-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PgO7EytzlufvozB6INk8+rFqnbYRBRrbQFTqSaX0M86H3PHPFV2YqYuJNxy23JfX JFkyPtYk1Jt3aubk982Mww== 0001193125-09-173243.txt : 20090813 0001193125-09-173243.hdr.sgml : 20090813 20090812184521 ACCESSION NUMBER: 0001193125-09-173243 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20090630 FILED AS OF DATE: 20090813 DATE AS OF CHANGE: 20090812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUNGARD DATA SYSTEMS INC CENTRAL INDEX KEY: 0000789388 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 510267091 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12989 FILM NUMBER: 091008126 BUSINESS ADDRESS: STREET 1: SUNGARD DATA SYSTEMS INC STREET 2: 680 EAST SWEDESFORD RD CITY: WAYNE STATE: PA ZIP: 19087 BUSINESS PHONE: 4845825512 MAIL ADDRESS: STREET 1: SUNGARD DATA SYSTEMS INC STREET 2: 680 EAST SWEDESFORD RD CITY: WAYNE STATE: PA ZIP: 19087 FORMER COMPANY: FORMER CONFORMED NAME: SUNDATA CORP DATE OF NAME CHANGE: 19860310 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUNGARD CAPITAL CORP CENTRAL INDEX KEY: 0001337272 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 000000000 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-53653 FILM NUMBER: 091008124 BUSINESS ADDRESS: STREET 1: 680 EAST SWEDESFORD RD CITY: WAYNE STATE: PA ZIP: 19087 BUSINESS PHONE: 848-582-2000 MAIL ADDRESS: STREET 1: 680 EAST SWEDESFORD RD CITY: WAYNE STATE: PA ZIP: 19087 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUNGARD CAPITAL CORP II CENTRAL INDEX KEY: 0001337274 IRS NUMBER: 000000000 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-53654 FILM NUMBER: 091008125 BUSINESS ADDRESS: STREET 1: 680 EAST SWEDESFORD RD CITY: WAYNE STATE: PA ZIP: 19087 BUSINESS PHONE: 848-582-2000 MAIL ADDRESS: STREET 1: 680 EAST SWEDESFORD RD CITY: WAYNE STATE: PA ZIP: 19087 10-Q 1 d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

United States

Securities and Exchange Commission

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

x Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2009

OR

 

¨ Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                     

Commission file numbers:

 

  SunGard Capital Corp.   000-53653
  SunGard Capital Corp. II   000-53654
  SunGard Data Systems Inc.   1-12989

 

 

SunGard® Capital Corp.

SunGard® Capital Corp. II

SunGard® Data Systems Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   20-3059890
Delaware   20-3060101
Delaware   51-0267091

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

680 East Swedesford Road, Wayne, Pennsylvania 19087

(Address of principal executive offices, including zip code)

484-582-2000

(Registrants’ telephone number, including area code)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

SunGard Capital Corp.

   Yes  ¨    No  x

SunGard Capital Corp. II

   Yes  ¨    No  x

SunGard Data Systems Inc.

   Yes  ¨    No  x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

SunGard Capital Corp.

   Yes  ¨    No  ¨

SunGard Capital Corp. II

   Yes  ¨    No  ¨

SunGard Data Systems Inc.

   Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

SunGard Capital Corp.

  Large accelerated filer  ¨.   Accelerated filer  ¨.   Non-accelerated filer  x.   Smaller reporting company  ¨.

SunGard Capital Corp.II

  Large accelerated filer  ¨.   Accelerated filer  ¨.   Non-accelerated filer  x.   Smaller reporting company  ¨.

SunGard Data Systems Inc.

  Large accelerated filer  ¨.   Accelerated filer  ¨.   Non-accelerated filer  x.   Smaller reporting company  ¨.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

SunGard Capital Corp.

   Yes  ¨    No  x

SunGard Capital Corp. II

   Yes  ¨    No  x

SunGard Data Systems Inc.

   Yes  ¨    No  x

The number of shares of the registrant’s common stock outstanding as of June 30, 2009:

 

SunGard Capital Corp.

   254,455,149 shares of Class A common stock and 28,278,345 shares of Class L common stock

SunGard Capital Corp. II

   100 shares of common stock (100% owned by SunGard Capital Corp.)

SunGard Data Systems Inc.

   100 shares of common stock

 

 

 


Table of Contents

SUNGARD CAPITAL CORP.

SUNGARD CAPITAL CORP. II

SUNGARD DATA SYSTEMS INC.

AND SUBSIDIARIES

INDEX

 

          PAGE
PART I.    FINANCIAL INFORMATION   

Item 1.

   Financial Statements:   
   SunGard Capital Corp.   
   Consolidated Balance Sheets as of December 31, 2008 and June 30, 2009 (unaudited)    1
   Consolidated Statements of Operations for the three and six months ended June 30, 2008 and 2009 (unaudited)    2
   Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2009 (unaudited)    3
   SunGard Capital Corp. II   
   Consolidated Balance Sheets as of December 31, 2008 and June 30, 2009 (unaudited)    4
   Consolidated Statements of Operations for the three and six months ended June 30, 2008 and 2009 (unaudited)    5
   Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2009 (unaudited)    6
   SunGard Data Systems Inc.   
   Consolidated Balance Sheets as of December 31, 2008 and June 30, 2009 (unaudited)    7
   Consolidated Statements of Operations for the three and six months ended June 30, 2008 and 2009 (unaudited)    8
   Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2009 (unaudited)    9
   Notes to Consolidated Financial Statements (unaudited)    10

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations    21

Item 3.

   Quantitative and Qualitative Disclosures about Market Risk    30

Item 4T.

   Controls and Procedures    30
PART II.    OTHER INFORMATION   

Item 1.

   Legal Proceedings    31

Item 1A.

   Risk Factors.    31

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds    31

Item 3.

   Defaults upon Senior Securities    31

Item 4.

   Submission of Matters to a Vote of Security Holders    31

Item 5.

   Other Information    31

Item 6.

   Exhibits    31
SIGNATURES    32


Table of Contents

PART I. FINANCIAL INFORMATION

Explanatory Note

This Form 10-Q is a combined quarterly report being filed separately by three registrants: SunGard Capital Corp. (“SCC”), SunGard Capital Corp. II (“SCCII”) and SunGard Data Systems Inc. (“SunGard”). SCC and SCC II are collectively referred to as the “Parent Companies”. Unless the context indicates otherwise, any reference in this report to the “Company,” “we,” “us” and “our” refer to the Parent Companies together with their direct and indirect subsidiaries, including SunGard. Each registrant hereto is filing on its own behalf all of the information contained in this quarterly report that relates to such registrant. Each registrant hereto is not filing any information that does not relate to such registrant, and therefore makes no representation as to any such information.

 

ITEM 1. FINANCIAL STATEMENTS

SunGard Capital Corp.

Consolidated Balance Sheets

(In millions except share and per-share amounts)

(unaudited)

 

(in millions except share and per-share amounts)

   December 31,
2008
    June 30,
2009
 

Assets

    

Current:

    

Cash and cash equivalents

   $ 975      $ 508   

Trade receivables, less allowance for doubtful accounts of $15 and $69

     701        860   

Earned but unbilled receivables

     81        196   

Prepaid expenses and other current assets

     122        175   

Clearing broker assets

     309        341   

Retained interest in accounts receivable sold

     285        —     

Deferred income taxes

     22        14   
                

Total current assets

     2,495        2,094   

Property and equipment, less accumulated depreciation of $689 and $828

     898        920   

Software products, less accumulated amortization of $793 and $945

     1,159        1,163   

Customer base, less accumulated amortization of $668 and $805

     2,616        2,454   

Other tangible and intangible assets, less accumulated amortization of $29 and $25

     207        219   

Trade name

     1,075        1,084   

Goodwill

     7,328        7,366   
                

Total Assets

   $ 15,778      $ 15,300   
                

Liabilities and Stockholders’ Equity

    

Current:

    

Short-term and current portion of long-term debt

   $ 322      $ 69   

Accounts payable

     87        80   

Accrued compensation and benefits

     314        235   

Accrued interest expense

     159        142   

Other accrued expenses

     409        372   

Clearing broker liabilities

     310        339   

Deferred revenue

     977        989   
                

Total current liabilities

     2,578        2,226   

Long-term debt

     8,553        8,417   

Deferred income taxes

     1,595        1,561   
                

Total liabilities

     12,726        12,204   
                

Commitments and contingencies

    

Noncontrolling interest in preferred stock of SCCII (held by management subject to a put option for death or disability)

     60        47   

Class L common stock held by management subject to a put option for death or disability

     111        84   

Class A common stock held by management subject to a put option for death or disability

     12        10   

Stockholders’ equity:

    

Class L common stock, convertible, par value $.001 per share; cumulative 13.5% per annum, compounded quarterly; aggregate liquidation preference of $3,612 million and $3,867 million; 50,000,000 shares authorized, 28,472,965 and 28,488,849 shares issued

     —          —     

Class A common stock, par value $.001 per share; 550,000,000 shares authorized, 256,260,680 and 256,403,675 shares issued

     —          —     

Capital in excess of par value

     2,613        2,661   

Treasury stock, 208,071 and 216,088 shares of Class L common stock; and 1,873,932 and 1,948,526 shares of Class A common stock

     (24     (24

Accumulated deficit

     (912     (1,039

Accumulated other comprehensive loss

     (219     (147
                

Total SunGard Capital Corp. stockholders’ equity

     1,458        1,451   
                

Noncontrolling interest in preferred stock of SCCII

     1,411        1,504   
                

Total stockholders’ equity

     2,869        2,955   
                

Total Liabilities and Stockholders’ Equity

   $ 15,778      $ 15,300   
                

The accompanying notes are an integral part of these consolidated financial statements.

 

1


Table of Contents

SunGard Capital Corp.

Consolidated Statements of Operations

(In millions)

(Unaudited)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2008     2009     2008     2009  

Revenue:

        

Services

   $ 1,214      $ 1,242      $ 2,412      $ 2,489   

License and resale fees

     98        79        157        143   
                                

Total products and services

     1,312        1,321        2,569        2,632   

Reimbursed expenses

     45        48        90        72   
                                
     1,357        1,369        2,659        2,704   
                                

Costs and expenses:

        

Cost of sales and direct operating

     653        705        1,296        1,396   

Sales, marketing and administration

     293        254        570        530   

Product development

     78        73        157        148   

Depreciation and amortization

     70        72        137        141   

Amortization of acquisition-related intangible assets

     118        130        230        254   

Merger costs

     —          1        —          1   
                                
     1,212        1,235        2,390        2,470   
                                

Income from operations

     145        134        269        234   

Interest income

     4        —          9        1   

Interest expense and amortization of deferred financing fees

     (143     (155     (291     (306

Other income (expense)

     (4     14        (25     21   
                                

Income (loss) before income taxes

     2        (7     (38     (50

Benefit from income taxes

     —          —          18        9   
                                

Net income (loss)

     2        (7     (20     (41

Less: Net loss attributable to the noncontrolling interest

     (39     (44     (78     (86
                                

Net loss attributable to SunGard Capital Corp

   $ (37   $ (51   $ (98   $ (127
                                

The accompanying notes are an integral part of these consolidated financial statements.

 

2


Table of Contents

SunGard Capital Corp.

Consolidated Statements of Cash Flows

(In millions)

(Unaudited)

 

     Six Months Ended June 30,  
     2008     2009  

Cash flow from operations:

    

Net loss

   $ (20   $ (41

Reconciliation of net loss to cash flow provided by operations:

    

Depreciation and amortization

     367        395   

Deferred income tax benefit

     (60     (51

Stock compensation expense

     14        14   

Amortization of deferred financing costs and debt discount

     18        20   

Other noncash items

     14        (21

Accounts receivable and other current assets

     (59     (17

Accounts payable and accrued expenses

     (94     (141

Clearing broker assets and liabilities, net

     28        (3

Deferred revenue

     39        8   
                

Cash flow provided by operations

     247        163   
                

Investment activities:

    

Cash paid for acquired businesses, net of cash acquired

     (161     (12

Cash paid for property and equipment and software

     (189     (167

Other investing activities

     (16     3   
                

Cash used in investment activities

     (366     (176
                

Financing activities:

    

Cash received from issuance of common stock

     2        —     

Cash received from issuance of preferred stock

     1        —     

Cash received from borrowings, net of fees

     189        268   

Cash used to repay debt

     (44     (724

Cash used to purchase treasury stock

     (11     (1

Other financing activities

     (5     (2
                

Cash provided by (used in) financing activities

     132        (459
                

Effect of exchange rate changes on cash

     8        5   
                

Increase (decrease) in cash and cash equivalents

     21        (467

Beginning cash and cash equivalents

     427        975   
                

Ending cash and cash equivalents

   $ 448      $ 508   
                

Supplemental information:

    

Acquired businesses:

    

Property and equipment

   $ 2      $ —     

Software products

     68        8   

Customer base

     60        4   

Goodwill

     106        4   

Other tangible and intangible assets

     1        —     

Deferred income taxes

     (27     (1

Purchase price obligations and debt assumed

     (14     (1

Net current liabilities assumed

     (35     (2
                

Cash paid for acquired businesses, net of cash acquired of $20 and $1, respectively

   $ 161      $ 12   
                

The accompanying notes are an integral part of these consolidated financial statements.

