10-Q 1 y89367e10vq.txt SS&C TECHNOLOGIES, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 000-28430 SS&C TECHNOLOGIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 06-1169696 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 80 LAMBERTON ROAD WINDSOR, CT 06095 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) 860-298-4500 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $.01 PAR VALUE PER SHARE Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] Number of shares outstanding of the issuer's classes of common stock as of August 8, 2003:

Class Number of Shares Outstanding ----- ---------------------------- Common Stock, par value $0.01 per share 12,323,558

SS&C TECHNOLOGIES, INC. INDEX

Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets at June 30, 2003 and December 31, 2002 2 Consolidated Statements of Operations for the three months and six months ended June 30, 2003 and 2002 3 Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 14 Item 4. Controls and Procedures 14 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 15 Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURE 17 EXHIBIT INDEX 18

This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects" and similar expressions are intended to identify forward-looking statements. The important factors discussed below under the caption "Certain Factors That May Affect Future Operating Results," among others, could cause actual results to differ materially from those indicated by forward-looking statements made herein and presented elsewhere by management from time to time. The Company does not undertake an obligation to update its forward-looking statements to reflect future events or circumstances. 1 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited)

June 30, December 31, 2003 2002 -------- ----------- ASSETS Current assets Cash and cash equivalents $ 19,148 $ 18,336 Investments in marketable securities 27,047 23,383 Accounts receivable, net of allowance for doubtful accounts 10,735 10,983 Prepaid expenses and other current assets 747 1,065 Deferred income taxes 987 1,142 -------- -------- Total current assets 58,664 54,909 -------- -------- Property and equipment Leasehold improvements 3,307 3,301 Equipment, furniture, and fixtures 16,434 16,144 -------- -------- 19,741 19,445 Less accumulated depreciation (14,754) (13,700) -------- -------- Net property and equipment 4,987 5,745 -------- -------- Deferred income taxes 6,681 6,762 Goodwill 2,432 2,355 Intangible and other assets, net of accumulated amortization 4,908 5,709 -------- -------- Total assets $ 77,672 $ 75,480 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 925 $ 844 Income taxes payable 938 646 Accrued employee compensation and benefits 1,871 3,462 Other accrued expenses 1,905 2,044 Deferred maintenance and other revenue 14,733 11,214 -------- -------- Total current liabilities 20,372 18,210 -------- -------- Stockholders' equity Common stock 174 170 Additional paid-in capital 98,656 95,324 Accumulated other comprehensive income (loss) 316 (735) Retained earnings (deficit) 3,297 (1,767) -------- -------- 102,443 92,992 Less: treasury shares (45,143) (35,722) -------- -------- Total stockholders' equity 57,300 57,270 -------- -------- Total liabilities and stockholders' equity $ 77,672 $ 75,480 ======== ========

See accompanying notes to Consolidated Financial Statements. 2 SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)

Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2003 2002 2003 2002 ------- ------- ------- ------- Revenues: Software licenses $ 3,723 $ 4,172 $ 7,105 $ 7,377 Maintenance 7,715 6,812 15,333 13,627 Professional services 1,262 1,575 2,919 3,515 Outsourcing 3,206 3,313 6,287 6,568 ------- ------- ------- ------- Total revenues 15,906 15,872 31,644 31,087 ------- ------- ------- ------- Cost of revenues: Software licenses 423 305 942 628 Maintenance 1,504 1,394 2,992 2,824 Professional services 1,117 1,340 2,271 2,732 Outsourcing 2,046 2,193 4,028 4,345 ------- ------- ------- ------- Total cost of revenues 5,090 5,232 10,233 10,529 ------- ------- ------- ------- Gross profit 10,816 10,640 21,411 20,558 ------- ------- ------- ------- Operating expenses: Selling and marketing 2,036 2,475 4,141 5,135 Research and development 2,876 3,104 5,879 5,965 General and administrative 1,731 1,945 3,653 3,937 Write-off of purchased in-process research and development - - - 1,744 ------- ------- ------- ------- Total operating expenses 6,643 7,524 13,673 16,781 ------- ------- ------- ------- Operating income 4,173 3,116 7,738 3,777 Interest income 235 399 484 841 Other income (expense), net 74 (854) 79 (399) ------- ------- ------- ------- Income before income taxes 4,482 2,661 8,301 4,219 Provision for income taxes 1,748 1,064 3,238 1,687 ------- ------- ------- ------- Net income $ 2,734 $ 1,597 $ 5,063 $ 2,532 ======= ======= ======= ======= Basic earnings per share $ 0.22 $ 0.13 $ 0.41 $ 0.19 ======= ======= ======= ======= Basic weighted average number of common shares outstanding 12,340 12,654 12,478 13,279 ======= ======= ======= ======= Diluted earnings per share $ 0.21 $ 0.12 $ 0.38 $ 0.18 ======= ======= ======= ======= Diluted weighted average number of common and common equivalent shares outstanding 13,153 13,507 13,198 13,979 ======= ======= ======= =======

See accompanying notes to Consolidated Financial Statements. 3 SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)

