Form 424(B)(3)
Table of Contents

FILED PURSUANT TO RULE 424(B)(3)

File Number 333- 150383

SUNGARD DATA SYSTEMS INC.

SUPPLEMENT NO. 1 TO

MARKET-MAKING PROSPECTUS DATED MAY 13, 2008

THE DATE OF THIS SUPPLEMENT IS MAY 15, 2008

ON MAY 14, 2008, SUNGARD DATA SYSTEMS INC. FILED THE ATTACHED

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008


Table of Contents

 

 

United States

Securities and Exchange Commission

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

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

For the quarterly period ended March 31, 2008

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 1-12989

 

 

SunGard® Data Systems Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   51-0267091

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

680 East Swedesford Road, Wayne, Pennsylvania 19087

(Address of principal executive offices, including zip code)

484-582-2000

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ¨    No  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.

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.

There were 100 shares of the registrant’s common stock outstanding as of March 31, 2008.

 

 

 


Table of Contents

SUNGARD DATA SYSTEMS INC.

AND SUBSIDIARIES

INDEX

 

          Page

Part I.

   FINANCIAL INFORMATION   

Item 1.

   Financial Statements:   
   Consolidated Balance Sheets as of December 31, 2007 and March 31, 2008 (unaudited)    1
   Consolidated Statements of Operations for the three months ended March 31, 2007 and 2008 (unaudited)    2
   Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2008 (unaudited)    3
   Notes to Consolidated Financial Statements (unaudited)    4

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations    15

Item 3.

   Quantitative and Qualitative Disclosures about Market Risk    22

Item 4T.

   Controls and Procedures    22

Part II.

   OTHER INFORMATION   

Item 1.

   Legal Proceedings    23

Item 1A.

   Risk Factors    23

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds    23

Item 3.

   Defaults upon Senior Securities    23

Item 4.

   Submission of Matters to a Vote of Security Holders    23

Item 5.

   Other Information    23

Item 6.

   Exhibits    23

SIGNATURES

   24


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PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

SunGard Data Systems Inc.

Consolidated Balance Sheets

(In millions except share and per-share amounts)

(unaudited)

 

     December 31,
2007
    March 31,
2008
 
      

Assets

    

Current:

    

Cash and cash equivalents

   $ 427     $ 427  

Trade receivables, less allowance for doubtful accounts of $12 and $21

     290       297  

Earned but unbilled receivables

     63       73  

Prepaid expenses and other current assets

     166       144  

Clearing broker assets

     469       555  

Retained interest in accounts receivable sold

     243       241  

Deferred income taxes

     32       32  
                

Total current assets

     1,690       1,769  

Property and equipment, less accumulated depreciation of $533 and $595

     852       869  

Software products, less accumulated amortization of $542 and $605

     1,266       1,256  

Customer base, less accumulated amortization of $475 and $531

     2,745       2,735  

Other tangible and intangible assets, less accumulated amortization of $21 and $25

     179       192  

Trade name

     1,022       1,024  

Goodwill

     7,086       7,108  
                

Total Assets

   $ 14,840     $ 14,953  
                

Liabilities and Stockholder’s Equity

    

Current:

    

Short-term and current portion of long-term debt

   $ 55     $ 313  

Accounts payable

     85       86  

Accrued compensation and benefits

     271       198  

Accrued interest expense

     148       72  

Other accrued expenses

     390       406  

Clearing broker liabilities

     434       529  

Deferred revenue

     825       859  
                

Total current liabilities

     2,208       2,463  

Long-term debt

     7,430       7,322  

Deferred income taxes

     1,646       1,625  
                

Total liabilities

     11,284       11,410  
                

Commitments and contingencies

    

Stockholder’s equity:

    

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

     —         —    

Capital in excess of par value

     3,694       3,713  

Accumulated deficit

     (207 )     (229 )

Accumulated other comprehensive income

     69       59  
                

Total stockholder’s equity

     3,556       3,543  
                

Total Liabilities and Stockholder’s Equity

   $ 14,840     $ 14,953  
                

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

 

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SunGard Data Systems Inc.

Consolidated Statements of Operations

(In millions)

(Unaudited)

 

     Three Months Ended
March 31,
 
     2007     2008  

Revenue:

    

Services

   $ 1,022     $ 1,198  

License and resale fees

     65       59  
                

Total products and services

     1,087       1,257  

Reimbursed expenses

     29       45  
                
     1,116       1,302  
                

Costs and expenses:

    

Cost of sales and direct operating

     525       643  

Sales, marketing and administration

     240       277  

Product development

     74       79  

Depreciation and amortization

     59       67  

Amortization of acquisition-related intangible assets

     104       112  
                
     1,002       1,178  
                

Income from operations

     114       124  

Interest income

     5       5  

Interest expense and amortization of deferred financing fees

     (165 )     (148 )

Other expense

     (37 )     (21 )
                

Loss before income taxes

     (83 )     (40 )

Provision for (benefit from) income taxes

     13       (18 )
                

Net loss

   $ (96 )   $ (22 )
                

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

 

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SunGard Data Systems Inc.

Consolidated Statements of Cash Flows

(In millions)

(Unaudited)

 

     Three Months Ended
March 31,
 
     2007     2008  

Cash flow from operations:

    

Net loss

   $ (96 )   $ (22 )

Reconciliation of net loss to cash flow (used in) provided by operations:

    

Depreciation and amortization

     163       179  

Deferred income tax benefit

     (21 )     (30 )

Stock compensation expense

     6       7  

Amortization of deferred financing costs and debt discount

     19       9  

Other noncash expense

     2       16  

Accounts receivable and other current assets

     75       (10 )

Accounts payable and accrued expenses

     (180 )     (154 )

Clearing broker assets and liabilities, net

     10       9  

Deferred revenue

     10       24  
                

Cash flow (used in) provided by operations

     (12 )     28  
                

Investment activities:

    

Cash paid for acquired businesses, net of cash acquired

     (13 )     (64 )

Cash paid for property and equipment and software

     (69 )     (84 )

Other investing activities

     (4 )     —    
                

Cash used in investment activities

     (86 )     (148 )
                

Financing activities:

    

Cash received from borrowings, net of fees

     503       151  

Cash used to repay debt

     (414 )     (30 )

Other financing activities

     —         (10 )
                