 

3


Table of Contents

SunGard Capital Corp. II

Consolidated Balance Sheets

(In millions except share and per-share amounts)

(unaudited)

 

(in millions except share and per-share amounts)

   December 31,
2008
    June 30,
2009
 

Assets

    

Current:

    

Cash and cash equivalents

   $ 975      $ 508   

Trade receivables, less allowance for doubtful accounts of $15 and $69

     701        860   

Earned but unbilled receivables

     81        196   

Prepaid expenses and other current assets

     122        175   

Clearing broker assets

     309        341   

Retained interest in accounts receivable sold

     285        —     

Deferred income taxes

     22        14   
                

Total current assets

     2,495        2,094   

Property and equipment, less accumulated depreciation of $689 and $828

     898        920   

Software products, less accumulated amortization of $793 and $945

     1,159        1,163   

Customer base, less accumulated amortization of $668 and $805

     2,616        2,454   

Other tangible and intangible assets, less accumulated amortization of $29 and $25

     207        219   

Trade name .

     1,075        1,084   

Goodwill

     7,328        7,366   
                

Total Assets

   $ 15,778      $ 15,300   
                

Liabilities and Stockholders’ Equity

    

Current:

    

Short-term and current portion of long-term debt

   $ 322      $ 69   

Accounts payable

     87        80   

Accrued compensation and benefits

     314        235   

Accrued interest expense

     159        142   

Other accrued expenses

     399        372   

Clearing broker liabilities

     310        339   

Deferred revenue

     977        989   
                

Total current liabilities

     2,568        2,226   

Long-term debt

     8,553        8,417   

Deferred income taxes

     1,595        1,561   
                

Total liabilities

     12,716        12,204   
                

Commitments and contingencies

    

Preferred stock held by management subject to a put option for death or disability

     51        37   

Stockholders’ equity:

    

Preferred stock, par value $.001 per share; cumulative 11.5% per annum, compounded quarterly; aggregate liquidation preference of $1,444 million and $1,531 million; 14,999,000 shares authorized, 9,856,052 and 9,861,552 issued

     —          —     

Common stock, par value $.001 per share; 1,000 shares authorized, 100 shares issued and oustanding

     —          —     

Capital in excess of par value

     3,687        3,704   

Treasury stock, 72,039 and 74,815 shares

     (8     (8

Accumulated deficit

     (449     (490

Accumulated other comprehensive loss

     (219     (147
                

Total stockholders’ equity

     3,011        3,059   
                

Total Liabilities and Stockholders’ Equity

   $ 15,778      $ 15,300   
                

The accompanying notes are an integral part of these consolidated financial statements.

 

4


Table of Contents

SunGard Capital Corp. II

Consolidated Statements of Operations

(In millions)

(Unaudited)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2008     2009     2008     2009  

Revenue:

        

Services

   $ 1,214      $ 1,242      $ 2,412      $ 2,489   

License and resale fees

     98        79        157        143   
                                

Total products and services

     1,312        1,321        2,569        2,632   

Reimbursed expenses

     45        48        90        72   
                                
     1,357        1,369        2,659        2,704   
                                

Costs and expenses:

        

Cost of sales and direct operating

     653        705        1,296        1,396   

Sales, marketing and administration

     293        254        570        530   

Product development

     78        73        157        148   

Depreciation and amortization

     70        72        137        141   

Amortization of acquisition-related intangible assets

     118        130        230        254   

Merger costs

     —          1        —          1   
                                
     1,212        1,235        2,390        2,470   
                                

Income from operations

     145        134        269        234   

Interest income

     4        —          9        1   

Interest expense and amortization of deferred financing fees

     (143     (155     (291     (306

Other income (expense)

     (4     14        (25     21   
                                

Income (loss) before income taxes

     2        (7     (38     (50

Benefit from income taxes

     —          —          18        9   
                                

Net income (loss)

   $ 2      $ (7   $ (20   $ (41
                                

The accompanying notes are an integral part of these consolidated financial statements.

 

5


Table of Contents

SunGard Capital Corp. II

Consolidated Statements of Cash Flows

(In millions)

(Unaudited)

 

     Six Months Ended June 30,  
     2008     2009  

Cash flow from operations:

    

Net loss

   $ (20   $ (41

Reconciliation of net loss to cash flow provided by operations:

    

Depreciation and amortization

     367        395   

Deferred income tax benefit

     (60     (51

Stock compensation expense

     14        14   

Amortization of deferred financing costs and debt discount

     18        20   

Other noncash items

     14        (21

Accounts receivable and other current assets

     (61     (17

Accounts payable and accrued expenses

     (92     (141

Clearing broker assets and liabilities, net

     28        (3

Deferred revenue

     39        8   
                

Cash flow provided by operations

     247        163   
                

Investment activities:

    

Cash paid for acquired businesses, net of cash acquired

     (161     (12

Cash paid for property and equipment and software

     (189     (167

Other investing activities

     (16     3   
                

Cash used in investment activities

     (366     (176
                

Financing activities:

    

Cash received from issuance of preferred stock

     1        —     

Cash received from borrowings, net of fees

     189        268   

Cash used to repay debt

     (44     (724

Cash used to purchase treasury stock

     (3     —     

Other financing activities

     (11     (3
                

Cash provided by (used in) financing activities

     132        (459
                

Effect of exchange rate changes on cash

     8        5   
                

Increase (decrease) in cash and cash equivalents

     21        (467

Beginning cash and cash equivalents

     427        975   
                

Ending cash and cash equivalents

   $ 448      $ 508   
                

Supplemental information:

    

Acquired businesses:

    

Property and equipment

   $ 2      $ —     

Software products

     68        8   

Customer base

     60        4   

Goodwill

     106        4   

Other tangible and intangible assets

     1        —     

Deferred income taxes

     (27     (1

Purchase price obligations and debt assumed

     (14     (1

Net current liabilities assumed

     (35     (2
                

Cash paid for acquired businesses, net of cash acquired of $20 and $1, respectively

   $ 161      $ 12   
                

The accompanying notes are an integral part of these consolidated financial statements.

 

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SunGard Data Systems Inc.

Consolidated Balance Sheets

(In millions except share and per-share amounts)

(unaudited)

 

(in millions except share and per-share amounts)

   December 31,
2008
    June 30,
2009
 

Assets

    

Current:

    

Cash and cash equivalents

   $ 975      $ 508   

Trade receivables, less allowance for doubtful accounts of $15 and $69

     701        860   

Earned but unbilled receivables

     81        196   

Prepaid expenses and other current assets

     122        175   

Clearing broker assets

     309        341   

Retained interest in accounts receivable sold

     285        —     

Deferred income taxes

     22        14   
                

Total current assets

     2,495        2,094   

Property and equipment, less accumulated depreciation of $689 and $828

     898        920   

Software products, less accumulated amortization of $793 and $945

     1,159        1,163   

Customer base, less accumulated amortization of $668 and $805

     2,616        2,454   

Other tangible and intangible assets, less accumulated amortization of $29 and $25

     207        219   

Trade name

     1,075        1,084   

Goodwill

     7,328        7,366   
                

Total Assets

   $ 15,778      $ 15,300   
                

Liabilities and Stockholder’s Equity

    

Current:

    

Short-term and current portion of long-term debt

   $ 322      $ 69   

Accounts payable

     87        80   

Accrued compensation and benefits

     314        235   

Accrued interest expense

     159        142   

Other accrued expenses

     401        373   

Clearing broker liabilities

     310        339   

Deferred revenue

     977        989   
                

Total current liabilities

     2,570        2,227   

Long-term debt

     8,553        8,417   

Deferred income taxes

     1,592        1,558   
                

Total liabilities

     12,715        12,202   
                

Commitments and contingencies

    

Stockholder’s equity:

    

Common stock, par value $.01 per share; 100 shares authorized, issued and oustanding

     —          —     

Capital in excess of par value

     3,731        3,735   

Accumulated deficit

     (449     (490

Accumulated other comprehensive loss

     (219     (147
                

Total stockholder’s equity

     3,063        3,098   
                

Total Liabilities and Stockholder’s Equity

   $ 15,778      $ 15,300   
                

The accompanying notes are an integral part of these consolidated financial statements.

 

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SunGard Data Systems Inc.

Consolidated Statements of Operations

(In millions)

(Unaudited)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2008     2009     2008     2009  

Revenue:

        

Services

   $ 1,214      $ 1,242      $ 2,412      $ 2,489   

License and resale fees

     98        79        157        143   
                                

Total products and services

     1,312        1,321        2,569        2,632   

Reimbursed expenses

     45        48        90        72   
                                
     1,357        1,369        2,659        2,704   
                                

Costs and expenses:

        

Cost of sales and direct operating

     653        705        1,296        1,396   

Sales, marketing and administration

     293        254        570        530   

Product development

     78        73        157        148   

Depreciation and amortization

     70        72        137        141   

Amortization of acquisition-related intangible assets

     118        130        230        254   

Merger costs

     —          1        —          1   
                                
     1,212        1,235        2,390        2,470   
                                

Income from operations

     145        134        269        234   

Interest income

     4        —          9        1   

Interest expense and amortization of deferred financing fees

     (143     (155     (291     (306

Other income (expense)

     (4     14        (25     21   
                                

Income (loss) before income taxes

     2        (7     (38     (50

Benefit from income taxes

     —          —          18        9   
                                

Net income (loss)

   $ 2      $ (7   $ (20   $ (41
                                

The accompanying notes are an integral part of these consolidated financial statements.

 

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SunGard Data Systems Inc.

Consolidated Statements of Cash Flows

(In millions)

(Unaudited)

 

     Six Months Ended June 30,  
     2008     2009  

Cash flow from operations:

    

Net loss

   $ (20   $ (41

Reconciliation of net loss to cash flow provided by operations:

    

Depreciation and amortization

     367        395   

Deferred income tax benefit

     (60     (52

Stock compensation expense

     14        14   

Amortization of deferred financing costs and debt discount

     18        20   

Other noncash items

     14        (21

Accounts receivable and other current assets

     (61     (17

Accounts payable and accrued expenses

     (92     (140

Clearing broker assets and liabilities, net

     28        (3

Deferred revenue

     39        8   
                

Cash flow provided by operations

     247        163   
                

Investment activities:

    

Cash paid for acquired businesses, net of cash acquired

     (161     (12

Cash paid for property and equipment and software

     (189     (167

Other investing activities

     (16     3   
                

Cash used in investment activities

     (366     (176
                

Financing activities:

    

Cash received from borrowings, net of fees

     189        268   

Cash used to repay debt

     (44     (724

Other financing activities

     (13     (3
                

Cash provided by (used in) financing activities

     132        (459
                

Effect of exchange rate changes on cash

     8        5   
                

Increase (decrease) in cash and cash equivalents

     21        (467

Beginning cash and cash equivalents

     427        975   
                

Ending cash and cash equivalents

   $ 448      $ 508   
                

Supplemental information:

    

Acquired businesses:

    

Property and equipment

   $ 2      $ —     

Software products

     68        8   

Customer base

     60        4   

Goodwill

     106        4   

Other tangible and intangible assets

     1        —     

Deferred income taxes

     (27     (1

Purchase price obligations and debt assumed

     (14     (1

Net current liabilities assumed

     (35     (2
                

Cash paid for acquired businesses, net of cash acquired of $20 and $1, respectively

   $ 161      $ 12   
                

The accompanying notes are an integral part of these consolidated financial statements.

 

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SUNGARD CAPITAL CORP.

SUNGARD CAPITAL CORP. II

SUNGARD DATA SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation:

SunGard Data Systems Inc. (“SunGard”) was acquired on August 11, 2005 (the “Transaction”) by a consortium of private equity investment funds associated with Bain Capital Partners, The Blackstone Group, Goldman Sachs & Co., Kohlberg Kravis Roberts & Co., Providence Equity Partners, Silver Lake and TPG (collectively, the “Sponsors”).

SunGard is a wholly owned subsidiary of SunGard Holdco LLC, which is wholly owned by SunGard Holding Corp., which is wholly owned by SunGard Capital Corp. II (“SCCII”), which is a subsidiary of SunGard Capital Corp. (“SCC”). All of these companies were formed for the purpose of facilitating the Transaction and are collectively referred to as the “Holding Companies.” SCC, SCCII and SunGard are separate reporting companies and, together with their direct and indirect subsidiaries, are collectively referred to as the “Company”. These notes to consolidated financial statements apply to SCC, SCCII and SunGard unless otherwise noted.

The Company has four reportable segments: Financial Systems (“FS”), Higher Education (“HE”), Public Sector (“PS”) and Availability Services (“AS”). The Company’s Software & Processing Solutions business is comprised of the FS, HE and PS segments. The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated.

The accompanying interim consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), consistent in all material respects with those applied in the Form 10-12G/A for SCC and SCCII and SunGard’s Annual Report on Form 10-K for the year ended December 31, 2008. Interim financial reporting does not include all of the information and footnotes required by GAAP for annual financial statements. The interim financial information is unaudited, but, in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments necessary to provide a fair statement of results for the interim periods presented. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.

Subsequent events have been evaluated through August 11, 2009.

2. Goodwill:

The following table summarizes changes in goodwill by segment (in millions):

 

     FS     HE     PS     AS     Total  

Balance at December 31, 2008

   $ 3,431      $ 965      $ 685      $ 2,247      $ 7,328   

2009 acquisitions

     2        —          —          —          2   

Adjustments related to prior year acquisitions and the Transaction

     (9     (1     (1     (10     (21

Effect of foreign currency translation

     12        —          10        35        57   
                                        

Balance at June 30, 2009

   $ 3,436      $ 964      $ 694      $ 2,272      $ 7,366   
                                        

Effective January 1, 2009, the Company shortened the remaining useful lives of certain intangible assets to reflect revisions to estimated customer attrition rates. The impact of this revision was an increase in amortization of acquisition-related intangible assets of $9 million and $18 million in the three and six months ended June 30, 2009, respectively, and estimated to be approximately $36 million on an annual basis.

