10-K 1 d254270d10k.htm FORM 10-K Form 10-K
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

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 001-31555

 

 

Interactive Data Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   13-3668779

(State or other jurisdiction of

Incorporation or organization)

 

(I.R.S. Employer

Identification No.)

32 Crosby Drive

Bedford, Massachusetts

  01730
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (781) 687-8500

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  x    No  ¨

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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§323.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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

 

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of June 30, 2011, there was no established public trading market for any of the common stock of the registrant. As of March 14, 2012, there were 10 shares of common stock of the registrant outstanding, all of which were owned by Igloo Intermediate Corporation.

 

 

Documents Incorporated by Reference: None

 

 

 


Table of Contents

TABLE OF CONTENTS

 

         Page  

PART I

  

Item 1.

 

Business

     1   

Item 1A.

 

Risk Factors

     7   

Item 1B.

 

Unresolved Staff Comments

     12   

Item 2.

 

Properties

     12   

Item 3.

 

Legal Proceedings

     12   

Item 4.

 

Mine Safety Disclosures

     12   

PART II

  

Item 5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     12   

Item 6.

 

Selected Financial Data

     13   

Item 7.

 

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

     14   

Item 7A.

 

Quantitative and Qualitative Disclosures about Market Risk

     32   

Item 8.

 

Financial Statements and Supplementary Data

     33   

Item 9.

 

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

     86   

Item 9A.

 

Controls and Procedures

     86   

Item 9B.

 

Other Information

     86   

PART III

  

Item 10.

 

Directors, Executive Officers and Corporate Governance

     87   

Item 11.

 

Executive Compensation

     89   

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     99   

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

     101   

Item 14.

 

Principal Accountant Fees and Services

     103   

PART IV

  

Item 15.

 

Exhibits and Financial Statement Schedules

     104   


Table of Contents

PART I

 

Item 1. Business

We are a leading provider of financial market data, analytics and related solutions. Thousands of financial institutions, as well as hundreds of software and service providers subscribe to our services. We are one of the world’s largest providers of financial data, serving the mutual fund, bank, asset management, hedge fund, securities and financial instrument processing and administration sectors. We distribute our financial data and related offerings directly to customers and indirectly through value-added resellers (“VARs”), including software providers, processors and custodians.

On July 29, 2010, Interactive Data Corporation (“we” or “us”) was acquired in a merger (the “Merger”) by investment funds managed by Silver Lake Group, L.L.C. and Warburg Pincus LLC (the “Sponsors”). As further discussed in Note 1 “Summary of Significant Accounting Polices” and Note 3 “Merger”, in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, we are wholly-owned by Igloo Intermediate Corporation (“Intermediate”), which is wholly owned by Igloo Holdings Corporation (“Holdings”). Approximately 97% of the capital stock of Holdings is owned by investment funds affiliated with, and a co-investment vehicle controlled by, the Sponsors.

This Business Section and our consolidated financial statements following the Merger exclude the accounts of Intermediate and Holdings. We continued as the surviving corporation after the Merger and the accompanying Consolidated Financial Statements included elsewhere in this annual report on Form 10-K are presented for the year ended December 31, 2009 and the period from January 1 to July 29, 2010, both of which are prior to the Merger (referred to as the Predecessor period) and for the period from July 30 to December 31, 2010 and the year ended December 31, 2011, both of which are subsequent to the Merger (referred to as the Successor period). Our discussion in this Business Section as well as in the Management Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) includes the sum of the results of the 2010 Predecessor and Successor periods on a combined basis, referred to as Combined 2010 or the combined year ended December 31, 2010. This combined presentation is not in accordance with accounting principles generally accepted in the United States (“GAAP”). Due to purchase accounting adjustments, Combined 2010 results may not be strictly comparable to 2009 or 2011 results; however, we believe that presentation and discussion of Combined 2010 results is meaningful to investors as it enables a reasonable comparison to the comparable years ended December 31, 2009 and 2011.

In our filings prior to this Annual Report on Form 10-K, our financial reporting included two reportable segments: Institutional Services and Active Trader Services. Effective for the fourth quarter of 2011, the composition and description of our reportable segments was changed resulting in two new reportable segments; Pricing and Reference Data, and Trading Solutions. The change was made in response to operational and organizational initiatives undertaken during the preceding year and completed in the fourth quarter of 2011 and reflects the way we currently approach the market and analyze operating performance. The Pricing and Reference Data segment represents our evaluated pricing, reference data and fixed income analytics service areas. The Trading Solutions segment represents our real-time data feeds, ultra low latency infrastructure services, hosted web solutions and workstations. Historical financial results have been reclassified to reflect this change. Please refer to Note 14 “Segment Information” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

Pricing and Reference Data

Our Pricing and Reference Data segment provides an extensive range of financial market data services and analytics to thousands of customers worldwide including banks, brokerage firms, mutual fund companies, exchange traded fund (“ETF”) sponsors, hedge funds, pension funds, insurance companies and asset management firms. In addition, our offerings are also used by financial information providers, information media companies, and VARs such as software providers, processors, custodians and other outsourcing organizations. The Pricing and Reference Data Segment has three core offerings: 1) Evaluated pricing services, which are daily opinions of value, on approximately 2.8 million fixed income securities, international equities and other hard-to-value financial instruments; 2) Reference data, which encompasses listed markets pricing and descriptive information covering over ten million global financial instruments for use across the securities and financial instrument processing lifecycle; and 3) Fixed income portfolio analytics and fixed income data to help manage risks and analyze the sources of investment risk and return. This segment accounted for $591.9 million, or 68.2%, of our revenue for the year ended December 31, 2011.

Trading Solutions

Our Trading Solutions segment provides thousands of customers worldwide with products and services that support a range of trading, wealth management and other investment applications. The Trading Solutions segment has two primary offerings: 1) Real-time market data feeds and trading infrastructure services used by banks, brokerage firms, asset managers, hedge funds and proprietary trading firms in order to facilitate ultra low latency electronic trading as well as support other applications; and 2) Customized hosted web applications and workstations that are used by financial advisors, energy and commodity professionals, active traders and individual investors, other investment community professionals, information media companies and corporations. This segment accounted for $275.8 million, or 31.8%, of our revenue for the year ended December 31, 2011.

For revenue, income from operations, identifiable assets and the relevant percentages for each of our segments, in addition to revenue and long-lived assets by geographic region, please refer to Note 14 “Segment Information” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

Forward-looking Statements

Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), are made throughout this Annual Report on Form 10-K. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements include, among other things, the information concerning our possible future results of operations including revenue, costs of goods sold, and gross margin, future profitability, future economic improvement, business and growth strategies, financing plans, our competitive position and the effects of competition, the projected growth of the industries in which we operate, and our ability to consummate strategic acquisitions and other transactions. Forward-looking statements include statements that are not historical facts and can be identified by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “plan,” “may,” “should,” “will,” “would,” “project,” and similar expressions. These forward-looking statements are based upon information currently available to us and are subject to a number of risks, including those detailed under the heading, “Risk Factors” in Item 1A in Part I, uncertainties, and other factors that could cause our actual results, performance, prospects, or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. While we may elect to update forward-looking statements in the future, we specifically disclaim any obligation to do so, even if our estimates change, and investors should not rely on those forward-looking statements as representing our views as of any date subsequent to the date of the filing of this report.

 

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Corporate History

Interactive Data Corporation (formerly known as Data Broadcasting Corporation) was incorporated in 1992 under the laws of the State of Delaware. On February 29, 2000, Interactive Data Corporation was created through the merger of Data Broadcasting Corporation, which included the eSignal suite of workstations and the BondEdge fixed income analytics offerings, and the business then known as Interactive Data Corporation, which included historical and end-of-day pricing, evaluations and financial information, an entity which has been in the financial data business for over 40 years and at the time of the merger was 100% indirectly owned by Pearson plc. Subsequent to this merger and through July 29, 2010, Pearson plc indirectly owned approximately 61% of our issued and outstanding common stock. On July 29, 2010, we were acquired by investment funds managed by the Sponsors. Refer to Note 3 “Merger” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further discussion.

Since the merger of Data Broadcasting Corporation and Interactive Data Corporation, we have completed a number of acquisitions, which have served to either expand our existing businesses or enabled us to enter adjacent market segments. The following provides a brief description of each of these acquisitions:

 

   

In January 2002, we acquired from Merrill Lynch, Pierce, Fenner & Smith Incorporated certain assets used in its Securities Pricing Service business. These assets have since been integrated into our evaluated pricing and reference data operations.

 

   

In February 2003, we acquired from The McGraw-Hill Companies, Inc. the stock of S&P ComStock, Inc., and the non-U.S. assets of certain related businesses in the United Kingdom, France, Australia, Singapore and Hong Kong, collectively referred to as ComStock. ComStock was later renamed Interactive Data Real-Time Services.

 

   

In October 2003, we acquired the real-time data feed customer base of HyperFeed Technologies, Inc., a provider of enterprise-wide real-time data processing and transaction technology software and services. The HyperFeed customer base has been integrated into our Real-Time Services business.

 

   

In September 2004, we acquired the net assets of FutureSource, LLC, and its subsidiaries, or FutureSource, a leading provider of real-time futures and commodities data. The FutureSource offerings are now part of workstations.

 

   

In December 2005, we acquired 95.1% of the stock of IS.Teledata AG and its subsidiaries, or IS.Teledata, a leading provider of customized, hosted web-based financial information solutions. In 2006, we subsequently acquired the remaining IS.Teledata shares from minority stockholders, increasing our total ownership in IS.Teledata to 100%. The IS.Teledata business was renamed Interactive Data Managed Solutions and now forms the foundation of our wealth management product area.

 

   

In March 2006, we acquired the net assets of Quote.com and certain other related assets from Lycos, Inc. Quote.com offerings, which included subscription-based services for active traders, QCharts and LiveCharts, are now part of our range of workstations.

 

   

In May 2007, we acquired the net assets comprising the market data division of Xcitek LLC (“Xcitek”), as well as the market data assets of its affiliate Xcitax LLC (“Xcitax”). These assets included North American corporate actions data, such as reorganization, cost basis and class action data. These assets were integrated into our reference data operations.

 

   

In August 2008, we acquired Kler’s, a leading provider of reference data to the Italian financial industry, including corporate actions and taxation information on Italian and international securities, with coverage of equities, listed and unlisted Italian bonds, funds, simple derivatives and warrants. Kler’s now markets its services as Interactive Data Kler’s.

 

   

In December 2008, we acquired 80% of NDF from NTT DATA Corporation and certain other minority stockholders. In 2009, we subsequently acquired an additional 10% interest and we acquired the remaining outstanding equity in December 2010. NDF, which was renamed Interactive Data Japan KK, is a leading provider of securities pricing, reference data and related services to most of the major financial institutions in Japan.

 

   

In December 2009, we acquired certain assets of Dow Jones & Company, Inc.’s Online Financial Solutions (“OFS”) business. The OFS assets are used to develop and host web-based solutions, including news, market data, research and advanced charting, portfolio management and alerting capabilities. We integrated this business into our wealth management offerings within our Trading Solutions segment.

 

   

In January 2010, we acquired the assets of Dubai-based Telerate Systems Limited (“TSL”), a sales agent for our workstations used by commodities, financial futures and foreign exchange trading community in the Middle East. The TSL assets have been rebranded under the Interactive Data name within our Trading Solutions segment.

 

   

In January 2010, we acquired the assets of 7ticks, a provider of electronic trading networks and managed services. This business specializes in providing direct exchange access, proximity hosting, and support services that facilitate ultra low latency electronic trading. The 7ticks business operates as part of our real-time services offering in our Trading Solutions segment. The 7ticks services are now marketed as Interactive Data 7ticks.

Industry Background

Financial industry participants utilize financial market data and information services and solutions to support critical business functions across the enterprise of their organizations, including the valuation of financial instruments, risk management, compliance with regulatory requirements, investment decision-making and trading. The financial market data required to support these applications encompasses real-time, intraday, end-of-day and historic pricing and evaluation information, reference data such as dividends, corporate actions and key descriptive information about securities and other related business or financial content. This market data is integrated into an expansive range of proprietary and third-party tools, systems and solutions that support a range of mission-critical activities such as investment research, the development and execution of trading strategies, risk management, compliance, sales and marketing, and customer support.

It is costly and complex for financial institutions, information media companies and others to directly obtain, aggregate, store, evaluate and distribute financial market data from the securities exchanges and other financial markets worldwide. In addition, financial institutions and other organizations using financial market data typically strive to consistently obtain their content in a timely manner without sacrificing quality or security. Extensive expertise and technical knowledge about the financial market data industry are required to effectively obtain, aggregate, store, evaluate and distribute the volume and diversity of financial content utilized within the financial services industry. This expertise and knowledge is highly specialized and diverse, as are the underlying technical infrastructure and related systems for delivering such content to customers. In addition, considerable domain and technological expertise is needed to develop and deploy systems and solutions that integrate this content and effectively address customer requirements.

For these reasons, financial institutions and other organizations contract with financial market data service providers like ourselves that specialize in aggregating and delivering financial content directly from many sources around the world, including securities exchanges; other financial markets that encompass fixed income, foreign exchange and derivatives including options and futures; and information providers such as news services. Aggregating this data requires establishing relationships with each of these sources to acquire this data, and creating a global technical infrastructure capable of collecting the source data and incorporating it into a uniform structure so that it can be delivered in a reliable and consistent manner whenever the customer requires it (in real-time, at specified intervals during the day, or at the end of the day). In addition, specialized financial market data vendors like us invest significant resources to identify and mitigate source or other errors in reporting, collecting, aggregating, storing and distributing information to customers. Further, specialized financial market data vendors like ourselves develop proprietary methodologies, models and systems that are used to produce content such as evaluations that can assist financial institutions in their efforts to value their holdings, particularly fixed income financial instruments, that trade infrequently, if at all, in the secondary market. Related to this, financial institutions may find it valuable to obtain this data from an independent third party like us who is not involved in the underlying securities transactions.

 

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In addition, as financial institutions develop, deploy and execute sophisticated automated trading programs, they are increasingly looking for specialist providers like us to offer ultra low latency connectivity between their trading systems and stock exchanges and trading venues. Financial institutions may also seek third-party solutions providers like us to help them design, build and host certain parts of their web sites, extranets or intranets. These customized, hosted web-based solutions typically aggregate content from third-party providers like us, and combine that with internal information as required, to cost-effectively support the wealth management, sales and marketing, customer service and various other activities of a financial institution. Moreover, to make timely decisions in support of their investment strategies, many customers access financial information portals and workstations that integrate financial content from an extensive range of sources as well as provide access to sophisticated analytics and decision-support tools.

Services and Customers

We offer our financial market data services, analytics and related solutions to financial institutions, as well as software and service providers. Our businesses address the needs of these customers by providing time-sensitive, high-quality information regarding securities, commodities and derivative instruments as well as access to sophisticated decision-support tools. We target our customers through our Pricing and Reference Data and Trading Solutions segments’ offerings.

Our customer base is both diverse and global in scope. Our customer base includes many of the world’s largest financial institutions, including 48 of the top 50 U.S. banks, all of the top 50 global asset managers, all of the top 50 U.S. mutual funds and all of the top global custodians. The number of customers includes all legal entities directly subscribing to our offerings. Certain units, divisions, regional affiliates and certain business units within a single legal entity or organization are considered by us to be separate distinct customers when they separately subscribe to our services. The number of customers within any given segment may vary from year to year based on several factors, including new sales to new customers, new customers resulting from acquisitions, customer cancellations, and the impact of the consolidation of customers. In addition, through our VAR relationships, we maintained interfaces to over 500 software applications, technology solutions, outsourcing-related services and web portals. These VARs sublicense or redistribute data typically to medium and small institutions, and individual investors.

Pricing and Reference Data

Our Pricing and Reference Data segment provides an extensive range of financial market data services and analytics to thousands of customers worldwide, including banks, brokerage firms, mutual funds companies, ETF sponsors, hedge funds, pension funds, insurance companies and asset management firms. In addition, our offerings are also used by financial information providers, information media companies, and VARs such as software providers, processors, custodians and other outsourcing organizations. The Pricing and Reference Data Segment has three core offerings: 1) Evaluated pricing services, which are daily opinions of value, on approximately 2.8 million fixed income securities, international equities and other hard-to-value financial instruments; 2) Reference data, which encompasses listed markets pricing and descriptive information covering over ten million global financial instruments for use across the securities and financial instrument processing lifecycle; and 3) Fixed income portfolio analytics and fixed income data to help manage risks and analyze the sources of risk and return.

Evaluated Pricing:

 

   

We deliver an extensive range of daily opinions of value on approximately 2.8 million fixed income securities, international equities and other hard-to-value financial instruments. Our evaluated prices are the result of developing and refining our proprietary processes and methodologies that combine sophisticated modeling techniques developed by our quantitative methodologists including math, finance, physics and statistics PhDs; information from an extensive range of market sources; and a team of approximately 180 skilled evaluators who integrate relative credit information, observed market movements and sector news into our evaluated pricing applications and models. Given that many fixed income securities and other financial instruments trade infrequently, if at all, in the secondary market, our evaluated prices represent our good faith opinion of the price a buyer in the marketplace would pay for a security (typically in an institutional round lot position) in a current sale. Our evaluated pricing services are typically used by customers along with our listed markets pricing for asset and portfolio valuation such as end-of-day mutual fund net asset values (“NAVs”), and risk management applications.

 

   

Our evaluated pricing coverage includes securities and financial instruments issued in North America such as corporate, government, municipal and agency fixed income securities, convertible bonds, debentures, pass-through securities and structured products, and foreign instruments issued in markets outside of North America such as convertible bonds, debentures, Eurobonds and sovereign and corporate bonds. Pricing and Reference Data’s evaluated pricing services also include our Fair Value Information ServiceSM through which we provide evaluations for certain international equity securities, equity options and equity index futures. The Fair Value Information Service is designed to provide customers with information that can be used to estimate a price for an international, exchange-traded issue that would likely prevail in a liquid market in view of information available at the time of evaluation.

Reference Data:

 

   

Complementing our evaluated pricing services is a range of listed markets pricing and descriptive information covering over 10 million global financial instruments for use across the financial instrument processing lifecycle. This content is supported by a global team of over 250 reference data collection professionals with language skills including English, German, French, Spanish, Portuguese, Italian, Mandarin, Japanese, Korean, Thai and Indonesian. Our reference data covers:

 

   

Listed and Non-listed Markets Pricing: Extensive, high-quality intraday, end-of-day and historical global pricing for securities typically used for portfolio valuation and risk management applications;

 

   

Corporate Actions: End-of-day and intraday corporate actions and income-related information such as capitalization changes, dividends, stock splits, earnings, shares outstanding and changes in credit ratings for fixed income and equity securities;

 

   

Terms and Conditions: Key terms and conditions for fixed income financial instruments such as call, put and interest payment information; and

 

   

Identification Information: Name, ticker symbol, CUSIP®, SEDOL®, etc.

Our listed and non-listed markets pricing information, evaluated pricing and other descriptive reference data services are often used in tandem by financial institutions worldwide to facilitate mission-critical functions including portfolio valuation, client reporting, regulatory compliance, risk management, and investment research. For example, each U.S. mutual fund has a regulatory obligation to determine the fund’s NAV each trading day. The NAV is the price per share for all investments in and redemptions from the mutual fund for that day. Many mutual funds consider the pricing and evaluation data we provide to them as an important input to their own daily valuation determinations, and we believe we are the leading provider of market data that supports the NAV calculation processes within the U.S. mutual fund industry. Financial institutions also utilize our content to support an array of other applications. For example, our reference data is used by financial services firms in the settlement process that occurs in connection with purchases and sales of financial instruments, and in the preparation of reports and account statements internally and for their end clients. In addition, financial institutions utilize Pricing and Reference Data’s securities information as they perform activities required to meet various regulatory requirements. Intraday, end-of-day and historical data from this business is also used by customers to research investment decisions.

 

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To support our evaluated pricing and reference data offerings, we have developed proprietary methods for receiving, aggregating, delivering and displaying source data. In addition, when practicable, teams of professionals work to enhance the quality and completeness of the data before it is delivered to customers. Our customers receive a majority of their data through computer-to-computer links and Internet-based applications. We also work closely with redistributors who typically use their own delivery systems or serve as an interface between their clients’ and our delivery systems to redistribute and/or process our data. We design our data feeds to be compatible with third-party software applications and standard industry protocols to allow institutional customers to integrate these data feeds into their infrastructures. At the same time, our offerings are typically tightly integrated into our customers’ systems and workflows, often as the result of significant historical investment by these customers. We continue to refine and enhance our proprietary methodologies for evaluating fixed income financial instruments by combining sophisticated modeling techniques, information from market sources and teams of skilled evaluators who integrate relative credit information, observed market movements and sector news into the evaluated pricing applications and models.

To capitalize on growth opportunities for our evaluated pricing and reference data services, we actively seek to enhance our existing services and develop new offerings by establishing business alliances, automating key data collection processes, refining our evaluation processes, expanding our data coverage, (particularly in the area of hard-to-value financial instruments), increasing the delivery frequency and flexibility of our services, and adding new capabilities including those designed to assist customers with their operational workflow and regulatory compliance challenges. During 2011, we expanded our evaluated pricing market coverage by introducing new valuation services for U.S. residential whole loans and credit default swaps, developing a new real-time version of our Fair Value Information Service and adding local evaluators in Germany and Hong Kong. We also introduced new information and transparency tools and resources, such as VantageSM our web-based transparency service that provides customers with extensive data regarding the fixed income market and our evaluations, as well as workflow capabilities that are designed to enhance our customers’ operational efficiency. We expanded our reference data market coverage, enhanced a number of core offerings including our intraday corporate actions service, Business Entity Service and Basket Calculation Service, implemented initiatives to further increase the quality of our data and collect certain data sets that were previously provided to us by third parties.

