | 31,698 | ||||
|
|
|
|
Depreciation expense was $11.0 million, $11.5 million and $11.8 million for fiscal 2014, 2013 and 2012, respectively. Costs of $8.0 million, $3.5 million and $1.6 million related to the development of internal use software were capitalized in 2014, 2013 and 2012, respectively, and are included in Computer software in the table above.
Other assets
The following is a summary of other assets (in thousands):
December 31 | ||||||||
2014 | 2013 | |||||||
Prepaid contract expense, long-term |
$ | 3,770 | $ | 4,466 | ||||
Debt issuance costs |
3,483 | 4,899 | ||||||
Long-term deferred commissions |
2,919 | 4,098 | ||||||
Deposits |
2,915 | 2,608 | ||||||
Other |
158 | 1,301 | ||||||
|
|
|
|
|||||
Total other assets |
$ | 13,245 | $ | 17,372 | ||||
|
|
|
|
Deposits include a restricted cash balance of $1.5 million and $1.3 million at December 31, 2014 and 2013, respectively, related to the Companys San Francisco headquarters, and facilities in Boston and New York. Refer to Note 11 Commitments and Contingencies to these Notes to Consolidated Financial Statements, for additional information.
Dividends Payable
In December 2014, Advents Board of Directors (the Board) declared a cash dividend of $0.13 per common share payable to shareholders of record as of December 31, 2014. On January 15, 2015, the Company paid this dividend which totaled $6.8 million. Any future dividends are subject to the approval of the Board, and restricted by the terms of the Merger Agreement.
F-19
Accrued liabilities
The following is a summary of accrued liabilities (in thousands):
December 31 | ||||||||
2014 | 2013 | |||||||
Salaries and benefits payable |
$ | 21,381 | $ | 26,425 | ||||
Accrued dividend equivalents on restricted stock units |
3,404 | 3,171 | ||||||
Deferred rent, current portion |
1,998 | 2,138 | ||||||
Accrued restructuring, current portion |
61 | 998 | ||||||
Other |
9,697 | 8,893 | ||||||
|
|
|
|
|||||
Total accrued liabilities |
$ | 36,541 | $ | 41,625 | ||||
|
|
|
|
As part of the modification of equity awards in 2013 as further described in Note 12, Stock-based compensation, holders of certain restricted stock units (RSUs) have the right to receive $9.00 per RSU upon vesting.
Other long-term liabilities
The following is a summary of other long-term liabilities (in thousands):
December 31 | ||||||||
2014 | 2013 | |||||||
Deferred rent |
$ | 5,814 | $ | 8,677 | ||||
Long-term deferred tax liability |
1,442 | 1,982 | ||||||
Other |
565 | 512 | ||||||
|
|
|
|
|||||
Total other long-term liabilities |
$ | 7,821 | $ | 11,171 | ||||
|
|
|
|
Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income, net of related taxes, were as follows (in thousands):
December 31 | ||||||||
2014 | 2013 | |||||||
Accumulated foreign currency translation adjustments |
$ | 3,491 | $ | 11,009 | ||||
Accumulated net unrealized loss on marketable securities |
(18 | ) | | |||||
|
|
|
|
|||||
Accumulated other comprehensive income, net of taxes |
$ | 3,473 | $ | 11,009 | ||||
|
|
|
|
Note 6 - Goodwill
The changes in the carrying value of goodwill for fiscal 2014 and 2013 were as follows (in thousands):
Goodwill | ||||
Balance at December 31, 2012 |
$ | 206,932 | ||
Translation adjustments |
886 | |||
|
|
|||
Balance at December 31, 2013 |
$ | 207,818 | ||
Translation adjustments |
(5,528 | ) | ||
|
|
|||
Balance at December 31, 2014 |
$ | 202,290 | ||
|
|
F-20
Translation adjustments reflect the impact of translating goodwill balances denominated in various foreign currencies to the U.S. Dollar. In 2014, the U.S. Dollar strengthened versus other currencies resulting in translation adjustments of $(5.5) million translation. In 2013, the U.S. Dollar weakened versus other currencies resulting in translation adjustments of $0.9 million.
During the fourth quarter of 2014, Advent completed the qualitative goodwill impairment test utilizing step zero, which involved assessing financial factors, including Advents market capitalization and profitability and deviations from projected results, as well as other business factors, including assessing the current business environment, changes in the operation of its reporting unit and the results of the prior year goodwill impairment test. Based on the results of this qualitative assessment, Advent determined that the fair value of the reporting unit exceeds its carrying amount by a significant margin and, as a result, a quantitative analysis is not needed. The Company has not historically recognized any impairment charges to its goodwill and does not believe goodwill impairment charges are reasonably likely to occur for its reporting unit.
Note 7 - Other Intangibles, Net
The following is a summary of other intangible assets (in thousands, except weighted average amortization period):
Weighted Average Amortization Period (Years) |
Gross | Accumulated Amortization |
Net | |||||||||||
Purchased technologies |
5.1 | $ | 50,152 | $ | (43,195 | ) | $ | 6,957 | ||||||
Product development costs |
3.0 | 22,423 | (19,314 | ) | 3,109 | |||||||||
|
|
|
|
|
|
|||||||||
Developed technology sub-total |
72,575 | (62,509 | ) | 10,066 | ||||||||||
Customer relationships |
6.4 | 40,783 | (32,577 | ) | 8,206 | |||||||||
Other intangibles |
4.1 | 4,629 | (4,098 | ) | 531 | |||||||||
|
|
|
|
|
|
|||||||||
Other intangibles sub-total |
45,412 | (36,675 | ) | 8,737 | ||||||||||
|
|
|
|
|
|
|||||||||
Balance at December 31, 2014 |
$ | 117,987 | $ | (99,184 | ) | $ | 18,803 | |||||||
|
|
|
|
|
|
|||||||||
Weighted Average Amortization Period (Years) |
Gross | Accumulated Amortization |
Net | |||||||||||
Purchased technologies |
5.1 | $ | 50,711 | $ | (38,877 | ) | $ | 11,834 | ||||||
Product development costs |
3.0 | 20,524 | (17,183 | ) | 3,341 | |||||||||
|
|
|
|
|
|
|||||||||
Developed technology sub-total |
71,235 | (56,060 | ) | 15,175 | ||||||||||
Customer relationships |
6.4 | 40,936 | (29,786 | ) | 11,150 | |||||||||
Other intangibles |
4.1 | 4,645 | (3,578 | ) | 1,067 | |||||||||
|
|
|
|
|
|
|||||||||
Other intangibles sub-total |
45,581 | (33,364 | ) | 12,217 | ||||||||||
|
|
|
|
|
|
|||||||||
Balance at December 31, 2013 |
$ | 116,816 | $ | (89,424 | ) | $ | 27,392 | |||||||
|
|
|
|
|
|
F-21
The changes in the carrying value of intangible assets for fiscal 2014 and 2013 were as follows (in thousands):
Gross | Accumulated Amortization |
Net | ||||||||||
Balance at December 31, 2011 |
$ | 112,422 | $ | (62,901 | ) | $ | 49,521 | |||||
Additions |
2,137 | | 2,137 | |||||||||
Stock-based compensation additions |
92 | | 92 | |||||||||
Amortization |
| (14,083 | ) | (14,083 | ) | |||||||
Translation adjustments |
(9 | ) | 547 | 538 | ||||||||
|
|
|
|
|
|
|||||||
Balance at December 31, 2012 |
$ | 114,642 | $ | (76,437 | ) | $ | 38,205 | |||||
Additions |
1,995 | | 1,995 | |||||||||
Stock-based compensation additions |
98 | | 98 | |||||||||
Amortization |
| (12,862 | ) | (12,862 | ) | |||||||
Translation adjustments |
81 | (125 | ) | (44 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at December 31, 2013 |
$ | 116,816 | $ | (89,424 | ) | $ | 27,392 | |||||
Additions |
1,780 | | 1,780 | |||||||||
Stock-based compensation additions |
119 | | 119 | |||||||||
Amortization |
| (10,163 | ) | (10,163 | ) | |||||||
Translation adjustments |
(728 | ) | 403 | (325 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at December 31, 2014 |
$ | 117,987 | $ | (99,184 | ) | $ | 18,803 | |||||
|
|
|
|
|
|
Total additions to intangible assets, inclusive of capitalized stock-based compensation expense, of $1.9 million in 2014 and $2.1 million in 2013 were associated with capitalized software development costs.
The following is a summary of amortization of the Companys developed technology and other intangible assets for the periods presented (in thousands):
Fiscal Years | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Developed technology: |
||||||||||||
Amortizationpurchased technologies |
$ | 4,642 | $ | 6,841 | $ | 7,599 | ||||||
Amortizationproduct development costs |
2,130 | 2,246 | 2,659 | |||||||||
|
|
|
|
|
|
|||||||
Amortization of developed technology |
6,772 | 9,087 | 10,258 | |||||||||
Other intangibles: |
||||||||||||
Amortizationcustomer relationships |
2,858 | 2,850 | 2,854 | |||||||||
Amortizationother |
533 | 925 | 971 | |||||||||
|
|
|
|
|
|
|||||||
Amortization of other intangibles |
3,391 | 3,775 | 3,825 | |||||||||
|
|
|
|
|
|
|||||||
Total amortization |
$ | 10,163 | $ | 12,862 | $ | 14,083 | ||||||
|
|
|
|
|
|
Based on the carrying amount of intangible assets as of December 31, 2014, the estimated future amortization is as follows (in thousands):
Fiscal Years | ||||||||||||||||||||||||||||
2015 | 2016 | 2017 | 2018 | 2019 | Thereafter | Total | ||||||||||||||||||||||
Developed technology |
$ | 5,951 | $ | 3,550 | $ | 565 | $ | | $ | | $ | | $ | 10,066 | ||||||||||||||
Other intangibles |
3,202 | 2,700 | 1,867 | 925 | 43 | | 8,737 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 9,153 | $ | 6,250 | $ | 2,432 | $ | 925 | $ | 43 | $ | | $ | 18,803 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
Note 8 - Restructuring Charges
Advent recorded restructuring charges of $4.6 million in 2014, which included employee termination benefits associated with the re-organization plan approved in April 2014 and exit costs associated with the consolidation of facilities in San Francisco and Boston in the third quarter of 2014. The total recognized cost for these plans was approximately $4.6 million and was substantially complete as of December 31, 2014.
Advent recorded restructuring charges of $3.8 million in 2013 and $3.6 million in 2012, which included severance and benefits costs associated with a re-organization plan approved in October 2012 of $3.6 million in each of 2013 and 2012, bringing the total recognized cost for the plan to approximately $7.2 million. This restructuring plan was substantially complete as of December 31, 2013. Restructuring charges in 2013 and 2012 also included $0.2 million and $76,000 in facility exit costs, respectively.
The following table sets forth an analysis of the changes in the restructuring accrual during the periods presented (in thousands):
Facility Exit Costs |
Severance and Benefits |
Total | ||||||||||
Balance of restructuring accrual at December 31, 2011 |
$ | 448 | $ | 602 | $ | 1,050 | ||||||
Restructuring charges |
76 | 3,554 | 3,630 | |||||||||
Cash payments |
(524 | ) | (1,018 | ) | (1,542 | ) | ||||||
Accretion of prior restructuring costs |
4 | | 4 | |||||||||
|
|
|
|
|
|
|||||||
Balance of restructuring accrual at December 31, 2012 |
$ | 4 | $ | 3,138 | $ | 3,142 | ||||||
Restructuring charges |
181 | 3,589 | 3,770 | |||||||||
Cash payments |
| (5,914 | ) | (5,914 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance of restructuring accrual at December 31, 2013 |
$ | 185 | $ | 813 | $ | 998 | ||||||
Restructuring charges |
2,909 | 1,719 | 4,628 | |||||||||
Non-cash write-off of leasehold improvements |
(2,786 | ) | | (2,786 | ) | |||||||
Reversal of deferred rent related to facilities exited |
1,113 | | 1,113 | |||||||||
Cash payments |
(1,361 | ) | (2,532 | ) | (3,893 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance of restructuring accrual at December 31, 2014 |
$ | 60 | $ | | $ | 60 | ||||||
|
|
|
|
|
|
The remaining restructuring accrual of $60,000 at December 31, 2014 is included in Accrued liabilities in the accompanying consolidated balance sheet.
Note 9 - Debt
On June 12, 2013, Advent entered into an Amended and Restated Credit Agreement (the Restated Credit Agreement). The Restated Credit Agreement amended and restated Advents prior Credit Agreement, dated November 30, 2011. The Restated Credit Agreement provides for (i) a $200 million revolving credit facility, with a $25 million letter of credit sublimit and a $10 million swingline loan sublimit and (ii) a $225 million term loan facility. Advent may request revolving loans, swingline loans or the issuance of letters of credit until June 12, 2018, subject to demonstrating pro forma compliance with the financial covenant requirement under the Restated Credit Agreement. The Restated Credit Agreement also contains an incremental facility permitting Advent, subject to certain requirements, to arrange with the Lenders and/or new lenders for up to an aggregate of $75 million in additional commitments in the form of revolving loans or term loans. The proceeds of the revolving loans and term loans under the Restated Credit Agreement may be used for general purposes, including to finance dividends, repurchase common shares, finance acquisitions, or to finance other investments.
F-23
Minimum principal payments with respect to the term loans are due in 20 equal consecutive quarterly principal installments of $5.0 million, commencing on September 13, 2013, with the remaining outstanding principal balance and all accrued and unpaid interest due on June 12, 2018. Principal payments with respect to the revolving loans, together with all accrued and unpaid interest, are due on June 12, 2018. Advent may prepay the term loans and revolving loans at any time without penalty.
The revolving loans and term loans bear interest, at Advents option, at the alternate base rate plus a margin of 0.25% to 1.25% or an adjusted LIBOR rate (based on one, two, three or six-month interest periods) plus a margin of 1.25% to 2.25%, in each case with such margin being determined based on the consolidated leverage ratio for the preceding four fiscal quarter period. The alternate base rate means the highest of (i) the Agents prime rate, (ii) the federal funds rate plus a margin equal to 0.50% and (iii) the adjusted LIBOR rate for a one-month interest period plus a margin equal to 1.00%. Swingline loans accrue interest at a per annum rate based on the alternate base rate plus the applicable margin for alternate base rate loans. Advent is also obligated to pay other customary closing fees, arrangement fees, administration fees, commitment fees and letter of credit fees for a credit facility of this size and type.
The obligations under the Restated Credit Agreement are guaranteed by Advents present and future domestic subsidiaries, subject to certain exceptions. The loan is secured by substantially all of the assets of Advent and the guarantors party thereto, including all of the capital stock of Advents domestic subsidiaries and 66% of the capital stock of Advents or a guarantors first-tier foreign subsidiaries.
The Restated Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict Advent and its subsidiaries ability to, among other things, incur indebtedness, grant liens, merge or consolidate, dispose of assets, pay dividends or make distributions, make investments, make acquisitions, prepay certain indebtedness, enter into certain transactions with affiliates, enter into sale and leaseback transactions, enter into swap agreements and enter into restrictive agreements, in each case subject to customary exceptions for a credit facility of this size and type. Advent is also required to maintain compliance with a consolidated leverage ratio and a consolidated interest coverage ratio.
The following is a summary of the Companys outstanding debt balances (in thousands):
December 31 | ||||||||
2014 | 2013 | |||||||
Term loan facility |
$ | 195,000 | $ | 215,000 | ||||
Revolving credit facility |
25,000 | 90,000 | ||||||
|
|
|
|
|||||
Total |
$ | 220,000 | $ | 305,000 | ||||
|
|
|
|
Advent was in compliance with all associated covenants as of December 31, 2014 as follows:
Covenant |
Covenant Requirement |
Ratio Calculation as of December 31, 2014 |
||||
Leverage ratio(1) |
Maximum 3.75x(2) | 1.7 | x | |||
Interest coverage ratio(3) |
Minimum 2.5x | 18.1 | x |
(1) | Calculated as the ratio of total debt to EBITDA, as defined by the Restated Credit Agreement, for the period of four consecutive fiscal quarters on the measurement date. |
(2) | The leverage ratio covenant requirement lowers to a maximum of 3.50x on June 30, 2015 and 3.25x on June 30, 2016. |
(3) | Calculated as the ratio of EBITDA to interest expense, as defined by the Restated Credit Agreement, for the period of four consecutive fiscal quarters on the measurement date. |
F-24
The Restated Credit Agreement includes customary events of default that include, among other things, non-payment defaults, defaults due to the inaccuracy of representations and warranties, covenant defaults, cross default to material indebtedness, bankruptcy and insolvency defaults, material judgment defaults, defaults due to an unenforceability of the security documents or guarantees, and a change of control default. The occurrence of an event of default could result in the acceleration of the obligations under the Restated Credit Agreement. A default interest rate will apply on all obligations during the existence of a payment event of default under the Restated Credit Agreement at a per annum rate equal to 2.00% above the otherwise applicable interest rate.