 

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3. Clearing Broker Assets and Liabilities:

Clearing broker assets and liabilities are comprised of the following (in millions):

 

     December 31,
2008
   June 30,
2009

Segregated customer cash and treasury bills

   $ 148    $ 153

Securities owned

     44      47

Securities borrowed

     87      113

Receivables from customers and other

     30      28
             

Clearing broker assets

   $ 309    $ 341
             

Payables to customers

   $ 191    $ 181

Securities loaned

     47      95

Customer securities sold short, not yet purchased

     3      13

Payable to brokers and dealers

     69      50
             

Clearing broker liabilities

   $ 310    $ 339
             

Segregated customer cash and treasury bills are held by the Company on behalf of customers. Clearing broker securities consist of trading and investment securities at fair market values, which are based on quoted market rates. Securities borrowed and loaned are collateralized financing transactions which are cash deposits made to or received from other broker/dealers. Receivables from and payables to customers represent amounts due or payable on cash and margin transactions.

4. Debt and derivatives:

Receivables facility

In March 2009, SunGard entered into a syndicated three-year receivables facility. At June 30, 2009, the maximum commitment of $316.5 million was fully drawn. It may be repaid at any time at SunGard’s option and is therefore accounted for as an on-balance sheet secured borrowing. At June 30, 2009, $720 million of accounts receivable secure the borrowings under the receivables facility.

Under the receivables facility, SunGard is generally required to pay interest on the amount of each advance at the one month LIBOR rate (with a floor of 3%) plus 4.50% per annum. The facility is subject to a fee on the unused portion of 1.00% per annum. The receivables facility contains certain covenants, and SunGard is required to satisfy and maintain specified facility performance ratios, financial ratios and other financial condition tests.

Credit facility

In June 2009, SunGard amended its existing Credit Agreement (“Amended Credit Agreement”) to (a) extend the maturity date of $2.5 billion of its dollar-denominated term loans, £40 million of pound sterling-denominated term loans, and €120 million of Euro-denominated term loans from February 2014 to February 2016, (b) reduce existing revolving credit commitments to $829 million and extend the termination date of $580 million of those commitments to May 2013, and (c) amend certain other provisions including those related to negative and financial covenants.

As of June 30, 2009, the interest rate for the extended term loans, after adjusting for interest rate swaps, and revolving credit loans was 4.41% and 5.5%, respectively, and for the unextended term loans, after adjusting for interest rate swaps, and revolving credit loans was 2.51% and 4.25%, respectively. The commitment fee on the daily unused portion of the 2013 and 2011 revolving credit commitments was 0.75% and 0.50%, respectively.

Derivatives

In early 2009, the Company entered into three-year interest rate swaps that expire in February 2012 for an aggregate notional amount of $1.2 billion under which SunGard pays a stream of fixed interest payments (at 1.78%) for the term of the swap, and in turn, receives variable interest payments based on LIBOR.

 

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The Company uses interest rate swap agreements to manage the amount of its floating rate debt in order to reduce its exposure to variable rate interest payments associated with the senior secured credit facilities. Each of these swap agreements is designated as a cash flow hedge. The Company pays a stream of fixed interest payments for the term of the swap, and in turn, receives variable interest payments based on LIBOR. The net receipt or payment from the interest rate swap agreements is included in interest expense. The Company does not enter into interest rate swaps for speculative or trading purposes. A summary of the Company’s interest rate swaps follows:

 

Inception

  

Maturity

   Notional
Amount (in
millions)
   Interest rate
paid
    Interest rate
received

February 2006

   February 2011    $ 800    5.00   LIBOR

January 2008

   February 2011    $ 750    3.17   LIBOR

February 2008

   February 2010    $ 750    2.71   LIBOR

January/February 2009

   February 2012    $ 1,200    1.78   LIBOR
              

Total / Weighted Average interest rate

      $ 3,500    3.01  
              

Below are the fair values of interest rate swaps as of December 31, 2008 and June 30, 2009 (in millions):

 

     Balance    Fair Value
     Sheet
Location
   December 31,
2008
   June 30,
2009

Interest rate contracts designated as cash flow hedging instruments

   Other accrued
expenses
   $ 98    $ 80
                

The table below summarizes the impact of the effective portion of interest rate swaps on the balance sheets and statements of operations for the three and six months ended June 30, 2008 and 2009 (in millions):

 

     Three months ended
June 30,
    Six months ended
June 30,
     
     2008     2009     2008     2009     Classification

Gain recognized in Accumulated Other Comprehensive
Income (OCI)

   $ 39      $ 16      $ 9      $ 12      OCI

Loss reclassified from accumulated OCI into income

     (9     (19     (12     (34   Interest expense and
amortization of deferred
financing costs

The Company has no ineffectiveness related to its swap agreements.

 

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5. Fair Value Measurements:

The following table summarizes assets and liabilities measured at fair value on a recurring basis at June 30, 2009 (in millions):

 

     Fair Value Measures Using     
     Level 1    Level 2    Level 3    Total

Assets

           

Clearing broker assets - securities owned

   $ 47    $ —      $ —      $ 47
                           

Liabilities

           

Clearing broker liabilities - customer securities sold short, not yet purchased

   $ 13    $ —      $ —      $ 13

Interest rate swap agreements

     —        80      —        80
                           
   $ 13    $ 80    $ —      $ 93
                           

A Level 1 fair value measure is based upon quoted prices in active markets for identical assets or liabilities. A Level 2 fair value measure is based upon quoted prices for similar assets and liabilities in active markets or inputs that are observable. A Level 3 fair value measure is based upon inputs that are unobservable (for example, cash flow modeling inputs based on assumptions).

Clearing broker assets and liabilities – securities owned and customer securities sold short, not yet purchased are recorded at closing exchange-quoted prices. Fair values of the interest rate swap agreements are calculated using a discounted cash flow model using observable applicable market swap rates and assumptions and are compared to market valuations obtained from brokers. During January 2009, the fair value of retained interest in accounts receivable sold (a Level 3 measurement) decreased to zero due to the termination of the Company’s off-balance sheet accounts receivable securitization program.

The following table presents the carrying amount and estimated fair value of the Company’s debt, including current portion, as of June 30, 2009 (in millions):

 

     Carrying
Value
   Fair
Value

Floating rate debt

   $ 5,131    $ 4,838

Fixed rate debt

     3,354      3,177

The fair value of the Company’s floating rate and fixed rate long-term debt is primarily based on market rates.

6. Comprehensive Income (Loss):

Comprehensive income consists of net income (loss) adjusted for other increases and decreases affecting stockholder’s equity that are excluded from the determination of net income (loss). The calculation of comprehensive income follows (in millions):

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2008    2009     2008     2009  

Net income (loss)

   $ 2    $ (7   $ (20   $ (41

Foreign currency translation gains

     —        147        20        60   

Unrealized gains on derivative instruments

     39      16        9        12   
                               

Comprehensive income

   $ 41    $ 156      $ 9      $ 31   
                               

 

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7. Segment Information:

The Company has four reportable segments: FS, HE and PS, which together form the Company’s Software & Processing Solutions business, and AS. The Company evaluates the performance of its segments based on operating results before interest, income taxes, amortization of acquisition-related intangible assets, stock compensation and certain other costs. The operating results apply to each of SCC, SCCII and SunGard unless otherwise noted. The operating results for each segment follow (in millions):

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2008     2009     2008     2009  

Revenue:

        

Financial systems

   $ 710      $ 766      $ 1,397      $ 1,508   

Higher education

     146        132        272        264   

Public Sector

     112        95        213        186   
                                

Software & processing solutions

     968        993        1,882        1,958   

Availability services

     389        376        777        746   
                                
   $ 1,357      $ 1,369      $ 2,659      $ 2,704   
                                

Depreciation and amortization:

        

Financial systems

   $ 18      $ 19      $ 34      $ 38   

Higher education

     3        4        5        7   

Public sector

     2        2        4        4   
                                

Software & processing solutions

     23        25        43        49   

Availability services

     47        47        94        92   

Corporate administration

     —          —          —          —     
                                
   $ 70      $ 72      $ 137      $ 141   
                                

Income (loss) from operations:

        

Financial systems

   $ 129      $ 138      $ 250      $ 257   

Higher education

     36        35        60        62   

Public sector

     21        19        39        36   
                                

Software & processing solutions

     186        192        349        355   

Availability services

     111        99        212        188   

Corporate and other items (1)

     (152     (156     (292     (308

Merger costs

     —          (1     —          (1
                                
   $ 145      $ 134      $ 269      $ 234   
                                

Cash paid for property and equipment and software:

        

Financial systems

   $ 24      $ 18      $ 39      $ 44   

Higher education

     5        2        16        4   

Public sector

     2        4        4        6   
                                

Software & processing solutions

     31        24        59        54   

Availability services

     74        64        130        113   

Corporate administration

     —          —          —          —     
                                
   $ 105      $ 88      $ 189      $ 167   
                                

 

(1) Includes corporate administrative expenses, stock compensation expense, management fees paid to the Sponsors, other items and amortization of acquisition-related intangible assets of $118 million and $130 million for the three month periods ended June 30, 2008 and 2009, respectively, and $230 million and $254 million for the six month periods ended June 30, 2008 and 2009, respectively.

 

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Amortization of acquisition-related intangible assets by segment follows (in millions):

 

     Three Months Ended June 30,    Six Months Ended June 30,
     2008    2009    2008    2009

Amortization of acquisition-related intangible assets:

           

Financial systems

   $ 67    $ 70    $ 127    $ 136

Higher education

     9      9      18      17

Public sector

     10      7      21      15
                           

Software & processing solutions

     86      86      166      168

Availability services

     31      44      62      85

Corporate administration

     1      —        2      1
                           
   $ 118    $ 130    $ 230    $ 254
                           

 

The FS Segment is organized to align with customer-facing business areas. FS revenue by these business areas follows (in millions):

 

     Three Months Ended June 30,    Six Months Ended June 30,
     2008    2009    2008    2009

Trading Systems

   $ 154    $ 229    $ 318    $ 449

Wealth Management

     134      105      272      209

Brokerage & Clearance

     65      68      135      139

Capital Markets

     89      62      170      124

Global Trading

     —        66      —        123

Institutional Asset Management

     57      48      112      98

Corporations

     51      45      89      89

Banks

     42      37      78      69

All other

     118      106      223      208
                           

Total Financial Systems

   $ 710    $ 766    $ 1,397    $ 1,508
                           

8. Related Party Transactions:

In accordance with the Management Agreement between the Company and affiliates of the Sponsors, the Company recorded $6 million and $2 million of management fees in sales, marketing and administration expenses during the three months ended June 30, 2008 and 2009, respectively. In the six month periods ended June 30, 2008 and 2009, the Company recorded $10 million and $7 million of management fees in sales, marketing and administration expenses. At December 31, 2008 and June 30, 2009, $10 million and $2 million, respectively, was included in other accrued expenses.

Certain of the Company’s sponsors and/or their affiliates were paid approximately $2 million for customary fees and expenses in connection with the Amended Credit Agreement.

 

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9. Supplemental Guarantor Condensed Consolidating Financial Statements:

SunGard’s senior notes are jointly and severally, fully and unconditionally guaranteed on a senior unsecured basis and the senior subordinated notes are jointly and severally, fully and unconditionally guaranteed on an unsecured senior subordinated basis, in each case, subject to certain exceptions, by substantially all wholly owned, domestic subsidiaries of SunGard (collectively, the “Guarantors”). Each of the Guarantors is 100% owned, directly or indirectly, by SunGard. None of the other subsidiaries of SunGard, either direct or indirect, nor any of the Holding Companies guarantee the senior notes and senior subordinated notes (“Non-Guarantors”). The Guarantors also unconditionally guarantee the senior secured credit facilities.

The following tables present the financial position, results of operations and cash flows of SunGard (referred to as “Parent Company” for purposes of this note only), the Guarantor subsidiaries, the Non-Guarantor subsidiaries and Eliminations as of December 31, 2008 and June 30, 2009, and for the three- and six-month periods ended June 30, 2008 and 2009 to arrive at the information for SunGard on a consolidated basis. SCC and SCCII are neither parties nor guarantors to the debt issued as described in the notes to consolidated financial statements included in the Form 10-12G/A for SCC and SCCII filed in June 2009 or the Form 10-K for SunGard filed in March 2009.