Fixed Income Analytics:

 

   

Our fixed income analytic offerings, led by our flagship solution BondEdge®, provides financial institutions with fixed income data and sophisticated fixed income portfolio analytics to help manage risks and analyze the sources of risk and return. These offerings are used by financial institutions to simulate various fixed income market environments to help forecast performance results, validate investment strategies against a variety of benchmark indices, conduct stress testing, generate dynamic risk measures, analyze asset cash flows and support compliance with certain state regulatory reporting requirements. BondEdge tools help fixed income professionals manage institutional fixed income portfolio risk, help identify fixed income investment opportunities and comply with certain regulatory requirements by providing access to interest rate and credit risk management tools, an extensive global fixed income financial instruments database as well as regulatory reporting and compliance tools. BondEdge’s advanced risk/reward analysis tools are supported by proprietary quantitative modeling techniques that access our comprehensive terms and conditions security information. BondEdge interfaces with many of the major third-party accounting and asset/liability software packages, in order to reduce duplicate manual data entry and to facilitate improved accuracy and efficiency within an organization. The primary users of BondEdge within these financial institutions are fixed income portfolio managers who invest in or sell fixed income financial instruments, particularly complex securities. BondEdge is offered via an array of delivery options, including client-server (BondEdge), ASP/Internet accessible (eBondEdge®), local area network/wide area network configurations (BondEdge ES) and a fully hosted offering, BondEdge® OnDemand, which provides customers an alternative to installing and managing BondEdge as an in-house application.

 

   

We also provide a service bureau offering, BondEdge BureauSM, whereby our BondEdge Solutions professionals run BondEdge on behalf of customers and provide customers with certain fixed income portfolio analysis and risk management information. In addition, this business markets BondEdge FeedSM (which has also been marketed as Analytix DirectSM in the U.S.), a fixed income data feed service that provides a variety of risk measures independent of a dedicated software application. This service is designed to meet the needs of financial institutions that operate centralized data warehouses to support multiple departments and various applications throughout the institution. BondEdge Feed is also marketed as an add-on module to certain pricing and reference data services.

Trading Solutions

Our Trading Solutions segment provides thousands of customers worldwide with products and services that support a range of trading, wealth management and other investment applications. The Trading Solutions segment has two primary offerings: 1) Real-time market data feeds and trading infrastructure services used by banks, brokerage firms, asset managers, hedge funds and proprietary trading firms in order to facilitate ultra low latency electronic trading as well as support other applications; and 2) Customized hosted web applications and workstations that are used by financial advisors, energy and commodity professionals, active traders and individual investors, other investment community professionals, information media companies and corporations.

Real-Time Feeds and Trading Infrastructure Services:

 

   

Our real-time feeds offerings provide cost-effective access to disparate real-time data sources without having to maintain direct connections. Through our PlusFeedSM service, customers receive consolidated real-time and/or delayed financial data from over 450 global exchanges, trading venues and data sources covering listed and OTC securities. We offer a variety of delivery methods for PlusFeed, including client site deployed solutions with leased-line connectivity, hosted Internet delivery via a secure virtual private network (PlusFeed VPN) and a secure leased-line connection for cost-effective access to a specified “watch-list” of instruments (PlusFeed Select). Our PlusFeed service is complemented by PlusTickSM, which provides financial institutions with access to tick and trade data for global securities in order to assist them in their compliance with “best execution” requirements, transaction cost analysis and advanced charting applications.

 

   

We also provide infrastructure services such as direct exchange access, proximity hosting and support services that enable access to raw real-time exchange data and facilitate ultra low latency electronic trading. Customers use these managed services to outsource key aspects of their electronic trading operations to us including the build out, management and monitoring of the network infrastructure, and the connectivity between their automated trading systems and stock exchanges and trading venues around the world.

 

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We continually seek to strengthen our Real-Time Feeds and Infrastructure Services offerings within the Trading Solutions segment. More specifically, we work closely with customers to ensure that our offerings can support or leverage various technology environments in order to effectively manage rising market data volumes, reduce data latency or further facilitate their ultra low latency trading strategies. We continue to add new financial markets, particularly those outside of North America, and content, and further extend our 7ticks networks coverage globally. In 2011, we added global broker and other over-the-counter (OTC) content as well as various stock exchanges to our PlusFeed service, added support for new exchanges and financial markets to further extend our 7ticks network globally, and enhanced the network monitoring and reporting capabilities available for 7ticks customers.

Customized Hosted Web Applications and Workstations:

 

   

We are focused on designing, building and hosting customized, web-based financial information solutions primarily to address the wealth management and information media sectors. Our web-based hosted financial information solutions, such as PrimePortal, utilize a flexible web services architecture, and consist of financial market data, decision-support tools and hosting services. Customers use the web portals, financial web pages and web modules that we develop and host on our technical infrastructure to effectively and efficiently provide relevant information and tailored functionality in easy-to-use interfaces while helping facilitate investment and advisory processes, and streamline workflows.

 

   

We also market a range of workstations that primarily target the wealth management, energy and commodity and active trader sectors. Our workstations help our customers analyze and make investment decisions about financial instruments traded on major markets worldwide, including equities, futures and commodities. Our primary wealth management workstations are PrimeTerminal and Market-Q, which are hosted market data workstations sold in Europe and North America, respectively. Along with our web-based hosted solutions, these workstations aggregate content that may be sourced from both the customer and from a number of information providers, including us, and then tailor the visual display of the content to the needs and specifications of clients. By using a software as a service (“SaaS”) business model for our web-based hosted solutions, we enable customers to lower expenses by reducing the need for owning and maintaining costly IT infrastructures and managing market data volumes. Under our eSignal® and FutureSource® brands, we provide workstations and related offerings that deliver real-time financial market information and provide decision-support tools that address the needs of active traders, energy and commodity professionals, and other investors. These workstations are complemented by services for wireless access to real-time streaming market data. As of December 31, 2011, our workstations and related services supported approximately 83,000 total subscribers worldwide.

Within the Hosted Web and Workstations offerings, we seek to enhance our services by providing access to news, pricing and information, adding new tools for displaying and analyzing investment portfolios, developing new capabilities to enhance the investment decision-making process across a range of different securities, identify securities of interest, and by creating new statistical and analytics tools designed to enable customers to better track the performance of their investments. In 2011, we added new content, features and functionality into our hosted web and workstation platforms, including improved access to trade execution capabilities and enhanced integration between certain workstation platforms and our mobile services.

Business Strategy

We are focused on expanding our position as a trusted leader in the financial information services market. A key element of our strategy involves working closely with our largest direct institutional customers and redistributors to better understand and address their current and future financial market data needs. By better understanding customer needs, we believe we can develop enhancements to existing services and introduce new services. More specifically, we are investing in internal development programs in ways that can enable us to deliver high-value services and solutions and extend our global reach. In particular, we plan to continue expanding our market coverage, adding additional resources in growth-oriented international markets, and developing new and enhanced services, tools and solutions that further strengthen and expand existing customer relationships, and attract new customers and strategic partners worldwide. As part of our efforts to build strong customer relationships, we continue to invest significant resources to provide high-quality, responsive customer support and service. We believe that our combination of strong account management and responsive customer support has contributed to our high customer retention rates as well as enhanced our ability to attract new customers.

In addition, strategic acquisitions have complemented our internal investment activities in the past, and we may elect to pursue certain strategic acquisitions in the future in order to achieve key business objectives. Furthermore, we continue to advance programs that can further improve our technical infrastructure, increase our operational efficiency and optimize our cost structure. More specifically, we are investing to reengineer our product technology and replace legacy product systems with a new unified technical architecture that will facilitate the collection, use and distribution of the content that supports our core real-time, intraday and end-of-day evaluations and listed market pricing and various other reference data services.

We have historically invested our financial resources in organic growth initiatives and strategic acquisitions. As a result of the Merger, we have incurred significant debt and our payment obligations for our debt have reduced, and will continue to reduce, our cash flow. However, even given these new uses of cash, we believe our business will continue to generate sufficient cash flow from operations to fund our currently planned, growth-oriented initiatives as well as other elements of our strategy.

Marketing

To support the sales efforts of our businesses, we implement a range of promotional and lead-generating activities such as public relations, direct mail, email, seminars, targeted trade shows and other customer-oriented events (both in person and in online forums), community involvement and advertising. Our other primary marketing initiatives include advertising in leading vertical publications and on the Internet, publishing white papers and newsletters, issuing press releases and having our executives and managers quoted in various articles. When possible, our businesses coordinate sales, marketing and development activities to cost-effectively address various needs of our customers in a timely manner. Our sales teams possess specialized industry and product expertise that facilitate on-site and remote demonstrations of our services and direct interaction with our customers and prospects. We also work closely with VARs and other business partners to jointly market our services to current and prospective customers. In 2012, we intend to continue to monitor changes in our industry and the evolving needs of our customers. We will also continue to foster our long-standing customer relationships and work closely with our customers to identify new sales opportunities, and better leverage and coordinate selling efforts across our global customer base.

Competition

The market for providing financial market data, analytics and related services is highly competitive in each of our core service areas. Some of our established competitors have greater financial, technical, sales, marketing, and support resources, and are able to devote more significant resources to the research and development of new services than we can. In addition, these competitors may have diverse offerings that allow them the flexibility to price their services more aggressively. Some of our competitors also have more extensive customer bases and broader customer relationships than we do, including relationships with customers in their local geographies. Another challenge includes customers self-sourcing financial data and news directly from brokers, exchanges and news services. Across our businesses, we believe that our primary competitive advantages include the following:

 

   

Our extensive expertise and knowledge about the financial market data industry;

 

   

Our experience and expertise in valuing hard to price securities;

 

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Our timely and reliable delivery and the quality and breadth of coverage of our data and related services compared with those of our competitors;

 

   

Our ability to expand and customize our data and related services to meet the current and evolving needs of our customers;

 

   

Our technical expertise and experience which enables us to deliver our data and related services using a variety of delivery platforms and technologies, and to cost-effectively integrate our data and related services into the operational workflow of our customers;

 

   

Our ability to innovate and keep pace with evolving needs of our customers as well as our ability to timely launch new services that meet the needs of our customers;

 

   

Our independence as a provider of services which are unaffiliated with a traditional investment bank, brokerage or asset management firms;

 

   

Our high-quality customer service and support;

 

   

Our VAR network, which adds significant distribution scale and enables us to contract, either directly or indirectly, with small- and medium-sized customers;

 

   

Our reputation as a leader in the industry; and

 

   

Our strong customer relationships.

Pricing and Reference Data

Competition within our Pricing and Reference Data segment ranges from large, established suppliers of news and financial data to smaller, more specialized vendors. The main competitors with respect to our evaluated pricing and reference data offerings include large global suppliers of financial and business news and financial market data such as Thomson Reuters Corporation, SIX Telekurs, Markit Group Limited, S&P Valuation Services and Bloomberg L.P. Additionally, specialized competitors in structured products, derivatives and other complex, esoteric securities include J.P. Morgan Pricing Direct (formerly Bear Stearns Pricing Direct), Pricing Partners, and SuperDerivatives. In the fixed income analytics product area, our BondEdge offerings compete against other financial services analytical software companies such as FactSet Research Systems Inc., The Yield Book, Inc., (a wholly owned subsidiary of Citigroup Capital Markets), Barclays Bank PLC’s POINT® (as a result of its acquisition of Lehman Brothers) and Wilshire Associates Incorporated. Other competition unique to this product area includes the use of specialized spreadsheet applications, and financial institutions that develop their own in-house software solutions.

Trading Solutions

Competition within our Trading Solutions segment varies from large, established suppliers of news and financial data to smaller, more specialized vendors. The main competitors with respect to real-time data feeds include Thomson Reuters Corporation, Bloomberg L.P., NYSE Technologies, SIX Telekurs, Morningstar and Activ Financial. Competitors in the ultra low latency trading solutions area include global managed services providers such as BT Radianz and Savvis, and other specialized managed service providers that facilitate ultra low latency trading. Competitors in the hosted web solutions sector include firms such as Markit Group Limited (as a result of the July 2010 acquisition of Wall Street on Demand), Morningstar and Quote Media. Competition for wealth management workstations includes Thomson Reuters Corporation, SIX Telekurs, Morningstar and other smaller niche providers. In the energy and commodity, and active trader sectors, workstation competition can vary from Thomson Reuters and Bloomberg L.P., to specialized vendors such as CQG, Inc., DTN Holding Company, Inc. (a business owned by Telvent), TradeStation (which was acquired by Monex Group in June 2011 and now operates as a wholly owned subsidiary of Monex Group), Realtick (part of Convergex Group) and other niche vendors, as well as online and traditional brokerage businesses that have developed their own analytics tools. In addition to the advantages cited above, we also believe that our other competitive advantages with respect to our workstation offerings include price, ease of use, compatibility with third-party software packages and analytics that are independent of a brokerage or asset management firm yet provide access to these firms.

Technology Infrastructure

Our global technology infrastructure and operations support the offerings within each segment of our business. As we move forward, we are investing to reengineer our product technology and replace legacy product systems with a new unified technical architecture that will facilitate the collection, use and distribution of the content that supports our core real-time, intraday and end-of-day pricing and reference data services. As part of this activity, we are upgrading and consolidating our extensive content databases and delivery platforms to more effectively support our service offerings, accelerate time to market for new services and better leverage the combined capabilities of the different service groups across our organization. In addition, we are also in the process of enhancing our global real-time network and related processing capabilities to extend and leverage the Interactive Data 7ticks infrastructure. Across all segments of our business, we invest in technology oriented initiatives designed to further enhance the quality and expand the breadth of coverage in our data offerings, as well as the features and functionality of various offerings.

Our technology infrastructure is designed to facilitate the reliable and efficient processing and delivery of data and analytics to customers worldwide. Our systems contain multiple layers of redundancy to enhance system performance, including maintaining, processing and storing data at multiple data centers. As a result, in the event of a site failure, equipment problem or regional disaster, we believe we have the capacity to handle the additional load through the remaining data centers. We continue to be focused on maintaining a global technical infrastructure that allows us to support our growing businesses, and provide data and analytics using various delivery methods designed to meet the needs of our customers worldwide.

Intellectual Property

We maintain a portfolio of intellectual property, including registered and common law trademarks and service marks and copyrights. Additionally, we have four patents issued and two patents that have been approved for issuance. One of our issued patents expires in August 2021, another in December 2022, and two expire in September 2027. We have rights to approximately 80 trademarks and service marks. We place significant emphasis on our branding and consider our trademark and service mark portfolio to be an important part of our ongoing branding initiative. In addition, we own the copyrights to our internally developed software applications and data delivery services (with the exception of certain rights unrelated to our business that we jointly own with Nookco as described below under the heading, “Related Party Transactions” in Part III of this Annual Report on Form 10-K). Other than with respect to the value of services marks and trademarks as described in Note 3, “Merger” in the Notes to the Consolidated Financial Statement Included in Item 8 of this Annual Report on Form 10-K, no single trademark, service mark, copyright, or patent, if lost, would materially adversely affect our business or our results of operations. License agreements, both as licensor with our customers and as licensee with suppliers of data, are important to our business.

 

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Geographic Areas

Through subsidiaries and affiliates, we conduct business in numerous countries outside of the United States. Our international businesses are subject to risks customarily encountered in international operations, including fluctuations in foreign currency exchange rates, import and export controls, and other laws, policies and regulations of local governments. During the year ended December 31, 2011 we expanded the number of geographic areas presented and prior years have been reclassified using the new approach for comparability purposes. During the past three years, our revenue by geographic region was as follows:

 

     Successor     Predecessor  

(In thousands)

   Year Ended
December 31,
2011
     Combined
2010
     Period From
July 30  through
December 31,
2010
    Period From
January 1 through
July 29,

2010
     Year Ended
December 31,
2009
 

Revenue:

               

United States

   $ 596,836       $ 547,624       $ 235,023      $ 312,601       $ 522,480   

United Kingdom

     88,688         82,534         35,442         47,092         75,722   

All other European countries

     126,891         117,218         50,337        66,881         113,583   

Asia Pacific

     42,699         39,523         16,972        22,551         37,861   

Rest of World

     12,609         9,746         4,327        5,419         7,572   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 867,723       $ 796,645       $ 342,101      $ 454,544       $ 757,218   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

At December 31, 2011, 2010 and 2009, respectively, long-lived assets by geographic region are as follows:

 

(In thousands)

   As of
December 31,
2011
     As of
December 31,
2010
     As of
December 31,
2009
 

Long-lived assets:

        

United States

   $ 2,723,355       $ 2,863,599       $ 584,292   

United Kingdom

     589,793         620,711         114,390   

All other European countries

     149,949         164,530         103,088   

Asia Pacific

     174,223         177,349         36,687   
  

 

 

    

 

 

    

 

 

 

Total

   $ 3,637,320       $ 3,826,189       $ 838,457   
  

 

 

    

 

 

    

 

 

 

Employees

We had approximately 2,600 employees as of December 31, 2011.

Working Capital Requirements

We have no special working capital requirements.

Regulation

Interactive Data Pricing and Reference Data, Inc., one of our subsidiaries, is registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940.

Our Interactive Data (Australia) Pty Ltd subsidiary is licensed by the Australian Securities and Investment Commission, or ASIC, to provide certain financial services in Australia under the Corporations Act 2001.

Our Interactive Data Desktop Solutions (Europe) Limited subsidiary is registered with the United Kingdom Financial Services Authority.

Internet Address and SEC Reports

We are required to file certain periodic information, documents and reports pursuant to the requirements of Sections 13 and 15(d) of the Securities and Exchange Act of 1934 with the Securities and Exchange Commission (“SEC”). The trustee or holders of our Senior Notes due 2018 may read and copy any document that we file, including this Annual Report on Form 10-K, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. Investors may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, from which the trustee or holders of our Senior Notes due 2018 can electronically access our SEC filings.

Our internet website is www.interactivedata.com. We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the SEC. We will also provide a copy of these documents free of charge to the trustee or holders of our Senior Notes due 2018 upon request.

 

Item 1A. Risk Factors

Set forth below are the risks that we believe are material to our investors. This section contains forward-looking statements. You should refer to the explanation of the qualifications and limitations on forward-looking statements appearing just before “Corporate History” above.

 

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Risks Related to Our Indebtedness

Our substantial leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent the interest rate on our variable rate debt increases and prevent us from meeting our obligations under the senior unsecured notes due 2018 (the “Senior Notes”).

As a result of completing the Merger and related financing transactions on July 29, 2010 (the “Transactions”), we became highly leveraged. As of December 31, 2011, our total indebtedness was $2.0 billion. We also had an additional $155.5 million available for borrowing under our Revolving Credit Facility at that date (after giving effect to $4.5 million of letters of credit that were outstanding as of December 31, 2011 related to certain operating leases). The following table shows our level of indebtedness and certain other information as of December 31, 2011.

 

(in thousands)

   As of December 31,
2011
 

Revolving Credit Facility(1)

   $ —     

Term Loan Facility(2)

     1,334,912   

Senior Notes

     700,000   
  

 

 

 

Total indebtedness

   $ 2,034,912   
  

 

 

 

 

(1) Our Senior Secured Credit Facilities, which have a 5-year maturity, provide for borrowing up to a $155.5 million aggregate amount (after giving effect to $4.5 million of letters of credit that were outstanding as of December 31, 2011).
(2) In connection with the Merger, we entered into a $1.33 billion aggregate principal amount Senior Secured Credit Facilities with a 6.5 – year maturity. The Term Loan Facility was issued at a 3%, or $39.9 million, original issue discount, which is being amortized and included as interest expense using the effective interest method in our statements of operations over the life of the Term Loan Facility. In February 2011, we refinanced the Senior Secured Credit Facilities, increasing the aggregate principal to $1.35 billion and the term to 7 years. We paid an early payment fee of $13.2 million in premium to refinance the debt of which $10.4 million is being amortized and included as interest expense using the effective interest method in our statements of operations over the life of the Term Loan Facility and $2.8 million was expensed as a loss on extinguishment of debt in our Consolidated Statement of Operations for the year ended December 31, 2011.

Our high degree of leverage could have important consequences for holders of Senior Notes, including:

 

   

making it more difficult for us to make payments on the Senior Notes;

 

   

increasing our vulnerability to general economic and industry conditions;

 

   

requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;

 

   

exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under our Senior Secured Credit Facilities will be at variable rates of interest;

 

   

restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

 

   

limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions and general corporate or other purposes; and

 

   

limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future, subject to the restrictions contained in our Senior Secured Credit Facilities and the indenture governing the Senior Notes. If new indebtedness is added to our current debt levels, the related risks that we now face could intensify.

Our interest expense for the year ended December 31, 2011 was $157.1 million.

Our debt agreements contain restrictions that limit our flexibility in operating our business.

Our Senior Secured Credit Facilities and the indenture governing the Senior Notes contain various covenants that limit our ability to engage in specified types of transactions. These covenants limit our and our restricted subsidiaries’ ability to, among other things:

 

   

incur additional indebtedness or issue certain preferred shares;

 

   

pay dividends on, repurchase or make distributions in respect of our capital stock or make other restricted payments;

 

   

make certain investments;

 

   

sell or transfer assets;

 

   

create liens;

 

   

consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and

 

   

enter into certain transactions with our affiliates.

In addition, under our Senior Secured Credit Facilities we are required to satisfy and maintain specified financial ratios and other financial condition tests. Our ability to meet those financial ratios and tests can be affected by events beyond our control. We may not meet those ratios and tests. A breach of any of these covenants could result in a default under each of our Senior Secured Credit Facilities. Upon the occurrence of an event of default under our Senior Secured Credit Facilities, the lenders under our Senior Secured Credit Facilities could elect to declare all amounts outstanding under our Senior Secured Credit Facilities to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders under our Senior Secured Credit Facilities could proceed against the collateral granted to them to secure each such indebtedness. We have pledged substantially all of our assets as collateral under our Senior Secured Credit Facilities. If any of the lenders under our Senior Secured Credit Facilities accelerate the repayment of borrowings, we cannot assure holders of Senior Notes that we will have sufficient assets to repay our Senior Secured Credit Facilities and the Senior Notes.

 

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Risks Related to Our Business

The impact of cost-cutting pressures across the industry we serve could lower demand for our services.

We are seeing customers maintain their focus on controlling or reducing spending as a result of the continued financial challenges and market uncertainty many of them continue to face. For example, in 2011, many large financial institutions initiated reductions in their workforce and took other measures to control or contain operational spending. Customers within the financial services industry that strive to reduce their operating costs may seek to further reduce their spending on financial market data and related services. If a large number of smaller customers or a critical number of larger customers reduce their spending with us, our results of operations could be materially and adversely affected. Alternatively, customers may use other strategies to reduce their overall spending on financial market data services, by consolidating their spending with fewer vendors, by selecting other vendors with lower-cost offerings or by self-sourcing their need for financial market data. If customers elect to consolidate their spending on financial market data services with other vendors and not us, if we lose business to lower priced competitors, or if customers elect to self-source their financial market data needs, our results of operations could be materially and adversely affected.

Consolidation of financial services within and across industries, or the failure of financial services firms, could lower demand for our services.