Note 10 - Income Taxes
The components of income from continuing operations before income taxes were as follows (in thousands):
Fiscal Years | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
US |
$ | 76,608 | $ | 37,864 | $ | 48,552 | ||||||
Foreign |
173 | 1,055 | (993 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 76,781 | $ | 38,919 | $ | 47,559 | ||||||
|
|
|
|
|
|
The components of the provision for income taxes included (in thousands):
Fiscal Years | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Current: |
||||||||||||
Federal |
$ | 19,238 | $ | 11,740 | $ | 12,845 | ||||||
State |
5,131 | 3,034 | 1,653 | |||||||||
Foreign |
2,132 | 1,121 | 774 | |||||||||
Deferred: |
||||||||||||
Federal |
2,272 | (4,000 | ) | 3,502 | ||||||||
State |
(452 | ) | (1,102 | ) | (576 | ) | ||||||
Foreign |
(1,803 | ) | (626 | ) | (870 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
$ | 26,518 | $ | 10,167 | $ | 17,328 | ||||||
|
|
|
|
|
|
The effective income tax rate on earnings differed from the statutory federal tax rate as follows:
Fiscal Years | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Statutory federal rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
State taxes |
4.7 | 4.4 | 4.3 | |||||||||
Stock compensation relating to incentive stock options and employee stock purchase plans |
0.5 | 0.1 | 0.6 | |||||||||
Research and development and other state tax credits |
(3.7 | ) | (12.0 | ) | (2.8 | ) | ||||||
Change in valuation allowance |
| (0.1 | ) | (0.1 | ) | |||||||
Change in state contingency reserve |
0.1 | | (0.2 | ) | ||||||||
Foreign taxes |
0.4 | 0.6 | 0.8 | |||||||||
Impact of state tax rate changes on net deferred tax assets |
| | (0.2 | ) | ||||||||
Domestic production activities deduction |
(2.2 | ) | (1.7 | ) | | |||||||
Other, net |
(0.3 | ) | (0.2 | ) | (1.0 | ) | ||||||
|
|
|
|
|
|
|||||||
Effective income tax rate |
34.5 | % | 26.1 | % | 36.4 | % | ||||||
|
|
|
|
|
|
F-25
Advent has not provided U.S. income taxes and foreign withholding taxes on the undistributed earnings of foreign subsidiaries as of December 31, 2014 because the Company intends to permanently reinvest such earnings outside the U.S. If these foreign earnings were to be repatriated in the future, the related U.S. tax liability may be reduced by any foreign income taxes previously paid on these earnings. As of December 31, 2014, the cumulative amount of earnings upon which U.S. income taxes have not been provided is approximately $23.8 million. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities were as follows (in thousands):
December 31 | ||||||||
2014 | 2013 | |||||||
Deferred tax assets, current: |
||||||||
Deferred revenue |
$ | 2,779 | $ | 3,117 | ||||
Other accrued liabilities and reserves |
5,914 | 6,378 | ||||||
Stock compensation |
19,520 | 15,363 | ||||||
Other |
62 | 40 | ||||||
|
|
|
|
|||||
Total deferred tax assets, current |
28,275 | 24,898 | ||||||
|
|
|
|
|||||
Non-current deferred tax assets: |
||||||||
Depreciation and amortization |
| 45 | ||||||
Net operating losses, capital losses and credit carryforwards |
16,149 | 19,536 | ||||||
Other |
3,006 | 4,265 | ||||||
Valuation allowance |
(797 | ) | (826 | ) | ||||
|
|
|
|
|||||
Total deferred tax assets, non-current |
18,358 | 23,020 | ||||||
|
|
|
|
|||||
Deferred tax assets |
46,633 | 47,918 | ||||||
Depreciation and amortization |
(188 | ) | | |||||
Other deferred tax liabilities |
(1,254 | ) | (1,982 | ) | ||||
|
|
|
|
|||||
Deferred tax liabilities |
(1,442 | ) | (1,982 | ) | ||||
|
|
|
|
|||||
Net deferred tax assets |
$ | 45,191 | $ | 45,936 | ||||
|
|
|
|
The Company maintains a valuation allowance against its deferred tax assets relating to capital losses and investment reserves of $797,000 at December 31, 2014 as it believes that based upon the available evidence, it is more likely than not that these assets will not be realized. If it is determined in the future that it is more likely than not that these deferred tax assets will be realized, the valuation allowance will be reduced.
At December 31, 2014, Advent had federal net operating loss carryforwards of approximately $2.4 million. Utilization of these loss carryforwards, including losses obtained from acquisitions, is subject to certain limitations under the federal income tax laws. These net operating loss carryforwards expire between 2021 and 2027. Also at December 31, 2014, Advent had state net operating loss carryforwards in various states in which it files tax returns.
Advent had federal research credits of $13.9 million which expire between 2029 and 2034. Advent also had California research credits of $25.2 million which do not expire, and California enterprise zone credits of $7.3 million which expire in 2023.
F-26
The following table summarizes the activity relating to the Companys unrecognized tax benefits during the periods presented (in thousands):
Total | ||||
Balance at December 31, 2011 |
$ | 11,144 | ||
Gross increases related to tax positions in prior period |
12 | |||
Gross increases related to current period tax positions |
992 | |||
|
|
|||
Balance at December 31, 2012 |
$ | 12,148 | ||
Gross increases related to tax positions in prior period |
10 | |||
Gross increases related to current period tax positions |
2,520 | |||
|
|
|||
Balance at December 31, 2013 |
$ | 14,678 | ||
Gross increases related to tax positions in prior period |
10 | |||
Gross increases related to current period tax positions |
1,699 | |||
|
|
|||
Balance at December 31, 2014 |
$ | 16,387 | ||
|
|
If recognized, the portion of unrecognized tax benefits at December 31, 2014 that would decrease Advents tax provision and increase net income is $13.5 million. The impact on net income reflects the liabilities for unrecognized tax benefits net of the federal tax benefit of state income tax items. Advent recognizes interest and penalties accrued on unrecognized tax benefits as well as interest received from favorable settlements within Provision for income taxes in the consolidated statement of operations. As of December 31, 2014, Advent has accrued a nominal amount of interest and penalties for specific exposures in two states. Advent has not accrued any interest or penalties for its federal and other state reserves, as any reversal of uncertain tax positions would not result in the assessment of penalties or interest due to the Companys surplus of deferred tax assets that would offset any additional tax.
Advent is subject to taxation in the U.S. and various states and jurisdictions outside the U.S. Advent is currently undergoing a State of California franchise tax examination for the 2006 and 2007 tax years and State of New York for the 2011, 2012 and 2013 tax years. Advent is not under examination in any other income tax jurisdiction at the present time and does not anticipate the total amount of its unrecognized tax benefits to significantly change over the next 12 months. The material jurisdictions that are subject to examination by tax authorities include federal for tax years after 2010 and California for tax years after 2005.
Note 11 - Commitments and Contingencies
Lease Obligations
Advent leases office space and equipment under non-cancelable operating lease agreements, which expire at various dates through June 2025. Some operating leases contain escalation provisions for adjustments in the consumer price index. Advent is responsible for maintenance, insurance, and property taxes.
On October 1, 2009, Advent completed the sale of the Companys MicroEdge subsidiary. At December 31, 2014, the gross operating lease commitments and sub-lease income related to this discontinued operation facility totaled $5.1 million and $2.3 million, respectively. With the exception of the MicroEdge facilities in New York City, the lease obligations related to MicroEdge have been transferred to the Purchaser. Refer to Note 3 Discontinued Operation to these Notes to Consolidated Financial Statements, for additional information on the MicroEdge discontinued operation.
F-27
Future minimum payments under non-cancelable operating leases consisted of the following at December 31, 2014 (in thousands):
Future | ||||||||||||
Fiscal Years |
Lease Payments* |
Sub-lease Income |
Net Lease Payments |
|||||||||
2015 |
$ | 10,822 | $ | 542 | $ | 10,280 | ||||||
2016 |
9,897 | 598 | 9,299 | |||||||||
2017 |
4,889 | 598 | 4,291 | |||||||||
2018 |
3,890 | 599 | 3,291 | |||||||||
2019 |
3,773 | 607 | 3,166 | |||||||||
Thereafter |
15,156 | 834 | 14,322 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 48,427 | $ | 3,778 | $ | 44,649 | ||||||
|
|
|
|
|
|
* | The decrease in future operating lease payments starting in 2016 reflects the end of the current lease term for the Companys San Francisco headquarters in October 2016. On January 28, 2015, Advent extended the San Francisco lease for an additional 10 years, which will result in total operating lease payments of approximately $71 million from November 1, 2016 through October 31, 2026, which is not reflected in the table above. |
Rent expense for fiscal 2014, 2013 and 2012 was $8.0 million, $8.7 million and $8.5 million, respectively, net of sub-lease income from non-restructured facilities of $236,000, $45,000 and $0, respectively.
Indemnification Obligations
As permitted or required under Delaware law and to the maximum extent allowable under that law, Advent has certain obligations to indemnify its current and former officers and directors for certain events or occurrences while the officer or director is, or was serving, at Advents request in such capacity. These indemnification obligations are valid as long as the director or officer acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The maximum potential amount of future payments Advent could be required to make under these indemnification obligations is unlimited; however, Advent has a director and officer insurance policy that mitigates Advents exposure and enables Advent to recover a portion of any future amounts paid. The Company believes the estimated fair value of these indemnification obligations is minimal.
Legal Contingencies
From time to time, in the course of its operations, the Company is a party to litigation matters and claims, including claims related to employee relations, business practices and other matters other than those that may be specified herein, but does not consider these matters to be material either individually or in the aggregate at this time. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict and the Companys view of these matters may change in the future as the litigation and related events unfold. An unfavorable outcome in any legal matter, if material, could have a material adverse effect on the Companys financial position, liquidity or results of operations in the period in which the unfavorable outcome occurs and potentially in future periods.
Advent reviews the status of each litigation matter or other claim and records a provision for a liability when it is considered both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed quarterly and adjusted as additional information becomes available. If either or both of the criteria are not met, the Company reassesses whether there is at least a reasonable possibility that a loss, or additional losses, may be incurred. If there is a reasonable possibility that a loss may be incurred, the Company discloses the estimate of the amount of loss or range of loss, discloses that the amount is immaterial (if true), or discloses that an estimate of loss cannot be made. In assessing potential loss contingencies, the Company considers a number of factors, including those listed in the Financial Accounting Standards Boards Accounting Standards Codification (ASC) 450-20, ContingenciesLoss Contingencies, regarding assessing the probability of a loss occurring and assessing whether a loss is reasonably estimable. The Company expenses legal fees as incurred.
As of February 20, 2015, three putative class action lawsuits challenging the transactions contemplated by the Merger Agreement have been filed by purported Advent stockholders in the Court of Chancery of the State of Delaware against Advent, Advents Board of Directors, SS&C, and Merger Sub. These actions are captioned Chitwood v. Advent Software, Inc., et al., Case No. 10623-VCL, City of Atlanta Firefighters Pension Fund v. David Peter F. Hess, Jr., et al., Case No. 10633-VCL, and Klein v. Advent Software, Inc., et al., Case No. 10670-VCL. The actions generally allege, among other things, that the Board of Directors breached its fiduciary duties to Advents stockholders by engaging in a flawed sales process, agreeing to a transaction price that does not adequately compensate Advent stockholders, and agreeing to certain deal protection terms in the Merger Agreement that allegedly preclude a potential competing bid. The actions also allege that the other defendants aided and abetted the Board of Directors breaches of fiduciary duties. The actions seek various remedies including to enjoin or rescind the merger, damages, and costs.
F-28
Management believes that any potential losses associated with the legal proceedings regarding the merger are neither probable nor reasonably estimable at this time and accordingly has not accrued any amounts for any potential loss.
Based on currently available information, the Companys management does not believe that the ultimate outcome of unresolved matters, individually and in the aggregate, is likely to have a material adverse effect on the Companys financial position, results of operations or cash flows.
Note 12 - Stock-Based Compensation
Description of Plans
Stock Option Plans
Advent has stock options and awards outstanding under its 2002 Stock Plan (the Plan). On May 7, 2014, the Companys stockholders approved the amendment and restatement of Advents 2002 Stock Plan, originally approved by the Board of Directors (the Board) and stockholders in February and May, respectively, of 2002. Under the Plan, the Company may grant stock options (or Options) to purchase the Companys common stock to employees, consultants and directors. The Plan also permits the award of restricted stock, restricted stock units (or RSUs), stock appreciation rights (or SARs), performance shares, and performance units. Advent also has two stock plans that have no outstanding awards as of December 31, 2014: the 1998 Non-statutory Stock Option Plan and the 1995 Director Option Plan.
Options granted may be incentive stock options or non-statutory stock options and shall be granted at a price not less than fair market value on the date of grant. Fair market value (as defined in the Plan) and the vesting of these options shall be determined by the Board. The options generally vest over 4 years and expire no later than 10 years from the date of grant.
RSUs are awards of restricted stock units that generally vest over four years with half earned on the second anniversary of the date of grant and the remaining half earned at the end of the fourth anniversary of the date of grant. Upon vesting, RSUs will convert into an equivalent number of shares of common stock. The value of the RSUs is based on the closing market price of the Companys common stock on the date of grant and is amortized on a straight-line basis over the four-year requisite service period.
SARs are the right to receive the appreciation in fair market value of common stock between the exercise date and the date of grant. SARs generally vest over 4 years, and expire no later than 10 years from the date of grant. Upon exercise, SARs will be settled in shares of Advent common stock.
Unvested RSUs, stock options and SARs are generally canceled on termination of employment and returned to the Plan.
Non-employee directors are eligible to receive awards of SARs and RSUs under the 2002 Stock Plan as follows:
| Upon joining the Board, awards totaling $300,000 in value with approximately 70% of the value awarded in SARs and 30% awarded in RSUs. |
| Upon re-election to the Board, awards totaling $150,000 in value with approximately 70% of the value awarded in SARs and 30% awarded in RSUs. |
In the event of a merger with or into another corporation, or other change in control, each non-employee director shall fully vest in and have the right to exercise all of his or her outstanding equity compensation (including outstanding stock options, SARs, RSUs, or performance shares). Upon a directors retirement from the Board, the directors unvested options, SARs and RSUs are canceled and returned to the Plan. Additionally, certain executives and other key employees will receive accelerated vesting benefits for termination due to a change-in-control.
Employee Stock Purchase Plan
All Advent U.S. employees are eligible to participate in the employee stock purchase plan (ESPP) if they are employed by Advent for at least 20 hours per week and at least five months per year. The ESPP permits eligible employees to purchase Advents common stock through payroll deductions at a price equal to 85% of the lower of the closing sale price for the Companys common stock reported on the NASDAQ National Market at the beginning or the end of each six-month offering period. In any calendar year, eligible employees can withhold up to 10% of their salary and certain variable compensation.
F-29
2005 ESPP
On May 18, 2005, Advents shareholders approved the 2005 ESPP with 4,000,000 shares of common stock reserved for issuance. The following table summarizes the Companys issuance of common stock for the total Company under the 2005 ESPP:
Fiscal Years | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Common shares issued |
248,246 | 283,267 | 325,270 | |||||||||
Average price |
$ | 25.63 | $ | 22.21 | $ | 20.48 |
As of December 31, 2014, common shares of 960,358 were reserved for future issuance under the 2005 ESPP.
401(k) Plan
Advent sponsors a 401(k) Plan to provide retirement benefits for its U.S. employees. This Plan provides for tax-deferred salary deductions for eligible employees. Employees may contribute between 1% and 70% of their compensation to this Plan, limited by an annual maximum amount as determined by the Internal Revenue Service. The Company also makes a 50% matching contribution of up to 6% of employee compensation. The Companys matching contributions to this plan totaled $3.8 million, $3.8 million and $4.0 million for fiscal 2014, 2013 and 2012, respectively. In addition to the employer matching contribution, Advent may make profit sharing contributions at the discretion of its Board of Directors. Advent did not make any profit sharing contributions in fiscal 2014, 2013 and 2012.
Equity Award Modification
On June 12, 2013, the Companys Board of Directors approved a one-time special cash dividend (the Special Dividend) of $9.00 per share payable on each Common Share. In connection with the declaration of the Special Dividend, equity award modifications affecting approximately 900 employees and non-employee directors were made on June 12, 2013 (the Modification Date) for awards outstanding as of July 9, 2013 in a manner that was intended to preserve the pre-cash dividend economic value of these awards granted under the 2002 Stock Plan, 1998 non-statutory Stock Option Plan and 1995 Director Option Plan.