Cash provided by financing activities

     89       111  
                

Effect of exchange rate changes on cash

     (2 )     9  
                

Increase (decrease) in cash and cash equivalents

     (11 )     —    

Beginning cash and cash equivalents

     316       427  
                

Ending cash and cash equivalents

   $ 305     $ 427  
                

Supplemental information:

    

Acquired businesses:

    

Property and equipment

   $ 1     $ 1  

Software products

     7       39  

Customer base

     9       44  

Goodwill

     11       37  

Other tangible and intangible assets

     1       1  

Deferred income taxes

     (5 )     (34 )

Purchase price obligations and debt assumed

     (4 )     (10 )

Net current liabilities assumed

     (7 )     (14 )
                

Cash paid for acquired businesses, net of cash acquired of $7 and $20, respectively

   $ 13     $ 64  
                

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

 

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SUNGARD DATA SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation:

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

SunGard is a wholly owned subsidiary of SunGard Holdco LLC, which is wholly owned by SunGard Holding Corp., which is wholly owned by SunGard Capital Corp. II, which is a subsidiary of SunGard Capital Corp. All of these companies were formed for the purpose of facilitating the Transaction and are collectively referred to as the “Holding Companies.”

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

The accompanying interim consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. Interim financial reporting does not include all of the information and footnotes required by GAAP for complete financial statements. The interim financial information is unaudited, but reflects all normal adjustments which are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.

Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141R, Business Combinations, (“SFAS 141R”), which changes accounting principles for business acquisitions. SFAS 141R requires the recognition of all the assets acquired and liabilities assumed in the transaction based on the acquisition-date fair value. Certain provisions of this standard will, among other things, impact the determination of consideration paid or payable in a business combination and change accounting practices for transaction costs, acquired contingencies, acquisition-related restructuring costs, in-process research and development, indemnification assets, and tax benefits. SFAS 141R is effective for business combinations and adjustments to all acquisition-related deferred tax asset and liability balances occurring after December 31, 2008. The Company is currently evaluating the requirements of this standard; however, this standard could have a significant impact on the consolidated financial statements.

In December 2007, the FASB also issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS 160”). The objective of SFAS 160 is to improve the relevance, comparability and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective January 1, 2009. The Company has not yet determined the impact of adopting SFAS 160 on the consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”). SFAS 161 is intended to help investors better understand how derivative instruments and hedging activities affect an entity’s financial position, financial performance and cash flows through enhanced disclosure requirements. SFAS 161 is effective as of January 1, 2009. The Company is currently evaluating the impact of this standard, but would not expect SFAS 161 to have a material impact on the consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 142-3, Determination of the Useful Life of Intangible Assets. FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB SFAS No. 142,

 

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Goodwill and Other Intangible Assets (“SFAS 142”). FSP 142-3 is intended to improve the consistency between the useful life of an intangible asset determined under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141R and other GAAP. FSP 142-3 is effective as of January 1, 2009. The Company is currently evaluating the impact of this staff position but would not expect FSP 142-3 to have a material impact on the consolidated financial statements.

2. Acquisitions:

The Company seeks to acquire businesses that broaden its existing product lines and service offerings by adding complementary products and service offerings and by expanding its geographic reach. During the three months ended March 31, 2008, the Company completed two acquisitions in its FS segment. Cash paid, net of cash acquired and subject to certain adjustments, was $64 million. The allocations of purchase price for these acquisitions and certain others completed in 2007 are preliminary.

The following table lists the businesses the Company acquired in the first quarter of 2008:

 

Acquired Company/Business

   Date
Acquired
  

Description

Advanced Portfolio Technologies, Inc.

   2/29/2008    Portfolio optimization and risk management software.

Corporate Payments Division of Payformance Corporation

   2/29/2008    Integrated electronic and outsourced payment solutions.

Goodwill

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

 

     FS     HE     PS     AS     Total  

Balance at December 31, 2007

   $ 2,942     $ 971     $ 911     $ 2,262     $ 7,086  

2008 acquisitions

     29       —         —         —         29  

Income tax adjustments related to the Transaction

     (4 )     (2 )     (1 )     (3 )     (10 )

Effect of foreign currency translation

     3       —         —         —         3  
                                        

Balance at March 31, 2008

   $ 2,970     $ 969     $ 910     $ 2,259     $ 7,108  
                                        

 

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3. Clearing Broker Assets and Liabilities:

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

 

     December 31,
2007
   March 31,
2008

Segregated customer cash and treasury bills

   $ 109    $ 146

Securities owned

     25      34

Securities borrowed

     302      343

Receivables from customers and other

     33      32
             

Clearing broker assets

   $ 469    $ 555
             

Payables to customers

   $ 114    $ 155

Securities loaned

     271      308

Customer securities sold short, not yet purchased

     16      19

Payable to brokers and dealers

     33      47
             

Clearing broker liabilities

   $ 434    $ 529
             

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

4. Debt:

In January 2008 and February 2008, the Company entered into a three-year interest rate swap agreement and a two-year interest rate swap agreement, respectively, each for a notional amount of $750 million, under which the Company is required to pay the counterparty a stream of fixed rate interest payments of 3.17% and 2.71%, respectively, and, in turn, receives variable interest payments based on LIBOR from the counterparty.

5. Income Taxes:

The Company’s reserve for unrecognized income tax benefits at March 31, 2008 is $20 million. This liability includes approximately $3 million (net of federal and state benefit) in accrued interest and penalties. Since substantially all of the liability relates to matters existing at the date of the Transaction, any reversal of reserve is not expected to have a material impact on the Company’s annual effective tax rate. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.

At any time some portion of the Company’s operations are under audit. The Company is currently under audit by the Internal Revenue Service for the calendar years 2003 through 2006. In addition, various state and foreign jurisdiction tax years remain open to examination. Based on the outcome of these audits, it is reasonably possible that certain matters may be resolved within the next 12 months and the reserve for unrecognized income tax benefits could change. The Company is unable to estimate the range of any possible adjustment at this time.

6. Fair Value Measurements:

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 clarifies the definition of fair value, prescribes methods for measuring fair value, established a fair value hierarchy based on inputs used to measure fair value, and expands disclosure about the use of fair value measures. The Company partially adopted SFAS 157 on January 1, 2008 with no impact on its financial position or operating results. FASB Staff Position SFAS 157-2, Effective Date of FASB Statement 157, permits the Company to defer recognition and measurement of nonfinancial assets and liabilities measured on a nonrecurring basis until January 1, 2009.

