10-K 1 d444689d10k.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, 2012

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  ¨    No  x*

 

* The Registrant is a voluntary filer.

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, 2012, there was no established public trading market for any of the common stock of the registrant. As of March 8, 2013, 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      14   

Item 1B.

  Unresolved Staff Comments      23   

Item 2.

  Properties      24   

Item 3.

  Legal Proceedings      24   

Item 4.

  Mine Safety Disclosures      24   
PART II     

Item 5.

  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities      25   

Item 6.

  Selected Financial Data      25   

Item 7.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      28   

Item 7A.

  Quantitative and Qualitative Disclosures about Market Risk      58   

Item 8.

  Financial Statements and Supplementary Data      60   

Item 9.

  Changes In and Disagreements With Accountants on Accounting and Financial Disclosure      135   

Item 9A.

  Controls and Procedures      135   

Item 9B.

  Other Information      135   
PART III     

Item 10.

  Directors, Executive Officers and Corporate Governance      136   

Item 11.

  Executive Compensation      141   

Item 12.

  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters      157   

Item 13.

  Certain Relationships and Related Transactions, and Director Independence      160   

Item 14.

  Principal Accountant Fees and Services      163   
PART IV     

Item 15.

  Exhibits and Financial Statement Schedules      164   


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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, LLC 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 period from January 1 to July 29, 2010, which is prior to the Merger (referred to as the Predecessor period) and for the period from July 30 to December 31, 2010 and the years ended December 31, 2011 and December 31, 2012, all 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 2011 or 2012 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, 2011 and 2012.

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, trading infrastructure managed services, hosted web applications 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 10 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 $612.4 million, or 69.6%, of our revenue for the year ended December 31, 2012.

 

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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 managed services used by banks, brokerage firms, asset managers, hedge funds and proprietary trading firms in order to facilitate low latency electronic trading as well as support other applications such as portfolio pricing, risk and compliance; 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, and a range of corporate clients. This segment accounted for $267.7 million, or 30.4%, of our revenue for the year ended December 31, 2012.

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.

Corporate History

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 in 2000 through January 2010, we have completed a dozen acquisitions of varying sizes. Acquisitions such as ComStock in 2003, IS. Teledata in 2005 and 7ticks in 2010 enabled us to enter adjacent markets while acquisitions such as the

 

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Merrill Lynch Securities Pricing Service in 2002, FutureSource in 2004, Xcitek in 2007 and NDF in 2008 strengthened and expanded our existing businesses by bringing to us, among other things, complementary content and capabilities, new customers, and broader distribution capabilities in certain geographic regions.

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 expansive, 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.

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, decision-support tools, and order execution platforms.

 

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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.

Our customer base is both diverse and global in scope. Our customer base includes many of the world’s largest financial institutions, including 49 of the top 50 U.S. banks, all of the top 50 global asset managers, all of the top 50 U.S. mutual funds, all of the top ten global custodians and 37 of the top 50 global hedge funds. 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 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 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 maintain 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 10 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 200 skilled evaluators, analysts and support staff 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 (ie. 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 (ie. convertible bonds, debentures, Eurobonds and sovereign and corporate bonds). Pricing and Reference Data’s evaluated pricing services also include our Fair Value Information ServiceSM

 

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through which we provide evaluations for certain international equity and fixed income 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 security that would likely prevail in a liquid market in view of information available at the time of evaluation.

 

   

We also provide applications and information services that complement our evaluated pricing services such as VantageSM, our web application that provides transparency into the fixed income markets and Interactive Data’s evaluation services and facilitates client workflows to support valuation and risk management processes. Vantage allows clients to better understand our evaluated prices within the context of a broad range of relevant market information, including public and proprietary market data inputs used in the evaluated pricing process. These inputs feature our assumptive data and proprietary market color, including anonymous trades, quotes, dealer runs and market posts. We also provide clients with a range of information resources that provide insight into our evaluated pricing, and the potential impact on them from daily market conditions, as along with workflow tools to help clients prepare for various regulatory and accounting-driven obligations.

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 225 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 that 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.

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

 

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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.

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, 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 and an extensive global fixed income financial instruments database. 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.

 

   

In addition to BondEdge, we provide complementary services such as 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. We also run BondEdge on behalf of clients and deliver analyses and information to them via a service bureau offering, BondEdge BureauSM.

 

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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 managed services used by banks, brokerage firms, asset managers, hedge funds and proprietary trading firms in order to facilitate low latency electronic trading as well as support other applications such as portfolio pricing, risk and compliance; 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, and a range of corporate clients.

Real-Time Feeds and Trading Infrastructure Managed Services:

 

   

Our real-time feeds offerings provide cost-effective access to disparate real-time data sources without having to maintain direct connections. Through our Consolidated Feed service (also known as PlusFeed), 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 Consolidated Feed, including client site deployed solutions with leased-line connectivity, hosted Internet delivery via a secure virtual private network and a secure leased-line connection for cost-effective access to a specified “watch-list” of instruments. Our Consolidated Feed service is complemented by our Tick History Service, 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 trading infrastructure managed services such as direct exchange access, proximity hosting and support services that enable access to raw real-time exchange data and facilitate 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.

We continually seek to strengthen our Real-Time Feeds and Trading Infrastructure Managed 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 also continue to add new financial markets, particularly those outside of North America, and content, and further extend our 7ticks networks coverage globally.

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,

 

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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, 2012, our workstations and related services supported approximately 81,000 total subscribers worldwide, compared with approximately 85,700 total subscribers as of December 31, 2011. Please note that the total number of subscribers now includes certain subscribers who use modified versions of our workstations which offer fewer features and limited content (these subscribers had not been included in prior quarterly or annual filings during 2011 or 2012).

Within our Hosted Web Applications and Workstations offerings, we seek to enhance our services by providing access to news, pricing and information, and adding new tools for displaying and analyzing investment portfolios. Those activities are complemented and augmented by initiatives aimed at developing new capabilities to enhance the investment decision-making process across a range of different securities, and by creating new statistical and analytics tools designed to enable customers to better track the performance of their investments.

Business Strategy

We are focused on expanding our position as a trusted leader in the financial information services market, and the following key priorities underpin our business strategy:

Enhance Breadth and Scope of Product Offerings to Cater to Customers’ Needs. 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. We plan to develop 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.

The following are among the 2012 milestones related to our initiatives aimed at enhancing the breadth and scope of our offerings, accelerating the development of innovative, new products and services, expanding market coverage and enhancing the delivery of our services:

 

   

Significantly enhanced our new web-based transparency application, Vantage, which was introduced in late 2011 to offer insight into the fixed income markets and our evaluated pricing services;

 

   

Launched ApexSM, an innovative suite of pricing and reference data delivery options and managed services aimed at helping firms more easily and rapidly integrate our content across their enterprises while also increasing workflow efficiency and reducing operational costs;

 

   

Expanded our evaluated pricing coverage to new asset classes such as credit default swaps and leveraged loans;

 

   

Introduced a new version of our Fair Value Information Service for international fixed income securities;

 

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Introduced new and enhanced reference data services such as a new service in Europe to address compliance with the European Union’s Solvency II Directive; enhancements to our global corporate actions service, and ongoing development to support new global standards for entity identification;

 

   

Introduced a new version of BondEdge designed to address the needs of U.S. wealth management professionals and investment advisors;

 

   

Initiated a significant investment to substantially enhance our Consolidated Feed service (also known as PlusFeed). These investments, which will accelerate over the coming quarters, will enable us to expand the number of stock exchanges and other market sources that clients can access, further leverage our own reference data content, expand our technical and support staff to enhance overall quality and services, and add new features and functionality that can increase the appeal of this service.

 

   

Continued to expand the global network footprint and market coverage for our trading infrastructure managed services, as well as development of additional managed services to help clients better monitor network performance; and

 

   

Introduced new content, features and functionality into hosted web applications and workstation platforms, highlighted by a new version of our FutureSource workstation that features improved access to trade execution, as well as a new suite of web-based ETF tools.

Create a Unified Technology Platform. We continue to maintain a broad range of delivery platforms and legacy technology infrastructures as a result of supporting long-standing client relationships and completing numerous acquisitions over the years. Following our acquisition in 2010 by affiliates of the Sponsors, we have made substantial progress toward developing and deploying a unified technical architecture that will enable us to consolidate our delivery platforms and legacy technology infrastructures, and facilitate cost-effective collection, aggregation and distribution of the content that supports our evaluated pricing, reference data and real-time feed services as well as various other offerings.

Improve Cost Structure and Drive Efficiencies. We continue to implement programs that can further improve our technical infrastructure, optimize our cost structure, increase our operational efficiency, and facilitate future revenue growth. Specifically, we focused on:

 

   

Technology & Operations: As discussed above, we are reengineering our product technology and replacing legacy product systems with a new unified technical architecture. We believe that this initiative will help us to reduce operating and capital expenses. As we make progress on this initiative, we also are leveraging initiatives to contain data acquisition and communications costs.

 

   

Procurement & Vendor Sourcing: We have focused on driving greater efficiencies and lowering or controlling costs in a number of areas such as communications, benefit plans, consulting and travel.

 

   

Organizational Optimization: We realigned staffing in various functional areas including technology, operations, sales, and corporate as well as consolidating certain facilities.

 

   

Public Company Costs: We rationalized certain expenses associated with supporting our former status as a company with publicly traded equity.

Expand our Business Internationally. The market for financial information services is global and many of our largest clients operate in multiple geographic regions. We are working to generate revenue growth outside of North America by extending our industry-leading capabilities across a wider range of multi-national and international clients and geographic regions. In order to achieve this, we have continued to direct additional resources in growth-oriented international markets including recruiting local management for certain international markets, advancing the local market relevancy and capabilities of our offerings and continuing to pursue third-party relationships, acquisitions and strategic alliances internationally.

 

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Pursue Opportunistic Strategic Acquisitions. In the past, strategic acquisitions have complemented our internal investment activities, and we may elect to pursue certain strategic acquisitions in the future in order to achieve key business objectives.