The Company recalculated the Black-Scholes fair values of its eligible outstanding options and SARs on the Modification Date, reflecting the reduction in their exercise prices of up to $9.00 per share, to determine the non-cash incremental stock-based compensation expense. For holders of outstanding stock options and SARs for which there otherwise could be a negative tax consequence, the exercise price was reduced only to the extent that there would be no tax consequence; and Advent made a cash payment of $5.4 million in July 2013 to the option and SAR holders for the difference between $9.00 and the exercise price reduction of the award. Additionally, Advent modified eligible outstanding RSUs to allow for a cash payment of an amount equivalent to $9.00 per share of the Companys common stock underlying the unvested RSUs upon vesting.
The following table summarizes the Black-Scholes inputs used in calculating the fair value and incremental expense to be recognized in connection with the equity award modification that occurred in June 2013:
Stock Options & SARs |
Pre-Modification | Post-Modification | ||
Market price of Advent stock |
$26.10 | $26.10 | ||
Exercise price |
$8.28 - $32.85 | $7.84 - $23.85 | ||
Risk-free interest rate |
0.04% - 1.49% | 0.04% - 1.23% | ||
Volatility |
31.33% - 37.45% | 31.33% - 37.40% | ||
Expected life (in years) |
0.26 - 6.40 | 0.26 - 5.38 | ||
Expected dividends |
None | None |
F-30
The following table sets forth the financial impact of the equity award modification that occurred in fiscal 2013 (in millions):
Cash or Non-Cash |
Total Incremental Stock-Based Compensation Expense |
Stock-Based Compensation Expense Recognized During Fiscal 2013 |
Unamortized Stock-Based Compensation Expense as of December 31, 2013 |
|||||||||||
Modification of options and SARs |
Non-cash | $ | 24.8 | $ | 17.9 | $ | 6.9 | |||||||
Modification of options and SARs |
Cash | 5.4 | 5.4 | | ||||||||||
Modification of RSUs |
Cash | 10.6 | 3.8 | 6.8 | ||||||||||
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|
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|
|||||||||
Total excluding estimated forfeitures |
$ | 40.8 | $ | 27.1 | $ | 13.7 | ||||||||
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|
|
|||||||||
Total including estimated forfeitures |
$ | 38.2 | $ | 26.7 | $ | 11.5 | ||||||||
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|
|
Incremental stock-based compensation expense was recognized during 2014 and 2013 for awards that were modified in the second quarter of 2013. Of the total incremental charge, approximately $6.2 million and $26.7 million of expense was recognized in fiscal 2014 and fiscal 2013, respectively. The vested portion of each award was determined on a grant-by-grant basis, based on the extent to which the award was vested as of the Modification Date. The remaining unamortized stock-based compensation expense, including estimated forfeitures, of approximately $11.5 million at December 31, 2013 is being recognized over the original remaining vesting periods of the awards ranging from 1 to 41 months.
Stock-Based Compensation Expense
Stock-based compensation expense related to stock options, SARs, ESPP shares, and RSUs was recognized in Advents consolidated statements of operations for the periods presented as follows (in thousands):
Fiscal Years | ||||||||||||||||||||||||||||||||||||
2014 | 2013 | 2012 | ||||||||||||||||||||||||||||||||||
Options, SARs & ESPP |
RSUs | Total | Options, SARs & ESPP |
RSUs | Total | Options, SARs & ESPP |
RSUs | Total | ||||||||||||||||||||||||||||
Statement of operations classification |
||||||||||||||||||||||||||||||||||||
Cost of recurring revenues |
$ | 1,671 | $ | 1,579 | $ | 3,250 | $ | 2,057 | $ | 1,434 | $ | 3,491 | $ | 1,432 | $ | 973 | $ | 2,405 | ||||||||||||||||||
Cost of non-recurring revenues |
788 | 547 | 1,335 | 2,449 | 804 | 3,253 | 642 | 594 | 1,236 | |||||||||||||||||||||||||||
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|||||||||||||||||||
Total cost of revenues |
2,459 | 2,126 | 4,585 | 4,506 | 2,238 | 6,744 | 2,074 | 1,567 | 3,641 | |||||||||||||||||||||||||||
Sales and marketing |
6,173 | 3,853 | 10,026 | 10,122 | 3,143 | 13,265 | 4,881 | 2,284 | 7,165 | |||||||||||||||||||||||||||
Product development |
3,500 | 4,235 | 7,735 | 5,053 | 3,810 | 8,863 | 2,952 | 2,869 | 5,821 | |||||||||||||||||||||||||||
General and administrative |
4,041 | 2,984 | 7,025 | 16,377 | 2,930 | 19,307 | 2,437 | 1,737 | 4,174 | |||||||||||||||||||||||||||
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Total operating expenses |
13,714 | 11,072 | 24,786 | 31,552 | 9,883 | 41,435 | 10,270 | 6,890 | 17,160 | |||||||||||||||||||||||||||
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Total stock-based employee compensation expense |
$ | 16,173 | $ | 13,198 | $ | 29,371 | $ | 36,058 | $ | 12,121 | $ | 48,179 | $ | 12,344 | $ | 8,457 | $ | 20,801 | ||||||||||||||||||
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Tax effect on stock-based employee compensation |
(6,060 | ) | (4,941 | ) | (11,001 | ) | (14,427 | ) | (4,619 | ) | (19,046 | ) | (4,763 | ) | (3,324 | ) | (8,087 | ) | ||||||||||||||||||
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Effect on net income from continuing operations, net of tax |
$ | 10,113 | $ | 8,257 | $ | 18,370 | $ | 21,631 | $ | 7,502 | $ | 29,133 | $ | 7,581 | $ | 5,133 | $ | 12,714 | ||||||||||||||||||
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F-31
Advent capitalized stock-based compensation expense of $132,000, $273,000 and $198,000 during fiscal 2014, 2013 and 2012, respectively, associated with the Companys software development, internal-use software and professional services implementation projects.
As of December 31, 2014, total compensation cost related to unvested awards not yet recognized under all equity compensation plans and including the impact of the equity award modification, adjusted for estimated forfeitures, was $44.8 million and is expected to be recognized through the remaining vesting period of each grant, with a weighted average remaining period of 2.3 years.
Valuation Assumptions
Advent uses the Black-Scholes option pricing model and the straight-line attribution approach to determine the grant date fair value of stock options, SARs and the ESPP. The fair value of RSUs is equal to the Companys closing stock price on the date of grant.
The following Black-Scholes option pricing model assumptions were used:
Fiscal Years | ||||||
2014 | 2013 | 2012 | ||||
Stock Options and SARs |
||||||
Risk-free interest rate |
1.2% - 1.9% | 0.5% - 1.8% | 0.6% - 1.2% | |||
Volatility |
32.4% - 35.1% | 33.4% - 38.8% | 38.4% - 42.9% | |||
Expected life (in years) |
3.69 - 4.85 | 3.94 - 5.06 | 4.02 - 5.50 | |||
Expected dividend yield |
0% - 1.8% | None | None | |||
Employee Stock Purchase Plan* |
||||||
Risk-free interest rate |
0.1% | 0.1% | 0.1% | |||
Volatility |
31.4% - 32.1% | 31.7% - 31.8% | 31.0% - 48.3% | |||
Expected life (in years) |
0.5 | 0.5 | 0.5 | |||
Expected dividend yield |
1.7% | None | None |
* | The ESPP periods begin every six months on December 1 and June 1 of each year. |
Volatility for the years presented was calculated using an equally weighted average of the Companys historical and implied volatility of its common stock. The Company believes that this blended calculation of volatility is the most appropriate indicator of expected volatility and best reflects expected market conditions.
Expected life for the years presented was determined based on the Companys historical experience of similar awards, giving consideration to the contractual terms or offering periods, vesting schedules and expectations of future employee behavior.
F-32
Risk-free interest rate for the years presented was based on the U.S. Treasury yield curve in effect at the date of grant, or beginning of the offering period for the ESPP, for periods corresponding with the expected life.
The expected dividend yield for each grant was determined by annualizing the most recent dividend declared and dividing the result by the Companys closing stock price on the date of grant. The dividend yield assumption for grants prior to April 28, 2014 was 0% based on the Companys history of not paying regular dividends and the future expectation of no recurring dividend payouts at the time of grant.
Equity Award Activity
The Companys stock option and SAR activity for the periods presented is as follows (in thousands, except weighted average exercise price):
Fiscal Years | ||||||||||||||||||||||||
2014 | 2013 | 2012 | ||||||||||||||||||||||
Number of Shares |
Weighted Average Exercise Price |
Number of Shares |
Weighted Average Exercise Price(1) |
Number of Shares |
Weighted Average Exercise Price |
|||||||||||||||||||
Outstanding at beginning of year |
5,590 | $ | 15.05 | 7,668 | $ | 14.22 | 7,029 | $ | 18.01 | |||||||||||||||
Options and SARs granted |
825 | $ | 29.38 | 1,220 | $ | 22.01 | 1,895 | $ | 24.92 | |||||||||||||||
Options and SARs exercised |
(1,146 | ) | $ | 14.04 | (2,951 | ) | $ | 14.79 | (972 | ) | $ | 15.60 | ||||||||||||
Options and SARs canceled |
(193 | ) | $ | 20.88 | (347 | ) | $ | 23.40 | (284 | ) | $ | 23.63 | ||||||||||||
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Outstanding at end of year |
5,076 | $ | 17.38 | 5,590 | $ | 15.05 | 7,668 | $ | 19.82 | |||||||||||||||
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Exercisable at end of year |
2,906 | $ | 13.50 | 2,720 | $ | 11.67 | 4,575 | $ | 16.55 | |||||||||||||||
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(1) | The weighted average exercise prices have been adjusted to reflect the impact of the 2013 equity award modification. |
The aggregate intrinsic value of options and SARs outstanding was $67.5 million and exercisable was $49.8 million as of December 31, 2014. The intrinsic value is calculated as the difference between the Companys closing stock price of $30.64 on December 31, 2014 and the exercise price of the underlying awards that were in-the-money as of that date.
The weighted average grant date fair value of options and SARs granted for the total Company, total intrinsic value of options and SARs exercised and cash received from options exercised during the periods presented were as follows (in thousands, except weighted average grant date fair value):
Fiscal Years | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Options and SARs |
||||||||||||
Weighted average grant date fair value |
$ | 7.71 | $ | 10.47 | $ | 8.88 | ||||||
Total intrinsic value of awards exercised |
$ | 20,327 | $ | 43,514 | $ | 10,086 | ||||||
Options |
||||||||||||
Cash received from exercises |
$ | 4,562 | $ | 19,495 | $ | 5,173 |
F-33
The options and SARs outstanding and currently exercisable by exercise price at December 31, 2014 were as follows:
Options and SARs Outstanding | Options and SARs Exercisable |
|||||||||||||||||||
Exercise Price |
Number of Shares (in thousands) |
Weighted Average Remaining Contractual Life (in years) |
Weighted Average Exercise Price |
Number of Shares (in thousands) |
Weighted Average Exercise Price |
|||||||||||||||
$7.84 |
860 | 1.80 | $ | 7.84 | 860 | $ | 7.84 | |||||||||||||
$7.92 - $12.10 |
816 | 5.72 | $ | 11.36 | 548 | $ | 10.93 | |||||||||||||
$12.12 - $17.73 |
558 | 5.76 | $ | 14.37 | 474 | $ | 14.18 | |||||||||||||
$17.80 |
607 | 7.36 | $ | 17.80 | 323 | $ | 17.80 | |||||||||||||
$17.85 - $21.06 |
515 | 6.71 | $ | 18.27 | 394 | $ | 18.33 | |||||||||||||
$21.15 |
1 | 6.04 | $ | 21.15 | 1 | $ | 21.15 | |||||||||||||
$21.67 |
864 | 8.38 | $ | 21.67 | 292 | $ | 21.67 | |||||||||||||
$23.85 - $28.67 |
27 | 8.92 | $ | 27.34 | 2 | $ | 27.10 | |||||||||||||
$28.79 |
518 | 9.37 | $ | 28.79 | | $ | | |||||||||||||
$28.89 - $35.14 |
310 | 9.42 | $ | 30.86 | 12 | $ | 31.73 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
As of December 31, 2014 |
5,076 | 6.42 | $ | 17.38 | 2,906 | $ | 13.50 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Expected to vest at December 31, 2014 |
4,938 | 6.35 | $ | 17.14 | ||||||||||||||||
|
|
|
|
|
|
The aggregate intrinsic value of options and SARs expected to vest at December 31, 2014 was $66.8 million.
The equity awards available for grant for the periods presented were as follows (in thousands):
Fiscal Years | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Available at beginning of year |
2,736 | 4,155 | 4,545 | |||||||||
Awards authorized |
4,750 | | 1,915 | |||||||||
Options and SARs granted |
(825 | ) | (1,220 | ) | (1,895 | ) | ||||||
Options and SARs canceled |
193 | 347 | 284 | |||||||||
RSUs granted |
(801 | ) | (393 | ) | (520 | ) | ||||||
RSUs canceled |
105 | 152 | 98 | |||||||||
RSU adjustment(1) |
(602 | ) | (305 | ) | (272 | ) | ||||||
|
|
|
|
|
|
|||||||
Available at end of year |
5,556 | 2,736 | 4,155 | |||||||||
|
|
|
|
|
|
During fiscal 2014, 2013 and 2012, the Company granted RSUs under its 2002 Stock Plan. The Companys RSU activity during the periods presented is as follows:
Fiscal Years | ||||||||||||||||||||||||
2014 | 2013 | 2012 | ||||||||||||||||||||||
Number of Shares (in thousands) |
Weighted Average Grant Date Fair Value |
Number of Shares (in thousands) |
Weighted Average Grant Date Fair Value |
Number of Shares (in thousands) |
Weighted Average Grant Date Fair Value |
|||||||||||||||||||
Outstanding and unvested at beginning of year |
1,159 | $ | 20.16 | 1,273 | $ | 18.16 | 1,253 | $ | 16.51 | |||||||||||||||
RSUs granted |
801 | $ | 30.22 | 393 | $ | 30.57 | 520 | $ | 25.69 | |||||||||||||||
RSUs vested |
(374 | ) | $ | 29.41 | (355 | ) | $ | 22.31 | (402 | ) | $ | 21.36 | ||||||||||||
RSUs canceled |
(105 | ) | $ | 27.93 | (152 | ) | $ | 25.30 | (98 | ) | $ | 23.82 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Outstanding and unvested at end of year |
1,481 | $ | 22.71 | 1,159 | $ | 20.16 | 1,273 | $ | 18.16 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-34
The weighted average grant date fair value of RSUs was determined based on the closing market price of the Companys common stock on the date of the award. The aggregate intrinsic value of RSUs outstanding at December 31, 2014 was $45.4 million based on the Companys closing price of $30.64 per share on that date. Additionally, at December 31, 2014, certain unvested RSUs outstanding had a right to a total of $6.1 million of cash payments upon vesting related to the equity award modification in June 2013.
Note 13 - Net Income Per Share
The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share data):
Fiscal Years | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Numerator: |
||||||||||||
Net income: |
||||||||||||
Continuing operations |
$ | 50,263 | $ | 28,752 | $ | 30,231 | ||||||
Discontinued operation |
(51 | ) | 50 | 184 | ||||||||
|
|
|
|
|
|
|||||||
Total operations |
$ | 50,212 | $ | 28,802 | $ | 30,415 | ||||||
|
|
|
|
|
|
|||||||
Denominator: |
||||||||||||
Denominator for basic net income per share-weighted average shares outstanding |
51,546 | 51,207 | 50,614 | |||||||||
Dilutive common equivalent shares: |
||||||||||||
Employee stock options and other |
2,062 | 2,171 | 1,811 | |||||||||
|
|
|
|
|
|
|||||||
Denominator for diluted net income per share-weighted average shares outstanding, assuming exercise of potential dilutive common shares |
53,608 | 53,378 | 52,425 | |||||||||
|
|
|
|
|
|
|||||||
Net income per share(1): |
||||||||||||
Basic: |
||||||||||||
Continuing operations |
$ | 0.98 | $ | 0.56 | $ | 0.60 | ||||||
Discontinued operation |
| | | |||||||||
|
|
|
|
|
|
|||||||
Total operations |
$ | 0.97 | $ | 0.56 | $ | 0.60 | ||||||
|
|
|
|
|
|
|||||||
Diluted: |
||||||||||||
Continuing operations |
$ | 0.94 | $ | 0.54 | $ | 0.58 | ||||||
Discontinued operation |
| | | |||||||||
|
|
|
|
|
|
|||||||
Total operations |
$ | 0.94 | $ | 0.54 | $ | 0.58 | ||||||
|
|
|
|
|
|
Weighted average stock options, SARs and RSUs of approximately 1.9 million, 1.9 million and 3.2 million were excluded from the computation of diluted net income per share for fiscal 2014, 2013 and 2012, respectively, because their inclusion would have been anti-dilutive.
Note 14 - Common Stock Repurchase Programs
Advents Board of Directors (the Board) has approved common stock repurchase programs authorizing management to repurchase shares of the Companys common stock. The timing and actual number of shares subject to repurchase are at the discretion of Advents management and are contingent on a number of factors, including the price of Advents stock, Advents cash balances and working capital needs, general business and market conditions, regulatory requirements and alternative investment opportunities. Repurchased shares are returned to the status of authorized and unissued shares of common stock.
