-----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, AZdoc3hVZ0o0N1EzYQ2jkV43iwTA+L3owfAqr31uGQaJ8LHU14Fd4S6mm+CsO4ft Sfi6QdL8Z/r4ptR8SM8U7w== 0000914039-02-000324.txt : 20020813 0000914039-02-000324.hdr.sgml : 20020813 20020813100354 ACCESSION NUMBER: 0000914039-02-000324 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SS&C TECHNOLOGIES INC CENTRAL INDEX KEY: 0001011661 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 061169696 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28430 FILM NUMBER: 02728093 BUSINESS ADDRESS: STREET 1: 80 LAMBERTON RD STREET 2: CORPORATE PLACE CITY: WINDSOR STATE: CT ZIP: 06095 BUSINESS PHONE: 8602427887 MAIL ADDRESS: STREET 1: CORPORATE PLACE STREET 2: 705 BLOOMFIELD AVE CITY: BLOOMFIELD STATE: CT ZIP: 06002 10-Q 1 y62907e10vq.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 000-28430 SS&C TECHNOLOGIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 06-1169696 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 80 LAMBERTON ROAD WINDSOR, CT 06095 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) 860-298-4500 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Number of shares outstanding of the registrant's sole class of common stock as of July 31, 2002: Class Number of Shares Outstanding ----- ---------------------------- Common Stock, par value $0.01 per share 12,560,041 SS&C TECHNOLOGIES, INC. INDEX
Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets at June 30, 2002 and December 31, 2001 2 Consolidated Statements of Operations for the three-month and six-month periods ended June 30, 2002 and 2001 3 Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2002 and 2001 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 14 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 15 Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURE 17 EXHIBIT INDEX 18
This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects" and similar expressions are intended to identify forward-looking statements. The important factors discussed below under the caption "Certain Factors That May Affect Future Operating Results," among others, could cause actual results to differ materially from those indicated by forward-looking statements made herein and presented elsewhere by management from time to time. 1 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
June 30, 2002 December 31, (unaudited) 2001 ----------- ------------ ASSETS Current assets: Cash and cash equivalents $ 13,249 $ 28,425 Investments in marketable securities 26,454 31,077 Accounts receivable, net of allowance for doubtful 10,205 8,944 accounts Prepaid expenses and other current assets 1,124 1,459 Deferred income taxes 1,669 2,210 -------- -------- Total current assets 52,701 72,115 -------- -------- Property and equipment: Leasehold improvements 3,269 3,225 Equipment, furniture, and fixtures 16,649 15,967 -------- -------- 19,918 19,192 Less accumulated depreciation (13,203) (11,468) -------- -------- Net property and equipment 6,715 7,724 -------- -------- Deferred income taxes 7,083 6,916 Intangible and other assets, net of accumulated amortization 3,458 2,024 -------- -------- Total assets $ 69,957 $ 88,779 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 883 $ 1,079 Income taxes payable 275 696 Accrued employee compensation and benefits 2,030 1,722 Other accrued expenses 1,790 3,055 Deferred maintenance and other revenue 13,590 9,279 -------- -------- Total current liabilities 18,568 15,831 -------- -------- Total liabilities 18,568 15,831 -------- -------- Stockholders' equity: Common stock 166 163 Additional paid-in capital 90,966 89,674 Accumulated other comprehensive income (237) 186 Accumulated deficit (6,540) (9,072) -------- -------- 84,355 80,951 Less: Treasury shares (32,966) (8,003) -------- -------- Total stockholders' equity 51,389 72,948 -------- -------- Total liabilities and stockholders' equity $ 69,957 $ 88,779 ======== ========
See accompanying notes to Consolidated Financial Statements. 2 SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)
Three Months Ended Six Months Ended ------------------------- ------------------------- June 30, June 30, June 30, June 30, 2002 2001 2002 2001 -------- -------- -------- -------- Revenues: Software licenses $ 4,172 $ 3,865 $ 7,377 $ 7,077 Maintenance 6,812 6,705 13,627 13,118 Professional services 1,575 2,482 3,515 4,481 Outsourcing 3,313 1,415 6,568 2,833 -------- -------- -------- -------- Total revenues 15,872 14,467 31,087 27,509 -------- -------- -------- -------- Cost of revenues: Software licenses 305 188 628 368 Maintenance 1,394 1,800 2,824 3,615 Professional services 1,340 1,728 2,732 3,799 Outsourcing 2,193 1,339 4,345 2,771 -------- -------- -------- -------- Total cost of revenues 5,232 5,055 10,529 10,553 -------- -------- -------- -------- Gross profit 10,640 9,412 20,558 16,956 -------- -------- -------- -------- Operating expenses: Selling and marketing 2,475 3,062 5,135 5,943 Research and development 3,104 2,864 5,965 6,037 General and administrative 1,945 2,839 3,937 5,368 Write-off of purchased in-process research and development -- -- 1,744 -- -------- -------- -------- -------- Total operating expenses 7,524 8,765 16,781 17,348 -------- -------- -------- -------- Operating income (loss) 3,116 647 3,777 (392) Interest income, net 399 687 841 1,408 Other income (expense), net (854) 581 (399) 1,815 -------- -------- -------- -------- Income before income taxes 2,661 1,915 4,219 2,831 Provision for income taxes 1,064 718 1,687 1,048 -------- -------- -------- -------- Net income $ 1,597 $ 1,197 $ 2,532 $ 1,783 ======== ======== ======== ======== Basic earnings per share $ 0.13 $ 0.08 $ 0.19 $ 0.12 ======== ======== ======== ======== Basic weighted average number of common shares outstanding 12,654 15,049 13,279 15,077 ======== ======== ======== ======== Diluted earnings per share $ 0.12 $ 0.08 $ 0.18 $ 0.12 ======== ======== ======== ======== Diluted weighted average number of common and common equivalent shares outstanding 13,507 15,108 13,979 15,136 ======== ======== ======== ========
See accompanying notes to Consolidated Financial Statements. 3 SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Six Months Ended -------------------------- June 30, June 30, 2002 2001 -------- -------- Cash flow from operating activities: Net income $ 2,532 $ 1,783 -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,147 1,811 Net realized losses (gains) on equity investments 368 (1,800) Loss (gain) on sale of property and equipment 1 (3) Deferred income taxes 373 1,052 Purchased in-process research and development 1,744 -- Provision for doubtful accounts 245 385 Changes in operating assets and liabilities: Accounts receivable (1,092) 1,377 Prepaid expenses and other assets 237 (32) Taxes receivable -- (245) Accounts payable (243) 580 Accrued expenses (1,013) (888) Taxes payable (419) -- Deferred maintenance and other revenues 4,178 1,270 -------- -------- Total adjustments 6,526 3,507 -------- -------- Net cash provided by operating activities 9,058 5,290 -------- -------- Cash flow from investing activities: Additions to property and equipment (329) (1,093) Proceeds from sale of property and equipment 3 51 Cash paid for business acquisitions, net (3,943) -- Additions to capitalized software and other intangibles -- (87) Purchases of marketable securities (5,526) (20,118) Sales of marketable securities 9,109 21,711 -------- -------- Net cash provided by (used in) investing activities (686) 464 -------- -------- Cash flow from financing activities: Repayment of debt (146) (91) Issuance of common stock 120 188 Exercise of options 1,166 -- Purchase of common stock for treasury (24,963) (791) -------- -------- Net cash used in financing activities (23,823) (694) -------- -------- Effect of exchange rate changes on cash 275 (254) -------- -------- Net increase (decrease) in cash and cash equivalents (15,176) 4,806 Cash and cash equivalents, beginning of period 28,425 20,690 -------- -------- Cash and cash equivalents, end of period $ 13,249 $ 25,496 ======== ========
See accompanying notes to Consolidated Financial Statements. 4 SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 1. Basis of Presentation In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments, except as noted in the notes to the consolidated financial statements) necessary to present fairly its financial position as of June 30, 2002 and its results of operations for the three months and six months ended June 30, 2002 and 2001. These statements do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements. The financial statements contained herein should be read in conjunction with the consolidated financial statements and footnotes as of and for the year ended December 31, 2001 which were included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. The December 31, 2001 consolidated balance sheet data were derived from audited financial statements, but do not include all disclosures required by generally accepted accounting principles for annual financial statements. The results of operations for the three months and six months ended June 30, 2002 are not necessarily indicative of the expected results for the full year. 2. Recent Accounting Policies On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. The Company has completed the impairment test for goodwill and has determined that no impairment exists. Pro forma net income and net income per share for the three months and six months ended June 30, 2001, adjusted to eliminate historical amortization of goodwill and related tax effects, are as follows (in thousands except per share data):
