10-Q 1 y65646e10vq.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002 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 (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 80 LAMBERTON ROAD WINDSOR, CT 06095 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) 860-298-4500 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Number of shares outstanding of the issuer's sole class of common stock as of November 6, 2002:

Class Number of Shares Outstanding ----- ---------------------------- Common Stock, par value $0.01 per share 12,801,715

SS&C TECHNOLOGIES, INC. INDEX

Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets at September 30, 2002 and December 31, 2001 2 Consolidated Statements of Operations for the three months and nine months ended September 30, 2002 and 2001 3 Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001 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 15 Item 4 Controls and Procedures 15 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17 CERTIFICATIONS 17

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. 1 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited)

September 30, December 31, 2002 2001 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 18,329 $ 28,425 Investments in marketable securities 25,053 31,077 Accounts receivable, net of allowance for doubtful accounts 10,843 8,944 Prepaid expenses and other current assets 989 1,459 Deferred income taxes 1,302 2,210 -------- -------- Total current assets 56,516 72,115 -------- -------- Property and equipment: Leasehold improvements 3,276 3,225 Equipment, furniture, and fixtures 16,023 15,967 -------- -------- 19,299 19,192 Less accumulated depreciation (13,051) (11,468) -------- -------- Net property and equipment 6,248 7,724 -------- -------- Deferred income taxes 7,170 6,916 Intangible and other assets, net of accumulated amortization 3,234 2,024 -------- -------- Total assets $ 73,168 $ 88,779 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 795 $ 1,079 Income taxes payable 1,324 696 Accrued employee compensation and 2,550 1,722 benefits Other accrued expenses 1,913 3,055 Deferred maintenance and other revenue 11,475 9,279 -------- -------- Total current liabilities 18,057 15,831 -------- -------- Stockholders' equity: Common stock 169 163 Additional paid-in capital 93,896 89,674 Accumulated other comprehensive (1,595) 186 (loss) income Accumulated deficit (4,393) (9,072) -------- -------- 88,077 80,951 Less: Treasury shares (32,966) (8,003) -------- -------- Total stockholders' equity 55,111 72,948 -------- -------- Total liabilities and stockholders' equity $ 73,168 $ 88,779 ======== ========

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 Nine Months Ended ------------------ ----------------- September 30, September 30, September 30, September 30, 2002 2001 2002 2001 ---- ---- ---- ---- Revenues: Software licenses $ 3,605 $ 4,508 $ 10,982 $ 11,585 Maintenance 6,843 6,727 20,470 19,845 Professional services 1,605 1,695 5,120 6,176 Outsourcing 3,056 1,357 9,624 4,190 -------- -------- -------- -------- Total revenues 15,109 14,287 46,196 41,796 -------- -------- -------- -------- Cost of revenues: Software licenses 306 180 934 548 Maintenance 1,294 1,708 4,118 5,323 Professional services 1,359 1,628 4,091 5,427 Outsourcing 2,147 1,329 6,492 4,100 -------- -------- -------- -------- Total cost of revenues 5,106 4,845 15,635 15,398 -------- -------- -------- -------- Gross profit 10,003 9,442 30,561 26,398 -------- -------- -------- -------- Operating expenses: Selling and marketing 1,968 2,827 7,103 8,770 Research and development 2,799 2,790 8,764 8,827 General and administrative 1,897 2,601 5,834 7,969 Write-off of purchased in-process research and development -- -- 1,744 -- -------- -------- -------- -------- Total operating expenses 6,664 8,218 23,445 25,566 -------- -------- -------- -------- Operating income 3,339 1,224 7,116 832 -------- -------- -------- -------- Interest income, net 323 661 1,164 2,069 Other income (expense), net (84) (171) (483) 1,644 -------- -------- -------- -------- Income before income taxes 3,578 1,714 7,797 4,545 Provision for income taxes 1,432 687 3,119 1,735 -------- -------- -------- -------- Net income $ 2,146 $ 1,027 $ 4,678 $ 2,810 ======== ======== ======== ======== Basic earnings per share $ 0.17 $ 0.07 $ 0.36 $ 0.19 ======== ======== ======== ======== Basic weighted average number of common shares outstanding 12,705 14,969 13,065 15,040 ======== ======== ======== ======== Diluted earnings per share $ 0.16 $ 0.07 $ 0.34 $ 0.19 ======== ======== ======== ======== Diluted weighted average number of common and common equivalent shares outstanding 13,499 15,234 13,809 15,168 ======== ======== ======== ========

