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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period
from ________________ to ________________________
Commission File Number 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 Identification Number)
of incorporation or organization)
80 Lamberton Road
Windsor, CT 06095
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (860) 298-4500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
As of March 23, 1999, the aggregate market value of the common stock held
by non-affiliates of the Registrant was approximately $93,555,209 based on the
closing sale price of $12.13 of the Registrant's Common Stock on the Nasdaq
National Market on such date.
As of March 23, 1999, 15,549,714 shares of the Registrant's Common Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Report into
Document which incorporated
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Portions of the Registrant's Items 6, 7, 7A & 8 of Part II
1998 Annual Report to Stockholders
Items 10, 11, 12 & 13 of Part III
Portions of the Registrant's
Proxy Statement for the Annual
Meeting of Stockholders to be
held May 11, 1999
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SS&C TECHNOLOGIES, INC.
TABLE OF CONTENTS
Form 10-K
Item Page
- --------- ----
PART I
Item 1. Business.................................................. 3
Item 2. Properties................................................ 10
Item 3. Legal Proceedings......................................... 10
Item 4. Submission of Matters to a Vote of Security Holders....... 10
Executive Officers of the Registrant...................... 10
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters........................... 11
Item 6. Selected Financial Data................................... 12
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 12
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk......................................... 12
Item 8. Financial Statements and Supplementary Data............... 12
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.................... 12
PART III
Item 10. Directors and Executive Officers of
the Registrant........................................... 13
Item 11. Executive Compensation................................... 13
Item 12. Security Ownership of Certain Beneficial
Owners and Management.................................... 13
Item 13. Certain Relationships and Related
Transactions............................................. 13
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K...................................... 13
Signature page........................................... 14
FORWARD-LOOKING INFORMATION
This Annual Report contains forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended and Section
27A of the Securities Act of 1933, 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
under the caption "Certain Factors That May Affect Future Operating Results" in
the Company's 1998 Annual Report to Stockholders and incorporated herein by
reference, 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.
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PTS, Macro Pricing, SKYLINE, PRO-JECT, HedgeWare and AdvisorWare are
registered trademarks, SS&C, CAMRA, CAMRA 2000, LMS 2000, LMS 2000 SnapShots,
Extend, PTS 2000, Total Return 2000, Antares 2000, CAMRA Debt and Derivatives
2000, Mabel, REMS and Finesse 2000 are trademarks, and SS&C Direct and Straight-
Thru Processing are service marks of either SS&C Technologies, Inc., or one of
its subsidiaries. All other trademarks or trade names referred to in this Annual
Report are the property of their respective owners.
2
PART I
ITEM 1. BUSINESS
SS&C Technologies, Inc. ("SS&C" or the "Company") was organized as a Connecticut
corporation in March 1986 and reincorporated in Delaware in April 1996. The
Company is a leading provider of client/server-based financial software
solutions, and related consulting services, designed to improve the efficiency
and effectiveness of investment management, actuarial, and analytical functions
across a broad range of financial institutions. The Company has developed a
family of software products that provides a full range of mission-critical
information management and analysis, trading, accounting, reporting, and
compliance tools, to help high-level investment and actuarial professionals make
informed, real-time decisions and automate many operational functions in today's
increasingly complex and fast-moving financial markets. The Company's products
are focused on improving the effectiveness of decision-making through open,
fully integrated access to meaningful data provided on a timely basis. The
Company provides products and services to more than 5,500 organizations
worldwide and its customers include asset managers, insurance companies, banks,
corporate treasuries, hedge funds, family offices, and government agencies, as
well as real estate investment and property management.
Recent Events
On March 11, 1999, the Company acquired HedgeWare, Inc. ("HedgeWare"), a
provider of portfolio, financial partnership, and tax accounting software and
service support to hedge fund managers and traders, for an aggregate of 685,683
authorized but previously unissued shares of Common Stock of the Company. The
transaction will be accounted for as a pooling of interests.
Products and Services
The Company offers a family of application software products designed to address
the requirements of professionals in the financial services industry for
flexible, scaleable, and secure analysis and reporting tools to support
automation of the investment process. The Company's family of software products
supports trading, accounting, reporting, and analysis requirements of a broad
range of users within financial organizations, including senior executives,
portfolio managers, actuaries, analysts, portfolio accountants, and traders.