Marketing

To support the sales efforts of our businesses, we are implementing a range of promotional and lead-generating campaigns such as publishing white papers and newsletters; undertaking direct mail and email initiatives; advertising in leading industry publications and other marketing channels; participating in targeted industry conferences, trade shows and other customer-oriented events (both in person and in online forums); generating coverage of our company in leading business and trade publications through press releases, executive and staff interviews, and other public relations tactics. 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 2013, we intend to continue to monitor changes in our industry and the evolving needs of our customers, and plan to adjust our sales and marketing activities accordingly. 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;

 

   

Our timely and reliable delivery coupled with 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 not affiliated 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;

 

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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 Financial Information (formerly known as SIX Telekurs), Markit Group Limited, S&P Valuation Services (a unit within the S&P Capital IQ division of McGraw-Hill) 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 Financial Information, Morningstar, and Activ Financial. Competitors in the trading infrastructure managed services area include specialized managed service providers that facilitate low latency electronic trading such as Fixnetix, OptionsIT and NYSE Technologies, global connectivity and managed services providers, and major stock exchanges.

Competitors in the hosted web applications 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 Financial Information, Morningstar, S&P Capital IQ’s QuantHouse Inc. business, and other smaller niche providers. In the energy and commodity, and active trader sectors, workstation competition can vary from large, established suppliers of news and financial data such as Thomson Reuters and Bloomberg L.P., to smaller, more specialized 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. Following our acquisition in 2010 by affiliates of the Sponsors, we have made substantial progress toward developing and deploying a unified technical architecture that will enable us to consolidate our delivery platforms and legacy technology infrastructures, and facilitate cost-effective collection, aggregation and distribution of the content that supports our evaluated pricing, reference data and real-time feed services as well as various other offerings. 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 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.

 

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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. This reduces the risks associated with a single site failure, isolated equipment problem or a regional disaster. We have designed our systems so that we have the capacity to handle the additional load through the remaining data centers, however, we may not be successful in all instances as no amount of planning or investment can result in a 100% fail safe environment. 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. We have rights to approximately 75 trademarks and service marks. Additionally, we have five U.S. patents issued. Two of our issued patents expire in 2021, another in 2022, and two expire in 2027. 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.

Geographic Areas

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,
2012
     Year Ended
December 31,
2011
     Combined
2010
     Period From
July 30 through
December 31,
2010
          Period From
January 1 through
July 29,
2010
 

Revenue:

                 

United States

   $ 608,307       $ 596,836       $ 549,685       $ 236,050          $ 313,635   

United Kingdom

     88,998         88,688         79,664         34,210            45,454   

All other European countries

     120,740         126,891         119,497         51,315            68,182   

Asia Pacific

     48,908         42,699         39,832         17,105            22,727   

Rest of World

     13,208         12,609         7,967         3,421            4,546   
  

 

 

    

 

 

    

 

 

    

 

 

       

 

 

 

Total

   $ 880,161       $ 867,723       $ 796,645       $ 342,101          $ 454,544   
  

 

 

    

 

 

    

 

 

    

 

 

       

 

 

 

 

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Long-lived assets by geographic region are as follows:

 

(In thousands)

   As of
December 31,
2012
     As of
December 31,
2011
     As of
December 31,
2010
 

Long-lived assets:

        

United States

   $ 2,621,874       $ 2,723,355       $ 2,863,599   

United Kingdom

     598,589         589,793         620,711   

All other European countries

     144,182         149,949         164,530   

Asia Pacific

     159,960         174,223         177,349   
  

 

 

    

 

 

    

 

 

 

Total

   $ 3,524,605       $ 3,637,320       $ 3,826,189   
  

 

 

    

 

 

    

 

 

 

Employees

We had approximately 2,600 employees as of December 31, 2012.

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.

Disclosure Pursuant to Section 219 of the Iran Threat Reduction & Syria Human Rights Act

Under the Iran Threat Reduction and Syrian Human Rights Act of 2012 (the “Act”), which added Section 13(r) of the Securities Exchange Act of 1934, we are required to include certain disclosures in our periodic reports if we or any of our “affiliates” (as defined in Rule 12b-2 under the Exchange Act) knowingly engage in certain specified activities during the period covered by the report. Neither we nor any of our controlled affiliates or subsidiaries engaged in any of the specified activities during 2012. However, because the SEC defines the term “affiliate” broadly, it includes any entity controlled by us as well as any person or entity that controlled us or is under common control with us (“control” is also construed broadly by the SEC). During 2012, Warburg Pincus LLC (“Warburg”) was potentially an upstream affiliate of ours as so defined, as a result of the share ownership of Warburg Pincus Private Equity X, L.P. and Warburg Pincus X Partners, L.P. (together, “WPX”) (which collectively owns 37% of our outstanding common stock as of the date of this report, March 13, 2013) and Warburg’s right to designate three directors to our eight person board of directors. Warburg has informed us that Bausch & Lomb Incorporated (“Bausch & Lomb”), a company controlled by Warburg, has provided it with the following information relevant to Section 13(r). We have no involvement in or connection with the activities of Bausch & Lomb or any of its subsidiaries and receive no revenue from them, and have not independently verified or participated in the disclosure provided by Warburg pursuant to the Act. To comply with the Act, Warburg provided us with the following disclosure:

“Bausch & Lomb, an eye health company, makes sales of human healthcare products to benefit patients in Iran under licenses issued by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). In 2012, Bausch & Lomb was granted licenses by OFAC, extending to its foreign affiliates doing business in

 

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Iran. Before the U.S. Government extended OFAC sanctions to entities controlled by U.S. persons in October 2012, it was permissible under U.S. law for non-U.S. affiliates to engage in sales to Iranian customers under limited circumstances. In accordance with these requirements, during the first three quarters of 2012, certain of Bausch & Lomb’s non-U.S. affiliates engaged in sales to Iran from its Surgical—Consumables business, which includes certain intraocular lenses and other products used to help people retain or regain sight. Its non-U.S. affiliate, Technolas Perfect Vision GmbH (“TPV”), which sells ophthalmic surgery systems and related products used in connection with refractive and cataract surgery, also engaged in sales to Iran. These sales were all conducted through a distributor, which also engaged in certain registration and licensing activities with the Iranian government involving Bausch & Lomb’s products. The Iranian distributor is not listed on any U.S. sanctions lists and is not a government-owned entity. However, the downstream customers of this distributor included public hospitals, which may be owned or controlled directly or indirectly by the Iranian government. The entire gross revenues attributable to Bausch & Lomb’s Surgical—Consumables business not conducted pursuant to an OFAC license in Iran during 2012 were US$5,058,000 and the gross profits were US$2,690,000. The entire gross revenues attributable to TPV’s sales to Iran during 2012 not under OFAC license were € 1,738,900 and the gross profits were € 958,624. Bausch & Lomb does not have sufficient information to specify what proportion of these sales may relate to Iranian government end customers of its distributor. The purpose of Bausch & Lomb’s Iran-related activities is to provide access to important and sight-saving products to surgeons and patients in Iran, and to improve the eye healthcare of the Iranian people. For this reason, Bausch & Lomb and its affiliates plan to continue their existing activities and operations in Iran; however, as noted above, all of this business (including business conducted by non-U.S. companies) is conducted pursuant to licenses issued by OFAC.”

Internet Address and SEC Reports

We 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 our 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, 2012, 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, 2012 related to certain operating leases). The following table shows our level of indebtedness and certain other information as of December 31, 2012. For more information on our Revolving Credit Facility, Term Loan Facility and Senior Notes, please refer to Note 18 “Debt” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

 

(in thousands)

   As of December 31,
2012
 

Revolving Credit Facility(1)

   $ —     

Term Loan Facility(2)

     1,302,882   

Senior Notes(3)

     700,000   
  

 

 

 

Total indebtedness

   $ 2,002,882   
  

 

 

 

 

(1) Our Revolving Credit Facility, which matures July 2015, 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, 2012).
(2) In February 2013, we refinanced our Term Loan Facility resulting in a decrease of the applicable margin to (i) 1.75% with respect to term loans bearing interest at ABR (with a minimum ABR “floor” of 2.00%) and (ii) 2.75% with respect to term loans bearing interest at LIBOR (with a minimum LIBOR “floor” of 1.00%). Based upon these changes, our interest rate on our Term Loan Facility is currently 3.75%. Upon consummation of the refinancing, our outstanding principal on our Term Loan Facility was increased from $1.303 billion to $1.305 billion. The maturity date of February 11, 2018 was not changed as part of the refinancing.
(3) Our Senior Notes have a maturity date of August 1, 2018.

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.

 

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We and our subsidiaries may be able to incur substantial additional indebtedness in the future, subject to the restrictions contained in our Revolving and Term Loan (the “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, 2012 was $149.5 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.

Our stockholders control us and it is our understanding that our stockholders will cause us to distribute our cash to service debt that is not our debt.

The Sponsors, and a co-investment vehicle controlled by the Sponsors, indirectly own, through their ownership in Holdings and Intermediate, 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. Our parent companies have incurred debt from the issuance of $350.0 million of 8.25%/9.00% Senior PIK Toggle Notes (the “Toggle Notes”) issued by Holdings which mature on December 15, 2017, and may incur additional indebtedness in the future. Our parent companies currently have no separate operations and no separate assets other than their investment in us. While covenants in our Senior Secured Credit Agreements and the Indenture to our Senior Notes limit the amount of cash that we are able to distribute to our parent companies, to the extent cash is available, the Sponsors will cause us to distribute cash to Holdings in order to enable Holdings to service its outstanding debt. The servicing of Holdings debt could have certain consequences for us, including:

 

   

requiring us to dedicate a portion of our cash flow from operating activities to make payments on Holdings’ debt;

 

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reducing our funds available for working capital, capital expenditures and other general corporate expenses and potentially limiting our ability to plan or react to changing market conditions and fund our business strategy;

 

   

placing us at a disadvantage compared to our competitors who have greater discretion in using their cash flow; and

 

   

limiting our ability to make certain, voluntary payments under our Senior Secured Credit Facilities or the Senior Notes.

Risks Related to Our Business

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

Customers continue 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 2012, many large financial institutions initiated reductions in their workforces 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.