The recent financial crisis and continued market uncertainty have resulted in consolidation among some participants in the financial markets and the collapse of others. We continue to see ongoing consolidations between participants in the financial markets, and there may be additional consolidations or failures in the future. As consolidation occurs and synergies are achieved, there may be fewer potential customers for our services. When two companies that separately subscribe to or use our services combine, they may terminate or reduce duplicative subscriptions for our services, or if they are billed on a usage basis, usage may decline due to synergies created by the business combination. We experienced cancellations and/or service downgrades in prior years as a result of this trend and these consolidations and cancellations may continue. A large number of cancellations, or lower utilization on an absolute dollar basis resulting from consolidations, could have a material adverse effect on our revenue. In addition, if a customer who accounts for a material percentage of our revenue or profit ceases operations as a result of bankruptcy such event could have a material adverse effect on our results of operations.

Declining activity levels in the securities markets, weak or declining financial performance of financial market participants or the failure of market participants, could lower demand for our services.

Our business is dependent upon the health of the global financial markets as well as the financial health of the participants in those markets. For example, the recent financial crisis has adversely affected many financial institutions and has led to an increased focus on cost containment or reduction, including market data and related services costs. These factors have contributed to lower activity levels, including lower trading volumes and a substantial reduction in the number of issuances of new securities in certain asset classes. It also led to the collapse of some market participants. Some of the demand for financial market data and related services is dependent upon activity levels in the securities markets and the financial health of financial institutions and other market participants while other demand is static and is not dependent on such factors. Downturns in global financial markets that result in prolonged, significant declines in activity levels in the securities markets or that have an adverse impact on the financial condition of market participants could have a material adverse effect on our revenue. For example, the recent financial crisis and declining activity levels in the securities markets adversely impacted subscriber retention and acquisition within our Trading Solutions segment. In addition, weaker financial markets can lead firms to alter their investment strategies, which can impact usage levels by institutional clients. Because many customers subscribe to our offerings over a multi-year period or annually, our performance can lag the cyclical nature of the financial markets by 12 to 24 months.

We face intense competition.

We operate in highly competitive markets in which we compete with other vendors of financial market data, analytics and related services. We expect competition to continue to be intense. Some of our competitors and potential competitors have significantly greater financial, technical and marketing resources than we have. These competitors may be able to expand their offerings and data content more effectively, use their financial resources to sustain aggressive pricing or respond more rapidly than us to new or emerging technologies, changes in the industry or changes in customer needs. They may also be in a position to devote greater resources to the development, promotion and distribution of their services. Increased competition in the future or our inability to compete effectively could adversely affect our market share or profit margins and could have a material adverse effect on our financial condition or results of operations.

A prolonged outage at one of our data centers or a disruption of our computer operations or those of our suppliers, or our failure to timely deliver high-quality services due to other reasons, could result in the loss of customers.

Our customers rely on us for the delivery of time-sensitive, up-to-date and high-quality financial market data analytics and related solutions. Our business is dependent on our ability to rapidly and efficiently process substantial volumes of data and calculations on our computer-based networks and systems. Our computer operations and those of our suppliers and customers are vulnerable to interruption by fire, natural disaster, power loss, telecommunications failure, terrorist attacks, acts of war, Internet failures, computer viruses, cyber attacks, and other events beyond our reasonable control. The occurrence of any of these events could significantly disrupt our operations or result in a significant interruption in the delivery of our services which could harm our reputation and induce our customers to seek alternative service suppliers as well as impact our ability to compete for new business. In addition, timely, reliable delivery of our services is subject to an array of technical production processes that enable our delivery platforms to leverage an extensive range of content databases. Further, significant portions of the data we deliver to customers we obtain from stock exchanges and other third-party sources and we are reliant on these sources delivering high-quality data. If any of the data we distribute is not of sufficient quality, if any of our production processes are compromised, or if any of our delivery platforms are impaired, the delivery of our data may fail to meet the time requirements of our customers or the quality standards set by our customers, either of which could adversely affect our ability to compete for new customers or induce existing customers to seek alternative service suppliers. Loss of a large number of smaller customers or a critical number of larger customers as a result of any such events could have a material adverse effect on our results of operations.

If we are unable to maintain relationships with key suppliers and providers of market data, we would not be able to provide our services to our customers.

We depend on key suppliers for the data we provide to our customers. Some of this data is exclusive to particular suppliers, such as national stock exchanges, such as the New York Stock Exchange, Tokyo Stock Exchange or the London Stock Exchange, and in some cases cannot be obtained from other suppliers. In other cases, although the data may be available from secondary sources, the secondary source may not be as adequate or reliable as the primary or preferred source, or we may not be able to obtain replacement data from an alternative supplier without undue cost and expense, if at all. The disruption or termination of one or more of our major data supplier relationships could disrupt our operations and could have a material adverse effect on our results of operations.

If we are unable to maintain relationships with service bureaus and custodian banks, our revenue will decrease.

Part of our strategy is to serve as a major data supplier to service bureaus and custodian banks and thereby to benefit from the trend of major financial institutions in North America outsourcing their back office operations to such entities. While we believe the importance of back office operations will continue to increase, if this trend shifts or any of our relationships with service bureaus or custodian banks are disrupted or terminated, any such event could have a material adverse effect on our results of operations.

 

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New offerings by competitors or new technologies or other industry changes could cause our services to become less competitive or obsolete or we may not be able to develop new or enhanced service offerings.

We operate in an industry that is characterized by rapid and significant technological change, frequent new service introductions (including in response to technological changes), data content and coverage enhancements, and evolving industry standards and customer needs. Without the timely introduction of new services, or the expansion or enhancement of our data content and coverage, our services could become obsolete or inadequate over time, in which case our revenue and results of operations would suffer. We expect our competitors to continue to improve the performance of their current services, to enhance data content and coverage and to introduce new services and technologies. These competitors may adapt to new technologies, changes in the industry and changes in customers’ requirements more quickly than we can. If we fail to adequately and accurately anticipate industry trends and customers’ needs, we will be unable to introduce new services into the market and our existing services may become obsolete. Further, we may be unsuccessful at developing and introducing new services (including in response to technological changes), that are appealing to customers, with acceptable prices and terms, or any such new services may not be made available in a timely manner. Any of these events could adversely impact our ability to compete effectively and could have a material adverse effect on our results of operations. Related to this, a key part of our strategy is expanding into new markets around the world, as well as continuing to grow our existing international businesses. In order to do so, we must develop new region specific services, or add to our existing services so that they meet the needs of customers in specific geographic locations. Any new services or data content that we may develop and introduce may not achieve market acceptance. Lack of market acceptance of our services could have a material adverse effect on our results of operations.

New legislation or changes in governmental or quasi-governmental rules, regulations, directives or standards may reduce demand for our services, prevent us from offering certain services or increase our expenses.

Our customers must comply with governmental and quasi-governmental rules, regulations, directives and standards. We develop, configure and market services to assist customers in meeting these requirements. New legislation, or a significant change in rules, regulations, directives or standards, including some of those introduced to mitigate systemic risk in major financial markets, as well as ones that may in the future be introduced, could cause our services to become obsolete, reduce demand for our services or increase our expenses in order to continue providing services to customers, any of which event could have a material adverse impact on our results of operations. Furthermore, we may become subject to new legislation or rules with regard to the services we offer which could cause us to be prohibited from providing certain services or make provision of affected services more expensive, either of which event could have a material adverse effect on our results of operations. An example of recent change in regulation that has the potential to impact our business in this regard is recently enacted enhanced privacy laws.

Our plans to develop and introduce a new unified technology platform may not be completed in a timely manner if at all and if it is completed it may not meet our expectations.

Our business strategy includes advancement of programs designed to further improve our technical infrastructure, increase our operational efficiency and optimize our cost structure. More specifically, we are investing to reengineer our product technology and replace legacy product systems with a new unified technical architecture that will facilitate the collection, use and distribution of the content that supports our real-time, intraday and end-of-day pricing and reference data services. The development and launch of a unified technology platform is a substantial and complex undertaking. We have begun to develop this infrastructure and upon completion we expect to implement this infrastructure across our Company. We believe completion of development and implementation of this infrastructure can be achieved without compromising product quality, sales effectiveness or customer service. However, notwithstanding our best efforts, we may not be able to complete development and implement this infrastructure successfully, we may encounter unexpected challenges, and we may not fully realize the projected benefits of this project or the costs to complete may exceed our expectations. If we are unable to realize the anticipated operational benefits, including cost reductions, our results of operation may be adversely affected. Moreover, our implementation of the new infrastructure may disrupt our operations and could have an adverse effect on our results of operations. While we expect this project to result in significant cost savings throughout our organization, our estimated savings are based on several assumptions that may prove to be inaccurate, and as a result we may not realize these cost savings.

We are subject to regulatory oversight and we provide services to financial institutions that are subject to significant regulatory oversight, and any investigation of us or our customers relating to our services could be expensive, time consuming and harm our reputation.

The securities laws and other regulations (including privacy laws and anti-bribery laws) that govern certain of our activities and the activities of our customers are complex. Compliance with these regulations may be reviewed by federal agencies, including the SEC, state authorities and other governmental entities both in the United States and foreign countries. To the extent any of our customers become the subject of a regulatory investigation or a civil lawsuit relating to actual or alleged violations of one or more of their regulatory obligations, we could also become subject to intense scrutiny. This intense scrutiny could involve an examination by regulators of whether the services we provided to the customer during the time period of the alleged violation were related to or contributed to the commission of the alleged or actual violation or result in a claim or civil lawsuit filed against us by the customer or the customer’s customers seeking damages. Any investigation by a regulatory agency of one of our customers or us, whether or not founded, or a claim or civil lawsuit filed against us could cause us to incur substantial costs and would distract our management from our business. In addition, the negative publicity associated with any public investigation could adversely affect our ability to attract and/or retain customers and could have a material adverse effect on our results of operations.

Certain of our subsidiaries are subject to complex regulations and licensing requirements.

Our Interactive Data Pricing and Reference Data subsidiary is a registered investment adviser with the SEC and is subject to significant regulatory obligations under the Investment Advisers Act of 1940. The securities laws and other regulations that govern Pricing and Reference Data’s activities as a registered investment adviser are complex. If we were to lose our investment adviser status, this could impact on our ability to compete or do business and could have a material adverse impact on our results of operations. Our Interactive Data (Australia) Pty Ltd subsidiary is licensed by the Australian Securities and Investment Commission, or ASIC, to provide certain financial services in Australia under the Corporations Act 2001. Our U.K. Desktop Solutions business, which was formerly known as eSignal, is registered with the United Kingdom Financial Services Authority, or FSA. The financial services laws and other regulations that govern our regulated activities are complex. If we were to fail to maintain our regulatory licenses or registrations with these government agencies, the affected subsidiary might no longer be able to operate those portions of our business that require the license to be held or registration to be maintained, or such event could adversely affect our ability to attract and/or retain customers and could have a material adverse effect on our results of operations. In addition, in order to offer new financial services we could be required to extend our licenses or regulatory authorizations, which is at the discretion of the government agencies and we may not be able to secure the required extension. If this resulted in us not being able to provide one or more of our services, or resulted in us not being able to compete as effectively, depending on the services affected, this could have a material adverse effect on our results of operations.

 

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We are subject to the risks of doing business internationally.

For the combined year ended December 31, 2011, approximately 31% of our revenue was generated outside of the United States. Our growth strategy includes seeking to increase this percentage. Because we sell our services outside the United States, our business is subject to risks associated with doing business internationally. Accordingly, a variety of factors could have a material adverse effect on our results of operation including, without limitation:

 

   

fluctuations in foreign currency exchange rates;

 

   

failure to comply with internal controls and procedures established to ensure compliance with anti-bribery laws such as the Foreign Corrupt Practices Act of 1977 (“FCPA”) and similar anti-bribery laws in other jurisdictions;

 

   

difficulty in establishing, staffing and managing non-U.S. operations including differing jurisdictional labor regulations;

 

   

changes in political conditions or economic instability including inflation or interest rate fluctuations;

 

   

changes in local laws and regulatory requirements;

 

   

difficulty of effective enforcement of contractual provisions in some local jurisdictions;

 

   

the inadequate intellectual property protection laws in some local jurisdictions;

 

   

trade-protection measures, trade sanctions, import or export licensing requirements such as Export Administration Regulations promulgated by the U.S. Department of Commerce and fines, penalties or suspension or revocation of export privileges; and

 

   

changes in or interpretations of local tax law or policy.

We are involved in intellectual property disputes from time to time and we may be involved in additional such disputes in the future. These disputes divert management’s attention, cause us to incur costs, which in some cases can be significant, and could under certain circumstances prevent us from providing, or increase our costs to provide, certain services.

Third parties assert intellectual property infringement claims against us from time to time. While we believe that our services do not infringe in any material respect upon proprietary rights of other parties and that meritorious defenses would be available with respect to any assertions to the contrary (or would be available with respect to any future assertions to the contrary), our services may be found to infringe on the proprietary rights of others. Any claims that our services infringe third parties’ rights, regardless of their merit or final resolution, are costly and would divert the efforts and attention of our management and technical personnel from our day-to-day operations and the advancement of our strategic objectives. Intellectual property disputes involve complex technical issues and the inherent uncertainties in intellectual property litigation. If any such proceedings against us result in an adverse outcome, we could be required, among other things, to pay substantial damages, which could have a material adverse effect on our results of operation.

We may fail to adequately protect customer data.

Some of our offerings involve the storage and transmission of proprietary information and sensitive or confidential customer data, including limited customer portfolio information. Misappropriation of customer data by an employee or an external third party, via cyber attack or other methods, could occur and may result in claims against us and liability for customer losses resulting from such misappropriation. Any such occurrence could result in the loss of existing or potential customers, damage to our brand and reputation, impact our ability to compete and could have a material adverse effect on our results of operation.

We may face liability for content contained in our services.

We may be subject to claims for defamation, libel, copyright or trademark infringement, fraud or negligence, or based on other theories of liability, in each case relating to the data, articles, commentary, ratings, information or other content we distribute in our services. We could also be subject to claims based upon the content that is accessible from our corporate website or those websites that we own and operate through links to other websites. Costs to defend or liability arising as a result of such claims could have a material adverse effect on our results of operation.

Our success is dependent in part upon our ability to attract and retain a qualified management team and other key personnel.

We depend on our ability to attract and retain a qualified management team and other key personnel to operate and expand our business, and we may not be able to retain the services of our key personnel. In the event of any departures, our ability to replace key personnel may be difficult and may take an extended period of time because of the limited number of key personnel in the financial market data industry with the breadth of skills and experience required to operate and expand a business such as ours successfully or perform the key business functions we require. Competition to hire from this limited pool of human resources is intense, and we may not be able to hire or retain such personnel. We have entered into agreements with some members of our management team and other key personnel regarding their employment with us. While these employment agreements may mitigate some of the risks we face in retaining key personnel, we still face risk in this area. If we are unable to retain, attract and hire key personnel, such failure could have a material adverse effect on our operations and our results of operations.

Our stockholders control us and our stockholders may have conflicts of interest with us or holders of our debt in the future.

The Sponsors, and a co-investment vehicle controlled by the Sponsors, indirectly own, through their ownership in our parent companies, approximately 97% of our capital stock. In addition, pursuant to a stockholders agreement by and among us, our parent companies, the Sponsors, and the co-investment vehicle controlled by the Sponsors, the Sponsors have the right to designate a majority of the members of our board of directors and the boards of directors of our parent companies. As a result, the Sponsors have control over our decisions to enter into any corporate transaction and have the ability to prevent any transaction that requires the approval of the board of directors or stockholders of us or any of the parent companies, regardless of whether such transaction may be in the best interests of the holders of our Senior Notes. For example, the Sponsors could cause us to (i) make acquisitions that increase the amount of indebtedness that is secured by our assets or (ii) sell some of our assets. These or other actions implemented by the Sponsors could impair our ability to make payments under our Senior Secured Credit Facilities or the Senior Notes. Additionally, the Sponsors are in the business of making investments in companies and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us. One or more of the Sponsors may also pursue acquisition opportunities of businesses in our market space and, as a result, those acquisition opportunities may not be available to us. So long as investment funds affiliated with, and the co-investment vehicle controlled by, the Sponsors continue to indirectly own a significant amount of the outstanding shares of our common stock, even if such amount is less than 50%, the Sponsors will continue to be able to strongly influence or effectively control our decisions.

Examination and audits by tax authorities, including the Internal Revenue Service, could result in additional tax payments.

Our tax returns are subject to examination by various tax authorities, including the U.S. Internal Revenue Service (“IRS”) which may result in adjustments. We provide reserves for potential payments of tax to various tax authorities related to uncertain tax positions. It is our intention to vigorously defend our prior tax returns. However, the calculation of our tax liabilities involves the application of complex tax regulations to our global operations in many jurisdictions. Therefore,

 

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any dispute with any tax authority may result in a payment that is materially different from our current estimate of the tax liabilities associated with our returns from these periods. If our estimate of tax liabilities proves to be less than the amount for which we are ultimately liable, we would incur additional charges to expense and such charges could have a material adverse effect on our results of operations and financial condition.

 

Item 1B. Unresolved Staff Comments

None.

 

Item 2. Properties

We own no real estate but lease the following principal facilities for use as corporate headquarters, sales offices and data centers:

 

Location

 

Unit/Segment^

   Square
Feet
     2012
Annual
Rental
Rate
     Expiration Date

Bedford, MA

  PRD and Corporate      103,716       $ 2,585,000       June 2016

Boxborough, MA

  PRD, Trading Solutions and Corporate      100,226       $ 777,000       September 2018

Channel Islands, UK

  PRD      2,301       $ 86,000       December 2018

Cheltenham, UK

  Trading Solutions      3,500       $ 29,000       May 2012

Chicago, IL

  PRD and Trading Solutions      17,075       $ 173,000       September 2021

Cologne, Germany

  Trading Solutions      9,182       $ 236,000       December 2013

Dublin, Ireland

  PRD      12,017       $ 185,000       January 2013

Frankfurt, Germany

  Trading Solutions      78,548       $ 2,254,000       December 2016

Hayward, CA

  Trading Solutions      60,158       $ 1,243,000       June 2013

Hong Kong

  PRD and Trading Solutions      3,600       $ 91,000       June 2012

Houston, TX

  Trading Solutions      1,635       $ 9,000       July 2012

Lombard, IL

  Trading Solutions      7,284       $ 96,000       May 2014

London, UK

  PRD and Trading Solutions      68,943       $ 3,497,000       April 2025

Luxembourg

  PRD      3,368       $ 133,000       December 2015

Madrid, Spain

  Trading Solutions      3,315       $ 118,000       January 2014

Melbourne, Australia

  PRD and Trading Solutions      4,828       $ 165,000       November 2015

Milan, Italy

  Trading Solutions      2,799       $ 84,000       December 2015

Minneapolis, MN

  Trading Solutions      6,741       $ 51,000       May 2016

New York, NY

  PRD and Trading Solutions      87,337       $ 2,360,000       May 2013

New York, NY

  PRD      50,661       $ 2,107,000       November 2024

Paris, France

  PRD and Trading Solutions      2,670       $ 167,000       December 2014

Parsippany, NJ

  Corporate      2,584       $ 54,000       February 2014

Rome, Italy

  PRD      5,918       $ 262,000       February 2017

Santa Monica, CA

  PRD      22,877       $ 740,000       November 2012

Singapore

  Trading Solutions      2,530       $ 127,000       October 2012

Tokyo, Japan

  PRD and Trading Solutions      5,978       $ 300,000       September 2013

White Plains, NY

  Trading Solutions      46,000       $ 1,251,000       October 2019

Zurich, Switzerland

  Trading Solutions      3,305       $ 267,000       June 2013

 

^ PRD is defined as our Pricing and Reference Data reportable segment.

We have excluded leased properties with less than 1,500 square feet and we have excluded our Boston leased property which is currently under a sublease with a term expiring December 2016, and currently not used by any of our operations. We believe our facilities are in good condition, and are suitable and adequate for our current and currently planned operations. If we are unable to renew any of the leases that are due to expire in 2012, we believe that suitable replacement properties are available on commercially reasonable terms.

 

Item 3. Legal Proceedings

We are involved in litigation and are subject to claims made from time to time with a portion of the defense and/or settlement cost being covered, in some cases, by various commercial liability insurance policies and third party indemnifications. We believe that there is no litigation pending against us that would have, individually or in the aggregate, a material adverse effect on our financial position, results of operations or cash flows.

 

Item 4. Mine Safety Disclosures

Not Applicable

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

We are a privately held company with no established public trading market for our common stock. As of March 14, 2012, we had one record holder of our common stock, Igloo Intermediate Corporation; Igloo Intermediate Corporation had one holder of its common stock, Igloo Holdings Corporation; Igloo Holdings Corporation had thirteen (13) stockholders of record of its common stock. See “Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for additional information about the ownership of Igloo Holdings Corporation’s common stock.

We are currently restricted in our ability to pay dividends under various covenants of our debt agreements, including under the credit agreement governing our Senior Secured Credit Facilities and the indenture governing our Senior Notes due 2018. Any future determination to pay dividends will depend upon, among other factors, our results of operations, financial condition, capital requirements, any contractual restrictions and any other considerations our Board deems relevant.

 

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Stockholders

As of March 14, 2012, there were 10 outstanding shares of our common stock held by 1 stockholder of record.

Dividends

Predecessor

In fiscal year 2009, our Predecessor’s Board of Directors declared the following dividends:

 

Declaration Date

   Dividend Per
Share of
Common Stock
    

Type

   Record Date    Total Amount
(in thousands)
     Payment Date

May 20, 2009

   $ 0.20       Regular (cash)    June 8, 2009    $ 18,807       June 29, 2009

July 13, 2009

   $ 0.20       Regular (cash)    September 8, 2009    $ 18,798       September 29, 2009

October 1, 2009

   $ 0.20       Regular (cash)    December 8, 2009    $ 18,860       December 30, 2009
  

 

 

             

Total

   $ 0.60               
  

 

 

             

The dividend for the first quarter of 2009 was declared in December 2008 and as such is not included herein.

In fiscal year 2010, our Predecessor’s Board of Directors declared the following dividends:

 

Declaration Date

   Dividend Per
Share of
Common Stock
    

Type

   Record Date    Total Amount
(in thousands)
     Payment Date

February 19, 2010

   $ 0.20       Regular (cash)    March 3, 2010    $ 18,964       March 31, 2010
  

 

 

             

Total

   $ 0.20               
  

 

 

             

All of the above cash dividends were paid from existing cash resources.