Three Months Six Months Ended Ended June 30, 2001 June 30, 2001 Reported net income $ 1,197 $ 1,783 Add: goodwill amortization, net of tax 10 21 --------- --------- Pro forma net income $ 1,207 $ 1,804 ========= ========= Reported net income per share: Basic $ 0.08 $ 0.12 Diluted $ 0.08 $ 0.12 Pro forma earnings per share: Basic $ 0.08 $ 0.12 Diluted $ 0.08 $ 0.12
In addition, effective January 1, 2002, the Company adopted Emerging Issues Task Force Issue No. 01-14, "Income Statement Characterization of Reimbursements Received for 'Out of Pocket' Expenses Incurred" ("Issue No. 01-14") which requires that customer reimbursements received for direct costs paid to third parties and related expenses be characterized as revenue. Comparative financial statements for prior periods have been reclassified to provide consistent presentation. For the three months ended June 30, 2002 and 2001, the Company has presented customer reimbursement revenue and expenses of $112,000 and $188,000, respectively, within professional services in accordance with Issue No. 01-14. Customer reimbursements represent direct costs incurred during the course of services that are reimbursed to the Company by its customers. For the six months ended June 30, 2002 and 2001, the Company has presented customer reimbursement revenue and expenses of $249,000 and $401,000, respectively. The adoption of Issue No. 01-14 did not impact the Company's financial position, operating income or net income. 5 3. Basic and Diluted Earnings Per Share Earnings per share is calculated in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share". Basic earnings per share includes no dilution and is computed by dividing income available to the Company's common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares are comprised of stock options using the treasury stock method. Common equivalent shares are excluded from the computations of diluted earnings per share if the effect of including such common equivalent shares is antidilutive. Outstanding options to purchase 0.9 million and 2.6 million shares at June 30, 2002 and 2001, respectively, were not included in the computations of diluted earnings per share for those quarters because the effect of including such options would be antidilutive. Income available to stockholders is the same for basic and diluted earnings per share. A reconciliation of the shares outstanding is as follows (in thousands):
Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2002 2001 2002 2001 ------ ------ ------ ------ Basic weighted average shares outstanding 12,654 15,049 13,279 15,077 Weighted average common stock equivalents -- options 853 59 700 59 ------ ------ ------ ------ Diluted weighted average shares outstanding 13,507 15,108 13,979 15,136 ====== ====== ====== ======
4. Comprehensive Income Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" requires that items defined as comprehensive income, such as foreign currency translation adjustments and unrealized gains (losses) on marketable securities, be separately classified in the financial statements and that the accumulated balance of other comprehensive income be reported separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. The following table sets forth the components of comprehensive income (in thousands):
Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2002 2001 2002 2001 ------- ------- ------- ------- Net income $ 1,597 $ 1,197 $ 2,532 $ 1,783 Foreign currency translation gains 301 (55) 250 (264) (losses) Unrealized gains (losses) on 147 (23) (673) (1,244) marketable securities ------- ------- ------- ------- Total comprehensive income $ 2,045 $ 1,119 $ 2,109 $ 275 ======= ======= ======= =======
5. Stock Repurchase Program On May 22, 2002, the Company's Board of Directors authorized the continued repurchase of shares of the Company's common stock up to an additional expenditure of $10 million. The Company initiated the repurchase program on May 23, 2000, pursuant to which it repurchased 1.2 million shares for $6.5 million and continued the plan on May 24, 2001, pursuant to which it repurchased 2.9 million shares for $26.4 million. As of June 30, 2002, under the repurchase programs, the Company had repurchased 4.1 million shares for approximately $33 million. 6. Acquisitions On January 15, 2002, the Company acquired the assets and business of Real-Time USA, Inc. ("Real-Time"), a solution provider of sell-side fixed income applications. Real-Time delivers a comprehensive suite of front-, mid-, and back-office applications via Application Service Provider ("ASP") or license, to commercial banks and broker-dealers throughout the United States. The consideration for the deal was $4.0 million in cash and the assumption of certain liabilities by the Company, with a potential earn-out payment by the Company of up to $1.17 million in cash if certain 2002 Real-Time revenue targets are achieved. A summary of the allocation of the purchase price is as follows (in thousands): 6 Current assets, net of cash acquired $ 357 Fair value of equipment, furniture and fixtures 321 Current liabilities (159) Long term liabilities (63) Acquired in-process research and development 1,744 Acquired completed technology 1,743 ------ $3,943 ======
The acquisition was accounted for as a purchase and, accordingly, the net assets and results from operations of Real-Time have been included in the consolidated financial statements of the Company from January 1, 2002. The purchase price was allocated to tangible and intangible assets, liabilities, and in-process research and development ("IPR&D") based on their fair value on the date of the acquisition. The fair value assigned to intangible assets acquired was based on an independent appraisal. The fair value of acquired completed technology of $1.7 million was determined based on the future cash flows method. The acquired completed technology will be amortized on a straight-line basis over four years, the estimated life of the product. The Company recorded a one time write-off of $1.7 million in the period ended March 31, 2002 related to the value of IPR&D acquired as part of the purchase of Real-Time that had not yet reached technological feasibility and had no alternative future use. Accordingly, these costs were expensed upon acquisition. At the acquisition date, Real-Time was developing Lightning, a full-service ASP bond accounting solution designed specifically for large regional banks. The allocation of $1.7 million to IPR&D represents the estimated fair value related to this incomplete project based on risk-adjusted cash flows adjusted to reflect the contribution of core technology. The net cash flows were then discounted utilizing a weighted average cost of capital of 26%. This discount rate takes into consideration the inherent uncertainties surrounding the successful development of the in-process research and development, the profitability levels of such technology and the potential for other competing technological advances which could potentially impact the estimates. The Lighting project was estimated to be 62% completed at the date of the acquisition. The project is expected to be completed in the second half of 2002. The unaudited pro forma condensed consolidated results of operations presented below for the three- and six-month periods ended June 30, 2002 and 2001 assumes that the Real-Time acquisition occurred at the beginning of 2001. The unaudited pro forma condensed consolidated results of operations for the six months ended June 30, 2002 excludes the $1.7 million write-off of purchased IPR&D in the first quarter of the same year (in thousands, except per share data):
Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2002 2001 2002 2001 -------- -------- -------- -------- Total revenues $ 15,872 $ 15,416 $ 31,087 $ 29,486 Operating income (loss) 3,116 648 3,777 (389) Net income 1,597 1,199 3,578 1,787 Basic earnings per share $ 0.13 $ 0.08 $ 0.27 $ 0.12 Diluted earnings per share $ 0.12 $ 0.08 $ 0.26 $ 0.12