There continues to be consolidation among some participants in the financial markets as well as continued 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. Many financial institutions continue to 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. 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

 

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revenue. For example, the most recent financial crisis and resulting 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. In addition, our third-party data suppliers perform audits on us from time to time in the ordinary course of business (including audits currently underway) to determine if data we license for

 

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redistribution has been properly accounted for in accordance with the terms of the applicable license agreement. As a result of these audits, if we incorrectly account for amounts owed in connection with these licensing arrangements, we may incur additional expenses and such additional expenses could be material and have a material adverse effect on our results of operations and financial condition.

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.

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.

 

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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, following our acquisition in 2010 by affiliates of the Sponsors, we have made substantial progress toward developing and deploying a unified technical architecture that will enable us to consolidate our delivery platforms and legacy technology infrastructures, and facilitate cost-effective collection, aggregation and distribution of the content that supports our evaluated pricing, reference data and real-time feed services as well as various other offerings. The development and deployment of a unified technology platform is a substantial and complex undertaking. We believe completion of development and deployment 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 in the timeframe we desire, the costs to complete may exceed our expectations, or both. 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, our estimated savings are based on many different assumptions, any or all of which 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

 

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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.

We are subject to the risks of doing business internationally.

For the year ended December 31, 2012, approximately 30.9% of our revenue was generated outside of the United States. Our growth strategy includes expanding our business outside of the United States. 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

 

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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 cost-saving plans may not be effective which may adversely affect our financial results.

Our business strategy and priorities involve improving our cost structure and driving efficiencies. While we have begun to implement and will continue to implement programs related to this strategy, we may not be able to do so successfully and we may not fully realize the projected benefits of these or any other cost-saving plans that we may seek to implement in the future. If we are unable to realize these anticipated cost reductions, our results of operation may be adversely affected. Moreover, our continued implementation of cost-saving plans and facilities integration may disrupt our operations and adversely impact our operating performance. While we expect our cost-saving initiatives 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. The failure to achieve our estimated cost savings would negatively affect our financial condition and results of operations.

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.

We may fail to realize the anticipated benefits from acquisitions we complete and /or strategic alliances that we enter into.

We may complete acquisitions of assets and /or businesses that complement or augment our existing services. We may not be able to identify and successfully complete acquisition or strategic business alliance transactions. Any acquisition we may complete may be made at a substantial premium over the fair value of the net assets of the acquired business. The success of any acquisition depends in part on our ability to integrate the acquired business or assets, including customers, employees, operating systems, operating procedures and information technology systems. We may not be able to effectively integrate and may experience difficulty managing the operations of any acquired business. In addition, the process of integrating acquired businesses or assets may involve unforeseen difficulties and integration could take longer than anticipated. Integrating any newly acquired businesses may require a disproportionate amount of management’s attention and financial and

 

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other resources, and detract from the resources remaining for our pre-existing business. Further, we may not be able to maintain or improve the historical financial performance of acquired businesses. Finally, we may not fully derive all of the anticipated benefits from our acquisitions, such as supply cost synergies or reduced operating costs due to centralized or shared technical infrastructure. In addition, strategic alliances have been and may continue to be important to expanding our customer base and expanding our offerings. We have established strategic business alliances with companies who redistribute our services to their customers or who provide us with additional content that we can redistribute to our customers. The success of our strategic alliances depends in part on our ability to work collaboratively with these business partners to jointly market our services and content. We may not be able to effectively or efficiently deliver our services to these business partners or redistribute their content under financial terms that are mutually satisfactory, or achieve the desired benefits from these alliances.

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, 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.

 

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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       $ 2,593,000         June 2016   
Boxborough, MA    PRD, Trading Solutions and Corporate      100,226         777,000         September 2018   
Channel Islands, UK    PRD      2,301         90,000         December 2018   
Cheltenham, UK    Trading Solutions      3,500         55,000         May 2016   
Chicago, IL    PRD and Trading Solutions      17,075         420,000         September 2021   
Cologne, Germany    Trading Solutions      9,182         217,000         December 2016   
Dublin, Ireland    PRD      10,480         216,000         December 2015   
Frankfurt, Germany    PRD and Trading Solutions      78,548         2,357,000         December 2016   
Hayward, CA    Trading Solutions      50,298         905,000         June 2016   
Hong Kong    PRD and Trading Solutions      2,224         261,000         September 2013   
Lombard, IL    Trading Solutions      7,284         98,000         May 2014   
London, UK    PRD and Trading Solutions      68,943         3,659,000         April 2025   
Luxembourg    PRD      3,368         135,000         December 2015   
Madrid, Spain    Trading Solutions      3,315         120,000         January 2014   
Melbourne, Australia    PRD and Trading Solutions      4,828         173,000         November 2015   
Milan, Italy    Trading Solutions      2,799         91,000         December 2015   
Minneapolis, MN    Trading Solutions      6,741         64,000         May 2016   
New York, NY    PRD and Trading Solutions      87,337         2,334,000         December 2015   
New York, NY    PRD      50,661         2,257,000         November 2024   
Paris, France    PRD and Trading Solutions      2,670         186,000         December 2014   
Parsippany, NJ    Corporate      2,584         61,000         February 2014   
Rome, Italy    PRD      5,918         264,000         February 2024   
Santa Monica, CA    PRD      22,877         826,000         November 2017   
Singapore    Trading Solutions      2,530         210,000         October 2015   
Tokyo, Japan    PRD and Trading Solutions      5,978         353,000         July 2014   
White Plains, NY    Trading Solutions      46,000         1,251,000         October 2019   
Zurich, Switzerland    Trading Solutions      3,305         194,000         June 2014   

 

^ 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 2013, 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

 

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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 8, 2013, 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 sixteen (16) 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.

Stockholders

As of March 8, 2013, there were 10 outstanding shares of our common stock held by one stockholder of record.

Dividends

Predecessor

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

 

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   

The above cash dividend was paid from existing cash resources.

Successor

The Senior Secured Credit Facilities and the indenture governing our Senior Notes contain covenants limiting our ability to pay dividends. 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. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” and Note 18 “Debt” in the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Igloo Dividend

In December 2012, we paid a dividend of $100.0 million to Intermediate, which in turn paid a dividend of $100.0 million to Holdings. Holdings used this dividend as well as net proceeds of $339.0 million from the Toggle Notes issued by Holdings to fund a cash dividend to its stockholders and related cash distributions to its option holders. Our cash dividend to Intermediate was accounted for in our Consolidated Financial Statements as a return of capital. For further information see Note 18 “Debt” in the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K and the Igloo Holdings Senior PIK Toggle Notes Due 2017 section below.

 

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

 

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for the years ended December 31, 2012 and 2011, and the periods from January 1, 2010 through July 29, 2010 and from July 30, 2010 through December 31, 2010 and the selected consolidated balance sheet data as of December 31, 2012 and 2011 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, 2009 and 2008, and the selected consolidated balance sheet data as of December 31, 2010, 2009 and 2008 have been derived from other audited consolidated financial statements not included herein.

 

    Successor          Predecessor  

(In thousands, except per
share amounts)

  For the Year
Ended
December 31,
2012
    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  

Revenue

  $ 880,161      $ 867,723      $ 796,645      $ 342,101          $ 454,544      $ 757,218      $ 750,541   

Income (loss) from operations

    131,851        101,718        (7,092     (46,571 )         39,479        207,749        209,683   

Net income (loss) attributable to Interactive Data Corporation

    1,017        (29,316     (71,789     (94,263         22,474        141,234        142,648   

Net income per common share

                 

Basic

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

Diluted

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

Weighted average common shares

                 

Basic

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

Diluted

    N/A        N/A        N/A        N/A            N/A        96,200        96,674   

Cash dividends declared per common share

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

 

     Successor            Predecessor  

(In thousands)

   2012      2011      2010            2009(1)      2008  

Total assets

   $ 3,962,308       $ 4,093,671       $ 4,133,877            $ 1,281,171       $ 1,182,525   

Borrowings, net of current portion and original issue discount

     1,941,887         1,929,784         1,959,365              —          —    

Stockholders’ equity (Interactive Data Corporation)

     1,163,867         1,219,905         1,252,471              1,082,106         959,807   

 

(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

 

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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 our various business units, and the recruitment of additional senior-level financial management and staff to our 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 our 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   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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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 period from January 1 to July 29, 2010, which is prior to the Merger (referred to as the Predecessor period) and for the period from July 30 to December 31, 2010 and the years ended December 31, 2011 and December 31, 2012, all of which are subsequent to the Merger (referred to as the Successor period). Our discussion in this 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 2011 or 2012 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, 2011 and 2012.

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, trading infrastructure managed services, hosted web applications 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 10 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 $612.4 million, or 69.6%, of our revenue for the year ended December 31, 2012.

 

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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 managed services used by banks, brokerage firms, asset managers, hedge funds and proprietary trading firms in order to facilitate low latency electronic trading as well as support other applications such as portfolio pricing, risk and compliance; 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, and a range of corporate clients. This segment accounted for $267.7 million, or 30.4%, of our revenue for the year ended December 31, 2012.

Development of Business

Our 2012 and 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, which was acquired in mid-January 2010).

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 2013. 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 offerings in particular.

 

   

Increased U.S. and global regulation, continued changes to 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 potentially greater 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 recent years, 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.

 

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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 and fixed income 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. As a result, these trends can be indicative of a firm’s overall capacity to purchase market data and related solutions. 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 trading infrastructure managed 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 that 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 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 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

 

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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 throughout 2012 primarily due to expansion within our evaluated pricing and reference data product areas in North America and to a lesser extent, the Asia-Pacific region. Key drivers within these product areas were strong revenue retention rates, increased demand from existing customers and, to a lesser extent, new customers, 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.

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 our 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 it was approximately 94% as of December 31, 2012 and 2011, respectively. In filings from prior years, 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.