The purchase price for the shares of our common stock repurchased is reflected as a reduction to stockholders equity. In accordance with ASC 505-30, Treasury Stock, we are required to allocate the purchase price of the repurchased shares as (i) an increase to accumulated deficit and (ii) a reduction of common stock and additional paid-in capital. Issuance of common stock and the tax benefit related to employee stock option plans are recorded as an increase to common stock and additional paid-in capital. As a result of future repurchases, we may continue to report an accumulated deficit included in Stockholders deficit in the Companys consolidated balance sheets.
F-35
At December 31, 2013 there were approximately 0.4 million shares authorized by our Board for repurchase. In May 2014 our Board authorized an additional 1.0 million shares of the Companys common stock for repurchase. At December 31, 2014, there remained approximately 0.9 million shares authorized by the Board for repurchase, however, in the Merger Agreement with SS&C, signed on February 2, 2015, the Company is prohibited from repurchasing shares of its common stock during the pendency of the agreement.
The following table provides a summary of recent repurchase activity under the stock repurchase programs approved by the Board (in thousands, except per share data):
Fiscal Year |
Total Number of Shares Repurchased |
Cost | Average Price Paid Per Share |
|||||||||
2012 |
1,651 | $ | 41,275 | $ | 25.00 | |||||||
2013 |
1,600 | $ | 41,256 | $ | 25.79 | |||||||
2014 |
515 | $ | 15,141 | $ | 29.41 | |||||||
|
|
|
|
|
|
|||||||
Total |
3,766 | $ | 97,672 | $ | 25.94 | |||||||
|
|
|
|
|
|
In addition, Advent has withheld shares through net share settlements upon the vesting of restricted stock units and the exercise of stock-settled stock appreciation rights under its equity compensation plan to satisfy tax withholding obligations. At December 31, 2014, there remained approximately 0.9 million shares authorized by the Board remaining for repurchase.
Note 15 - Segment, Significant Customer and Geographic Information
Description of Segments
ASC 280, Segment Reporting establishes standards for reporting information about operating segments in a companys financial statements. While the Companys management considers function, products, market and geography to allocate resources, the Company believes its chief operating decision maker (CODM) is the Companys Chief Executive Officer. Accordingly, the Company has determined its CODM makes decisions and allocates resources based on the Company as a whole and that it operates as one operating segment, Advent Investment Management.
Significant Customers
No single customer represented 10% or more of Advents total net revenues in any fiscal year presented.
Geographic Information
Geographic information as of and for the periods presented is as follows (in thousands):
December 31 | ||||||||
2014 | 2013 | |||||||
Long-lived assets(1): |
||||||||
United States |
$ | 35,488 | $ | 45,299 | ||||
International |
2,752 | 3,771 | ||||||
|
|
|
|
|||||
Total long-lived assets |
$ | 38,240 | $ | 49,070 | ||||
|
|
|
|
F-36
Fiscal Years | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Geographic net sales(2): |
||||||||||||
United States |
$ | 322,360 | $ | 312,683 | $ | 299,018 | ||||||
International |
74,460 | 70,276 | 59,801 | |||||||||
|
|
|
|
|
|
|||||||
Total net sales |
$ | 396,820 | $ | 382,959 | $ | 358,819 | ||||||
|
|
|
|
|
|
(1) | Long-lived assets exclude securities, goodwill, intangible assets and deferred tax assets. |
(2) | Geographic net sales are based on the location to which the product is shipped. |
Note 16 - Fair Value Measurements
The accounting guidance for fair value measurements establishes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
Level Input |
Input Definition | |
Level 1 |
Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
Level 2 |
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date. | |
Level 3 |
Unobservable inputs that reflect managements best estimate of what market participants would use in pricing the asset or liability at the measurement date. |
In general, and where applicable, the Company uses quoted prices in active markets for identical assets or liabilities to determine fair value. The Company applied this valuation technique to measure the fair value of the Companys Level 1 investments, such as treasury obligation money market mutual funds and U.S. and foreign government debt securities. Money market funds consist of cash equivalents with remaining maturities of three months or less at the date of purchase and are composed primarily of U.S. government debt securities and treasury obligation money market mutual funds. Advents U.S. government debt securities are securities sponsored by the federal government of the United States.
If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, then the Company uses quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable either directly or indirectly. The Company obtains the fair value of Level 2 financial instruments from its custody bank, which uses various professional pricing services to gather pricing data which may include quoted market prices for identical or comparable instruments, or inputs other than quoted prices that are observable either directly or indirectly. The custody bank then analyzes gathered pricing inputs and applies proprietary valuation techniques, such as consensus pricing, weighted average pricing, distribution-curve-based algorithms, or pricing models such as discounted cash flow techniques to provide the Company with a fair valuation of each security. The Companys procedures include controls to ensure that appropriate fair values are recorded such as comparing prices obtained to independent sources. Advent reviews the internal controls in place at the custodian bank on an annual basis.
F-37
The Company measures certain financial assets and liabilities at fair value on a recurring basis, including available-for-sale securities. The fair value of these certain financial assets was determined using the following inputs as of December 31, 2014 and December 31, 2013 (in thousands):
Fair Value as of December 31, 2014 |
Level 1 | Level 2 | Level 3 | |||||||||||||
Financial Assets: |
||||||||||||||||
Money Market Funds(1) |
$ | 5,013 | $ | 5,013 | $ | | $ | | ||||||||
U.S. government debt securities(2) |
1,341 | 1,341 | | |||||||||||||
Corporate debt securities(3) |
7,970 | | 7,970 | | ||||||||||||
Municipal bonds(4) |
669 | | 669 | |||||||||||||
Financial Liabilities: |
||||||||||||||||
Debt(5) |
$ | 220,000 | $ | | $ | 220,000 | $ | | ||||||||
Fair Value as of December 31, 2013 |
Level 1 | Level 2 | Level 3 | |||||||||||||
Financial Liabilities: |
||||||||||||||||
Debt(5) |
$ | 305,000 | $ | | $ | 305,000 | $ | |
(1) | Included in cash and cash equivalents on the Companys consoldiated balance sheet. |
(2) | Included in short-term marketable securities on the Companys consolidated balance sheet. |
(3) | Included in cash and cash equivalents and short and long-term marketable securities on the Companys consolidated balance sheet. |
(4) | Included in short and long-term marketable securities on the Companys consolidated balance sheet. |
(5) | Included in current portion of long-term debt and long-term debt on the Companys consolidated balance sheet. |
There were no transfers between Level 1 and Level 2 assets in fiscal 2014 and Advent does not have any significant assets or liabilities that utilize unobservable or Level 3 inputs.
The carrying amounts of cash and cash equivalents, marketable securities, accounts receivable, accounts payable, dividends payable and accrued liabilities approximate fair value based on the short-term maturities of these instruments.
The carrying amount of debt approximates fair value as the underlying variable interest rate approximates current market rates and the Companys credit risk has not changed significantly since the date of issuance.
Note 17 Subsequent Events
San Francisco Headquarters Lease Amendment
On January 28, 2015, Advent entered into a definitive amendment to its lease at 600 Townsend Street in San Francisco, California with Toda America, Inc. (the Landlord) whereby the term of such lease has been extended for an additional ten (10) years commencing on November 1, 2016 and ending October 31, 2026 and whereby the Companys total leased space will be reduced from approximately 158,000 square feet to approximately 129,000 square feet by November 1, 2016. The Companys contractual operating lease obligation under this agreement with respect to the renewal term is approximately $70.5 million commencing on November 1, 2016, payable over the ten-year renewal term. As this amendment is considered a lease modification, the adjusted rent expense will commence effective January 28, 2015. Additionally, the Company anticipates approximately $6 million of leasehold improvements, of which $1.3 million will be funded by the Landlord and approximately $5 million will be paid directly by the Company.
Merger Agreement
On February 2, 2015, Advent entered into an Agreement and Plan of Merger (the Merger Agreement) with SS&C Technologies Holdings, Inc. (Parent or SS&C) and Arbor Acquisition Company, Inc., a wholly owned subsidiary of Parent (Merger Sub), pursuant to which, subject to the satisfaction or waiver of certain conditions therein, Merger Sub will merge with and into Advent. As a result of the merger, Merger Sub will cease to exist, and Advent will survive as a wholly owned subsidiary of SS&C.
F-38
Upon the consummation of the merger, subject to the terms of the Merger Agreement, which has been unanimously approved by our Board of Directors, each share of Advent common stock outstanding immediately prior to the effective time of the merger (the Effective Time), subject to certain exceptions, will be converted into the right to receive $44.25 in cash, without interest.
The completion of the merger is subject to customary conditions, including without limitation, approval of the merger by our stockholders and expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
The Merger Agreement contains certain termination rights for both Advent and Parent, and provides that, upon termination of the Merger Agreement under specified circumstances, including, but not limited to, if we accept a superior acquisition proposal, we may be required to pay Parent a termination fee of $80.0 million. We may also be required to reimburse Parent for up to $12.5 million of its out-of-pocket expenses in connection with the transaction under certain circumstances.
A description of the Merger Agreement is contained in our Current Report on Form 8-K filed with the SEC on February 3, 2015, and a copy of the Merger Agreement is attached thereto as Exhibit 2.1.
Shareholder Lawsuits
In connection with the Merger Agreement and the transactions contemplated thereby, three putative class action lawsuits challenging the transactions contemplated by the Merger Agreement have been filed by purported Advent stockholders in the Court of Chancery of the State of Delaware against Advent, Advents Board of Directors, SS&C, and Merger Sub. These actions are captioned Chitwood v. Advent Software, Inc., et al., Case No. 10623-VCL, City of Atlanta Firefighters Pension Fund v. David Peter F. Hess, Jr., et al., Case No. 10633-VCL, and Klein v. Advent Software, Inc., et al., Case No. 10670-VCL. The actions generally allege, among other things, that the Board of Directors breached its fiduciary duties to Advents stockholders by engaging in a flawed sales process, agreeing to a transaction price that does not adequately compensate Advent stockholders, and agreeing to certain deal protection terms in the Merger Agreement that allegedly preclude a potential competing bid. The actions also allege that the other defendants aided and abetted the Board of Directors breaches of fiduciary duties. The actions seek various remedies including to enjoin or rescind the merger, damages, and costs.
Note 18 Supplemental Guarantor Financial Statements
On July 8, 2015, Advent was acquired by SS&C Technologies Holdings, Inc. (the Parent Company). In connection with the acquisition, the Parent Company issued $600.0 million aggregate principal amount of senior notes due 2023 (the Senior Notes). The Senior Notes are jointly and severally and fully and unconditionally guaranteed, in each case subject to certain customary release provisions, by substantially all wholly-owned domestic subsidiaries of the Parent Company that guarantee the Parent Companys senior secured credit facilities (collectively Guarantors). Of those guarantors, two are subsidiaries of Advent: Advent Software, Inc. (the Parent Guarantor column within the tables below) and Hub Data (the Subsidiary Guarantor column within the tables below). All of the Guarantors are 100% owned by the Parent Company. All other subsidiaries of the Parent Company, either direct or indirect, do not guarantee the Senior Notes (Non-Guarantors). The Guarantors also unconditionally guarantee the Senior Secured Credit Facilities. There are no significant restrictions on the ability of the Company or any of the subsidiaries that are Guarantors to obtain funds from its subsidiaries by dividend or loan.
F-39
Condensed consolidating financial information as of December 31, 2014 and for the year ended December 31, 2014 are presented. The condensed consolidating financial information of Advent and its subsidiaries are as follows (in thousands):
December 31, 2014 | ||||||||||||||||||||
Parent Guarantor |
Subsidiary Guarantor |
Non-Guarantor Subsidiaries |
Consolidating and Eliminating Adjustments |
Consolidated | ||||||||||||||||
Cash and cash equivalents |
$ | 19,458 | $ | 527 | $ | 8,799 | $ | | $ | 28,784 | ||||||||||
Short-term marketable securities |
7,298 | | | | 7,298 | |||||||||||||||
Accounts receivable, net |
59,857 | 633 | 1,380 | | 61,870 | |||||||||||||||
Deferred taxes, current |
28,275 | | | | 28,275 | |||||||||||||||
Prepaid expenses and other |
21,395 | 795 | 2,794 | | 24,984 | |||||||||||||||
Intercompany receivable |
136,595 | 11,808 | 156,324 | (304,727 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
272,878 | 13,763 | 169,297 | (304,727 | ) | 151,211 | ||||||||||||||
Property and equipment, net |
25,853 | | 2,142 | | 27,995 | |||||||||||||||
Investment in subsidiaries |
80,404 | | | (80,404 | ) | | ||||||||||||||
Goodwill |
148,889 | 1,127 | 52,274 | | 202,290 | |||||||||||||||
Other intangibles, net |
13,835 | | 4,968 | | 18,803 | |||||||||||||||
Long-term marketable securities |
1,874 | | | | 1,874 | |||||||||||||||
Deferred taxes, long-term |
18,337 | | 21 | | 18,358 | |||||||||||||||
Other assets |
12,137 | | 1,108 | | 13,245 | |||||||||||||||
Noncurrent assets of discontinued operation |
| | 1,093 | | 1,093 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 574,207 | $ | 14,890 | $ | 230,903 | $ | (385,131 | ) | $ | 434,869 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Accounts payable |
$ | 10,889 | $ | 68 | $ | 1,084 | $ | | $ | 12,041 | ||||||||||
Dividend payable |
6,750 | | | | 6,750 | |||||||||||||||
Accrued liabilities |
28,215 | 715 | 7,743 | | 36,673 | |||||||||||||||
Deferred revenues |
194,405 | 2,739 | | | 197,144 | |||||||||||||||
Current portion of long-term debt |
20,000 | | | | 20,000 | |||||||||||||||
Intercompany payable |
156,324 | | 148,403 | (304,727 | ) | | ||||||||||||||
Current liabilities of discontinued operations |
| | 572 | | 572 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
416,583 | 3,522 | 157,802 | (304,727 | ) | 273,180 | ||||||||||||||
Deferred revenues, long-term |
6,949 | 23 | | | 6,972 | |||||||||||||||
Long-term income taxes payable |
9,513 | | | | 9,513 | |||||||||||||||
Long-term debt |
200,000 | | | | 200,000 | |||||||||||||||
Other long-term liabilities |
5,949 | | 1,872 | | 7,821 | |||||||||||||||
Non-current liabilities of discontinued operation |
| | 2,170 | | 2,170 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
638,994 | 3,545 | 161,844 | (304,727 | ) | 499,656 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total stockholders equity |
(64,787 | ) | 11,345 | 69,059 | (80,404 | ) | (64,787 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and stockholders equity |
$ | 574,207 | $ | 14,890 | $ | 230,903 | $ | (385,131 | ) | $ | 434,869 | |||||||||
|
|
|
|
|
|
|
|
|
|
F-40
Year Ended December 31, 2014 | ||||||||||||||||||||
Parent Guarantor |
Subsidiary Guarantor |
Non-Guarantor Subsidiaries |
Consolidating and Eliminating Adjustments |
Consolidated | ||||||||||||||||
Revenues |
$ | 383,227 | $ | 5,232 | $ | 64,703 | $ | (56,342 | ) | $ | 396,820 | |||||||||
Cost of revenues |
149,574 | 3,103 | 21,186 | (56,342 | ) | 117,521 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross margin |
233,653 | 2,129 | 43,517 | | 279,299 | |||||||||||||||
Operating expenses: |
||||||||||||||||||||
Sales and marketing |
57,484 | | 17,512 | | 74,996 | |||||||||||||||
Product development |
56,279 | 447 | 12,806 | | 69,532 | |||||||||||||||
General and administrative |
38,578 | 15 | 4,417 | | 43,010 | |||||||||||||||
Amortization of other intangibles |
3,015 | | 376 | | 3,391 | |||||||||||||||
Restructuring charges |
4,547 | | 81 | | 4,628 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
159,903 | 462 | 35,192 | | 195,557 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations |
73,750 | 1,667 | 8,325 | | 83,742 | |||||||||||||||
Interest and other income (expense), net |
(6,953 | ) | 1 | (9 | ) | | (6,961 | ) | ||||||||||||
Earnings from subsidiaries |
6,931 | | | (6,931 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations before income taxes |
73,728 | 1,668 | 8,316 | (6,931 | ) | 76,781 | ||||||||||||||
Provision for income taxes |
23,516 | | 3,002 | 26,518 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income from continuing operations |
50,212 | 1,668 | 5,314 | (6,931 | ) | 50,263 | ||||||||||||||
Net loss from discontinued operation |
| | (51 | ) | | (51 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
50,212 | 1,668 | 5,263 | (6,931 | ) | 50,212 | ||||||||||||||
Other comprehensive income, net of taxes |
||||||||||||||||||||
Foreign currency translation |
| | (7,518 | ) | | (7,518 | ) | |||||||||||||