Six Months Ended June 30, June 30, 2003 2002 -------- -------- Cash flow from operating activities: Net income $ 5,063 $ 2,532 -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,870 2,147 Net realized losses (gains) on marketable securities (88) 368 Loss on sale or disposal of property and equipment 12 1 Deferred income taxes 236 373 Purchased in-process research and development - 1,744 Provision for doubtful accounts 477 245 Changes in operating assets and liabilities: Accounts receivable (182) (1,092) Prepaid expenses and other assets 314 237 Accounts payable 80 (243) Accrued expenses (1,756) (1,013) Taxes payable 283 (419) Deferred maintenance and other revenues 3,419 4,178 -------- -------- Total adjustments 4,665 6,526 -------- -------- Net cash provided by operating activities 9,728 9,058 -------- -------- Cash flow from investing activities: Additions to property and equipment (375) (329) Proceeds from sale of property and equipment - 3 Cash paid for business acquisitions, net - (3,943) Purchases of marketable securities (14,992) (5,526) Sales of marketable securities 12,245 9,109 -------- -------- Net cash used in investing activities (3,122) (686) -------- -------- Cash flow from financing activities: Repayment of debt - (146) Issuance of common stock 134 120 Exercise of options 3,202 1,166 Purchase of common stock for treasury (9,421) (24,963) -------- -------- Net cash used in financing activities (6,085) (23,823) -------- -------- Effect of exchange rate changes on cash 291 275 -------- -------- Net increase (decrease) in cash and cash equivalents 812 (15,176) Cash and cash equivalents, beginning of period 18,336 28,425 -------- -------- Cash and cash equivalents, end of period $ 19,148 $ 13,249 ======== ========

See accompanying notes to Consolidated Financial Statements. 4 SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 1. Basis of Presentation In the opinion of the management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments, except as noted elsewhere in the notes to the consolidated financial statements) necessary to present fairly its financial position as of June 30, 2003 and the results of its operations for the three months and six months ended June 30, 2003 and 2002. These statements do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements. The financial statements contained herein should be read in conjunction with the consolidated financial statements and footnotes as of and for the year ended December 31, 2002, which were included in SS&C Technologies, Inc.'s (the "Company") Annual Report on Form 10-K filed with the Securities and Exchange Commission. The December 31, 2002 consolidated balance sheet data were derived from audited financial statements, but do not include all disclosures required by generally accepted accounting principles for annual financial statements. The results of operations for the three months and six months ended June 30, 2003 are not necessarily indicative of the expected results for the full year. 2. Recent Accounting Pronouncements In December 2002, the Financial Accounting Standards Board issued SFAS No. 148, "Accounting for Stock-Based Compensation Costs - Transition and Disclosure". This statement amends SFAS No. 123, "Accounting for Stock-Based Compensation", and provides alternative methods of transition for an entity that voluntarily changes to the fair value-based method of accounting for stock-based compensation. The Company accounts for stock-based compensation in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees" and has adopted the disclosure-only alternative of SFAS No. 123. In December 2002, the Company adopted the disclosure provisions of SFAS No. 148. Accordingly, no compensation expense has been recognized for the stock option plans and employee stock purchase plan. Had compensation expense for the Company's stock option plans and employee stock purchase plan been recognized based on the fair value provisions of SFAS No. 123, the Company's net income and earnings per share would have been adjusted to the pro forma amounts indicated in the table below (in thousands except per share amounts):

Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2003 2002 2003 2002 --------- --------- --------- --------- Net income, as reported $ 2,734 $ 1,597 $ 5,063 $ 2,532 Deduct: total stock-compensation determined under fair value-based method for all awards, net of related tax effects 211 565 762 1,432 --------- --------- --------- --------- Net income, pro forma $ 2,523 $ 1,032 $ 4,301 $ 1,100 ========= ========= ========= ========= Reported net income per share Basic $ 0.22 $ 0.13 $ 0.41 $ 0.19 Diluted $ 0.21 $ 0.12 $ 0.38 $ 0.18 Pro forma net income per share Basic $ 0.20 $ 0.08 $ 0.34 $ 0.08 Diluted $ 0.19 $ 0.08 $ 0.33 $ 0.08

The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future amounts. 5 3. Basic and Diluted Earnings Per Share Earnings per share is calculated in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share". Basic earnings per share includes no dilution and is computed by dividing income available to the Company's common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares consist of stock options using the treasury stock method. Common equivalent shares are excluded from the computation of diluted earnings per share if the effect of including such common equivalent shares is antidilutive. Options to purchase 169,000 and 916,000 shares were outstanding at June 30, 2003 and 2002, respectively, but were excluded from the computation of diluted earnings per share because the effect of including the options would be antidilutive. Income available to stockholders is the same for basic and diluted earnings per share. A reconciliation of the shares outstanding is as follows (in thousands):

Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2003 2002 2003 2002 -------- -------- -------- -------- Basic weighted average shares outstanding- used in calculation of basic earnings per share 12,340 12,654 12,478 13,279 Weighted average common stock equivalents--options 813 853 720 700 ------ ------ ------ ------ Diluted weighted average shares outstanding- used in calculation of diluted earnings per share 13,153 13,507 13,198 13,979 ====== ====== ====== ======