The revenue performance within our Trading Solutions segment during 2012 was impacted by the challenging market conditions, which affected the segment’s new sales and cancellation levels. While we continued to benefit from customer demand for our trading infrastructure managed services and, to a lesser extent, for our hosted web applications in 2012, this progress was more than offset by lower consolidated feeds and workstation revenue. 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, 2012, our workstations and related services supported approximately 81,000 total subscribers worldwide, compared with approximately 85,700 total subscribers as of December 31, 2011. Please note that the total number of subscribers now includes certain subscribers who use modified versions of our workstations that offer fewer features and limited content (these subscribers had not been included in prior quarterly or annual filings during 2011 or 2012). In our filings prior to 2011, the number of subscribers we reported was limited to direct subscription terminals within our historical Active Trader segment. The total number of subscribers as of December 31, 2011 was updated so as to be comparable to December 31, 2012. 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, we contract with customers through fixed fee subscriptions (on either a multi-year, annual, quarterly or monthly basis), variable fees 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.

 

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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
    % Change  

(audited, in thousands)

  Year Ended
December 31,
2012
              2012 vs. 2011     2011 vs.
Combined
2010
 

REVENUE

  $ 880,161      $ 867,723      $ 796,645      $ 342,101          $ 454,544        1.4     8.9

COSTS AND EXPENSES:

                 

Cost of services

    292,378        293,472        277,075        115,176            161,899        (0.4 )%      5.9

Selling, general and administrative

    276,436        258,065        282,619        124,409            158,210        7.1     (8.7 )% 

Merger costs

    —         —         119,992        67,258            52,734        N/A        (100.0 )% 

Depreciation

    41,456        39,391        38,466        15,962            22,504        5.2     2.4

Amortization

    138,040        175,077        85,585        65,867            19,718        (21.2 )%      104.6
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

     

Total costs and expenses

    748,310        766,005        803,737        388,672            415,065        (2.3 )%      (4.7 )% 
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

     

INCOME (LOSS) FROM OPERATIONS

    131,851        101,718        (7,092     (46,571         39,479        29.6     1,534.3

Interest (expense) income, net

    (149,526     (157,120     (77,604     (78,364 )         760        (4.8 )%      102.5

Other income (expense), net

    824        (3,719     570        321            249        (122.2 )%      (752.5 )% 

Loss on extinguishment of debt

    —         (25,450     —         —             —         (100.0 )%      100.0
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

     

(LOSS) INCOME BEFORE INCOME TAXES

    (16,851     (84,571     (84,126     (124,614         40,488        (80.1 )%      0.5

Income tax (benefit) expense

    (17,868     (55,255     (12,337     (30,351         18,014        (67.7 )%      347.9
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

     

NET INCOME (LOSS)

  $ 1,017      $ (29,316   $ (71,789   $ (94,263 )       $ 22,474        (103.5 )%      (59.2 )% 
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

     

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

 

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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 2012, the value of the U.S. Dollar generally strengthened 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 was amortized over the remaining terms of the related contracts and was 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. There is no impact related to the purchase price allocation adjustment to deferred revenue in the year ended December 31, 2012, as the adjustment was fully amortized as of June 30, 2011. 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 regarding underlying business trends.

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 starting from 2010. We recorded additional depreciation expense of $2.7 million, $2.9 million and $1.2 million associated with this increase in carrying value for the years ended December 31, 2012 and 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. In connection with the purchase price allocations we recorded intangible assets of $2.0 billion. This $2.0 billion is being amortized over the respective economic benefit periods of our intangible assets as at the date of the Merger, which range from 3.6 years to 25.0 years. We recorded amortization expense associated with these intangibles assets of $138.0 million, $175.1 million and $65.9 million for the years ended December 31, 2012 and 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.

 

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2012 VERSUS 2011

Revenue

 

(In thousands)

  2012     2011     % Change     Effects of
Deferred
Revenue
Adjustment
2011
    2012
Foreign
Exchange
    2012
Adjusted
Revenue
(Non-
GAAP)
    2011
Adjusted
Revenue
(Non-
GAAP)
    2012
Adjusted
Revenue
(Non-
GAAP) %
Change
 

Total Pricing and Reference Data

  $ 612,422      $ 591,920        3.5   $ 600      $ 2,092      $ 614,514      $ 592,520        3.7
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

Trading Solutions:

               

Real-Time Feeds and Trading Infrastructure

  $ 110,305      $ 114,300        (3.5 )%    $ 14      $ 338      $ 110,643      $ 114,314        (3.2 )% 

Hosted Web Applications and Workstations

  $ 157,434      $ 161,503        (2.5 )%    $ 288      $ 4,202      $ 161,636      $ 161,791        (0.1 )% 
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

Total Trading Solutions

  $ 267,739      $ 275,803        (2.9 )%    $ 302      $ 4,540      $ 272,279      $ 276,105        (1.4 )% 
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

TOTAL REVENUE

  $ 880,161      $ 867,723        1.4   $ 902      $ 6,632      $ 886,793      $ 868,625        2.1
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

Total revenue for the year ended December 31, 2012 increased by $12.4 million, or 1.4%, to $880.2 million compared with the year ended December 31, 2011. The change in foreign exchange rates decreased total revenue by $6.6 million in the year ended December 31, 2012 and the purchase price allocation adjustment to deferred revenue decreased total revenue by $0.9 million in the year ended December 31, 2011. Excluding the impact of foreign exchange and the purchase price allocation adjustment to deferred revenue, total revenue increased by $18.2 million or 2.1% to $886.8 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 $20.5 million, or 3.5%, to $612.4 million in the year ended December 31, 2012 compared with the year ended December 31, 2011. The change in foreign exchange rates decreased Pricing and Reference Data revenue by $2.1 million in the year ended December 31, 2012 and the purchase price allocation adjustment to deferred revenue decreased Pricing and Reference Data revenue by $0.6 million in the year ended December 31, 2011. Excluding the impact of foreign exchange and the purchase price allocation adjustment to deferred revenue, Pricing and Reference Data revenue increased by $22.0 million, or 3.7%, to $614.5 million primarily due to expansion within our evaluated pricing and reference data product areas in the U.S. and the Asia-Pacific regions, due to increased demand from existing customers and, to a lesser extent, new customers, as well as the impact of annual price increases, and improved performance within our fixed income analytics product area.

Trading Solutions

Revenue within the Trading Solutions segment decreased by $8.1 million, or 2.9%, to $267.7 million in the year ended December 31, 2012 compared with the year ended December 31, 2011. The change in foreign exchange rates decreased Trading Solutions revenue by $4.5 million in the year ended December 31, 2012 and the purchase price allocation adjustment to deferred revenue decreased Trading Solutions revenue by $0.3 million in the year ended December 31, 2011. Excluding the impact of foreign exchange and the purchase price allocation adjustment to deferred revenue, Trading Solutions revenue decreased by $3.8 million, or 1.4%, to $272.3 million as continued growth in our trading infrastructure managed services and, to a lesser extent, our hosted web applications was more than offset by lower revenue in the real-time feeds and workstations product areas.

 

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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.

 

       For the Year Ended December 31,  

(In thousands)

   2012      2011      % Change     2012
Foreign
Exchange
     2012
Adjusted
COS
(Non-GAAP)
     Adjusted %
Change
 

COST OF SERVICES

   $ 292,378       $ 293,472         (0.4 )%    $ 3,984       $ 296,362         1.0

Cost of services expenses decreased by $1.1 million, or 0.4%, to $292.4 million during the year ended December 31, 2012 compared with the year ended December 31, 2011. The change in foreign exchange rates decreased cost of services expense by $4.0 million. Excluding the impact of foreign exchange, cost of services expenses increased by $2.9 million, or 1.0%. During the year ended December 31, 2012, salary and personnel related expense increased by $3.3 million reflecting the net impact of annual salary and headcount increases partially offset by increased capitalization of salary and personnel expense related to ongoing internal development and technical infrastructure initiatives. Outside professional services increased by $2.4 million and communications expense related to ongoing technical infrastructure initiatives increased by $1.5 million. These increases in cost of services were partially offset by a decrease in hardware expense of $4.3 million related to large third party hardware sales by our 7ticks business that occurred in the year ended December 31, 2011 and did not recur in 2012. Cost of services as a percentage of revenue was 33.2% in the year ended December 31, 2012 compared with 33.8% in the year ended December 31, 2011.

Selling, General and Administrative Expenses

Selling, general and administrative expenses are composed mainly of personnel-related expense, 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)

   2012      2011      % Change     2012
Foreign
Exchange
     2012
Adjusted
SG&A
(Non-GAAP)
     Adjusted %
Change
 

SELLING, GENERAL AND ADMINISTRATIVE

   $ 276,436       $ 258,065         7.1   $ 2,472       $ 278,908         8.1

During the year ended December 31, 2012, selling, general and administrative expenses increased by $18.4 million, or 7.1%, to $276.4 million compared with the year ended December 31, 2011. The change in foreign exchange rates decreased selling, general, and administrative expenses by $2.5 million. Excluding the impact of foreign exchange, selling, general and administrative expenses increased by $20.8 million or 8.1%. During the year ended December 31, 2012, there was an increase in selling, general and administrative related stock-based compensation expense of $13.3 million when compared with the year ended December 31, 2011. The increase in stock-based compensation expense was primarily due to a non-recurring charge related to the accounting treatment of the cash dividend paid by Holdings and cash distributions paid by Holdings to option holders. Other than the increase in stock-based compensation expense, the remaining $5.1 million increase in selling, general and administrative expenses in the year ended December 31, 2012 when compared with the year ended December 31, 2011 is primarily due to a $2.1 million impairment charge recorded in 2012 related to the impact of Hurricane Sandy, an increase in transactional foreign exchange losses on operating activities of $1.8 million, an increase of $1.7 million in severance costs, and an increase in commissions paid to third parties for distribution of our data to customers of $1.6 million due to changes in contractual terms and increased usage. Selling, general, and administrative expenses as a percentage of revenue was 31.4% in the year ended December 31, 2012, compared with 29.7% for the year ended December 31, 2011.