7. Reclassifications Certain amounts in the Company's 2001 consolidated financial statements have been reclassified to be comparable with the 2002 presentation. These reclassifications have had no effect on the Company's net income, working capital or net equity. 8. Commitments and Contingencies From time to time, the Company is subject to legal proceedings and claims that arise in the normal course of its business. The Company is not a party to any other litigation that management believes could have a material effect on the Company or its business. In 1999, the Company recorded a tax benefit of $2.3 million on the $9.3 million litigation settlement costs. In 2002, the Internal Revenue Service ("IRS") notified the Company of a purported federal income tax deficiency related to the Company's 1999 deduction for the litigation settlement costs. Payments totaling $6.8 million made pursuant to the settlement were deducted by the Company on its 1997, 1998 and 1999 income tax returns. The Company believes the 7 deductions were justified and intends to contest the proposed adjustment. The Company has made no provision in its financial statements relating to the proposed adjustment. If the IRS does not allow these deductions, the resulting tax liability could have a material adverse effect on the Company's results of operations and cash flows in the period reported. 9. International Sales and Geography Information The Company manages its business primarily on a geographic basis. The Company attributes net sales to a particular country based upon the location of the customer. The Company's geographic segments consist of the Americas, Europe and others. The Americas segment consists of both North and South America. The European segment includes European countries as well as the Middle East and Africa. Other segments include Asia Pacific and Japan. Revenues by geography were (in thousands):
(unaudited) (unaudited) Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2002 2001 2002 2001 ------- ------- ------- ------- Americas $13,573 $12,624 $27,313 $22,987 Europe 1,378 1,163 2,401 2,863 Other 921 492 1,373 1,258 ------- ------- ------- ------- $15,872 $14,279 $31,087 $27,108 ======= ======= ======= =======
8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES The Company's significant accounting policies are summarized in Note 2 to its consolidated financial statements. However, certain of the Company's accounting policies require the application of significant judgment by its management, and such judgments are reflected in the amounts reported in its consolidated financial statements. In applying these policies, the Company's management uses its judgment to determine the appropriate assumptions to be used in the determination of estimates. Those estimates are based on the Company's historical experience, terms of existing contracts, its observation of trends in the industry, information provided by its clients, and information available from other outside sources, as appropriate. Actual results may differ significantly from the estimates contained in the Company's consolidated financial statements. The Company's significant accounting policies include: Revenue Recognition. The Company's revenues consist primarily of software license revenues, maintenance revenues, and professional and outsourcing services revenues. The Company applies the provisions of Statement of Position No. 97-2, "Software Revenue Recognition" ("SOP 97-2") to all software transactions. The Company recognizes revenues from the sale of software licenses when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed and determinable, and collection of the resulting receivable is reasonably assured. SOP 97-2 requires that revenues recognized from software transactions be allocated to each element of the transaction based on the relative fair values of the elements, such as software products, specific upgrades, enhancements, post-contract client support, installation, or training. The Company defers revenues from the transaction fee equivalent to the fair value of the undelivered elements. The determination of fair value of an element is based upon vendor-specific objective evidence. The Company occasionally enters into software license agreements requiring significant customization. The Company accounts for these agreements on the percentage-of-completion basis and must estimate the costs to complete the agreement utilizing an estimate of development man-hours remaining. Due to uncertainties inherent in the estimation process, it is at least reasonably possible that completion costs may be revised. Such revisions are recognized in the period in which the revisions are determined. Material differences may result in the amount and timing of the Company's revenues for any period if management made different judgments or utilized different estimates. The Company recognizes revenues for maintenance services ratably over the contract term. The Company's consulting, training, and outsourcing services are generally billed based on hourly rates, and the Company generally recognizes revenues over the period during which the applicable services are performed. Allowance for Doubtful Accounts. The preparation of financial statements requires the Company's management to make estimates relating to the collectibility of its accounts receivable. Management establishes the allowance for doubtful accounts based on historical bad debt experience. In addition, management analyzes customer accounts, client concentrations, client credit-worthiness, current economic trends, and changes in the Company's client payment terms when evaluating the adequacy of the allowance for doubtful accounts. Such estimates require significant judgment on the part of the Company's management. Income Taxes. The carrying value of the Company's net deferred tax assets assumes that the Company will be able to generate sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions. If these estimates and related assumptions change in the future, the Company may be required to record additional valuation allowances against its deferred tax assets resulting in additional income tax expense in the Company's consolidated statement of operations. Management evaluates whether deferred tax assets are realizable quarterly and assesses whether there is a need for additional valuation allowances quarterly. Such estimates require significant judgment on the part of the Company's management. In addition, management evaluates the need to provide additional tax provisions for adjustments proposed by taxing authorities. Marketable Securities. The Company classifies its entire investment portfolio, consisting of debt securities issued by federal government agencies, debt securities issued by state and local governments of the United States, debt securities issued by corporations and equities, as available for sale securities. The cost basis, using the specific identification method, approximates fair market value and an unrealized gain or loss is recognized in stockholder's equity. SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities", and Securities and Exchange Commission Staff Accounting Bulletin (SAB) 59, "Accounting for Noncurrent Marketable Equity Securities", provide guidance on 9 determining when an investment is other than temporarily impaired. In making this judgment, management evaluates, among other factors, the duration and extent to which the fair value of the investment is less than its cost, the financial health of and the business outlook for the investee, including factors in the industry and financing cash flows. RESULTS OF OPERATIONS Revenues The Company's revenues are derived from software licenses, related maintenance and professional services and outsourcing services. Revenues for the three months ended June 30, 2002 were $15.9 million, representing an increase of 10% from $14.5 million in the same period in 2001. The increase of $1.4 million for the three months ended June 30, 2002 was primarily due to the acquisitions of Real-Time and Digital Visions and an increase in SS&C Direct outsourcing revenues, partially offset by a decrease in professional services revenues. Revenues for the six months ended June 30, 2002 were $31.1 million, an increase of 13% from $27.5 million in the same period in 2001. The increase of $3.6 million for the six months ended June 30, 2002 was primarily due to the acquisitions of Real-Time and Digital Visions, an increase in maintenance revenues and an increase in SS&C Direct outsourcing revenues partially offset by a decrease in professional services revenues. Software Licenses. Software license revenues for the three and six months ended June 30, 2002 were $4.2 million and $7.4 million, respectively, representing increases of 8% and 4% from the $3.9 million and $7.1 million, respectively, for the comparable periods in 2001. The increase in license revenues for the three months ended June 30, 2002 was due primarily to the acquisition of Real-Time and higher sales of LMS and Antares, partially offset by lower sales of Total Return, CAMRA, and PTS. The increase in license revenues for the six months ended June 30, 2002 was due primarily to the acquisition of Real-Time and higher sales of LMS, partially offset by lower sales of Total Return, PTS, CAMRA, and