4. Comprehensive Income SFAS No. 130, "Reporting Comprehensive Income", requires that items defined as comprehensive income, such as foreign currency translation adjustments and unrealized gains (losses) on marketable securities, be separately classified in the financial statements and that the accumulated balance of other comprehensive income be reported separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. Total comprehensive income consists of net income and other accumulated comprehensive income disclosed in the equity section of the balance sheet. The following table sets forth the components of comprehensive income (in thousands):

Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2003 2002 2003 2002 -------- -------- -------- -------- Net income $ 2,734 $ 1,597 $ 5,063 $ 2,532 Foreign currency translation gains 137 301 223 250 Unrealized gains (losses) on marketable securities 862 147 829 (673) ------- ------- ------- ------- Total comprehensive income $ 3,733 $ 2,045 $ 6,115 $ 2,109 ======= ======= ======= =======

5. Stock Repurchase Program On May 22, 2003, the Company's Board of Directors authorized the continued repurchase of shares of the Company's common stock up to an additional expenditure of $30 million. Under the repurchase programs the Company has purchased a total of 742,000 shares for approximately $9.4 million in the six months ended June 30, 2003. As of June 30, 2003, the Company had repurchased 5.1 million shares for approximately $45.1 million since the repurchase program was initiated on May 23, 2000. 6. Acquisitions On January 15, 2002, the Company acquired the assets and business of Real-Time USA, Inc. ("Real-Time"), a solution provider of sell-side fixed income applications. Real-Time delivers a comprehensive suite of front-, mid-, and back-office applications via Application Service Provider ("ASP") or license, to commercial banks and broker-dealers throughout the United States. The consideration for the deal was $3.9 million in cash and the assumption of certain liabilities by the Company, and a potential earn-out payment by the Company of up to $1.17 million in cash if certain 2002 revenue targets 6 were achieved. The revenue targets were not attained in 2002, and thus no earn-out payment was made. A summary of the allocation of the purchase price appears below. The acquisition was accounted for as a purchase and, accordingly, the net assets and results of operations of Real-Time have been included in the consolidated financial statements of the Company from January 1, 2002. The activity during the intervening period was not material. The purchase price was allocated to tangible and intangible assets, liabilities, and in-process research and development ("IPR&D") based on their fair market value on the date of the acquisition. The fair value assigned to intangible assets acquired was based on an independent appraisal. The fair value of acquired completed technology of $1.7 million was determined based on the future cash flows method. The acquired completed technology is being amortized on a straight-line basis over four years, the estimated life of the product. The Company recorded a one time write-off of $1.7 million in the three-month period ended March 31, 2002 related to the value of IPR&D acquired as part of the purchase of Real-Time that had not yet reached technological feasibility and had no alternative future use. Accordingly, these costs were expensed upon acquisition. At the acquisition date, Real-Time was developing Lightning, a full-service ASP bond accounting solution designed specifically for large regional banks. The allocation of $1.7 million to IPR&D represents the estimated fair value related to this incomplete project based on risk-adjusted cash flows adjusted to reflect the contribution of core technology. The net cash flows were then discounted utilizing a weighted average cost of capital of 26%. This discount rate takes into consideration the inherent uncertainties surrounding the successful development of the in-process research and development, the profitability levels of such technology and the potential for other competing technological advances which could potentially impact the estimates. The Lightning project was completed in 2002. On November 15, 2002, the Company acquired the assets and business of DBC, a business within The Thomson Corporation, and assumed certain liabilities. DBC is a leading provider of financial software for fixed income analysis in municipal finance in the United States. DBC products are widely used for structuring general obligation and revenue bond issues, including asset-backed housing and student loan securitizations. The consideration was $4.6 million. The acquisition was accounted for as a purchase. The net assets and results of operations of DBC have been included in the consolidated financial statements of the Company from November 1, 2002. The activity during the intervening period was not material. The purchase price was first allocated to tangible assets and liabilities based on their fair value on the date of the acquisition. The fair value of acquired completed technology of $2.9 million was determined based on the future cash flows method. The acquired completed technology is being amortized on a straight-line basis over five years, the estimated life of the product. The remainder of the purchase price was allocated to goodwill. The following summarizes the allocation of the purchase price for the Real-Time and DBC acquisitions (in thousands):

REAL-TIME DBC --------- ------- Tangible assets acquired, net of cash received $ 664 $ 819 Purchased technology 1,743 2,912 In-process research and development 1,744 - Goodwill - 2,368 Liabilities assumed (221) (1,534) ------- ------- Consideration paid $ 3,930 $ 4,565 ======= =======