The following chart summarizes the Company's principal products and services and
typical users:
Products and Services Typical Users
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Portfolio Management, Investment Accounting Portfolio managers and investment operations personnel
CAMRA 2000 of asset managers, hedge funds, family wealth
Total Return 2000 managers, investment advisory firms, insurance
Mabel companies, pension funds, public funds, corporate
CAMRA Debt and Derivatives 2000 treasuries, and banks
HedgeWare
AdvisorWare
Trade Order Management Securities traders and portfolio managers of asset
Antares 2000 managers, hedge funds, family wealth managers, pension
funds, and other financial institutions
Asset/Liability Management Life insurance company CEOs, CFOs, product managers,
PTS 2000 and actuarial professionals
Dynamic Financial Analysis CEOs, CFOs, and risk managers of property and casualty
Finesse 2000 insurance companies and other risk-sensitive industries
Loan Management Mortgage loan portfolio managers and loan service
LMS 2000 businesses
Real Estate Equity Management Real estate investment managers
REMS
SKYLINE for Windows
PRO-JECT for Windows
SKYLINE Enterprise
Consulting Services and Outsourcing Services Asset management firms, insurance companies, pension
Consulting Services funds, and banks
SS&C Direct
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The Company's software applications are compatible with Intel x86 platforms (IBM
PC compatible or emulators) and a wide range of popular topologies, protocols,
and network operating systems, including Ethernet, Token Ring, IPX/SPX, TCP/IP,
NET BEUI, Novell Netware, Windows, Windows `95, Windows NT, Pathworks, and UNIX.
The prices of the Company's software products vary depending upon the product
features included and, in the case of the Company's CAMRA 2000 and LMS 2000
products, on the assets under management by the client. The Company's PTS 2000
software is available for purchase by site or as an individual CPU license. The
Company's Antares 2000, Total Return 2000, Mabel system, and CAMRA Debt and
Derivatives 2000 software is available for purchase by site or based on the
number of concurrent users.
Portfolio Management, Investment Accounting
CAMRA 2000
The Company's Complete Asset Management, Reporting and Accounting ("CAMRA 2000")
software supports the integrated management of asset portfolios by investment
professionals operating across a wide range of institutional investment
entities. CAMRA 2000 is a 32-bit, multi-user, integrated solution tailored to
support the entire portfolio management function, and includes features to
execute, account for, and report on all typical securities transactions.
CAMRA 2000 is designed to account for all the activity of the investment
operation and continually update through the processing of day-to-day securities
transactions. The product accounts for both transactions and holdings and stores
the results of most accounting calculations in its open relational database,
thereby providing user-friendly, flexible data access as well as supporting data
warehousing. In addition to storing transactions and holdings data on
securities, cash, and foreign exchange forward contracts, CAMRA 2000 also stores
data on custodians, brokers and broker budgets, analytical information, general
ledger entries, alternative accounting basis, tax information, and other aspects
of the investment operation. To facilitate further automation of such extensive
stored data, the Company has developed interface capabilities for smooth
information exchange with custodian banks, data providers, and analytic data
services.
Other CAMRA 2000 features include the following:
Comprehensive Accounting and Reporting Capabilities. CAMRA 2000 supports four
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distinct yet interrelated accounting bases--GAAP, statutory, management, and
tax--and has the flexibility to provide multiple alternative accrual methods,
multiple sales methods, average cost or tax lot accounting, and multiple
amortization methods.
Support of Trading Transactions. CAMRA 2000 supports a wide variety of
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investment and accounting transactions, ranging from buy and sell to short and
cover, swap, put, call, redemption, return of capital, settlement, account
transfer, and portfolio transfer. All transactions are recorded on a real-time
basis, permitting immediate enterprise-wide access to the most current portfolio
information by authorized users.
Multi-currency Processing. CAMRA 2000 automatically calculates transaction and
- --------------------------
translation values in accordance with applicable accounting and industry
conventions, supports calculation of market, accounting, and foreign exchange
gains and losses, and provides a full foreign exchange trading capability with
forward pricing, while taking into account such critical parameters as global
calendars (with weekends and holidays defined by countries), multiple-based
currencies, and required rounding techniques.