The fair value hierarchy, as defined by SFAS 157, is as follows:

Level 1 – quoted prices in active markets for identical assets or liabilities

Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable

 

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Level 3 – inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)

The following table summarizes assets and liabilities measured at fair value on a recurring basis at March 31, 2008 (in millions):

 

     Fair Value Measures Using     
     Level 1    Level 2    Level 3    Total

Assets

           

Clearing broker assets - securities owned

   $ 34    $ —      $ —      $ 34

Retained interest in accounts receivable sold

     —        —        241      241

Currency option

     —        1      —        1
                           
   $ 34    $ 1    $ 241    $ 276
                           

Liabilities

           

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

   $ 19    $ —      $ —      $ 19

Interest rate swap agreements

     —        84      —        84
                           
   $ 19    $ 84    $ —      $ 103
                           

Clearing broker assets and liabilities – securities owned and customer securities sold short, not yet purchased are recorded at closing exchange-quoted prices. Retained interest in accounts receivable sold is calculated using a discounted cash flow model using an applicable market interest rate and assumptions based upon collection period. Fair values of the interest rate swap agreements and currency option are based on market prices obtained from brokers. During the three months ended March 31, 2008, the fair value of retained interest in accounts receivable sold decreased $2 million from $243 million at December 31, 2007 resulting from purchases, issuances and settlements.

7. Comprehensive Income (Loss):

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

 

     Three Months Ended March 31,  
     2007     2008  

Net loss

   $ (96 )   $ (22 )

Foreign currency translation gains

     1       20  

Unrealized loss on derivative instruments

     (3 )     (30 )
                

Comprehensive loss

   $ (98 )   $ (32 )
                

 

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8. Segment Information:

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

 

     Three Months Ended March 31,  
     2007     2008  

Revenue:

    

Financial systems

   $ 543     $ 687  

Higher education

     132       126  

Public Sector

     99       101  
                

Software & processing solutions

     774       914  

Availability services

     342       388  
                
   $ 1,116     $ 1,302  
                

Depreciation and amortization:

    

Financial systems

   $ 14     $ 16  

Higher education

     2       2  

Public sector

     2       2  
                

Software & processing solutions

     18       20  

Availability services

     41       47  

Corporate administration

     —         —    
                
   $ 59     $ 67  
                

Income (loss) from operations:

    

Financial systems

   $ 100     $ 121  

Higher education

     29       24  

Public sector

     21       18  
                

Software & processing solutions

     150       163  

Availability services

     87       101  

Corporate and other items (1)

     (123 )     (140 )
                
   $ 114     $ 124  
                

Cash paid for property and equipment and software:

    

Financial systems

   $ 19     $ 15  

Higher education

     4       11  

Public sector

     1       2  
                

Software & processing solutions

     24       28  

Availability services

     45       56  

Corporate administration

     —         —    
                
   $ 69     $ 84  
                

 

(1) Includes corporate administrative expenses, stock compensation expense, management fees paid to the Sponsors, other items and amortization of acquisition-related intangible assets of $104 million and $112 million for the three month periods ended March 31, 2007 and 2008, respectively.

 

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

 

     Three Months Ended March 31,
     2007    2008

Amortization of acquisition-related intangible assets:

     

Financial systems

   $ 58    $ 60

Higher education

     9      9

Public sector

     8      11
             

Software & processing solutions

     75      80

Availability services

     29      31

Corporate administration

     —        1
             
   $ 104    $ 112
             

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

 

     Three Months Ended March 31,
     2007    2008

Trading Systems

   $ 84    $ 164

Capital Markets

     63      81

Banks & Corporations

     72      74

Wealth Management

     60      65

Brokerage & Clearance

     61      62

Institutional Asset Management

     54      55

Employee Administration

     41      46

All other

     108      140
             

Total Financial Systems

   $ 543    $ 687
             

The operating results for HE and PS, reported as a combined HE & PS segment in each of the 2007 quarters, follow for 2007 by quarter (in millions):

 

     Three Months Ended
     March 31,
2007
   June 30,
2007
   September 30,
2007
   December 31,
2007
   2007

Revenue:

              

Higher education

   $ 132    $ 133    $ 131    $ 147    $ 543

Public Sector

     99      100      100      111      410
                                  
   $ 231    $ 233    $ 231    $ 258    $ 953
                                  

Depreciation and amortization:

              

Higher education

   $ 2    $ 2    $ 2    $ 2    $ 8

Public sector

     2      2      2      3      9
                                  
   $ 4    $ 4    $ 4    $ 5    $ 17
                                  

Income from operations:

              

Higher education (1)

   $ 29    $ 35    $ 35    $ 44    $ 143

Public sector (2)

     21      19      22      22      84
                                  
   $ 50    $ 54    $ 57    $ 66    $ 227
                                  

Cash paid for property and equipment and software:

              

Higher education

   $ 4    $ 4    $ 6    $ 7    $ 21

Public sector

     1      2      4      3      10
                                  
   $ 5    $ 6    $ 10    $ 10    $ 31
                                  

 

(1) Excludes amortization of acquisition-related intangible assets of $9 million, $8 million, $9 million and $9 million for the three months ended March 31, 2007, June 30, 2007, September 30, 2007 and December 31, 2007, respectively and $35 million for 2007.

 

(2) Excludes amortization of acquisition-related intangible assets of $8 million, $9 million, $10 million and $13 million for the three months ended March 31, 2007, June 30, 2007, September 30, 2007 and December 31, 2007, respectively and $40 million for 2007.

 

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Amortization of acquisition-related intangible assets for HE and PS for 2007 by quarter follows (in millions):

 

     Three Months Ended
     March 31,
2007
   June 30,
2007
   September 30,
2007
   December 31,
2007
   2007

Amortization of acquisition-related intangible assets:

              

Higher education

   $ 9    $ 8    $ 9    $ 9    $ 35

Public sector

     8      9      10      13      40
                                  
   $ 17    $ 17    $ 19    $ 22    $ 75
                                  

9. Related Party Transactions:

In accordance with the Management Agreement between the Company and affiliates of the Sponsors, the Company recorded $3 million and $4 million of management fees in sales, marketing and administration expenses during the three months ended March 31, 2007 and 2008, respectively. At each of December 31, 2007 and March 31, 2008, $4 million was included in other accrued expenses.

