10-Q 1 y54933e10-q.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, 2001 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 9, 2001:

Class Number of Shares Outstanding ----- ---------------------------- Common Stock, par value $0.01 per share 14,883,419

SS&C TECHNOLOGIES, INC. INDEX

Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets at September 30, 2001 and December 31, 2000 2 Consolidated Statements of Operations for the three-months and nine-months ended September 30, 2001 and 2000 3 Consolidated Statements of Cash Flows for the nine-months ended September 30, 2001 and 2000 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Disclosures About Market Risk 11 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds 12 Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURE 13

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)

September 30, December 31, 2001 2000 (unaudited) -------- -------- ASSETS Current assets: Cash and cash equivalents $ 24,125 $ 20,690 Investments in marketable securities 34,606 35,840 Accounts receivable, net of allowance for doubtful accounts 7,959 10,509 Income taxes receivable -- 144 Prepaid expenses and other current assets 1,679 1,955 Deferred income taxes 2,020 3,391 -------- -------- Total current assets 70,389 72,529 -------- -------- Property and equipment: Leasehold improvements 3,191 2,983 Equipment, furniture, and fixtures 17,595 16,338 -------- -------- 20,786 19,321 Less accumulated depreciation (12,760) (10,429) -------- -------- Net property and equipment 8,026 8,892 -------- -------- Deferred income taxes 7,641 7,179 Goodwill, net of accumulated amortization 81 129 Intangible and other assets, net of accumulated amortization 2,063 2,129 -------- -------- Total assets $ 88,200 $ 90,858 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 7 $ 94 Accounts payable 1,501 1,121 Income taxes payable 322 -- Accrued employee compensation and benefits 1,805 1,071 Other accrued expenses 1,460 3,497 Deferred maintenance and other revenue 11,224 12,421 -------- -------- Total current liabilities 16,319 18,204 -------- -------- Stockholders' equity: Common stock 162 162 Treasury stock (7,552) (5,700) Additional paid-in capital 89,058 88,852 Accumulated other comprehensive income 498 2,434 Accumulated deficit (10,285) (13,094) -------- -------- Total stockholders' equity 71,881 72,654 -------- -------- Total liabilities and stockholders' equity $ 88,200 $ 90,858 ======== ========

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, 2001 2000 2001 2000 -------- -------- -------- -------- Revenues: Software licenses $ 4,508 $ 4,507 $ 11,585 $ 12,713 Maintenance 6,727 6,373 19,845 19,544 Professional services 1,548 2,740 5,628 9,411 Outsourcing 1,357 1,692 4,190 4,167 -------- -------- -------- -------- Total revenues 14,140 15,312 41,248 45,835 -------- -------- -------- -------- Cost of revenues: Software licenses 180 227 548 722 Maintenance 1,708 1,573 5,323 4,878 Professional services 1,481 1,915 4,879 7,005 Outsourcing 1,329 1,721 4,100 4,850 -------- -------- -------- -------- Total cost of revenues 4,698 5,436 14,850 17,455 -------- -------- -------- -------- Gross profit 9,442 9,876 26,398 28,380 -------- -------- -------- -------- Operating expenses: Selling and marketing 2,827 2,814 8,770 9,277 Research and development 2,790 3,380 8,827 11,190 General and administrative 2,601 3,593 7,969 9,027 -------- -------- -------- -------- Total operating expenses 8,218 9,787 25,566 29,494 -------- -------- -------- -------- Operating income (loss) 1,224 89 832 (1,114) -------- -------- -------- -------- Interest income, net 661 815 2,069 2,121 Other income (expense), net (171) 41 1,644 811 -------- -------- -------- -------- Income before income taxes 1,714 945 4,545 1,818 Provision for income taxes 687 311 1,735 564 -------- -------- -------- -------- Net income $ 1,027 $ 634 $ 2,810 $ 1,254 -------- -------- -------- -------- Basic earnings per share $ 0.07 $ 0.04 $ 0.19 $ 0.08 ======== ======== ======== ======== Basic weighted average number of common shares outstanding 14,969 15,867 15,040 16,005 ======== ======== ======== ======== Diluted earnings per share $ 0.07 $ 0.04 $ 0.19 $ 0.08 ======== ======== ======== ======== Diluted weighted average number of common and common equivalent shares outstanding 15,234 15,922 15,168 16,047 ======== ======== ======== ========