AdvisorWare. Maintenance. Maintenance revenues for the three months ended June 30, 2002 were $6.8 million, representing an increase of 2% over the $6.7 million for the same period in 2001. Maintenance revenues for the six months ended June 30, 2002 were $13.6 million, representing an increase of 4% over the $13.1 million for the same period in 2001. The increases for the three- and six-month periods ended June 30, 2002 were mainly attributable to higher maintenance renewal rates and higher average maintenance fees, partially offset by discontinued products. Professional Services. Professional services revenues for the three and six months ended June 30, 2002 were $1.6 million and $3.5 million, respectively, representing decreases of 37% and 22% from the $2.5 million and $4.5 million, respectively, in the comparable periods in 2001. Professional service revenues were impacted by lower services associated with new license sales and lower demand for services from existing clients. Outsourcing Services. Outsourcing services revenues for the three months ended June 30, 2002 were $3.3 million, representing an increase of 134% over the $1.4 million in the comparable period of the prior year. Outsourcing revenues for the six months ended June 30, 2002 were $6.6 million, representing an increase of 132% over the $2.8 million in the comparable period in 2001. The increases for the three- and six-month periods ended June 30, 2002 were due to the acquisitions of Real-Time and Digital Visions and increased demand for the SS&C Direct services. Cost of Revenues Total cost of revenues for the three months ended June 30, 2002 were $5.2 million, a 4% increase from the comparable period in 2001. Total cost of revenues for the six months ended June 30, 2002 were $10.5 million, unchanged from the comparable period in 2001. The gross margin increased to 67% in the three months ended June 30, 2002 from 65% in the comparable period in 2001. For the six months ended June 30, 2002, the gross margin increased to 66% from 62% in the comparable period in 2001. This gross margin increase in both the three- and six-month periods was primarily due to an increase in the outsourcing services revenue margins and lower costs as a result of the restructuring action taken by the Company in the fourth quarter of 2001. Cost of Software Licenses. Cost of software license revenues relates primarily to royalties, the costs of product media, packaging and documentation and the amortization of completed technology. The cost of software licenses increased 63% from $188,000 in the three-month period ended June 30, 2001 to $305,000 for the same period in 2002, representing 5% and 7% of license revenues in each of those quarters, respectively. Cost of software licenses in the six-month periods ended 10 June 30, 2001 and 2002 were $368,000 and $628,000, respectively, and represented 5% and 9% of license revenues in each of those periods, respectively. The increase in costs for both the three and six-month periods ended June 30, 2002 were mainly due to the increase in amortization of completed technology associated with the Real-Time and Digital Visions acquisitions. Cost of Maintenance. Cost of maintenance revenues primarily consists of technical customer support and the engineering costs associated with product and regulatory updates. The cost of maintenance decreased from $1.8 million in the three months ended June 30, 2001 to $1.4 million in the three months ended June 30, 2002. The cost of maintenance decreased from $3.6 million in the six months ended June 30, 2001 to $2.8 million in the six months ended June 30, 2002. The decreased costs for both the three- and six-month periods ended June 30, 2002 were primarily due to lower costs due to improved operating efficiencies. Cost of Professional Services. Cost of professional services revenues primarily consists of the cost of personnel utilized to provide implementation, conversion and training services to the Company's software licensees, as well as custom programming, system integration and actuarial consulting services. The cost of professional service revenues decreased 22% from $1.7 million in the three months ended June 30, 2001 to $1.3 million for the same period in 2002, representing 70% and 85% of professional service revenues in each of those quarters, respectively. Cost of professional services revenues in the six-month periods ended June 30, 2001 and 2002 were $3.8 million and $2.7 million, respectively, and represented 85% and 78% of professional services revenues in each of those periods, respectively. The Company has significantly reduced its professional consulting organization due to the decrease in demand for the Company's implementation services. Cost of Outsourcing. Cost of outsourcing revenues primarily consists of the cost of personnel utilized in servicing the Company's outsourcing clients. The cost of outsourcing revenues increased 64% from $1.3 million in the three months ended June 30, 2001 to $2.2 million for the same period in 2002, representing 95% and 66% of outsourcing revenues in each of those quarters, respectively. Cost of outsourcing in the six-month periods ended June 30, 2001 and 2002 was $2.8 million and $4.3 million, respectively, representing 98% and 66% of outsourcing revenues in each of those periods, respectively. The increase in costs for both the three- and six-month periods ended June 30, 2002 was primarily due to the acquisitions of Real-Time and Digital Visions. The decrease in costs of outsourcing as a percentage of outsourcing revenues was due primarily to improved operating efficiencies and the higher margins associated with the revenues from the Real-Time and Digital Visions acquisitions. Operating Expenses Total operating expenses decreased 14% from $8.8 million in the three months ended June 30, 2001 to $7.5 million in the three months ended June 30, 2002, representing 61% and 47% of total revenues in those periods, respectively. Total operating expenses decreased 3% from $17.3 million in the six months ended June 30, 2001 to $16.8 million in the six months ended June 30, 2002, representing 63% and 54% of total revenues in those periods, respectively. Included in the six-month 2002 costs is a $1.7 million write-off of purchased in-process research and development associated with the Company's acquisition of Real-Time in the first quarter. Excluding the IPR&D, total operating costs decreased from $17.3 million in the six months ended June 30, 2001 to $15.0 million in the six months ended June 30, 2002, representing 63% and 48% of total revenues in those periods, respectively. The decrease in operating expenses was due primarily to the cost reduction steps that the Company has undertaken to align its personnel and operating expenses with revenues. Selling and Marketing. Selling and marketing expenses primarily consist of the cost of personnel associated with the selling and marketing of the Company's products, including salaries, commissions, and travel and entertainment. Such expenses also include the cost of branch sales offices, advertising, trade shows, marketing and promotional materials. These expenses decreased 19% from $3.1 million in the three months ended June 30, 2001 to $2.5 million in the three months ended June 30, 2002, representing 21% and 16%, respectively, of total revenues for those periods. These expenses decreased 14% from $5.9 million in the six months ended June 30, 2001 to $5.1 million in the same period in 2002, representing 22% and 17%, respectively, of total revenues for those periods. The decreases for the three- and six-month periods ended June 30, 2002 were mainly due to lower personnel-related costs associated with the reduction in the number of sales and marketing personnel, and lower marketing and promotional costs offset by increased costs as a result of the acquisitions of Real-Time and Digital Visions. Research and Development. Research and development expenses consist primarily of personnel costs attributable to the development of new software products and the enhancement of existing products. Research and development expenses increased 8% from $2.9 million in the three months ended June 30, 2001 to $3.1 million in the three months ended June 30, 2002, representing 20% of total revenues for both periods. The increased expenses were mainly as a result of the 11 acquisitions of Real-Time and Digital Visions. Research and development expenses remained unchanged at $6.0 million for the six month ended June 30, 2002 and the comparable period in 2001 and represented 19% and 22%, respectively, of total revenue for those periods. Lower personnel-related costs resulting from improved operational efficiencies were offset by increased costs due to the acquisitions of Real-Time and Digital Visions. General and Administrative. General and administrative expenses are composed primarily of costs related to management, accounting, information technology, human resources and administration