 

     Supplemental Condensed Consolidating Balance Sheet
December 31, 2008

(in millions)

   Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated

Assets

          

Current:

          

Cash and cash equivalents

   $ 511      $ 16      $ 448      $ —        $ 975

Intercompany balances

     (5,192     5,268        (76     —          —  

Trade receivables, net

     (1     406        377        —          782

Prepaid expenses, taxes and other current assets

     1,680        75        660        (1,677     738
                                      

Total current assets

     (3,002     5,765        1,409        (1,677     2,495

Property and equipment, net

     1        619        278        —          898

Intangible assets, net

     178        4,106        773        —          5,057

Intercompany balances

     967        (720     (247     —          —  

Goodwill

     —          6,146        1,182        —          7,328

Investment in subsidiaries

     13,686        2,298        —          (15,984     —  
                                      

Total Assets

   $ 11,830      $ 18,214      $ 3,395      $ (17,661   $ 15,778
                                      

Liabilities and Stockholder’s Equity

          

Current:

          

Short-term and current portion of long-term debt

   $ 295      $ 9      $ 18      $ —        $ 322

Accounts payable and other current liabilities

     319        2,611        995        (1,677     2,248
                                      

Total current liabilities

     614        2,620        1,013        (1,677     2,570

Long-term debt

     8,227        9        317        —          8,553

Intercompany debt

     (8     416        (162     (246     —  

Deferred income taxes

     (66     1,483        175        —          1,592
                                      

Total liabilities

     8,767        4,528        1,343        (1,923     12,715
                                      

Total stockholder’s equity

     3,063        13,686        2,052        (15,738     3,063
                                      

Total Liabilities and Stockholder’s Equity

   $ 11,830      $ 18,214      $ 3,395      $ (17,661   $ 15,778
                                      

 

16


Table of Contents
     Supplemental Condensed Consolidating Balance Sheet
June 30, 2009
 

(in millions)

   Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Assets

          

Current:

          

Cash and cash equivalents

   $ 4      $ 1      $ 503      $ —        $ 508   

Intercompany balances

     (6,073     5,244        829        —          —     

Trade receivables, net

     (5     735        326        —          1,056   

Prepaid expenses, taxes and other current assets

     1,927        76        483        (1,956     530   
                                        

Total current assets

     (4,147     6,056        2,141        (1,956     2,094   

Property and equipment, net

     1        610        309        —          920   

Intangible assets, net

     185        3,946        789        —          4,920   

Intercompany balances

     976        (721     (255     —          —     

Goodwill

     —          6,133        1,233        —          7,366   

Investment in subsidiaries

     14,232        2,631        —          (16,863     —     
                                        

Total Assets

   $ 11,247      $ 18,655      $ 4,217      $ (18,819   $ 15,300   
                                        

Liabilities and Stockholder’s Equity

          

Current:

          

Short-term and current portion of long-term debt

   $ 45      $ 8      $ 16      $ —        $ 69   

Accounts payable and other current liabilities

     280        2,773        1,061        (1,956     2,158   
                                        

Total current liabilities

     325        2,781        1,077        (1,956     2,227   

Long-term debt

     7,782        6        629        —          8,417   

Intercompany debt

     99        208        (177     (130     —     

Deferred income taxes

     (57     1,428        187        —          1,558   
                                        

Total liabilities

     8,149        4,423        1,716        (2,086     12,202   
                                        

Total stockholder’s equity

     3,098        14,232        2,501        (16,733     3,098   
                                        

Total Liabilities and Stockholder’s Equity

   $ 11,247      $ 18,655      $ 4,217      $ (18,819   $ 15,300   
                                        
     Supplemental Condensed Consolidating Schedule of Operations
Three Months Ended June 30, 2008
 

(in millions)

   Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Total revenue

   $ —        $ 936      $ 487      $ (66   $ 1,357   
                                        

Costs and expenses:

          

Cost of sales and direct operating

     —          443        276        (66     653   

Sales, marketing and administration

     25        150        118        —          293   

Product development

     —          49        29        —          78   

Depreciation and amortization

     —          52        18        —          70   

Amortization of acquisition-related intangible assets

     1        94        23        —          118   
                                        
     26        788        464        (66     1,212   
                                        

Income (loss) from operations

     (26     148        23        —          145   

Net interest income (expense)

     (111     24        (52     —          (139

Other income (expense)

     92        (25     (3     (68     (4
                                        

Income (loss) before income taxes

     (45     147        (32     (68     2   

Provision (benefit) for income taxes

     (47     56        (9     —          —     
                                        

Net income (loss)

   $ 2      $ 91      $ (23   $ (68   $ 2   
                                        

 

17


Table of Contents
     Supplemental Condensed Consolidating Schedule of Operations
Three Months Ended June 30, 2009
 

(in millions)

   Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Total revenue

   $ —        $ 856      $ 537      $ (24   $ 1,369   
                                        

Costs and expenses:

          

Cost of sales and direct operating

     —          365        364        (24     705   

Sales, marketing and administration

     22        143        89        —          254   

Product development

     —          37        36        —          73   

Depreciation and amortization

     —          54        18        —          72   

Amortization of acquisition-related intangible assets

     —          103        27        —          130   

Merger costs

     1        —          —          —          1   
                                        
     23        702        534        (24     1,235   
                                        

Income (loss) from operations

     (23     154        3        —          134   

Net interest income (expense)

     (127     34        (62     —          (155

Other income (expense)

     89        (28     15        (62     14   
                                        

Income (loss) before income taxes

     (61     160        (44     (62     (7

Provision (benefit) for income taxes

     (54     71        (17     —          —     
                                        

Net income (loss)

   $ (7   $ 89      $ (27   $ (62   $ (7
                                        
     Supplemental Condensed Consolidating Schedule of Operations
Six Months Ended June 30, 2008
 

(in millions)

   Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Total revenue

   $ —        $ 1,824      $ 955      $ (120   $ 2,659   
                                        

Costs and expenses:

          

Cost of sales and direct operating

     —          862        554        (120     1,296   

Sales, marketing and administration

     49        304        217        —          570   

Product development

     —          95        62        —          157   

Depreciation and amortization

     —          101        36        —          137   

Amortization of acquisition-related intangible assets

     2        186        42        —          230   
                                        
     51        1,548        911        (120     2,390   
                                        

Income (loss) from operations

     (51     276        44        —          269   

Net interest income (expense)

     (255     9        (36     —          (282

Other income (expense)

     178        (12     (23     (168     (25
                                        

Income (loss) before income taxes

     (128     273        (15     (168     (38

Provision (benefit) for income taxes

     (108     95        (5     —          (18
                                        

Net income (loss)

   $ (20   $ 178      $ (10   $ (168   $ (20
                                        

 

18


Table of Contents
     Supplemental Condensed Consolidating Schedule of Operations
Six Months Ended June 30, 2009
 

(in millions)

   Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Total revenue

   $ —        $ 1,690      $ 1,059      $ (45   $ 2,704   
                                        

Costs and expenses:

          

Cost of sales and direct operating

     —          737        704        (45     1,396   

Sales, marketing and administration

     45        297        188        —          530   

Product development

     —          82        66        —          148   

Depreciation and amortization

     —          106        35        —          141   

Amortization of acquisition-related intangible assets

     1        203        50        —          254   

Merger costs

     1        —          —          —          1   
                                        
     47        1,425        1,043        (45     2,470   
                                        

Income (loss) from operations

     (47     265        16        —          234   

Net interest income (expense)

     (270     23        (58     —          (305

Other income (expense)

     164        (11     21        (153     21   
                                        

Income (loss) before income taxes

     (153     277        (21     (153     (50

Provision (benefit) for income taxes

     (112     113        (10     —          (9
                                        

Net income (loss)

   $ (41   $ 164      $ (11   $ (153   $ (41
                                        
     Supplemental Condensed Consolidating Schedule of Cash Flows
Six Months Ended June 30, 2008
 

(in millions)

   Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash Flow From Operations

  

     

Net income (loss)

   $ (20   $ 178      $ (10   $ (168   $ (20

Non cash adjustments

     (143     241        87        168        353   

Changes in operating assets and liabilities

     (600     699        (185     —          (86
                                        

Cash flow provided by (used in) operations

     (763     1,118        (108     —          247   
                                        

Investment Activities

          

Intercompany transactions

     628        (840     212        —          —     

Cash paid for businesses acquired by the Company, net of cash acquired

     —          (161     —          —          (161

Cash paid for property and equipment and software

     —          (129     (60     —          (189

Other investing activities

     (18     (4     6        —          (16
                                        

Cash provided by (used in) investment activities

     610        (1,134     158        —          (366
                                        

Financing Activities

          

Net borrowings (repayments) of long-term debt

     160        6        (21     —          145   

Other financing activities

     (13     —          —          —          (13
                                        

Cash provided by (used in) financing activities

     147        6        (21     —          132   
                                        

Effect of exchange rate changes on cash

     —          —          8        —          8   
                                        

Increase (decrease) in cash and cash equivalents

     (6     (10     37        —          21   

Beginning cash and cash equivalents

     39        2        386        —          427   
                                        

Ending cash and cash equivalents

   $ 33      $ (8   $ 423      $ —        $ 448   
                                        

 

19


Table of Contents
     Supplemental Condensed Consolidating Schedule of Cash Flows
Six Months Ended June 30, 2009
 

(in millions)

   Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash Flow From Operations

  

     

Net income (loss)

   $ (41   $ 164      $ (11   $ (153   $ (41

Non cash adjustments

     (127     271        59        153        356   

Changes in operating assets and liabilities

     (254     (228     330        —          (152
                                        

Cash flow provided by (used in) operations

     (422     207        378        —          163   
                                        

Investment Activities

          

Intercompany transactions

     664        (85     (579     —          —     

Cash paid for businesses acquired by the Company, net of cash acquired

     —          (12     —          —          (12

Cash paid for property and equipment and software

     —          (122     (45     —          (167

Other investing activities

     —          2        1        —          3   
                                        

Cash provided by (used in) investment activities

     664        (217     (623     —          (176
                                        

Financing Activities

          

Net borrowings (repayments) of long-term debt

     (746     (5     295        —          (456

Other financing activities

     (3     —          —          —          (3
                                        

Cash provided by (used in) financing activities

     (749     (5     295        —          (459
                                        

Effect of exchange rate changes on cash

     —          —          5        —          5   
                                        

Increase (decrease) in cash and cash equivalents

     (507     (15     55        —          (467

Beginning cash and cash equivalents

     511        16        448        —          975   
                                        

Ending cash and cash equivalents

   $ 4      $ 1      $ 503      $ —        $ 508   
                                        

 

20


Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

The following discussion and analysis supplement the management’s discussion and analysis in the Form 10-12G/A for SCC and SCCII and SunGard’s Annual Report on Form 10-K for the year ended December 31, 2008 and presume that readers have read or have access to the discussion and analysis in these filings. The following discussion and analysis includes historical and certain forward-looking information that should be read together with the accompanying Consolidated Financial Statements, related footnotes, and the discussion below of certain risks and uncertainties that could cause future operating results to differ materially from historical results or from the expected results indicated by forward-looking statements. The following discussion reflects the results of operations and financial condition of SCC, which are materially the same as the results of operations and financial condition of SCCII and SunGard. Therefore, the discussions provided are applicable to each of SCC, SCCII and SunGard unless otherwise noted.

Results of Operations:

The following table sets forth, for the periods indicated, certain amounts included in our Consolidated Statements of Operations, the relative percentage that those amounts represent to consolidated revenue (unless otherwise indicated), and the percentage change in those amounts from period to period.

 

    Three Months
Ended
June 30, 2008
    Three Months
Ended
June 30, 2009
    Percent
Increase
(Decrease)

2009 vs. 2008
    Six Months
Ended
June 30, 2008
    Six Months
Ended
June 30, 2009
    Percent
Increase
(Decrease)

2009 vs. 2008
 
             

(in millions)

        percent
of
revenue
          percent
of
revenue
            percent
of
revenue
          percent
of
revenue
   

Revenue

                   

Financial systems (FS)

  $ 710      52   $ 766      56   8   $ 1,397      53   $ 1,508      56   8

Higher education (HE)

    146      11     132      10   (10 )%      272      10     264      10   (3 )% 

Public sector (PS)

    112      8     95      7   (15 )%      213      8     186      7   (13 )% 
                                           

Software & processing solutions

    968      71     993      73   3     1,882      71     1,958      72   4

Availability services (AS)

    389      29     376      27   (3 )%      777      29     746      28   (4 )% 
                                           
  $ 1,357      100   $ 1,369      100   1   $ 2,659      100   $ 2,704      100   2
                                           

Costs and Expenses

                   

Cost of sales and direct operating

  $ 653      48   $ 705      51   8   $ 1,296      49   $ 1,396      52   8

Sales, marketing and administration

    293      22     254      19   (13 )%      570      21     530      20   (7 )% 

Product development

    78      6     73      5   (6 )%      157      6     148      5   (6 )% 

Depreciation and amortization

    70      5     72      5   3     137      5     141      5   3

Amortization of acquisition- related intangible assets

    118      9     130      9   10     230      9     254      9   10

Merger and other costs

    —        —       1      —     —       —        —       1      —     —  
                                           
  $ 1,212      89   $ 1,235      90   2   $ 2,390      90   $ 2,470      91   3
                                           

Income from Operations

                   

Financial systems (1)

  $ 129      18   $ 138      18   7   $ 250      18   $ 257      17   3

Higher education (1)

    36      25     35      27   (3 )%      60      22     62      23   3

Public sector (1)

    21      19     19      20   (10 )%      39      18     36      19   (8 )% 
                                           

Software & processing solutions (1)

    186      19     192      19   3     349      19     355      18   2

Availability services (1)

    111      29     99      26   (11 )%      212      27     188      25   (11 )% 

Corporate administration

    (12   (1 )%      (14   (1 )%    17     (24   (1 )%      (27   (1 )%    13

Amortization of acquisition- related intangible assets

    (118   (9 )%      (130   (9 )%    10     (230   (9 )%      (254   (9 )%    10

Stock Compensation expense

    (7   (1 )%      (7   (1 )%    —       (14   (1 )%      (14   (1 )%    —  

Other items (2)

    (15   (1 )%      (6   —     (60 )%      (24   (1 )%      (14   (1 )%    (42 )% 
                                           
  $ 145      11   $ 134      10   (8 )%    $ 269      10   $ 234      9   (13 )% 
                                           

 

(1) Percent of revenue is calculated as a percent of revenue from FS, HE, PS, Software and Processing Solutions, and AS, respectively.

 

(2) Other items include certain purchase accounting adjustments and management fees paid to the Sponsors, partially offset by capitalized software development costs.