Unrealized loss on marketable securities (net of applicable taxes of $12) |
(18 | ) | | | | (18 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total other comprehensive income, net of taxes |
(18 | ) | | (7,518 | ) | | (7,536 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income |
$ | 50,194 | $ | 1,668 | $ | (2,255 | ) | $ | (6,931 | ) | $ | 42,676 | ||||||||
|
|
|
|
|
|
|
|
|
|
F-41
Year Ended December 31, 2014 | ||||||||||||||||||||
Parent Guarantor |
Subsidiary Guarantor |
Non-Guarantor Subsidiaries |
Consolidating and Eliminating Adjustments |
Consolidated | ||||||||||||||||
Cash Flow from Operating Activities |
||||||||||||||||||||
Net income |
$ | 50,212 | $ | 1,668 | $ | 5,263 | $ | (6,931 | ) | $ | 50,212 | |||||||||
Adjustment to net income from continuing operations |
| | 51 | | 51 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income from continuing operations |
50,212 | 1,668 | 5,314 | (6,931 | ) | 50,263 | ||||||||||||||
Non-cash adjustments |
54,891 | 2 | (684 | ) | | 54,209 | ||||||||||||||
Earnings from subsidiaries |
(6,931 | ) | | | 6,931 | | ||||||||||||||
Intercompany transactions |
2,213 | (2,521 | ) | 308 | | | ||||||||||||||
Changes in operating assets and liabilities |
15,373 | 28 | (4,715 | ) | | 10,686 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by operating activities from continuing operations |
115,758 | (823 | ) | 223 | | 115,158 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash Flow from Investing Activities |
||||||||||||||||||||
Additions to property and equipment |
(8,375 | ) | | (598 | ) | | (8,973 | ) | ||||||||||||
Additions to capitalized software |
(1,367 | ) | | (506 | ) | | (1,873 | ) | ||||||||||||
Purchases of marketable securities |
(9,240 | ) | | | | (9,240 | ) | |||||||||||||
Sales and maturities of marketable securities |
100 | | | | 100 | |||||||||||||||
Net changes in restricted cash |
(173 | ) | | | | (173 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by (used in) investing activities from continuing operations |
(19,055 | ) | | (1,104 | ) | | (20,159 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash Flow from Financing Activities |
||||||||||||||||||||
Proceeds from common stock issued from exercises of stock options |
4,562 | | | | 4,562 | |||||||||||||||
Proceeds from common stock issued under the employee stock purchase plan |
6,353 | 9 | | | 6,362 | |||||||||||||||
Excess tax benefits from stock-based compensation |
10,257 | | | | 10,257 | |||||||||||||||
Withholding taxes related to equity award net share settlement |
(6,619 | ) | | | | (6,619 | ) | |||||||||||||
Repayments of debt |
(85,000 | ) | | | | (85,000 | ) | |||||||||||||
Common stock repurchased and retired |
(15,141 | ) | | | | (15,141 | ) | |||||||||||||
Payment of cash dividend |
(13,405 | ) | | | | (13,405 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by (used in) financing activities from continuing operations |
(98,993 | ) | 9 | | | (98,984 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash transferred to discontinued operations |
(347 | ) | | | | (347 | ) | |||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
| | (712 | ) | | (712 | ) | |||||||||||||
Net change in cash and cash equivalents |
(2,637 | ) | (814 | ) | (1,593 | ) | | (5,044 | ) | |||||||||||
Cash and cash equivalents, beginning of period |
22,095 | 1,341 | 10,392 | | 33,828 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents, end of period |
$ | 19,458 | $ | 527 | $ | 8,799 | $ | | $ | 28,784 | ||||||||||
|
|
|
|
|
|
|
|
|
|
F-42
Exhibit 99.3
PART I
Item 1. | Financial Statements |
ADVENT SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
June 30 2015 |
December 31 2014 |
|||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 29,840 | $ | 28,784 | ||||
Short-term marketable securities |
| 7,298 | ||||||
Accounts receivable, net |
60,954 | 61,870 | ||||||
Deferred taxes, current |
33,790 | 28,275 | ||||||
Prepaid expenses and other |
29,306 | 24,984 | ||||||
Current assets of discontinued operation |
103 | | ||||||
|
|
|
|
|||||
Total current assets |
153,993 | 151,211 | ||||||
Property and equipment, net |
23,482 | 27,995 | ||||||
Goodwill |
200,542 | 202,290 | ||||||
Other intangibles, net |
14,967 | 18,803 | ||||||
Long-term marketable securities |
| 1,874 | ||||||
Deferred taxes, long-term |
18,267 | 18,358 | ||||||
Other assets |
11,670 | 13,245 | ||||||
Noncurrent assets of discontinued operation |
1,093 | 1,093 | ||||||
|
|
|
|
|||||
Total assets |
$ | 424,014 | $ | 434,869 | ||||
|
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS DEFICIT |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 5,855 | $ | 12,041 | ||||
Dividends payable |
| 6,750 | ||||||
Accrued liabilities |
44,845 | 36,541 | ||||||
Deferred revenues |
191,282 | 197,144 | ||||||
Income taxes payable |
| 132 | ||||||
Current portion of long-term debt |
20,000 | 20,000 | ||||||
Current liabilities of discontinued operation |
625 | 572 | ||||||
|
|
|
|
|||||
Total current liabilities |
262,607 | 273,180 | ||||||
Deferred revenue, long-term |
5,443 | 6,972 | ||||||
Long-term income taxes payable |
9,513 | 9,513 | ||||||
Long-term debt |
165,000 | 200,000 | ||||||
Other long-term liabilities |
9,859 | 7,821 | ||||||
Noncurrent liabilities of discontinued operation |
1,846 | 2,170 | ||||||
|
|
|
|
|||||
Total liabilities |
454,268 | 499,656 | ||||||
|
|
|
|
|||||
Commitments and contingencies (See Note 13) |
||||||||
Stockholders deficit: |
||||||||
Common stock |
533 | 519 | ||||||
Additional paid-in capital |
86,215 | 61,455 | ||||||
Accumulated deficit |
(118,637 | ) | (130,234 | ) | ||||
Accumulated other comprehensive income |
1,635 | 3,473 | ||||||
|
|
|
|
|||||
Total stockholders deficit |
(30,254 | ) | (64,787 | ) | ||||
|
|
|
|
|||||
Total liabilities and stockholders deficit |
$ | 424,014 | $ | 434,869 | ||||
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-1
ADVENT SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Six Months Ended June 30 | ||||||||
2015 | 2014 | |||||||
Net revenues: |
||||||||
Recurring revenues |
$ | 191,850 | $ | 181,664 | ||||
Non-recurring revenues |
16,183 | 15,510 | ||||||
|
|
|
|
|||||
Total net revenues |
208,033 | 197,174 | ||||||
Cost of revenues: |
||||||||
Recurring revenues |
43,319 | 39,216 | ||||||
Non-recurring revenues |
16,640 | 15,569 | ||||||
Amortization of developed technology |
3,160 | 3,488 | ||||||
|
|
|
|
|||||
Total cost of revenues |
63,119 | 58,273 | ||||||
|
|
|
|
|||||
Gross margin |
144,914 | 138,901 | ||||||
Operating expenses: |
||||||||
Sales and marketing |
36,988 | 38,029 | ||||||
Product development |
38,099 | 34,843 | ||||||
General and administrative |
22,702 | 21,270 | ||||||
Amortization of other intangibles |
1,595 | 1,779 | ||||||
Transaction-related fees |
13,956 | | ||||||
Restructuring charges |
9,148 | 1,914 | ||||||
|
|
|
|
|||||
Total operating expenses |
122,488 | 97,835 | ||||||
|
|
|
|
|||||
Income from continuing operations |
22,426 | 41,066 | ||||||
Interest and other income (expense), net |
(2,759 | ) | (4,173 | ) | ||||
|
|
|
|
|||||
Income from continuing operations before income taxes |
19,667 | 36,893 | ||||||
Provision for income taxes |
8,030 | 13,331 | ||||||
|
|
|
|
|||||
Net income from continuing operations |
$ | 11,637 | $ | 23,562 | ||||
Discontinued operation: |
||||||||
Net loss from discontinued operation (net of applicable taxes of $(26) and ($24), respectively) |
(39 | ) | (37 | ) | ||||
|
|
|
|
|||||
Net income |
$ | 11,598 | $ | 23,525 | ||||
|
|
|
|
|||||
Basic net income (loss) per share: |
||||||||
Continuing operations |
$ | 0.22 | $ | 0.46 | ||||
Discontinued operation |
(0.00 | ) | (0.00 | ) | ||||
|
|
|
|
|||||
Total operations |
$ | 0.22 | $ | 0.46 | ||||
|
|
|
|
|||||
Diluted net income (loss) per share: |
||||||||
Continuing operations |
$ | 0.21 | $ | 0.44 | ||||
Discontinued operation |
(0.00 | ) | (0.00 | ) | ||||
|
|
|
|
|||||
Total operations |
$ | 0.21 | $ | 0.44 | ||||
|
|
|
|
|||||
Weighted average shares used to compute net income (loss) per share: |
||||||||
Basic |
52,655 | 51,314 | ||||||
Diluted |
55,151 | 53,486 | ||||||
Cash dividends declared per common share |
$ | | $ | 0.13 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Net income (loss) per share is based on actual calculated values and totals may not sum due to rounding.
F-2
ADVENT SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Six Months Ended June 30 | ||||||||
2015 | 2014 | |||||||
Net income |
$ | 11,598 | $ | 23,525 | ||||
Other comprehensive (loss) income, net of taxes |
||||||||
Foreign currency translation |
(1,838 | ) | 989 | |||||
|
|
|
|
|||||
Total other comprehensive (loss) income, net of taxes |
(1,838 | ) | 989 | |||||
|
|
|
|
|||||
Comprehensive income |
$ | 9,760 | $ | 24,514 | ||||
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-3
ADVENT SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30 | ||||||||
2015 | 2014 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 11,598 | $ | 23,525 | ||||
Adjustment to net income for discontinued operation net loss |
39 | 37 | ||||||
|
|
|
|
|||||
Net income from continuing operations |
11,637 | 23,562 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities from continuing operations: |
||||||||
Stock-based compensation |
13,384 | 15,312 | ||||||
Excess tax benefit from stock-based compensation |
(8,514 | ) | (6,841 | ) | ||||
Loss on disposal of fixed assets |
95 | | ||||||
Depreciation and amortization |
13,198 | 10,814 | ||||||
Amortization of debt issuance costs |
730 | 713 | ||||||
Reduction of doubtful accounts |
(11 | ) | (6 | ) | ||||
Reduction of sales reserves |
(120 | ) | (555 | ) | ||||
Deferred income taxes |
2,884 | 7,763 | ||||||
Other |
29 | 182 | ||||||
|
|
|
|
|||||
Effect of statement of operations adjustments |
21,675 | 27,382 | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
927 | 535 | ||||||
Prepaid and other assets |
(3,222 | ) | 5,661 | |||||
Accounts payable |
(5,985 | ) | 3,675 | |||||
Accrued liabilities |
7,213 | (7,282 | ) | |||||
Deferred revenues |
(7,271 | ) | (10,219 | ) | ||||
Income taxes payable |
2,377 | | ||||||
|
|
|
|
|||||
Effect of changes in operating assets and liabilities |
(5,961 | ) | (7,630 | ) | ||||
|
|
|
|
|||||
Net cash provided by operating activities from continuing operations |
27,351 | 43,314 | ||||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(4,154 | ) | (4,370 | ) | ||||
Capitalized software development costs |
(913 | ) | (963 | ) | ||||
Change in restricted cash |
(239 | ) | (173 | ) | ||||
Purchases of marketable securities |
(2,000 | ) | | |||||
Sales and maturities of marketable securities |
11,185 | | ||||||
|
|
|
|
|||||
Net cash provided by (used in) investing activities from continuing operations |
3,879 | (5,506 | ) | |||||
Cash flows from financing activities: |
||||||||
Proceeds from common stock issued from exercises of stock options |
6,536 | 2,141 | ||||||
Proceeds from common stock issued under the employee stock purchase plan |
3,206 | 3,493 | ||||||
Excess tax benefits from stock-based compensation |
8,514 | 6,841 | ||||||
Withholding taxes related to equity award net share settlement |
(6,038 | ) | (5,127 | ) | ||||
Repayment of debt |
(35,000 | ) | (25,000 | ) | ||||
Repurchase of common stock |
| (12,411 | ) | |||||
Payment of cash dividend |
(6,750 | ) | | |||||
|
|
|
|
|||||
Net cash used in financing activities from continuing operations |
(29,532 | ) | (30,063 | ) | ||||
Net cash transferred to discontinued operation |
(412 | ) | (223 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents |
(230 | ) | (18 | ) | ||||
|
|
|
|
|||||
Net change in cash and cash equivalents from continuing operations |
1,056 | 7,504 | ||||||
Cash and cash equivalents of continuing operations at beginning of period |
28,784 | 33,828 | ||||||
|
|
|
|
|||||
Cash and cash equivalents of continuing operations at end of period |
$ | 29,840 | $ | 41,332 | ||||
|
|
|
|
|||||
Six Months Ended June 30 | ||||||||
2015 | 2014 | |||||||
Supplemental disclosure of cash flow information: |
||||||||
Noncash investing activities: |
||||||||
Capital expenditures included in accounts payable |
$ | 1,577 | $ | 1,086 | ||||
Cash flows from discontinued operation of MicroEdge, Inc.: |
||||||||
Net cash used in operating activities |
$ | (412 | ) | $ | (223 | ) | ||
Net cash transferred from continuing operations |
412 | 223 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-4
ADVENT SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1Basis of Presentation
The condensed consolidated financial statements include the accounts of Advent Software, Inc. and its subsidiaries (collectively Advent or the Company). All inter-company amounts and transactions have been eliminated.
Advent has prepared these condensed consolidated financial statements in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (SEC) applicable to interim financial information. Certain information and footnote disclosures included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted in these interim statements pursuant to such SEC rules and regulations. These interim financial statements should be read in conjunction with the audited financial statements and related notes included in Advents Annual Report on Form 10-K for the fiscal year ended December 31, 2014. Interim results are not necessarily indicative of the results to be expected for the full year, and no representation is made thereto.
These condensed consolidated financial statements include, in the opinion of management, all adjustments necessary to state fairly the financial position, results of continuing operations and cash flows for each interim period shown. All such adjustments occur in the ordinary course of business and are of a normal, recurring nature.
Recent Accounting Pronouncements
With the exception of the below, there have been no recent accounting pronouncements or changes in accounting pronouncements during fiscal year 2015, as compared to the recent accounting pronouncements described in Advents Annual Report on Form 10-K for the fiscal year ended December 31, 2014, that are of significance, or potential significance, to the Companys condensed consolidated financial statements.
In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. Generally Accepted Accounting Principles (GAAP) when it becomes effective. On April 1, 2015, the Financial Accounting Standards Board (FASB) proposed a one year deferral of the effective date to December 15, 2017 and early application would be permitted, but not before the original effective date of December 15, 2016. Companies may use either a full retrospective or a modified retrospective approach to adopt the standard. The Company is evaluating the impact of the adoption of ASU 2014-09 on its condensed consolidated financial statements.
In January 2015 the FASB issued ASU No. 2015-01, Income StatementExtraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. This update eliminates from GAAP the concept of an extraordinary item. As a result, an entity will no longer (1) segregate an extraordinary item from the results of ordinary operations; (2) separately present an extraordinary item on its income statement, net of tax, after income from continuing operations; and (3) disclose income taxes and earnings-per-share data applicable to an extraordinary item. ASU 2015-01 is effective for annual periods beginning after December 15, 2015, and interim periods within those annual periods. Early adoption is permitted. Advent expects to adopt this new standard effective January 1, 2016 and does not expect the adoption to have a material impact on the Companys condensed consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 is a new consolidation standard to improve targeted areas of the consolidation guidance and reduce the number of consolidation models. ASU 2015-02 is effective for public entities for the annual reporting period ending after December 15, 2015, and for annual and interim periods thereafter, which means that it will be effective for Advents fiscal year beginning January 1, 2016. Early adoption is permitted. The Company expects to adopt this new standard effective January 1, 2016 and does not expect the adoption to have a material impact on the Companys condensed consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, InterestImputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires entities to present debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of the debt liability. The new guidance does not affect entities recognition and measurement of debt issuance costs. Previously, entities were required to present debt issuance costs as deferred charges in the asset section of the statement of financial position. ASU 2015-03 is effective for public entities for fiscal years, and interim periods
F-5
within those fiscal years, beginning after December 15, 2015, which means that it will be effective for Advents fiscal year beginning January 1, 2016. Early adoption is permitted. The Company expects to adopt this new standard effective January 1, 2016 and does not expect the adoption to have a material impact on the Companys condensed consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-05, IntangiblesGoodwill and OtherInternal-Use Software (Subtopic 350-40): Customers Accounting for Fees Paid in a Cloud Computing Arrangement. ASU 2015-05 provides explicit guidance to help companies evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The new guidance clarifies that if a cloud computing arrangement includes a software license, the customer should account for the license consistent with its accounting for other software licenses. If the arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 is effective for public entities for the annual reporting period, including interim periods within those annual periods, beginning after December 15, 2015, which means that it will be effective for Advents fiscal year beginning January 1, 2016. An entity can elect to adopt the amendments either prospectively for all arrangements entered into or materially modified after the effective date, or retrospectively. Early adoption is permitted. The Company expects to adopt this new standard effective January 1, 2016 and does not expect the adoption to have a material impact on the Companys condensed consolidated financial statements.