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, 2001 2000 -------- -------- Cash flow from operating activities: Net income $ 2,810 $ 1,254 -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,693 3,099 Gain on sales of equity investments (1,800) -- Deferred income taxes 908 555 Provision for doubtful accounts 696 1,442 Changes in operating assets and liabilities: Accounts receivable 1,819 (1,468) Prepaid expenses and other assets 298 105 Taxes receivable 147 2,555 Accounts payable 388 92 Accrued expenses (1,304) (1,229) Taxes payable 322 -- Deferred maintenance and other revenues (1,152) 30 -------- -------- Total adjustments 3,015 5,181 -------- -------- Net cash provided by operating activities 5,825 6,435 -------- -------- Cash flow from investing activities: Additions to property and equipment (1,691) (1,452) Proceeds from sale of property and equipment 62 10 Issuance of convertible note receivable -- (1,000) Additions to capitalized software and other intangibles (159) (168) Purchases of marketable securities (27,192) (39,808) Sales of marketable securities 28,366 32,544 -------- -------- Net cash used in investing activities (614) (9,874) -------- -------- Cash flow from financing activities: Repayment of debt (77) (4) Issuance of common stock 188 278 Purchase of common stock for treasury (1,852) (2,253) Exercise of options 58 171 -------- -------- Net cash used in financing activities (1,683) (1,808) -------- -------- Effect of exchange rate changes on cash (93) -- -------- -------- Net increase (decrease) in cash and cash equivalents 3,435 (5,247) Cash and cash equivalents, beginning of period 20,690 14,304 -------- -------- Cash and cash equivalents, end of period $ 24,125 $ 9,057 ======== ========

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, 2001 and the results of its operations for the three months and nine months ended September 30, 2001 and 2000. These statements do not include all of the information and footnotes required by United States 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, 2000 which were included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2001. The December 31, 2000 consolidated balance sheet data were derived from audited financial statements, but do not include all disclosures required by United States generally accepted accounting principles for annual financial statements. The results of operations for the three months and nine months ended September 30, 2001 are not necessarily indicative of the expected results for the full year. 2. 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 earnings per share if the effect of including such common equivalent shares is antidilutive. Outstanding options to purchase 1.5 million and 2.9 million shares at September 30, 2001 and 2000, respectively, were not included in the computation of diluted earnings per share for the respective periods because the effect of including such 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):

(unaudited) Three Months Ended Nine Months Ended ----------------------------- ----------------------------- September 30, September 30, September 30, September 30, 2001 2000 2001 2000 ------ ------ ------ ------ Basic weighted average shares outstanding 14,969 15,867 15,040 16,005 Weighted average common stock equivalents -- options 265 55 128 42 ------ ------ ------ ------ Diluted weighted average shares outstanding 15,234 15,922 15,168 16,047 ====== ====== ====== ======

3. 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. 5 The following table sets forth the components of comprehensive income (in thousands):

(unaudited) ----------------------------------------------------------------- Three Months Ended Nine Months Ended ------------------------------- ------------------------------ September 30, September 30, September 30, September 30, 2001 2000 2001 2000 ------------- ------------- ------------- ------------- Net income $ 1,027 $ 634 $ 2,810 $ 1,254 Foreign currency translation (losses) gains 187 (167) (77) (315) Unrealized gains (losses) on marketable securities (615) 3,904 (1,859) 8,379 ------- ------- ------- ------- Total comprehensive income $ 599 $ 4,371 $ 874 $ 9,318 ======= ======= ======= =======