 

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Depreciation

 

     For the Year Ended December 31,  

(In thousands)

   2012      2011      % Change     2012
Foreign
Exchange
     2012
Adjusted
Depreciation
(Non-GAAP)
     Adjusted %
Change
 

DEPRECIATION

   $ 41,456       $ 39,391         5.2   $ 350       $ 41,806         6.1

During the year ended December 31, 2012, depreciation expense increased by $2.1 million, or 5.2%, to $41.5 million compared with the year ended December 31, 2011. The change in foreign exchange rates decreased depreciation expense by $0.4 million. Excluding the impact of foreign exchange, depreciation expense increased by $2.4 million, or 6.1% primarily due to increases in depreciation related to internal development projects and a large leasehold improvement project being placed in service in the year ended December 31, 2012 coupled with increased depreciation expense of approximately $0.8 million related to the acceleration of depreciation on certain computer hardware that will become obsolete upon the completion of our infrastructure development initiatives.

Amortization

 

     For the Year Ended December 31,  

(In thousands)

   2012      2011      % Change     2012
Foreign
Exchange
     2012
Adjusted
Amortization
(Non-GAAP)
     Adjusted %
Change
 

AMORTIZATION

   $ 138,040       $ 175,077         (21.2 )%    $ 963       $ 139,003         (20.6 )% 

During the year ended December 31, 2012, amortization expense decreased by $37.0 million, or 21.2%, to $138.0 million compared with the year ended December 31, 2011. The change in foreign exchange rates decreased amortization expense by $1.0 million. Excluding the impact of foreign exchange, amortization expense decreased by $36.1 million, or 20.6%. The decrease in amortization is primarily attributable to the change in estimate of the useful lives of certain of our completed technologies impacted by our infrastructure development initiatives that occurred in the third quarter of 2011.

Other Consolidated Financial Information

Net interest expense was $149.5 million for the year ended December 31, 2012 compared with net interest expense of $157.1 million for the year ended December 31, 2011. The year-over-year difference results from a decrease in the interest rate on our Term Loan Facility due to the refinancing that occurred in February 2011 having been realized for the full year in 2012 versus 10.5 months in 2011 and an additional 0.25% decrease in our Term Loan Facility interest rate due to our achievement of certain leverage ratios in the second quarter of 2012 having been realized during 2012 and not 2011. Additionally, we recorded a $25.5 million loss on extinguishment of debt related to the refinancing of our Term Loan Facility in the year ended December 31, 2011 that did not recur in 2012. For further information on our Term Loan Facility, see Note 18 “Debt” in the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Other income (expense), net increased by $4.5 million to $0.8 million in the year ended December 31, 2012 from ($3.7) million in the year ended December 31, 2011 primarily related to a $4.0 million increase in the contingent consideration related to our acquisition of 7ticks during the year ended December 31, 2011 that did not recur in 2012, coupled with a reduction in this contingent consideration estimate of $0.4 million in the year ended December 31, 2012. For further information on the contingent consideration related to the acquisition of 7ticks, see Note 16 “Fair Value Measurements” in the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

 

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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        0.0
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

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
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total revenue for the year ended December 31, 2011 increased by $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

 

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revenue is primarily due to strong new sales of our 7ticks trading infrastructure managed 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.

 

     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.

 

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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.

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

 

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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 18 “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 18 “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.

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, 2012, we had cash and cash equivalents of $224.6 million, short-term investments of $23.6 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 18 “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.

 

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The following table shows our level of indebtedness and certain other information as of December 31, 2012:

 

(in thousands)

   As of December 31, 2012  

Revolving Credit Facility(1)

   $ —    

Term Loan Facility(2)

     1,302,882   

Senior Notes(3)

     700,000   
  

 

 

 

Total indebtedness

   $ 2,002,882   
  

 

 

 

 

(1) Our Revolving Credit Facility, which matures July 2015, 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, 2012).
(2) In February 2013, we refinanced our Term Loan Facility resulting in a decrease of the applicable margin to (i) 1.75% with respect to term loans bearing interest at ABR (with a minimum ABR “floor” of 2.00%) and (ii) 2.75% with respect to term loans bearing interest at LIBOR (with a minimum LIBOR “floor” of 1.00%). Based upon these changes, our interest rate on our Term Loan Facility is currently 3.75%. Upon consummation of the refinancing, our outstanding principal on our Term Loan Facility was increased from $1.303 billion to $1.305 billion. The maturity date of February 11, 2018 was not changed as part of the refinancing.
(3) Our Senior Notes have a maturity date of August 1, 2018.

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

Foreign Subsidiaries

Of our $224.6 million of cash and cash equivalents at December 31, 2012, $177.9 million, or 79.2%, is held by our foreign subsidiaries with the UK holding the largest share with $117.7 million. Due to statutory limitations imposed by local governments, portions of cash and cash equivalents held at our foreign subsidiaries are not available for repatriation. During the year ended December 31, 2012, our Luxembourg Holdings subsidiary declared and paid our U.S. Corporate entity a dividend in the form of an intercompany note due from our IDMS GmbH subsidiary in the amount of €46.0 million (approximately $60.6 million). We have accrued all the necessary taxes related to this transaction in our consolidated results of operations for the year ended December 31, 2012. The note received in the dividend transaction was settled in February 2013. Furthermore, as of December 31, 2012, we do not anticipate any similar transactions will occur. Based on this belief, combined with our expectation 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, it is our current practice and intent 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)

   2012     2011     Combined
2010
 

Cash flow provided by (used in):

      

Operating activities

   $ 174,021      $ 188,387      $ 23,815   

Investing activities

     (84,733     (50,207     (3,359,089

Financing activities

     (129,662     2,705        3,255,994   

Effect of exchange rates on cash balances

     2,819        (2,437     (6,962
  

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

   $ (37,555   $ 138,448      $ (86,242
  

 

 

   

 

 

   

 

 

 

 

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Operating Activities

When compared with the year ended December 31, 2011, net cash provided by operating activities decreased by $14.4 million, or 7.6%, to $174.0 million in the year ended December 31, 2012. During the year ended December 31, 2012, we paid taxes of $7.8 million, compared to receiving refunds of $18.9 million during the same period of 2011. During the year ended December 31, 2012, we made incentive compensation payments of $20.1 million, compared to $13.7 million during the same period in 2011. These decreases in our operating cash flows were offset by reduced interest and severance-related payments of $7.5 million and $1.2 million, respectively, in the year ended December 31, 2012 compared with the year ended December 31, 2011 and landlord reimbursements of $7.6 million received in 2012 that did not re-occur in 2011. The remaining changes in operating cash flows from 2011 to 2012 are primarily related to timing and changes in working capital accounts.

We were not a U.S. Federal or U.K. cash taxpayer for the year ended December 31, 2012 and we expect we will maintain such status through 2013, based on our results of operations to date and expected results for fiscal 2013, including our use of net operating loss carry-forwards in the U.S. and our prepaid tax position in the U.K.

Investing Activities

When compared with the year ended December 31, 2011, net cash used in investing activities increased by $34.5 million, or 68.8%, to $84.7 million in the year ended December 31, 2012. This increase is primarily due to the purchase of $23.5 million in short-term investments in the year ended December 31, 2012 with no similar activity in 2011 and an increase in purchases of property and equipment of $11.2 million primarily related to technical infrastructure initiatives in the year ended December 31, 2012 when compared with the year ended December 31, 2011.

Financing Activities

When compared with the year ended December 31, 2011, net cash used in financing activities increased by $132.4 million in the year ended December 31, 2012 to net cash used in financing activities of $129.7 million, from net cash provided by financing activities of $2.7 million in the year ended December 31, 2011. The largest items accounting for the increase in cash used in financing activities in the year ended December 31, 2012 are a $100.0 million dividend paid to Intermediate that did not occur in the year ended December 31, 2011 coupled with increased principal payments on long-term debt of $21.9 million related to mandatory prepayment requirements included in our credit agreement in the year ended December 31, 2012 compared with the year ended December 31, 2011. The remainder of the increase in cash used by financing activities is primarily due to a decrease in proceeds from the issuance of restricted parent company common stock totaling $11.9 million that occurred in the year ended December 31, 2011 with no similar receipt in the year ended December 31, 2012. For further information on our debt or the dividend paid to Intermediate, refer to Note 18 “Debt” in the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K and the Holdings Senior PIK Toggle Notes Due 2017 section below.

Predecessor

Prior to the Merger, we paid regular quarterly dividends to our stockholders. 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   

This cash dividend was paid from existing cash resources.

 

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In the 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.

Successor

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 December 2012, we paid a dividend of $100.0 million to Intermediate, which in turn paid a dividend of $100.0 million to Holdings. Holdings used this dividend as well as net proceeds of $339.0 million from the issuance of $350.0 million of 8.25%/9.00% Senior PIK Toggle Notes (the “Toggle Notes”) issued by Holdings which mature on December 15, 2017, pursuant to an indenture, dated as of December 18, 2012 (the “Toggle Notes Indenture”) to fund a cash dividend to its stockholders and related cash distributions to its option holders. Our cash dividend to Intermediate was accounted for in our Consolidated Financial Statements as a return of capital. We will pay dividends, within the confines of the covenants included in our debt agreements, to Holdings on an ongoing basis to service the Toggle Notes. Refer to the Holdings Senior PIK Toggle Notes Due 2017 section below for further information on the Toggle Notes.

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 (the “Term Loan Facility”) through an amendment to our credit agreement (the “Senior Secured Credit Facilities”). The terms of the amendment provided for, among other things, the following:

 

   

a Term Loan Facility LIBOR borrowing rate of LIBOR plus 3.50%, subject to a further reduction of 25 basis points upon our achievement of certain leverage ratios,

 

   

a Term Loan Facility LIBOR floor of 1.25%,

 

   

an extension of the maturity date of 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,

 

   

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

We also have a Revolving Credit Facility (the “Revolving Credit Facility”) in an aggregate principal amount of $160.0 million available in U.S. Dollars, Euros and U.K Pounds with a term of five years expiring July 2015.