Note 2Financial Statement Detail
Recurring and non-recurring revenues
The following is a summary of recurring and non-recurring revenues (in thousands):
Six Months Ended June 30 | ||||||||
2015 | 2014 | |||||||
Term license revenues |
$ | 103,682 | $ | 96,304 | ||||
Perpetual maintenance revenues |
30,291 | 32,712 | ||||||
Assets under administration revenues |
4,250 | 3,996 | ||||||
Other recurring revenues |
53,627 | 48,652 | ||||||
|
|
|
|
|||||
Total recurring revenues |
$ | 191,850 | $ | 181,664 | ||||
|
|
|
|
|||||
Professional services and other revenues |
$ | 15,248 | $ | 14,536 | ||||
Perpetual license fees |
935 | 974 | ||||||
|
|
|
|
|||||
Total non-recurring revenues |
$ | 16,183 | $ | 15,510 | ||||
|
|
|
|
Prepaid expenses and other
The following is a summary of prepaid expenses and other (in thousands):
June 30 2015 |
December 31 2014 |
|||||||
Prepaid contract expense |
$ | 10,047 | $ | 9,766 | ||||
Deferred commissions |
6,267 | 6,665 | ||||||
Debt issuance costs |
1,417 | 1,438 | ||||||
Tenant improvement allowance |
1,295 | | ||||||
Other |
10,280 | 7,115 | ||||||
|
|
|
|
|||||
Total prepaid expenses and other |
$ | 29,306 | $ | 24,984 | ||||
|
|
|
|
Other assets
The following is a summary of other assets (in thousands):
June 30 2015 |
December 31 2014 |
|||||||
Deposits |
$ | 3,153 | $ | 2,915 | ||||
Long-term deferred commissions |
2,861 | 2,919 | ||||||
Debt issuance costs |
2,774 | 3,483 | ||||||
Prepaid contract expense, long-term |
2,660 | 3,770 | ||||||
Other |
222 | 158 | ||||||
|
|
|
|
|||||
Total other assets |
$ | 11,670 | $ | 13,245 | ||||
|
|
|
|
F-6
Deposits include a restricted cash balance of $1.7 million at June 30, 2015 and $1.5 million at December 31, 2014 primarily related to the Companys San Francisco headquarters and facilities in New York. Refer to Note 13, Commitments and Contingencies for additional information.
Dividend Payable
On February 2, 2015, we entered into an Agreement and Plan of Merger (the Merger Agreement) with SS&C Technologies Holdings, Inc. (Parent or SS&C) and Arbor Acquisition Company, Inc., a wholly owned subsidiary of Parent (Merger Sub). In accordance with the Merger Agreement, the Company is prohibited from declaring dividends during the pendency of the agreement. Therefore, Advents Board of Directors (the Board) did not declare a dividend during the second quarter of 2015. Advents Board declared a cash dividend during the fourth quarter of 2014 of $0.13 per common share payable to shareholders of record as of December 31, 2014 and paid the dividend on January 15, 2015 totaling $6.8 million.
Accrued liabilities
The following is a summary of accrued liabilities (in thousands):
June 30 2015 |
December 31 2014 |
|||||||
Salaries and benefits payable |
$ | 23,176 | $ | 21,381 | ||||
Accrued restructuring, current portion |
6,996 | 60 | ||||||
Accrued dividend equivalents on restricted stock units |
1,693 | 3,404 | ||||||
Deferred rent, current portion |
1,386 | 1,998 | ||||||
Other |
11,594 | 9,698 | ||||||
|
|
|
|
|||||
Total accrued liabilities |
$ | 44,845 | $ | 36,541 | ||||
|
|
|
|
Accrued restructuring charges are discussed further in Note 14, Restructuring Charges contained herein. As part of the recapitalization in 2013, as disclosed in Advents 2013 Annual Report on Form 10-K, holders of restricted stock units (RSUs) have the right to receive $9.00 per RSU upon vesting. At June 30, 2015 and December 31, 2014, Other accrued liabilities included accruals for sales and business taxes and other miscellaneous items.
Other long-term liabilities
The following is a summary of other long-term liabilities (in thousands):
June 30 2015 |
December 31 2014 |
|||||||
Deferred rent |
$ | 7,874 | $ | 5,814 | ||||
Long-term deferred tax liability |
1,234 | 1,442 | ||||||
Other |
751 | 565 | ||||||
|
|
|
|
|||||
Total other long-term liabilities |
$ | 9,859 | $ | 7,821 | ||||
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|
|
Note 3Cash Equivalents and Marketable Securities
Cash, cash equivalents and marketable securities primarily consist of money market mutual funds, US government and US Government Sponsored Entities (GSEs), foreign government debt securities and high credit quality corporate debt securities. All marketable securities were considered available-for-sale and were carried at fair value on the Companys condensed consolidated balance sheet. Short-term marketable securities mature twelve months or less, and long-term marketable securities mature greater than twelve months, from the date of the condensed consolidated balance sheet.
At June 30, 2015, the Company had no marketable securities.
F-7
Marketable securities at December 31, 2014 are summarized as follows (in thousands):
Balance at December 31, 2014 | Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses Less than 12 Months |
Gross Unrealized Losses 12 Months or Longer |
Aggregate Fair Value |
|||||||||||||||
Corporate debt securities |
$ | 7,184 | $ | | $ | (22 | ) | $ | | $ | 7,162 | |||||||||
U.S. government debt securities |
1,347 | | (6 | ) | | 1,341 | ||||||||||||||
Municipal bonds |
671 | | (2 | ) | | 669 | ||||||||||||||
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|
|
|
|
|
|
|
|||||||||||
Total |
$ | 9,202 | $ | | $ | (30 | ) | $ | | $ | 9,172 | |||||||||
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|
|
|
|
|
|
|
|
During the six months ended June 30, 2015, $11.2 million of marketable securities were sold or matured, which did not have any associated material gross realized gains or losses. No marketable securities were sold or matured in the same period last year.
Note 4Goodwill
The changes in the carrying value of goodwill for the six months ended June 30, 2015 were as follows (in thousands):
Carrying Value |
||||
Balance at December 31, 2014 |
$ | 202,290 | ||
Translation adjustments |
(1,748 | ) | ||
|
|
|||
Balance at June 30, 2015 |
$ | 200,542 | ||
|
|
Translation adjustments reflect the impact of translating goodwill balances denominated in various foreign currencies to the U.S. Dollar. The $1.7 million translation adjustment resulted from a strengthening of the U.S. Dollar exchange rate versus other currencies during the six months ended June 30, 2015.
Note 5Other Intangibles, Net
Other intangibles are summarized as follows (in thousands, except weighted average amortization period):
Weighted Average Amortization Period (Years) |
Gross | Accumulated Amortization |
Net | |||||||||||||
Purchased technologies |
5.1 | $ | 49,254 | $ | (44,388 | ) | $ | 4,866 | ||||||||
Product development costs |
3.0 | 23,335 | (20,379 | ) | 2,956 | |||||||||||
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|
|
|
|
|
|||||||||||
Developed technology sub-total |
72,589 | (64,767 | ) | 7,822 | ||||||||||||
Customer relationships |
6.4 | 40,541 | (33,740 | ) | 6,801 | |||||||||||
Other intangibles |
4.1 | 4,601 | (4,257 | ) | 344 | |||||||||||
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|
|
|
|
|||||||||||
Other intangibles sub-total |
45,142 | (37,997 | ) | 7,145 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Balance at June 30, 2015 |
$ | 117,731 | $ | (102,764 | ) | $ | 14,967 | |||||||||
|
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|
|
|
|
|||||||||||
Weighted Average Amortization Period (Years) |
Gross | Accumulated Amortization |
Net | |||||||||||||
Purchased technologies |
5.1 | $ | 50,152 | $ | (43,195 | ) | $ | 6,957 | ||||||||
Product development costs |
3.0 | 22,423 | (19,314 | ) | 3,109 | |||||||||||
|
|
|
|
|
|
|||||||||||
Developed technology sub-total |
72,575 | (62,509 | ) | 10,066 | ||||||||||||
Customer relationships |
6.4 | 40,783 | (32,577 | ) | 8,206 | |||||||||||
Other intangibles |
4.1 | 4,629 | (4,098 | ) | 531 | |||||||||||
|
|
|
|
|
|
|||||||||||
Other intangibles sub-total |
45,412 | (36,675 | ) | 8,737 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Balance at December 31, 2014 |
$ | 117,987 | $ | (99,184 | ) | $ | 18,803 | |||||||||
|
|
|
|
|
|
F-8
The changes in the carrying value of other intangibles during the six months ended June 30, 2015 are summarized as follows (in thousands):
Gross | Accumulated Amortization |
Net | ||||||||||
Balance at December 31, 2014 |
$ | 117,987 | $ | (99,184 | ) | $ | 18,803 | |||||
Additions |
912 | | 912 | |||||||||
Amortization |
| (4,755 | ) | (4,755 | ) | |||||||
Translation adjustments |
(1,168 | ) | 1,175 | 7 | ||||||||
|
|
|
|
|
|
|||||||
Balance at June 30, 2015 |
$ | 117,731 | $ | (102,764 | ) | $ | 14,967 | |||||
|
|
|
|
|
|
Based on the carrying amount of other intangibles as of June 30, 2015, the estimated future amortization is as follows (in thousands):
Six Months Ending December 31 2015 |
||||||||||||||||||||||||||||
Years Ending December 31 | ||||||||||||||||||||||||||||
2016 | 2017 | 2018 | 2019 | Thereafter | Total | |||||||||||||||||||||||
Developed technology |
$ | 2,962 | $ | 3,839 | $ | 927 | $ | 94 | $ | | $ | | $ | 7,822 | ||||||||||||||
Other intangibles |
1,595 | 2,699 | 1,863 | 921 | 67 | | 7,145 | |||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 4,557 | $ | 6,538 | $ | 2,790 | $ | 1,015 | $ | 67 | $ | | $ | 14,967 | ||||||||||||||
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Note 6Debt
On June 12, 2013, Advent entered into an Amended and Restated Credit Agreement (the Restated Credit Agreement). The Restated Credit Agreement amended and restated Advents prior Credit Agreement, dated November 30, 2011. The Restated Credit Agreement provides for (i) a $200 million revolving credit facility, with a $25 million letter of credit sublimit and a $10 million swingline loan sublimit and (ii) a $225 million term loan facility. Advent may request revolving loans, swingline loans or the issuance of letters of credit until June 12, 2018, subject to demonstrating pro forma compliance with the financial covenant requirement under the Restated Credit Agreement. The Restated Credit Agreement also contains an incremental facility permitting Advent, subject to certain requirements, to arrange with the Lenders and/or new lenders for up to an aggregate of $75 million in additional commitments in the form of revolving loans or term loans. The proceeds of the revolving loans and term loans under the Restated Credit Agreement may be used for general purposes, including to finance dividends, repurchase common shares, finance acquisitions, or to finance other investments.
Minimum principal payments with respect to the term loans are due in 20 equal consecutive quarterly principal installments of $5.0 million, commencing on September 13, 2013, with the remaining outstanding principal balance and all accrued and unpaid interest due on June 12, 2018. Principal payments with respect to the revolving loans, together with all accrued and unpaid interest, are due on June 12, 2018. Advent may prepay the term loans and revolving loans at any time without penalty.
The revolving loans and term loans bear interest, at Advents option, at the alternate base rate plus a margin of 0.25% to 1.25% or an adjusted LIBOR rate (based on one, two, three or six-month interest periods) plus a margin of 1.25% to 2.25%, in each case with such margin being determined based on the consolidated leverage ratio for the preceding four fiscal quarter period. The alternate base rate means the highest of (i) the Agents prime rate, (ii) the federal funds rate plus a margin equal to 0.50% and (iii) the adjusted LIBOR rate for a one-month interest period plus a margin equal to 1.00%. Swingline loans accrue interest at a per annum rate based on the alternate base rate plus the applicable margin for alternate base rate loans. Advent is also obligated to pay other customary closing fees, arrangement fees, administration fees, commitment fees and letter of credit fees for a credit facility of this size and type.
The obligations under the Restated Credit Agreement are guaranteed by Advents present and future domestic subsidiaries, subject to certain exceptions. The loan is secured by substantially all of the assets of Advent and the guarantors party thereto, including all of the capital stock of Advents domestic subsidiaries and 66% of the capital stock of Advents or a guarantors first-tier foreign subsidiaries.
F-9
The Restated Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict Advent and its subsidiaries ability to, among other things, incur indebtedness, grant liens, merge or consolidate, dispose of assets, pay dividends or make distributions, make investments, make acquisitions, prepay certain indebtedness, enter into certain transactions with affiliates, enter into sale and leaseback transactions, enter into swap agreements and enter into restrictive agreements, in each case subject to customary exceptions for a credit facility of this size and type. Advent is also required to maintain compliance with a consolidated leverage ratio and a consolidated interest coverage ratio.
The following is a summary of the Companys outstanding debt balances (in thousands):
June 30 2015 |
December 31 2014 |
|||||||
Term loan facility |
$ | 185,000 | $ | 195,000 | ||||
Revolving credit facility |
| 25,000 | ||||||
|
|
|
|
|||||
Total |
$ | 185,000 | $ | 220,000 | ||||
|
|
|
|
Advent was in compliance with all associated covenants as of June 30, 2015 as follows:
Covenant |
Covenant Requirement |
Ratio Calculation as of June 30, 2015 |
||||
Leverage ratio (1) |
Maximum 3.50x (2) | 1.6 | x | |||
Interest coverage ratio (3) |
Minimum 2.5x | 19.3 | x |
(1) | Calculated as the ratio of total debt to EBITDA, as defined by the Restated Credit Agreement, for the period of four consecutive fiscal quarters on the measurement date. |
(2) | The leverage ratio covenant requirement lowers to a maximum of 3.25x on June 30, 2016. |
(3) | Calculated as the ratio of EBITDA to interest expense, as defined by the Restated Credit Agreement, for the period of four consecutive fiscal quarters on the measurement date. |
The Restated Credit Agreement includes customary events of default that include, among other things, non-payment defaults, defaults due to the inaccuracy of representations and warranties, covenant defaults, cross default to material indebtedness, bankruptcy and insolvency defaults, material judgment defaults, defaults due to an unenforceability of the security documents or guarantees, and a change of control default. The occurrence of an event of default could result in the acceleration of the obligations under the Restated Credit Agreement. A default interest rate will apply on all obligations during the existence of a payment event of default under the Restated Credit Agreement at a per annum rate equal to 2.00% above the otherwise applicable interest rate.
Note 7Stockholders Deficit
Accumulated Other Comprehensive Income
The following is a summary of the components of accumulated other comprehensive income, net of related taxes:
June 30 2015 |
December 31 2014 |
|||||||
Accumulated foreign currency translation adjustments |
$ | 1,635 | $ | 3,491 | ||||
Accumulated net unrealized loss on marketable securities |
| (18 | ) | |||||
|
|
|
|
|||||
Accumulated other comprehensive income, net of taxes |
$ | 1,635 | $ | 3,473 | ||||
|
|
|
|
F-10
Note 8Fair Value Measurements
The accounting guidance for fair value measurements establishes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
Level Input |
Input Definition | |
Level 1 |
Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
Level 2 |
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date. | |
Level 3 |
Unobservable inputs that reflect managements best estimate of what market participants would use in pricing the asset or liability at the measurement date. |
In general, and where applicable, the Company uses quoted prices in active markets for identical assets or liabilities to determine fair value. If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, then the Company uses quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable either directly or indirectly.
The Company measures certain financial assets and liabilities at fair value on a recurring basis. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, dividends payable and accrued liabilities approximate fair value based on the short-term maturities of these instruments. The carrying amount of debt approximates fair value as the underlying variable interest rate approximates current market rates and the Companys credit risk has not changed significantly since the date of issuance. At June 30, 2015 and December 31, 2014, Advent had outstanding debt of $185.0 million and $220.0 million, respectively, which was valued using Level 2 inputs.
There were no transfers between Level 1 and Level 2 assets during the six months ended June 30, 2015, and Advent does not have any significant assets or liabilities that utilize unobservable or Level 3 inputs.