Successor

We have not paid a dividend since the time of the Merger. The Senior Secured Credit Facilities and Senior Notes due 2018 contain covenants limiting our ability to pay dividends. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” and Note 19 “Debt” in the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

 

Item 6. Selected Financial Data

The selected consolidated financial data set forth below should be read in conjunction with our consolidated financial statements and notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Form 10-K. The selected consolidated statement of operations data for the year ended December 31, 2011 and the periods from January 1, 2010 through July 29, 2010 and from July 30, 2010 through December 31, 2010 and year ended December 31, 2009 and the selected consolidated balance sheet data as of December 31, 2011 and 2010 have been derived from our audited consolidated financial statements, which are included in Item 8 of this Annual Report on Form 10-K. The selected consolidated statement of operations data for the fiscal years ended December 31, 2008 and 2007, and the selected consolidated balance sheet data as of December 31, 2009, 2008 and 2007 have been derived from other audited consolidated financial statements not included herein.

 

     Successor     Predecessor  
                              For the Year Ended December 31,  

(In thousands, except per share amounts)

   For the Year
Ended
December 31,
2011
    Combined
2010
(Non-
GAAP)
    Period from
July 30
through
December 31,
2010
    Period
from
January 1
through
July 29,
2010
     2009 (1)      2008      2007  

Revenue

   $ 867,723      $ 796,645      $ 342,101      $ 454,544       $ 757,218       $ 750,541       $ 689,610   

Income (loss) from operations

     101,718        (7,092     (46,571 )        39,479         207,749         209,683         175,620   

Net (loss) income attributable to Interactive Data Corporation

     (29,316     (71,789     (94,263     22,474         141,234         142,648         125,983   

Net income per common share

                   

Basic

     N/A        N/A        N/A        N/A         1.50         1.52         1.34   

Diluted

     N/A        N/A        N/A        N/A         1.47         1.48         1.30   

Weighted average common shares

                   

Basic

     N/A        N/A        N/A        N/A         94,001         93,984         94,038   

Diluted

     N/A        N/A        N/A        N/A         96,200         96,674         97,060   
 

Cash dividends declared per common share

     N/A        N/A        N/A      $ 0.20       $ 0.60       $ 0.65       $ 1.15   

 

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     Successor     Predecessor  
     As of December 31,  

(In thousands)

   2011      2010     2009(1)      2008      2007  

Total assets

   $ 4,093,671       $ 4,133,877       $ 1,281,171       $ 1,182,525       $ 1,228,226   

Borrowings, net of current portion and original issue discount

     1,929,784         1,959,365        —           —           —     

Stockholders’ equity (Interactive Data Corporation)

     1,219,905         1,252,471        1,082,106         959,807         963,524   

 

(1) Out-of-Period Accounting Adjustment

We recorded a $10.9 million out-of-period accounting adjustment in the second quarter of 2009 related to the write-down of certain assets and the accrual of certain liabilities associated with our European real-time market data services operation. Our European real-time market data services operation represented approximately five percent of our total revenue in 2008. The out-of-period accounting adjustment decreased second quarter 2009 revenue by $2.3 million, increased second quarter 2009 cost of services expense by $7.5 million, most of which related to data acquisition expenses, and increased second quarter 2009 selling, general and administrative expenses by $1.1 million which was mainly associated with sales commissions, commissions paid to third parties, and premises costs. The revenue and expenses associated with this out-of-period adjustment were not properly recorded in prior periods, primarily in 2008 and the first quarter of 2009. This matter has not had a significant impact on our ongoing operations. All expenses related to this out-of-period accounting adjustment have been paid, and our relationships with our customers and business partners have been unaffected. We recorded the out-of-period accounting adjustment after various management reviews were conducted following the departure of an accountant within the European real-time market data services operation. Based on management’s review, we concluded that this former employee incorrectly recorded certain journal entries and that these errors were limited to the European real-time market data services operation. We have taken action to enhance the control structure including the clarification and centralization of the financial reporting lines within its various business units, and the recruitment of additional senior-level financial management and staff to its finance team.

Based upon an evaluation of all relevant quantitative and qualitative factors, we do not believe that the effects of the out-of-period accounting adjustment had a material effect on its full-year 2009 financial results. We also do not believe that the out-of-period accounting adjustment, individually or in the aggregate, is material to any previously issued annual or quarterly financial statements. Because the out-of-period accounting adjustment, both on an individual account basis and in the aggregate, was not material to any of the prior year’s consolidated financial statements and is not material to the full-year 2009 financial results, the out-of-period accounting adjustment was recorded in our consolidated financial statements for the second quarter of 2009. As a result of all of these factors, we have not restated our previously issued annual financial statements or interim financial data.

The table below shows the total impact of the out-of-period accounting adjustment in the second quarter of 2009 by revenue and total expenses, as it relates to prior reporting periods, recorded in the second quarter of 2009 at the actual monthly average foreign exchange rates in effect at the time of the errors:

 

(in thousands)

   Three Months
Ended
March 31,
2009
     Year Ended      Total  
      December 31,
2008
     December 31,
2007
     December 31,
2006
    

Decrease in revenue

   $ 191       $ 1,694       $ 200       $ 209       $ 2,294   

Increase in total costs and expenses

     1,308         6,554         611         122         8,595   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total – pretax impact on current period income

   $ 1,499       $ 8,248       $ 811       $ 331       $ 10,889   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with Item 6 “Selected Financial Data” and our consolidated financial statements included in Item 8 “Financial Statements and Supplementary Data”. Dollar amounts presented in the tables in this Item 7 MD&A, including footnotes to the tables, are shown in thousands, except per share data.

Overview

We are a leading provider of financial market data, analytics and related solutions. Thousands of financial institutions, as well as hundreds of software and service providers subscribe to our services. We are one of the world’s largest providers of financial data, serving the mutual fund, bank, asset management, hedge fund, securities and financial instrument processing and administration sectors. We distribute our financial data and related offerings directly to customers and indirectly through VARs, including software providers, processors and custodians.

This MD&A excludes the accounts of Intermediate and Holdings and reflects only our accounts, as the surviving corporation following the Merger. Refer to Note 1 “Summary of Significant Accounting Policies” and Note 3 “Merger” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information.

The Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K are presented for the year ended December 31, 2011, the period prior to the Merger from January 1 to July 29, 2010 (referred to as the Predecessor period) and the period following the Merger from July 30 to December 31, 2010 (referred to as the Successor period) and for the year ended December 31, 2009. Our discussion in this MD&A includes the sum of the results of the Predecessor period and Successor period on a combined basis, referred to as Combined 2010 or the combined year ended December 31, 2010. This combined presentation is not in accordance with accounting principles generally accepted in the United States (“GAAP”). Due to purchase accounting adjustments, Combined 2010 results may not be strictly comparable to 2009 or 2011 results; however, we believe that presentation and discussion of Combined 2010 results is meaningful to investors as it enables a reasonable comparison to the comparable years ended December 31, 2009 and 2011.

In our filings prior to this Annual Report on Form 10-K, our financial reporting included two reportable segments: Institutional Services and Active Trader Services. Effective for the fourth quarter of 2011, the composition and description of our reportable segments was changed resulting in two new reportable segments; Pricing and Reference Data, and Trading Solutions. The change was made in response to operational and organizational initiatives undertaken during the preceding year and completed in the fourth quarter and reflects the way we currently approach the market and analyze operating performance. The Pricing and Reference Data segment represents our evaluated pricing, reference data and fixed income analytics service areas. The Trading Solutions segment represents our real-time data feeds, ultra low latency infrastructure services, hosted web solutions and workstations. Historical financial results have been reclassified to reflect this change. Please refer to Note 14 “Segment Information” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

 

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Pricing and Reference Data

Our Pricing and Reference Data segment provides an extensive range of financial market data services and analytics to thousands of customers worldwide including banks, brokerage firms, mutual fund companies, exchange traded fund (ETF) sponsors, hedge funds, pension funds, insurance companies and asset management firms. In addition, our offerings are also used by financial information providers, information media companies, and VARs such as software providers, processors, custodians and other outsourcing organizations. The Pricing and Reference Data Segment has three core offerings: 1) Evaluated pricing services, which are daily opinions of value, on approximately 2.8 million fixed income securities, international equities and other hard-to-value financial instruments; 2) Reference data, which encompasses listed markets pricing and descriptive information covering over ten million global financial instruments for use across the securities and financial instrument processing lifecycle; and 3) Fixed income portfolio analytics and fixed income data to help manage risks and analyze the sources of risk and return. This segment accounted for $591.9 million, or 68.2%, of our revenue for the year ended December 31, 2011.

Trading Solutions

Our Trading Solutions segment provides thousands of customers worldwide with products and services that support a range of trading, wealth management and other investment applications. The Trading Solutions segment has two primary offerings: 1) Real-time market data feeds and trading infrastructure services used by banks, brokerage firms, asset managers, hedge funds and proprietary trading firms in order to facilitate ultra low latency electronic trading as well as support other applications; and 2) Customized hosted web applications and workstations that are used by financial advisors, energy and commodity professionals, active traders and individual investors, other investment community professionals, information media companies and corporations. This segment accounted for $275.8 million, or 31.8%, of our revenue for the year ended December 31, 2011.

Development of Business

Our 2011 results of operations include the activities of all core offerings in our Pricing and Reference Data segment and our Trading Solutions segment (including a full 12 months of 7ticks). Combined 2010 results include the activities of all core offerings in our Pricing and Reference Data segment, and our Trading Solutions segment (including 11 months of 7ticks and a full year of the OFS assets). Our results of operations for 2009 include the activities of all core offerings in our Pricing and Reference Data segment and Trading Solutions segment (including 30 days of the OFS assets).

Business and Market Trends

The global financial markets have experienced extreme volatility and disruption in recent years. As a result, financial institutions globally have acted to control or reduce operational spending. Nevertheless, during this time, we have maintained positive overall revenue growth, although certain of our business areas have experienced declining revenue.

We expect that uncertainty with respect to spending on financial information and related services will persist into 2012. While in some areas the anticipated impact of current trends may lead to reduced demand for market data and related services, we believe overall spending on financial information services will grow modestly over the next several years. At this time, however, it remains unclear which segments of the financial market data industry will be most impacted by the current market and regulatory environment and the continued focus on controlling or reducing spending.

We believe that the following trends will influence the growth of the financial information services industry in general and certain of our core offerings in particular.

 

   

Increased U.S. and global regulation, convergence of accounting standards and growing emphasis on risk management within financial services: We believe that increased regulation, and greater oversight and scrutiny by regulators worldwide, combined with an increase in the use of fair value accounting standards globally and an intensifying focus on risk management and transparency, will increase demand for our Pricing and Reference Data offerings and analytical decision-support tools. However, it is unclear at this time how and to what degree these trends will impact our business.

 

   

Increased focus on cost containment and operational efficiency: In 2011, a number of large financial institutions took actions to downsize their organizations and reduce or contain spending. Related to this, there has been and continues to be an industry trend for financial institutions to outsource various financial market data applications and services. In addition to outsourcing specific applications, many North American financial institutions outsource their back-office operations to service bureaus and custodian banks. The cost containment and outsourcing trends, individually or in combination with each other, may impact our business either positively through increased adoption of our products and services as customers seek to consolidate their spending with us or outsource certain operations by leveraging our services; or adversely through longer sales cycles, increased cancellations, service downgrades, reductions in the growth of usage-related revenue, and increased pricing pressure.

 

   

Growth in global assets under management: Over the past several years, global assets under management have increased largely due to rising net flow of investment and strong performance in major equity markets. Periods of high fund flows and strong market performance typically lead to the creation of new funds and new firms to manage investment demand while low fund flows, poor market performance and net redemptions often result in a reduction in the number of funds and firms that manage investment assets. Although our revenue is not directly linked to assets under management, these trends help highlight the overall health of the global financial markets and the financial health of the participants in those markets. Despite these trends, we continue to see financial institutions remain cautious about their spending plans.

 

   

Continued innovation in electronic trading systems: Financial institutions are increasingly deploying automated algorithmic and electronic trading applications to more efficiently execute their trading strategies. These applications require connectivity to stock exchanges and trading venues with minimal latency. In addition, the trend toward algorithmic and other electronic trading programs is contributing to significant growth in market data volumes, thereby requiring both market data suppliers like ourselves and financial institutions to increase network capacity to address these volume issues. Our January 2010 acquisition of 7ticks, a provider of ultra low latency connectivity services, combined with our consolidated real-time data feed offerings, enhanced our ability to satisfy demand for services that support electronic trading applications.

 

   

Consolidation within and across the financial services industry: Over the past decade, there have been a considerable number of merger and acquisition (“M&A”) transactions involving financial institutions of varying sizes. The merger of two or more financial institutions can often lead to the elimination of redundant data sources. Our experience is that the integration of two or more financial institutions that merge may take up to two or more years, and can present us with both opportunity and risk for our future revenue as a result. The opportunity is that we may gain a larger customer that may seek to spend more with us across their consolidated operations. The risk is we may lose revenue if the combined entity either elects to consolidate data services with another vendor or eliminates data sourcing that is redundant. We deliver market data services to a number of customers involved in recent M&A activity. It remains unclear how our customers’ recent M&A activity will affect their near and long-term spending on our offerings. M&A activity within the financial services industry may adversely impact our future revenue.

 

   

Confluence of dynamics within the wealth management sector: We believe that there are a myriad of changes that have occurred to influence how financial services companies manage their global wealth management capabilities, including the ways in which they utilize market data and related solutions. Among the key demographic trends are the long-term growth in savings and investments related to the population born in the years following World War II (referred to as the baby boom generation), the privatization of various pension programs, and significant wealth accumulation

 

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in certain emerging markets. Key sector specific trends within wealth management include significant market volatility, increased and evolving regulation, consolidation among broker workstation vendors, consolidation of broker-dealers and clearing firms that typically service smaller retail and regional brokerage firms, increasing client asset shifts toward independent registered investment advisors and online brokers, downsizing and other cost-reduction initiatives by brokerage firms, and intensified competition for active trader subscribers. Overall, we expect that the combination of these trends to have a favorable impact on our offerings for the wealth management sector, although certain aforementioned trends such as downsizing and cost reduction initiatives, and intensified competition for active trader subscribers have potential to adversely impact our future revenue.

 

   

Recent and anticipated innovation in structuring financial instruments: The complexity of financial instruments has escalated in recent years, although new issuances of certain asset classes slowed significantly in the wake of the recent financial crisis. Despite the recent slowdown, we believe that there will be continued innovation in the types of financial instruments being issued and we expect that this will provide us with additional growth opportunities. Determining the fair value of highly complex instruments requires specialized expertise, and the firms trading these instruments often seek to leverage efficiencies by obtaining data and services from independent third-party providers like ourselves to assist them in their valuation of these instruments. Furthermore, while there has been a recovery in the new issuance of certain fixed income financial instruments, it is unclear whether such recovery and the continued innovation in financial instruments will be sustained or extended across other fixed income asset classes.

Our Pricing and Reference Data segment continued to grow in 2011 due to steady expansion within our evaluated pricing and reference data product areas. Key drivers within these product areas were strong revenue retention rates, increased demand from existing customers and, to a lesser extent, new customers, modest increases in usage based revenues, and the effect of annual price increases. Maintaining existing business and closing new sales are dependent on our ability to meet the current and evolving needs of our customers, particularly as regulatory changes occur and as financial instruments become more numerous and complex.

We have historically achieved high revenue retention rates within our Pricing and Reference Data segment due primarily to the strength of our offerings, the way in which services often support workflow-centric applications, as well our responsive account management and support. We measure revenue retention rates for this segment by using the following formula: we divide the dollar magnitude of cancellations (including service downgrades and renegotiations) we received during the prior 12 months by the annualized quarterly revenue entering that same 12-month period. We then subtract this percentage from 100% to derive the annualized quarterly revenue retention rate. Our annualized quarterly revenue retention rate for our Pricing and Reference Data segment has averaged approximately 94% since 2007, and at the end of 2011, the segment’s annualized quarterly revenue retention rate was approximately 94%, compared with approximately 94% at the end of 2010. In prior filings, our annualized quarterly revenue retention rates, which were calculated for the former Institutional Services segment, excluded service downgrades and renegotiations. We have revised our calculation for all periods presented to now include service downgrades and renegotiations. The timing and magnitude of cancellations (including service downgrades and renegotiations) have the potential to distort annualized revenue retention rates in any segment or product area for any given period.

Our Trading Solutions segment grew in 2011 primarily due to strong new sales for our trading infrastructure services. Growth in our Trading Solutions segment is dependent, in large part, on a combination of the following: increasing real-time feeds sales, driving continued adoption of our infrastructure services, expanding our presence in the wealth management sector, attracting new subscribers for our active trader, and energy and commodity workstations, and strengthening overall customer retention.

Within our Trading Solutions segment, we report the total number of global subscribers across our range of workstations. As of December 31, 2011, we supported approximately 83,000 total subscribers worldwide, which was essentially unchanged from the same period last year. Subscriber declines primarily within our active trader platforms were offset by subscriber growth for our wealth management workstations. In our prior filings, the number of subscribers we reported was limited to direct subscription terminals within our historical Active Trader segment. Period-to-period changes in the total number of global subscribers, as well as shifts in the mix of subscribers by service type can also impact future revenue.

Across each of our businesses, regardless of business segment, our offerings are contracted with customers through fixed fee subscriptions (on either a multi-year, annual, quarterly or monthly basis), variable fee based on usage or a combination of fixed fee subscription and usage-based fees. In addition, some of our services generate one-time or non-recurring revenue, such as one time purchases of historical data or installations (including installations of product upgrades or infrastructure). Our contracts typically renew automatically unless canceled by one of the parties.

Results of Operations

Selected Financial Data

 

     Successor     Predecessor               
     Year Ended
December 31,
2011
    Combined
2010
    Period from
July 30
through
December 31,
2010
    Period from
January 1
through
July 29,
2010
     Year Ended
December 31,

2009 (1)
     % Change  

(audited, in thousands)

               2011 vs. 2010     2010 vs. 2009  

REVENUE

   $ 867,723      $ 796,645      $ 342,101      $ 454,544       $ 757,218         8.9  %      5.2  % 

COSTS AND EXPENSES:

                  

Cost of services

     293,472        277,075        115,176        161,899         250,105         5.9  %      10.8  % 

Selling, general and administrative

     258,065        282,619        124,409        158,210         237,041         (8.7 )%      19.2  % 

Merger costs

     —          119,992        67,258        52,734         —           (100.0 )%        *

Depreciation

     39,391        38,466        15,962        22,504         31,800         2.4  %      21.0  % 

Amortization

     175,077        85,585        65,867        19,718         30,523         104.6  %      180.4  % 
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

      

Total costs and expenses

     766,005        803,737        388,672        415,065         549,469         (4.7 )%      46.3  % 
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

      

INCOME (LOSS) FROM OPERATIONS

     101,718        (7,092     (46,571     39,479         207,749         1,534.3  %      (103.4 )% 

Interest (expense) income, net

     (157,120     (77,604     (78,364 )        760         1,680         102.5  %      (4,719.3 )% 

Other (expense) income, net

     (3,719     570        321        249         139         (752.5 )%   

Loss on extinguishment of debt

     (25,450     —          —          —           —                    
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

      

(LOSS) INCOME BEFORE INCOME TAXES

     (84,571     (84,126     (124,614     40,488         209,568         0.5  %      (140.1 )% 

 

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     Successor     Predecessor              
     Year Ended
December 31,
2011
    Combined
2010
    Period from
July 30
through
December 31,
2010
    Period from
January 1
through
July 29,
2010
     Year Ended
December 31,

2009 (1)
    % Change  

(audited, in thousands)

              2011 vs. 2010     2010 vs. 2009  

Income tax (benefit) expense

     (55,255     (12,337     (30,351     18,014         68,162        347.9   %      (118.1 )% 
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

     

NET (LOSS) INCOME

   $ (29,316   $ (71,789   $ (94,263 )      $ 22,474       $ 141,406        (59.2 )%      (150.8 )% 

Less: Net income attributable to noncontrolling interest

     —          —          —          —           (172     —          100.0   % 
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

     

NET (LOSS) INCOME ATTRIBUTABLE TO INTERACTIVE DATA CORPORATION

   $ (29,316   $ (71,789   $ (94,263   $ 22,474       $ 141,234        (59.2 )%      (150.8 )% 
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

     

 

* Not Meaningful
(1) Out-of-Period Accounting Adjustment

We recorded a $10.9 million out-of-period accounting adjustment in the second quarter of 2009 related to the write-down of certain assets and the accrual of certain liabilities associated with our European real-time market data services operation. Our European real-time market data services operation represented approximately five percent of our total revenue in 2008. The out-of-period accounting adjustment decreased second quarter 2009 revenue by $2.3 million, increased second quarter 2009 cost of services expense by $7.5 million, most of which related to data acquisition expenses, and increased second quarter 2009 selling, general and administrative expenses by $1.1 million which was mainly associated with sales commissions, commissions paid to third parties, and premises costs. The revenue and expenses associated with this out-of-period adjustment were not properly recorded in prior periods, primarily in 2008 and the first quarter of 2009. This matter has not had a significant impact on our ongoing operations. All expenses related to this out-of-period accounting adjustment have been paid, and our relationships with our customers and business partners have been unaffected. We recorded the out-of-period accounting adjustment after various management reviews were conducted following the departure of an accountant within the European real-time market data services operation. Based on management’s review, we concluded that this former employee incorrectly recorded certain journal entries and that these errors were limited to the European real-time market data services operation. We have taken action to enhance the control structure including the clarification and centralization of the financial reporting lines within its various business units, and the recruitment of additional senior-level financial management and staff to its finance team.

Based upon an evaluation of all relevant quantitative and qualitative factors, we do not believe that the effects of the out-of-period accounting adjustment had a material effect on its full-year 2009 financial results. We also do not believe that the out-of-period accounting adjustment, individually or in the aggregate, is material to any previously issued annual or quarterly financial statements. Because the out-of-period accounting adjustment, both on an individual account basis and in the aggregate, was not material to any of the prior year’s consolidated financial statements and is not material to the full-year 2009 financial results, the out-of-period accounting adjustment was recorded in our consolidated financial statements for the second quarter of 2009. As a result of all of these factors, we have not restated our previously issued annual financial statements or interim financial data.