 

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Interest Rate and Fees

Borrowings under the Term Loan Facility bear interest at a rate equal to, at our option, either (a) the LIBOR rate plus an applicable margin or (b) the highest of (1) the prime commercial lending rate publicly announced 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. Regardless of whether actual LIBOR rates fall below 1.25% (as they have in recent periods), for purposes of determining the Term Loan Facility interest rate, the LIBOR rate is subject to a floor of 1.25%. The initial applicable margin was 3.50%. The applicable margin reduces to 3.25% upon our achievement of a total leverage ratio of 5.75:1 or less. As of December 31, 2012, our total leverage ratio was below 5.75:1 resulting in a decrease in the applicable margin to 3.25%. The highest of the three rates in (b) was 5.50% for the three months ended December 31, 2012. Since the inception of the Term Loan Facility, we have elected the three-month LIBOR rate. At December 31, 2012, the Term Loan Facility interest rate was 4.50%, composed of a LIBOR floor of 1.25% plus the applicable margin of 3.25%. Refer to Note 18 “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 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 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. On October 1, 2012, the notional amount of our interest rate caps was reduced from $700.0 million to $575.0 million and the fixed rate interest rate increased from 2.00% to 2.50%. This notional amount will be further reduced to $450 million on October 1, 2013. 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 during the year ended December 31, 2012. Refer to Note 17 “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 to 0.50% subject to us reducing our total leverage ratio to 5.0:1.0. As of December 31, 2012, our total leverage ratio was below 5.0:1.0, resulting in a commitment fee percentage of 0.50%. In February of 2013, we refinanced our Term Loan Facility further reducing our interest rates as discussed in the February 2013 Term Loan Facility Refinancing section below.

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, 2012, due to the application of the 2011 annual excess cash flow mandatory prepayment (“ECF payment”) to our Term Loan Facility amortization of future scheduled payments, on March 31, 2012, we made one scheduled principal payment of $3.4 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

 

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

The determination of the ECF payment was made for our fiscal years ended December 31, 2012 and December 31, 2011, with the prepayments due 90 days from those dates. The amounts determined to be payable as ECF payments at December 31, 2012 and December 31, 2011 were $20.3 million and $43.0 million, respectively, and accordingly were reflected as current in our Consolidated Balance Sheets as of December 31, 2012 and December 31, 2011.

Pursuant to the terms of the credit agreement, individual lenders may opt to refuse their share of any ECF payment. In the first quarter of 2012, but after the filing of our Annual Report on Form 10-K for the year ended December 31, 2011 with the Securities and Exchange Commission, certain lenders elected to refuse their portion of the 2011 ECF payment. These refusals totaled approximately $14.3 million. The aggregate refused amount was reclassified and reflected as long-term in our Consolidated Balance Sheet in the first quarter of 2012.

In accordance with the terms of the credit agreement, the accepted balance of ECF payments are applied toward future scheduled quarterly principal installments in direct order of maturity. As a result of the actual amounts paid related to our fiscal year 2011 ECF, scheduled quarterly principal payments due on our Term Loan Facility were deferred until June 2014. As any potential refused payments related to the 2012 ECF payment cannot currently be reliably estimated or deemed probable, we are assuming that 100% of the 2012 ECF will be accepted, which will further defer our scheduled quarterly principal payments on our Term Loan Facility to December 2015. This assumption will be updated to reflect the actual ECF payment made at the end of March 2013.

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.

February 2013 Term Loan Facility Refinancing

On February 6, 2013, we completed a refinancing of our Senior Secured Credit Facilities through an amendment to the credit agreement. The amendment provides for, among other things, the following:

 

   

a reduction of the LIBOR borrowing rate from LIBOR plus 3.50% to LIBOR plus 2.75%,

 

   

a reduction in the LIBOR floor from 1.25% to 1.00%,

 

   

an extension of the commencement date for amortization payments on the Term Loan Facility to June 30, 2013, not giving consideration to the 2012 ECF.

 

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We are currently in the process of evaluating the substance of the refinancing to determine if the transaction will be accounted for as a modification or extinguishment of debt, or a combination thereof, and if there will be any associated losses that require recording in our consolidated results of operations in fiscal 2013. Furthermore, as discussed above, we are assuming that 100% of the 2012 ECF will be accepted which will defer regularly scheduled principal payments until December 2014; therefore, only the 2012 ECF is reflected as current in our Consolidated Balance Sheet as of December 31, 2012.

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. During the year ended December 31, 2012, we paid $71.8 million in interest payments related to our Senior Notes representing both of our required payments for the year.

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).

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 18, “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.

 

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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)
 

2013 (a)

   $ 20,258   

2014

     —     

2015

     1,512   

2016

     13,450   

2017

     13,450   

2018

     1,954,212   
  

 

 

 

Total

   $ 2,002,882   
  

 

 

 

 

(a) Pursuant to the terms of our credit agreement, individual lenders may opt to refuse their share of any ECF payment. This balance assumes that there will be no refusals; however, the actual payment may differ from this amount depending on the final decisions of the individual lenders.

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, 2012 and 2011, 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   

 

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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   

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)  
     2012     2011     Combined 2010  

Net income (loss)

   $ 1,017      $ (29,316   $ (71,789

Interest expense

     149,526        157,120        77,604   

Other (income) expense

     (824     3,719        (570

Income tax benefit

     (17,868     (55,255     (12,337

Depreciation and amortization

     179,496        214,468        124,051   
  

 

 

   

 

 

   

 

 

 

EBITDA

     311,347        290,736        116,959   

Adjustments:

      

Stock-based compensation

     14,108        4,229        24,103   

Merger costs

     —          —          119,992   

Other non-recurring charges (2)

     8,353        29,892        24,993   

Other charges (3)

     8,821        4,483        3,314   

Pro forma cost savings (4)

     30,000        30,000        30,000   
  

 

 

   

 

 

   

 

 

 

Pro Forma Adjusted EBITDA (Covenant EBITDA) (1)

   $ 372,629      $ 359,340      $ 319,361   
  

 

 

   

 

 

   

 

 

 

 

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(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.

Igloo Holdings Senior PIK Toggle Notes Due 2017

On December 18, 2012, Holdings issued $350.0 million Toggle Notes (the “Toggle Notes”) which mature on December 15, 2017, pursuant to an indenture, dated as of December 18, 2012. We are not an obligor under the Indentures governing the Toggle Notes, which are not included on our balance sheet. The Toggle Notes are structurally subordinated to indebtedness and other liabilities of subsidiaries of Holdings that do not guarantee the Toggle Notes. Claims of creditors of such subsidiaries, including trade creditors, and claims of preferred stockholders of such subsidiaries will have priority with respect to the assets and earnings of such subsidiaries over the claims of Holdings’ creditors, including the holders of the Toggle Notes. In addition, the Toggle Notes are unsecured, and, as such, none of our assets, or any of our subsidiaries’ assets, are pledged for this agreement. However, Holdings is our indirect parent company with no material operations of its own and only limited assets or operations other than the indirect ownership of all of our capital stock. Accordingly, Holdings is dependent upon the distribution of the earnings of its subsidiaries, whether in the form of dividends, advances, payments on account of intercompany obligations or otherwise, to service its debt obligations. Therefore, withstanding any limitations placed upon us by our covenants, we will provide Holdings, via dividends, the funds required to service the Toggle Notes on at least a semi-annual basis starting with the payment due June 15, 2013. Interest payments are due June 15 and December 15 of each year until maturity and we expect to pay Holdings dividends in the amount of $14.4 million for each payment on an ongoing basis.

Income Taxes

We recognized income tax benefits of $17.9 million, $55.3 million and $12.3 million, respectively, on losses before income taxes of $16.9 million, $84.6 million and $84.1 million, respectively, for the years ended December 31, 2012 and 2011, and the combined year ended December 31, 2010. Our effective tax rates were 106.0 %, 65.3% and 14.7%, respectively, for the years then ended. Our 2012 effective tax rate primarily differs from our statutory rate due to reductions in the U.K. tax rate, income generated in lower tax jurisdictions, the additional benefits associated with state taxes, and tax provision to tax return adjustments with respect to the filing of prior year’s returns, offset by non-tax deductible payments made to certain shareholders as part of the Holdings recapitalization. We have not recorded a benefit for the Research and Development Credit in the 2012 tax provision calculation. The American Taxpayer Relief Act of 2012 (“ATRA”) which extended the Research and Development Credit was not enacted until January 3, 2013; therefore, the benefit for the Research and Development Credit will be recorded as a discrete item in the first quarter of 2013. If we had recorded a benefit for the 2012 Research and Development credit, the effective tax rate after discrete items, would have increased to a benefit of 113.3%. During the year ended December 31, 2012, we were not materially impacted by any of the other changes included in the ATRA.

Our full year December 31, 2012 effective tax rate increased to a 106.0 % benefit compared with a 65.3% benefit for the year ended December 31, 2011. Our current year effective tax rate includes the impact of a 47.4 % benefit resulting from the recording of discrete tax rate changes in foreign jurisdictions and discrete tax provision to tax return adjustments with respect to the filing of prior years’ returns in the U.S. and foreign jurisdictions, compared with a benefit on these discrete items in 2011 of 16.1%. Also, in 2012 our benefit from income generated in foreign jurisdictions was 35.7% compared to 7.8% in 2011. Finally, 2012 included an expense of 22.3% related to the Holdings recapitalization while 2011 did not.

The full year 2011 effective tax rate increased to a 65.3% benefit compared with a 14.7% benefit for the combined year ended December 31, 2010. Our 2011 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,

 

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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 being partially offset by expense recognized related to prior years U.S., U.K. and German tax reserves. The return to provision adjustments primarily represent out-of-period corrections recorded in the fourth quarter of the year ended December 31, 2011. Also, the 2010 successor period includes the impact of expenses for non-deductible transaction costs associated with the Merger which did not recur in 2011. Finally, the year ended December 31, 2011 effective tax rate reflects a benefit for increased income generated in lower tax jurisdictions when compared with the year ended December 31, 2010.

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.