Note 9Stock-Based Compensation
Stock-Based Compensation Expense
Stock-based compensation expense related to stock options, stock appreciation rights (SARs), employee stock purchase plan (ESPP) shares, and restricted stock units (RSUs) was recognized using the straight-line attribution approach in the Companys condensed consolidated statements of operations for the periods presented as follows (in thousands):
Six Months Ended June 30 | ||||||||
2015 | 2014 | |||||||
Statement of operations classification |
||||||||
Cost of recurring revenues |
$ | 1,574 | $ | 1,676 | ||||
Cost of non-recurring revenues |
621 | 729 | ||||||
|
|
|
|
|||||
Total cost of revenues |
2,195 | 2,405 | ||||||
Sales and marketing |
4,825 | 5,296 | ||||||
Product development |
3,261 | 3,848 | ||||||
General and administrative |
3,103 | 3,763 | ||||||
|
|
|
|
|||||
Total operating expenses |
11,189 | 12,907 | ||||||
|
|
|
|
|||||
Total stock-based employee compensation expense |
13,384 | 15,312 | ||||||
Tax effect on stock-based employee compensation expense |
(5,148 | ) | (5,908 | ) | ||||
|
|
|
|
|||||
Effect on net income from continuing operations, net of tax |
$ | 8,236 | $ | 9,404 | ||||
|
|
|
|
Equity Award Activity
The Companys stock option and SAR activity for the six months ended June 30, 2015 was as follows:
Number of Shares (in thousands) |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (in years) |
Aggregate Intrinsic Value (in thousands) |
|||||||||||||
Outstanding at December 31, 2014 |
5,076 | $ | 17.38 | |||||||||||||
Options & SARs granted |
2,213 | $ | 43.55 | |||||||||||||
Options & SARs exercised |
(1,325 | ) | $ | 14.50 | ||||||||||||
Options & SARs canceled |
(156 | ) | $ | 32.60 | ||||||||||||
|
|
|
|
|||||||||||||
Outstanding at June 30, 2015 |
5,808 | $ | 27.60 | 7.54 | $ | 96,482 | ||||||||||
|
|
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|
|
|
|
|
|||||||||
Exercisable at June 30, 2015 |
2,205 | $ | 15.22 | 5.14 | $ | 63,910 | ||||||||||
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|
|
|
|
|
F-11
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the Companys closing stock price of $44.21 on June 30, 2015 for options and SARs that were in-the-money as of that date.
The Companys RSU activity for the six months ended June 30, 2015 was as follows:
Number of Shares (in thousands) |
Weighted Average Grant Date Fair Value |
|||||||
Outstanding and unvested at December 31, 2014 |
1,481 | $ | 22.71 | |||||
RSUs granted |
40 | $ | 43.45 | |||||
RSUs vested |
(289 | ) | $ | 29.04 | ||||
RSUs canceled |
(83 | ) | $ | 28.72 | ||||
|
|
|
|
|||||
Outstanding and unvested at June 30, 2015 |
1,149 | $ | 22.41 | |||||
|
|
|
|
The weighted average grant date fair value of RSUs was determined based on the closing market price of the Companys common stock on the date of the award. The aggregate intrinsic value of RSUs outstanding at June 30, 2015 was $50.8 million based on the Companys closing stock price of $44.21 per share on that date.
Note 10Income Taxes
The following table summarizes the activity relating to the Companys unrecognized tax benefits during the six months ended June 30, 2015 (in thousands):
Total | ||||
Balance at December 31, 2014 |
$ | 16,387 | ||
Gross increases related to current period tax positions |
264 | |||
|
|
|||
Balance at June 30, 2015 |
$ | 16,651 | ||
|
|
At June 30, 2015 and December 31, 2014, Advent had gross unrecognized tax benefits of $16.7 million and $16.4 million, respectively. During the six months ended June 30, 2015, the Company increased the amount of unrecognized tax benefits by approximately $259,000 relating to state research credits. If recognized, the total unrecognized tax benefits would decrease Advents tax provision and increase net income by approximately $13.7 million. The impact on net income reflects the liabilities for unrecognized tax benefits, net of the federal tax benefit of state income tax items. The Companys liabilities for unrecognized tax benefits relate primarily to federal research credits, state research credits and enterprise zone tax credits and various state net operating losses.
Advent is subject to taxation in the U.S. and various states and jurisdictions outside the U.S. Advent is currently undergoing a State of California franchise tax examination for the 2006 and 2007 tax years, and New York State for the 2011 and 2013 tax years. At June 30, 2015, Advent was not under examination in any other income tax jurisdiction and at the present time does not anticipate the total amount of its unrecognized tax benefits to significantly change over the next 12 months. The material jurisdictions that are subject to examination by tax authorities include federal for tax years after 2009 and California for tax years after 2005.
As of June 30, 2015, Advent made no provision for a cumulative total of $26.2 million of undistributed earnings for certain non-U.S. subsidiaries, which are deemed to be permanently reinvested.
On July 8, 2015, Advent completed the merger contemplated by and among Advent, SS&C Technologies Holdings, Inc., and Arbor Acquisition Company, Inc., as described in Note 15Subsequent Events. We will further analyze the tax impact of our transaction related costs in the third quarter of fiscal 2015.
F-12
Note 11Discontinued Operation
During 2009, the Company discontinued the operations of its wholly-owned subsidiary, MicroEdge, Inc. (MicroEdge). In connection with the sale of MicroEdge, the Company vacated its MicroEdge facilities in New York and entered into a sub-lease agreement with the purchaser, whereby the purchaser contracted to sub-lease the premises through the end of the amended lease term in November 2018.
The following table sets forth an analysis of the components of the restructuring charges related to the Companys discontinued operation and the payments and non-cash charges made against the accrual during the six months ended June 30, 2015 (in thousands):
Facility Exit Costs |
||||
Balance of restructuring accrual at December 31, 2014 |
$ | 2,742 | ||
Restructuring charges |
24 | |||
Cash payments |
(335 | ) | ||
Adjustment of prior restructuring costs |
40 | |||
|
|
|||
Balance of restructuring accrual at June 30, 2015 |
$ | 2,471 | ||
|
|
The remaining restructuring accrual of $2.5 million at June 30, 2015 is included in Current and Noncurrent liabilities of discontinued operation in the accompanying condensed consolidated balance sheet and primarily consists of facility exit costs that will be paid over the remaining lease term through November 2018.
Note 12Net Income (Loss) Per Share
The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share data):
Six Months Ended June 30 | ||||||||
2015 | 2014 | |||||||
Numerator: |
||||||||
Net income (loss): |
||||||||
Continuing operations |
$ | 11,637 | $ | 23,562 | ||||
Discontinued operation |
(39 | ) | (37 | ) | ||||
|
|
|
|
|||||
Total operations |
$ | 11,598 | $ | 23,525 | ||||
|
|
|
|
|||||
Denominator: |
||||||||
Denominator for basic net income (loss) per shareweighted average shares outstanding |
52,655 | 51,314 | ||||||
Dilutive common equivalent shares: |
||||||||
Employee stock options and other |
2,496 | 2,172 | ||||||
|
|
|
|
|||||
Denominator for diluted net income (loss) per shareweighted average shares outstanding, assuming exercise of potential dilutive common equivalent shares |
55,151 | 53,486 | ||||||
|
|
|
|
|||||
Net income (loss) per share (1): |
||||||||
Basic: |
||||||||
Continuing operations |
$ | 0.22 | $ | 0.46 | ||||
Discontinued operation |
(0.00 | ) | (0.00 | ) | ||||
|
|
|
|
|||||
Total operations |
$ | 0.22 | $ | 0.46 | ||||
|
|
|
|
|||||
Diluted: |
||||||||
Continuing operations |
$ | 0.21 | $ | 0.44 | ||||
Discontinued operation |
(0.00 | ) | (0.00 | ) | ||||
|
|
|
|
|||||
Total operations |
$ | 0.21 | $ | 0.44 | ||||
|
|
|
|
(1) | Net income (loss) per share is based on actual calculated values and totals may not sum due to rounding. |
F-13
Weighted average stock options, SARs and RSUs of approximately 0.9 million shares for the six months ended June 30, 2015 were excluded from the calculation of diluted net income (loss) per share because their inclusion would have been anti-dilutive. Similarly, weighted average stock options, SARs and RSUs of 1.3 million were excluded in the comparable period of 2014.
Note 13Commitments and Contingencies
Lease Obligations
On January 28, 2015, the Company entered into a definitive amendment to its San Francisco headquarters lease whereby the term of the lease has been extended for an additional ten years commencing on November 1, 2016 and ending on October 31, 2026, whereby the Companys total leased space will be reduced from approximately 158,000 square feet to approximately 129,000 square feet by November 1, 2016. This lease extension will result in total operating lease payments of approximately $71 million over the extension term.
Advents office space and equipment leased under non-cancelable operating lease agreements expire at various dates through October 2026. Some operating leases contain escalation provisions for adjustments in the consumer price index. Advent is responsible for maintenance, insurance, utilities and property taxes. Excluding leases and associated sub-leases for MicroEdge facilities, as of June 30, 2015, Advents remaining operating lease commitments through 2026 were approximately $96.4 million.
On October 1, 2009, Advent completed the sale of the Companys MicroEdge subsidiary. At June 30, 2015, the gross operating lease commitments and sub-lease income related to this discontinued operation facility totaled $4.5 million and $2.0 million, respectively.
Indemnifications
As permitted or required under Delaware law and to the maximum extent allowable under that law, Advent has certain obligations to indemnify its current and former officers and directors for certain events or occurrences while the officer or director is, or was serving, at Advents request in such capacity. These indemnification obligations are valid as long as the director or officer acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The maximum potential amount of future payments Advent could be required to make under these indemnification obligations is unlimited; however, Advent has a director and officer insurance policy that mitigates Advents exposure and enables Advent to recover a portion of any future amounts paid. The Company believes the estimated fair value of these indemnification obligations is minimal.
Legal Contingencies
From time to time, in the course of its operations, the Company is a party to litigation matters and claims, including claims related to employee relations, business practices and other matters, but does not consider these matters to be material either individually or in the aggregate at this time. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict and the Companys view of these matters may change in the future as the litigation and related events unfold. An unfavorable outcome in any legal matter, if material, could have a material adverse effect on the Companys financial position, liquidity or results of operations in the period in which the unfavorable outcome occurs and potentially in future periods.
Advent reviews the status of each litigation matter or other claim and records a provision for a liability when it is considered both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed quarterly and adjusted as additional information becomes available. If either or both of the criteria are not met, the Company reassesses whether there is at least a reasonable possibility that a loss, or additional losses, may be incurred. If there is a reasonable possibility that a loss may be incurred, the Company discloses the estimate of the amount of loss or range of loss, discloses that the amount is immaterial (if true), or discloses that an estimate of loss cannot be made. In assessing potential loss contingencies, the Company considers a number of factors, including those listed in the Financial Accounting Standards Boards Accounting Standards Codification (ASC) 450-20, ContingenciesLoss Contingencies, regarding assessing the probability of a loss occurring and assessing whether a loss is reasonably estimable. The Company expenses legal fees as incurred.
Following the announcement of the proposed merger, three putative class action complaints challenging the transactions contemplated by the Merger Agreement were filed by purported Advent stockholders in the Court of Chancery of the State of Delaware (the Court) against Advent, the Board of Directors, SS&C, and Merger Sub (Defendants). The complaints were captioned Chitwood v. Advent Software, Inc., et al., Case No. 10623-VCL, City of Atlanta Firefighters Pension Fund v. David Peter F. Hess, Jr., et al., Case No. 10633-VCL, and Klein v. Advent Software, Inc., et al., Case No. 10670-VCL. The complaints were consolidated into a single action by a February 25, 2015 court order and captioned In re Advent Software, Inc., C.A. No. 10623-VCL (the Consolidated Action). On February 27, 2015, plaintiffs filed a Verified Consolidated Amended Class Action Complaint (the
F-14
Consolidated Complaint). The Consolidated Complaint generally alleges, among other things, that the Board of Directors breached its fiduciary duties to Advents stockholders by engaging in a flawed sales process, agreeing to a transaction price that does not adequately compensate Advent stockholders, agreeing to certain deal protection provisions in the Merger Agreement that the plaintiffs allege impeded or precluded a potential topping bid, and allegedly failing to disclose material information regarding the proposed merger. The Consolidated Complaint also asserts that Advent, SS&C, and Merger Sub aided and abetted the Board of Directors breaches of fiduciary duties. The Consolidated Complaint sought to enjoin the merger or, alternatively, an award of rescissory or other compensatory damages in the event it is consummated, as well as attorneys fees and costs.
On March 4, 2015, plaintiffs filed a motion for an order preliminarily enjoining the Advent stockholder vote on the adoption of the Merger Agreement and approval of the Merger. The Court scheduled a hearing on plaintiffs motion for April 10, 2015.
On April 1, 2015, following expedited discovery, the parties to the Consolidated Action entered into a memorandum of understanding (MOU) setting forth the terms of a settlement of the Consolidated Action. Pursuant to the MOU, defendants agreed to make certain supplemental disclosures demanded by plaintiffs in the Consolidated Action via a Form 8-K filed on April 1, 2015, without admitting any wrongdoing or that these supplemental disclosures were material or required to be made. The MOU further provided that, among other things, (a) the plaintiffs in the Consolidated Action would withdraw their motion to preliminarily enjoin the shareholder vote on the proposed merger; (b) the parties will negotiate a definitive stipulation of settlement (the Stipulation) and will submit the Stipulation to the Court for review and approval; (c) the Stipulation will provide for dismissal of the Consolidated Action with prejudice; (d) the Stipulation will include a release of defendants of claims relating to, among other things, the merger and the Merger Agreement; and (e) the settlement is conditioned on, among other things, consummation of the merger, completion of confirmatory discovery, class certification, and final approval of the settlement by the Court after notice to the Advents stockholders. On April 1, 2015, plaintiffs withdrew their motion to preliminarily enjoin the shareholder vote on the proposed merger.
Defendants believe that the allegations and claims in the Consolidated Action are without merit and, if the settlement does not receive final approval, intend to defend against them vigorously. Defendants entered into the settlement solely to eliminate the burden and expense of further litigation and to put the claims that were or could have been asserted to rest. The settlement will not affect the timing of the merger or the amount or form of consideration to be paid in the merger.
Management believes that any potential losses associated with the legal proceedings regarding the merger are neither probable nor reasonably estimable at this time and accordingly has not accrued any amounts for any potential loss.
Based on currently available information, the Companys management does not believe that the ultimate outcome of unresolved matters, individually and in the aggregate, is likely to have a material adverse effect on the Companys financial position, results of operations or cash flows.
Note 14Restructuring Charges
Restructuring charges of $9.1 million during the six months ended June 30, 2015 were primarily due to employee termination benefits of $8.5 million associated with a reorganization plan approved in the first quarter of 2015 to improve operating results. As a result of this restructuring activity, Advent expects annual operating expense run rate savings of approximately $16 million that will be used to fund investments in other areas of the business to improve productivity, efficiency and client experience. Additionally in the first half of 2015, Advent recognized exit costs of $0.6 million due to adjustments to assumptions associated with the exit of certain San Francisco office space originally initiated in the third quarter of 2014.
The remaining restructuring accrual of $7.0 million at June 30, 2015 is included in Accrued liabilities in the accompanying condensed consolidated balance sheet. The following table sets forth an analysis of the changes in the restructuring accrual during the six months ended June 30, 2015 (in thousands):
Facility Exit Costs |
Severance & Benefits |
Total | ||||||||||
Balance of restructuring accrual at December 31, 2014 |
$ | 60 | $ | | $ | 60 | ||||||
Restructuring charges |
652 | 8,496 | 9,148 | |||||||||
Cash payments |
(140 | ) | (2,072 | ) | (2,212 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance of restructuring accrual at June 30, 2015 |
$ | 572 | $ | 6,424 | $ | 6,996 | ||||||
|
|
|
|
|
|
F-15
Note 15Subsequent Events
Acquisition of Advent by SS&C:
On July 8, 2015, Advent completed the merger contemplated by the Agreement and Plan of Merger (the Merger Agreement), dated as of February 2, 2015, by and among Advent, SS&C Technologies Holdings, Inc., a Delaware corporation (SS&C) and Arbor Acquisition Company, Inc., a Delaware corporation and wholly owned subsidiary of SS&C (Merger Subsidiary). Pursuant to the Merger Agreement, Advent was acquired by SS&C through a merger of Merger Subsidiary with and into Advent (the Merger), with Advent surviving the Merger as a wholly-owned subsidiary of SS&C (the Surviving Corporation).