The table below shows the total impact of the out-of-period accounting adjustment in the second quarter of 2009 by revenue and total expenses, as it relates to prior reporting periods, recorded in the second quarter of 2009 at the actual monthly average foreign exchange rates in effect at the time of the errors:

 

(in thousands)

   Three Months
Ended
March 31,
2009
     Year Ended      Total  
      December 31,
2008
     December 31,
2007
     December 31,
2006
    

Decrease in revenue

   $ 191       $ 1,694       $ 200       $ 209       $ 2,294   

Increase in total costs and expenses

     1,308         6,554         611         122         8,595   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total- pretax impact on current period income

   $ 1,499       $ 8,248       $ 811       $ 331       $ 10,889   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impact of Foreign Exchange

On a quarterly and annual basis, we calculate the impact of the change in foreign exchange rates between the current reporting period and the respective prior year reporting period. We provide the US dollar impact resulting from the change in foreign exchange rates on current period revenue, cost of services, selling, general and administrative, depreciation, and amortization expenses. We calculate this impact by comparing the average foreign exchange rates for each operating currency for the current reporting period to the average foreign exchange rates for such operating currency for the respective year-ago reporting period. We believe that by providing this information, we are facilitating period-to-period comparisons of our underlying business.

When determining our growth rate, we use constant foreign exchange rates in order to view business results without the impact of changing foreign exchange rates. Foreign currency fluctuations are outside our control and the impact on results of operations of currency fluctuations may not be indicative of the underlying performance of the business. Management believes that providing this information to investors facilitates period-to-period comparisons of our underlying business and results of operations. Generally, when the U.S. Dollar either strengthens or weakens against other currencies, the growth at constant foreign exchange rates will be higher or lower than growth reported at actual exchange rates. Use of this constant exchange rate is considered Non-GAAP. In 2011, the value of the U.S. Dollar generally weakened against the Euro and the British Pound.

Merger Fair Value Purchase Price Allocation

In connection with the purchase price allocations relating to the Merger, we reduced the carrying value of deferred revenue by $4.6 million (the “purchase price allocation adjustment to deferred revenue”). This amount will be amortized over the remaining terms of the related contracts (generally one year or less) and is allocated among our segments and businesses. This adjustment reduced revenue by approximately $0.9 million in the year ended December 31, 2011, and $3.7 million in the combined year ended December 31, 2010. We include revenue amounts adjusted to exclude the impact of the purchase price allocation adjustment because we believe this facilitates period over period comparisons and provides useful information to investors regarding underlying business trends.

 

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Also in connection with the price allocations relating to the Merger, we increased the carrying value of property and equipment by $12.3 million during 2010. This amount is being depreciated over the remaining life of the related assets which range from 3.7 to 7.7 years. We recorded additional depreciation expense of $2.9 million and $1.2 million associated with this increase in carrying value for the year ended December 31, 2011 and for the period from July 30, 2010 through December 31, 2010, respectively.

In addition, we reduced the carrying value of property and equipment by approximately $27.0 million relating to completed capitalized development, which for purchase accounting purposes is now reflected in our completed technology intangible asset at fair value and in connection with the purchase price allocations we recorded intangible assets of $2.0 billion. The latter is being amortized over the respective economic benefit periods which range from 3.6 years to 25.0 years. We recorded amortization expense associated with these intangibles assets of $175.1 million and $65.9 million for the year ended December 31, 2011 and for the period from July 30, 2010 through December 31, 2010, respectively.

Please refer to Note 3, “Merger” and Note 6, “Intangible Assets and Goodwill” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information.

2011 VERSUS COMBINED 2010

Revenue

 

    For the Year Ended December 31,  

(In thousands)

  2011     Combined
2010
    % Change     Effects of
Deferred
Revenue
Adjustment
2011
    Effects of
Deferred
Revenue
Adjustment
2010
    2011
Foreign
Exchange
    Combined
2010
Adjusted
Revenue
(Non-GAAP)
    2011 Adjusted
Revenue
(Non-GAAP)
    2011 Adjusted
Revenue
(Non-GAAP) %
Change
 

Total Pricing and Reference Data

  $ 591,920      $ 548,514        7.9   $ 600      $ 2,576      $ (6,751   $ 551,090      $ 585,769        6.3
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Trading Solutions:

                 

Real-Time Feeds and Trading Infrastructure

  $ 114,300      $ 91,889        24.4   $ 14      $ 393      $ (1,612   $ 92,282      $ 112,702        22.1

Hosted Web Applications and Workstations

  $ 161,503      $ 156,242        3.4   $ 288      $ 687      $ (4,512   $ 156,929      $ 157,279          
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total Trading Solutions

  $ 275,803      $ 248,131        11.2   $ 302      $ 1,080      $ (6,124   $ 249,211      $ 269,981        8.3
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

TOTAL REVENUE

  $ 867,723      $ 796,645        8.9   $ 902      $ 3,656      $ (12,875   $ 800,301      $ 855,750        6.9
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

* Not Meaningful

Total revenue for the year ended December 31, 2011 increased $71.1 million, or 8.9%, to $867.7 million compared with the combined year ended December 31, 2010. The change in foreign exchange rates increased total revenue by $12.9 million in the year ended December 31, 2011 and the purchase price allocation adjustment to deferred revenue decreased total revenue by $0.9 million in the year ended December 31, 2011 and $3.7 million in the combined year ended December 31, 2010. Excluding the impact of foreign exchange and the purchase price allocation adjustment to deferred revenue, total revenue increased by $55.5 million or 6.9% to $855.8 million. The impact of foreign exchange is primarily related to fluctuations of the US dollar against the British Pound and the Euro.

Pricing and Reference Data

Revenue within the Pricing and Reference Data segment increased by $43.4 million, or 7.9%, to $591.9 million in the year ended December 31, 2011 compared with the combined year ended December 31, 2010. The change in foreign exchange rates increased Pricing and Reference Data revenue by $6.8 million in the year ended December 31, 2011 and the purchase price allocation adjustment to deferred revenue decreased total revenue by $0.6 million in the year ended December 31, 2011 and $2.6 million in the combined year ended December 31, 2010. Excluding the impact of foreign exchange and the purchase price allocation adjustment to deferred revenue, Pricing and Reference Data revenue increased by $34.7 million, or 6.3%, to $585.8 million primarily due to new sales of our evaluated pricing and reference data services to existing customers, and to a lesser extent, new customers combined with high retention levels, favorable usage related revenue trends, and the impact of annual price increases.

Trading Solutions

Revenue within the Trading Solutions segment increased by $27.7 million, or 11.2%, to $275.8 million in the year ended December 31, 2011 compared with the combined year ended December 31, 2010. The change in foreign exchange rates increased Trading Solutions revenue by $6.1 million in the year ended December 31, 2011 and the purchase price allocation adjustment to deferred revenue decreased total revenue by $0.3 million in the year ended December 31, 2011 and $1.1 million in the combined year ended December 31, 2010. Excluding the impact of foreign exchange and the purchase price allocation adjustment to deferred revenue, Trading Solutions revenue increased by $20.8 million, or 8.3%, to $270.0 million. The growth in Trading Solutions revenue is primarily due to strong new sales of our 7ticks ultra low latency services within our Real-Time Feeds and Trading Infrastructure offerings. Excluding the impact of foreign exchange and the purchase price allocation adjustment revenue from our Real-Time Feeds and Trading Infrastructure offerings increased by $20.4 million, or 22.1%, to $112.7 million in the year ended December 31, 2011 compared with the combined year ended December 31, 2010. Revenue for Hosted Web Applications and Workstations was essentially unchanged in the year ended December 31, 2011 compared with the year ended December 31, 2010, with revenue increasing due to the impact of foreign exchange.

Cost of Services

Cost of services expenses are composed mainly of personnel-related expenses, communication, data acquisition, outside professional services and expenditures associated with software and hardware maintenance agreements.

 

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Table of Contents
       For the Year Ended December 31,  

(In thousands)

   2011      Combined
2010
     % Change     2011
Foreign
Exchange
    2011 Adjusted
COS
(Non-GAAP)
     Adjusted %
Change
 

COST OF SERVICES

   $ 293,472       $ 277,075         5.9   $ (4,846   $ 288,626         4.2

Cost of services expenses increased by $16.4 million, or 5.9%, to $293.5 million during the year ended December 31, 2011 compared with the combined year ended December 31, 2010. The change in foreign exchange rates increased cost of services expense by $4.9 million. Excluding the impact of foreign exchange, cost of services expenses increased by $11.6 million, or 4.2% primarily based on an increase in communications costs of approximately $5.3 million, hardware expense of $4.9 million and an increase in outside professional services expenses of $1.5 million. Cost of services expense as a percentage of revenue was 33.8% in the year ended December 31, 2011 compared with 34.8% in the combined year ended December 31, 2010.

Selling, General and Administrative Expenses

Selling, general and administrative expenses are composed mainly of personnel-related expenses, outside professional services, advertising and marketing expenses, occupancy-related expenses, and commissions paid to third parties for distribution of our data to customers.

 

     For the Year Ended December 31,  

(In thousands)

   2011      Combined
2010
     % Change     2011
Foreign
Exchange
    2011
Adjusted
SG&A
(Non-GAAP)
     Adjusted %
Change
 

SELLING, GENERAL AND ADMINISTRATIVE

   $ 258,065       $ 282,619         (8.7 )%    $ (4,009   $ 254,056         (10.1 )% 

During the year ended December 31, 2011, selling, general and administrative expenses decreased by $24.6 million, or 8.7%, to $258.1 million compared with the combined year ended December 31, 2010. The change in foreign exchange rates increased selling, general, and administrative expenses by $4.0 million. Excluding the impact of foreign exchange, selling, general and administrative expenses decreased by $28.6 million or 10.1%, primarily due to decreases in personnel expense in 2011 following the Merger. More specifically, severance-related costs decreased by $13.4 million, pension costs decreased by $3.9 million and Merger-related acceleration of stock-based awards decreased by $6.3 million in the year ended December 31, 2011. The remainder of the decrease in selling, general and administrative expenses in the year ended December 31, 2011 compared with the combined year ended December 31, 2010 was due to reductions in expense year-over-year across various areas. Selling, general, and administrative expenses as a percentage of revenue was 29.7% in the year ended December 31, 2011, compared with 35.5% for the combined year ended December 31, 2010.

Merger Costs

Merger costs are composed mainly of expenses paid to third-party professional service providers such as accountants, investment bankers, attorneys, etc., from whom services were obtained as part of the Merger.

 

     For the Year Ended December 31,  

(In thousands)

   2011      Combined
2010
     % Change     2011
Foreign
Exchange
     2011
Adjusted
Merger Costs
(Non-GAAP)
     Adjusted %
Change
 

MERGER COSTS

   $ —         $ 119,992         (100 )%      N/A         N/A         N/A   

As documented in Note 3, “Merger” in the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, the Merger occurred on July 29, 2010 resulting in merger costs of $120.0 million for the combined year ended December 31, 2010. There was no merger related activity during the year ended December 31, 2011.

Depreciation

 

     For the Year Ended December 31,  

(In thousands)

   2011      Combined
2010
     % Change     2011
Foreign
Exchange
    2011
Adjusted
Depreciation
(Non-GAAP)
     Adjusted %
Change
 

DEPRECIATION

   $ 39,391       $ 38,466         2.4   $ (442   $ 38,949         1.3

During the year ended December 31, 2011, depreciation expense increased by $0.9 million, or 2.4%, to $39.4 million compared with the combined year ended December 31, 2010. The change in foreign exchange rates increased depreciation expense by $0.4 million. Excluding the impact of foreign exchange, depreciation expense increased by $0.5 million, or 1.3% primarily due to increased purchases of Property and Equipment in the year ended December 31, 2011. The period-over-period change in depreciation is not deemed material to the consolidated financial statements taken as a whole.

 

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Amortization

 

     For the Year Ended December 31,  

(In thousands)

   2011      Combined
2010
     % Change     2011
Foreign
Exchange
    2011
Adjusted
Amortization
(Non-GAAP)
     Adjusted %
Change
 

AMORTIZATION

   $ 175,077       $ 85,585         104.6   $ (2,470   $ 172,607         101.7

During the year ended December 31, 2011, amortization expense increased by $89.5 million, or 104.6%, to $175.1 million compared with the combined year ended December 31, 2010. The change in foreign exchange rates increased amortization expense by $2.5 million. Excluding the impact of foreign exchange, amortization expense increased by $87.0 million, or 101.7%, primarily as a result of the timing of the Merger and the net impact of higher fair values ascribed to certain intangible assets as a result of the Merger. More specifically, amortization expense for the year ended December 31, 2011 includes a full year of amortization on these higher value intangible assets versus the combined year ended December 31, 2010 which only included five months of comparable amortization expense. Intangible asset balances increased by approximately $1.8 billion as result of the Merger compared with pre-Merger levels.

In December 2010, we determined that as a result of technology development initiatives that commenced subsequent to the Merger, certain completed technologies which were then valued at approximately $147.7 million would have shorter useful lives than originally estimated. At that time, the completed technologies were expected to have a remaining useful life through June 30, 2012. In August 2011, we determined that as a result of development efforts completed to date and a review of initiatives to be completed, the completed technologies are now expected to have a useful life that will extend for 18 months beyond June 30, 2012. This change in accounting estimate was applied in the third quarter of 2011 and the impact of extending the lives of the completed technologies resulted in a reduction in amortization expense of approximately $18.6 million from the date of the change through December 31, 2011.

Other Consolidated Financial Information

Income from operations increased by $108.8 million to $101.7 million during the year ended December 31, 2011 from a loss of $7.1 million in the combined year ended December 31, 2010 as a result of the factors discussed above. Loss before income taxes increased by $0.5 million, or 0.5%, to a loss of $84.6 million during the year ended December 31, 2011 when compared with the combined year ended December 31, 2010. The factors that impacted the year-over-year changes in the loss before income taxes include the items discussed above, as well as a loss on extinguishment of debt recorded in 2011 in the amount of $25.5 million related to our February 2011 refinancing of our Term Loan Facility (as described in Note 19 “Debt” included in the Notes to our Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K), and an increase in our net interest expense in the year ended December 31, 2011 compared with the combined year ended December 31, 2010 as described below. Additionally, other expense, net increased $4.3 million to $3.7 million during the year ended December 31, 2011 from other income, net of $0.6 million in the combined year ended December 31, 2010. The change is primarily due to a $4.0 million increase in the 7ticks Earn Out expense.

Net interest expense was $157.1 million for the year ended December 31, 2011 compared with net interest expense of $77.6 million for the combined year ended December 31, 2010. The year-over-year difference results from there being a full year of interest expense included in the year ended December 31, 2011 and only five months of interest expense included in the combined year ended December 31, 2010 based on the date we incurred our debt. In connection with the Merger and February 2011 refinancing, we incurred indebtedness totaling $2.0 billion. Refer to Note 19 “Debt” included in the Notes to our Consolidated Financial Statements included in Item 8 for additional information and our discussion below under the heading “Liquidity and Capital Resources” in this Management’s Discussion and Analysis of Results of Operations.

COMBINED 2010 VERSUS 2009

Revenue

 

    For the Year Ended December 31,  

(In thousands)

  Combined
2010
    2009     % Change     Effects of
Deferred
Revenue
Adjustment
2010
    Effects of
Deferred
Revenue
Adjustment
2009
    2009     2010
Foreign
Exchange
    Combined
2010  Adjusted
Revenue
(Non-GAAP)
    Combined
2010  Adjusted
Revenue
(Non-GAAP) %
Change
 

Total Pricing and Reference Data

  $ 548,514      $ 532,541        3.0   $ 2,576        —        $ 532,541      $ (401   $ 550,689        3.4
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Trading Solutions:

                 

Real-Time Feeds and Trading Infrastructure

  $ 91,889      $ 78,243        17.4   $ 393        —        $ 78,243      $ (114   $ 92,168        17.8

Hosted Web Applications and Workstations

  $ 156,242      $ 146,434        6.7   $ 687        —        $ 146,434      $ 1,881      $ 158,810        8.5
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total Trading Solutions

  $ 248,131      $ 224,677        10.4   $ 1,080        —        $ 224,677      $ 1,767      $ 250,978        11.7
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

TOTAL REVENUE

  $ 796,645      $ 757,218        5.2   $ 3,656        —        $ 757,218      $ 1,366      $ 801,667        5.9
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total revenue for the combined year ended December 31, 2010 increased by $39.4 million, or 5.2%, to $796.7 million compared with the total revenue for the year ended December 31, 2009. The change in foreign exchange rates and the purchase price allocation adjustment to deferred revenue decreased total revenue by $1.4 million and $3.7 million, respectively, in the combined year ended December 31, 2010. Excluding the impact of foreign exchange and the purchase price allocation adjustment to deferred revenue, total revenue increased by $44.5 million, or 5.9%, to $801.7 million. The impact of foreign exchange was primarily due to a stronger US dollar against the British Pound and the Euro. Please refer to Note 3, “Merger” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information. The out-of-period accounting adjustment recorded in the second quarter of 2009 at our European real-time market data services operation decreased total revenue in the year ended December 31, 2009 by $2.3 million.

 

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Pricing and Reference Data

Pricing and Reference Data segment revenue for the combined year ended December 31, 2010 increased by $16.0 million, or 3.0%, to $548.5 million compared with Pricing and Reference Data segment revenue for the year ended December 31, 2009. The change in foreign exchange rates increased combined 2010 revenue by $0.4 million and the purchase price allocation adjustment to deferred revenue decreased combined revenues by $2.6 million. Excluding the impact of foreign exchange and the purchase price allocation adjustment to deferred revenue, Pricing and Reference Data segment revenue increased by $18.1 million, or 3.4%, to $550.7 million primarily due to higher demand for fixed income evaluations and reference data in the United States and Asia Pacific regions and the impact of price increases.

Trading Solutions

Trading Solutions segment revenue for the combined year ended December 31, 2010 increased by $23.5 million, or 10.4%, to $248.1 million compared with the year ended December 31, 2009. The change in foreign exchange rates and the purchase price allocation adjustment to deferred revenue decreased combined 2010 revenue by $1.8 million and $1.1 million, respectively, in the combined year ended December 31, 2010. Excluding the impact of foreign exchange and the purchase price allocation adjustment to deferred revenue, Trading Solutions segment revenue increased by $26.3 million, or 11.7%, to $251.0 million. The change in Trading Solutions revenue is primarily due to increased contributions from recent acquisitions to our real-time feeds and trading infrastructure services and our hosted web applications and workstations services. Specifically, excluding the impact of foreign exchange and the purchase price allocation adjustment to deferred revenue, real-time feeds and trading infrastructure revenue increased $13.9 million, or 17.8%, to $92.2 million primarily due to the contribution of the 7ticks assets acquired in January of 2010. Excluding the impact of foreign exchange and the purchase price allocation adjustment to deferred revenue, hosted web applications and workstation revenue increased $12.4 million, or 8.5%, to $158.8 million. The growth in this product area primarily reflected the contribution of the OFS assets acquired in December 2009 and higher demand for our hosted web applications, the combination of which was partially offset by decreased revenue primarily related to declines within the active trader workstation subscriber base. The out-of-period accounting adjustment recorded in the second quarter of 2009 decreased Trading Solutions segment revenue by $2.3 million in the year ended December 31, 2009.

Cost of Services

Cost of services expenses are composed mainly of personnel-related expenses, communication, data acquisition, and outside professional services and expenditures associated with software and hardware maintenance agreements.

 

       For the Year Ended December 31,  

(In thousands)

   Combined
2010
     2009      % Change     2010
Foreign
Exchange
     2010 Adjusted
COS
(Non-GAAP)
     Adjusted %
Change
 

COST OF SERVICES

   $ 277,075       $ 250,105         10.8   $ 1,740       $ 278,815         11.5

Cost of services expenses increased by $27.0, or 10.8%, to $277.1 million in the combined year ended December 31, 2010 compared with the year ended December 31, 2009. The change in foreign exchange rates decreased cost of services expenses by $1.7 million. Excluding the impact of foreign exchange, cost of services expenses increased by $28.7 million, or 11.5%, in the combined year ended December 31, 2010, due primarily to the acquisition of our 7ticks and OFS assets, which contributed incremental cost of services expenses of $13.0 million and $6.0 million, respectively. The fair value purchase accounting adjustment on certain operating leases decreased cost of services expenses by $0.1 million in the combined year ended December 31, 2010 and the out-of-period accounting adjustment recorded in the second quarter of 2009 at our European real-time market data services operation increased cost of services expense in the year ended December 32, 2009 by $7.5 million.

The remaining $17.3 million increase in cost of services expenses in the combined year ended December 31, 2010 is primarily due to increased personnel-related costs of $8.7 million associated with increased headcount levels and annual merit-based salary increases, increased premises expenses of $2.4 million, and increases in non-Merger-related consulting and communications expenses of $1.1 million and $0.6 million, respectively. Additionally, the combined year ended December 31, 2010 cost of services included increased stock-based compensation costs of $4.0 million due to the Merger related acceleration of unvested stock options, partially offset by decreased non-Merger-related stock-based compensation costs. Cost of services expenses as a percentage of revenue was 34.8% in the combined year ended December 31, 2010 compared with 33.0% in the year ended December 31, 2009.

Selling, General and Administrative Expenses

Selling, general and administrative expenses are composed mainly of personnel-related expenses, outside professional services, advertising and marketing expenses, occupancy-related expenses, and commissions paid to third parties for distribution of our data to customers.

 

     For the Year Ended December 31,  

(In thousands)

   Combined
2010
     2009      % Change     2010
Foreign
Exchange
     2010
Adjusted
SG&A
(Non-GAAP)
     Adjusted %
Change
 

SELLING, GENERAL AND ADMINISTRATIVE

   $ 282,619       $ 237,041         19.2   $ 620       $ 283,239         19.5

Selling, general and administrative expenses increased by $45.6 million, or 19.2%, to $282.6 million in the combined year ended December 31, 2010 compared with the year ended December 31, 2009. The change in foreign exchange rates decreased selling, general and administrative expenses by $0.6 million. Excluding the impact of foreign exchange, selling, general and administrative expenses increased by $46.2 million, or 19.5%, in the combined year ended December 31, 2010 partially due to our acquisition of the assets of 7ticks and OFS, which contributed incremental selling, general and administrative expenses of $5.8 million and $2.1 million, respectively. The out-of-period accounting adjustment recorded in the second quarter of 2009 at our European real-time market data services operation increased selling, general and administrative expense by $1.1 million in the year ended December 31, 2009.

