-----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, IqL+1gzXC730xLUktdHjsXjBN1JkDXwcLbKRnzxsykdgltYZdByhEYuqixTJlzSi vTuXWOM0dZVus0cmemYaow== 0000927016-97-001430.txt : 19970515 0000927016-97-001430.hdr.sgml : 19970515 ACCESSION NUMBER: 0000927016-97-001430 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NASD 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: 97603320 BUSINESS ADDRESS: STREET 1: 705 BLOOMFIELD AVE STREET 2: CORPORATE PLACE CITY: BLOOMFIELD STATE: CT ZIP: 06002 BUSINESS PHONE: 8602427887 MAIL ADDRESS: STREET 1: CORPORATE PLACE STREET 2: 705 BLOOMFIELD AVE CITY: BLOOMFIELD STATE: CT ZIP: 06002 10-Q 1 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 March 31, 1997 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 Number 0-28430 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) Corporate Place 705 Bloomfield Avenue Bloomfield, Connecticut 06002 (Address of principal executive offices) (Zip Code) 860-242-7887 (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 issuer's classes of common stock as of April 30, 1997: Class Number of Shares Outstanding - -------------------------------------- ---------------------------- Common Stock, par value $.01 per share 12,455,087 SS&C TECHNOLOGIES, INC. INDEX
Page Number ----------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Balance Sheets at December 31, 1996 and March 31, 1997 3 Consolidated Condensed Statements of Operations for the three-month periods ended March 31, 1996 and 1997 4 Consolidated Condensed Statements of Cash Flows for the three-month periods ended March 31, 1996 5 and 1997 Notes to Consolidated Condensed Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-12 PART II. OTHER INFORMATION Item 1. Legal Proceedings 13 Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURE 14 EXHIBIT INDEX 15
This Quarterly Report on Form 10-Q contains forward-looking statements. 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. 2 Part I. FINANCIAL INFORMATION Item 1. Financial Statements SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands)
December 31, March 31, 1996 1997 ---------------- -------------- (unaudited) ASSETS Current assets: Cash and cash equivalents $36,091 $43,173 Marketable securities 15,580 10,843 Accounts receivable, net 8,434 6,907 Unbilled accounts receivable, net 3,455 3,320 Income taxes 1,058 1,065 Other 885 1,083 --------- --------- Total current assets 65,503 66,391 Property and equipment, net 3,126 3,185 Unbilled accounts receivable - related party 630 578 Unbilled accounts receivable, net 1,387 1,442 Intangible assets, net 1,905 1,748 Deferred income taxes 3,230 3,230 Other 505 - --------- --------- Total assets $76,286 $76,574 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt - related party $1,390 $1,390 Current portion of long-term debt 450 - Accounts payable 476 519 Accrued expenses 2,526 2,229 Deferred revenues 7,090 7,916 --------- --------- Total current liabilities 11,932 12,054 --------- --------- Commitments and Contingencies (Note 4) Stockholders' equity: Common stock 137 138 Additional paid-in capital 69,598 69,662 Accumulated deficit (2,976) (2,875) Less treasury stock, at cost (2,405) (2,405) --------- --------- Total stockholders' equity 64,354 64,520 --------- --------- Total liabilities and stockholders' equity $76,286 $76,574 ========= =========
3 SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except share and per share information)
Three Months Ended -------------------------- March 31, March 31, 1996 1997 ----------- ------------ Revenues: Software licenses $ 4,253 $ 2,513 Maintenance 1,306 1,974 Professional services 1,321 1,826 --------- ----------- Total revenues 6,880 6,313 --------- ----------- Cost of revenues: Software licenses 105 118 Maintenance 374 685 Professional services 980 1,245 --------- ----------- Total cost of revenues 1,459 2,048 --------- ----------- Gross profit 5,421 4,265 --------- ----------- Operating expenses: Selling and marketing 2,198 2,050 Research and development 1,555 1,579 General and administrative 1,135 920 --------- ----------- Total operating expenses 4,888 4,549 --------- ----------- Operating income (loss) 533 (284) Interest income (expense), net (12) 455 --------- ----------- Income before income taxes 521 171 Provision for income taxes 208 70 --------- ----------- Net income $ 313 $ 101 ========= =========== Net income per common and common equivalent share $ 0.03 $ 0.01 ========= =========== Weighted average number of common and common equivalent shares outstanding 10,125,914 12,761,991 ========== ===========
4 SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Three Months Ended -------------------------- March 31, March 31, 1996 1997 ----------- ---------- Cash flows from operating activities: Net income $ 313 $ 101 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 390 438 Provision for doubtful accounts 168 79 Changes in operating assets and liabilities: Accounts receivable 1,012 1,448 Unbilled accounts receivable (331) 132 Other 98 (198) Accounts payable 233 43 Accrued expenses (103) (297) Deferred revenues 875 826 Income taxes (310) (7) ----------- ----------- Total adjustments 282 2,464 ----------- ----------- Net cash provided by operating activities 595 2,565 ----------- ----------- Cash flows from investing activities: Additions to other assets - capitalized software - (64) Additions to property and equipment (168) (276) Changes in marketable securities, net - 4,737 ----------- ----------- Net cash provided by (used in) investing activitie (168) 4,397 ----------- ----------- Cash flows from financing activities: Exercise of options - 65 Release of collateral requirement on letter of credit - 505 Repayment of debt - (450) ----------- ----------- Net cash provided by financing activities - 120 ----------- ----------- Net increase in cash and cash equivalents 427 7,082 Cash and cash equivalents, at beginning of period 1,585 36,091 ----------- ----------- Cash and cash equivalents, at end of period $ 2,012 $ 43,173 =========== =========== Supplemental disclosure of cash flow information: Cash paid for: Interest $ - $ - Income taxes 517 82