10. Supplemental Guarantor Condensed Consolidating Financial Statements:

On August 11, 2005, in connection with the Transaction, the Company issued $3.0 billion aggregate principal amount of the outstanding senior notes and the outstanding senior subordinated notes. The senior notes are jointly and severally, fully and unconditionally guaranteed on a senior unsecured basis and the senior subordinated notes are jointly and severally, fully and unconditionally guaranteed on an unsecured senior subordinated basis, in each case, subject to certain exceptions, by substantially all wholly owned domestic subsidiaries of the Company (collectively, the “Guarantors”). Each of the Guarantors is 100% owned, directly or indirectly, by the Company. None of the other subsidiaries of the Company, either direct or indirect, guarantee the senior notes and senior subordinated notes (“Non-Guarantors”). The Guarantors also unconditionally guarantee the senior secured credit facilities.

 

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Table of Contents

The following tables present the financial position, results of operations and cash flows of the Company (“Parent”), the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries and Eliminations as of December 31, 2007 and March 31, 2008 and for each of the three month periods ended March 31, 2007 and 2008, to arrive at the information for SunGard Data Systems Inc. on a consolidated basis.

 

     Supplemental Condensed Consolidating Balance Sheet

(in millions)

   December 31, 2007
     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated

Assets

          

Current:

          

Cash and cash equivalents

   $ 39     $ 2     $ 386     $ —       $ 427

Intercompany balances

     (4,616 )     4,628       (12 )     —         —  

Trade receivables, net

     (1 )     74       280       —         353

Prepaid expenses, taxes and other current assets

     1,416       98       784       (1,388 )     910
                                      

Total current assets

     (3,162 )     4,802       1,438       (1,388 )     1,690

Property and equipment, net

     1       562       289       —         852

Intangible assets, net

     153       4,420       639       —         5,212

Intercompany balances

     684       (720 )     36       —         —  

Goodwill

     —         6,120       966       —         7,086

Investment in subsidiaries

     13,205       2,120       —         (15,325 )     —  
                                      

Total Assets

   $ 10,881     $ 17,304     $ 3,368     $ (16,713 )   $ 14,840
                                      

Liabilities and Stockholder’s Equity

          

Current:

          

Short-term and current portion of long-term debt

   $ 40     $ 6     $ 9     $ —       $ 55

Accounts payable and other current liabilities

     264       2,222       1,055       (1,388 )     2,153
                                      

Total current liabilities

     304       2,228       1,064       (1,388 )     2,208

Long-term debt

     7,049       10       371       —         7,430

Intercompany debt

     (5 )     330       (166 )     (159 )     —  

Deferred income taxes

     (23 )     1,531       138       —         1,646
                                      

Total liabilities

     7,325       4,099       1,407       (1,547 )     11,284
                                      

Total stockholder’s equity

     3,556       13,205       1,961       (15,166 )     3,556
                                      

Total Liabilities and Stockholder’s Equity

   $ 10,881     $ 17,304     $ 3,368     $ (16,713 )   $ 14,840
                                      

 

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Table of Contents
     Supplemental Condensed Consolidating Balance Sheet

(in millions)

   March 31, 2008
      Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated

Assets

          

Current:

          

Cash and cash equivalents

   $ 34     $ (18 )   $ 411     $ —       $ 427

Intercompany balances

     (4,813 )     4,868       (55 )     —         —  

Trade receivables, net

     4       65       301       —         370

Prepaid expenses, taxes and other current assets

     1,475       95       876       (1,474 )     972
                                      

Total current assets

     (3,300 )     5,010       1,533       (1,474 )     1,769

Property and equipment, net

     1       577       291       —         869

Intangible assets, net

     168       4,349       690       —         5,207

Intercompany balances

     680       (719 )     39       —         —  

Goodwill

     —         6,111       997       —         7,108

Investment in subsidiaries

     13,377       2,274       —         (15,651 )     —  
                                      

Total Assets

   $ 10,926     $ 17,602     $ 3,550     $ (17,125 )   $ 14,953
                                      

Liabilities and Stockholder’s Equity

          

Current:

          

Short-term and current portion of long-term debt

   $ 286     $ 7     $ 20     $ —       $ 313

Accounts payable and other current liabilities

     204       2,308       1,112       (1,474 )     2,150
                                      

Total current liabilities

     490       2,315       1,132       (1,474 )     2,463

Long-term debt

     6,941       12       369       —         7,322

Intercompany debt

     (6 )     368       (206 )     (156 )     —  

Deferred income taxes

     (42 )     1,530       137       —         1,625
                                      

Total liabilities

     7,383       4,225       1,432       (1,630 )     11,410
                                      

Total stockholder’s equity

     3,543       13,377       2,118       (15,495 )     3,543
                                      

Total Liabilities and Stockholder’s Equity

   $ 10,926     $ 17,602     $ 3,550     $ (17,125 )   $ 14,953
                                      

 

     Supplemental Condensed Consolidating Schedule of Operations  

(in millions)

   Three Months Ended March 31, 2007  
     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Total revenue

   $ —       $ 802     $ 344     $ (30 )   $ 1,116  
                                        

Costs and expenses:

          

Cost of sales and direct operating

     —         366       189       (30 )     525  

Sales, marketing and administration

     23       132       85       —         240  

Product development

     —         51       23       —         74  

Depreciation and amortization

     —         43       16       —         59  

Amortization of acquisition-related intangible assets

     1       86       17       —         104  
                                        
     24       678       330       (30 )     1,002  
                                        

Income (loss) from operations

     (24 )     124       14       —         114  

Net interest income (expense)

     (157 )     (3 )     —         —         (160 )

Other income (expense)

     11       3       (9 )     (42 )     (37 )
                                        

Income (loss) before income taxes

     (170 )     124       5       (42 )     (83 )

Provision (benefit) for income taxes

     (74 )     85       2       —         13  
                                        

Net income (loss)

   $ (96 )   $ 39     $ 3     $ (42 )   $ (96 )
                                        

 

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Table of Contents
     Supplemental Condensed Consolidating Schedule of Operations  

(in millions)

   Three Months Ended March 31, 2008  
     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Total revenue

   $ —       $ 888     $ 468     $ (54 )   $ 1,302  
                                        

Costs and expenses:

          