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

Nine Months Ended ----------------- September 30, September 30, 2002 2001 ---- ---- Cash flow from operating activities: Net income $ 4,678 $ 2,810 -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,995 2,693 Net realized losses (gains) on equity investments 424 (1,800) Loss on sale of property and equipment 2 -- Deferred income taxes 654 908 Purchased in-process research and development 1,744 -- Provision for doubtful accounts 338 696 Changes in operating assets and liabilities, net of effects of business acquisition: Accounts receivable (1,812) 1,819 Prepaid expenses and other assets 368 298 Taxes receivable -- 147 Accounts payable (331) 388 Accrued expenses (371) (1,304) Taxes payable 631 322 Deferred maintenance and other revenues 2,050 (1,152) -------- -------- Total adjustments 6,692 3,015 -------- -------- Net cash provided by operating activities 11,370 5,825 -------- -------- Cash flow from investing activities: Additions to property and equipment (473) (1,691) Proceeds from sale of property and equipment 3 62 Cash paid for business acquisitions, net of cash acquired (3,943) -- Additions to capitalized software and other intangibles -- (159) Purchases of marketable securities (13,121) (27,192) Sales of marketable securities 16,687 28,366 -------- -------- Net cash used in investing activities (847) (614) -------- -------- Cash flow from financing activities: Repayment of debt and acquired debt (146) (77) Issuance of common stock 120 188 Exercise of options 4,099 58 Purchase of common stock for treasury (24,963) (1,852) -------- -------- Net cash used in financing activities (20,890) (1,683) -------- -------- Effect of exchange rate changes on cash 271 (93) -------- -------- Net increase (decrease) in cash and cash equivalents (10,096) 3,435 Cash and cash equivalents, beginning of period 28,425 20,690 -------- -------- Cash and cash equivalents, end of period $ 18,329 $ 24,125 ======== ========

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 Company, 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 September 30, 2002 and the results of its operations for the three months and nine months ended September 30, 2002 and 2001. 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, 2001, which were included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. The December 31, 2001 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 nine months ended September 30, 2002 are not necessarily indicative of the expected results for the full year. 2. Recent Accounting Policies On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. The Company has completed the required transition impairment test for goodwill and has determined that no impairment existed as of January 1, 2002. The Company will perform the annual impairment test in the fourth quarter. Pro forma net income and net income per share for the three months and nine months ended September 30, 2001, adjusted to eliminate historical amortization of goodwill and related tax effects, are as follows (in thousands except per share data):

Three Months Nine Months Ended Ended September 30, September 30, 2001 2001 ---- ---- Reported net income $ 1,027 $ 2,810 Add: goodwill amortization, net of tax 10 30 --------- --------- Pro forma net income $ 1,037 $ 2,840 ========= ========= Reported net income per share: Basic $ 0.07 $ 0.19 Diluted $ 0.07 $ 0.19 Pro forma net income per share: Basic $ 0.07 $ 0.19 Diluted $ 0.07 $ 0.19