5 SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Presentation In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments, except as noted elsewhere in the notes to the consolidated condensed financial statements) necessary to present fairly its financial position as of March 31, 1997 and the results of its operations for the three months ended March 31, 1996 and 1997. These statements are condensed and therefore do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The statements should be read in conjunction with the consolidated financial statements and footnotes as of and for the year ended December 31, 1996 included in the Company's Form 10-K filed with the Securities and Exchange Commission. The December 31, 1996 consolidated condensed balance sheet data were derived from audited financial statements, but do not include all disclosures required by generally accepted accounting principles. The results of operations for the three months ended March 31, 1997 are not necessarily indicative of the results to be expected for the full year. Net Income per Common and Common Equivalent Share Net income per common share is computed based upon the weighted average number of common shares and common equivalent shares outstanding after certain adjustments described below. The computation of net income per common and common equivalent share is based on net income divided by the weighted average number of common and common equivalent shares outstanding during the period after giving effect to all stock splits. Common equivalent shares comprise stock options and warrants using the treasury stock method. Common equivalent shares from stock options and warrants are excluded from the computation if their effect is anti-dilutive. For the three months ended March 31, 1996, pursuant to the Securities and Exchange Commission Staff Accounting Bulletin No. 83, common and common equivalent shares, issued at prices below the initial public offering price during the 12 months immediately preceding the initial filing date have been included in the calculation as if they were outstanding for all periods presented (using the treasury stock method and the anticipated initial public offering price). In addition, all preferred stock is considered to be a common stock equivalent based on its terms and conditions. The supplemental pro forma net income per common share is computed in the same manner as historical net income per common share except that all outstanding shares of preferred stock, which were converted into common stock upon the closing of the Company's initial public offering, were treated as having been converted into common stock at the date of original issuance. On a supplemental pro forma basis, net income per common share is the same as historical net income per common share for both periods presented. Fully diluted net income per share is not presented as it is the same as the amounts disclosed in historical net income per share for both periods presented. Accounting Standards Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" must be adopted in the fourth quarter of 1997. Upon such adoption, all prior periods are required to be restated. The standard requires the replacement of the current primary earnings per share presentation with a basic earnings per share presentation. Basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted- average number of common shares outstanding for the period. The standard also requires companies with complex capital stock structures to disclose diluted earnings per share and, among other things, a reconciliation of the numerator and denominator for purposes of the calculation. 6 Management has not made a determination of the impact that the adoption of SFAS No. 128 would have on the financial statements. 2. CAPITAL STOCK: On April 25, 1996, the Company reincorporated in the State of Delaware and exchanged each outstanding share of common stock for ten shares of common stock, $.01 par value, and exchanged each outstanding share of preferred stock Series A, Series B, and Series C for one share of preferred stock Series A, Series B and Series C, respectively. Holders of outstanding options are entitled, upon exercise, to purchase ten times the number of common stock shares provided in each option, at an exercise price per share of one-tenth the price per share in the option. Each outstanding share of preferred stock was convertible into ten shares of common stock. The Company authorized a total of 25,000,000 shares of common stock, $.01 par value, and a total of 1,000,000 shares of preferred stock, $.01 par value. The outstanding Series A, Series B and Series C preferred stock was subsequently converted into common stock on June 5, 1996, the closing date of the Company's initial public offering. As of March 31, 1997 there was no preferred stock outstanding. The Company consummated an initial public offering of 3,750,000 shares of common stock on June 5, 1996, of which 723,750 shares were sold by selling stockholders. The Company received proceeds from the offering of approximately $52,639,000, net of underwriting discounts and commissions, and offering expenses paid by the Company. 