Cost of sales and direct operating

     —         419       278       (54 )     643  

Sales, marketing and administration

     24       154       99       —         277  

Product development

     —         46       33       —         79  

Depreciation and amortization

     —         49       18       —         67  

Amortization of acquisition-related intangible assets

     1       92       19       —         112  
                                        
     25       760       447       (54 )     1,178  
                                        

Income (loss) from operations

     (25 )     128       21       —         124  

Net interest income (expense)

     (144 )     (15 )     16       —         (143 )

Other income (expense)

     86       13       (20 )     (100 )     (21 )
                                        

Income (loss) before income taxes

     (83 )     126       17       (100 )     (40 )

Provision (benefit) for income taxes

     (61 )     39       4       —         (18 )
                                        

Net income (loss)

   $ (22 )   $ 87     $ 13     $ (100 )   $ (22 )
                                        

 

    

Supplemental Condensed Consolidating Schedule of Cash Flows

 

(in millions)

   Three Months Ended March 31, 2007  
     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash Flow From Operations

          

Net income (loss)

   $ (96 )   $ 39     $ 3     $ (42 )   $ (96 )

Non-cash adjustments

     (16 )     109       34       42       169  

Changes in operating assets and liabilities

     (710 )     573       52       —         (85 )
                                        

Cash flow provided by (used in) operations

     (822 )     721       89       —         (12 )
                                        

Investment Activities

          

Intercompany transactions

     696       (664 )     (32 )     —         —    

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

     —         (13 )     —         —         (13 )

Cash paid for property and equipment and software

     —         (45 )     (24 )     —         (69 )

Other investing activities

     —         (1 )     (3 )     —         (4 )
                                        

Cash provided by (used in) investment activities

     696       (723 )     (59 )     —         (86 )
                                        

Financing Activities

          

Net borrowings (repayments) of long-term debt

     91       (2 )     —         —         89  
                                        

Cash provided by (used in) financing activities

     91       (2 )     —         —         89  
                                        

Effect of exchange rate changes on cash

     —         —         (2 )     —         (2 )
                                        

Increase (decrease) in cash and cash equivalents

     (35 )     (4 )     28       —         (11 )

Beginning cash and cash equivalents

     56       (19 )     279       —         316  
                                        

Ending cash and cash equivalents

   $ 21     $ (23 )   $ 307     $ —       $ 305  
                                        

 

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Table of Contents
     Supplemental Condensed Consolidating Schedule of Cash Flows  

(in millions)

   Three Months Ended March 31, 2008  
     Parent     Guarantor     Non-Guarantor              
     Company     Subsidiaries     Subsidiaries     Eliminations     Consolidated  

Cash Flow From Operations

          

Net income (loss)

   $ (22 )   $ 87     $ 13     $ (100 )   $ (22 )

Non cash adjustments

     (71 )     100       52       100       181  

Changes in operating assets and liabilities

     (174 )     135       (92 )       (131 )
                                        

Cash flow provided by (used in) operations

     (267 )     322       (27 )     —         28  
                                        

Investment Activities

          

Intercompany transactions

     137       (219 )     82       —         —    

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

     —         (64 )     —         —         (64 )

Cash paid for property and equipment and software

     —         (63 )     (21 )     —         (84 )

Other investing activities

     —         —         —         —         —    
                                        

Cash provided by (used in) investment activities

     137       (346 )     61       —         (148 )
                                        

Financing Activities

          

Net borrowings (repayments) of long-term debt

     135       4       (18 )     —         121  

Other financing activities

     (10 )     —         —         —         (10 )
                                        

Cash provided by (used in) financing activities

     125       4       (18 )     —         111  
                                        

Effect of exchange rate changes on cash

     —         —         9       —         9  
                                        

Increase (decrease) in cash and cash equivalents

     (5 )     (20 )     25       —         —    

Beginning cash and cash equivalents

     39       2       386       —         427  
                                        

Ending cash and cash equivalents

   $ 34     $ (18 )   $ 411     $ —       $ 427  
                                        

 

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

Introduction

The following discussion and analysis supplement the management’s discussion and analysis in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and presume that readers have read or have access to the discussion and analysis in our Annual Report. The following discussion and analysis includes historical and certain forward-looking information that should be read together with the accompanying Consolidated Financial Statements, related footnotes, and the discussion below of certain risks and uncertainties that could cause future operating results to differ materially from historical results or from the expected results indicated by forward-looking statements.

Results of Operations:

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

 

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Table of Contents
     Three Months
Ended
    Three Months
Ended
    Percent
Increase
(Decrease)
 
     March 31,
2007
    March 31,
2008
    2008 vs.
2007
 
           percent of
revenue
          percent of
revenue
       

(in millions)

          

Revenue

          

Financial systems (FS)

   $ 543     49 %   $ 687     53 %   27 %

Higher education (HE)

     132     12 %     126     10 %   (5 %)

Public sector (PS)

     99     9 %     101     8 %   2 %
                      

Software & processing solutions

     774     69 %     914     70 %   18 %

Availability services (AS)

     342     31 %     388     30 %   13 %
                      
   $ 1,116     100 %   $ 1,302     100 %   17 %
                      

Costs and Expenses

          

Cost of sales and direct operating

   $ 525     47 %   $ 643     49 %   22 %

Sales, marketing and administration

     240     22 %     277     21 %   15 %

Product development

     74     7 %     79     6 %   7 %

Depreciation and amortization

     59     5 %     67     5 %   14 %

Amortization of acquisition-related intangible assets

     104     9 %     112     9 %   8 %
                      
   $ 1,002     90 %   $ 1,178     90 %   18 %
                      

Income from Operations

          

Financial systems (1)

   $ 100     18 %   $ 121     18 %   21 %

Higher education (1)

     29     22 %     24     19 %   (17 %)

Public sector (1)

     21     21 %     18     18 %   (14 %)
                      

Software & processing solutions (1)

     150     19 %     163     18 %   9 %

Availability services (1)

     87     25 %     101     26 %   16 %

Corporate administration

     (13 )   (1 )%     (12 )   (1 )%   (8 %)
                      

Adjusted Income from Operations (2)

     224     20 %     252     19 %   13 %

Amortization of acquisition-related intangible assets

     (104 )   (9 )%     (112 )   (9 )%   8 %

Stock Compensation expense

     (6 )   (1 )%     (7 )   (1 )%   17 %

Other items (3)

     —       —   %     (9 )   (1 )%   —   %
                      
   $ 114     10 %   $ 124     10 %   9 %
                      

 

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

 

(2) We evaluate the performance of our segments based on adjusted income from operations, which is income from operations before amortization of acquisition-related intangible assets, stock compensation and certain other costs (see Note 8 of Notes to the Consolidated Financial Statements).