The remaining $39.4 million increase in selling, general, and administrative expenses in the combined year ended December 31, 2010 is primarily due to increased personnel costs of $18.8 million associated with increased headcount levels, annual merit-based salary increases implemented in January 2010, increased severance-related costs, increased bonus expenses of $13.4 million related to incentive bonus compensation programs and increased legal and premises expense of $1.0 million and $0.4 million, respectively. Additionally, selling, general and administrative costs increased in the combined year ended December 31, 2010 due to increased stock-based compensation costs of $4.0 million resulting from the Merger-related acceleration of unvested stock options,

 

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partially offset by decreased non-Merger related stock based compensation costs. Also included in selling, general and administrative costs for the combined year ended December 31, 2010 is approximately $3.3 million of non-recurring costs associated with our abandonment of certain in process software related projects that are no longer required and approximately $0.5 million of foreign exchange loss resulting primarily from the revaluation of European bank balances and inter-company balances due to the strengthening of the US Dollar against the local currencies (primarily the Euro and the British Pound).

These increases were partially offset by decreased commissions paid to third parties for the distribution of data of $1.2 million, decreased advertising and marketing expense of $1.3 million, and lower non-income tax expenses mainly related to a one-time tax incentive of $0.9 million in the combined year ended December 31, 2010.

Selling, general, and administrative expenses as a percentage of revenue was 35.5% in the combined year ended December 31, 2010 compared with 31.3% in the year ended December 31, 2009.

Merger Costs

 

     For the Year Ended December 31,  

(In thousands)

   Combined
2010
     2009      % Change      2010
Foreign
Exchange
     2010
Adjusted
Merger Costs
(Non-GAAP)
     Adjusted %
Change
 

MERGER COSTS

   $ 119,992       $ —           —           —         $ 119,992         —     

Merger costs of $120.0 million in the combined year ended December 31, 2010 represent transaction, legal, accounting, advisor, valuation, transaction bonuses, and tax advisor fees in connection with the Merger. Please refer to Note 3 “Merger” in the Notes to the Consolidated Financial Statements in item 8 of this Annual Report on Form 10-K for additional information. No similar costs were incurred in the year ended December 31, 2009.

Depreciation

 

     For the Year Ended December 31,  

(In thousands)

   Combined
2010
     2009      % Change     2010
Foreign
Exchange
     2010
Adjusted
Depreciation
(Non-GAAP)
     Adjusted %
Change
 

DEPRECIATION

   $ 38,466       $ 31,800         21.0   $ 182       $ 38,648         21.5

Depreciation expense increased by $6.7 million, or 21.0%, to $38.5 million in the combined year ended December 31, 2010 compared with the year ended December 31, 2009. The change in foreign exchange rates decreased depreciation expense by $0.2 million. Excluding the impact of foreign exchange, depreciation expense increased by $6.9 million, or 21.5%, due in part to 7ticks and OFS acquired assets which contributed incremental depreciation expense of $1.9 million and $0.1 million, respectively. Depreciation expense also increased by $1.3 million and $1.2 million, respectively, in the year ended December 31, 2010, due to the commencement of depreciation on leasehold improvements placed in service during the year and the purchase price allocation adjustment. The remaining increase in depreciation expense in the year ended December 31, 2010, was due to increased capitalized software development depreciation and increased capital spending in the year then ended, partially offset by certain assets reaching the end of their useful lives.

Amortization

 

     For the Year Ended December 31,  

(In thousands)

   Combined
2010
     2009      % Change     2010
Foreign
Exchange
     2010
Adjusted
Amortization
(Non-GAAP)
     Adjusted %
Change
 

AMORTIZATION

   $ 85,585       $ 30,523         180.4   $ 620       $ 86,205         182.4

Amortization expense increased by $55.1 million or 180.4%, to $85.6 million in the combined year ended December 31, 2010 compared with the year ended December 31, 2009. The change in foreign exchange rates decreased amortization expense by $0.6 million. Excluding the impact of foreign exchange, amortization expense increased by $55.7 million or 182.4%, in the combined year ended December 31, 2010 due to incremental amortization expense of $65.9 million resulting from the revaluation of certain intangible assets as a result of the Merger.

Other Consolidated Financial Information

Income from operations decreased $214.8 million from income of $207.8 million in the year ended December 31, 2009 to a loss from operations of $7.1 million in the combined year ended December 31, 2010, due to factors discussed above.

Interest income, net decreased by $79.3 million from interest income, net of $1.7 million in the year ended December 31, 2009 to interest expense, net of $77.6 million in the combined year ended December 31, 2010, primarily due to interest incurred on our $2.2 billion of debt obtained during the Merger. In the year ended December 31, 2009, we had no debt and realized interest income on certain investments which were liquidated in 2010 to help finance the Merger.

Other income, net increased $0.4 million to $0.6 million in the combined year ended December 31, 2010 compared with the year ended December 31, 2009, primarily due to a fair value adjustment related to the 7ticks earn-out. Refer to Note 4 “Acquisitions” in the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

Income before income taxes decreased $293.7 million from income before income taxes of $209.6 million in the year ended December 31, 2009 to a loss before income taxes of $84.1 million in the combined year ended December 31, 2010, due to the factors discussed above.

 

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Liquidity and Capital Resources

Sources and Uses of Cash and Cash Equivalents

We expect cash generated from our operating activities to continue to serve as our primary source of liquidity for the next several years. As of December 31, 2011, we had cash and cash equivalents of $262.2 million and had $155.5 million available under our Revolving Credit Facility. Our cash needs arise from our debt obligations, the purchase of equipment, improvements of facilities (including investments in our underlying infrastructure to increase the efficiency and capacity of business operations as well as the technology platforms that support our services such as our data centers and ticker plants), working capital requirements, and certain acquisitions. Management believes our future uses of cash and cash equivalents will remain largely consistent and that our cash and cash equivalents, combined with expected cash flows generated by operating activities, will be sufficient to meet our operating cash needs for the next several years.

Debt Servicing

In connection with the Merger, we incurred indebtedness totaling $2.0 billion. Note 19 “Debt” in the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, and the discussion below in the Debt related to the Merger section provide additional information regarding our debt obligations.

The following table shows our level of indebtedness and certain other information as of December 31, 2011:

 

(in thousands)

   As of December 31, 2011  

Revolving credit facility(1)

   $ —     

Term loan facility(2)

     1,334,912   

Senior unsecured notes

     700,000   
  

 

 

 

Total indebtedness

   $ 2,034,912   
  

 

 

 

 

(1) Our Revolving Credit Facility, which has a 5-year maturity, provides for borrowing up to $160.0 million aggregate principal amount (without giving effect to $4.5 million of letters of credit that were outstanding as of December 31, 2011).
(2) In connection with the Merger, we entered into a $1.330 billion aggregate principal amount Senior Secured Credit Facilities with a 6.5-year maturity. The Term Loan Facility was issued at a 3%, or $39.9 million, original issue discount, which will be amortized and included as interest expense using the effective interest method in our statements of operations over the life of the Term Loan Facility. In February 2011, we refinanced the Senior Secured Credit Facilities, increasing the aggregate principal to $1.345 billion and the term to a 7 year maturity. We paid $13.2 million in premium to refinance the debt of which $10.4 million will be amortized and included as interest expense using the effective interest method in our Consolidated Statements of Operations over the life of the Term Loan Facility and $2.8 million was expensed as a loss on extinguishment of debt in our Consolidated Statement of Operations for the year ended December 31, 2011.

Prior to the Merger, we had no long term debt.

Foreign Subsidiaries

Of our $262.2 million of cash and cash equivalents at December 31, 2011, $144.4 million is held by our foreign subsidiaries with the UK holding the largest share with $89.4 million. Of the total amount of cash and cash equivalents held at our foreign subsidiaries, portions of the individual country balances are not available for repatriation due to statutory limitations imposed by local governments. We believe that the cash generated from our U.S. operations and funds available under our revolving credit facility are sufficient to support the liquidity needs of our U.S. based operations and therefore our current practice, and continued intent, is to permanently reinvest our foreign cash and cash equivalents outside the U.S. If the facts and circumstances changed and these funds were needed for our operations in the U.S. we would be required to accrue and pay U.S. taxes to repatriate these funds. For further information see Note 11 “Income Taxes” in the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

The following table summarizes our cash flow activities for the periods indicated:

 

     Years Ended December 31,  

(in thousands)

   2011     Combined
2010
    2009  

Cash flow provided by (used in):

      

Operating activities

   $ 188,387      $ 23,815      $ 208,134   

Investing activities

     (50,207     (3,359,089     (82,993

Financing activities

     2,705        3,255,994        (79,796

Effect of exchange rates on cash balances

     (2,437     (6,962     10,439   
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ 138,448      $ (86,242   $ 55,784   
  

 

 

   

 

 

   

 

 

 

Operating Activities

Net cash provided by operating activities increased by $164.6 million, or 691.0%, to $188.4 million for the year ended December 31, 2011 compared with the combined year ended December 31, 2010. The increase in operating cash flow is related to a combination of factors. First, we benefited from net period-over-period increase in operating cash flows of $120.0 million related to Merger related payments made in 2010 that did not recur in 2011. Second, we benefited from a net $37.2 million increase in operating cash flows related to cash income taxes as we paid net taxes of $18.2 million during the combined year ended December 30, 2010 and we received net tax refunds of $18.9 million in the year ended December 31, 2011. Additionally, we benefited from increases in operating cash flows of $85.9 million and $14.3 million from non-recurring Merger related pension funding and the payment of retention and signing bonuses, respectively, which occurred in the combined year ended December 31, 2010 and did not recur in the year ended December 31, 2011. Finally, we realized an increase in operating cash flows of $5.4 million related to landlord reimbursements received under certain lease terms in the year ended December 31, 2011. These increases in operating cash flows were partially offset by an increased use of cash of $99.1 million for cash interest, based on $139.5 million of interest payments made in 2011 compared to interest payments of $40.4 made in 2010.

We were not a U.S. Federal or U.K. cash taxpayer for the year ended December 31, 2011 and we expect we will maintain such status through 2012, based on our results of operations to date and expected results for fiscal 2012, including our use of net operating loss carry-forwards.

 

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Investing Activities

When compared with the combined year ended December 31, 2010, net cash used in investing activities decreased by $3.3 billion, or 98.5%, to $50.2 million in the year ended December 31, 2011 primarily based on a decrease of non-recurring Merger related cash flows totaling approximately $3.4 billion being offset by proceeds related to the maturity of marketable securities of $159.4 million received in the combined year ended December 31, 2010 with no similar activity in the year ended December 31, 2011.

During the year ended December 31, 2011 our purchases of property and equipment increased by $5.9 million or 13.3% to $50.2 million when compared with the combined year ended December 31, 2010 primarily related to increased costs incurred in the year ended December 31, 2011 for technology development initiatives when compared with the combined year ended December 31, 2010. We have no material commitments to purchase property and equipment.

Financing Activities

When compared with the combined year ended December 31, 2010, net cash provided by financing activities decreased by $3.3 billion, or 99.9%, to $2.7 million in the year ended December 31, 2011 primarily based on decreases of $1.9 billion and $1.4 billion related to proceeds obtained from issuance of debt and stock, respectively, as part of the Merger in the combined year ended December 31, 2010 and not recurring in 2011. Refer to Note 19 “Debt” in the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

Prior to the Merger, we paid regular quarterly dividends to our stockholders; we have not declared or paid any dividends in any period since the consummation of the Merger. Details on the last regular quarterly dividend paid under this program are as follows (in thousands):

 

Payment Date

   Record Date   

Type

   Amount Per
Common Share
     Total
Dividend Paid
 

March 31, 2010

   March 3, 2010    Regular (cash)    $ 0.20       $ 18,964   

In 2009, we paid cash dividends to stockholders in the following amounts on the following dates (in thousands):

 

Payment Date

   Record Date   

Type

   Amount Per
Common Share
     Total
Dividend Paid
 

March 31, 2009 (1)

   March 2, 2009    Regular (cash)    $ 0.20       $ 18,746   

June 29, 2009

   June 8, 2009    Regular (cash)    $ 0.20       $ 18,807   

September 29, 2009

   September 8, 2009    Regular (cash)    $ 0.20       $ 18,798   

December 30, 2009

   December 8, 2009    Regular (cash)    $ 0.20       $ 18,860   
           

 

 

 
            $ 75,211   
           

 

 

 

 

(1) On December 4, 2008, our Predecessor Board of Directors (i) approved increasing the regular quarterly dividend by 33%, from $0.15 per share to $0.20 per share of common stock and (ii) declared the first quarter 2009 dividend (with a payment date of March 31, 2009 and a record date of March 2, 2009). This declared dividend was unpaid and included in dividends payable as of December 31, 2008.

These cash dividends were paid from existing cash resources.

The various covenants of our debt agreements, including our Senior Secured Credit Facilities and the indenture governing the Senior Notes, restrict our ability to pay dividends. Any future determination to pay dividends will depend upon, among other factors, our results of operations, financial conditions, capital requirements, any contractual restrictions and any other considerations our Board deems relevant, and would require consent of our lenders.

In the combined year ended December 31, 2010, prior to the Merger, we received $28.4 million from the exercise of options and settlement of deferred and restricted stock units to purchase 1.5 million shares of common stock issued pursuant to our 2000 Long-Term Incentive Plan and 2009 Long-Term Incentive Plan and the purchase of 0.2 million shares of common stock by employees, under our 2001 Employee Stock Purchase Plan. We did not repurchase any outstanding shares of common stock under the stock buyback program in 2010.

In the year ended December 31, 2009, we utilized $30.7 million to repurchase 1.3 million outstanding shares of common stock under our publicly announced stock buyback program. Also in 2009, we received $23.4 million from the exercise of options to purchase 1.7 million shares of common stock issued pursuant to our 2000 Long-Term Incentive Plan and the purchase of 0.2 million shares of common stock by employees under our 2001 Employee Stock Purchase Plan.

Debt related to the Merger

Overview

On July 29, 2010, in connection with the Merger, we entered into several new debt instruments totaling $2.2 billion, inclusive of our Revolving Credit Facility. Details of each instrument are described below. Fees totaling $76.6 million associated with the issuance of the new debt instruments were capitalized as deferred financing costs and were reported in Deferred Financing Costs on the Consolidated Balance Sheet of the Successor. These costs are being amortized from the merger date over the remaining term of each debt instrument using the effective interest rate method.

Senior Secured Credit Facilities

On February 11, 2011, we completed a refinancing of our Term Loan Facility through an amendment to the credit agreement. The amendment provides for, among other things, the following:

 

 

a reduction of the Term Loan Facility LIBOR borrowing rate from LIBOR plus 5.0% to LIBOR plus 3.5%, subject to a further reduction of 25 basis points upon our achievement of certain leverage ratios,

 

 

a reduction in the Term Loan Facility LIBOR floor from 1.75% to 1.25%,

 

 

an extension of the maturity date of the Term Loan Facility to February 11, 2018,

 

 

an extension of the commencement date for amortization payments on the Term Loan Facility to June 30, 2011, and

 

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an increase in the principal amount of the Term Loan Facility from $1.330 billion to $1.345 billion.

We also have a $160.0 million Senior Secured Revolving Credit Facility that matures July 29, 2015.

Interest Rate and Fees

Interest on the Term Loan is payable at a rate equal to, at our option either (a) LIBOR plus an applicable margin of 3.50% (subject to the Company achieving a Total Leverage Ratio of 5.75:1 when the margin decreases to 3.25%) or (b) the highest of (1) the prime commercial lending rate published by Bank of America as the “prime rate,” (2) the federal funds effective rate plus 0.50% and (3) the one-month LIBOR rate plus 1.00%, plus an applicable margin (Refer to Note 19 “Debt”). We have made a determination that we will elect option (a) on a prospective basis. As of December 31, 2011 our total leverage ratio was below 5.75:1 resulting in an interest rate of 4.50% comprised of a LIBOR floor of 1.25% and applicable margin of 3.25%. In September, 2010, we designated as accounting hedges three forward starting interest rate caps related to the Senior Secured Credit Facilities with notional amounts up to $700.0 million and declining to $450.0 million over three years to receive interest at variable rates equal to LIBOR and pay interest at fixed rates of 2.00% starting on September 30, 2011 and increasing to 4.00% by September 30, 2014. The interest rate caps became effective on September 30, 2011; however, because the cap strike price is higher than the 3 month LIBOR, there was no impact on the interest rate from September 30, 2011 through December 31, 2011. Refer to Note 18 “Derivatives” in the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information. As part of the refinancing of our Term Loan Facility we reevaluated the interest rate cap agreements and determined that the hedging relationship remained highly effective. In addition to paying interest on outstanding principal amounts, we are required to pay the lenders a commitment fee of 0.75% per annum on the unutilized commitment of the Revolving Credit Facility. The commitment fee percentage may be reduced 0.50% subject to us reducing our total leverage ratio to 5.0 to 1.0.

Installment Payments under the Term Loan Facility

We are required to pay equal quarterly principal installments in aggregate annual amounts equal to 1% of the original funded principal debt of the Senior Secured Credit Facilities with the balance being payable on the final maturity date. The first quarterly principal installment of the refinanced Term Loan of $3.4 million was paid on June 30, 2011 and future principal installments of $3.4 million are payable on a quarterly basis thereafter. During the year ended December 31, 2011, we made principal payments totaling $10.1 million related to the Term Loan Facility.

Prepayments

The Senior Secured Credit Facilities requires us to prepay outstanding term loans, subject to certain exceptions, with:

 

   

50% of the our annual Excess Cash Flow (which percentage will be reduced to 25% if the our total leverage ratio is 4.75x or less and to 0% if our total leverage ratio is 4.00x or less);

 

   

100% of the net cash proceeds of all non-ordinary course asset sales or other dispositions of property, subject to our right to reinvest the proceeds; and

 

   

100% of the net cash proceeds of any incurrence of debt, other than proceeds from debt permitted under the Senior Secured Credit Facilities.

Determination of the annual Excess Cash Flow payment, as described in the credit agreement, is based on pre-established formulas included in the credit agreement. The first determination of the annual excess cash flow prepayment requirement was for the fiscal year ended December 31, 2011, and payment is due 90 days from that date. The amount payable as an excess cash flow payment at December 31, 2011 is $43.0 million and is reflected as a current liability on the Consolidated Balance Sheet.

We may voluntarily repay the outstanding loans under the Senior Secured Credit Facilities at any time without premium or penalty, other than customary breakage costs with respect to LIBOR loans.

Guarantees

All obligations under the Senior Secured Credit Facilities are unconditionally guaranteed by Intermediate and each of our existing and subsequently acquired or organized direct or indirect wholly-owned domestic restricted subsidiaries (subject to certain exceptions). The Senior Secured Credit Facilities contain a number of covenants that, among other things, restrict our ability to incur additional indebtedness, create liens, enter into sale and leaseback transactions, engage in mergers or consolidations, sell or transfer assets, pay dividends and distributions or repurchase its capital stock, make investments, loans or advances, prepay certain subordinated indebtedness, make certain acquisitions, engage in certain transactions with affiliates, amend material agreements governing certain subordinated indebtedness, and change our fiscal year. The Senior Secured Credit Facilities also require us to maintain a maximum senior secured leverage ratio and a minimum cash interest coverage ratio, and contain certain customary affirmative covenants and events of default, including a change of control.

Senior Notes due 2018

On July 29, 2010, we issued $700.0 million of Senior Notes due 2018 bearing annual interest at 10.25% (the “Senior Notes”) of the aggregate principal amount. Interest payments are due semi-annually on February 1 and August 1 of each year until maturity, on August 1, 2018. The first interest payment on the Senior Notes was made on February 1, 2011 and during the year ended December 31, 2011 we paid $72.1 million in interest payments related to our Senior Notes representing both of our required payments for 2011.

The Senior Notes are our senior unsecured obligations that rank senior in right of payment to future debt; rank equally in right of payment with all of our existing and future senior indebtedness; are effectively subordinated in right of payment to our existing and future secured obligations, including indebtedness under our Senior Secured Credit Facilities, to the extent of the value of the assets securing such obligations; and are effectively subordinated in right of payment to all existing and future indebtedness and other liabilities of our non-guarantor subsidiaries (other than indebtedness and liabilities owed to us or one of our guarantor subsidiaries).

On May 9, 2011, we filed a registration statement with the Securities and Exchange Commission on Form S-4 for the purpose of registering new senior notes with the same terms and conditions as the Senior Notes. The registration statement was declared effective on June 9, 2011 and on the same day we launched an exchange offer whereby we offered to exchange new registered 10 1/4% senior notes due 2018 (“Exchange Notes”) for all of the outstanding unregistered Senior Notes. The terms of the Exchange Notes are substantially identical to those of the Senior Notes, except the Exchange Notes are registered under the Securities Act 1933, as amended. The Exchange Notes evidence the same debt as the Senior Notes, and are entitled to the benefits of the Indenture governing the Senior

 

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Notes. We did not and will not receive any proceeds from the exchange offer. The Senior Notes and the Exchange Notes are now interchangeably referred to as the “Senior Notes”. On July 8, 2011, the offer period closed having exchanged 100% of the original Senior Notes. On July 14, 2011, the exchange occurred and we issued the Exchange Notes. There is no established market for the Exchange Notes and we do intend to apply for a listing of the Exchange Notes on any securities exchange or market quotation system.

Guarantees

The Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by each of our existing and future direct or indirect wholly owned domestic subsidiaries that guarantee our obligations under its Senior Secured Credit Facilities. The indenture contains a number of covenants that, among other things, restrict, subject to certain exceptions, our ability and the ability of our restricted subsidiaries to incur additional debt or issue certain preferred shares, pay dividends on or make other distributions in respect of our capital stock or make other restricted payments, make certain investments, sell or transfer certain assets, create liens on certain assets to secure debt, consolidate, merge, sell or otherwise dispose of all or substantially all of the our assets, enter into certain transactions with our affiliates and designate our subsidiaries as unrestricted subsidiaries. The indenture provides for events of default which, if any of them occurs, would permit or require the principal of and accrued interest on the Senior Notes due 2018 to become or to be declared due and payable. The indenture also contains certain customary affirmative covenants pertaining to notice and filings with the Trustee.

Optional Redemption

The Senior Notes are redeemable in whole or in part, at our option, at any time at varying redemption prices that generally include premiums, which are defined in the indenture. Refer to Note 19, “Debt” in the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information. In addition, upon a change of control, we are required to make an offer to redeem all of the Senior Notes at a redemption price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest.