In addition, effective January 1, 2002, the Company adopted Emerging Issues Task Force Issue No. 01-14, "Income Statement Characterization of Reimbursements Received for 'Out of Pocket' Expenses Incurred" ("Issue No. 01-14"), which requires that customer reimbursements received for direct costs paid to third parties and related expenses be characterized as revenue. Comparative financial statements for prior periods have been reclassified to provide consistent presentation. For the three months ended September 30, 2002 and 2001, the Company has presented customer reimbursement revenue and expenses of $124,000 and $147,000, respectively, within professional services in accordance with Issue No. 01-14. Customer reimbursements represent direct costs incurred during the course of services that are reimbursed to the Company by its customers. For the nine months ended September 30, 2002 and 2001, the Company has presented customer reimbursement revenue and expenses of $373,000 and $548,000, respectively. The adoption of Issue No. 01-14 did not impact the Company's financial position, operating income or net income. 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 for the period. Common equivalent shares are comprised of stock options using the treasury stock method. Common equivalent shares are excluded from the computations of diluted earnings per share if the effect of including such common equivalent shares is 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 Nine Months Ended ------------------ ----------------- September 30, September 30, September 30, September 30, 2002 2001 2002 2001 ---- ---- ---- ---- Basic weighted average shares outstanding 12,705 14,969 13,065 15,040 Weighted average common stock equivalents -- options 794 265 744 128 ------ ------ ------ ------ Diluted weighted average shares outstanding 13,499 15,234 13,809 15,168 ====== ====== ====== ====== Antidilutive options outstanding excluded from the computation of EPS 918 1,485 1,021 1,639

4. Comprehensive Income Statement of Financial Accounting Standards 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. The following table sets forth the components of comprehensive income (in thousands):

Three Months Ended Nine Months Ended ------------------ ----------------- September 30, September 30, September 30, September 30, 2002 2001 2002 2001 ---- ---- ---- ---- Net income $ 2,146 $ 1,027 $ 4,678 $ 2,810 Foreign currency translation (losses) gains 3 187 253 (77) Unrealized losses on marketable securities (1,361) (615) (2,034) (1,859) ------- ------- ------- ------- Total comprehensive income $ 788 $ 599 $ 2,897 $ 874 ======= ======= ======= =======

5. Stock Repurchase Program On May 22, 2002, the Company's Board of Directors authorized the continued repurchase of shares of the Company's common stock up to an additional expenditure of $10 million. The Company initiated the repurchase program on May 23, 2000, pursuant to which it repurchased 1.2 million shares for $6.5 million between that date and May 23, 2001. The Company continued the plan on May 24, 2001, pursuant to which it repurchased 2.9 million shares for $26.4 million between that date and May 21, 2002. As of September 30, 2002, the Company had repurchased a total of 4.1 million shares for approximately $33 million under its repurchase programs. 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 6 applications via Application Service Provider ("ASP") or license, to commercial banks and broker-dealers throughout the United States. The consideration for the deal was $4.0 million in cash and the assumption of certain liabilities by the Company, with a potential earn-out payment by the Company of up to $1.17 million in cash if certain 2002 Real-Time revenue targets are achieved. A summary of the allocation of the purchase price is as follows (in thousands): Current assets, net of cash acquired $ 357 Fair value of equipment, 321 furniture and fixtures Current liabilities (159) Long-term liabilities (63) Acquired in-process research and development 1,744 Acquired completed technology 1,743 ------- $ 3,943 ======= 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 purchase price was allocated to tangible and intangible assets, liabilities, and in-process research and development ("IPR&D") based on their fair 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 will be 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 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 estimated to be 62% completed at the date of the acquisition. The project is expected to be completed in the fourth quarter of 2002. The unaudited pro forma condensed consolidated results of operations presented below for the three and nine month periods ended September 30, 2002 and 2001 assume that the Real-Time acquisition occurred at the beginning of 2001. The unaudited pro forma condensed consolidated results of operations for the nine months ended September 30, 2002 excludes the $1.7 million write-off of purchased IPR&D in the first quarter of 2002 (in thousands, except per share data):

Three Months Ended Nine Months Ended ------------------ ----------------- September 30, September 30, September 30, September 30, 2002 2001 2002 2001 ---- ---- ---- ---- Total revenues $15,109 $15,259 $46,196 $44,745 Operating income 3,339 1,226 8,860 838 Net income 2,146 1,027 5,725 2,814 Basic earnings per share $ 0.17 $ 0.07 $ 0.44 $ 0.19 Diluted earnings per share $ 0.16 $ 0.07 $ 0.41 $ 0.19