Regulatory Compliance. CAMRA 2000 includes standard reports to meet the annual
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and quarterly regulatory reporting requirements of insurance organizations as
promulgated by the National Association of Insurance Commissioners (NAIC). CAMRA
2000 also supports regulatory reporting requirements of various other regulatory
agencies such as the Securities and Exchange Commission and the Office of the
Comptroller of the Currency.
CAMRA 2000 is designed to facilitate seamless integration with its software
modules. Modules to CAMRA 2000 are available for performance measurement using
computations consistent with Association for Investment Management and Research
(AIMR) standards, portfolio compliance, net asset value computations for mutual
funds, optimization of
4
trading in mortgage-backed securities on a to-be-announced (TBA) basis, client
fee billing, portfolio rebalancing, and interfacing with various products of
Bloomberg Trade Book, Open Bloomberg, Interactive Data Corporation, and other
analytic data services.
Total Return 2000
Total Return 2000 is a portfolio management and partnership accounting system
oriented toward the hedge fund and private wealth markets. It is a multicurrency
system which, like CAMRA 2000, is designed to provide securities accounting and
reporting for businesses with high transaction volumes. Partnership accounting,
including the generation of tax forms 1065 and K-1, are provided through Total
Return 2000's TR1065 module. Total Return 2000 also incorporates a comprehensive
general ledger. Performance measurement using computations consistent with AIMR
standards is also provided through a module to the system. Other modules to
Total Return 2000 provide for tax reporting and trust reporting. Total Return
2000 also has interfaces with brokers, pricing services, data services, and
front-end trading systems.
Mabel
Mabel is a portfolio management system from the Company's Netherlands-based
Mabel subsidiary that is used by clients throughout Europe and the Caribbean.
Mabel's functionality includes accounting and reporting, performance measurement
consistent with AIMR standards, net asset value calculations for mutual funds,
and support for stock brokering and custodial services. The Mabel system is
designed to automatically map data to and from messages in the S.W.I.F.T.
(Society for Worldwide Interbank Financial Communications) format.
CAMRA Debt and Derivatives 2000
CAMRA Debt and Derivatives 2000 is a PC/LAN-based debt and derivative portfolio
management system from the Company's Savid subsidiary, acquired in April 1998.
CAMRA Debt and Derivatives 2000 is a modularized application designed to process
and analyze all activities related to debt and derivative portfolios: swaps,
caps, floors, collars, FRAs, FX, futures, and options, as well as the issuance
of short-, medium-, and long-term debt.
AdvisorWare
AdvisorWare provides for multiple modules that process a unified flow of
information, including communications, research, portfolio management, trading
and operations, as well as portfolio accounting, financial accounting and tax
accounting. AdvisorWare features complete report writing capabilities across all
modules; seamless integration with all Microsoft Office products, the ability
to retain multiple cost basis; an extensive user security system; and multi-
user, client/server, Windows 95 or Windows NT operating systems.
HedgeWare
HedgeWare is a comprehensive data management tool from the Company's Hedgeware
subsidiary specifically designed to enable Investment Partnerships to
consolidate the tasks of portfolio accounting, financial (partnership)
accounting, and tax accounting. HedgeWare's integrated portfolio, financial, and
tax modules are designed to facilitate a seamless flow of information from trade
entry, through accounting, tax preparation, and management reporting.
HedgeWare's multi-user relational database architecture and purpose-built user
interface provide real-time information management, significantly reducing time
spent on administrative tasks. HedgeWare also allows for export to most major
spreadsheet and database packages, and can provide extensive import
capabilities.
Trade Order Management
Antares 2000
Antares 2000 is a comprehensive, real-time, event-driven trading and profit and
loss reporting system designed to integrate trade modeling with trade order
management. Modeling scenarios, including trader-defined formulas, can be
customized and stored in a familiar spreadsheet environment. Antares 2000 is
designed to transfer data seamlessly from modeling scenarios to trade orders. In
Antares 2000, trades can be managed in the multiple steps of trade ordering,
filling the order, and approving the trade, or recorded in a single step.