During 2012, our balance of unrecognized tax benefits decreased on a net basis by $0.6 million and $0.5 million upon release of reserves and settlements, respectively, related to various foreign and state tax audits, and decreased $0.2 million on a net basis upon the lapse of the statute of limitations in various tax jurisdictions. These decreases were offset by net increases of $0.9 million and $0.3 million for current year and prior years’ build, respectively, for tax uncertainties. As of December 31, 2012, we had approximately $11.6 million of net uncertain tax positions which would affect our effective tax rate if recognized ($12.7 million on a gross basis). We believe that it is reasonably possible that approximately $0.3 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. Net interest and penalties of $0.1 million, $0.3 million and $0.5 million were provided in income tax expense for uncertain tax positions for the years ended December 31, 2012 and 2011 and the combined year ended December 31, 2010, respectively. Gross reserves for interest and penalties of $ 1.0 million have been provided at December 31, 2012 and 2011.

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.

Off-Balance Sheet Arrangements

As of December 31, 2012, 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

 

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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.

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 with standalone value, 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, is recognized ratably either over the contractual term or the expected customer relationship 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 all contracts in order to determine appropriate 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, 2012, we had two reportable segments: Pricing and Reference Data and Trading Solutions. Within the Pricing and Reference Data 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, 2012 compared with the year ended December 31, 2011.

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

 

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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 10% in excess of their assigned carrying values.

Although changes in economic and operating conditions impacting our assumptions used to complete our fiscal 2012 goodwill impairment analysis could result in goodwill impairment in future periods, based upon the analysis conducted by management for the year ended December 31, 2012, 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.

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.

 

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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 at both December 31, 2012 and 2011 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, $12.7 million of gross unrecognized tax benefits, of which $10.6 million and $2.1 million have been recorded in income taxes payable and long-term deferred tax liabilities, respectively, 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, 2012.

Capitalized Development Costs

We capitalize certain qualifying costs incurred as part of the development of internal-use software. Internal-use software projects have the following characteristics: the software is internally developed, acquired, or modified solely to meet the entity’s internal needs and during the development or modification of the software, there is no substantive plan or expectation that the software will be marketed externally. Qualifying costs which are capitalized are incurred during the application development stage of developing this software, which is when the company is designing the software configuration and interfaces, coding, installing the software, and performing testing of the software. Qualifying costs that were capitalized during the year ended December 31, 2012 primarily consisted of personnel related expenses for employees working on the software development, coding, and testing. Costs incurred during the preliminary project stage (prior to any actual designing of the software) and in the post-implementation/operation stage (after the software has been initially implemented) are

 

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expensed as incurred. Capitalized development costs are amortized on a straight-line basis over the useful life of the software, generally 3-5 years with certain exceptions where projects have estimated useful lives in excess of this range.

In the year ending December 31, 2012, we have capitalized $24.6 million in costs related to internal-use software projects.

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, and 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, 2012 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

   $ 2,002,882       $ 20,258       $ 1,512       $ 26,900       $ 1,954,212   

Operating Lease Obligations

     147,525         21,754         42,259         27,143         56,369   

Purchase Obligations

     33,252         33,252         —          —           —     

Fixed Rate Interest Obligations

     401,200        
71,750
  
     143,500         143,700         42,250   

Interest Rate Cap Premium Installments

     2,909         1,662         1,247         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,587,768       $ 148,676       $ 188,518       $ 197,743       $ 2,052,831   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 2013. If we are unable to renew any of the leases that are due to expire in 2013, we believe that suitable replacement properties are available on commercially reasonable terms.

Rental expense was $20.9 million for the year ended December 31, 2012, and $23.7 million for both year the ended December 31, 2011 and the combined year ended December 31, 2010.

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.

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. Fixed Interest Rate Obligations in the table above include our interest obligations under the Senior Notes due 2018 which are stated at fixed interest rate of 10.25%. We also have variable interest rate obligations under the Senior Secured Credit Facilities which are not included in the table above. Outstanding letters of credit totaled $4.5 million at December 31, 2012. 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. Excluded from the above table are any payments related to the Toggle Notes, as that debt is not our obligation. Although we are not a party in the Toggle Notes indenture, withstanding any limitations placed upon us by our covenants, we will provide Holdings, via dividends, the funds required to service the Toggle Notes on at least a semi-annual basis starting with the payment due June 15, 2013. Interest payments are due June 15 and December 15 of each year until maturity and we expect to provide Holdings dividends in the amount of $14.4 million for each payment on an ongoing basis.

 

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On February 6, 2013, we refinanced our Term Loan Facility. Refer to Note 20 “Subsequent Events” 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, $12.7 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, 2012, which are not included in the table above.

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 (including audits underway) 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.

 

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Intangibles – Goodwill and Other

In July 2012, the FASB issued ASU 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”), regarding ASC Topic 350, “Intangibles – Goodwill and Other”. ASU 2012-02 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 an indefinite-lived intangible asset is less than its carrying value. Under the provisions of ASU 2012-02, 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 an indefinite-lived intangible asset is less than its carrying value, performance of an annual impairment test is unnecessary. ASU 2012-02 is effective for fiscal years beginning after September 15, 2012 with early adoption permitted under certain circumstances. ASU 2012-02 will be effective for us starting January 1, 2013. We do not believe that adopting the provisions of ASU 2012-02 will have a material impact on our financial position, results of operations or cash flows.

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.

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 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.

In February 2013, the FASB issued ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”), regarding ASC Topic 220 “Comprehensive Income.” ASU 2013-02 requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts such as in cases where a portion of the amount reclassified out of accumulated other comprehensive income is reclassified to a balance sheet account instead of directly to income or expense in the same reporting period. For public filers, ASU 2013-02 is effective for fiscal years and interim periods within those years that begin after December 15, 2012, with early adoption permitted. We do not believe that adopting the provisions of ASU 2013-02 will have a material impact on our financial position, results of operations or cash flows.

 

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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)

   For the year
ended
December 31,
2012
     For the year
ended
December 31,
2011
     Combined
2010
     Period from
July 30
through
December 31,
2010
           Period from
January 1
through
July 29,
2010
 

Revenue:

                   

United Kingdom

   $ 88,998       $ 88,688       $ 79,664       $ 34,210            $ 45,454   

All other European countries

     120,740         126,891         119,497         51,315              68,182   

Asia Pacific

     48,908         42,699         39,832         17,105              22,727   

Rest of World

     13,208         12,609         7,967         3,421              4,546   
  

 

 

    

 

 

    

 

 

    

 

 

         

 

 

 

Total

   $ 271,854       $ 270,887       $ 246,960       $ 106,051            $ 140,909   
  

 

 

    

 

 

    

 

 

    

 

 

         

 

 

 

Long-lived assets by geographic region outside the United States are as follows:

 

(In thousands)

   As of
December 31,
2012
     As of
December 31,
2011
     As of
December 31,
2010
 

United Kingdom

   $ 598,589       $ 589,793       $ 620,711   

All other European countries

     144,182         149,949         164,530   

Asia Pacific

     159,960         174,223         177,349   
  

 

 

    

 

 

    

 

 

 

Total

   $ 902,731       $ 913,965       $ 962,590   
  

 

 

    

 

 

    

 

 

 

Interest Rate Risk

We have interest rate risk due to our Term Loan Facility which is variable rate debt and hedged by interest rate caps. As of December 31, 2012, 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 0.31% at December 31, 2012, our minimum interest rate was set at 1.25% (plus an

 

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applicable percentage) prior to our February 2013 refinancing. The interest rate as of December 31, 2012 was 4.50% (1.25% floor plus an applicable percentage of 3.25%). An increase of 1% in our variable rate above our December 31, 2012 rate of 4.50% would increase our interest expense over the subsequent four-quarter period by approximately $13.1 million. As of December 31, 2012, approximately 44% of this exposure is hedged with the interest rate caps. Please refer to Note 17 “Derivatives” and Note 18 “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

     61   

Consolidated Statements of Operations for the years ended December  31, 2012 and 2011, and the periods from July 30, 2010 through December 31, 2010 and January 1, 2010 through July 29, 2010

     62   

Consolidated Statements of Comprehensive Income (Loss) for the years ended December  31, 2012 and 2011, and the periods from July 30, 2010 through December 31, 2010 and January 1, 2010 through July 29, 2010

     63   

Consolidated Balance Sheets as of December 31, 2012 and 2011

     64   

Consolidated Statements of Cash Flows for the years ended December  31, 2012 and 2011, and the periods from July 30, 2010 through December 31, 2010 and January 1, 2010 through July 29, 2010

     65   

Consolidated Statements of Stockholders’ Equity for the years ended December  31, 2012 and 2011, and the periods from July 30, 2010 through December 31, 2010 and January 1, 2010 through July 29, 2010

     67   

Notes to Consolidated Financial Statements

     69   

Quarterly Financial Information (Unaudited)

     133   

Index to Financial Statement Schedule:

  

Schedule II Valuation and Qualifying Accounts

     134   

 

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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, 2012 and 2011, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2012, and the period from July 30, 2010 to December 31, 2010, and the related consolidated statements of operations, comprehensive 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. 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, 2012 and 2011, and the consolidated results of its operations and its cash flows for the each of the two years in the period ended December 31, 2012, 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, 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 13, 2013

 

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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,
2012
    Year Ended
December 31,
2011
    Period from July 30
through
December 31,
2010
         Period from January 1
through July 29,
2010
 

REVENUE

  $ 880,161      $ 867,723      $ 342,101          $ 454,544   

COSTS AND EXPENSES:

           

Cost of services

    292,378        293,472        115,176            161,899   

Selling, general and administrative

    276,436        258,065        124,409            158,210   

Merger costs

    —          —         67,258            52,734   

Depreciation

    41,456        39,391        15,962            22,504   

Amortization

    138,040        175,077        65,867            19,718   
 

 

 

   

 

 

   

 

 

       

 

 

 

Total costs and expenses

    748,310        766,005        388,672            415,065   
 

 

 

   

 

 

   

 

 

       

 

 

 

INCOME (LOSS) FROM OPERATIONS

    131,851        101,718        (46,571 )         39,479   

Interest (expense) income, net

    (149,526     (157,120     (78,364         760   

Other income (expense), net

    824        (3,719     321            249   

Loss on extinguishment of debt

    —          (25,450     —             —    
 

 

 

   

 

 

   

 

 

       

 

 

 