 

21


Table of Contents

The following table sets forth, for the periods indicated, certain supplemental revenue data, the relative percentage that those amounts represent to total revenue and the percentage change in those amounts from period to period.

 

    Three Months
Ended
June 30, 2008
    Three Months
Ended
June 30, 2009
    Percent
Increase
(Decrease)
2009 vs. 2008
    Six Months
Ended
June 30, 2008
    Six Months
Ended
June 30, 2009
    Percent
Increase
(Decrease)
2009 vs. 2008
 

(in millions)

      percent
of
revenue
        percent
of
revenue
          percent
of
revenue
        percent
of
revenue
   

Financial Systems

                   

Services

  $ 618   46   $ 687   50   11   $ 1,233   46   $ 1,385   51   12

License and resale fees

    55   4     37   3   (33 )%      89   3     63   2   (29 )% 
                                   

Total products and services

    673   50     724   53   8     1,322   50     1,448   54   10

Reimbursed expenses

    37   3     42   3   14     75   3     60   2   (20 )% 
                                   
  $ 710   52   $ 766   56   8   $ 1,397   53   $ 1,508   56   8
                                   

Higher Education

                   

Services

  $ 121   9   $ 115   8   (5 )%    $ 231   9   $ 229   8   (1 )% 

License and resale fees

    22   2     16   1   (27 )%      36   1     32   1   (11 )% 
                                   

Total products and services

    143   11     131   10   (8 )%      267   10     261   10   (2 )% 

Reimbursed expenses

    3   —       1   —     (67 )%      5   —       3   —     (40 )% 
                                   
  $ 146   11   $ 132   10   (10 )%    $ 272   10   $ 264   10   (3 )% 
                                   

Public Sector

                   

Services

  $ 93   7   $ 69   5   (26 )%    $ 182   7   $ 138   5   (24 )% 

License and resale fees

    18   1     25   2   39     29   1     46   2   59
                                   

Total products and services

    111   8     94   7   (15 )%      211   8     184   7   (13 )% 

Reimbursed expenses

    1   —       1   —     —       2   —       2   —     —  
                                   
  $ 112   8   $ 95   7   (15 )%    $ 213   8   $ 186   7   (13 )% 
                                   

Software & Processing Solutions

                   

Services

  $ 832   61   $ 871   64   5   $ 1,646   62   $ 1,752   65   6

License and resale fees

    95   7     78   6   (18 )%      154   6     141   5   (8 )% 
                                   

Total products and services

    927   68     949   69   2     1,800   68     1,893   70   5

Reimbursed expenses

    41   3     44   3   7     82   3     65   2   (21 )% 
                                   
  $ 968   71   $ 993   73   3   $ 1,882   71   $ 1,958   72   4
                                   

Availability Services

                   

Services

  $ 382   28   $ 371   27   (3 )%    $ 766   29   $ 737   27   (4 )% 

License and resale fees

    3   —       1   —     (67 )%      3   —       2   —     (33 )% 
                                   

Total products and services

    385   28     372   27   (3 )%      769   29     739   27   (4 )% 

Reimbursed expenses

    4   —       4   —     —       8   —       7   —     (13 )% 
                                   
  $ 389   29   $ 376   27   (3 )%    $ 777   29   $ 746   28   (4 )% 
                                   

Total Revenue

                   

Services

  $ 1,214   89   $ 1,242   91   2   $ 2,412   91   $ 2,489   92   3

License and resale fees

    98   7     79   6   (19 )%      157   6     143   5   (9 )% 
                                   

Total products and services

    1,312   97     1,321   96   1     2,569   97     2,632   97   2

Reimbursed expenses

    45   3     48   4   7     90   3     72   3   (20 )% 
                                   
  $ 1,357   100   $ 1,369   100   1   $ 2,659   100   $ 2,704   100   2
                                   

 

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Three Months Ended June 30, 2009 Compared To Three Months Ended June 30, 2008

Income from Operations:

Our total operating margin was 10% for the three months ended June 30, 2009, compared to 11% for the three months ended June 30, 2008 primarily due to a $25 million decrease in license fees and the decline in the AS operating margin.

Financial Systems:

The FS operating margin was 18% for each of the three months ended June 30, 2009 and 2008. The $9 million increase in income from operations is primarily due to the impact of acquired businesses, cost reductions, primarily employee and consultant-related, and the impact of the increase in revenue at one of our trading systems businesses, partially offset by an $18 million decrease in software license fees and the impact from the decrease in professional services revenue.

Higher Education:

The HE operating margin was 27% and 25% for the three months ended June 30, 2009 and 2008, respectively, primarily due to cost reductions, mainly employee and consultant-related and professional services expenses and a customer conference held in the second quarter of 2008 that was held in the first quarter of 2009, partially offset by a $4 million decrease in software license fees.

Public Sector:

The PS operating margin was 20% and 19% for the three months ended June 30, 2009 and 2008, respectively, due primarily to improvement in the U.K. business.

Availability Services:

The AS operating margin was 26% and 29% for the three months ended June 30, 2009 and 2008, respectively. The operating margin decline and the decrease of $12 million are primarily due to facility expansions in Europe and North America, which increased the fixed cost base in advance of anticipated revenue growth.

Revenue:

Total revenue increased $12 million or 1% for the three months ended June 30, 2009 compared to the second quarter of 2008. On a constant currency basis, organic revenue decreased 0.5% in the second quarter of 2009 compared to the prior year period, primarily because of a decline in professional service revenue across all of our segments except AS and a decrease in software license fees. Organic revenue is defined as revenue for businesses owned for at least one year and further adjusted for the effects of businesses sold in the previous twelve months. Approximately 6% of organic revenue growth in the quarter was attributed to one of our broker/dealer businesses. While we have seen some improvement in the tone from the first quarter of 2009, spending remains cautious and the environment continues to be subject to pricing pressure. We expect a challenging second half in 2009, and some difficulty in achieving positive organic growth in part due to comparatively strong third and fourth quarters in 2008 when organic revenue growth on a constant currency basis was 11% and 8%, respectively.

Financial Systems:

FS revenue increased $56 million or 8% in the second quarter of 2009 from the prior year period. On a constant currency basis, organic revenue grew 2% in the quarter. Approximately 12% of organic revenue growth was attributed to one of our broker/dealer businesses. The broker/dealer revenue has remained uncharacteristically high and is a function of market volatility and customer mix; while this revenue increased year over year, sequentially it was unchanged after declining from the fourth quarter of 2008. We expect this revenue to decline at some point but are unable to predict the timing. Depending on the nature, timing and extent of the future decline, there could be a triggering event requiring an interim goodwill impairment test in addition to the annual impairment test performed each year as of July 1st and some or all of the approximately $385 million in goodwill of our trading systems reporting unit could be impaired. Professional services revenue decreased $38 million or 23%. Revenue from license and resale fees included software license revenue of $33 million and $52 million in the three months ended June 30, 2009 and 2008, respectively.

Higher Education:

HE revenue decreased $14 million or 10% for the three months ended June 30, 2009 compared to the corresponding period in 2008 due entirely to a decrease in organic revenue. HE services revenue decreased $6 million, primarily due to revenue associated with a customer conference held in the first quarter of 2009 that was held in the second quarter of 2008 and a decrease in professional services. Revenue from license and resale fees included software license revenue of $5 million in the three months ended June 30, 2009, a decrease of $4 million from the prior year period.

 

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Public Sector:

PS revenue decreased $17 million or 15% for the three months ended June 30, 2009 compared to the corresponding period in 2008. On a constant currency basis, organic revenue decreased 7%. Revenue from license and resale fees included software license revenue of $7 million in each of the three months ended June 30, 2009 and 2008.

Availability Services:

AS revenue decreased $13 million or 3% in the second quarter of 2009 from the prior year period. On a constant currency basis, organic revenue grew 2% in the quarter. In North America, revenue grew 1% overall, but remained flat organically where decreases in basic and advanced recovery services offset growth in managed services and professional fees. Revenue in Europe decreased 18%, but grew 7% on a constant currency basis.

Costs and Expenses:

Cost of sales and direct operating expenses as a percentage of total revenue was 51% and 48% in the three-month periods ended June 30, 2009 and 2008, respectively, largely the result of the higher volumes of the broker/dealer business previously mentioned. Also impacting the period were increased costs from acquired businesses, net of a business sold in 2008, partially offset by lower FS and PS employee-related and consultant expenses.

Sales, marketing and administration expenses as a percentage of total revenue was 19% and 22% in the three-month periods ended June 30, 2009 and 2008, respectively. Decreases in sales, marketing and administration expenses, were primarily due to decreases in FS employment-related expenses.

Because AS product development costs are insignificant, it is more meaningful to measure product development expenses as a percentage of revenue from software and processing solutions. For the three months ended June 30, 2009 and 2008, product development costs were 7% and 8% of revenue from software and processing solutions, respectively.

Depreciation and amortization as a percentage of total revenue was 5% in each of the three-month periods ended June 30, 2009 and 2008.

Amortization of acquisition-related intangible assets as a percentage of total revenue was 9% in each of the three-month periods ended June 30, 2009 and 2008. The $12 million increase in 2009 was due to acquisitions made in 2008 and from shortening the remaining useful lives of certain intangible assets.

Interest expense was $155 million and $143 million for the three months ended June 30, 2009 and 2008, respectively. The increase in interest expense was due primarily to increased borrowings from the issuance of $500 million senior notes due 2015, a $500 million increase in the term loan, borrowings under our receivables facility and additional borrowings under our revolving credit facility, partially offset by interest rate decreases.

Other income was $14 million for the three months ended June 30, 2009 compared to other expense of $4 million for the three months ended June 30, 2008. The change is primarily attributable to $14 million of foreign currency translation gains related to our Euro denominated term loan in the three months ended June 30, 2009 compared to a $1 million translation gain and $4 million of losses on sales of receivables related to our terminated off-balance sheet receivables facility in the same period in 2008.

Six Months Ended June 30, 2009 Compared To Six Months Ended June 30, 2008

Income from Operations:

Our total operating margin was 9% for the six months ended June 30, 2009, compared to 10% for the six months ended June 30, 2008 primarily due to a $33 million decrease in license fees and the decline in the AS operating margin.

Financial Systems:

The FS operating margin was 17% and 18% for the six months ended June 30, 2009 and 2008, respectively. The $7 million increase is primarily related to the impact of acquired businesses, cost reductions, primarily employee and consultant-related, and the impact of the increase in revenue at one of our trading systems businesses, partially offset by a $28 million decrease in software license fees and the impact from the decrease in professional services revenue.

 

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Higher Education:

The HE operating margin was 23% and 22% for the six months ended June 30, 2009 and 2008, respectively. The operating margin increase is due primarily to the impact of cost savings in the year, partially offset by a $3 million decrease in software license fees.

Public Sector:

The PS operating margin was 19% and 18% for the six months ended June 30, 2009 and 2008, respectively, due primarily to improvement in the U.K. business.

Availability Services:

The AS operating margin was 25% and 27% for the six months ended June 30, 2009 and 2008, respectively. The operating margin decline and the decrease of $24 million are primarily due to facility expansions in Europe and North America, which increased the fixed cost base in advance of anticipated revenue growth.

Revenue:

Total revenue increased $45 million or 2% for the six months ended June 30, 2009 compared to the same period in 2008. On a constant currency basis, organic revenue growth was 1% in the first six months of 2009 compared to the prior year period, primarily because of a decline in professional services revenue across all of our segments except AS and a decrease in software license fees. Approximately 5% of organic revenue growth in the quarter was attributed to one of our broker/dealer businesses.

Financial Systems:

FS revenue increased $111 million or 8% in the first six months of 2009 from the prior year period. On a constant currency basis, organic revenue grew 3% in the six-month period. Approximately 11% of organic revenue growth was attributed to one of our broker/dealer businesses. The broker/dealer revenue has remained uncharacteristically high and is a function of market volatility and customer mix; while this revenue increased year over year, sequentially it was unchanged after declining from the fourth quarter of 2008. We expect this revenue to decline at some point but are unable to predict the timing. Depending on the nature, timing and extent of the future decline, there could be a triggering event requiring an interim goodwill impairment test in addition to the annual impairment test performed each year as of July 1st and some or all of the approximately $385 million in goodwill of our trading systems reporting unit could be impaired. Professional services revenue decreased $72 million or 23%. Revenue from license and resale fees included software license revenue of $54 million and $82 million in the six months ended June 30, 2009 and 2008, respectively.

Higher Education:

HE revenue decreased $8 million or 3% for the six months ended June 30, 2009 compared to the corresponding period in 2008 due entirely to organic revenue growth. HE services revenue decreased $2 million, primarily due to a decrease in professional services, partially offset by an increase in processing and support revenue. Revenue from license and resale fees included software license revenue of $10 million in the six months ended June 30, 2009, a decrease of $3 million from the prior year period.

Public Sector:

PS revenue decreased $27 million or 13% for the six months ended June 30, 2009 compared to the corresponding period in 2008. On a constant currency basis, organic revenue decreased 3%. Revenue from license and resale fees included software license revenue of $12 million in each of the six months ended June 30, 2009 and 2008.

Availability Services:

AS revenue decreased $31 million or 4% for the six months ended June 30, 2009 compared to the prior year period. On a constant currency basis, organic revenue grew 1% in the first six months of 2009. In North America, revenue grew 1% overall, but decreased 1% organically where decreases in basic and advanced recovery services exceeded growth in managed services and professional services revenue. Revenue in Europe decreased 20%, but grew 7% on a constant currency basis.