Future minimum principal payment obligations due per our Senior Secured Credit Facilities and Senior Notes are as follows (in thousands):

 

Year Ending December 31,

   Principal
Payments
(in thousands)
 

2012

   $ 56,417   

2013

   $ 13,450   

2014

   $ 13,450   

2015

   $ 13,450   

2016

   $ 13,450   

2017 and thereafter

   $ 1,924,695   
  

 

 

 

Total

   $ 2,034,912   
  

 

 

 

Covenant Compliance

Under the credit agreement and indenture governing the Senior Notes due 2018, certain limitations, restrictions and defaults could occur if we are not able to satisfy and remain in compliance with specified financial covenants. There are two principal financial covenants: Total Leverage Ratio and Interest Coverage Ratio. As of December 31, 2011 and 2010, we were in compliance with our covenants.

Total Leverage Ratio

Under the credit agreement, we have agreed that we will not permit our Total Leverage Ratio as of the last day of any fiscal quarter ending on any date during any period set forth in the below table to be greater than the ratio set forth below opposite such period. Total Leverage Ratio is defined in the credit agreement as the ratio of Consolidated Net Debt to Consolidated Adjusted EBITDA, which terms are likewise defined terms under the credit agreement.

 

Fiscal Year

   First
Quarter
     Second
Quarter
     Third
Quarter
     Fourth
Quarter
 

2010

     NA         NA         NA         7.85:1   

2011

     7.85:1         7.85:1         7.85:1         7.85:1   

2012

     7.85:1         7.75:1         7.75:1         7.50:1   

2013

     7.25:1         7.00:1         7.00:1         6.75:1   

2014

     6.50:1         6.50:1         6.25:1         6.00:1   

2015

     5.75:1         5.75:1         5.50:1         5.50:1   

2016

     5.25:1         5.25:1         5.00:1         5.00:1   

2017

     5.00:1         5.00:1         5.00:1         5.00:1   

Interest Coverage Ratio

Under the credit agreement, we have agreed that we will not permit our Interest Coverage Ratio for any period of four consecutive fiscal quarters to be less than the ratio set forth in the table below opposite such period. Interest Coverage Ratio is defined in the credit agreement as the ratio of Consolidated Adjusted EBITDA to Consolidated Cash Interest Expense, which terms are likewise defined terms under the credit agreement.

 

Fiscal Year

   First
Quarter
     Second
Quarter
     Third
Quarter
     Fourth
Quarter
 

2010

     NA         NA         NA         1.40:1   

2011

     1.40:1         1.40:1         1.40:1         1.40:1   

2012

     1.40:1         1.45:1         1.45:1         1.45:1   

2013

     1.45:1         1.50:1         1.50:1         1.50:1   

2014

     1.50:1         1.55:1         1.55:1         1.55:1   

2015

     1.55:1         1.60:1         1.60:1         1.60:1   

2016

     1.60:1         1.65:1         1.65:1         1.65:1   

2017

     1.65:1         1.65:1         1.65:1         1.65:1   

 

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Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) and Covenant EBITDA (1)

Covenant EBITDA as defined in the credit agreement governing the Senior Secured Credit Facilities and the indenture governing the Senior Notes due 2018 is used to determine our compliance with certain covenants. EBITDA is calculated by adding back to GAAP net (loss) income the following items, interest and other financing costs, net, income taxes, and depreciation and amortization. We also refer to Covenant EBITDA as Pro Forma Adjusted EBITDA (1). Covenant EBITDA is a non-GAAP measure calculated by adding back to EBITDA unusual or non-recurring charges and certain non-cash charges, as well as certain pro forma expected cost savings as permitted under the credit agreement. We believe that presenting Covenant EBITDA is appropriate to provide additional information to investors regarding our compliance with our credit agreement. Any breach of the credit agreement covenants that are based on ratios involving Covenant EBITDA could result in a default under that agreement, and the lenders could elect to declare all amounts borrowed to be due and payable. Any such acceleration would also result in a default under the indenture. Additionally, under the debt agreements, our ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is also tied to ratios based on Covenant EBITDA.

The calculations of EBITDA and Covenant EBITDA (which are both considered non-GAAP measures) under the credit agreement are as follows:

 

     Year Ended December 31,  
     ($ in thousands)  
     2011     Combined 2010     2009  

Net (loss) income

   $ (29,316   $ (71,789   $ 141,234   

Interest expense (income)

     157,120        77,604        (1,680

Other expense (income) including income from non-controlling interest

     3,719        (570     33   

Income tax (benefit) expense

     (55,255     (12,337     68,162   

Depreciation and amortization

     214,468        124,051        62,323   
  

 

 

   

 

 

   

 

 

 

EBITDA

     290,736        116,959        270,072   

Adjustments:

      

Stock-based compensation

     4,229        24,103        16,180   

Merger costs

     —          119,992        —     

Other non-recurring charges (2)

     29,892        24,993        15,530   

Other charges (3)

     4,483        3,314        7,925   

Pro forma cost savings (4)

     30,000        30,000        30,000   
  

 

 

   

 

 

   

 

 

 

Pro Forma Adjusted EBITDA (Covenant EBITDA) (1)

   $ 359,340      $ 319,361      $ 339,707   
  

 

 

   

 

 

   

 

 

 

 

(1) Interactive Data’s Pro Forma adjusted EBITDA excludes items that are either not part of its ongoing core operations, do not require a cash outlay or are not otherwise expected to recur in the ordinary course, as well as other adjustments permitted under our Senior Secured Credit Facilities. Our Pro Forma adjusted EBITDA measure is based on the definition of EBITDA set forth in the agreements governing our Senior Secured Credit Facilities.
(2) Other non-recurring charges include the impact of the deferred revenue adjustment, the loss on extinguishment of debt and certain severance and retention expenses.
(3) Other charges include management fees, earn-out revaluation expense, non-cash foreign exchange expense, acquisition-related adjustments, and other costs.
(4) Pro Forma cost savings of up to a maximum of $30 million annually is an adjustment permitted under our credit agreements, as described below, for activities that may include, but are not limited to, the consolidation of a number of legacy organizational silos, technology platforms and content databases.

EBITDA and Covenant EBITDA are not recognized terms under GAAP, and are considered Non-GAAP measures under Item 10 of Regulation S-K. EBITDA and Covenant EBITDA are not intended to be presented as an alternative to GAAP net income or income from continuing operations as a measure of operating performance or to GAAP cash flows from operating activities as a measure of liquidity. Additionally, EBITDA and Covenant EBITDA are not a measure of free cash flow available for management’s discretionary use. Certain cash requirements such as interest payments, tax payments and debt service requirements are added back to GAAP net income for the purpose of calculating EBITDA. The presentation of EBITDA and Covenant EBITDA should not be considered in isolation, or as a substitute for analysis of our results as reported in accordance with GAAP. We believe EBITDA and Covenant EBITDA provide useful information to investors.

EBITDA provides useful information about underlying core business trends as it excludes the results of decisions that are outside the control of operating management and can differ significantly from company to company depending on, among other things, long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. In addition, EBITDA is a defined term under our credit agreement and is a critical component of determining Covenant EBITDA (also defined in the credit agreement) which in turn is used to calculate key credit agreement financial covenants.

Covenant EBITDA, as defined in the credit agreement, includes certain near term cost savings and excludes certain non-recurring charges or allows for other adjustments. Covenant EBITDA was contractually agreed between us and our lenders and is used for the purposes of determining our compliance with financial covenants under the credit agreement. The breach of covenants in our Senior Secured Credit Facilities that are tied to ratios based on Covenant EBITDA could result in a default and the lenders could elect to declare all amounts borrowed due and payable. Any such acceleration would also result in a default under the indenture governing our Senior Notes due 2018. Additionally, under our debt agreements, our ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is also tied to ratios based on Covenant EBITDA.

We believe that the inclusion of information on the adjustments to EBITDA applied in determining Covenant EBITDA is useful additional information to investors regarding certain items we believe will materially impact future results of operations, that we do not expect to reoccur or that we do not expect will continue at the same level in the future. The exclusion of items from Covenant EBITDA is not intended to indicate that management does not believe such items will occur in the future. Covenant EBITDA includes a cost savings allowance related to projected cost savings expected to be achieved in the future. Specifically, Covenant EBITDA can include up to $30.0 million of projected cost savings for specified actions initiated on or prior to July 29, 2012, to the extent we believe such savings will be realized prospectively and are not already realized in EBITDA. The aggregate amount of cost savings added back when determining Covenant EBITDA in any four consecutive quarters is calculated on a pro forma basis as though such cost savings had been realized on the first day of the consecutive four quarter period. EBITDA and Covenant EBITDA are also used by management as measures of liquidity.

 

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Since not all companies use identical EBITDA or Covenant EBITDA calculations, our EBITDA and Covenant EBITDA may not be comparable to other similarly titled metrics used by other companies. We believe the non-GAAP financial measures we provide to investors supplement GAAP results to provide a more complete understanding of the factors and trends affecting our business than GAAP results alone.

Income Taxes

Our income tax (benefit) expense was ($55.3) million, ($12.3) million and $68.1 million on pretax (loss) income of ($84.6) million, ($84.1) million and $209.6 million for the year ended December 31, 2011, the combined year ended December 31, 2010 and the year ended December 31, 2009, respectively. Our effective tax rates were 65.3%, 14.7% and 32.5%, respectively, for the same periods. The 2011 effective tax rate primarily differs from the statutory rate due to the additional benefits associated with state taxes, tax provision to tax return adjustments with respect to the filing of prior year’s returns, income generated in lower tax jurisdictions, reductions in UK and Japanese tax rates, and an increase in research and development credits.

Our full year December 31, 2011 effective tax rate increased to a 65.3% benefit as compared with a recorded tax benefit of 24.4% for the 5 months ended December 31, 2010 successor period effective tax rate. Our current year effective tax rate includes the impact of a 15.7% benefit resulting from the recording of discrete items, principally consisting of tax rate changes in the U.K. and Japan, tax provision to tax return adjustments with respect to the filing of prior years’ returns in the U.S. and foreign jurisdictions, expiration of various statutes of limitations and various settlements of audits offset by expense taken related to prior years U.S., U.K. and German tax reserves. Of the return to provision adjustments, the majority represent out-of-period corrections recorded primarily in the fourth quarter of 2011. Also, the 2010 successor period includes the impact of a 16.3% expense for non-deductible transaction costs associated with the Merger which was not applicable in 2011. Finally, the 2011 rate reflects a benefit of 7.8% as a result of increased income generated in lower tax jurisdictions as compared to 2010.

The Successor period effective tax rate is 24.4% as compared to the Predecessor effective tax rate of 44.5% and 2009 effective tax rate of 32.5%. The Successor period effective tax rate includes an impact of 4.9% resulting from discrete items, principally consisting of non-deductible transaction costs, foreign taxes, tax provision to tax return adjustment with respect to the filing prior years’ returns in the U.S. and foreign jurisdictions, offset by expiration of various statutes of limitation and various settlement of audits. The Predecessor effective tax rate primarily differs from the statutory rate because of the tax expense associated with the transaction related expenses.

The Successor period effective tax rate for the 5 months ended December 31, 2010 decreased to a recorded tax benefit rate of 24.4% as compared to the recorded tax expense rate of 32.5% for the year ended December 31, 2009, primarily due to a pretax loss in the United States, an increase in income generated in lower tax jurisdictions, and certain transaction costs incurred as part of the Merger (refer to Note 3 “Merger” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further information) which are not deductible for income tax purposes. The decrease in the effective rate was further impacted by the release of unrecognized tax benefits for various tax jurisdictions due to lapsing of statutes of limitation, favorable settlements of state tax audits and a tax benefit for the U.S. research credit, which was extended for two years by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 enacted on December 17, 2010.

The Predecessor period effective tax rate increased the recorded tax expense rate to 44.5% as compared to a recorded tax expense rate of 32.5% for the year ended December 31, 2009, primarily due to a pretax loss in the United States, an increase in income generated in lower tax jurisdictions, and certain transaction costs incurred as part of the July 29, 2010 acquisition (described in detail in Note 3 “Merger” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K) which are not deductible for income tax purposes. The increase was offset by foreign tax credits realized in the period.

We recognize future tax benefits or expenses attributable to our taxable temporary differences and net operating loss carry forwards. Recognition of deferred tax assets is subject to our determination that realization is more likely than not. Based on taxable income projections, we believe that the recorded deferred tax assets will be realized.

Other than favorable settlements related to various foreign and state tax audits and the expiration of various statutes of limitation, there were no material changes to our unrecognized tax benefits in 2011. The increase in unrecognized tax benefits at December 31, 2011 as compared to December 31, 2010 of $1.1 million, primarily relate to tax uncertainties attributed to transaction costs incurred in connection with the Merger, tax provision to tax return adjustments, and foreign income tax audits. As of December 31, 2011, we had approximately $11.7 million of net unrecognized tax benefits which would affect our effective tax rate if recognized. We believe that it is reasonably possible that approximately $0.2 million of our currently remaining net unrecognized tax positions may be recognized within the next twelve months as a result of the lapse of the statute of limitations in various tax jurisdictions.

We recognize net interest and penalties related to uncertain tax positions in income tax expense. Interest and penalties of $0.3 million and $0.5 million were provided in income tax expense for uncertain tax positions for the year ended December 31, 2011 and the combined year ended December 31, 2010, respectively. Gross reserves for interest and penalties of $1.0 million and $0.6 million have been provided at December 31, 2011 and 2010, respectively.

We file federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. In the normal course of business, we are subject to examination by taxing authorities in various jurisdictions. We are currently under examination by the Internal Revenue Service for tax years 2008 through 2010. Other tax years that remain subject to examination include 2006 through 2010 for significant states, and 2004 through 2010 for foreign tax authorities.

Off-Balance Sheet Arrangements

As of December 31, 2011, we had no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. For a detailed discussion on the application of these and other accounting policies, see Note 1 “Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to stock-based compensation, revenue recognition, goodwill and intangible assets, accrued liabilities and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

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We believe the following critical accounting policies require our most significant judgments and estimates used in the preparation of our consolidated financial statements:

Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sale price is fixed or determinable and collectability is reasonably assured. Revenue for subscription based contracts is recognized ratably over the life of the contract and revenue for usage based contracts is recognized in the month that the products/services are provided. Certain of our businesses collect fees for installation/set-up services which, if deemed a separate deliverable, are recognized upon delivery as long as the remaining criteria for recognition of revenue have been achieved. Revenue for installation/set-up services that do not meet the criteria for separation, occurs ratably either over the contract life or an average customer life depending on the professional literature relevant to the transaction. Revenue for professional services is recognized as the services are provided and revenue for hardware is recognized when the installation is complete and the related services go-live.

Some contracts include multiple elements for which we determine whether the various elements meet the applicable criteria to be accounted for as separate elements and make estimates regarding their relative fair values. Revenue for elements that cannot be separated is recognized once the revenue recognition criteria for the entire arrangement has been met or over the period that our obligation to perform is fulfilled. Consideration for elements that are deemed separable is allocated to the separate elements at the inception of the arrangement on the basis of their relative selling price and recognized based on meeting authoritative criteria to do so.

We also evaluate our revenue recognition in accordance with Financial Accounting Standards Board Accounting Standards Codification 605-45, “Principal Agent Consideration”, regarding gross versus net revenue reporting.

Deferred revenue represents contractual billings in excess of revenue recognized. We record revenue net of applicable sales tax collected and remitted to state and local taxing jurisdictions. Taxes collected from customers are recorded as a liability in the balance sheet.

Our allowance for doubtful accounts and sales credit reserves are not material to our consolidated revenues or our consolidated financial statements taken as a whole and are not expected to become material in the foreseeable future.

Goodwill

We perform impairment tests of goodwill assigned to our reporting units in the fourth quarter of each fiscal year, or whenever events or circumstances indicate impairment may exist.

At December 31, 2011, we had two reportable segments; PRD and Trading Solutions. Within the PRD segment, there are two reporting units; Interactive Data Pricing and Reference Data Services and BondEdge Solutions. Within the Trading Solutions segment, there are three reporting units; Interactive Data Real-Time Services, Interactive Data Desktop Solutions and Interactive Data Managed Solutions. All of these reporting units represent operating segments and have not changed in composition in the year ended December 31, 2011 compared with the combined year ended December 31, 2010.

In performing goodwill assessments, management relies on a number of factors including operating results, business plans, economic projections, anticipated future cash flows, and transactions and market place data. There are inherent uncertainties related to these factors and judgment in applying them to the analysis of goodwill impairment. Since judgment is involved in performing goodwill valuation analyses, there is risk that the carrying value of our goodwill may be overstated or understated. We calculate our goodwill valuations using two separate income approach models based on the present value of future cash flows of each reporting unit. One model uses perpetual free cash flows in the calculation of the present value of future cash flows and the other model uses an exit multiple based on consideration of guideline companies adjusted for profitability of our individual reporting units. These cash flows are then discounted at an implied rate of return that we believe a market participant would require for an investment in a company having similar risks and business characteristics to the reporting unit being assessed. This approach incorporates many assumptions including future growth rates, discount factors and income tax rates. Such assumptions take into account numerous factors including historical experience, anticipated economic and market conditions for purposes of determining market value from a market participant perspective. If the estimated fair value of the reporting unit exceeds the respective carrying value of the reporting unit’s assigned assets and liabilities, no impairment is recorded and no further analysis is performed.

If the estimated fair value of a reporting unit is less than the carrying value of the reporting unit’s assigned assets and liabilities, we would perform the Step 2 calculation required under authoritative accounting literature. In Step 2, the implied fair value of the reporting unit’s goodwill would be determined by assigning a fair value to all of the reporting unit’s assets and liabilities, including any unrecognized intangible assets, as if the reporting unit had been acquired in a business combination at fair value. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss would be recognized in an amount equal to that excess.

Based on our annual assessment, including application of the assumptions described above, no impairment in any reporting unit existed and all reporting units had estimated fair values at least 20% in excess of their assigned carrying values.

Although changes in economic and operating conditions impacting our assumptions used to complete our fiscal 2011 goodwill impairment analysis could result in goodwill impairment in future periods, based upon the analysis conducted by management for the year ended December 31, 2011, including consideration of reasonably likely adverse changes in assumptions, management believes it is not reasonably likely that an impairment will occur over the next twelve months.

 

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Intangible Assets

Intangible assets include securities data and databases, completed technology, trademarks (definite and indefinite lived), exchange relationships and customer lists arising principally from acquisitions. Such intangibles are valued on the acquisition dates based on a combination of replacement cost, comparable purchase methodologies and discounted cash flows and are amortized over their respective economic benefit periods which range from four years to twenty five years. We evaluate the remaining useful life of intangible assets subject to amortization on a periodic basis to determine whether events and circumstances warrant a revision to the remaining useful life. If the estimate of an intangible asset’s remaining useful life is changed, we amortize the remaining carrying value of the intangible asset prospectively over the revised remaining useful life. Intangible assets not subject to amortization are reviewed for impairment annually in conjunction with our goodwill impairment calculation or whenever events or circumstances indicate that impairment may exist.

Income Taxes

We determine our income tax expense in each of the jurisdictions in which we operate. In determining income for financial statement purposes, we must make certain estimates and apply judgment. These estimates and judgments affect the calculation of certain tax liabilities and the determination of the recoverability of certain of the deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expense.

Deferred tax assets and liabilities are determined based on differences between the financial reporting and the tax basis of assets and liabilities and are measured by applying enacted tax rates and laws to taxable years in which such differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence including our past operating results, the existence of cumulative losses in the most recent years and our forecast of future taxable income. In estimating future taxable income, we develop assumptions including the amount of future state, federal and international pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we use to manage the underlying businesses.

We have recorded valuation allowances in certain jurisdictions that we intend to maintain until it appears to be more likely than not that some or all of those deferred tax assets will be realized. Our valuation allowances for deferred tax assets of $1.0 million and $1.0 million at December 31, 2011 and 2010, respectively, relate to the uncertainty of the utilization of certain deferred tax assets, primarily tax loss and credit carryforwards in various jurisdictions. We believe that we will generate sufficient future taxable income in the appropriate jurisdictions to realize the tax benefits related to the net deferred tax assets on our consolidated balance sheets. However, any reduction in future taxable income, including any future restructuring activities, may require that we record an additional valuation allowance against our deferred tax assets.

We determine whether it is more likely than not that a tax position will be sustained upon examination. The tax benefit of any tax position that meets the more-likely-than-not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the uncertainty. To the extent a full benefit is not realized on the uncertain tax position, an income tax liability is established. We adjust these liabilities as a result of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. A significant portion of our potential tax liabilities are recorded in non-current income taxes payable on our consolidated balance sheets as payment is not expected within one year.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations. Changes in tax laws and rates could affect recorded deferred tax assets and liabilities in the future. Management is not aware of any such changes, however, which would have a material effect on our results of operations, financial condition or cash flows.

In addition, $13.2 million of gross unrecognized tax benefits have been recorded in income taxes payable as we are uncertain if or when such amounts may be settled. Related to these unrecognized tax benefits, we have also recorded in income taxes payable $1.0 million for potential gross interest and penalties at December 31, 2011.

Commitments and Contingencies

We have obligations under non-cancelable operating leases for real estate and equipment. Real estate leases are for our corporate headquarters, sales offices, major operating units and data centers. Certain of the leases include renewal options and escalation clauses. In addition, we have purchase obligations for data content.

Our known contractual obligations on a combined basis as of December 31, 2011 are summarized in the table below:

 

     Payment Due by Period  

(In thousands)

   Total      Less Than
1 Year
     1-3
Years
     3-5
Years
     More Than
5 Years
 

Contractual Obligations

              

Long Term Debt Obligations

   $ 2,034,913       $ 56,417       $ 26,900       $ 26,900       $ 1,924,696   

Operating Lease Obligations

     146,871         21,087         32,654         29,357         63,773   

Purchase Obligations

     32,972         32,972         —           —           —     

Derivatives

     4,571         1,660         2,911         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,219,327       $ 112,136       $ 62,465       $ 56,257       $ 1,988,469   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

We expect to satisfy our contractual obligations from our existing cash as well as our cash flow from operations. Our key operating locations operate in facilities under long-term leases, the earliest of which will expire in 2012 and 2013. If we are unable to renew any of the leases that are due to expire in 2012 or 2013, we believe that suitable replacement properties are available on commercially reasonable terms.

Rental expense was $23.7 million, $23.7 million, and $22.6 million, for year ended December 31, 2011, the combined year ended December 31, 2010 and the year ended December 31, 2009, respectively.

Purchase Obligations include our estimate of the minimum outstanding obligations under agreements to purchase goods or services that we believe are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable at any time without penalty.