7. Commitments and Contingencies From time to time, the Company is subject to legal proceedings and claims that arise in the normal course of its business. In the opinion of management, the Company is not a party to any other litigation that it believes could have a material effect on the Company or its business. In 2001, the Internal Revenue Service ("IRS") notified the Company of purported federal income tax deficiencies for the years 1997 through 1999. At issue was the Company's deduction of an aggregate of $6.8 million of payments made by the Company pursuant to the settlement, on May 7, 1999, of a consolidated securities class action lawsuit. In 2002, the Company reached a settlement with the IRS that allowed $5.5 million of the Company's original $6.8 million deduction. The impact of this settlement has been included in the Company's 2002 income tax provision. Although a substantial 7 number of issues for the years being audited have been resolved, the Company has also received a notice of proposed tax deficiencies for the years 1997 through 1999 for other matters, for which the Company has filed an appeal. Management believes the ultimate outcome will not have a material adverse impact on the Company's financial position or results of operation. 8. International Sales and Geography Information The Company manages its business primarily on a geographic basis. The Company attributes net sales to an individual country based upon the location of the customer. The Company's geographic segments consist of the United States, Americas excluding United States, Europe and Other. The European segment includes European countries as well as the Middle East and Africa. Other operating segments include Asia Pacific and Japan. Revenues by geography were (in thousands):

Three Months Ended Six Months Ended ------------------- ------------------ June 30, June 30, June 30, June 30, 2003 2002 2003 2002 -------- -------- -------- -------- United States $13,289 $12,878 $26,591 $25,504 Americas excluding United States 835 695 1,644 1,809 Europe 1,164 1,378 2,244 2,401 Other 618 921 1,165 1,373 ------- ------- ------- ------- $15,906 $15,872 $31,644 $31,087 ======= ======= ======= =======