7. Reclassifications Certain amounts in the Company's 2001 consolidated financial statements have been reclassified to be comparable with the 2002 presentation. These reclassifications have had no effect on the Company's net income, working capital or net equity. 7 8. 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. The Company is not a party to litigation that management believes could have a material effect on the Company or its business. 9. International Sales and Geography Information The Company manages its business primarily on a geographic basis. The Company sells to the Americas and Europe. Americas includes both North and South America. Europe includes European countries as well as the Middle East and Africa. Other includes Asia Pacific and Japan. Revenues by geography were (in thousands):

Three Months Ended Nine Months Ended ------------------ ----------------- September 30, September 30, September 30, September 30, 2002 2001 2002 2001 ---- ---- ---- ---- Americas $13,498 $12,568 $40,811 $35,922 Europe 1,052 1,147 3,453 4,044 Other 559 572 1,932 1,830 ------- ------- ------- ------- $15,109 $14,287 $46,196 $41,796 ======= ======= ======= =======

8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES The Company's significant accounting policies are summarized in Note 2 to its consolidated financial statements. However, 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, its 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 significant accounting policies include: Revenue Recognition. The Company's revenues consist primarily of software license revenues, maintenance revenues, and professional and outsourcing services revenues. The Company applies the provisions of Statement of Position No. 97-2, "Software Revenue Recognition" ("SOP 97-2") to all software transactions. The Company recognizes revenues from the sale of software licenses when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed and determinable, and collection of the resulting receivable is reasonably assured. SOP 97-2 requires that revenues recognized from software transactions be allocated to each element of the transaction based on the relative fair values of the elements, such as software products, specific upgrades, enhancements, post-contract client support, installation, or training. The Company defers revenues from the transaction fee equivalent to the fair value of the undelivered elements. The determination of fair value of an element is based upon vendor-specific objective evidence. The Company occasionally enters into software license agreements requiring significant customization. The Company accounts for these agreements on the percentage-of-completion basis and must estimate the costs to complete the agreement utilizing an estimate of development man-hours remaining. Due to uncertainties inherent in the estimation process, it is at least reasonably possible that completion costs may be revised. Such revisions are recognized in the period in which the revisions are determined. Due to the complexity of some software license agreements, the Company routinely applies judgments to the application of software recognition accounting principals to specific agreements and transactions. Different judgments and/or different contract structures could have led to different accounting conclusions, which could have a material effect on the Company's reported quarterly results of operations. The Company recognizes revenues for maintenance services ratably over the contract term. The Company's consulting, training, and outsourcing services are generally billed based on hourly rates, and the Company generally recognizes revenues over the period during which the applicable services are performed. Allowance for Doubtful Accounts. The preparation of financial statements requires the Company's management to make estimates relating to the collectibility of its accounts receivable. Management establishes the allowance for doubtful accounts based on historical bad debt experience. In addition, management analyzes customer accounts, client concentrations, client credit-worthiness, current economic trends, and changes in the Company's client payment terms when evaluating the adequacy of the allowance for doubtful accounts. Such estimates require significant judgment on the part of the Company's management. Therefore, changes in the assumptions underlying the Company's estimates or changes in the financial condition of the Company's customers could result in a different required allowance, which could have a material impact on the Company's reported quarterly results of operations. Income Taxes. The carrying value of the Company's net deferred tax assets assumes that the Company will be able to generate sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions. If these estimates and related assumptions change in the future, the Company may be required to record additional valuation allowances against its deferred tax assets resulting in additional income tax expense in the Company's consolidated statement of operations. Management evaluates whether deferred tax assets are realizable quarterly and assesses whether there is a need for additional valuation allowances quarterly. Such estimates require significant judgment on the part of the Company's management. In addition, management evaluates the need to provide additional tax provisions for adjustments proposed by taxing authorities. 