3. RELATED PARTY TRANSACTIONS: In January 1996, the Company licensed its CAMRA and FILMS applications software and certain other programs to a related party for a total purchase price of $2,054,786, including a five-year maintenance program beginning in February 1996. The purchase price was allocated to license fees of $1,543,561, maintenance fees over the five-year period of $375,000 and deferred interest of $136,225 resulting from an extended payment plan. Terms include $900,000 payable upon execution of the agreement in January 1996 and quarterly installments of $52,500 for five years. All outstanding receivables and payables between the parties as of January 27, 1996 were forgiven, resulting in an additional $104,786 allocated to the purchase price. Interest was imputed at 9% for payments on the license fee. The amount collected from the related party during the three months ended March 31, 1997 was $53,250, including sales tax. There was no balance currently billed and receivable at March 31, 1997. The note payable to a related party was issued in connection with the Company's acquisition of the assets and operations of Chalke Incorporated on March 31, 1995. The final payment of $1,500,000 was due to be paid on March 31, 1997. The Company paid the note in full with all accrued interest on April 4, 1997. 4. COMMITMENTS AND CONTINGENCIES: On March 18, 1997 and April 8, 1997, two separate purported class action lawsuits ("Complaints") were filed against the Company, certain of its officers and the two leading managers of the Company's initial public offering. The Complaints claim that the Prospectus for the Company's initial public offering allegedly misrepresented how the offering price for the Company's initial public offering was established. The plaintiffs in each suit are seeking an undetermined amount of damages and costs and expenses of the litigation. The Company believes it has meritorious defenses to the claims made in each lawsuit and intends to contest the Complaints vigorously; however, legal counsel for the Company is unable to predict with any degree of certainty, the outcome of such claims. While the resolution of these claims could affect the Company's results of operations in future periods, the Company does not expect these matters to have a material adverse effect on its consolidated financial position. However, the Company is unable to predict the ultimate outcome or the potential financial impact of these claims. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1996 AND 1997 Revenues The Company's revenues are derived from software licenses and related maintenance and professional services. Total revenues decreased 8% from $6.9 million in the three months ended March 31, 1996 to $6.3 million in the three months ended March 31, 1997. Software Licenses. Software license revenues decreased 41% from $4.3 million in the three months ended March 31, 1996 to $2.5 million in the three months ended March 31, 1997. CAMRA and FILMS software license revenues, including international license revenues, decreased 47% from $3.9 million in the three months ended March 31, 1996 to $2.1 million in the three months ended March 31, 1997. The primary reasons for the decline in the CAMRA and FILMS license revenues was due to a software license of $1.5 million to a related party in 1996 with no similar transaction in the current period, as well as a longer than anticipated sales cycle with respect to the CAMRA and FILMS products. Finesse license revenues increased from $29,000 in the three months ended March 31, 1996 to $122,000 in the three months ended March 31, 1997. The 1997 Finesse license revenues represent the first commercial license revenues for the product. In 1996, Finesse license revenues were associated with the joint development of the product. There were no international sales in the three months ended March 31, 1996 as compared to $258,000 in the three months ended March 31, 1997. Maintenance. Maintenance revenues increased 51% from $1.3 million in the three months ended March 31, 1996 to $2.0 million in the three months ended March 31, 1997. The increase was primarily due to an increase in the Company's installed base of clients with maintenance contracts as a result of CAMRA and FILMS license sales, representing $482,000 of the increase, and PTS 2000 and Finesse license sales, representing $186,000 of the increase. Professional Services. Professional services revenues increased 38% from $1.3 million in the three months ended March 31, 1996 to $1.8 million in the three months ended March 31, 1997. The increase was primarily due to the increase in demand for the Company's implementation, conversion and training services, including international clients. Hourly rates on international assignments are significantly higher than rates on domestic assignments. Cost of Revenues Total cost of revenues increased 40% from $1.5 million in the three months ended March 31, 1996 to $2.0 million in the three months ended March 31, 1997. The gross profit decreased from 79% for the three months ended March 31, 1996 to 68% for the three months ended March 31, 1997, primarily due to a change in the mix of revenues. Software license revenues, which have a high gross profit margin, represented a lower percentage of total revenues in 1997 as compared with 1996. Cost of Software Licenses. Cost of software license revenues relates primarily to royalties, as well as the costs of product media, packaging, documentation and labor involved in the distribution of the Company's software. The cost of software licenses increased 12% from $105,000 in the three months ended March 31, 1996 to $118,000 in the three months ended March 31, 1997. The cost of software license revenues as a percentage of such revenues increased from 2% in the three months ended March 31, 1996 to 5% in the three months ended March 31, 1997. The 1996 cost of software license revenues as a percentage of such revenues was lower than the 1997 cost of software license revenues as a percentage of such revenues primarily due to the large related party software license revenue included in 1996 which did not have any significant costs associated with its delivery. 