Antares 2000 can also allocate trades across accounts at any step in the
process.
Trade blotters in Antares 2000 can be customized depending on client, product
type, or trader. Full position accounting is provided across all types of
securities. Antares 2000 also accepts real-time pricing updates and can display
real-time positions and profit and loss statements. Portfolio rebalancing can be
set to occur automatically. As Antares 2000 uses an open relational database,
customized reporting is supported through its own report writing facilities, or
through other third-party reporting tools. Antares 2000 also includes
functionality to automate the processing of options, futures, and forward
currency contracts.
5
For some financial institutions, the Antares 2000 trading system may serve as a
comprehensive, stand-alone investment management system. For financial
institutions with more accounting and historical reporting requirements, Antares
2000 may serve as the front-end trading system connected to CAMRA 2000, Total
Return 2000, or other portfolio management investment accounting systems.
Asset/Liability Management
PTS 2000
PTS 2000 provides an economic model of insurance assets and liabilities,
generating option-adjusted cash flows to reflect the complex sets of options and
covenants frequently encountered in insurance contracts or comparable
agreements. PTS 2000 includes the following features:
Large-Scale Corporate Simulation Models. The Company and certain significant
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clients have implemented a number of complex models of whole-company financial
performance. Unlike simpler systems, PTS 2000 maintains an internal architecture
patterned after the structure of insurance companies themselves, making full-
scale corporate models practical. Such corporate models are used to facilitate
capital structure decisions, revealing and measuring overall financial
performance, and guiding overall risk management practice.
Option Pricing. The PTS 2000 option-pricing model provides option-adjusted
- ---------------
valuation of assets and liabilities under a consistent conceptual framework. The
PTS 2000 option pricing model explicitly considers interest-sensitive embedded
options, providing valid interest rate risk analysis, using price behavior
curves that graphically depict asset/liability performance over shifts in the
interest rate term structure.
Macro Pricing. The Company's proprietary Macro-Pricing algorithm recognizes the
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complex relationships within contemporary financial intermediaries and provides
a matrix of possible product and production quota options in conformity with the
profit expectations of the client.
Dynamic Financial Analysis
Finesse 2000
The Company's Finesse 2000 system is a Dynamic Financial Analysis tool designed
and developed in cooperation with Ernst & Young LLP, to model operating results,
gauge the effects of reinsurance and validate pricing, value business
transactions such as mergers and acquisitions, measure the impact of new
products, predict cash flows, analyze the impact of investment decisions, and
improve strategic planning. Finesse 2000 generates iterative, computer-simulated
scenarios in response to events that may have an impact on a client's business.
The results of this iterative process are stored in Finesse 2000's "virtual
general ledger," which mimics the financial accounting that would occur if these
scenarios were to occur. All simulated results are recorded and can be easily
viewed on Finesse 2000's "graphical palette," an on-line facility that visually
depicts the likely occurrence of one or more specific events.
Loan Management
LMS 2000
LMS 2000 enables mortgage professionals to process, analyze and report on a
comprehensive basis, information regarding their mortgage loan portfolios. LMS
2000 is a 32-bit, multi-user, integrated solution operating on a client/server
platform, which eliminates the need for separate, independent systems within the
mortgage loan area. LMS 2000, which can be integrated with data stored in the
Company's CAMRA 2000 and PTS 2000 products, provides the following features:
Application and Commitment Processing. LMS 2000 supports the processing of
- --------------------------------------
commercial and residential mortgage loans, providing on-line access to critical
evaluative information, including credit history, appraisals, ratio, broker
information, duration, convexity, average life and discounted cash flow
valuation, permitting loan recommendations to be generated quickly,
consistently, and easily.
Accounting and Servicing Support. LMS 2000 supports accurate and consistent
- ---------------------------------
servicing of loans, including general ledger entries at the sub-portfolio level,
with a direct interface to the corporate general ledger. LMS 2000 also
maintains appraisals and operating statements at the proper level to support
loan and portfolio management.
Comprehensive Reports. LMS 2000 generates and supports a wide range of
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accounting, servicing, and management reports. All reports can be viewed on-
line, downloaded or printed.