9 Marketable Securities. The Company classifies its entire investment portfolio, consisting of debt securities issued by federal government agencies, debt securities issued by state and local governments of the United States, debt securities issued by corporations and equities, as available for sale securities. Carrying amounts approximate fair value, as estimated based on market prices and any unrealized gain or loss is recognized in stockholder's equity. Statement of Financial Accounting Standards 115, "Accounting for Certain Investments in Debt and Equity Securities", and Securities and Exchange Commission Staff Accounting Bulletin (SAB) 59, "Accounting for Noncurrent Marketable Equity Securities", provide guidance on determining when an investment is other than temporarily impaired. In making this judgment, management evaluates, among other factors, the duration and extent to which the fair value of the investment is less than its cost and the financial health of and the business outlook for the investee, including factors in the industry and financing cash flows. If management's assessments are incorrect, the Company's working capital could be adversely affected. 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 September 30, 2002 were $15.1 million, representing an increase of 6% from $14.3 million in the same period in 2001. The increase of $0.8 million for the three months ended September 30, 2002 was mainly attributable to an increase in outsourcing revenues partially offset by a decrease in license revenues. Revenues for the nine months ended September 30, 2002 were $46.2 million, representing an increase of 11% from $41.8 million in the same period in 2001. The increase of $4.4 million for the nine months ended September 30, 2002 was attributable to an increase in outsourcing revenues partially offset by a decrease in professional services revenues. Software Licenses. Software license revenues for the three and nine months ended September 30, 2002 were $3.6 million and $11.0 million, respectively, representing decreases of 20% and 5%, respectively, from $4.5 million and $11.6 million, respectively, for the comparable periods in 2001. The decrease in license revenues for the three months ended September 30, 2002 was due primarily to reduced sales of CAMRA, Total Return, and AdvisorWare, partially offset by increased sales of SKYLINE and sales of RTS and Trade Desk as a result of the Company's acquisition of Real-Time. The decrease in license revenues for the nine months ended September 30, 2002 was due primarily to reduced sales of CAMRA, Total Return, and PTS, partially offset by increased sales of LMS, RTS, and Trade Desk as a result of the Company's Real-Time acquisition. Maintenance. Maintenance revenues for the three months and nine months ended September 30, 2002 were $6.8 million and $20.5 million, respectively, representing increases of 2% and 3%, respectively, over the $6.7 million and $19.8 million, respectively, for the comparable periods in 2001. The increases for the three and nine months ended September 30, 2002 were mainly attributable to higher maintenance renewal rates and higher average maintenance fees, partially offset by discontinued products. Professional Services. Professional services revenues for the three and nine months ended September 30, 2002 were $1.6 million and $5.1 million, respectively, representing decreases of 5% and 17%, respectively, from the $1.7 million and $6.2 million, respectively, for the comparable periods in 2001. Professional services revenues were impacted by less services associated with new license sales and lower demand for services from existing clients. Outsourcing Services. Outsourcing services revenues for the three and nine month periods ended September 30, 2002 were $3.1 million and $9.6 million, respectively, representing increases of 125% and 130% over the $1.4 million and $4.2 million, respectively, for the comparable periods in 2001. The increases for the three- and nine-month periods ended September 30, 2002 were due to the acquisitions of Real-Time and Digital Visions and increased demand for the SS&C Direct services. Cost of Revenues Total cost of revenues for the three and nine months ended September 30, 2002 were $5.1 million and $15.6 million, respectively, representing increases of 5% and 2%, respectively, from the $4.8 million and $15.4 million, respectively, for the comparable periods in 2001. The gross margin remained unchanged at 66% for the three months ended September 30, 2002 as compared to the corresponding period in 2001. For the nine months ended September 30, 2002, 10 the gross margin increased to 66% from 63% for the comparable period in 2001. Gross margin increases in maintenance, professional services, and outsourcing services were offset by a decrease in software license margins. Cost of Software Licenses. Cost of software license revenues relates primarily to royalties, the costs of product media, packaging, documentation and the amortization of completed technology. Cost of software license revenues increased 70% from $180,000 in the three months ended September 30, 2001 to $306,000 for the same period in 2002, representing 4% and 8% of license revenues in each of those quarters, respectively. Cost of software license revenues in the nine months ended September 30, 2001 and 