4. Stock Repurchase Program On May 24, 2001, the Company's Board of Directors authorized the expenditure of up to $20 million for the repurchase of its common stock through May 24, 2002. The stock repurchase is in addition to a repurchase program begun on May 23, 2000 and completed on May 23, 2001, pursuant to which the Company repurchased 1,203,219 shares of common stock for approximately $6.5 million. During the three months ended September 30, 2001, 159,000 shares of common stock were repurchased for approximately $1.1 million. As of September 30, 2001, under the repurchase programs, the Company had repurchased a total of 1,369,719 shares of Common Stock for approximately $7.6 million. 5. 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. 6. International Sales and Geography Information The Company manages its business primarily on a geographic basis. The Company's reportable segments are comprised of the Americas and Europe. The Americas segment includes both North and South America. 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):

(unaudited) (unaudited) Three Months Ended Nine Months Ended ------------------------------ ------------------------------ September 30, September 30, September 30, September 30, 2001 2000 2001 2000 ------------- ------------- ------------- ------------ Americas $12,429 $12,355 $35,416 $37,939 Europe 1,139 1,746 4,002 5,246 Other 572 1,211 1,830 2,650 ------- ------- ------- ------- $14,140 $15,312 $41,248 $45,835 ======= ======= ======= =======

6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Revenues The Company's revenues are derived from software licenses, related maintenance and professional services and outsourcing services provided by SS&C Direct. Revenues for the three months ended September 30, 2001 were $14.1 million, representing a decrease of 8% from $15.3 million in the same period in 2000. The decrease of $1.2 million for the three months ended September 30, 2001 was mainly attributable to decreases in professional services and outsourcing revenues, which was partially offset by an increase in maintenance revenues. Revenues for the nine months ended September 30, 2001 were $41.2 million, representing a decrease of 10% from $45.8 million in the same period in 2000. The decrease of $4.6 million for the nine months ended September 30, 2001 was attributable to a decrease in professional services and license revenues, which was partially offset by an increase in maintenance revenues. Software Licenses. Software license revenues for the three months ended September 30, 2001 were $4.5 million, unchanged compared to the same period in 2000. Higher sales of CAMRA 2000 and PTS 2000 were offset by lower sales of Antares 2000, SKYLINE, and Mabel. Software license revenues for the nine months ended September 30, 2001 were $11.6 million, representing a decrease of 9% from the $12.7 million for the same period in 2000. The decrease was primarily the result of lower sales of Antares 2000, AdvisorWare 2000, Mabel, and SKYLINE, which was partially offset by increased sales of CAMRA 2000, PTS 2000, and Total Return 2000. Maintenance. Maintenance revenues for the three months and nine months ended September 30, 2001 were $6.7 million and $19.8 million, respectively, representing increases of 6% and 2% over the $6.4 million and $19.5 million, respectively, for the comparable periods in 2000. The increase was primarily due to growth in the Company's installed base of clients requiring maintenance services. Professional Services. Professional services revenues for the three and nine months ended September 30, 2001 were $1.5 million and $5.6 million, respectively, representing decreases of 44% and 40% from the $2.7 million and $9.4 million, respectively, for the comparable periods in 2000. The decreases were primarily due to lower demand for the Company's implementation, conversion and training services. The professional service revenues will be affected by the Company's overall license revenue levels. Outsourcing Services. Outsourcing services revenues for the three months ended September 30, 2001 were $1.4 million representing a decrease of 20% from the $1.7 million for the same period in 2000. The decrease was due primarily to decreased demand by customers for outsourcing services. Revenues for the nine months ended September 30, 2001 were $4.2 million, unchanged compared to the same period in 2000. Cost of Revenues Total cost of revenues for the three and nine months ended September 30, 2001 were $4.7 million and $14.9 million, respectively, representing decreases of 14% and 15%, respectively, from the $5.4 million and $17.5 million, respectively, for the comparable periods in 2000. The gross margin increased to 67% in the three months ended September 30, 2001 from 65% for the comparable period in 2000. For the nine months ended September 30, 2001, the gross margin increased to 64% from 62% for the comparable period in 2000. This gross margin increase in both the three and nine-month periods was primarily due to an increase in the license and outsourcing revenue margins. Cost of Software Licenses. Cost of software license revenues relates primarily to royalties, the costs of product media, packaging, documentation