 

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

 

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Table of Contents

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

 

     Three Months
Ended

March 31,
2007
    Three Months
Ended

March 31,
2008
    Percent
Increase
(Decrease)

2008 vs. 2007
 
      
      
(in millions)         percent of
revenue
         percent of
revenue
       

Financial Systems

            

Services

   $ 491    44 %   $ 615    47 %   25 %

License and resale fees

     29    3 %     34    3 %   17 %
                    

Total products and services

     520    47 %     649    50 %   25 %

Reimbursed expenses

     23    2 %     38    3 %   65 %
                    
   $ 543    49 %   $ 687    53 %   27 %
                    

Higher Education

            

Services

   $ 111    10 %   $ 110    8 %   (1 %)

License and resale fees

     19    2 %     14    1 %   (26 %)
                    

Total products and services

     130    12 %     124    10 %   (5 %)

Reimbursed expenses

     2    —   %     2    —   %   —   %
                    
   $ 132    12 %   $ 126    10 %   (5 %)
                    

Public Sector

            

Services

   $ 85    8 %   $ 89    7 %   5 %

License and resale fees

     13    1 %     11    1 %   (15 %)
                    

Total products and services

     98    9 %     100    8 %   2 %

Reimbursed expenses

     1    —   %     1    —   %   —   %
                    
   $ 99    9 %   $ 101    8 %   2 %
                    

Software & Processing Solutions

            

Services

   $ 687    62 %   $ 814    63 %   18 %

License and resale fees

     61    5 %     59    5 %   (3 %)
                    

Total products and services

     748    67 %     873    67 %   17 %

Reimbursed expenses

     26    2 %     41    3 %   58 %
                    
   $ 774    69 %   $ 914    70 %   18 %
                    

Availability Services

            

Services

   $ 335    30 %   $ 384    29 %   15 %

License and resale fees

     4    —   %     —      —   %   (100 %)
                    

Total products and services

     339    30 %     384    29 %   13 %

Reimbursed expenses

     3    —   %     4    —   %   33 %
                    
   $ 342    31 %   $ 388    30 %   13 %
                    

Total Revenue

            

Services

   $ 1,022    92 %   $ 1,198    92 %   17 %

License and resale fees

     65    6 %     59    5 %   (9 %)
                    

Total products and services

     1,087    97 %     1,257    97 %   16 %

Reimbursed expenses

     29    3 %     45    3 %   55 %
                    
   $ 1,116    100 %   $ 1,302    100 %   17 %
                    

 

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Table of Contents

Income from Operations:

Our total operating margin was 10% for the three months ended March 31, 2008, unchanged from the three months ended March 31, 2007.

Financial Systems:

The FS operating margin was 18% for each of the three months ended March 31, 2008 and 2007. The increase of $21 million is primarily related to improvement in operating leverage in services revenue and a $4 million increase in software license fees, partially offset by the impact of recently acquired businesses which tend to have lower operating margins at the outset and improve over a number of years.

Higher Education:

The HE operating margin was 19% and 22% for the three months ended March 31, 2008 and 2007, respectively. The operating margin decline and the decrease of $5 million are due primarily to a $4 million decrease in software license fees.

Public Sector:

The PS operating margin was 18% and 21% for the three months ended March 31, 2008 and 2007, respectively. The operating margin decline and the decrease of $3 million are due primarily to a $2 million decrease in software license fees.

Availability Services:

The AS operating margin was 26% and 25% for the three months ended March 31, 2008 and 2007, respectively. The increase of $14 million is primarily due to improved operating profit contribution.

Revenue:

Total revenue increased $186 million or 17% for the three months ended March 31, 2008 compared to the first quarter of 2007. The increase in total revenue in 2008 is due primarily to organic revenue growth of approximately 13%, with trading volumes of one of our trading systems businesses adding six percentage points to the growth rate and changes in currency exchange rates adding one percentage point overall and in each affected segment. Excluding these items, organic revenue would have increased by six percent. Organic revenue is defined as revenue for businesses owned for at least one year and further adjusted for the effects of businesses sold in the previous twelve months. When assessing our financial results, we focus on growth in organic revenue because overall revenue growth is affected by the timing and magnitude of acquisitions and dispositions.

Financial Systems:

FS revenue increased $144 million or 27% in 2008. Organic revenue growth was approximately 23% in the first quarter of 2008, with trading volumes of one of our trading systems businesses adding $61 million or 12 percentage points to the growth rate, which exceeded our expectations for the quarter and the future. Excluding this business, organic revenue growth would have been 11%. Professional services revenue increased $24 million or 18%. Revenue from license and resale fees included software license revenue of $30 million and $26 million in the three months ended March 31, 2008 and 2007, respectively.

Higher Education:

Revenue from HE decreased $6 million or 5% for the three months ended March 31, 2008 compared to the corresponding period in 2007 due entirely to a decline in organic revenue. HE services revenue decreased $1 million, primarily due to revenue associated with a customer conference held in the first quarter of 2007 that will be held in the second quarter of 2008 mostly offset by an increase in professional services. Revenue from license and resale fees included software license revenue of $4 million in the three months ended March 31, 2008, a decrease of $4 million from the prior year period.

Public Sector:

Revenue from PS increased $2 million or 2% for the three months ended March 31, 2008 compared to the corresponding period in 2007. Organic revenue growth was 1% in the first quarter of 2008. PS services revenue increased

 

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$4 million, primarily due to maintenance and support revenue resulting from software license contracts signed in the previous twelve months, partially offset by a decrease in professional services. Revenue from license and resale fees included software license revenue of $5 million in the three months ended March 31, 2008, a decrease of $2 million from the prior year period.

Availability Services:

AS revenue increased $46 million or 13% in 2008. Organic revenue increased approximately 8%. In North America, revenue grew 13% overall and 5% organically resulting from growth in managed services. Revenue in Europe grew 15%, 11% excluding the impact of currency exchange rates.