8 Cost of Maintenance. Cost of maintenance revenues is primarily comprised of technical customer support and development costs associated with product and regulatory updates. The cost of maintenance revenues increased 83% from $374,000 in the three months ended March 31, 1996 to $685,000 in the three months ended March 31, 1997. The cost of maintenance revenues as a percentage of such revenues increased from 29% in the three months ended March 31, 1996 to 35% in the three months ended March 31, 1997. The increase in costs reflect the continued development of a dedicated support infrastructure for the Company's operations as the total number of full-time employees in client support increased from 21 as of March 31, 1996 to 32 as of March 31, 1997. Cost of Professional Services. Cost of professional services revenues consists primarily of the cost related to personnel utilized to provide implementation, conversion and training services to the Company's software licensees, as well as custom programming, system integration and actuarial consulting services. The cost of professional services revenues increased 27% from $980,000 in the three months ended March 31, 1996 to $1.2 million in the three months ended March 31, 1997. The cost of professional services revenues as a percentage of such revenues decreased from 74% in the three months ended March 31, 1996 to 68% in the three months ended March 31, 1997, primarily due to increases in the utilization rates and average billing rates of the personnel performing the services. Operating Expenses Selling and Marketing. Selling and marketing expenses consist primarily 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. Selling and marketing expenses decreased 7% from $2.2 million in the three months ended March 31, 1996 to $2.1 million in the three months ended March 31, 1997. Selling and marketing expenses for the three months ended March 31, 1996 and 1997 represented 32% of total revenues for each of those periods. The decrease in selling and marketing expenses is primarily due to a large expenditure for new marketing brochures in 1996 for which there was no similar expenditure in 1997 as well as a decrease in marketing salaries due to a reduction in marketing personnel associated with the COPE product. The development of the COPE product was discontinued in 1996. These decreases were partially offset by an increase in expenses for international sales operations. 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 remained relatively stable at $1.6 million in the three months ended March 31, 1996 and in the three months ended March 31, 1997. Research and development expenses in the three months ended March 31, 1996 and 1997 represented 23% and 25%, respectively, of total revenues for those periods. General and Administrative. General and administrative expenses primarily comprise personnel costs related to management, accounting, human resources and administration and associated overhead costs, as well as fees for professional services. General and administrative expenses decreased 19% from $1.1 million in the three months ended March 31, 1996 to $920,000 in the three months ended March 31, 1997, representing 16% and 15%, respectively, of total revenues for those periods. The decrease in general and administrative expenses was generally attributable a reduction in legal fees and a reduction in the portion of the bad debt accrual based on a general allocation of accounts less than 90 days. Interest Income (Expense). The Company recorded net interest expense of $12,000 in the three months ended March 31, 1996 and net interest income of $455,000 in the three months ended March 31, 1997. The net interest income was primarily due to the interest earned on investing the proceeds from the Company's initial public offering. Provision for Income Taxes. The Company had effective tax rates of approximately 40% and 41% for the three months ended March 31, 1996 and 1997, respectively. 9 LIQUIDITY AND CAPITAL RESOURCES During the three months ended March 31, 1996 and 1997, the Company financed its operations primarily through cash flows generated from operations. Cash provided by operations was $595,000 and $2.6 million for the three months ended March 31, 1996 and 1997, respectively. The increase in the cash provided by operations between these periods consisted primarily of an increase in deferred revenues. The Company invoices clients for maintenance at the beginning of a maintenance period and generally will receive payment prior to recognizing all of the revenues associated with the maintenance invoice. The Company has also entered into contracts for which initial payments have been received but software license revenues cannot be recognized. To the extent payments have been received, deferred revenues are recorded until the criteria for