REO. LMS 2000 provides a smooth transition from a loan to an equity asset,
- ----
establishes/monitors budgets, maintains depreciation records and processes REO-
specific transactions.
6
Executive Summary. LMS 2000 SnapShots captures a complete overview of a
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selected portfolio, making essential information immediately available. LMS 2000
SnapShots also exports into Microsoft Excel or Lotus.
Interested Party Directory. LMS 2000's Interested Party Directory serves as a
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common source for all business entities, providing comprehensive borrower
financial exposure analysis, relationship tracking and business functionality
exposure.
Extend. LMS 2000's unique Extend utility allows users to customize their
- ------
database by creating screens and database fields to enter, review, and report
information. It attaches to over 25 areas of the system.
Imaging and Mapping. LMS 2000 enables users to attach image files to multiple
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areas of the system for document and collateral imaging and tracking, and plots
properties onto on-line geographic maps, facilitating analyses at both a general
and a property-specific detailed level.
Real Estate Equity Management
Real Estate Management System (REMS) is an integrated suite of software
applications, including Real Estate Financials, Property Accounting, Financial
Modeling, Registry, Property Operations, and Leasing Management - designed
around the functional areas of real estate organizations to provide a single
solution for managing information.
SKYLINE for Windows is property management software that manages all aspects of
office/industrial, residential, and retail properties, even those which are
decentralized geographically. SKYLINE also features detailed, informative
reports. SKYLINE Enterprise is a similar system, but capable of handling larger
amounts of data required for the management of a large amount of property
holdings.
PRO-JECT for Windows is property valuation software that calculates the value of
any combination of office, industrial, retail, apartment and mixed-use property
types. It can perform sophisticated sensitivity analysis on property
assumptions, and produce detailed reports such as present value and consolidated
cash flow reports.
Consulting Services and Outsourcing Services
Consulting Services
Building upon the capability and flexibility of its software products, the
Company offers a range of professional services to assist clients in
implementing the Company's software products and meeting their portfolio
management needs. To facilitate successful product implementation, the Company's
consultants assist clients with initial installation of a system, conversion of
the client's historical data, and ongoing training and support. The Company's
team works closely with the client to ensure smooth transition and operation of
the Company's systems. The Company believes its commitment of dedicated
professionals to facilitate the transition process strengthens its relationship
with the client, provides the Company with valuable information regarding client
requirements and offers the opportunity for sales of additional Company products
and services to the client. The Company's consultants have a broad range of
experience in the financial services industry and include certified public
accountants, chartered financial analysts, mathematicians and professionals from
the asset management, real estate, investment, insurance and banking industries.
In addition, the Company offers actuarial consulting services to its insurance
company and other financial institution clients. The Company believes its
commitment to professional services facilitates the adoption of the Company's
software products across its target markets.
SS&C Direct
For those clients wishing to outsource certain portfolio accounting, reporting
and analysis functions, the Company also provides comprehensive outsourcing
services through its SS&C Direct operating unit. The Company's consultants
initially work with a client to research and evaluate data sources, implement
custodian and pricing interfaces and determine reporting requirements and
timing. The Company provides its clients with accurate, processed data on a
timely basis, enabling investment professionals to spend their time analyzing
data and making investment decisions rather than managing the back-office
investment operations. The features of the Company's outsourcing services
include: (i) customized access rights to provide on-line access on a per-client
basis; (ii) regular holdings reports, also available on-line, and complete
regulatory support; (iii) disk mirroring, daily back-up of the system and other
data protection measures; or; and (iv) disaster recovery hot site services.
7
Product Support
The Company believes its high level of service and support is critical to its
success, and an important competitive advantage. Further, the Company believes a
close and active service and support relationship is important to client
satisfaction, and provides the Company with important information regarding
evolving client requirements. The Company provides each of its significant
clients with a dedicated client support representative whose primary
responsibility is to resolve questions and concerns and act as a liaison between
the client and the Company. In addition, the Company provides direct telephone
support during extended business hours. Additional hours are available during
peak periods, and the Company uses the Internet, electronic bulletin boards and
other forms of electronic data distribution that provide clients with the latest
information regarding its products. The Company also provides periodic
maintenance releases of licensed software to its clients, including regulatory
updates, generally during the fourth quarter, to enable them to meet industry
reporting obligations and other processing requirements as they evolve. The
Company's service and support activities are supplemented by comprehensive
training, including introductory training courses for new users.