 

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Costs and Expenses:

Cost of sales and direct operating expenses as a percentage of total revenue was 52% and 49% in the six-month periods ended June 30, 2009 and 2008, respectively, largely the result of the higher volumes of the broker/dealer business previously mentioned. Also impacting the period were increased costs from acquired businesses, net of a business sold in 2008, partially offset by lower FS and PS employee-related and consultant expenses.

Sales, marketing and administration expenses as a percentage of total revenue was 20% and 21% in the six-month periods ended June 30, 2009 and 2008, respectively. Organic decreases in sales, marketing and administration expenses, most notably decreases in FS employment-related and consultant expenses, were partially offset by increases from acquired businesses.

Because AS product development costs are insignificant, it is more meaningful to measure product development expenses as a percentage of revenue from software and processing solutions. For each of the six months ended June 30, 2009 and 2008, product development costs were 8% of revenue from software and processing solutions.

Depreciation and amortization as a percentage of total revenue was 5% in each of the six-month periods ended June 30, 2009 and 2008.

Amortization of acquisition-related intangible assets as a percentage of total revenue was 9% in each of the six-month periods ended June 30, 2009 and 2008. The $24 million increase in 2009 was due to acquisitions made in 2008 and from shortening the remaining useful lives of certain intangible assets.

Interest expense was $306 million and $291 million for the six months ended June 30, 2009 and 2008, respectively. The increase in interest expense was due primarily to increased borrowings from the issuance of $500 million senior notes due 2015, a $500 million increase in the term loan, borrowings under our receivables facility and additional borrowings under our revolving credit facility, partially offset by interest rate decreases.

Other income was $21 million for the six months ended June 30, 2009 compared to other expense of $25 million for the six months ended June 30, 2008. The change is primarily attributable to $21 million of foreign currency translation gains primarily related to our Euro denominated term loan in the six months ended June 30, 2009 compared to $14 million of translation losses and $8 million of losses on sales of receivables related to our terminated off-balance sheet receivables facility in the same period in 2008.

The effective income tax rates in the six months ended June 30, 2009 and 2008 were 18% and 47%, respectively. The rate in the first six months of 2009 reflects less recovery on our book loss due to further limitations on our ability to utilize certain foreign tax credits.

Liquidity and Capital Resources:

At June 30, 2009, cash and equivalents were $508 million, a decrease of $467 million from December 31, 2008. Cash flow provided by operations was $163 million in the six months ended June 30, 2009 compared to $247 million in the six months ended June 30, 2008. The decrease in cash flow from operations is due primarily to a $67 million increase in working capital requirements including deferred revenue and higher requirements for the clearing broker/dealer.

Net cash used in investing activities was $176 million in the six months ended June 30, 2009, comprised of cash paid for property and equipment and other assets, one business acquired in each of our FS and PS segments and payment of a contingent purchase obligation.

Net cash used in financing activities was $459 million for the six months ended June 30, 2009, primarily related to repayment at maturity of the $250 million senior secured notes and repayment of $425 million of borrowings under the revolving credit facility, partially offset by cash received from the new receivables facility (net of associated fees). At June 30, 2009, there was $75 million outstanding under the revolving credit facility and $317 million outstanding under the receivables facility. In early 2009, we entered into interest rate swap agreements, with an aggregate notional amount of $1.2 billion, which expire in February 2012 under which we pay fixed interest payments (at 1.78%) for the term of the swaps and, in turn, receive variable interest payments based on LIBOR.

At June 30, 2009, contingent purchase price obligations that depend upon the operating performance of certain acquired businesses could total $58 million, of which $46 million could be due in the next 12 months. We also have outstanding letters of credit and bid bonds that total approximately $27 million.

 

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At June 30, 2009, we have outstanding $8.49 billion in aggregate indebtedness, with additional borrowing capacity of $734 million under the revolving credit facility (after giving effect to outstanding letters of credit).

On June 9, 2009, SunGard entered into an amendment to the Credit Agreement (“Amended Credit Agreement”) which, among other things, (a) extends the maturity date of $2.5 billion of its dollar-denominated term loans, £40 million of pound sterling-denominated term loans, and €120 million of Euro-denominated term loans from February 2014 to February 28, 2016, (b) reduces existing revolving credit commitments to $829 million and extends the termination date of $580 million of revolving credit commitments to May 11, 2013, and (c) amends certain other provisions of the Credit Agreement, including provisions relating to negative covenants and financial covenants.

As of June 30, 2009, the interest rate for the extended term loans, after adjusting for interest rate swaps, and revolving credit loans was 4.41% and 5.5%, respectively, and for the unextended term loans, after adjusting for interest rate swaps, and revolving credit loans was 2.51% and 4.25%, respectively. The commitment fee on the daily unused portion of the 2013 and 2011 revolving credit commitments was 0.75% and 0.50%, respectively. The amended credit agreement increased our interest payments obligation from that reported in SunGard’s Form 10-K filed in March 2009 and the Form 10-12G/A for SCC and SCCII filed in June 2009 by $44 million in 2009, $87 million for 2010-2011, $86 million for 2012-2013 and $289 million thereafter.

We expect our cash flows from operations, combined with availability under the revolving credit facility and receivables facility, to provide sufficient liquidity to fund our current obligations, projected working capital requirements and capital spending for a period that includes the next 12 months.

Covenant Compliance

Adjusted EBITDA is used to determine compliance with certain covenants contained in the indentures governing the senior notes due 2013 and 2015 and senior subordinated notes due 2015 and in SunGard’s senior secured credit facilities. Adjusted EBITDA is defined as EBITDA further adjusted to exclude unusual items and other adjustments permitted in calculating covenant compliance under the indentures and SunGard’s senior secured credit facilities. We believe that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors to demonstrate compliance with the financing covenants.

The breach of covenants in SunGard’s senior secured credit facilities that are tied to ratios based on Adjusted EBITDA could result in a default under that agreement and the lenders could elect to declare all amounts borrowed due and payable. Any such acceleration would also result in a default under the indentures. Additionally, under SunGard’s debt agreements, our ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is also tied to ratios based on Adjusted EBITDA.

 

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Adjusted EBITDA is calculated as follows (in millions):

 

                            Last Twelve
Months
 
     Three Months Ended June 30,     Six Months Ended June 30,     June 30,  
     2008    2009     2008     2009     2009  

Net income (loss)

   $ 2    $ (7   $ (20   $ (41   $ (263

Interest expense, net

     139      155        282        305        604   

Taxes

     —        —          (18     (9     47   

Depreciation and amortization

     188      202        367        395        821   

Goodwill impairment charge

     —        —          —          —          128   
                                       

EBITDA

     329      350        611        650        1,337   

Purchase accounting adjustments (a)

     9      3        20        8        27   

Non-cash charges (b)

     8      7        14        17        38   

Unusual or non-recurring charges (c)

     7      6        8        10        71   

Acquired EBITDA, net of disposed EBITDA (d)

     1      —          2        —          19   

Pro forma expense savings related to acquisitions (e)

     —        —          —          1        9   

Other (f)

     4      (11     27        (11     39   
                                       

Adjusted EBITDA - senior secured credit facilities

     358      355        682        675        1,540   

Loss on sale of receivables (g)

     5      —          9        —          17   
                                       

Adjusted EBITDA - senior notes due 2013 and 2015 and senior subordinated notes due 2015

   $ 363    $ 355      $ 691      $ 675      $ 1,557   
                                       

 

(a) Purchase accounting adjustments include the adjustment of deferred revenue and lease reserves to fair value at the date of the Transaction and subsequent acquisitions made by the Company and certain acquisition-related compensation expense.

 

(b) Non-cash charges include stock-based compensation and loss on the sale of assets.

 

(c) Unusual or non-recurring charges include debt refinancing costs, severance and related payroll taxes, and certain other expenses associated with acquisitions made by the Company.

 

(d) Acquired EBITDA net of disposed EBITDA reflects the EBITDA impact of significant businesses that were acquired or disposed of during the period as if the acquisition or disposition occurred at the beginning of the period.

 

(e) Pro forma adjustments represent the full-year impact of savings resulting from post-acquisition integration activities.

 

(f) Other includes gains or losses related to fluctuation of foreign currency exchange rates, management fees paid to the Sponsors and franchise and similar taxes reported in operating expenses, partially offset by interest charges relating to the off-balance sheet accounts receivable securitization facility.

 

(g) The loss on sale of receivables under the off-balance sheet accounts receivable securitization facility is added back in calculating Adjusted EBITDA for purposes of the indentures governing the senior notes due 2013 and 2015 and the senior subordinated notes due 2015 but is not added back in calculating Adjusted EBITDA for purposes of the senior secured credit facilities.

 

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The covenant requirements and actual ratios for the twelve months ended June 30, 2009 are as follows:

 

     Covenant
Requirements
   Actual
Ratios

Senior secured credit facilities (1)

     

Minimum Adjusted EBITDA to consolidated interest expense ratio

   1.65x    2.66x

Maximum total debt to Adjusted EBITDA

   6.75x    5.02x

Senior notes due 2013 and senior subordinated notes due 2015 (2)

     

Minimum Adjusted EBITDA to fixed charges ratio required to incur additional debt pursuant to ratio provisions

   2.00x    2.63x

 

(1) The senior secured credit facilities require us to maintain an Adjusted EBITDA to consolidated interest expense ratio starting at a minimum of 1.65x for the four-quarter period ended December 31, 2008 and increasing over time to 1.70x by the end of 2009, to 1.80x by the end of 2010 and 2.20x by the end of 2013. Consolidated interest expense is defined in the senior secured credit facilities as consolidated cash interest expense less cash interest income further adjusted for certain non-cash or non-recurring interest expense and the elimination of interest expense and fees associated with SunGard’s receivables facility. Beginning with the four-quarter period ending December 31, 2008, we are required to maintain a consolidated total debt to Adjusted EBITDA ratio of 6.75x and decreasing over time to 6.25x by the end of 2009 and to 4.75x by the end of 2013. Consolidated total debt is defined in the senior secured credit facilities as total debt less certain indebtedness and further adjusted for cash and cash equivalents on SunGard’s balance sheet in excess of $50 million. Failure to satisfy these ratio requirements would constitute a default under the senior secured credit facilities. If the lenders failed to waive any such default, the repayment obligations under the senior secured credit facilities could be accelerated, which would also constitute a default under the indentures.

 

(2) Our ability to incur additional debt and make certain restricted payments under the indentures, subject to specified exceptions, is tied to an Adjusted EBITDA to fixed charges ratio of at least 2.0x, except that we may incur certain debt and make certain restricted payments and certain permitted investments without regard to the ratio, such as the ability to incur up to an aggregate principal amount of $5.75 billion under credit facilities (inclusive of amounts outstanding under the senior credit facilities from time to time; as of June 30, 2009, we had $4.74 billion outstanding under the term loan facilities and available commitments of $734 million under the revolving credit facility), to acquire persons engaged in a similar business that become restricted subsidiaries and to make other investments equal to 6% of SunGard’s consolidated assets. Fixed charges is defined in the indentures governing the Senior Notes due 2013 and 2015 and the Senior Subordinated Notes due 2015 as consolidated interest expense less interest income, adjusted for acquisitions, and further adjusted for non-cash interest and the elimination of interest expense and fees associated with the receivables facility.

 

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Certain Risks and Uncertainties

Certain of the matters we discuss in this Report on Form 10-Q may constitute forward-looking statements. You can identify forward-looking statements because they contain words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” or “anticipates” or similar expressions which concern our strategy, plans or intentions. All statements we make relating to estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results are forward-looking statements. In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. All of these forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those we expected. We derive most of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results. Some of the factors that we believe could affect our results include: our high degree of leverage; general economic and market conditions; the condition of the financial services industry, including the effect of any further consolidation among financial services firms; the integration of acquired businesses, the performance of acquired businesses, and the prospects for future acquisitions; the effect of war, terrorism, natural disasters or other catastrophic events; the effect of disruptions to our systems and infrastructure; the timing and magnitude of software sales; the timing and scope of technological advances; customers taking their information availability solutions in-house; the trend in information availability toward solutions utilizing more dedicated resources; the market and credit risks associated with clearing broker operations; the ability to retain and attract customers and key personnel; risks relating to the foreign countries where we transact business; the ability to obtain patent protection and avoid patent-related liabilities in the context of a rapidly developing legal framework for software and business-method patents; and a material weakness in our internal controls. The factors described in this paragraph and other factors that may affect our business or future financial results are discussed in our filings with the Securities and Exchange Commission, including this Form 10-Q. We assume no obligation to update any written or oral forward-looking statement made by us or on our behalf as a result of new information, future events or other factors.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk:

We do not use derivative financial instruments for trading or speculative purposes. We have invested our available cash in short-term, highly liquid financial instruments, with a substantial portion having initial maturities of three months or less. When necessary, we have borrowed to fund acquisitions.

At June 30, 2009, we had total debt of $8.49 billion, including $5.13 billion of variable rate debt. We have entered into interest rate swap agreements which fixed the interest rates for $3.5 billion of our variable rate debt. Swap agreements with a notional value of $800 million effectively fix our interest rates at 5.00% and expire in February 2011. Swap agreements expiring in February 2010 and 2011 each have a notional value of $750 million and, effectively, fix our interest rates at 2.71% and 3.17%, respectively. Swap agreements expiring in February 2012 have a notional value of $1.2 billion and effectively fix our interest rates at 1.78%. Our remaining variable rate debt of $1.63 billion is subject to changes in underlying interest rates, and, accordingly, our interest payments will fluctuate. During the period when all of our interest rate swap agreements are effective, a 1% change in interest rates would result in a change in interest of approximately $16 million per year. Upon the expiration of each interest rate swap agreement in February 2010, February 2011 and February 2012, a 1% change in interest rates would result in a change in interest of approximately $24 million, $39 million and $51 million per year, respectively.