2002 were $548,000 and $934,000, respectively, representing 5% and 9% of license revenues in each of those periods, respectively. The increase in costs in both the three and nine months ended September 30, 2002 were mainly due to the increase in amortization of completed technology associated with the Real-Time and Digital Visions acquisitions. Cost of Maintenance. Cost of maintenance revenues primarily consists of technical customer support and the engineering costs associated with product and regulatory updates. The cost of maintenance revenues decreased from $1.7 million in the three months ended September 30, 2001 to $1.3 million in the three months ended September 30, 2002. The cost of maintenance revenues decreased from $5.3 million in the nine months ended September 30, 2001 to $4.1 million in the nine months ended September 30, 2002. The decreased costs for both the three and nine months ended September 30, 2002 were primarily due to improved operating efficiencies that resulted in lower personnel and facilities related costs. Cost of Professional Services. Cost of professional services revenues primarily consists of the cost of personnel utilized to provide implementation, conversion and training services to the Company's software licensees, as well as custom programming, system integration and actuarial consulting services. The cost of professional service revenues decreased 17% from $1.6 million in the three months ended September 30, 2001 to $1.4 million for the same period in 2002, representing 85% and 96%, respectively, of professional services revenues in each of those periods. Cost of professional services revenues in the nine months ended September 30, 2001 and 2002 were $5.4 million and $4.1 million, respectively, and represented 80% and 88%, respectively, of professional services revenues in each of those periods. The Company has significantly reduced its professional consulting organization due to the decrease in demand for the Company's implementation services. Cost of Outsourcing. Cost of outsourcing revenues primarily consists of the cost of personnel utilized in servicing the Company's outsourcing clients. The cost of outsourcing revenues increased 62% from $1.3 million in the three months ended September 30, 2001 to $2.1 million for the same period in 2002, representing 98% and 70%, respectively, of outsourcing revenues in each of those periods. Cost of outsourcing revenues in the nine months ended September 30, 2001 and 2002 was $4.1 million and $6.5 million, respectively, representing 98% and 67%, respectively, of outsourcing revenues in each of those periods. The increase in costs for both the three and nine months ended September 30, 2002 was primarily due to the acquisitions of Real-Time and Digital Visions. The decreases in cost of outsourcing revenues as a percentage of outsourcing revenues was due primarily to improved operating efficiencies, and the higher margins associated with the revenues from the Real-Time and Digital Visions acquisitions. Operating Expenses Total operating expenses decreased 19% from $8.2 million in the three months ended September 30, 2001 to $6.7 million in the three-months ended September 30, 2002, representing 58% and 44% of total revenues in those periods, respectively. Total operating expenses decreased 8% from $25.6 million in the nine months ended September 30, 2001 to $23.4 million in the nine-months ended September 30, 2002, representing 61% and 51% of total revenues, respectively. Included in the nine-months ended September 30, 2002 is a charge of $1.7 million for purchased in-process research and development associated with the Company's acquisition of Real-Time in the first quarter of 2002. Excluding the IPR&D, total operating expenses decreased from $25.6 million in the nine months ended September 30, 2001 to $21.7 million in the nine months ended September 30, 2002, representing 61% and 47% of total revenues in those periods, respectively. The decrease in operating expenses was due primarily to the cost reduction steps the Company has undertaken to align its personnel and operating expenses with revenues. Selling and Marketing. Selling and marketing expenses primarily consist of the cost of personnel associated with the selling and marketing of the Company's products, including salaries, commissions, and travel and entertainment. Such expenses also include the cost of branch sales offices, advertising, trade shows, marketing and promotional materials. These expenses decreased 30% from $2.8 million in the three months ended September 30, 2001 to $2.0 million in the three months ended September 30, 2002, representing 20% and 13%, respectively, of total revenues for those periods. 11 These expenses decreased 19% from $8.8 million in the nine months ended September 30, 2001 to $7.1 million for the same period in 2002, representing 21% and 15%, respectively, of total revenues for those periods. The decreases for the three and nine month ended September 30, 2002 were mainly due to lower personnel-related costs associated with the reduction in the number of sales and marketing personnel, and lower marketing and promotional costs partially offset by increased costs as a result of the acquisitions of Real-Time and Digital Visions. 