license revenue recognition have been met. The substantial change in deferred revenues was primarily due to a large increase in maintenance billings from the increased number of CAMRA, FILMS and PTS 2000 software licensees. While there was a large increase in deferred revenues, there was no similar increase in accounts receivable. This was due to the collections of the accounts receivable on the maintenance contracts. Accounts receivable decreased $1.2 million for the three months ended March 31, 1996 as compared to a net decrease of $1.5 million in the three months ended March 31, 1997. During the three months ended March 31, 1996, unbilled receivables increased $331,000 as compared to a decrease of $132,000 in the three months ended March 31, 1997. The Company's unbilled accounts receivable as of March 31, 1997 include $2.0 million which are due beyond twelve months. Investing activities used cash of $168,000 for the three months ended March 31, 1996 and provided cash of $4.4 million for the three months ended March 31, 1997. Investing activities during the three months ended March 31, 1997 consisted primarily of a change in the investment portfolio whereby the Company increased its position in investments which matured in less than 90 days and had fewer investments in securities with maturities greater than 90 days. Financing activities for the three months ended March 31, 1997 provided cash of $120,000 and consisted primarily of a settlement of debt of $450,000, which allowed for the release of the collateral on a letter of credit. The collateral release lifted the restriction on a $505,000 certificate of deposit. As of March 31, 1997, the Company had $54.0 million in cash, cash equivalents and marketable securities. In connection with the acquisition of Chalke Incorporated on March 31, 1995, the Company issued a promissory note in the principal amount of $3.0 million, with an imputed interest rate of 7.91% per annum. The final payment of $1.5 million, which was due on March 31, 1997, was paid on April 4, 1997. 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 the next 12 months. CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS Fluctuations in Quarterly Performance. The Company's revenues and operating results historically have varied 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; personnel changes 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. 10 Dependence on Financial Services Industry. The Company's clients include a range of organizations in the financial services industry, and the success of such 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. Product Concentration. To date, substantially all of the Company's revenues have been attributable to the licensing of its CAMRA, PTS and FILMS software and the provision of maintenance and consulting services in connection therewith. The Company currently expects that the licensing of CAMRA, PTS and FILMS software, and the provision of related services, will account for a substantial 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. Management of Growth. The Company's business has grown significantly in size and complexity over the past three years. The growth in the size and complexity of the Company's business as well as its client base has placed and is expected to continue to place a significant strain on the Company's management and operations. The Company's senior management has had limited experience in managing publicly traded companies. The Company's ability to compete effectively and to manage future growth, if any, will depend on its ability to continue to implement and improve operational, financial and management information systems on a timely basis and to expand, train, motivate and manage its work force. There can be no assurance that the Company's personnel, systems, procedures and controls will be adequate to support the Company's operations. If the Company's management is unable to manage growth effectively, the quality of the Company's products and its business, financial condition and results of operations could be materially adversely affected. Competition. The market for financial services 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 each of the industry segments served by the Company, there can be no assurance that such competitors will not compete against the Company in the future in additional industry segments. In addition, many of the Company's current and potential future competitors have significantly greater financial, technical and marketing resources, generate higher revenues and have greater name recognition than does 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 requirements. 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 with 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. Dependence on Database Supplier. The relational database design in many of the Company's software products incorporates PFXplus, a "C"-based database management system licensed to the Company by POWERflex Corporation Proprietary Limited, an Australian vendor ("Powerflex"). If Powerflex were to increase its fees under the license agreement, the Company's results of operations could be materially adversely affected. Moreover, if Powerflex were to terminate the license agreement, the Company would have to seek an alternative relational database for its software products. While the Company believes that it could migrate its products to an alternative 11 database, there can be no assurance that the Company would be able to license in a timely fashion a database with similar features and on terms