9. Subsequent Events On July 31, 2003, the Company announced that its Board of Directors had declared a semi-annual cash dividend of $0.10 per share, to be payable September 12, 2003 to stockholders of record at the close of business on August 22, 2003. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES Certain of the Company's accounting policies require the application of significant judgment by its management, and such judgments are reflected in the amounts reported in its consolidated financial statements. In applying these policies, the Company's management uses its judgment to determine the appropriate assumptions to be used in the determination of estimates. Those estimates are based on the Company's historical experience, terms of existing contracts, management's observation of trends in the industry, information provided by its clients, and information available from other outside sources, as appropriate. Actual results may differ significantly from the estimates contained in the Company's consolidated financial statements. The Company's critical accounting policies are described in its annual filing on Form 10-K and include - Revenue Recognition - Allowance for Doubtful Accounts - Long-Lived Assets, Intangible Assets and Goodwill - Acquisition Accounting - Income Taxes - Marketable Securities RESULTS OF OPERATIONS Revenues The Company's revenues are derived from software licenses, related maintenance and professional services and outsourcing services. Revenues for the three months ended June 30, 2003 and 2002 were $15.9 million. Revenues for the six months ended June 30, 2003 were $31.6 million, an increase of 2% from $31.1 million in the same period in 2002. The increase of $557,000 for the six months ended June 30, 2003 was primarily due to the acquisition of DBC and increased demand for the Company's outsourcing services offset by decreases in professional services revenues. DBC was acquired in the fourth quarter of 2002. Software Licenses. Software license revenues for the three and six months ended June 30, 2003 were $3.7 million and $7.1 million, respectively, representing decreases of 11% and 4% from the $4.2 million and $7.4 million, respectively, for the comparable periods in 2002. The decrease in license revenues for the three months ended June 30, 2003 was due primarily to lower sales of Antares and LMS, partially offset by the acquisition of DBC and higher sales of CAMRA and PTS. The decrease in license revenues for the six months ended June 30, 2003 was due primarily to lower sales of CAMRA, Antares, and LMS, partially offset by the acquisition of DBC and higher sales of AdvisorWare. Maintenance. Maintenance revenues for the three months ended June 30, 2003 were $7.7 million, representing an increase of 13% over the $6.8 million for the same period in 2002. Maintenance revenues for the six months ended June 30, 2003 were $15.3 million, representing an increase of 13% over the $13.6 million for the same period in 2002. The increases for the three and six months ended June 30, 2003 were mainly attributable to the acquisition of DBC. Professional Services. Professional services revenues for the three and six months ended June 30, 2003 were $1.3 million and $2.9 million, respectively, representing decreases of 20% and 17% from the $1.6 million and $3.5 million, respectively, in the comparable periods in 2002. The decreases were primarily due to a decrease in demand for the Company's implementation, conversion, and training services. Outsourcing. Outsourcing revenues for the three months ended June 30, 2003 were $3.2 million, representing a decrease of 3% from the $3.3 million in the comparable period of the prior year. Outsourcing revenues for the six months ended June 30, 2003 were $6.3 million, representing a decrease of 4% from the $6.6 million in the comparable period in 2002. The decrease in outsourcing revenues for the three months ended June 30, 2003 was due primarily to lower sales of PortPro 9 due to a restructuring of the services offered by that product, offset by increased demand for SS&C Direct and AdvisorWare outsourcing services. The decrease in outsourcing revenues for the six months ended June 30, 2003 was primarily due to lower sales of PortPro offset by increased demand for SS&C Direct and AdvisorWare services and the addition of Lightning outsourcing services, which was released in the second half of 2002. Cost of Revenues Total cost of revenues decreased 3% to $5.1 million for the three months ended June 30, 2003 from $5.2 million for the three months ended June 30, 2002. Total cost of revenues decreased 3% to $10.2 million for the six months ended June 30, 2003 from $10.5 million for the six months ended June 30, 2002. The gross margin increased to 68% in the three months ended June 30, 2003 from 67% in the comparable period in 2002. For the six months ended June 30, 2003, the gross margin increased to 68% from 66% in the comparable period in 2002. This gross margin increase in both the three and six months ended June 30, 2003 was due to improvements in the maintenance and outsourcing margins, offset by decreases in the margins for software licenses. Cost of Software Licenses. Cost of software license revenues consists primarily of amortization expense of completed technology, royalties, third-party software, and the costs of product media, packaging and documentation. The cost of software licenses increased 39% to $423,000 for the three months ended June 30, 2003 from $305,000 in the same period in 2002. Cost of software licenses increased 50% to $942,000 for the six months ended June 30, 2003 from $628,000 in the six months ended June 30, 2002, and represented 13% and 9% of license revenues in those periods, respectively. The increases in costs for both the three and six months ended June 30, 2003 were mainly due to the increase in amortization of completed technology associated with the acquisition of DBC. Cost of Maintenance. Cost of maintenance revenues consists primarily of technical customer support and engineering costs associated with product and regulatory updates. The cost of maintenance increased 8% to $1.5 million in the three months ended June 30, 2003 from $1.4 million in the three months ended June 30, 2002. The cost of maintenance increased 6% to $3.0 million in the six months ended June 30, 2003 from $2.8 million in the six months ended June 30, 2002. The increases for both the three and six months ended June 30, 2003 were primarily due to the DBC acquisition partially offset by decreased costs as a result of improved efficiencies and cost reductions initiated in 2002. Cost of Professional Services. Cost of professional services revenues consists primarily of costs related to personnel utilized to provide implementation, conversion and training services to the Company's software licensees, as well as system integration, custom programming, and actuarial consulting services. The cost of professional services revenues decreased 17% to $1.1 million for the three months ended June 30, 2003 from $1.3 million in the same period in 2002, representing 89% and 85% of professional service revenues in those quarters, respectively. Cost of professional services revenues decreased 17% to $2.3 million for the six months ended June 30, 2003 from $2.7 million in the six months ended June 30, 2002, both represented 78% of professional services revenues in each of those periods. The Company reduced its professional consulting organization and associated costs due to the decrease in demand for the Company's implementation and consulting services. Cost of Outsourcing. Cost of outsourcing revenues consists primarily of costs related to personnel utilized in servicing the Company's outsourcing clients. The cost of outsourcing revenues decreased 7% to $2.0 million for the three months ended June 30, 2003 from $2.2 million in the same period in 2002, representing 64% and 66% of outsourcing revenues in those quarters, respectively. Cost of outsourcing in the six months ended June 30, 2003 and 2002 was $4.0 million and $4.3 million, respectively, representing 64% and 66% of outsourcing revenues in those periods, respectively. The decrease in costs of outsourcing in dollars, and as a percentage of outsourcing revenues, was due primarily to improved operating efficiencies and the resulting decrease in costs of supporting the Company's outsourcing business. Operating Expenses Total operating expenses decreased 12% to $6.6 million in the three months ended June 30, 2003 from $7.5 million in the three months ended June 30, 2002, representing 42% and 47% of total revenues in those periods, respectively. Total operating expenses decreased 19% to $13.7 million in the six months ended June 30, 2003 from $16.8 million in the six months ended June 30, 2002, representing 43% and 54% of total revenues in those periods, respectively. Included in the six-month 2002 expenses is a $1.7 million write-off of purchased in-process research and development associated with the Company's acquisition of Real-Time in the first quarter. The decrease in operating expenses was primarily due to the cost reduction steps the Company has undertaken to align its personnel and operating expenses with revenues and a decrease in depreciation expense, offset by the addition of operating expenses of the DBC business and an increase in bad debt expense. 