and labor involved in the distribution of the Company's software and the amortization of completed technology. Cost of software licenses decreased 21% from $227,000 in the three-month period ended September 30, 2000 to $180,000 for the same period in 2001, representing 5% and 4% of license revenues in each of those quarters, respectively. Cost of software licenses in the nine-month periods ended September 30, 2000 and 2001 were $722,000 and $548,000, respectively, representing 6% and 5%, respectively, of license revenues in each of those periods. The decrease in costs for the nine months ending September 30, 2000 was due primarily to the reduction in amortization for completed technology. The amortization, which was related to the 1998 acquisition of Savid International, was completed in the second quarter of 2000. 7 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 increased from $1.6 million in the three months ended September 30, 2000 to $1.7 million in the three months ended September 30, 2001. The cost of maintenance increased from $4.9 million in the nine months ended September 30, 2000 to $5.3 million in the nine months ended September 30, 2001. The increase costs for both the three and nine-month periods ended September 30, 2001 was mainly due to higher personnel and wage costs. The cost of maintenance remained relatively constant as a percentage of such revenues for the three and nine-month periods ended September 30, 2001 and 2000. 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 23% from $1.9 million in the three months ended September 30, 2000 to $1.5 million for the same period in 2001, representing 70% and 96%, respectively, of professional service revenues in each of those periods. Cost of professional services revenue in the nine months ended September 30, 2000 and 2001 were $7.0 million and $4.9 million respectively, and represented 74% and 87%, 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 decreased 23% from $1.7 million in the three months ended September 30, 2000 to $1.3 million for the same period in 2001, representing 102% and 98%, respectively, of outsourcing revenues in each of those periods. Cost of outsourcing in the nine months ended September 30, 2000 and 2001 was $4.9 million and $4.1 million, respectively, representing 116% and 98%, respectively, of outsourcing revenues in each of those periods. The decrease in the cost of outsourcing is due to lower personnel related costs as a result of improved operational efficiencies. Operating Expenses 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. Selling and marketing expenses for the three months ended September 30, 2001 were unchanged compared to the comparable period in 2000, representing 18% and 20%, respectively, of total revenues for those periods. These expenses decreased 5% from $9.3 million in the nine months ended September 30, 2000 to $8.8 million for the same period in 2001, representing 20% and 21%, respectively, of total revenue for those periods. The decrease for the nine-month period ended September 30, 2001 was largely attributable to lower personnel-related costs and lower sales incentive commissions due to lower revenues. 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 17% from $3.4 million in the three months ended September 30, 2000 to $2.8 million for the same period in 2001, representing 22% and 20%, respectively, of total revenues for those periods. Research and development expenses decreased 21% from $11.2 million in the nine months ended September 30, 2000 to $8.8 million for the same period in 2001, representing 24% and 21%, respectively, of total revenue for those periods. These decreases were mainly due to lower personnel-related costs resulting from improved operational efficiencies. General and Administrative. General and administrative expenses are primarily composed of personnel costs attributable 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 28% from $3.6 million in the three months ended September 30, 2000 to $2.8 million for the same period in 2001, representing 23% and 18%, respectively, of total revenue for those periods. These expenses decreased 12% from $9.0 million in the nine months ended September 30, 2000 to $8.0 million for the same period in 2001, representing 20% and 19%, respectively, of total revenues for those periods. The decreases were mainly attributable to lower bad debt expense and a one-time performance payment of $750,000 during the three months ended September 30, 2000 associated with the 1998 acquisition of Savid International. The payment was based on certain revenue attainment goals. 