(LOSS) INCOME BEFORE INCOME TAXES

    (16,851     (84,571     (124,614         40,488   

Income tax (benefit) expense

    (17,868     (55,255     (30,351         18,014   
 

 

 

   

 

 

   

 

 

       

 

 

 

NET INCOME (LOSS)

  $ 1,017      $ (29,316   $ (94,263       $ 22,474   
 

 

 

   

 

 

   

 

 

       

 

 

 

 

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 (LOSS)

(In thousands)

 

    Successor          Predecessor  
    Year Ended
December 31,
    Year Ended
December 31,
    Period from July 30
through
December 31
         Period from January 1
through
July 29
 
    2012     2011     2010          2010  

Net income (loss)

  $ 1,017      $ (29,316   $ (94,263       $ 22,474   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

 

Other comprehensive income:

           

Unrealized gain (loss) on securities, net of tax

    88        (100     345            22   

Foreign currency translation adjustments

    22,534        (6,862     18,780            (15,230

Pension adjustment, net of tax

    (759     600        (243 )         (18

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

    49        (269     —             —    

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

    (336     (3,071     737            —    

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

    892        223        —             —    
 

 

 

   

 

 

   

 

 

       

 

 

 

Total other comprehensive income (loss), net of tax

    22,468        (9,479     19,619            (15,226
 

 

 

   

 

 

   

 

 

       

 

 

 

Comprehensive income (loss)

  $ 23,485      $ (38,795   $ (74,644       $ 7,248   
 

 

 

   

 

 

   

 

 

       

 

 

 

 

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,
2012
    December 31,
2011
 
ASSETS     

Assets:

    

Cash and cash equivalents

   $ 224,597      $ 262,152   

Short-term investments

     23,581        —     

Accounts receivable, net of allowance for doubtful accounts and sales credits of $5,718 and $5,152 at December 31, 2012 and December 31, 2011, respectively

     134,855        118,248   

Prepaid expenses and other current assets

     25,021        27,419   

Income tax receivable

     6,253        6,251   

Deferred tax assets

     23,396        42,281   
  

 

 

   

 

 

 

Total current assets

     437,703        456,351   
  

 

 

   

 

 

 

Property and equipment, net

     142,920        122,289   

Goodwill

     1,640,541        1,637,126   

Intangible assets, net

     1,690,652        1,818,117   

Deferred financing costs, net

     44,854        54,478   

Other assets

     5,638        5,310   
  

 

 

   

 

 

 

Total Assets

   $ 3,962,308      $ 4,093,671   
  

 

 

   

 

 

 
LIABILITIES AND EQUITY     

Liabilities:

    

Accounts payable, trade

   $ 17,323      $ 17,911   

Accrued liabilities

     87,347        89,214   

Borrowings, current

     20,258        56,417   

Interest payable

     30,310        30,584   

Income taxes payable

     5,578        7,008   

Deferred revenue

     22,608        24,944   
  

 

 

   

 

 

 

Total current liabilities

     183,424        226,078   
  

 

 

   

 

 

 

Income taxes payable

     10,992        10,906   

Deferred tax liabilities

     604,322        647,090   

Other liabilities

     57,816        59,908   

Borrowings, net of current portion and original issue discount

     1,941,887        1,929,784   
  

 

 

   

 

 

 

Total Liabilities

     2,798,441        2,873,766   
  

 

 

   

 

 

 

Commitments and contingencies (Note 10)

    

Equity:

    

Stockholders’ equity:

    

Common stock, $0.01 par value, 1,000 shares authorized, 10 issued and outstanding at December 31, 2012 and 2011

     —          —    

Additional paid-in-capital

     1,253,821        1,333,344   

Accumulated loss

     (122,562     (123,579

Accumulated other comprehensive income

     32,608        10,140   
  

 

 

   

 

 

 

Total stockholders’ equity

     1,163,867        1,219,905   
  

 

 

   

 

 

 

Total Liabilities and Equity

   $ 3,962,308      $ 4,093,671   
  

 

 

   

 

 

 

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

 

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Table of Contents

INTERACTIVE DATA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

    Successor          Predecessor  
    Year Ended
December 31,
2012
    Year Ended
December 31,
2011
    Period from
July 30 through
December 31,
2010
         Period From
January 1 through
July 29,
2010
 

Cash flows provided by (used in) operating activities:

           

Net income (loss)

  $ 1,017      $ (29,316   $ (94,263       $ 22,474   

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

           

Depreciation and amortization

    179,496        214,468        81,829            42,222   

Asset abandonment

    —          —         3,307            —    

Amortization of discounts and premiums on marketable securities, net

    —          —         —             766   

Amortization of deferred financing costs and accretion of note discounts

    17,597        17,741        8,402            —    

Deferred income taxes

    (25,787     (63,232     (9,090         7,270   

Excess tax benefits from stock-based compensation

    —          —         —             (3,625

Stock-based compensation

    14,108        4,229        111            23,985   

Non-cash interest expense

    1,507        376        468             

Provision (recovery) for doubtful accounts and sales credits

    492        (1,605     (1,802         103   

Loss on extinguishment of debt

    —          25,450        —             —    

Loss on dispositions of property and equipment

    2,415        513        112            114   

Changes in operating assets and liabilities, net

           

Accounts receivable

    (11,232     (10,068     41,527            (37,572

Prepaid expenses and other current assets

    1,766        (6,314     2,284            1,314   

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

    (1,977     30,158        6,876            (11,404

Accrued expenses and other liabilities

    (3,308     5,471        11,108            20,282   

Pension cessation payments

    —          —         (3,200         (82,741

Deferred revenue

    (2,073     516        (27,344         20,302   
 

 

 

   

 

 

   

 

 

       

 

 

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

    174,021        188,387        20,325            3,490   

Cash flows (used in) provided by investing activities:

           

Purchase of property and equipment

    (61,443     (50,260     (17,965         (26,395

Business and asset acquisitions, net of acquired cash

    —          53        (5,943         (29,923

Acquisition of Interactive Data Corporation and Subsidiaries

    —          —         (3,374,155         —    

Purchase of short-term investments

    (23,540     —         —             (64,136

Proceeds from maturities and sales of short-term investments

    250        —         —             159,428   
 

 

 

   

 

 

   

 

 

       

 

 

 

NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES

    (84,733     (50,207     (3,398,063         38,974   

 

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Table of Contents

INTERACTIVE DATA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

(In thousands)

 

    Successor          Predecessor  
    Year Ended
December 31,
2012
    Year Ended
December 31,
2011
    Period from
July 30 through
December 31,
2010
         Period From
January 1 through
July 29,
2010
 

Cash flows provided by (used in) financing activities:

           

Proceeds from exercise of stock options and employee stock purchase plan

    —          —          —              28,397   

Common stock cash dividends paid

    —          —          —              (18,964

Excess tax benefits from stock-based compensation

    —          —          —              3,625   

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

    (32,029     (10,088     (8,650         —     

Principal payments on capital leases

    (364     —          —              —     

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

    —          11,850        —              —     

Capital contribution resulting from exercise of parent company stock options

    787        —          —              —     

Payment of interest rate cap

    (1,664     (415     —              —     

Capital contribution from parent company

    6,628        —          1,353,969            —     

Return of capital to parent company

    (100,000     —          —              —     

Capital reduction resulting from cash distribution to option holders

    (3,020     —          —              —     
 

 

 

   

 

 

   

 

 

       

 

 

 

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

    (129,662     2,705        3,242,936            13,058   

Effect of change in exchange rates on cash and cash equivalents

    2,819        (2,437     1,786            (8,748
 

 

 

   

 

 

   

 

 

       

 

 

 

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

    (37,555     138,448        (133,016         46,774   

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

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

 

 

   

 

 

   

 

 

       

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

  $ 224,597      $ 262,152      $ 123,704          $ 256,720   
 

 

 

   

 

 

   

 

 

       

 

 

 

Supplemental disclosure of cash flow information:

           

Cash (paid) received for taxes

  $ (7,822   $ 18,898      $ 857          $ (19,154

Cash (paid) received for interest, net of capitalized amounts ($1.6 million in 2012 only)

  $ (130,295   $ (139,454   $ (40,401       $ 1,566   

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.

 

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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)
    Total
Equity
 

(in thousands)

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

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        —         —         —         —         24,124   

Issuance of stock in connection with employee stock purchase plan

    200        2        4,271        —         —         —         —         4,273   

Tax benefit from exercise of stock options, employee stock purchase plan and pension cessation payments

    —         —         54,226        —         —         —         —         54,226   

Retirement of treasury stock (Note 9)

    (10,485     (104     (128,865     (10,485     221,246        (92,277     —         —    

Stock-based compensation (Note 8)

    —         —         23,985        —         —         —         —         23,985   

Other comprehensive loss

    —         —         —         —         —         —         (15,226     (15,226

Common stock dividends awarded to holders of restricted stock units

    —         —         121        —         —         (121     —         —    

Common stock cash dividends declared to Interactive Data stockholders

    —         —         —         —         —         (18,953     —         (18,953

Cash dividends declared to noncontrolling interests on NDF common stock

    —         —         —         —         —         (20     —         (20

Net income

    —         —         —         —         —         22,474        —         22,474   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, July 29, 2010

    95,895      $ 959      $ 996,980        —       $ —       $ 190,199      $ (11,149   $ 1,176,989   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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Table of Contents

INTERACTIVE DATA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands)

Successor

 

     Common Stock      Additional
Paid-In-
Capital
    Accumulated
Loss
    Accumulated
Other
Comprehensive
Income
    Total
Stockholders’
Equity
 
   Number
of
Shares
     Par
Value
          

Equity contribution from parent company

     10         —        $ 1,353,969        —         —       $ 1,353,969   

Restrictions placed on shares sold from parent company to executives (Note 8)

     —          —          (27,000     —         —         (27,000

Stock-based compensation (Note 8)

     —          —          111        —         —         111   

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

     —          —          35        —         —         35   

Other comprehensive income

     —          —          —         —         19,619        19,619   

Net loss

     —          —          —         (94,263     —         (94,263
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2010

     10         —        $ 1,327,115      $ (94,263   $ 19,619      $ 1,252,471