acceptable to the Company. Dependence on Proprietary Technology. The Company's success and ability to compete is dependent in part upon 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 limit access to its proprietary technology will be adequate to deter 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 from time to time contain design defects or software errors that could be difficult to detect and correct. Errors, bugs or viruses may result in loss of or delay in market acceptance 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 inability to achieve market acceptance and thus could have a material adverse impact upon the Company's business, financial condition and results of operations. Risks Associated with International Operations.The Company intends to expand its international sales activity as part of its business strategy. To accomplish such expansion, the Company must establish additional foreign operations and hire additional personnel, requiring significant management attention and financial resources that could materially adversely affect the Company's business, financial condition or results of operations. The Company's international sales are primarily denominated in U.S. dollars. An increase in the value of the U.S dollar relative to foreign currencies could make the products more expensive and, therefore, potentially less competitive in those markets. Currently, the Company does not employ currency hedging strategies to reduce this risk. In addition, the Company's international business may be subject to a variety of 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 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. 12 PART II - OTHER INFORMATION Item 1. Legal Proceedings ----------------- On March 18, 1997, Elery G. Montagna and Marjory G. Montagna filed a purported class action lawsuit in the United States District Court for the Southern District of New York (the "New York Complaint") against the Company, its Chief Executive Officer, its Executive Vice President and its Chief Financial Officer, as well as against Alex. Brown & Sons Incorporated ("Alex. Brown") and Hambrecht & Quist LLC ("Hambrecht & Quist"), the lead managers of the Company's initial public offering. On April 8, 1997, Marc A. Feiner filed a purported class action lawsuit in the United States District Court for the District of Connecticut (the "Connecticut Complaint") against the Company, its directors and its Chief Financial Officer, as well as against Alex. Brown and Hambrecht & Quist. Each of the New York Complaint and the Connecticut Complaint claims that the Prospectus for the Company's initial public offering allegedly misrepresented how the offering price for the Company's initial public offering was established. The plaintiffs in each suit are seeking an undetermined amount of damages and costs and expenses of the litigation. Although the Company believes that it has meritorious defenses to the claims made in each lawsuit and intends to contest the lawsuits vigorously, an adverse resolution of these lawsuits could have a material adverse effect on the Company's financial condition and results of operations in the period in which the litigation is resolved. Item 6. Exhibits and Reports on Form 8-K -------------------------------- a. The exhibits listed in the Exhibit Index filed as part of this report are filed as part of or are included in this report. b. The Company filed no reports on Form 8-K during the quarter for which this report is filed. 13 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SS&C TECHNOLOGIES, INC. Date: May 14, 1997 By:/s/ John S. Wieczorek ---------------------------- John S. Wieczorek Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) 14 EXHIBIT INDEX Exhibit Number Description - -------------- ----------- 10.1 Employment Agreement between the Registrant and David M. Stoner, dated April 2, 1997. *10.2 Senior Officer Short-Term Incentive Plan 11 Statement re Computation of Per Share Earnings 27 Financial Data Schedule - ------------------------ * Confidential treatment requested as to certain portions, which portions are omitted and filed separately with the Securities and Exchange Commission. 15 EX-10.1 2 EMPLOYMENT AGREEMENT WITH DAVID M. STONER EXHIBIT 10.1 April 2, 1997 Mr. David M. Stoner 183 Maple Street Litchfield, CT 06759 Dear David: I am very pleased to extend an offer to you to join the SS&C Technologies, Inc. team as President and Chief Operating Officer. You will be responsible for SS&C's overall organization. A complete description of responsibilities will be provided upon your joining SS&C and we will jointly map out goals and expectations. I would expect that you would be joining SS&C full time no later than April 15, 1997. We have structured a compensation package that consists of six components: salary, incentive plan, stock options, benefits, severance, signing bonus, and board seat. 1. Salary Base salary of $225,000, paid according to standard company payroll policy. 2. Incentive Plan You are eligible for the 1997 SS&C incentive compensation plan. Target compensation for this plan @ 100% is $62,000 at 125% of plan is $82,000. 3. Stock Options The company will grant you participation in the 1994 stock option plan. You will be eligible to receive options to be 250,000 shares of SS&C Common Stock which will vest annually over four years. This equates to approximately 2% of SS&C's outstanding shares. The option price will be the price at the close of business on your start date. The option price is adjusted to reflect the value of the company and historically the price has risen. 