 

Item 4T. Controls and Procedures:

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Report were effective.

No change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

30


Table of Contents

Part II Other Information:

 

Item 1. Legal Proceedings: None.

 

Item 1A. Risk Factors: There have been no material changes to SunGard’s Risk Factors as previously disclosed in its Form 10-K for the year ended December 31, 2008. There have been no material changes to SCC’s or SCCII’s Risk Factors as previously disclosed in their Form 10-12G/A.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds: None.

 

Item 3. Defaults Upon Senior Securities: None.

 

Item 4. Submission of Matters to Vote of Security Holders: Not applicable.

 

Item 5. Other Information:

(a) None.

(b) None.

 

Item 6. Exhibits:

 

Number

  

Document

10.1*

   SunGard 2005 Management Incentive Plan as amended May 12, 2009.

12.1  

   Computation of Ratio of Earnings to Fixed Charges.

31.1  

   Certification of Cristóbal Conde, Chief Executive Officer of SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002.

31.2  

   Certification of Michael J. Ruane, Chief Financial Officer of SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002.

32.1  

   Certification of Cristóbal Conde, Chief Executive Officer of SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002.

32.2  

   Certification of Michael J. Ruane, Chief Financial Officer of SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002.

 

* Management contract or compensatory plan or arrangement

 

31


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

    SUNGARD CAPITAL CORP.
    SUNGARD CAPITAL CORP. II
Dated: August 11, 2009     By:   /s/ Michael J. Ruane
        Michael J. Ruane
        Executive Vice President and Chief Financial Officer
        (Principal Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

    SUNGARD DATA SYSTEMS INC.
Dated: August 11, 2009     By:   /s/ Michael J. Ruane
        Michael J. Ruane
        Senior Vice President-Finance and Chief Financial Officer
        (Principal Financial Officer)

 

32


Table of Contents

EXHIBIT INDEX

 

Exhibit No.

  

Document

10.1*

   SunGard 2005 Management Incentive Plan as amended May 12, 2009.

12.1  

   Computation of Ratio of Earnings to Fixed Charges.

31.1  

   Certification of Cristóbal Conde, Chief Executive Officer of SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002.

31.2  

   Certification of Michael J. Ruane, Chief Financial Officer of SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002.

32.1  

   Certification of Cristóbal Conde, Chief Executive Officer of SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002.

32.2  

   Certification of Michael J. Ruane, Chief Financial Officer of SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002.

 

* Management contract or compensatory plan or arrangement

 

33

EX-10.1 2 dex101.htm SUNGARD 2005 MANAGEMENT INCENTIVE PLAN AS AMENDED MAY 12, 2009 SunGard 2005 Management Incentive Plan as amended May 12, 2009

Exhibit 10.1

SUNGARD

2005 MANAGEMENT INCENTIVE PLAN

As Amended May 12, 2009

 

1. DEFINED TERMS

Exhibit A, which is incorporated by reference, defines the terms used in the Plan and sets forth certain operational rules related to those terms.

 

2. PURPOSE

The Plan has been established to advance the interests of the Company and its Affiliates by providing for the grant to Participants of Stock-based and other incentive Awards.

 

3. ADMINISTRATION

The Administrator has discretionary authority, subject only to the express provisions of the Plan and the Award Agreements, to interpret the Plan; determine eligibility for and grant Awards; determine, modify or waive the terms and conditions of any Award; prescribe forms, rules and procedures; and otherwise do all things necessary to carry out the purposes of the Plan. Except as otherwise provided by the express terms of an Award Agreement, all determinations of the Administrator made under the Plan will be conclusive and will bind all parties.

 

4. LIMITS ON AWARDS UNDER THE PLAN

(a) Number of Shares. A maximum of 70,000,000 shares of Class A Common, 7,000,000 shares of Class L Common, and 2,500,000 shares of Lowerco Preferred may be delivered in satisfaction of Awards under the Plan. The number of shares of Stock delivered in satisfaction of Awards shall, for purposes of the preceding sentence, be determined net of shares of Stock withheld by the Company in payment of the exercise price of the Award or in satisfaction of tax withholding requirements with respect to the Award. The limits set forth in this Section 4(a) shall be construed to comply with Section 422 of the Code and the regulations thereunder. To the extent consistent with the requirements of Section 422 of the Code and regulations thereunder, Stock issued under awards of an acquired company that are converted, replaced or adjusted in connection with the acquisition shall not reduce the number of shares available for Awards under the Plan.

(b) Type of Shares. Stock delivered under the Plan may be authorized but unissued Stock or previously issued Stock acquired by the Company or any of its subsidiaries. No fractional shares of Stock will be delivered under the Plan.

 

5. ELIGIBILITY AND PARTICIPATION

The Administrator will select Participants from among those key Employees and directors of, and consultants and advisors to, the Company or its Affiliates who, in the opinion of the Administrator, are in a position to make a significant contribution to the success of the Company and its Affiliates. Eligibility for ISOs is limited to employees of the Company or of a “parent corporation” or “subsidiary corporation” of the Company as those terms are defined in Section 424 of the Code.


6. RULES APPLICABLE TO AWARDS

(a) All Awards

(1) Award Provisions. The Administrator will determine the terms of all Awards, subject to the limitations provided herein, and shall furnish to each Participant an Award Agreement setting forth the terms applicable to the Participant’s Award. By entering into an Award Agreement, the Participant agrees to the terms of the Award and of the Plan, to the extent not inconsistent with the express terms of the Award Agreement. Notwithstanding any provision of this Plan to the contrary, awards of an acquired company that are converted, replaced or adjusted in connection with the acquisition may contain terms and conditions that are inconsistent with the terms and conditions specified herein, as determined by the Administrator.

(2) Transferability. Neither ISOs, nor, except as the Administrator otherwise expressly provides, other Awards may be transferred other than by will or by the laws of descent and distribution, and during a Participant’s lifetime ISOs (and, except as the Administrator otherwise expressly provides, other non-transferable Awards requiring exercise) may be exercised only by the Participant.

(3) Vesting, Etc. The Administrator may determine the time or times at which an Award will vest or become exercisable and the terms on which an Award requiring exercise will remain exercisable. Without limiting the foregoing, the Administrator may at any time accelerate the vesting or exercisability of an Award, regardless of any adverse or potentially adverse tax consequences resulting from such acceleration. Unless the Administrator expressly provides otherwise, however, the following rules will apply if a Participant’s Employment ceases: Immediately upon the cessation of Employment an Award requiring exercise will cease to be exercisable and will terminate, and all other Awards to the extent not already vested will be forfeited, except that:

(A) subject to (B) and (C) below, all Stock Options held by the Participant or the Participant’s permitted transferees, if any, immediately prior to the cessation of the Participant’s Employment, to the extent then exercisable, will remain exercisable for the shorter of (i) a period of three months or (ii) the period ending on the latest date on which such Stock Option could have been exercised without regard to this Section 6(a)(3), and will thereupon terminate;

(B) all Stock Options held by a Participant or the Participant’s permitted transferees, if any, immediately prior to the Participant’s death, to the extent then exercisable, will remain exercisable for the shorter of (i) the one year period ending with the first anniversary of the Participant’s death or (ii) the period ending on the latest date on which such Stock Options could have been exercised without regard to this Section 6(a)(3), and will thereupon terminate; and

(C) all Stock Options held by a Participant or the Participant’s permitted transferees, if any, immediately prior to the cessation of the Participant’s Employment will immediately terminate upon such cessation if such cessation of Employment has resulted in connection with an act or failure to act constituting Cause.

 

2


(4) Taxes. The Administrator will make such provision for the withholding of taxes as it deems necessary. The Administrator may, but need not, hold back shares of Stock from an Award or permit a Participant to tender previously owned shares of Stock in satisfaction of tax withholding requirements (but not in excess of the applicable minimum statutory withholding rate).

(5) Dividend Equivalents, Etc. To the extent consistent with Section 409A of the Code, the Administrator may in its sole discretion provide for the payment of amounts in cash, or for other adjustments to an Award, upon the payment of a cash dividend or distribution, or upon a substantially pro rata redemption or repurchase, with respect to Stock subject to an Award.

(6) Rights Limited. Nothing in the Plan will be construed as giving any person the right to continued Employment with the Company or its Affiliates, or any rights as a stockholder except as to shares of Stock actually issued under the Plan. The loss of potential future profit in Awards will not constitute an element of damages in the event of termination of Employment for any reason, even if the termination is in violation of an obligation of the Company or its Affiliate to the Participant, except to the extent such potential future profit is taken into account in determining the current value of an Award under a recognized valuation model.

(7) Stockholders Agreement. Unless otherwise specifically provided, all Awards issued under the Plan and all Stock issued thereunder will be subject to the Stockholders Agreement.

(b) Awards Requiring Exercise

(1) Time And Manner Of Exercise. Unless the Administrator expressly provides otherwise, an Award requiring exercise by the holder will not be deemed to have been exercised until the Administrator receives a notice of exercise (in form acceptable to the Administrator) signed by the appropriate person and accompanied by any payment required under the Award. If the Award is exercised by any person other than the Participant, the Administrator may require satisfactory evidence that the person exercising the Award has the right to do so.

(2) Exercise Price. The Administrator will determine the exercise price, if any, of each Award requiring exercise. Unless the Administrator determines otherwise, and in all events in the case of a Stock Option (except as otherwise permitted pursuant to Section 6(a)(5) or Section 7(b)(1) hereof), the exercise price of an Award requiring exercise will not be less than the fair market value of the Stock subject to the Award, determined as of the date of grant, and in the case of an ISO granted to a ten-percent shareholder within the meaning of Section 422(b)(6) of the Code, the exercise price will not be less than 110% of the fair market value of the Stock subject to the Award, determined as of the date of grant.

(3) Payment Of Exercise Price. Where the exercise of an Award is to be accompanied by payment, the Administrator may determine the required or permitted forms of payment, subject to the following: (a) all payments will be by cash or check acceptable to the

 

3


Administrator, or (b) if so permitted by the Administrator, (i) through the delivery of shares of Stock that have a fair market value equal to the exercise price, except where payment by delivery of shares would adversely affect the Company’s results of operations under Generally Accepted Accounting Principles or where payment by delivery of shares outstanding for less than six months would require application of securities laws relating to profit realized on such shares, (ii) where permitted by law, by delivery to the Company of a promissory note of the person exercising the Award, payable on such terms as are specified by the Administrator, (iii) at such time, if any, as the Stock is publicly traded, through a broker-assisted exercise program acceptable to the Administrator, (iv) by other means acceptable to the Administrator, or (v) by any combination of the foregoing permissible forms of payment. The delivery of shares in payment of the exercise price under clause (b)(i) above may be accomplished either by actual delivery or by constructive delivery through attestation of ownership, subject to such rules as the Administrator may prescribe.

(4) ISOs. No ISO may be granted under the Plan after August 10, 2015, but ISOs previously granted may extend beyond that date.

(c) Awards Not Requiring Exercise

Awards of Restricted Stock and Unrestricted Stock, whether delivered outright or under Awards of Stock Units or other Awards that do not require exercise, may be made in exchange for such lawful consideration, including services, as the Administrator determines.

 

7. EFFECT OF CERTAIN TRANSACTIONS

(a) Except as otherwise provided in an Award Agreement: In the event of a Change of Control in which there is an acquiring or surviving entity, the Administrator may, unless the Administrator determines that doing so is inappropriate or unfeasible, provide for the continuation or assumption of some or all outstanding Awards, or for the grant of new awards in substitution therefor, by the acquiror or survivor or an affiliate of the acquiror or survivor, in each case on such terms and subject to such conditions as preserve the intrinsic value of the Award in the Administrator’s good faith determination. Except as otherwise provided in an Award Agreement, in the event of a Change of Control (whether or not there is an acquiring or surviving entity) in which there is no assumption or substitution as to some or all outstanding Awards, the Administrator shall, to the extent necessary to preserve the value of the Award, provide for treating as satisfied any time-based vesting condition on any such Award or for the accelerated delivery of shares of Stock issuable under each such Award consisting of Restricted Stock Units, in each case on a basis that gives the holder of the Award a reasonable opportunity, as determined by the Administrator, following exercise of the Award or the issuance of the shares, as the case may be, to participate as a stockholder in the Change of Control. Except as otherwise provided in an Award Agreement, each Award (unless assumed pursuant to the first sentence of this Section 7(a)), other than Restricted Stock (which shall be treated as described in the following sentence of this Section 7(a)) will terminate upon consummation of the Change of Control. In the case of Restricted Stock, the Administrator may require that any amounts delivered, exchanged or otherwise paid in respect of such Stock in connection with the Change of Control be placed in escrow or otherwise made subject to such restrictions as the Administrator deems appropriate to carry out the intent of the Plan.

 

4


(b) Changes In, Distributions With Respect To And Redemptions Of The Stock

(1) Basic Adjustment Provisions. In the event of any stock dividend or other similar distribution (whether in the form of stock or other securities or other property), stock split or combination of shares (including a reverse stock split), recapitalization, conversion, reorganization, consolidation, split-up, spin-off, combination, merger, exchange of stock, redemption or repurchase of all or part of the shares of any class of stock or any change in the capital structure of the Company or an Affiliate or other transaction or event (other than those described in Section 7(a)), the Administrator will, as appropriate in order to prevent enlargement or dilution of benefits intended to be made available under the Plan, make adjustments to the maximum number of shares that may be delivered under the Plan under Section 4(a) and will also make appropriate adjustments to the number and kind of shares of stock or securities subject to Awards then outstanding or subsequently granted, any exercise prices relating to Awards and any other provision of Awards affected by such change.