Costs and Expenses:

Cost of sales and direct operating expenses as a percentage of total revenue was 49% and 47% in the three-month periods ended March 31, 2008 and 2007, respectively. The increase of $118 million was due primarily to increased costs related to the higher volumes in one of our trading systems businesses and from an increase in FS employee-related expenses supporting increased services revenue.

Sales, marketing and administration expenses as a percentage of total revenue was 21% and 22% in the three-month periods ended March 31, 2008 and 2007, respectively. The increase in sales, marketing and administration expenses of $37 million, or 15%, was due primarily to FS employee-related expenses and increased costs resulting from acquired businesses.

Because AS product development costs are insignificant, it is more meaningful to measure product development expenses as a percentage of revenue from software and processing solutions. For the three months ended March 31, 2008 and 2007, product development costs were 9% and 10% of revenue from software and processing solutions, respectively.

Depreciation and amortization as a percentage of total revenue was 5% in each of the three-month periods ended March 31, 2008 and 2007. The $8 million increase in 2008 was due primarily to capital expenditures supporting AS and from the AS business acquired in the third quarter of 2007.

Interest expense was $148 million and $165 million for the three months ended March 31, 2008 and 2007, respectively. The decrease in interest expense was due primarily to the redemption of the senior floating rate notes in 2007 and from interest rate decreases.

Other expense was $21 million and $37 million for the three months ended March 31, 2008 and 2007, respectively. The decrease is attributable to $28 million of expense in the first quarter of 2007 associated with the redemption of the $400 million of senior floating rate notes due 2013, of which $19 million represented the redemption premium paid to noteholders, partially offset by a $16 million increase in the first quarter of 2008 of foreign currency translation losses primarily related to our Euro denominated term loan.

The effective income tax rates in the three months ended March 31, 2008 and 2007 were 45% and -16%, respectively. The rate in the first quarter of 2007 reflects the combination of our overall projected net loss and limitations on our ability to utilize certain foreign tax credits.

Liquidity and Capital Resources:

At March 31, 2008, cash and equivalents were $427 million, unchanged from December 31, 2007. Cash flow provided by operations was $28 million in the three months ended March 31, 2008 compared to cash flow used in operations of $12 million in the three months ended March 31, 2007. The improvement in cash flow from operations is due primarily to reduced interest payments as a result of the redemption of the senior floating rate notes due 2013, including the redemption premium paid to noteholders, and decreases in interest rates on our variable rate debt, partially offset by higher incentive compensation payments.

Net cash used in investing activities was $148 million in the three months ended March 31, 2008, comprised of cash paid for property and equipment and other assets and two businesses acquired in our FS segment.

Net cash provided by financing activities was $111 million for the three months ended March 31, 2008, primarily related to borrowings under the revolving credit facility primarily to meet seasonally high working capital requirements related to payment of annual incentive compensation and interest. At March 31, 2008, there was $175 million outstanding under this facility. During the three months ended March 31, 2008, we entered into two interest rate swap agreements,

 

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each with a notional amount of $750 million, which expire in February 2010 (2.71%) and February 2011 (3.17%) whereby we pay a fixed rate of interest and receive LIBOR from the counterparty.

At March 31, 2008, contingent purchase price obligations that depend upon the operating performance of certain acquired businesses could total $108 million, of which $41 million could be due in the next 12 months. Of this amount, we currently expect to pay approximately $1 million. We also have outstanding letters of credit and bid bonds that total approximately $28 million.

At March 31, 2008, we have outstanding $7.63 billion in aggregate indebtedness, with additional borrowing capacity of $824 million under our revolving credit facility (after giving effect to outstanding letters of credit). Also, at March 31, 2008, we have used the full amount available under our $450 million off-balance sheet accounts receivable securitization facility.

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

Covenant Compliance

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

The breach of covenants in our senior secured credit facilities that are tied to ratios based on Adjusted EBITDA could result in a default under that agreement and the lenders could elect to declare all amounts borrowed due and payable. Any such acceleration would also result in a default under our indentures. 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 Adjusted EBITDA.

Adjusted EBITDA is calculated as follows:

 

     Three Months Ended March 31,    

Last Twelve
Months

March 31,

 
    
     2007     2008     2008  

Net income (loss)

   $ (96 )   $ (22 )   $ 14  

Interest expense, net

     160       143       609  

Taxes

     13       (18 )     (34 )

Depreciation and amortization

     163       179       705  
                        

EBITDA

     240       282       1,294  

Purchase accounting adjustments (a)

     1       11       24  

Non-cash charges (b)

     8       6       35  

Unusual or non-recurring charges (c)

     30       1       14  

Acquired EBITDA, net of disposed EBITDA (d)

     (4 )     (2 )     14  

Other (e)

     6       20       52  
                        

Adjusted EBITDA — senior secured credit facilities

     281       318       1,433  

Loss on sale of receivables (f)

     7       4       26  
                        

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

   $ 288     $ 322     $ 1,459  
                        

 

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

 

(b) Non-cash charges include stock-based compensation accounted for under SFAS 123R and loss on the sale of assets.

 

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

 

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

 

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

 

(f) The loss on sale of receivables under the long-term receivables facility is added back in calculating Adjusted EBITDA for purposes of the indentures governing the senior notes due 2013 and the senior subordinated notes due 2015 but is not added back in calculating Adjusted EBITDA for purposes of the senior secured credit facilities.

Our covenant requirements and actual ratios for the twelve months ended March 31, 2008 are as follows:

 

     Covenant
Requirements
   Actual
Ratios
     

Senior secured credit facilities (1)

     

Minimum Adjusted EBITDA to consolidated interest expense ratio

   1.60x    2.50x

Maximum total debt to Adjusted EBITDA

   7.25x    5.09x

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

     

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

   2.00x    2.51x

 

(1) Our senior secured credit facilities require us to maintain an Adjusted EBITDA to consolidated interest expense ratio starting at a minimum of 1.60x for the four-quarter period ended December 31, 2007, which increases annually to 1.65x by the end of 2008 and 2.20x by the end of 2013. Consolidated interest expense is defined in the senior secured credit facilities as consolidated cash interest expense less cash interest income further adjusted for certain non-cash or non-recurring interest expense and the elimination of interest expense and fees associated with our accounts receivable securitization facility. Beginning with the four-quarter period ending December 31, 2007, we are required to maintain a consolidated total debt to Adjusted EBITDA ratio of 7.25x, which decreases annually to 6.75x by the end of 2008 and to 4.0x by the end of 2013. Consolidated total debt is defined in the senior secured credit facilities as total debt less certain indebtedness and further adjusted for cash and cash equivalents on our balance sheet in excess of $50 million. Failure to satisfy these ratio requirements would constitute a default under the senior secured credit facilities. If our lenders failed to waive any such default, our repayment obligations under the senior secured credit facilities could be accelerated, which would also constitute a default under our indentures.