10 Selling and Marketing. Selling and marketing expenses consist primarily of the personnel costs associated with the selling and marketing of the Company's products, including salaries, commissions, and travel and entertainment. Such expenses also include the cost of branch sales offices, advertising, trade shows, and marketing and promotional materials. These expenses decreased 18% to $2.0 million in the three months ended June 30, 2003 from $2.5 million in the three months ended June 30, 2002, representing 13% and 16%, respectively, of total revenues for those periods. These expenses decreased 19% to $4.1 million in the six months ended June 30, 2003 from $5.1 million in the same period in 2002, representing 13% and 17%, respectively, of total revenues for those periods. The decreases for the three and six months ended June 30, 2003 were mainly due to lower personnel-related costs associated with the reduction in the number of marketing personnel, and lower marketing and promotional and travel costs offset by additional costs as a result of the acquisition of DBC. Research and Development. Research and development expenses consist primarily of personnel costs attributable to the development of new software products and the enhancement of existing products. Research and development expenses decreased 7% to $2.9 million in the three months ended June 30, 2003 from $3.1 million in the three months ended June 30, 2002, representing 18% and 20% of total revenues in those periods, respectively. Expenses decreased 1% to $5.9 million in the six months ended June 30, 2003 from $6.0 million in the same period in 2002, representing 19% of total revenues for both periods. The decrease was mainly due to cost reductions in personnel and other related support costs partially offset by DBC-related costs. General and Administrative. General and administrative expenses consist primarily of personnel costs related to management, accounting and finance, information management, human resources and administration and associated overhead costs, as well as fees for professional services. General and administrative expenses decreased 11% to $1.7 million in the three months ended June 30, 2003 from $1.9 million in the three months ended June 30, 2002, representing 11% and 12%, respectively, of total revenues for those periods. The decrease was primarily due to lower personnel related costs and a decrease in depreciation expense. These expenses decreased 7% to $3.7 million in the six months ended June 30, 2003 from $3.9 million in the same period in 2002, representing 12% and 13%, respectively, of total revenues for those periods. This year-to-date decrease was mainly attributable to lower personnel related costs and a reduction in depreciation expense partially offset by an increase in bad debt expense. Write-off of Purchased In-Process Research and Development. On January 15, 2002, the Company acquired Real-Time. The acquisition was accounted for as a purchase and, accordingly, the purchase price was allocated among tangible and intangible assets, liabilities, and in-process research and development based on their fair values on the date of acquisition. The acquired IPR&D had not yet reached technological feasibility and had no alternative future use and, accordingly, $1.7 million was expensed on the date of the acquisition. Interest and Other Income (Expense), Net. Interest and other income (expense), net consists primarily of interest income and other non-operational income and expenses. Interest income was $235,000 for the three months ended June 30, 2003 compared to $399,000 in the same period in 2002. Interest income decreased 42% to $484,000 in the six months ended June 30, 2003 from $841,000 in the same period in 2002. The decreases in interest income for both the three and six months ended June 30, 2003 were primarily due to lower market interest rates on investments. Included in other expense, net for the three and six months ended June 30, 2003 were gains on sales of investments of $87,000 and $88,000, respectively. Included in other expense, net for the three and six months ended June 30, 2002 was a non-operational $854,000 impairment charge associated with the decline in the market value of a bond held in the Company's investment portfolio. Also, included in other expense, net for the six months ended June 30, 2002 was a gain of $486,000 resulting from the sale of marketable securities. Provision for Income Taxes. The Company had an effective tax rate of 39% and 40% in the six months ended June 30, 2003 and 2002, respectively. LIQUIDITY AND CAPITAL RESOURCES The Company's cash, cash equivalents and marketable securities at June 30, 2003 were $46.2 million, which is an increase of $4.5 million from the $41.7 million at December 31, 2002. The increase was primarily due to earnings, the collection of annual maintenance fees billed during the first quarter and proceeds from the exercise of employee options partially offset by cash used under the Company's stock repurchase program. Net cash provided by operating activities was $9.7 million for the six months ended June 30, 2003. Cash provided by operating activities was primarily due to earnings adjusted for non-cash items and an increase in deferred maintenance and 11 other revenues. These items were partially offset by a decrease in accrued expenses. Investing activities used net cash of $3.1 millions for the six months ended June 30, 2003. Cash used in investing activities was primarily due to $2.7 million in net purchases of marketable securities. Financing activities used net cash of $6.1 million for the six months ended June 30, 2003. Cash used in financing activities was primarily due to the Company's activities under its stock repurchase program partially offset by proceeds from the exercise of employee options. The Company repurchased 742,000 shares of common stock for treasury in the six months ended June 30, 2003 for a total cost of $9.4 million. The Company believes that its current cash balances and net cash provided by operating activities will be sufficient to meet its working capital and capital expenditure requirements for at least the next 12 months. As of June 30, 2003, the Company did not have any relationships with unconsolidated entities or financial partnerships, which would have been established for the purpose of facilitating off-balance sheet arrangements. CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS FLUCTUATIONS IN QUARTERLY PERFORMANCE. Historically, the Company's revenues and operating results have fluctuated substantially from quarter to quarter. The Company's quarterly operating results may continue to fluctuate due to a number of factors, including: the timing, size and nature of the Company's individual license transactions; the timing of the introduction and the market acceptance of new products or product enhancements by the Company or its competitors; the relative proportions of revenues derived from license fees, maintenance, professional services and outsourcing; changes in the Company's operating expenses; changes in the Company's personnel; and fluctuations in economic and financial market conditions. The timing, size, and nature of individual license transactions are important factors in the Company's quarterly operating results. Many such license transactions involve large dollar amounts, and the sales cycles for these transactions are often lengthy and unpredictable. There can be no assurance that the Company will be successful in closing large license transactions on a timely basis or at all. DEPENDENCE ON THE FINANCIAL SERVICES INDUSTRY. The Company's clients include a range of organizations in the financial services industry. The success of these clients is intrinsically linked to the health of the financial markets. In addition, because of the capital expenditures required in connection with an investment in the Company's products, the Company believes that demand for its products could be disproportionately affected by fluctuations, disruptions, instability, or downturns in the financial markets, which may cause clients and potential clients to exit the industry or delay, cancel, or reduce any planned expenditures for investment management systems and software products. Any resulting decline in demand for the Company's products could have a material adverse effect on the Company's business, financial condition, and results of operations. INTEGRATION OF OPERATIONS. The Company's success is dependent in part on its ability to complete the integration of the operations of recently acquired businesses, including DBC, Real-Time and Digital Visions, in an efficient and effective manner. Successful integration in the rapidly changing financial services industry may be more difficult to accomplish than in other industries. The combination of these acquired businesses will require, among other things, integration of product offerings and coordination of sales and marketing and research and development efforts. There can be no assurance that such integration will be accomplished smoothly or successfully. The difficulties of such integration may be increased by the necessity of coordinating geographically separated organizations. The integration of certain operations will require the dedication of management resources that may temporarily distract attention from the day-to-day business of the Company. The inability of management to successfully integrate the operations of acquired companies could have a material adverse effect on the Company's business, financial condition, and results of operations. PRODUCT CONCENTRATION. To date, substantially all of the Company's revenues have been attributable to the licensing of its CAMRA, AdvisorWare, SKYLINE, and LMS software and the provision of maintenance and professional services in support of such software. The Company expects that the revenue from these software products will continue to account for a significant portion of its total revenues for the foreseeable future. As a result, factors adversely affecting the pricing of or demand for such products and services, such as competition or technological change, could have a material adverse effect on the Company's business, financial condition, and results of operations. COMPETITION. The market for financial service software is competitive, rapidly evolving, and highly sensitive to new product introductions and marketing efforts by industry participants. The Company believes the