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 for the three months ended September 30, 2002 were unchanged at $2.8 million compared to the comparable period in 2001, representing 19% and 20%, respectively, of total revenues for those periods. Research and development expenses for the nine months ended September 30, 2002 were also unchanged at $8.8 million compared to the same period in 2001, representing 21% and 19%, respectively, of total revenue for those periods. General and Administrative. General and administrative expenses are composed primarily of costs related to management, accounting, information technology, human resources and administration and associated overhead costs, as well as fees for professional services. General and administrative expenses decreased 27% from $2.6 million in the three months ended September 30, 2001 to $1.9 million for the same period in 2002, representing 18% and 13%, respectively, of total revenues for those periods. General and administrative expenses also decreased 27% from $8.0 million in the nine months ended September 30, 2001 to $5.8 million for the same period in 2002, representing 19% and 13%, respectively, of total revenues for those periods. The decreases for the three and nine months ended September 30, 2002 were mainly due to lower personnel related costs, communications costs, professional fees, depreciation, and 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 the 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, net was $323,000 for the three months ended September 30, 2002 compared to $661,000 for the same period in 2001. Interest income, net decreased 44% from $2.1 million in the nine months ended September 30, 2001 to $1.2 million for the same period in 2002. The decreases in interest income for both the three and nine month ended September 30, 2002 are due to lower market interest rates on investments and lower cash and marketable securities positions due to the Company's stock repurchase plan during the past year, and the cash paid for the acquisitions of Real-Time and Digital Visions. Included in other income (expense), net for the nine months ended September 30, 2002 was a non-operational $854,000 impairment charge associated with the decline in the market value of WorldCom bonds held in the Company's investment portfolio and a non-operational gain of $428,000 on the sale of equity investments. Other income (expense), net for the nine months ended September 30, 2001 included a non-operational gain on sale of equity investments of $1.8 million. Provision for Income Taxes. The Company had effective tax rates of 40% and 38% in the nine months ended September 30, 2002 and 2001, respectively. The higher tax rate in 2002 was primarily due to lower tax credits in the period and the impact of a settlement reached with the IRS in the third quarter of 2002 on the deduction related to the 1999 litigation settlement payment of $9.3 million. Payments totaling $6.8 million made pursuant to the settlement were deducted by the Company on its 1997, 1998 and 1999 income tax returns. The Company reached a settlement with the IRS that allowed the Company to deduct $5.5 million of the original $6.8 million deduction. The impact of this settlement has been included in the Company's estimated effective tax rate of 40% for 2002. LIQUIDITY AND CAPITAL RESOURCES The Company's cash, cash equivalents and marketable securities at September 30, 2002 were $43.4 million, which is a decrease of $16.1 million from the $59.5 million at December 31, 2001. The decrease was mainly due to the cash spent to carry out the stock repurchase program and the cash paid for the acquisition of Real-Time. Net cash provided by operating activities was $11.4 million for the nine months ended September 30, 2002. Cash provided by operating activities was primarily due to earnings adjusted for non-cash items including the $1.7 million purchased in-process research and development and $3.0 million in depreciation and amortization, and an increase in 12 deferred maintenance and other revenues. These items were partially offset by an increase in accounts receivable. Investing activities used net cash of $847,000 for the nine months ended September 30, 2002. Cash used in investing activities was primarily due to $3.9 million cash paid for the acquisition of Real-Time, net of cash acquired, partially offset by the $3.6 million net sale of marketable securities. Financing activities used cash of $20.9 million. Cash used in financing activities was primarily due to the stock repurchase plan, which was partially offset by cash received upon the exercise of employee options. The Company repurchased 2.6 million shares of common stock for treasury in the nine months ended September 30, 2002 for a total cost of $25.0 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. 