and associated overhead costs, as well as fees for professional services. General and administrative expenses decreased 32% from $2.8 million in the three months ended June 30, 2001 to $1.9 million in the three months ended June 30, 2002, representing 20% and 12%, respectively, of total revenues for those periods. The decrease was primarily due to lower personnel related costs, communication costs and professional fees. These expenses also decreased 27% from $5.4 million in the six months ended June 30, 2001 to $3.9 million in the same period in 2002, representing 20% and 13%, respectively, of total revenues for those periods. The year to date dollar decrease was mainly attributable to lower personnel related costs, communication costs, professional fees, and bad debt expense. Write-off of Purchased In-Process Research and Development. On January 15, 2002, the Company acquired Real-Time. The acquisition was accounted for as a purchase and, accordingly, the purchase price was allocated among tangible and intangible assets, liabilities, and in-process research and development based on their fair values on this the date of the acquisition. The acquired IPR&D had not yet reached technological feasibility and had no alternative future use and accordingly $1.7 million was expensed on the date of the acquisition. Interest and Other Income (Expense), Net. Interest and other income (expense), net consists primarily of interest income and other non-operational income and expenses. Interest income, net was $399,000 for the three months ended June 30, 2002 compared to $687,000 in the same period in 2001. Interest income, net decreased 40% from $1.4 million in the six months ended June 30, 2001 to $0.8 million in the same period in 2002. The decreases in interest income for both the three- and six-month periods ended June 30, 2002 are due to lower market interest rates on investments and lower cash and marketable securities positions due to the Company's stock repurchase plan during the past year, and the cash paid for the acquisitions of Real-Time and Digital Visions. Included in other expense, net for the three months ended June 30, 2002 was a non-operational $854,000 impairment charge associated with the decline in the market value of WorldCom bonds held in the Company's investment portfolio. Included in other expense, net for the six months ended June 30, 2002 was the WorldCom bond impairment of $854,000 and a non-operational gain of $486,000 on the sale of an equity investment. Other income, net for the three- and six-months ended June 30, 2001 included a non-operational gain on sale of equity investment of $580,000 and $1.8 million, respectively. Provision for Income Taxes. The Company had effective tax rates of 40% and 37% in the six-month periods ended June 30, 2002 and 2001, respectively. The higher tax rate in 2002 is primarily due to lower tax credits in the period. LIQUIDITY AND CAPITAL RESOURCES The Company's cash, cash equivalents and marketable securities at June 30, 2002 were $39.7 million, which is a decrease of $19.8 million from the $59.5 million at December 31, 2001. The dollar decrease was mainly due to the stock repurchase program and the cash paid for the acquisition of Real-Time. Net cash provided by operating activities was $9.1 million for the six months ended June 30, 2002. Cash provided by operating activities was primarily due to earnings adjusted for non-cash items and an increase in deferred maintenance and other revenues. These items were partially offset by an increase in accounts receivable and decrease in accrued expenses. Investing activities used net cash of $686,000 for the six months ended June 30, 2002. Cash used in investing activities was primarily due to $3.9 million cash paid for the acquisition of Real-Time offset by the $3.6 million net sale of marketable securities. Financing activities used net cash of $23.8 million. Cash used in financing activities was primarily due to the stock repurchase plan, which was partially offset by proceeds from the exercise of employee options. The Company repurchased 2.6 million shares of common stock for treasury in the six-month period ended June 30, 2002 for a total cost of $25.0 million. The Company believes that its current cash balances and net cash provided by operating activities will be sufficient to meet its working capital and capital expenditure requirements for at least the next 12 months. 12 CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS FLUCTUATIONS IN QUARTERLY PERFORMANCE. Historically, the Company's revenues and operating results have fluctuated substantially from quarter to quarter. The Company's quarterly operating results may continue to fluctuate due to a number of factors, including: the timing, size and nature of the Company's individual license transactions; the timing of the introduction and the market acceptance of new products or product enhancements by the Company or its competitors; the relative proportions of revenues derived from license fees, maintenance, consulting, and other recurring revenues and professional services; changes in the Company's operating expenses; changes in the Company's personnel; and fluctuations in economic and financial market conditions. The timing, size, and nature of individual license transactions are important factors in the Company's quarterly operating results. Many such license transactions involve large dollar amounts, and the sales cycles for these transactions are often lengthy and unpredictable. There can be no assurance that the Company will be successful in closing large license transactions on a timely basis or at all. DEPENDENCE ON THE FINANCIAL SERVICES INDUSTRY. The Company's clients include a range of organizations in the financial services industry. The success of these clients is intrinsically linked to the health of the financial markets. In addition, because of the capital expenditures required in connection with an investment in the Company's products, the Company believes that demand for its products could be disproportionately affected by fluctuations, disruptions, instability, or downturns in the financial markets, which may cause clients and potential clients to exit the industry or delay, cancel, or reduce any planned expenditures for investment management systems and software products. Any resulting decline in demand for the Company's products could have a material adverse effect on the Company's business, financial condition, and results of operations. BUSINESS MODEL CHANGE. The Company continues to modify its business model from one based on license fees derived from licensing proprietary software to one based on both licensing its software and charging transaction fees for the use of SS&C outsourcing services. Due to this change in the business model, the Company's revenues will increasingly depend on its ability to grow the number and volume of users of the Company's outsourcing services. The number of users and the volume of their activity are largely outside of the Company's control. Accordingly, the Company's past operating results may not be a meaningful indicator of its future performance. PRODUCT CONCENTRATION. To date, substantially all of the Company's revenues have been attributable to the licensing of its CAMRA, AdvisorWare, SKYLINE, and LMS software and the provision of maintenance and consulting services in support of such software. The Company expects that the revenue from these software products will continue to account for a significant portion of its revenues for the foreseeable future. As a result, factors adversely affecting the pricing of or demand for such products and services, such as competition or technological change, could have a material adverse effect on the Company's business, financial condition and results of operations. COMPETITION. The market for financial service software is competitive, rapidly evolving and highly sensitive to new product introductions and marketing efforts by industry participants. Although the Company believes that none of its competitors currently competes against the Company in all of the markets served by the Company, there can be no assurance that such competitors will not compete against the Company in the future in additional markets. In addition, many of the Company's current and potential future competitors have significantly greater financial, technical and marketing resources, greater name recognition, and higher revenues than the Company. RAPID TECHNOLOGICAL CHANGE. The market for the Company's products and services is characterized by rapidly changing technology, evolving industry standards and new product introductions. The Company's future success will depend in part upon its ability to enhance its existing products and services and to develop and introduce new products and services to meet changing client needs. The process of developing software products such as those offered by the Company is extremely complex and is expected to become