 

(2) Our ability to incur additional debt and make certain restricted payments under our indentures, subject to specified exceptions, is tied to an Adjusted EBITDA to fixed charges ratio of at least 2.0x, except that we may incur certain debt and make certain restricted payments and certain permitted investments without regard to the ratio, such as our ability to incur up to an aggregate principal amount of $6.15 billion under credit facilities (inclusive of amounts outstanding under our senior credit facilities from time to time; as of March 31, 2008, we had $4.35 billion outstanding under our term loan facilities and available commitments of $824 million under our revolving credit facility), to acquire persons engaged in a similar business that become restricted subsidiaries and to make other investments equal to 6% of our consolidated assets. Fixed charges is defined in the indentures governing the Senior Notes due 2013 and the Senior Subordinated Notes due 2015 as consolidated interest expense less interest income, adjusted for acquisitions, and further adjusted for non-cash interest and the elimination of interest expense and fees associated with our accounts receivable securitization facility.

 

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Certain Risks and Uncertainties

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

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk:

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

At March 31, 2008, we had total debt of $7.63 billion, including $4.52 billion of variable rate debt. We have entered into four interest rate swap agreements which fixed the interest rates for $3.1 billion of our variable rate debt. Two of our swap agreements each have a notional value of $800 million and, effectively, fix our interest rates at 4.85% and 5.00%, respectively, and expire in February 2009 and February 2011, respectively. The remaining two swap agreements each have a notional value of $750 million and, effectively, fix our interest rates at 2.71% and 3.17%, respectively, and expire in February 2010 and February 2011, respectively. Our remaining variable rate debt of $1.42 billion is subject to changes in underlying interest rates, and, accordingly, our interest payments will fluctuate. During the period when all of our interest rate swap agreements are effective, a 1% change in interest rates would result in a change in interest of approximately $14 million per year. Upon the expiration of each interest rate swap agreement in February 2009, February 2010 and February 2011, a 1% change in interest rates would result in a change in interest of approximately $22 million, $30 million and $45 million per year, respectively.

 

Item 4T. Controls and Procedures:

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

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

 

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Part II Other Information:

 

Item 1. Legal Proceedings: None.

 

Item 1A. Risk Factors: There have been no material changes to our Risk Factors as previously disclosed in our Form 10-K for the year ended December 31, 2007.

 

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

 

Item 3. Defaults Upon Senior Securities: None.

 

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

 

Item 5. Other Information:

(a) None.

(b) None.

 

Item 6. Exhibits:

 

Number

  

Document

12.1    Computation of Ratio of Earnings to Fixed Charges.
31.1    Certification of Cristóbal Conde required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002.
31.2    Certification of Michael J. Ruane required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002.
32.1    Certification of Cristóbal Conde required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002.
32.2    Certification of Michael J. Ruane required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002.

 

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SIGNATURES

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

 

  SUNGARD DATA SYSTEMS INC.
Dated: May 13, 2008   By:   /s/ Michael J. Ruane
    Michael J. Ruane
    Senior Vice President-Finance and Chief Financial Officer
    (Principal Financial Officer)

 

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EXHIBIT INDEX

 

Exhibit No.

  

Document

12.1    Computation of Ratio of Earnings to Fixed Charges.
31.1    Certification of Cristóbal Conde required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002.
31.2    Certification of Michael J. Ruane required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002.
32.1    Certification of Cristóbal Conde required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002.
32.2    Certification of Michael J. Ruane required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002

 

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Exhibit 12.1

SunGard Data Systems Inc.

Computation of Ratio of Earnings to Fixed Charges (Unaudited)

($ in millions)

 

     Three Months Ended March 31,  
     2007     2008  

Fixed charges (a)

    

Interest expense

   $ 156     $ 139  

Amortization of debt issuance costs and debt discount

     9       9  

Portion of rental expense representative of interest

     16       18  
                

Total fixed charges

   $ 181     $ 166  
                

Earnings

    

Income (loss) before income taxes

   $ (83 )   $ (40 )

Fixed charges per above

     181       166  
                

Total earnings

   $ 98     $ 126  
                

Ratio of earnings to fixed charges

     *       *  

 

* Earnings for the three months ended March 31, 2007 and 2008 were inadequate to cover fixed charges by $83 million and $40 million, respectively.

 

(a) Fixed charges for 2007 excludes approximately $28 million of expense associates with the redemption of the $400 million of senior floating rate notes due 2013.


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Exhibit 31.1

Certification of Cristóbal Conde

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

Section 302 of the Sarbanes-Oxley Act of 2002

I, Cristóbal Conde, certify that:

1. I have reviewed this quarterly report on Form 10-Q of SunGard Data Systems Inc.;

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

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

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

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

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

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

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

Date: May 13, 2008

 

/s/ Cristóbal Conde
Cristóbal Conde
President and Chief Executive Officer


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Exhibit 31.2

Certification of Michael J. Ruane

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

Section 302 of the Sarbanes-Oxley Act of 2002

I, Michael J. Ruane, certify that:

1. I have reviewed this quarterly report on Form 10-Q of SunGard Data Systems Inc.;

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

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

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

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

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

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

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

Date: May 13, 2008

 

/s/ Michael J. Ruane
Michael J. Ruane
Senior Vice President-Finance and Chief Financial Officer


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Exhibit 32.1

Certification of Cristóbal Conde

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

Section 906 of the Sarbanes-Oxley Act of 2002

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

1. The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2008 (the “Periodic Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

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

Dated: May 13, 2008

 

/s/ Cristóbal Conde
Cristóbal Conde
Chief Executive Officer

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


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Exhibit 32.2

Certification of Michael J. Ruane

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

Section 906 of the Sarbanes-Oxley Act of 2002

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

1. The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2008 (the “Periodic Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

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

Dated: May 13, 2008

 

/s/ Michael J. Ruane
Michael J. Ruane
Chief Financial Officer

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