8 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 decreased 19% from $815,000 for the three months ended September 30, 2000 to $661,000 for the same period in 2001. The decrease was due to lower returns caused by lower interest rates on investments. Included in other income (expense), net for the nine months ended September 30, 2001 was a gain on the sale of an equity investment of $1.8 million compared to a gain of $0.5 million for the nine months ended September 30, 2000. Provision for Income Taxes. The Company had effective tax rates of 31% and 38% in the nine-month periods ended September 30, 2000 and 2001, respectively. The increase in the effective tax rate was primarily due to lower research and development tax credits and the impact of the shift in marketable securities from non-taxable to taxable securities. LIQUIDITY AND CAPITAL RESOURCES The Company's cash, cash equivalents and marketable securities at September 30, 2001 were $58.7 million, increasing $2.2 million from the $56.5 million at December 31, 2000. Included in marketable securities at September 30, 2001 was an equity investment valued at $1.1 million that is subject to considerable market risk due to its volatility. Net cash provided by operating activities was $5.8 million for the nine months ended September 30, 2001. Cash provided by operating activities was primarily due to earnings adjusted for non-cash items and a decrease in accounts receivable offset by a decrease in deferred revenues and accrued expenses. Accounts receivable decreased from $10.5 million at December 31, 2000 to $8.0 million at September 30, 2001, reducing days sales outstanding to 51 days. Investing activities used cash of $0.6 million for the nine months ended September 30, 2001. This was primarily due to capital expenditures of $1.7 million partially offset by the net proceeds from the sale of marketable securities of $1.2 million. Financing activities used cash of $1.7 million for the nine months ended September 30, 2001. This was primarily due to the Company's stock repurchase programs. The Company repurchased 308,600 shares of its common stock for treasury in the nine months ended September 30, 2001 for a total cost of $1.9 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; personnel changes; 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 SS&C Direct 9 outsourcing services. Due to this change in the business model, the Company's revenues will increasingly depend on its ability to attract customers to SS&C Direct and 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. Thus, 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 2000, AdvisorWare 2000, Total Return 2000, PTS 2000, and SKYLINE 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, many of the Company's current and potential future competitors have significantly greater financial, technical and marketing resources, generate higher revenues and greater name recognition 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. Dependence on Database Supplier. The relational database design used in many of the Company's software products incorporates PFXplus, a "C"-based database management system licensed to the Company by POWERflex Corporation Proprietary Limited, an Australian vendor ("Powerflex"). If Powerflex were to increase its fees under the license agreement, the Company's results of operations could be materially adversely affected. Moreover, if Powerflex were to terminate the license agreement, the Company would have to seek an alternative relational database for its software products. Even though the Company believes that it could migrate its products to an alternative database, there can be no assurance that the Company would be able to license a database in a timely fashion with similar features and on terms acceptable to the Company. Dependence on Proprietary Technology. The Company's success and ability to compete is dependent 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, from time to time, 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. 10 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 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 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 exchange rate fluctuations from when customers are invoiced in local currency until collection occurs. Through September 30, 2001, 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. 11 PART II - OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS d. The following information relates to the use of the $52.8 million of net proceeds from the Company's initial public offering of common stock (the "Offering"). The effective date of the Company's Registration Statement on Form S-1 File No. 333-3094 (the "Registration Statement") relating to the Offering, for which the following use of proceeds information is being disclosed, was May 30, 1996. From the effective date of the Registration Statement through September 30, 2001, the Company has used the net offering proceeds to the Company as follows (in thousands): Corporate move and equipment purchases $16,709 Acquisition of other business 5,333 Repayment of indebtedness 3,615 Purchase of common stock for treasury 7,552 Marketable securities 19,591 ------- Total $52,800 ======= All of the above listed payments were direct or indirect payments to persons other than directors, officers, general partners of the Company or their associates; persons owning ten percent or more of any class of equity securities of the Company, or affiliates of the Company. ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K a. NA. b. NA. 12 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, 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 13, 2001 By:/s/ Anthony R. Guarascio Anthony R. Guarascio Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 13