increasingly complex and expensive in the future due to the introduction of new platforms and technologies. There can be no assurance that the Company will successfully complete the development of new products in a timely fashion or that the Company's current or future products will satisfy the needs of the financial markets. INTEGRATION OF OPERATIONS. The Company's success is dependent in part on its ability to complete the integration of the operations of recently acquired businesses, including Real-Time and Digital Visions, in an efficient and effective manner. Successful integration in a rapidly changing financial services industry may be more difficult to accomplish than in other industries. The combination of these acquired businesses will require, among other things, integration of product offerings and coordination of sales and marketing and research and development efforts. There can be no assurance that such 13 integration will be accomplished smoothly or successfully. The difficulties of such integration may be increased by the necessity of coordinating geographically separated organizations. The integration of certain operations will require the dedication of management resources that may temporarily distract attention from the day-to-day business of the Company. The inability of management to successfully integrate the operations of acquired companies could have a material adverse effect on the Company's business, financial condition, and results of operations of the Company. DEPENDENCE ON PROPRIETARY TECHNOLOGY. The Company's success and ability to compete depends in part upon its ability to protect its proprietary technology. The Company relies on a combination of trade secret, copyright, and trademark law, nondisclosure agreements and technical measures to protect its proprietary technology. There can be no assurance that the steps taken by the Company to protect its proprietary technology will be adequate to prevent misappropriation or independent third-party development of such technology. PRODUCT DEFECTS AND PRODUCT LIABILITY. The Company's software products are highly complex and sophisticated and could contain design defects or software errors that are difficult to detect and correct. Errors, bugs or viruses may result in loss of or delay in market acceptance of the Company's software products or loss of client data. Although the Company has not experienced material adverse effects resulting from any software defects or errors, there can be no assurance that, despite testing by the Company and its clients, errors will not be found in new products, which errors could result in a delay in or an inability to achieve market acceptance and thus could have a material adverse effect upon the Company's business, financial condition, and results of operations. KEY PERSONNEL. The Company's success is dependent in part upon its ability to attract, train and retain highly skilled technical, managerial, and sales personnel. The loss of services of one or more of the Company's key employees could have a material adverse effect on the Company's business, financial condition and results of operations. Competition for the hiring of such personnel in the software industry is intense. Locating candidates with the appropriate qualifications, particularly in the desired geographic location, is difficult. Although the Company expects to continue to attract and retain sufficient numbers of highly skilled employees for the foreseeable future, there can be no assurance that the Company will be able to do so. RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. The Company has risks associated with its foreign operations. An increase in the value of the U.S. dollar relative to foreign currencies could make the Company's products more expensive and, therefore, potentially less competitive in those foreign markets. A portion of the Company's international sales is denominated in foreign currency, and the Company occasionally hedges some of the risk associated with foreign exchange fluctuations. Although the Company believes its foreign currency exchange rate risk is minimal, significant fluctuations in the value of foreign currencies could have a material adverse effect on the earnings of the Company. In addition, the Company's international business may be subject to a variety of other risks, including difficulties in obtaining U.S. export licenses, potentially longer payment cycles, increased costs associated with maintaining international marketing efforts, the introduction of non-tariff barriers and higher duty rates, and difficulties in enforcement of third-party contractual obligations and intellectual property rights. There can be no assurance that such factors will not have a material adverse effect on the Company's business, financial condition, or results of operations. Because of these and other factors, past financial performance should not be considered an indication of future performance. The Company's quarterly operating results may vary significantly, depending on factors such as the timing, size, and nature of licensing transactions and new product introductions by the Company or its competitors. Investors should not use historical trends to anticipate future results and should be aware that the trading price of the Company's common stock may be subject to wide fluctuations in response to quarterly variations in operating results and other factors, including those discussed above. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to interest rate and securities price risks. These risks are not hedged and fluctuations could impact the Company's results of operations and financial position. Fixed income securities are subject to interest rate risk. In order to minimize interest rate risk, the Company's portfolio is diversified and consists primarily of investment grade securities, primarily U.S. government and federal agency obligations, tax-exempt municipal obligations and corporate obligations. The Company from time to time also holds equity securities in its portfolio. These equity securities are subject to market price risks. 14 The Company invoices customers primarily in U.S. dollars and in local currency in those countries in which the Company has branch and subsidiary operations. The Company is exposed to foreign exchange rate fluctuations from the time customers are invoiced in local currency until collection occurs. Through June 30, 2002, foreign currency fluctuations have not had a material effect on the Company's financial position or results of operation, and therefore the Company believes that its potential foreign currency exchange rate exposure is not material. The foregoing risk management discussion and the effect thereof are forward-looking statements. Actual results in the future may differ materially from these projected results due to actual developments in global financial markets. The analytical methods used by the Company to assess and minimize risk discussed above should not be considered projections of future events or losses. PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the 2002 annual meeting of stockholders of the Company (the "Annual Meeting") held on May 22, 2002, the following matters were acted upon by the stockholders of the Company: 1. The election of Patrick J. McDonnell, William C. Stone, and James L. Sullivan as Class III directors for the ensuing three years; and 2. The ratification of the appointment of PricewaterhouseCoopers LLP as the independent public accountants of the Company for the current fiscal year. The number of shares of common stock present or represented by proxy and entitled to vote at the Annual Meeting was 12,543,086. The other directors of the Company, whose terms of office as directors continued after the Annual Meeting, are Jonathan M. Schofield, Albert L. Lord, Joseph H. Fisher, and David W. Clark, Jr. The results of the voting on each of the matters presented to stockholders at the Annual Meeting are set forth below:
Votes Votes Broker Matter Votes For Withheld Against Abstentions Non-Votes ---------- -------- ------- ----------- --------- Election of Directors: Patrick J. McDonnell 12,496,193 46,893 N/A N/A none William C. Stone 11,927,942 615,144 N/A N/A none James L. Sullivan 12,496,193 46,893 N/A N/A none Ratification of PricewaterhouseCoopers LLP 12,498,723 N/A 12,994 31,369 none
15 ITEM 6. EXHIBIT AND REPORTS OF FORM 8-K a. The exhibit listed in the Exhibit Index immediately preceding such exhibit is filed as part or is included in this Report. b. There were no reports filed on Form 8-K in the quarter ended June 30, 2002. 16 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SS&C TECHNOLOGIES, INC. Date: August 13, 2002 By: /s/ Patrick J. Pedonti Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 17 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - -------------- ----------- 10.1 1996 DIRECTOR STOCK OPTION PLAN, AS AMENDED 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.