 

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Long Term Debt Obligations in the above table include our obligations under the Senior Secured Credit Facilities and the Senior Notes due 2018 including outstanding letters of credit. Outstanding letters of credit totaled $4.5 million at December 31, 2011. The letters of credit principally secure performance obligations, and allow the holder to draw funds up to the face amount of the letter of credit, bank guarantee or surety bond if the applicable business unit does not perform as contractually required.

In addition, $13.2 million of gross unrecognized tax benefits have been recorded in income taxes payable as we are uncertain if or when such amounts may be settled. Related to these unrecognized tax benefits, we have also recorded in income taxes payable $1.0 for potential gross interest and penalties at December 31, 2011.

In connection with the provision of services in the ordinary course of business, we often make representations affirming, among other things, that our services do not infringe on the intellectual property rights of others and agree to indemnify customers against third-party claims for such infringement. We have not been required to make material payments under such provisions. We are involved in litigation and are the subject of claims made from time to time, including with respect to intellectual property rights. A portion of the defense and/or settlement costs in some such cases is covered by various commercial liability insurance policies. In other cases, the defense and/or settlement costs are paid from our existing cash resources. In addition, our third-party data suppliers audit us from time to time in the ordinary course of business to determine if data we license for redistribution has been properly accounted for in accordance with the terms of the applicable license agreement. In view of our financial condition and the accruals established for related matters, management does not believe that the ultimate liability, if any, related to any of these matters will have a material adverse effect on our financial condition, results of operations or cash flows.

In connection with the sale of services in the ordinary course of business, we often make representations affirming that our services do not infringe on the intellectual property rights of others and agree to indemnify customers against third-party claims for such infringement.

Inflation

Although management believes that inflation has not had a material effect on the results of operations during the past three years, there can be no assurance that results of operations will not be affected by inflation in the future.

Seasonality and Market Activity

Historically, we have not experienced any material seasonal fluctuations in our business and we do not expect to experience seasonal fluctuations in the future. However, financial information market demand is largely dependent upon activity levels in the securities markets. In the event that the US or international financial markets were to suffer a prolonged downturn that results in a significant decline in investor activity in trading securities, our sales and revenue could be adversely affected. This was the case with regard to the recent global financial crisis, which did adversely affect our sales and revenue results, as previously described within this MD&A. Our exposure in the United States in this area could be mitigated in part by our service offerings in non-US markets, and vice versa.

Recently Issued Accounting Pronouncements

Fair Value Measurements

In April 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, “Fair Value Measurement” (“ASU 2011-04”), regarding Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures”. ASU 2011-04 establishes common fair value measurement and disclosure requirements in US GAAP and International Financial Reporting Standards (“IFRS”), and provides clarification of the FASB’s intent on the application of existing fair value measurement requirements and changes in some principles or requirements for measuring fair value or disclosing information related to fair value measurement. ASU 2011-04 became effective for us January 1, 2012. Adopting the provisions of ASU 2011-04 did not have a material impact on our financial position, results of operations or cash flows.

Intangibles – Goodwill and Other

In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment” (“ASU 2011-08”), regarding ASC Topic 350, “Intangibles – Goodwill and Other”. ASU 2011-08 allows an entity the option of first assessing qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying value. Under the provisions of ASU 2011-08, if after assessing the totality of the events or circumstances, an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, performance of the two-step impairment test is unnecessary. ASU 2011-08 is effective for fiscal years beginning on or after December 15, 2011 with early adoption permitted. ASU 2011-08 became effective for us January 1, 2012. Adopting the provisions of ASU 2011-08 did not have a material impact on our financial position, results of operations or cash flows.

Revenue Recognition

In October 2009, the FASB issued ASU 2009-13, “Multiple-Deliverable Revenue Arrangements” (“ASU 2009-13”), regarding ASC Subtopic 605-25 “Revenue Recognition – Multiple-element Arrangements”. ASU 2009-13 addresses how revenues should be allocated among all products and services in sales arrangements. ASU 2009-13 requires companies to allocate the overall consideration to each deliverable by using a best estimate of the selling price of individual deliverables in the arrangement in the absence of vendor-specific objective evidence or other third-party evidence of the selling price. It also significantly expands the disclosure requirements for such arrangements.

In October 2009, the FASB issued ASU 2009-14, “Software: Certain Revenue Arrangements That Include Software Elements” (“ASU 2009-14”), regarding ASC Topic 985 “Software – Revenue Recognition.” This ASU modifies the scope of ASC Subtopic 965-605, “Software Revenue Recognition,” to exclude (a) non-software components of tangible products and (b) software components of tangible products that are sold, licensed, or leased with tangible products when the software components and non-software components of the tangible product function together to deliver the tangible product’s essential functionality.

ASU 2009-13 and ASU 2009-14 became effective for us January 1, 2011. The adoption of ASU 2009-13 and ASU 2009-14 did not have a material impact on our financial position, results of operations or cash flows.

Comprehensive Income

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income” (“ASU 2011-05”), regarding ASC Topic 220 “Comprehensive Income”. ASU 2011-05 requires that an entity present the components of comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 additionally required that reclassification adjustments for items that are reclassified from other comprehensive income to net income be presented on the face of the financial statements regardless of which approach to presentation is selected; however, ASU

 

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2011-12 issued in December 2011 indefinitely deferred this requirement. ASU 2011-05 does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. For public filers, ASU 2011-05 is effective for fiscal years and interim periods within those years that begin after December 15, 2011 with early adoption permitted. We adopted the provisions of ASU 2011-05 for the year ended December 31, 2011 and have provided the separate financial statements and disclosures as appropriate under the pronouncement.

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk from changes in currency exchange rates and interest rates which could affect its future results of operations and financial condition.

Foreign Currency Risk

A portion of our business is conducted outside the United States through our foreign subsidiaries and branches. We have foreign currency exposure related to operations in international markets where we transact business in foreign currencies and, accordingly, we are subject to exposure from adverse movements in foreign currency exchange rates. Our foreign subsidiaries maintain their accounting records in their respective local currencies. Consequently, changes in currency exchange rates may impact the translation of foreign statements of operations into US dollars, which may in turn affect our consolidated statements of operations. Currently, our primary exposure to foreign currency exchange rate risk rests with the British Pound and the Euro to US dollar exchange rates due to the significant size of our operations in Europe. Historically we have not entered into forward currency-exchange contracts. The effect of foreign exchange on our business historically has varied from quarter to quarter and may continue to do so.

Please refer to Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion of the impact of foreign exchange on our business and results of operation.

Total revenue for the periods below by geographic region outside the United States, are as follows:

 

     Successor     Predecessor  

(In thousands)

   As of
December 31,
2011
     Combined
2010
     Period from
July  30
through
December 31,
2010
    Period from
January  1
through

July 29,
2010
     As of
December 31,
2009
 

Revenue:

               

United Kingdom

   $ 88,688       $ 82,534       $ 35,442      $ 47,092       $ 75,722   

All other European countries

     126,891         117,218         50,337         66,881         113,583   

Asia Pacific

     42,699         39,523         16,972        22,551         37,861   

Rest of World

     12,609         9,746         4,327        5,419         7,572   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 270,887       $ 249,021       $ 107,078      $ 141,943       $ 234,738   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

At December 31, 2011, 2010 and 2009, long-lived assets by geographic region outside the United States are as follows:

 

(In thousands)

   As of
December 31,
2011
     As of
December 31,
2010
     As of
December 31,
2009
 

United Kingdom

     589,793       $ 620,711       $ 114,390   

All other European countries

     149,949         164,530         103,088   

Asia Pacific

     174,223         177,349         36,687   
  

 

 

    

 

 

    

 

 

 

Total

   $ 913,965       $ 962,590       $ 254,165   
  

 

 

    

 

 

    

 

 

 

Interest Rate Risk

We have interest rate risk due to our Term Loan Facility which is variable rate debt and associated interest rate caps. As of December 31, 2011, we had $1.3 billion of Term Loan Facility debt under our Senior Secured Credit Facilities, which bears interest based on a floating rate index. We entered into forward starting interest rate caps that hedge the exposure on $700.0 million of this debt beginning September 30, 2011. Although the relevant floating interest rate was 0.58% at December 31, 2011, our minimum interest rate is set at 1.25% (plus an applicable percentage). The current interest rate is 4.50%. An increase of 1% in our variable rate above our December 31, 2011 rate of 4.50% would increase our interest expense over the subsequent four-quarter period by approximately $11.4 million. As of December 31, 2011, approximately 52% of this exposure is hedged with the interest rate caps. Please refer to Note 18 “Derivatives” and Note 19 “Debt” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further discussion of our debt and derivatives.

 

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Item 8. Financial Statements and Supplementary Data

 

     Page  

Index to Consolidated Financial Statements:

  

Report of Independent Registered Public Accounting Firm

     34   

Consolidated Statements of Operations for the year ended December 31, 2011, the periods from July  30, 2010 through December 31, 2010 and January 1, 2010 through July 29, 2010 and for the year ended December 31, 2009

     35   

Consolidated Statements of Comprehensive Income for the year ended December  31, 2011, the periods from July 30, 2010 through December 31, 2010 and January 1, 2010 through July 29, 2010 and for the year ended December 31, 2009

     36   

Consolidated Balance Sheets as of December 31, 2011 and 2010

     37   

Consolidated Statements of Cash Flows for the year ended December 31, 2011, the periods from July  30, 2010 through December 31, 2010 and January 1, 2010 through July 29, 2010 and for the year ended December 31, 2009

     38   

Consolidated Statements of Stockholders’ Equity for the year ended December  31, 2011, the periods from July 30, 2010 through December 31, 2010 and January 1, 2010 through July 29, 2010 and for the year ended December 31, 2009

     39   

Notes to Consolidated Financial Statements

     41   

Quarterly Financial Information (Unaudited)

     84   

Index to Financial Statement Schedule:

  

Schedule II Valuation and Qualifying Accounts

     85   

 

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Interactive Data Corporation and Subsidiaries:

We have audited the accompanying consolidated balance sheets of Interactive Data Corporation and subsidiaries (the Successor) as of December 31, 2011 and 2010, and the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity and cash flows for the year ended December 31, 2011 and the period from July 30, 2010 to December 31, 2010 and the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity and cash flows of Interactive Data Corporation and subsidiaries (the Predecessor) for the period from January 1, 2010 to July 29, 2010 and for the year ended December 31, 2009. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Successor’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Successor’s or the Predecessor’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Successor’s or the Predecessor’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Interactive Data Corporation and subsidiaries (the Successor) at December 31, 2011 and 2010, and the consolidated results of its operations and its cash flows for the year ended December 31, 2011 and the period from July 30, 2010 to December 31, 2010 and the consolidated results of operations and cash flows of Interactive Data Corporation and subsidiaries (the Predecessor) for the period from January 1, 2010 to July 29, 2010 and for the year ended December 31, 2009, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

Boston, Massachusetts

March 16, 2012

 

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PART I – FINANCIAL INFORMATION

Financial Statements

INTERACTIVE DATA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

 

     Successor     Predecessor  
     Year Ended
December 31,
2011
    Period from July 30
through
December 31,

2010
    Period from January 1
through July 29,

2010
     Year Ended
December 31,
2009
 

REVENUE

   $ 867,723      $ 342,101      $ 454,544       $ 757,218   

COSTS AND EXPENSES:

           

Cost of services

     293,472        115,176        161,899         250,105   

Selling, general and administrative

     258,065        124,409        158,210         237,041   

Merger costs

     —          67,258        52,734         —     

Depreciation

     39,391        15,962        22,504         31,800   

Amortization

     175,077        65,867        19,718         30,523   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total costs and expenses

     766,005        388,672        415,065         549,469   
  

 

 

   

 

 

   

 

 

    

 

 

 

INCOME (LOSS) FROM OPERATIONS

     101,718        (46,571 )        39,479         207,749   

Interest (expense) income, net

     (157,120     (78,364     760         1,680   

Other (expense) income, net

     (3,719     321        249         139   

Loss on extinguishment of debt

     (25,450     —          —           —     
  

 

 

   

 

 

   

 

 

    

 

 

 

(LOSS) INCOME BEFORE INCOME TAXES

     (84,571     (124,614     40,488         209,568   

Income tax (benefit) expense

     (55,255     (30,351     18,014         68,162   
  

 

 

   

 

 

   

 

 

    

 

 

 

NET (LOSS) INCOME

     (29,316     (94,263     22,474         141,406   

Less: Net income attributable to noncontrolling interest

     —          —          —           (172
  

 

 

   

 

 

   

 

 

    

 

 

 

NET (LOSS) INCOME ATTRIBUTABLE TO INTERACTIVE DATA CORPORATION

   $ (29,316   $ (94,263   $ 22,474       $ 141,234   
  

 

 

   

 

 

   

 

 

    

 

 

 

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

 

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INTERACTIVE DATA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

 

     Successor     Predecessor  
     Year Ended
December 31,
    Period from July 30
through
December 31
    Period from January 1
through
July 29
    Year Ended
December 31,
 
     2011     2010     2010     2009  

Net (loss) income

   $ (29,316   $ (94,263   $ 22,474      $ 141,406   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income:

          

Unrealized (loss) gain on securities, net of tax

     (100     345        22        713   

Foreign currency translation adjustments

     (6,862     18,780        (15,230     23,855   

Pension adjustment, net of tax

     600        (243 )        (18     2,113   

Less; reclassification adjustment for amortization of pension costs included in net income, net of tax

     (269     —          —          —     

Change in value of hedged interest rate caps, net of tax

     (3,071     737        —          —     

Less; reclassification adjustment for interest rate cap related interest expense included in net income, net of tax

     223        —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive (loss) income, net of tax

     (9,479     19,619        (15,226     26,681   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income

     (38,795     (74,644     7,248        168,087   

Less: Comprehensive loss attributable to noncontrolling interest

     —          —          —          (172
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income attributable to Interactive Data Corporation

   $ (38,795   $ (74,644   $ 7,248      $ 167,915   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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INTERACTIVE DATA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share information)

 

     December 31,
2011
    December 31,
2010
 
ASSETS     

Assets:

    

Cash and cash equivalents

   $ 262,152      $ 123,704   

Accounts receivable, net of allowance for doubtful accounts and sales credits of $5,152 and $6,618 at December 31, 2011 and December 31, 2010, respectively

     118,248        107,067   

Due from parent

     —          7,500   

Prepaid expenses and other current assets

     27,419        21,079   

Income tax receivable

     6,251        40,764   

Deferred income taxes

     42,281        7,574   
  

 

 

   

 

 

 

Total current assets

     456,351        307,688   
  

 

 

   

 

 

 

Property and equipment, net

     122,289        110,386   

Goodwill

     1,637,126        1,638,268   

Intangible assets, net

     1,818,117        1,994,461   

Deferred financing costs, net

     54,478        71,827   

Other assets

     5,310        11,247   
  

 

 

   

 

 

 

Total Assets

   $ 4,093,671      $ 4,133,877   
  

 

 

   

 

 

 
LIABILITIES AND EQUITY     

Liabilities:

    

Accounts payable, trade

   $ 17,911      $ 22,232   

Accrued liabilities

     89,214        92,020   

Borrowings, current

     56,417        10,088   

Interest payable

     30,584        30,647   

Income taxes payable

     7,008        5,521   

Deferred revenue

     24,944        24,296   
  

 

 

   

 

 

 

Total current liabilities

     226,078        184,804   
  

 

 

   

 

 

 

Income taxes payable

     10,906        11,314   

Deferred tax liabilities

     647,090        677,793   

Other liabilities

     59,908        48,130   

Borrowings, net of current portion and original issue discount

     1,929,784        1,959,365   
  

 

 

   

 

 

 

Total Liabilities

     2,873,766        2,881,406   
  

 

 

   

 

 

 

Commitments and contingencies (Note 10)

    

Equity:

    

Interactive Data Corporation stockholders’ equity:

    

Common stock, $0.01 par value, 1,000 shares authorized, 10 issued and outstanding at December 31, 2011 and 2010

     —          —     

Additional paid-in-capital

     1,333,344        1,327,115   

Accumulated loss

     (123,579     (94,263

Accumulated other comprehensive income

     10,140        19,619   
  

 

 

   

 

 

 

Total Interactive Data Corporation stockholders’ equity

     1,219,905        1,252,471   
  

 

 

   

 

 

 

Total Liabilities and Equity

   $ 4,093,671      $ 4,133,877   
  

 

 

   

 

 

 

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

 

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INTERACTIVE DATA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

    Successor          Predecessor  
    Year Ended
December  31,
2011
    Period from
July 30  through
December 31,
2010
         Period From
January 1  through
July 29,

2010
    Year Ended
December  31,
2009
 

Cash flows (used in) provided by operating activities:

           

Net (loss) income

  $ (29,316   $ (94,263       $ 22,474      $ 141,406   

Adjustments to reconcile net income to net cash provided by operating activities:

           
 

Depreciation and amortization

    214,468        81,829            42,222        62,323   

Asset abandonment

    —          3,307            —          —     

Amortization of discounts and premiums on marketable securities, net

    —          —              766        1,948   

Amortization of deferred financing costs and accretion of note discounts

    17,741        8,402            —          —     

Deferred income taxes

    (63,232     (9,090         7,270        (6,292

Excess tax benefits from stock-based compensation

    —          —              (3,625     (2,768

Stock-based compensation

    4,229        111            23,985        16,180   

Non-cash interest expense

    376        468            —          —     

(Recovery) provision for doubtful accounts and sales credits

    (1,605     (1,802         103        1,813   

Loss on extinguishment of debt

    25,450        —              —          —     

Loss on dispositions of property and equipment

    513        112            114        729   

Changes in operating assets and liabilities, net

           

Accounts receivable

    (10,068     41,527            (37,572     2,233   

Prepaid expenses and other current assets

    (6,314     2,284            1,314        (1,969

Accounts payable, interest payable and income taxes payable and receivable, net

    30,158        6,876            (11,404     6,887   

Accrued expenses and other liabilities

    5,471        11,108            20,282        (13,210

Pension cessation payments

    —          (3,200         (82,741     —     

Deferred revenue

    516        (27,344         20,302        (1,146
 

 

 

   

 

 

       

 

 

   

 

 

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

    188,387        20,325            3,490        208,134   

Cash flows provided by (used in) investing activities:

           

Purchase of property and equipment

    (50,260     (17,965         (26,395     (42,829

Business and asset acquisitions, net of acquired cash

    53        (5,943         (29,923     (16,731

Acquisition of Interactive Data Corporation and Subsidiaries

    —          (3,374,155         —          —     

Purchase of marketable securities

    —          —              (64,136     (257,390

Proceeds from maturities and sales of marketable securities

    —          —              159,428        233,957   
 

 

 

   

 

 

       

 

 

   

 

 

 

NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES

    (50,207     (3,398,063         38,974        (82,993

Cash flows provided by (used in) financing activities:

           

Proceeds from exercise of stock options and employee stock purchase plan

    —          —              28,397        23,379   

Purchase of treasury stock

    —          —              —          (30,670

Common stock cash dividends paid

    —          —              (18,964     (75,273

Excess tax benefits from stock-based compensation

    —          —              3,625        2,768   

Borrowings under Revolving Credit Facility

    —          2,000            —          —     

Repayments on Revolving Credit Facility

    —          (2,000         —          —     

Proceeds from issuance of long-term debt, net of issuance costs

    1,358        1,897,617            —          —     

Principal payments on long-term debt

    (10,088     (8,650         —          —     

Proceeds from issuance of restricted parent company common stock and capital contributions

    11,850        —              —          —     

Payment of interest rate cap

    (415     —              —          —     

Investment by parent company

    —          1,353,969            —          —     
 

 

 

   

 

 

       

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

    2,705        3,242,936            13,058        (79,796

Effect of change in exchange rates on cash and cash equivalents

    (2,437     1,786            (8,748     10,439   
 

 

 

   

 

 

       

 

 

   

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

    138,448        (133,016         46,774        55,784   

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

    123,704        256,720            209,946        154,162   
 

 

 

   

 

 

       

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

  $ 262,152      $ 123,704          $ 256,720      $ 209,946   
 

 

 

   

 

 

       

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

           

Cash received (paid) for taxes

  $ 18,898      $ 857          $ (19,154   $ (73,657

Cash (paid) received for interest

  $ (139,454   $ (40,401       $ 1,566      $ 3,634   

Non-cash financing activity:

           

Issuance of Holdings common stock classified as
restricted stock liability

    —        $ 34,500            —          —     

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

 

- 38 -


Table of Contents

INTERACTIVE DATA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands)

Predecessor

 

    Common Stock     Treasury
Stock
Cost
    Accumulated
Earnings
    Accumulated
Other
Comprehensive
Income
(Loss)
    NonControlling
Interest
    Total
Equity
 

(in thousands)

  Number
of
Shares
    Par
Value
    Additional
Paid-In
Capital
    Treasury
Stock
Number
of
Shares
           

Balance, December 31, 2008

    102,737      $ 1,027      $ 976,651        9,205      $ (190,000   $ 194,733      $ (22,604   $ 596      $ 960,403   

Exercise of stock options and issuance of deferred and restricted stock units

    1,695        17        18,787        —          —          —          —          —          18,804   

Issuance of stock in connection with employee stock purchase plan

    235        2        4,573        —          —          —          —          —          4,575   

Tax benefit from exercise of stock options and employee stock purchase plan

    —          —          5,187        —          —          —          —          —          5,187   

Purchase of treasury stock

    —          —          —          1,280        (31,246     —          —          —          (31,246

Stock-based compensation (Note 8)

    —          —          16,180        —          —          —          —          —          16,180   

Purchase accounting allocation adjustment to noncontrolling interest in NDF

    —          —          —          —          —          —          —          (245     (245

Purchase of NDF common shares from noncontrolling interest

    —          —          (2,651     —          —          —          —          (461     (3,112

Other comprehensive income

    —          —          —          —          —          —          26,681        —          26,681   

Common stock dividends awarded to holders of restricted stock units

    —          —          406        —          —          (406     —          —          —     

Common stock cash dividends declared to Interactive Data stockholders (Note 9)

    —          —          —          —          —          (56,465     —          —          (56,465

Cash dividends declared to noncontrolling interests on NDF common stock

    —          —          —          —          —          —          —          (62     (62

Net income

    —          —          —          —          —          141,234        —          172        141,406   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2009

    104,667      $ 1,046      $ 1,019,133        10,485      $ (221,246   $ 279,096      $ 4,077      $ —        $ 1,082,106   

Exercise of stock options and issuance of deferred and restricted stock units

    1,513        15        24,109        —          —