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, consulting, and other recurring revenues and professional services; 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. BUSINESS MODEL CHANGE. The Company continues to modify its business model from one based on license fees derived from licensing proprietary software to one based on both licensing its software and transaction fees for the use of the Company's outsourcing services. Due to this change in the business model, the Company's revenues will increasingly depend on its ability to grow the number and volume of users of the Company's outsourcing services. The number of users and the volume of their activity are largely outside of the Company's control. Accordingly, the Company's past operating results may not be a meaningful indicator of its future performance. PRODUCT CONCENTRATION. To date, substantially all of the Company's revenues have been attributable to the licensing of its CAMRA, AdvisorWare, SKYLINE, PTS, and LMS software and the provision of maintenance and consulting 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 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. Although the Company believes that none of its competitors currently competes against the Company in all of the markets served by the Company, there can be no assurance that such competitors will not compete against the Company in the future in additional markets. In addition, 13 many of the Company's current and potential future competitors have significantly greater financial, technical and marketing resources, greater name recognition, and higher revenues than the Company. RAPID TECHNOLOGICAL CHANGE. The market for the Company's products and services is characterized by rapidly changing technology, evolving industry standards and new product introductions. The Company's future success will depend in part upon its ability to enhance its existing products and services and to develop and introduce new products and services to meet changing client 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. 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 Real-Time and Digital Visions, in an efficient and effective manner. Successful integration in a 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 of the Company. 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. 14 Because of these and other factors, past financial performance should not be considered an indication of future performance. The Company's quarterly operating results may vary significantly, depending on factors such as the timing, size, and nature of licensing transactions and new product introductions by the Company or its competitors. Investors should not use historical trends to anticipate future results and should be aware that the trading price of the Company's common stock may be subject to wide fluctuations in response to quarterly variations in operating results and other factors, including those discussed above. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to interest rate and securities price risks. These risks are not hedged and fluctuations could impact the Company's results of operations and financial position. Fixed income securities are subject to interest rate risk. In order to minimize interest rate risk, the Company's portfolio is diversified and consists primarily of investment grade securities, primarily U.S. government and federal agency obligations, tax-exempt municipal obligations and corporate obligations. The Company from time to time also holds equity securities in its portfolio. These equity securities are subject to market price risks. 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 exchange rate fluctuations from the time customers are invoiced in local currency until collection occurs. Through September 30, 2002, foreign currency 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 Evaluation of disclosure controls and procedures. Based on their evaluation as of a date within 90 days of the filing date of this report, the Company's principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Changes in internal controls. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no significant deficiencies or material weaknesses in the Company's internal controls, and therefore there were no corrective actions taken. 15 PART II - OTHER INFORMATION ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K a. The exhibit listed in the Exhibit Index immediately preceding such exhibit is filed as part or is included in this Report. b. There were no reports filed on Form 8-K in the quarter ended September 30, 2002. 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: November 14, 2002 By:/s/ Patrick J. Pedonti Patrick J. Pedonti Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) CERTIFICATIONS I, William C. Stone, certify that: 1. I have reviewed this quarterly report on Form 10-Q of SS&C Technologies, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures 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 quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have 17 identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses Date: November 14, 2002 By:/s/ William C. Stone William C. Stone Chief Executive Officer CERTIFICATIONS I, Patrick J. Pedonti, certify that: 1. I have reviewed this quarterly report on Form 10-Q of SS&C Technologies, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures 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 quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 18 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses Date: November 14, 2002 By:/s/ Patrick J. Pedonti Patrick J. Pedonti Chief Financial Officer 19 EXHIBIT INDEX

Exhibit Number Description -------------- ----------- 10.1 Employment Agreement between SS&C Technologies, Inc. and Anthony R. Guarascio dated August 12, 2002. 99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification of Chief Financial Officer 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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