18 EX-10.1 3 y62907exv10w1.txt EXHIBIT 10.1 Exhibit 10.1 SS&C TECHNOLOGIES, INC. 1996 DIRECTOR STOCK OPTION PLAN 1. Purpose. The purpose of this 1996 Director Stock Option Plan (the "Plan") of SS&C Technologies, Inc. (the "Company") is to encourage ownership in the Company by outside directors of the Company whose continued services are considered essential to the Company's future progress and to provide them with a further incentive to remain as directors of the Company. 2. Administration. The Board of Directors shall supervise and administer the Plan. Grants of stock options under the Plan and the amount and nature of the awards to be granted shall be automatic in accordance with Section 5. However, all questions concerning interpretation of the Plan or any options granted under it shall be resolved by the Board of Directors and such resolution shall be final and binding upon all persons having an interest in the Plan. 3. Participation in the Plan. Directors of the Company who are not full-time employees of the Company or any subsidiary of the Company ("outside directors") shall be eligible to receive options under the Plan. 4. Stock Subject to the Plan. (a) The maximum number of shares of the Company's Common Stock, par value $.01 per share ("Common Stock"), which may be issued under the Plan shall be 150,000 shares, subject to adjustment as provided in Section 7. (b) If any outstanding option under the Plan for any reason expires or is terminated without having been exercised in full, the shares covered by the unexercised portion of such option shall again become available for issuance pursuant to the Plan. (c) All options granted under the Plan shall be non-statutory options not entitled to special tax treatment under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 5. Terms, Conditions and Form of Options. 1 Each option granted under the Plan shall be evidenced by a written agreement in such form as the Board of Directors shall from time to time approve, which agreements shall comply with and be subject to the following terms and conditions: (a) Option Grant Dates. Options shall automatically be granted to all eligible outside directors as follows: (i) each person who first becomes an eligible outside director after the closing date (the "Closing Date") of the Company's initial public offering of Common Stock pursuant to an effective registration statement under the Securities Act of 1933, as amended, shall be granted an option to purchase 5,000 shares of Common Stock on the date of his or her initial election to the Board of Directors, provided that such eligible director is elected on a date other than the date of an Annual Meeting of Stockholders; and (ii) each eligible outside director shall be granted an additional option to purchase 5,000 shares of Common Stock on the date of each Annual Meeting of Stockholders of the Company commencing with the 1997 Annual Meeting of Stockholders, provided that he or she continues to serve as a director immediately following such Annual Meeting. (b) Option Exercise Price. The option exercise price per share for each option granted under the Plan shall equal (i) the last reported sales price per share of the Company's Common Stock on the Nasdaq National Market (or, if the Company is traded on a nationally recognized securities exchange on the date of grant, the reported closing sales price per share of the Company's Common Stock by such exchange) on the date of grant (or if no such price is reported on such date such price as reported on the nearest preceding day) or (ii) if the Common Stock is not traded on the Nasdaq National Market or an exchange, the fair market value per share on the date of grant as most recently determined by the Board of Directors. (c) Options Non-Transferable. To the extent required to qualify for the exemption provided by Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), any option granted under the Plan to an optionee shall not be transferable by the optionee other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder, and shall be exercisable during the optionee's lifetime only by the optionee or the optionee's guardian or legal representative. (d) Vesting Period. (i) General. Each option granted under the Plan shall become exercisable on the first anniversary of the Option Grant Date; provided, however, that the optionee continue to serve as a director on such date. (ii) Acceleration Upon Change in Control. Notwithstanding the foregoing, each outstanding option granted under the Plan shall immediately become exercisable in full in the event a Change in Control (as defined in Section 8) of the Company occurs. 2 (e) Termination. Each option shall terminate, and may no longer be exercised, on the earlier of the (i) the date 10 years after the Option Grant Date or (ii) the date 60 days after the optionee ceases to serve as a director of the Company; provided that, in the event an optionee ceases to serve as a director due to his or her death or disability (within the meaning of Section 22(e)(3) of the Code or any successor provision), then the exercisable portion of the option may be exercised, within the period of 180 days following the date the optionee ceases to serve as a director (but in no event later than 10 years after the Option Grant Date), by the optionee or by the person to whom the option is transferred by will, by the laws of descent and distribution, or by written notice pursuant to Section 5(h). (f) Exercise Procedure. An option may be exercised only by written notice to the Company at its principal office accompanied by payment in cash of the full consideration for the shares as to which the option is exercised. (g) Exercise by Representative Following Death of Director. An optionee, by written notice to the Company, may designate one or more persons (and from time to time change such designation), including his or her legal representative, who, by reason of the optionee's death, shall acquire the right to exercise all or a portion of the option. If the person or persons so designated wish to exercise any portion of the option, they must do so within the term of the option as provided herein. Any exercise by a representative shall be subject to the provisions of the Plan. 6. Limitation of Rights. (a) No Right to Continue as a Director. Neither the Plan, nor the granting of an option nor any other action taken pursuant to the Plan, shall constitute or be evidence of any agreement or understanding, express or implied, that the Company will retain the optionee as a director for any period of time. (b) No Stockholders' Rights for Options. An optionee shall have no rights as a stockholder with respect to the shares covered by his or her option until the date of the issuance to him or her of a stock certificate therefor, and no adjustment will be made for dividends or other rights (except as provided in Section 7) for which the record date is prior to the date such certificate is issued. 7. Adjustment Provisions for Mergers, Recapitalizations and Related Transactions. If, through or as a result of any merger, consolidation, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, or other similar transaction, (i) the outstanding shares of Common Stock are exchanged for a different number or kind of securities of the Company or of another entity, or (ii) additional shares or new or different shares or other securities of the Company or of another entity are distributed with respect to such shares of Common Stock, the Board of Directors shall make an appropriate and proportionate adjustment in (x) the maximum number and kind of shares reserved for issuance under the Plan, (y) the number and kind of shares or other securities subject to then outstanding options under the Plan, and/or (z) the price for each share subject to any then outstanding options under the Plan 3 (without changing the aggregate purchase price for such options), to the end that each option shall be exercisable, for the same aggregate exercise price, for such securities as such optionholder would have held immediately following such event if he had exercised such option immediately prior to such event. No fractional shares will be issued under the Plan on account of any such adjustments. 