3A. Options will be vested in full upon change of ownership. 4. Benefits Over the first few days, we will review the 401(k) Plan, education, short- term disability, vacation, and other benefits in greater detail. However, you are eligible for health insurance benefits on your start date with SS&C. Our medical plan is with the Aetna, through CBIA, the Connecticut Business and Industry Association and our Dental with The Guardian Life Insurance Company. We offer employees the option of their portion of health insurance premiums to be taken out of their gross salary via a premium conversion plan. We can discuss the tax implications of the plan in more detail. 5. Severance Although we hope that the employment relationship will be mutually satisfactory, your employment with SS&C is "at will." This means that your employment is for no specific period of time, however in the event you are involuntarily terminated for reasons other than cause, you will receive continuing base salary and benefits for a period of 6 months. If you are involuntarily terminated for reason other than cause (examples are: committing a felony or misdemeanor and unethical or dishonest behavior) within the first year, 25% of your options will immediately vest. Specific wording on this matter is more clearly defined in the stock option plan, which will be provided on your start date. 6. Board Seat You will be nominated for SS&C's Board of Directors and all efforts will be made to have you installed no later than the July 1997 Board meeting. You understand and agree that no facts or circumstances arising out of employment, including length of employment or any conduct by the company, including express or implied agreements, can alter the at will employment relationship unless specifically set forth in writing and signed by you and the Chief Executive of the company. It is our policy to have all new employees sign an Employee Confidentiality Agreement which will be provided for your signature on your first day of employment. We are also required by law to assure your right to work in the United States. Please provide a copy of your birth certificate or passport on or before your first day of employment. This letter sets forth, fully, all understandings and agreements between you and SS&C regarding your employment. Please acknowledge your acceptance of our offer by signing and dating this letter and returning it to me. A copy is included for your records. David, this is a key position in a fast growing, results oriented company. I think SS&C is an excellent opportunity for you to leverage your background and abilities and you will find that as you help this company succeed, you will be highly rewarded. Sincerely, /s/ William C. Stone William C. Stone Chief Executive Officer ACCEPTED BY: /s/ David M. Stoner - ----------------------------------- Mr. David M. Stoner EX-10.2 3 SENIOR OFFICER SHORT-TERM INCENTIVE PLAN EXHIBIT 10.2 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS SS&C TECHNOLOGIES, INC. ("the Company") SENIOR OFFICER SHORT-TERM INCENTIVE PLAN ("the Plan") Background: Compensation at the Company comprises (1) base salary, (2) fringe - ---------- benefits, (3) short-term incentives and (4) long-term incentives (i.e. stock options). In years prior to 1997, most short-term incentives have been commissions and bonuses awarded by the CEO, largely at his discretion. The Board of Directors and Senior Management therefore desire to formalize the awarding of bonuses, through the establishment of this Plan, so that all parties have a clear understanding of the Company's annual financial goals and the potential rewards for meeting such goals or exceeding such goals. DEFINITIONS ----------- Aggregate Salaries: The total of all Participants' Base Salaries for the - ------------------ Company fiscal year ("the Plan Year"). Base Salary: The amount earned by the Participant during the course of the Plan - ----------- Year, excluding bonuses and/or commissions. Participant: The determination of who will be a Participant in the Plan will be - ----------- made by the Compensation Committee of the Company's Board of Directors ("the Committee") at the beginning of the Plan Year, or in the case of 1997, upon enactment of the Plan. The Committee may also approve a new Participant during the course of the Plan Year; however, such Participant's Base Salary for purposes of any calculation made pursuant to this Plan will be prorated based on the number of days in which such individual was a Participant. A Participant must also be employed by the Company at the end of the Plan Year in the same position that the individual held at the beginning of the Plan Year, or in a position of greater responsibility within the Company. Should this not be the case, such individual will not be considered a Participant and such individual's bonus, if any, will be determined by the Committee in its sole discretion. Pre-tax Net Income ("PTNI"): PTNI will be determined based on the comparable - ------------------ amount in the Company's annual audited financial statements prior to the bonus accrual applicable to this Plan and adjusted for the impact of tax-exempt income and such other adjustments as the Committee in its sold discretion considers appropriate. CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. Planned Earnings Per Share ("PEPS"): PEPS is the net income planned for the - -------------------------- Company's fiscal year before income taxes and the bonuses applicable to this Plan. The PEPS can be adjusted during the course of the Plan Year by the