(2) Certain Other Adjustments. The Administrator may also make adjustments of the type described in paragraph (1) above to take into account distributions to stockholders other than those provided for in Section 7(a) and 7(b)(1), or any other event, if the Administrator determines that adjustments are appropriate to avoid distortion in the operation of the Plan and to preserve the value of Awards made hereunder, having due regard for the qualification of ISOs under Section 422 of the Code, where applicable. All adjustments pursuant to this Section 7 shall be made consistent with Section 409A of the Code, where applicable.

(3) Continuing Application of Plan Terms. References in the Plan to shares of Stock will be construed to include any stock or securities resulting from an adjustment pursuant to this Section 7.

 

8. LEGAL CONDITIONS ON DELIVERY OF STOCK

The Company shall use best efforts to ensure, prior to delivering shares of Stock pursuant to the Plan or removing any restriction from shares of Stock previously delivered under the Plan, that (a) all legal matters in connection with the issuance and delivery of such shares have been addressed and resolved, and (b) if the outstanding Stock is at the time of delivery listed on any stock exchange or national market system, the shares to be delivered have been listed or authorized to be listed on such exchange or system upon official notice of issuance. Neither the Company nor any Affiliate will be obligated to deliver any shares of Stock pursuant to the Plan or to remove any restriction from shares of Stock previously delivered under the Plan until the conditions set forth in the preceding sentence have been satisfied and all other conditions of the Award have been satisfied or waived. If the sale of Stock has not been registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the Award, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of such Act. The Company may require that certificates evidencing Stock issued under the Plan bear an appropriate legend reflecting any restriction on transfer applicable to such Stock, and the Company may hold the certificates pending lapse of the applicable restrictions.

 

5


9. AMENDMENT AND TERMINATION

The Administrator may at any time or times amend the Plan or any outstanding Award for any purpose which may at the time be permitted by law, and may at any time terminate the Plan as to any future grants of Awards; provided, that except as otherwise expressly provided in the Plan the Administrator may not, without the Participant’s consent, alter the terms of an Award so as to affect adversely the Participant’s rights under the Award, unless the Administrator expressly reserved the right to do so at the time of the Award. Any amendments to the Plan shall be conditioned upon stockholder approval only to the extent, if any, such approval is required by applicable law (including the Code), as determined by the Administrator.

 

10. OTHER COMPENSATION ARRANGEMENTS

The existence of the Plan or the grant of any Award will not in any way affect the right of the Company or an Affiliate to Award a person bonuses or other compensation in addition to Awards under the Plan.

 

11. WAIVER OF JURY TRIAL

By accepting an Award under the Plan, each Participant waives any right to a trial by jury in any action, proceeding or counterclaim concerning any rights under the Plan and any Award, or under any amendment, waiver, consent, instrument, document or other agreement delivered or which in the future may be delivered in connection therewith, and agrees that any such action, proceedings or counterclaim shall be tried before a court and not before a jury. By accepting an Award under the Plan, each Participant certifies that no officer, representative or attorney of the Company or any Affiliate has represented, expressly or otherwise, that the Company would not, in the event of any action, proceeding or counterclaim, seek to enforce the foregoing waivers.

 

12. ESTABLISHMENT OF SUB-PLANS

The Board may from time to time establish one or more sub-plans under the Plan for purposes of satisfying applicable blue sky, securities or tax laws of various jurisdictions. The Board shall establish such sub-plans by adopting supplements to the Plan setting forth (i) such limitations on the Administrator’s discretion under the Plan as the Board deems necessary or desirable and (ii) such additional terms and conditions not otherwise inconsistent with the Plan as the Board shall deem necessary or desirable. All supplements adopted by the Board shall be deemed to be part of the Plan, but each supplement shall apply only to Participants within the affected jurisdiction and the Company shall not be required to provide copies of any supplement to Participants in any jurisdiction that is not affected.

 

13. GOVERNING LAW

Except as otherwise provided by the express terms of an Award Agreement or under a sub-plan described in Section 12, the provisions of the Plan and of Awards under the Plan shall be governed by and interpreted in accordance with the laws of the State of Delaware.

 

6


EXHIBIT A

Definitions of Terms

The following terms, when used in the Plan, will have the meanings and be subject to the provisions set forth below:

“Administrator”: The Board or, if one or more has been appointed, the Committee. The Administrator may delegate ministerial tasks to such persons as it deems appropriate.

“Affiliate”: Any corporation or other entity that is an “Affiliate” of the Company within the meaning of the Stockholders Agreement.

“Award”: Any or a combination of the following:

(i) Stock Options,

(ii) Restricted Stock,

(iii) Unrestricted Stock,

(iv) Restricted Stock Units;

(v) Awards (other than Awards described in (i) through (iv) above) that are convertible into or exchangeable for Stock on such terms and conditions as the Administrator determines;

(vi) Performance Awards; and/or

(vii) Current or deferred grants of cash (which the Company may make payable by any of its direct or indirect subsidiaries) or loans, made in connection with other Awards.

“Award Agreement”: A written agreement between the Company and the Participant evidencing the Award.

“Board”: With respect to SunGard Capital Corp., the Board of Directors of SunGard Capital Corp.; with respect to SunGard Capital Corp. II, the Board of Directors of SunGard Capital Corp. II.

“Cause”: The occurrence of the events described in the following clauses (i) through (iii), provided that no act or failure to act shall be deemed to constitute Cause if done, or omitted to be done, in good faith and with the reasonable belief that the action or omission was in the best interests of the Company and its subsidiaries:

(i) at least two-thirds of the members of the Board of Directors of the Company determined in good faith that Participant (A) was guilty of gross negligence or willful misconduct in the performance of his duties for the Company or any of its subsidiaries (other than due to illness or injury suffered by Participant or a member of his

 

A-1


family, or comparable personal problem), (B) breached or violated, in any material respect, any agreement between the Participant and the Company (or any of its subsidiaries) or any material policy in the SunGard Global Business Conduct and Compliance Program (as amended from time to time), or (C) committed an act of dishonesty or breach of trust, or is convicted of a crime, and the result of such dishonesty, breach of trust, or conviction of a crime is that there is material or potentially material financial or reputational harm to the Company (or any of its subsidiaries); and

(ii) such determination was made at a duly convened meeting of the Board of Directors of the Company (A) of which the Participant received written notice at least ten (10) days in advance, which notice shall have set forth in reasonable detail the facts and circumstances claimed to provide a basis for a finding that one of the events described in subsection (i) above occurred, and (B) at which the Participant had a reasonable opportunity to make a statement and answer the allegations against the Participant; and

(iii) either (A) the Participant was given a reasonable opportunity to take remedial action but failed or refused to do so, or (B) at least two-thirds of the members of the Board of Directors of the Company also determined in good faith, at such meeting, that an opportunity to take remedial action would not have been meaningful under the circumstances.

“Change of Control”: A “Change of Control” as defined in the Stockholders Agreement.

“Class A Common”: Class A-8 Common Stock of SunGard Capital Corp., par value $.001 per share or another class of Class A Common Stock of the Company as designated by the Board.

“Class L Common”: Class L Common Stock of SunGard Capital Corp., par value $.001 per share.

“Code”: The U.S. Internal Revenue Code of 1986 as from time to time amended and in effect, or any successor statute as from time to time in effect.

“Committee”: One or more committees of the Board.

“Company”: SunGard Capital Corp., a Delaware corporation, except that such term shall refer to SunGard Capital Corp. II, a Delaware corporation, with respect to Awards relating to Lowerco Preferred.

“Employee”: Any person who is employed by the Company or an Affiliate.

“Employment”: A Participant’s employment or other service relationship with the Company and its Affiliates. Unless the Administrator provides otherwise: A Participant who receives an Award in his or her capacity as an Employee will be deemed to cease Employment when the employee-employer relationship with the Company and its Affiliates ceases. A Participant who receives an Award in any other capacity will be deemed to continue Employment so long as the Participant is providing services in a capacity described in Section 5.

 

A-2


If a Participant’s relationship is with an Affiliate and that entity ceases to be an Affiliate, the Participant will be deemed to cease Employment when the entity ceases to be an Affiliate unless the Participant transfers Employment to the Company or its remaining Affiliates.

“ISO”: A Stock Option intended to be an “incentive stock option” within the meaning of Section 422 of the Code. Each option granted pursuant to the Plan will be treated as providing by its terms that it is to be a non-incentive stock option unless, as of the date of grant, it is expressly designated as an ISO.

“Lowerco Preferred”: 10% Cumulative Preferred Stock, par value $.001 per share, of SunGard Capital Corp. II.

“Participant”: A person who is granted an Award under the Plan.

“Performance Award”: An Award subject to Performance Criteria.

“Performance Criteria”: Specified criteria the satisfaction of which is a condition for the grant, exercisability, vesting or full enjoyment of an Award. If a Performance Award so provides, such criteria may be made subject to appropriate adjustments taking into account the effect of significant corporate transactions or similar events for the purpose of maintaining the probability that the specified criteria will be satisfied. Such adjustments shall be made only in the amount deemed reasonably necessary, after consultation with the Company’s accountants, to reflect accurately the direct and measurable effect of such event on such criteria.

“Plan”: SunGard 2005 Management Incentive Plan as from time to time amended and in effect.

“Restricted Stock”: An Award of Stock for so long as the Stock remains subject to restrictions under this Plan or such Award requiring that it be redelivered or offered for sale to the Company if specified conditions are not satisfied.

“Restricted Stock Unit”: An unfunded and unsecured promise to deliver Stock or other securities in the future on specified terms.

“Stock”: Class A Common, Class L Common, and Lowerco Preferred, or any one of the foregoing.

“Stockholders Agreement”: Stockholders Agreement, dated as of August 10, 2005, among the Company and certain affiliates, stockholders and Participants.

“Stock Option”: An option entitling the recipient to acquire shares of Stock upon payment of the exercise price.

“Unrestricted Stock”: An Award of Stock not subject to any restrictions under the Plan.

 

A-3

EX-12.1 3 dex121.htm COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Computation of Ratio of Earnings to Fixed Charges

Exhibit 12.1

SunGard Capital Corp.

SunGard Capital Corp. II

SunGard Data Systems Inc.

Computation of Ratio of Earnings to Fixed Charges (Unaudited)

($ in millions)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2008    2009     2008     2009  

Fixed charges

         

Interest expense

   $ 133    $ 141      $ 272      $ 282   

Amortization of debt issuance costs and debt discount

     9      10        18        20   

Portion of rental expense representative of interest

     19      20        37        40   
                               

Total fixed charges

   $ 161    $ 171      $ 327      $ 342   
                               

Earnings

         

Income (loss) before income taxes

   $ 2    $ (7   $ (38   $ (50

Fixed charges per above

     161      171        327        342   
                               

Total earnings

   $ 163    $ 164      $ 289      $ 292   
                               

Ratio of earnings to fixed charges

     1.0                   

 

* Earnings for the three months ended June 30, 2009 and for the six months ended June 30, 2008 and 2009 were inadequate to cover fixed charges by $7 million, $38 million and $50 million, respectively.
EX-31.1 4 dex311.htm 302 CERTIFICATION - CHIEF EXECUTIVE OFFICER 302 Certification - Chief Executive Officer

Exhibit 31.1

Certification of Cristóbal Conde

Required by Rule 13a-14(a) or Rule 15d-14(a) and

Section 302 of the Sarbanes-Oxley Act of 2002

I, Cristóbal Conde, certify that:

1. I have reviewed this quarterly report on Form 10-Q of SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. (collectively, “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 11, 2009
/s/ Cristóbal Conde
Cristóbal Conde
President and Chief Executive Officer
SunGard Capital Corp., SunGard Capital Corp. II & SunGard Data Systems Inc.
EX-31.2 5 dex312.htm 302 CERTIFICATION - CHIEF FINANCIAL OFFICER 302 Certification - Chief Financial Officer

Exhibit 31.2

Certification of Michael J. Ruane

Required by Rule 13a-14(a) or Rule 15d-14(a) and

Section 302 of the Sarbanes-Oxley Act of 2002

I, Michael J. Ruane, certify that:

1. I have reviewed this quarterly report on Form 10-Q of SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. (collectively, “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 11, 2009

/s/ Michael J. Ruane

Michael J. Ruane

Chief Financial Officer

SunGard Capital Corp., SunGard Capital Corp. II & SunGard Data Systems Inc.
EX-32.1 6 dex321.htm 906 CERTIFICATION - CHIEF EXECUTIVE OFFICER 906 Certification - Chief Executive Officer

Exhibit 32.1

Certification of Cristóbal Conde

Required by Rule 13a-14(b) or Rule 15d-14(b) and

Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.(S) 1350, as adopted), I, Cristóbal Conde, Chief Executive Officer of SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. (collectively, the “Company”), hereby certify that to my knowledge:

1. The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2009 (the “Periodic Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: August 11, 2009
/s/ Cristóbal Conde
Cristóbal Conde
Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. and will be retained by SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2 7 dex322.htm 906 CERTIFICATION - CHIEF FINANCIAL OFFICER 906 Certification - Chief Financial Officer

Exhibit 32.2

Certification of Michael J. Ruane

Required by Rule 13a-14(b) or Rule 15d-14(b) and

Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.(S) 1350, as adopted), I, Michael J. Ruane, Chief Financial Officer of SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. (collectively, the “Company”), hereby certify that to my knowledge:

1. The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2009 (the “Periodic Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: August 11, 2009
/s/ Michael J. Ruane
Michael J. Ruane
Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. and will be retained by SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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