8. Change in Control. For purposes of the Plan, a "Change in Control" shall be deemed to have occurred only if any of the following events occurs: (i) any "person", as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportion as their ownership of stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities; (ii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; (iii) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (iv) individuals who, on the date on which the Plan was adopted by the Board of Directors, constituted the Board of Directors of the Company, together with any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office who were directors on the date on which the Plan was adopted by the Board of Directors or whose election or nomination was previously so approved, cease for any reason to constitute at least a majority of the Board of Directors. 9. Modification, Extension and Renewal of Options. The Board of Directors shall have the power to modify or amend outstanding options; provided, however, that no modification or amendment may (i) have the effect of altering or impairing any rights or obligations of any option previously granted without the consent of the optionee, or (ii) modify the number of shares of Common Stock subject to the option (except as provided in Section 7). 10. Termination and Amendment of the Plan. The Board of Directors may suspend, terminate or discontinue the Plan or amend it in any respect whatsoever; provided, however, that without approval of the stockholders of the Company, no amendment may (i) increase the number of shares subject to the Plan (except as provided in Section 7), (ii) materially modify the requirements as to eligibility to receive options under the Plan, or (iii) materially increase the benefits accruing to participants in the Plan; and provided further that the Board of Directors may not amend the provisions of Sections 3, 5(a), 4 5(b) or 5(c) more frequently than once every six months, other than to comply with changes in the Code or the rules thereunder. 11. Notice. Any written notice to the Company required by any of the provisions of the Plan shall be addressed to the Treasurer of the Company and shall become effective when it is received. 12. Governing Law. The Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the State of Delaware. 13. Stockholder Approval. The Plan is conditional upon stockholder approval of the Plan within one year from its date of adoption by the Board of Directors. No option under the Plan may be exercised until such stockholder approval is obtained, and the Plan and all options granted under the Plan shall be null and void if the Plan is not so approved by the Company's stockholders. Adopted by the Board of Directors on April 1, 1996 Approved by the stockholders on April 1, 1996 5 AMENDMENT NO. 1 TO THE 1996 DIRECTOR STOCK OPTION PLAN OF SS&C TECHNOLOGIES, INC. October 30, 1996 The 1996 Director Stock Option Plan (the "Plan") of SS&C Technologies, Inc. is hereby amended as follows (capitalized terms used herein and not defined herein shall have the respective meaning ascribed to such terms in the Plan): 1. The reference to Section 5(h) at the end of Section 5(e) of the Plan shall be amended to refer to Section 5(f). 2. Section 10 of the Plan shall be deleted in its entirety and replaced with the following: "10. Termination and Amendment of the Plan. The Board of Directors may suspend, terminate or discontinue the Plan or amend it in any respect whatsoever." Except as aforesaid, the Plan shall remain in full force and effect. 6 SS&C TECHNOLOGIES, INC. AMENDMENT NO. 2 TO 1996 DIRECTOR STOCK OPTION PLAN, AS AMENDED 1. The 1996 Director Stock Option Plan, as amended (the "Plan"), is hereby amended to delete subsection 5(d) thereof and replace such subsection in its entirety with the following: "(d) Vesting Period. Each option granted under the Plan shall be exercisable in full immediately upon the Option Grant Date." 2. The Plan is hereby amended to delete section 8 thereof and replace such section in its entirety with the following: "8. Intentionally deleted." 3. Except as aforesaid, the Plan shall remain in full force and effect. Adopted by the Board of Directors on May 5, 1999. 7 SS&C TECHNOLOGIES, INC. AMENDMENT NO. 3 TO 1996 DIRECTOR STOCK OPTION PLAN, AS AMENDED 1. The 1996 Director Stock Option Plan, as amended (the "Plan"), is hereby amended to delete subsection 4(a) thereof and replace such subsection in its entirety with the following: "4(a) The maximum number of shares of the Company's Common Stock, par value $.01 per share ("Common Stock"), which may be issued under the Plan shall be 300,000 shares, subject to adjustment as provided in Section 7." 2. The Plan is hereby amended to delete section 5(a) thereof and replace such section in its entirety with the following: "5(a) Option Grant Dates. Options shall automatically be granted to all eligible outside directors as follows: (i) each person who first becomes an eligible outside director after the 2000 Annual Meeting of Stockholders of the Company shall be granted an option to purchase 10,000 shares of Common Stock on the date of his or her initial election to the Board of Directors, provided that such eligible director is elected on a date other than the date of an Annual Meeting of Stockholders; and (ii) each eligible outside director shall be granted an option to purchase 10,000 shares of Common Stock on the date of each Annual Meeting of Stockholders of the Company commencing with the 2000 Annual Meeting of Stockholders, provided that he or she continues to serve as a director immediately following such Annual Meeting." 3. Except as aforesaid, the Plan shall remain in full force and effect. Adopted by the Board of Directors on February 7, 2000. 8 SS&C TECHNOLOGIES, INC. AMENDMENT NO. 4 TO 1996 DIRECTOR STOCK OPTION PLAN, AS AMENDED 1. The Plan is hereby amended to delete section 5(a) thereof and replace such section in its entirety with the following: "5(a) Option Grant Dates. Options shall automatically be granted to all eligible outside directors as follows: (i) each person who first becomes an eligible outside director after the 2002 Annual Meeting of Stockholders of the Company shall be granted an option to purchase 5,000 shares of Common Stock on the date of his or her initial election to the Board of Directors, provided that such eligible director is elected on a date other than the date of an Annual Meeting of Stockholders; and (ii) each eligible outside director shall be granted an option to purchase 5,000 shares of Common Stock on the date of each Annual Meeting of Stockholders of the Company commencing with the 2002 Annual Meeting of Stockholders, provided that he or she continues to serve as a director immediately following such annual Meeting." 2. Except as aforesaid, the Plan shall remain in full force and effect. Adopted by the Board of Directors on May 22, 2002 9 EX-99.1 4 y62907exv99w1.txt EXHIBIT 99.1 Exhibit 99.1 STATEMENT PURSUANT TO 18 U.S.C. SECTION1350 Pursuant to 18 U.S.C. Section1350, each of the undersigned certifies that this Quarterly Report on Form 10-Q for the period ended June 30, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of SS&C Technologies, Inc. Date: August 13, 2002 By: /s/ William C. Stone William C. Stone Chief Executive Officer Date: August 13, 2002 By: /s/ Patrick J. Pedonti Patrick J. Pedonti Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----