Committee as it, in its sole discretion, may consider appropriate, for major events not included in the initial net income plan for the Company. Two examples of this type of an adjustment would be earnings from an acquisition made during the Plan Year or a write-off of purchased in process research and development. BONUS FORMULA ------------- The Total Bonus available for all Participants will be based upon achievement of the PEPS: (1) If PEPS is * * * * * but less than * * * * * , the bonus will be 10% of Aggregate Salaries (2) If PEPS is * * * * * but less than * * * * * , the bonus will be 30% of Aggregate Salaries (3) If PEPS is * * * * * or more the bonus will be 50% of Aggregate Salaries The Total Bonus will be reduced by any bonus reduction resulting from the Participant limitations described in the next section. DISTRIBUTION OF TOTAL BONUS --------------------------- The Total Bonus will be paid in cash or restricted securities to the Participants not later than 105 days after the completion of the Plan Year. Each Participants' share of the Total Bonus will be calculated as follows: (1) 75% of the Total bonus will be awarded based on the relationship that each Participant's Base Salary bears to the Aggregate Salaries. (For example, if PTNI equaled 100% of PEPS, the award to each Participant would be 50% of Base Pay multiplied by 75%). (2) The remaining 25% of the Total Bonus will be awarded to individual Participants in an amount determined by the Committee. Notwithstanding the foregoing, the Total Bonus payable to any Participant is limited to the lesser of $1,000,000 or five times a Participant's Base Salary. Furthermore, the bonus otherwise payable to a Participant who receives commissions, shall be reduced by 50% of the total commissions earned by such Participant during the Plan Year. Any bonus reduction resulting from the foregoing limitations will reduce the Total Bonus for all Participants. EX-11 4 COMPUTATION OF NET INCOME PER COMMON SHARE EXHIBIT 11 SS&C TECHNOLOGIES, INC. STATEMENT REGARDING THE COMPUTATION OF NET INCOME PER COMMON AND COMMON EQUIVALENT SHARES (4)
THREE MONTHS ENDED ------------------- MARCH 31, --------- 1996 1997 ---------- ---------- (unaudited) Historical - Primary (1): Weighted average issued common and preferred stock outstanding (2)............................. 9,041,540 12,417,962 Weighted average cheap stock (3).................... 484,380 - Weighted average common stock equivalents....................................... 970,500 945,208 Less: Assumed purchase of treasury stock.................................... (370,506) (601,179) ----------- ----------- Weighted average number of common and common equivalent shares outstanding 10,125,914 12,761,991 =========== ========== Net income...................................................... $ 313,179 $ 101,425 =========== ========== Net income per common and common equivalent share............... $.03 $ 0.01 =========== ========== Supplemental Pro forma (5): Weighted average issued common and preferred stock outstanding(2).................................... 9,041,540 12,417,962 Weighted average cheap stock (3).................... 484,380 - Weighted average common stock equivalents...................................... 970,500 945,208 Less: Assumed purchase of treasury stock.................................... (370,506) (601,179) ----------- ----------- Weighted average number of common and common equivalent shares outstanding................................. 10,125,914 12,761,991 =========== =========== Net income........................................................ $ 313,179 $ 101,425 =========== =========== Net income per common and common equivalent share................. $0.03 $ 0.01 =========== ===========
- -------- Notes: (1) For the three months ended March 31, 1996, all common and common equivalent share amounts have been restated to reflect the 10-for-1 stock split on April 25, 1996 as if in effect from the date of issuance. (2) For the three months ended March 31, 1996, all shares of convertible preferred stock are considered common stock equivalents and are included using the if-converted method, adjusted for the 10-for-1 stock split, except where their effect would be anti-dilutive. (3) In accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 83, issuances of common stock and common stock equivalents, within one year prior to the initial filing of the registration statement, at share prices below the assumed initial public offering price are considered to have been made in anticipation of the contemplated public offering. Accordingly, these stock issuances are treated as if issued and outstanding, using the treasury stock method for options, for the three months ended March 31, 1996. (4) Fully diluted net income per common and common equivalent share is not presented as it was the same for all periods presented. (5) The supplemental pro forma net income per common share is computed in the same manner as historical net income per share except that all outstanding shares of preferred stock, which were converted into common stock upon the closing of the initial public offering, were treated as having been converted into common stock at the date of original issuance. EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS INCLUDED IN THIS QUARTERLY REPORT ON FORM 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 43,173 10,843 11,729 1,502 0 66,391 5,668 2,483 76,574 12,054 0 0 0 138 64,382 76,574 6,313 6,313 0 2,048 1,579 79 0 171 70 101 0 0 0 101 .01 .01
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