principal competitive factors in its industry include consistent product performance, broad functionality, ease of use, scalability, integration 12 capabilities, product and company reputation, client service and support, and price. Although the Company believes it currently competes effectively with respect to these factors, there can be no assurance that the Company will be able to maintain its competitive position against current and potential competitors. The Company believes none of its competitors currently competes against it in all of its target industry segments, although there can be no assurance that one or more may not compete against the Company in the future in additional industry segments. Many of the Company's current and potential competitors have significantly greater financial, technical, and marketing resources, generate higher revenues, and have greater name recognition. There can be no assurance that the Company's current or potential competitors will not develop products comparable or superior to those developed by the Company, or adapt more quickly than the Company to new technologies, evolving industry trends, or changing client requirements. It is also possible that alliances among competitors may emerge and rapidly acquire significant market share. Increased competition may result in price reductions, reduced gross margins, and loss of market share, any of which would materially adversely affect the Company's business, financial condition, and results of operations. RAPID TECHNOLOGICAL CHANGE. The market for the Company's products and services is characterized by rapidly changing technology, evolving industry standards and new product introductions. The Company's future success will depend in part upon its ability to enhance its existing products and services and to develop and introduce new products and services to meet changing client needs. The process of developing software products such as those offered by the Company is extremely complex and is expected to become increasingly complex and expensive in the future due to the introduction of new platforms and technologies. There can be no assurance that the Company will successfully complete the development of new products in a timely fashion or that the Company's current or future products will satisfy the needs of the financial markets. DEPENDENCE ON PROPRIETARY TECHNOLOGY. The Company's success and ability to compete depends in part upon its ability to protect its proprietary technology. The Company relies on a combination of trade secret, copyright, and trademark law, nondisclosure agreements and technical measures to protect its proprietary technology. There can be no assurance that the steps taken by the Company to protect its proprietary technology will be adequate to prevent misappropriation or independent third-party development of such technology. PRODUCT DEFECTS AND PRODUCT LIABILITY. The Company's software products are highly complex and sophisticated and could contain design defects or software errors that are difficult to detect and correct. Errors, bugs or viruses may result in loss of or delay in market acceptance of the Company's software products or loss of client data. Although the Company has not experienced material adverse effects resulting from any software defects or errors, there can be no assurance that, despite testing by the Company and its clients, errors will not be found in new products, which errors could result in a delay in or an inability to achieve market acceptance and thus could have a material adverse effect upon the Company's business, financial condition, and results of operations. KEY PERSONNEL. The Company's success is dependent in part upon its ability to attract, train, and retain highly skilled technical, managerial, and sales personnel. The loss of services of one or more of the Company's key employees could have a material adverse effect on the Company's business, financial condition and results of operations. Competition for the hiring of such personnel in the software industry is intense. Locating candidates with the appropriate qualifications, particularly in the desired geographic location, is difficult. Although the Company expects to continue to attract and retain sufficient numbers of highly skilled employees for the foreseeable future, there can be no assurance that the Company will be able to do so. RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. The Company has risks associated with its foreign operations. An increase in the value of the U.S. dollar relative to foreign currencies could make the Company's products more expensive and, therefore, potentially less competitive in those foreign markets. A portion of the Company's international sales is denominated in foreign currency, and the Company occasionally hedges some of the risk associated with foreign exchange fluctuations. Although the Company believes its foreign currency exchange rate risk is minimal, significant fluctuations in the value of foreign currencies could have a material adverse effect on the earnings of the Company. In addition, the Company's international business may be subject to a variety of other risks, including difficulties in obtaining U.S. export licenses, potentially longer payment cycles, increased costs associated with maintaining international marketing efforts, the introduction of non-tariff barriers and higher duty rates, and difficulties in enforcement of third-party contractual obligations and intellectual property rights. There can be no assurance that such factors will not have a material adverse effect on the Company's business, financial condition, or results of operations. Because of these and other factors, past financial performance should not be considered an indication of future financial performance. The Company's quarterly operating results may vary significantly, depending on factors such as the timing, 13 size, and nature of licensing transactions and new product introductions by the Company or its competitors. Investors should not use historical trends to anticipate future results and should be aware that the trading price of the Company's common stock may be subject to wide fluctuations in response to quarterly variations in operating results and other factors, including those discussed above. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has no derivative financial instruments. The Company generally places its marketable security investments in high credit quality instruments, primarily U.S. Government and Federal Agency obligations, tax-exempt municipal obligations and corporate obligations. The Company does not expect any material loss from its marketable security investments and therefore believes that its potential interest rate exposure is not material. The Company invoices customers primarily in U.S. dollars and in local currency in those countries in which the Company has branch and subsidiary operations. The Company is exposed to foreign currency exchange rate fluctuations from the time customers are invoiced in local currency until collection occurs. Through June 30, 2003, foreign currency exchange rate fluctuations have not had a material effect on the Company's financial position or results of operation, and therefore the Company believes that its potential foreign currency exchange rate exposure is not material. The foregoing risk management discussion and the effect thereof are forward-looking statements. Actual results in the future may differ materially from these projected results due to actual developments in global financial markets. The analytical methods used by the Company to assess and minimize risk discussed above should not be considered projections of future events or losses. ITEM 4. CONTROLS AND PROCEDURES The Company's management, with the participation of the Company's chief executive officer and chief financial officer, evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of June 30, 2003. Based on this evaluation, the Company's chief executive officer and chief financial officer concluded that, as of June 30, 2003, the Company's disclosure controls and procedures were (1) designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the Company's chief executive officer and chief financial officer by others within those entities, particularly during the period in which this report was being prepared, and (2) effective, in that they provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. No change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 30, 2003 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 14 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the 2003 annual meeting of stockholders of the Company (the "Annual Meeting") held on May 22, 2003, the following matters were acted upon by the stockholders of the Company: 1. The election of Albert L. Lord and Jonathan M. Schofield as Class I directors for the ensuing three years; 2. The amendment of the Company's 1998 Stock Incentive Plan to increase the number of shares of the Company's common stock authorized for issuance thereunder from 2,500,000 to 3,500,000 shares; 3. The amendment of the Company's 1996 Employee Stock Purchase Plan to increase the number of shares of the Company's common stock authorized for issuance thereunder from 600,000 to 800,000 shares; and 4. The ratification of the appointment of PricewaterhouseCoopers LLP as the independent public accountants of the Company for the current fiscal year. The number of shares of common stock present or represented by proxy and entitled to vote at the Annual Meeting was 11,825,162. The other directors of the Company, whose terms of office as directors continued after the Annual Meeting, are Joseph H. Fisher, David W. Clark, Jr., Patrick J. McDonnell, William C. Stone, and James L. Sullivan The results of the voting on each of the matters presented to stockholders at the Annual Meeting are set forth below:

Votes Votes Broker Matter Votes For Withheld Against Abstentions Non-Votes ------ ---------- ---------- ---------- ----------- --------- Election of Directors: Albert L. Lord 11,499,860 325,302 0 0 none Jonathan M. Schofield 11,499,860 325,302 0 0 none Amendment of the 1998 Stock Incentive Plan 9,300,942 N/A 2,520,540 3,680 none Amendment of the 1996 Employee Stock Purchase Plan 11,759,704 N/A 58,957 6,501 none Ratification of PricewaterhouseCoopers LLP 10,357,084 N/A 1,467,178 900 none

15 ITEM 6. EXHIBIT AND REPORTS OF FORM 8-K a. The exhibits listed in the Exhibit Index immediately preceding such exhibits are filed as part of this Report. b. On April 16, 2003, the Company furnished a Current Report on Form 8-K, dated April 16, 2003, to report under Item 9 (Regulation FD Disclosure (Information Furnished Pursuant to Item 12, "Results of Operations and Financial Condition")) the Company's press release announcing the first quarter results. 16 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SS&C TECHNOLOGIES, INC. Date: August 14, 2003 By: /s/ Patrick J. Pedonti Patrick J. Pedonti Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 17 EXHIBIT INDEX

Exhibit Number Description -------------- ----------- 10.1 1998 Stock Incentive Plan, as amended, incorporated by reference to Appendix A of the Registrant's Definitive Proxy Statement for Its Annual Meeting of Stockholders Held on May 22, 2003 (File No. 000-28430). 10.2 1996 Employee Stock Purchase Plan, as amended, incorporated by reference to Appendix B of the Registrant's Definitive Proxy Statement for Its Annual Meeting of Stockholders Held on May 22, 2003 (File No. 000-28430). 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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