At the effective time of the Merger (the Effective Time), (i) each outstanding share of Advent common stock (Advent Stock) was converted into the right to receive $44.25 in cash, without interest (the Merger Consideration), (ii) each outstanding stock option, stock appreciation right (SAR) and restricted stock unit (RSU) relating to shares of Advent Stock that were vested (or became vested in accordance with its terms) as of the Effective Time were cancelled and converted into the right to receive the Merger Consideration with respect to each share of Advent Stock subject to such award (in the case of stock options and SARs, less the applicable exercise price per share of Advent Stock), (iii) each outstanding stock option, SAR and RSU relating to shares of Advent Stock that were unvested as of the Effective Time were converted into a stock option, SAR or RSU, as applicable, with respect to shares of common stock of SS&C based on the exchange ratio set forth in the Merger Agreement and otherwise continue to be subject to the same terms and conditions applicable to such award and (iv) each outstanding performance-based restricted stock unit (PSU) relating to shares of Advent Stock became vested and was settled in cash based on attained performance through the Effective Time.
On July 8, 2015, in connection with the Merger, Advent Software, Inc., a Delaware corporation (Advent), (i) repaid in full all outstanding loans, together with interest and all other amounts due in connection with such repayment, except for one outstanding letter of credit, under the Amended and Restated Credit Agreement, dated as of June 12, 2013 (as further amended, amended and restated, modified or supplemented through the date hereof, the Existing Credit Agreement), by and among Advent, as borrower, the lenders from time to time party thereto, Capital One, National Association, Comerica Bank, Compass Bank, Fifth Third Bank, HSBC Bank USA, N.A., Regions Bank, National Association, U.S. Bank National Association, Wells Fargo Bank, N.A., collectively, the co-documentation agents, Bank of America, N.A., as syndication agent and JPMorgan Chase Bank, N.A., as administrative agent for the Lenders and (ii) terminated all commitments under the Existing Credit Agreement.
Subsequent events were evaluated through September 17, 2015, which is the date these financial statements were available to be issued.
Note 16Guarantor Financial Statements
On July 8, 2015, Advent was acquired by SS&C Technologies Holdings, Inc. (the Parent Company). In connection with the acquisition, the Parent Company issued $600.0 million aggregate principal amount of senior notes due 2023 (the Senior Notes). The Senior Notes are jointly and severally and fully and unconditionally guaranteed, in each case subject to certain customary release provisions, by substantially all wholly-owned domestic subsidiaries of the Parent Company that guarantee the Parent Companys senior secured credit facilities (collectively Guarantors). Of those guarantors, two are subsidiaries of Advent: Advent Software, Inc. (the Parent Guarantor column within the tables below) and Hub Data (the Subsidiary Guarantor column within the tables below). All of the Guarantors are 100% owned by the Parent Company. All other subsidiaries of the Parent Company, either direct or indirect, do not guarantee the Senior Notes (Non-Guarantors). The Guarantors also unconditionally guarantee the Senior Secured Credit Facilities. There are no significant restrictions on the ability of the Company or any of the subsidiaries that are Guarantors to obtain funds from its subsidiaries by dividend or loan.
F-16
Condensed consolidating financial information as of June 30, 2015 and for the six months ended June 30, 2015 and 2014 are presented. The condensed consolidating financial information of Advent and its subsidiaries are as follows (in thousands):
June 30, 2015 | ||||||||||||||||||||
Parent Guarantor |
Subsidiary Guarantor |
Non-Guarantor Subsidiaries |
Consolidating and Eliminating Adjustments |
Consolidated | ||||||||||||||||
Cash and cash equivalents |
$ | 20,344 | $ | 1,575 | $ | 7,921 | $ | | $ | 29,840 | ||||||||||
Accounts receivable, net |
59,257 | 370 | 1,327 | | 60,954 | |||||||||||||||
Deferred taxes, current |
33,790 | | | | 33,790 | |||||||||||||||
Prepaid expenses and other |
25,749 | 776 | 2,781 | | 29,306 | |||||||||||||||
Intercompany receivable |
149,837 | 11,227 | 171,758 | (332,822 | ) | | ||||||||||||||
Current assets of discontinued operation |
| | 103 | | 103 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
288,977 | 13,948 | 183,890 | (332,822 | ) | 153,993 | ||||||||||||||
Property and equipment, net |
21,725 | | 1,757 | | 23,482 | |||||||||||||||
Investment in subsidiaries |
79,651 | | | (79,651 | ) | | ||||||||||||||
Goodwill |
148,888 | 1,127 | 50,527 | 200,542 | ||||||||||||||||
Other intangibles, net |
10,815 | | 4,152 | 14,967 | ||||||||||||||||
Deferred taxes, long-term |
18,249 | | 18 | 18,267 | ||||||||||||||||
Other assets |
10,661 | | 1,009 | 11,670 | ||||||||||||||||
Noncurrent assets of discontinued operation |
| | 1,093 | 1,093 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 578,966 | $ | 15,075 | $ | 242,446 | $ | (412,473 | ) | $ | 424,014 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Accounts payable |
$ | 5,007 | $ | 18 | $ | 830 | $ | | $ | 5,855 | ||||||||||
Accrued liabilities |
35,165 | 522 | 9,158 | | 44,845 | |||||||||||||||
Deferred revenues |
189,046 | 2,236 | | | 191,282 | |||||||||||||||
Current portion of long-term debt |
20,000 | | | | 20,000 | |||||||||||||||
Intercompany payable |
171,758 | | 161,064 | (332,822 | ) | | ||||||||||||||
Current liabilities of discontinued operations |
| | 625 | | 625 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
420,976 | 2,776 | 171,677 | (332,822 | ) | 262,607 | ||||||||||||||
Deferred revenues, long-term |
5,429 | 14 | | | 5,443 | |||||||||||||||
Long-term income taxes payable |
9,513 | | | | 9,513 | |||||||||||||||
Long-term debt |
165,000 | | | | 165,000 | |||||||||||||||
Other long-term liabilities |
8,302 | | 1,557 | | 9,859 | |||||||||||||||
Non-current liabilities of discontinued operation |
| | 1,846 | | 1,846 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
609,220 | 2,790 | 175,080 | (332,822 | ) | 454,268 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total stockholders equity |
(30,254 | ) | 12,285 | 67,366 | (79,651 | ) | (30,254 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and stockholders equity |
$ | 578,966 | $ | 15,075 | $ | 242,446 | $ | (412,473 | ) | $ | 424,014 | |||||||||
|
|
|
|
|
|
|
|
|
|
F-17
Six Months Ended June 30, 2015 | ||||||||||||||||||||
Parent Guarantor |
Subsidiary Guarantor |
Non-Guarantor Subsidiaries |
Consolidating and Eliminating Adjustments |
Consolidated | ||||||||||||||||
Revenues |
$ | 200,946 | $ | 2,936 | $ | 32,515 | $ | (28,364 | ) | $ | 208,033 | |||||||||
Cost of revenues |
79,373 | 1,606 | 10,504 | (28,364 | ) | 63,119 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross margin |
121,573 | 1,330 | 22,011 | | 144,914 | |||||||||||||||
Operating expenses: |
||||||||||||||||||||
Sales and marketing |
28,833 | | 8,155 | | 36,988 | |||||||||||||||
Product development |
30,974 | 385 | 6,740 | | 38,099 | |||||||||||||||
General and administrative |
20,301 | 11 | 2,390 | | 22,702 | |||||||||||||||
Amortization of other intangibles |
1,431 | | 164 | | 1,595 | |||||||||||||||
Restructuring charges |
7,476 | | 1,672 | | 9,148 | |||||||||||||||
Transaction-related fees |
13,956 | | | | 13,956 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
102,971 | 396 | 19,121 | | 122,488 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations |
18,602 | 934 | 2,890 | | 22,426 | |||||||||||||||
Interest and other income (expense), net |
(2,753 | ) | 1 | (7 | ) | | (2,759 | ) | ||||||||||||
Earnings from subsidiaries |
2,021 | | | (2,021 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations before income taxes |
17,870 | 935 | 2,883 | (2,021 | ) | 19,667 | ||||||||||||||
Provision for income taxes |
6,272 | | 1,758 | 8,030 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income from continuing operations |
11,598 | 935 | 1,125 | (2,021 | ) | 11,637 | ||||||||||||||
Net loss from discontinued operations |
| | (39 | ) | | (39 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
11,598 | 935 | 1,086 | (2,021 | ) | 11,598 | ||||||||||||||
Other comprehensive income, net of taxes |
||||||||||||||||||||
Foreign currency translation and other |
18 | | (1,856 | ) | | (1,838 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total other comprehensive income, net of taxes |
18 | | (1,856 | ) | | (1,838 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income |
$ | 11,616 | $ | 935 | $ | (770 | ) | $ | (2,021 | ) | $ | 9,760 | ||||||||
|
|
|
|
|
|
|
|
|
|
F-18
Six Months Ended June 30, 2014 | ||||||||||||||||||||
Parent Guarantor |
Subsidiary Guarantor |
Non-Guarantor Subsidiaries |
Consolidating and Eliminating Adjustments |
Consolidated | ||||||||||||||||
Revenues |
$ | 190,432 | $ | 2,564 | $ | 30,395 | $ | (26,217 | ) | $ | 197,174 | |||||||||
Cost of revenues |
72,483 | 1,551 | 10,456 | (26,217 | ) | 58,273 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross margin |
117,949 | 1,013 | 19,939 | | 138,901 | |||||||||||||||
Operating expenses: |
||||||||||||||||||||
Sales and marketing |
29,414 | | 8,615 | | 38,029 | |||||||||||||||
Product development |
28,164 | 231 | 6,448 | | 34,843 | |||||||||||||||
General and administrative |
19,172 | 7 | 2,091 | | 21,270 | |||||||||||||||
Amortization of other intangibles |
1,584 | | 195 | | 1,779 | |||||||||||||||
Restructuring charges |
1,817 | | 97 | | 1,914 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
80,151 | 238 | 17,446 | | 97,835 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations |
37,798 | 775 | 2,493 | | 41,066 | |||||||||||||||
Interest and other income (expense), net |
(4,163 | ) | | (10 | ) | | (4,173 | ) | ||||||||||||
Earnings from subsidiaries |
1,567 | | | (1,567 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations before income taxes |
35,202 | 775 | 2,483 | (1,567 | ) | 36,893 | ||||||||||||||
Provision for income taxes |
11,677 | | 1,654 | 13,331 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income from continuing operations |
23,525 | 775 | 829 | (1,567 | ) | 23,562 | ||||||||||||||
Net loss from discontinued operation |
| | (37 | ) | | (37 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
23,525 | 775 | 792 | (1,567 | ) | 23,525 | ||||||||||||||
Other comprehensive income, net of taxes |
||||||||||||||||||||
Foreign currency translation |
| | 989 | | 989 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total other comprehensive income, net of taxes |
| | 989 | | 989 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income |
$ | 23,525 | $ | 775 | $ | 1,781 | $ | (1,567 | ) | $ | 24,514 | |||||||||
|
|
|
|
|
|
|
|
|
|
F-19
Six Months Ended June 30, 2015 | ||||||||||||||||||||
Parent Guarantor |
Subsidiary Guarantor |
Non-Guarantor Subsidiaries |
Consolidating and Eliminating Adjustments |
Consolidated | ||||||||||||||||
Cash Flow from Operating Activities |
||||||||||||||||||||
Net income |
$ | 11,598 | $ | 935 | $ | 1,086 | $ | (2,021 | ) | $ | 11,598 | |||||||||
Adjustment to net income from continuing operations |
| | 39 | | 39 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income from continuing operations |
11,598 | 935 | 1,125 | (2,021 | ) | 11,637 | ||||||||||||||
Non-cash adjustments |
21,685 | | (10 | ) | | 21,675 | ||||||||||||||
Earnings from subsidiaries |
(2,021 | ) | | | 2,021 | | ||||||||||||||
Intercompany transactions |
2,192 | 581 | (2,773 | ) | | | ||||||||||||||
Changes in operating assets and liabilities |
(6,811 | ) | (473 | ) | 1,323 | | (5,961 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by operating activities from continuing operations |
26,643 | 1,043 | (335 | ) | | 27,351 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash Flow from Investing Activities |
||||||||||||||||||||
Additions to property and equipment |
(4,107 | ) | | (47 | ) | | (4,154 | ) | ||||||||||||
Additions to capitalized software |
(647 | ) | | (266 | ) | | (913 | ) | ||||||||||||
Purchases of marketable securities |
(2,000 | ) | | | | (2,000 | ) | |||||||||||||
Sales and maturities of marketable securities |
11,185 | | | | 11,185 | |||||||||||||||
Net changes in restricted cash |
(239 | ) | | | | (239 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by (used in) investing activities from continuing operations |
4,192 | | (313 | ) | | 3,879 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash Flow from Financing Activities |
||||||||||||||||||||
Proceeds from common stock issued from exercises of stock options |
6,536 | | | | 6,536 | |||||||||||||||
Proceeds from common stock issued under the employee stock purchase plan |
3,201 | 5 | | | 3,206 | |||||||||||||||
Excess tax benefits from stock-based compensation |
8,514 | | | | 8,514 | |||||||||||||||
Withholding taxes related to equity award net share settlement |
(6,038 | ) | | | | (6,038 | ) | |||||||||||||
Repayments of debt |
(35,000 | ) | | | | (35,000 | ) | |||||||||||||
Payment of cash dividend |
(6,750 | ) | | | | (6,750 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by (used in) financing activities from continuing operations |
(29,537 | ) | 5 | | | (29,532 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash transferred to discontinued operations |
(412 | ) | | | | (412 | ) | |||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
| | (230 | ) | | (230 | ) | |||||||||||||
Net change in cash and cash equivalents |
886 | 1,048 | (878 | ) | | 1,056 | ||||||||||||||
Cash and cash equivalents, beginning of period |
19,458 | 527 | 8,799 | | 28,784 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents, end of period |
$ | 20,344 | $ | 1,575 | $ | 7,921 | $ | | $ | 29,840 | ||||||||||
|
|
|
|
|
|
|
|
|
|
F-20
Six Months Ended June 30, 2014 | ||||||||||||||||||||
Parent Guarantor |
Subsidiary Guarantor |
Non-Guarantor Subsidiaries |
Consolidating and Eliminating Adjustments |
Consolidated | ||||||||||||||||
Cash Flow from Operating Activities |
||||||||||||||||||||
Net income |
$ | 23,525 | $ | 775 | $ | 792 | $ | (1,567 | ) | $ | 23,525 | |||||||||
Adjustment to net income from continuing operations |
| | 37 | | 37 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income from continuing operations |
23,525 | 775 | 829 | (1,567 | ) | 23,562 | ||||||||||||||
Non-cash adjustments |
27,056 | 2 | 324 | | 27,382 | |||||||||||||||
Earnings from subsidiaries |
(1,567 | ) | | | 1,567 | | ||||||||||||||
Intercompany transactions |
2,308 | (1,601 | ) | (707 | ) | | | |||||||||||||
Changes in operating assets and liabilities |
(4,857 | ) | (228 | ) | (2,545 | ) | | (7,630 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by operating activities from continuing operations |
46,465 | (1,052 | ) | (2,099 | ) | | 43,314 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash Flow from Investing Activities |
||||||||||||||||||||
Additions to property and equipment |
(3,595 | ) | | (775 | ) | | (4,370 | ) | ||||||||||||
Additions to capitalized software |
(738 | ) | | (225 | ) | | (963 | ) | ||||||||||||
Net changes in restricted cash |
(173 | ) | | | | (173 | ) | |||||||||||||
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Net cash provided by (used in) investing activities from continuing operations |
(4,506 | ) | | (1,000 | ) | | (5,506 | ) | ||||||||||||
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Cash Flow from Financing Activities |
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Proceeds from common stock issued from exercises of stock options |
2,141 | | | | 2,141 | |||||||||||||||
Proceeds from common stock issued under the employee stock purchase plan |
3,492 | 1 | | | 3,493 | |||||||||||||||
Excess tax benefits from stock-based compensation |
6,841 | | | | 6,841 | |||||||||||||||
Withholding taxes related to equity award net share settlement |
(5,127 | ) | | | | (5,127 | ) | |||||||||||||
Repayments of debt |
(25,000 | ) | | | | (25,000 | ) | |||||||||||||
Repurchase of common stock |
(12,411 | ) | | | | (12,411 | ) | |||||||||||||
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Net cash provided by (used in) financing activities from continuing operations |
(30,064 | ) | 1 | | | (30,063 | ) | |||||||||||||
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Net cash transferred to discontinued operation |
(223 | ) | | | | (223 | ) | |||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
| | (18 | ) | | (18 | ) | |||||||||||||
Net change in cash and cash equivalents |
11,672 | (1,051 | ) | (3,117 | ) | | 7,504 | |||||||||||||
Cash and cash equivalents, beginning of period |
22,095 | 1,341 | 10,392 | | 33,828 | |||||||||||||||
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Cash and cash equivalents, end of period |
$ | 33,767 | $ | 290 | $ | 7,275 | $ | | $ | 41,332 | ||||||||||
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F-21