Clients
The Company's clients include a wide range of financial institutions and other
organizations that require a full range of information management and analysis,
accounting, actuarial, reporting, and compliance software on a timely and
flexible basis, and include asset managers, insurance companies, banks,
corporate treasuries, hedge funds, family offices, real estate asset managers,
and government agencies. The Company provides products and services to more than
5,500 organizations worldwide.
Sales and Marketing
The Company believes a direct sales organization is essential to the successful
implementation of its business strategy, given the complexity and importance of
the operations and information the Company's products are designed to manage,
and the extensive regulatory and reporting requirements of its clients. The
Company's dedicated direct sales and support staff, which is supplemented by
extensive ongoing product and sales training, is organized by business unit and
situated in the Company's various sales offices. The Company also uses
telemarketing to support sales of its real estate equity products.
The Company's marketing personnel are responsible for evaluating and developing
market opportunities and providing sales support. The Company's marketing
activities include generation of client leads, targeted direct mail campaigns,
seminars, advertising, trade shows, conferences and public relations efforts.
The marketing department also supports the sales force with appropriate
documentation or electronic materials for use during the sales process.
Product Development; Research and Development; Backlog
The Company believes it must introduce new products and features into the market
on a regular basis to maintain its competitive advantage. To meet these goals,
the Company uses multidisciplinary teams of highly trained finance, accounting,
mathematical, actuarial, software and investment personnel, and has invested
heavily in developing a comprehensive product analysis process to meet rigorous
requirements for product functionality and quality across its target markets.
The Company's research and development engineers work closely with the Company's
marketing and support personnel to assure product evolution reflects
developments in the marketplace and trends in client requirements. Historically,
the Company has issued a major functional release of its core products during
the third quarter of each fiscal year, including functional enhancements, as
well as an annual fourth quarter release to reflect evolving regulatory changes
in time to meet clients' year-end reporting requirements.
Although the Company historically has met its scheduled dates for product
releases and enhancements, software development is characterized by
unanticipated delays, and there can be no assurance that the Company will be
able to maintain future scheduled release dates as planned. Further, there can
be no assurance that the Company's new product releases and product enhancements
will adequately address the needs of the marketplace or will not contain "bugs"
which could cause delays in product introduction or shipments or, if discovered
in the future, require modification of the Company's products.
8
As of December 31, 1998, the Company's research and development staff consisted
of 123 employees. The Company's total expenses for research and development,
excluding purchased in-process research and development, for the years ended
December 31, 1996, 1997 and 1998 were $8.4 million, $10.2 million and $17.4
million, respectively.
Backlog is not a significant factor in the Company's business.
Competition
The market for financial services software is competitive, rapidly evolving, and
highly sensitive to new product introductions and marketing efforts by industry
participants. The market is also highly fragmented and served by numerous firms,
many of which serve only their respective local markets or specific customer
types, and much of the Company's competition stems from information systems or
timesharing services developed and serviced internally by the MIS departments of
financial services firms. The Company currently faces direct competition in
various segments of the financial services industry from Thomson Financial,
SunGard Data Systems, Inc., Princeton Financial Systems (a subsidiary of State
Street Bank and Trust Company), Financial Models Company Inc., DST Systems,
Inc., and Advent Software, Inc. The Company believes none of its competitors
currently competes against it in all of its target industry segments, although
there can be no assurance that one or more may not compete against the Company
in the future in additional industry segments. Many of the Company's current and
potential future competitors have significantly greater financial, technical,
and marketing resources, generate higher revenues, and have greater name
recognition than does the Company. There can be no assurance that the Company's
current or potential competitors will not develop products comparable or
superior to those developed by the Company or adapt more quickly than the
Company to new technologies, evolving industry trends or changing client
requirements. It is also possible that alliances among competitors may emerge
and rapidly acquire significant market share. Increased competition may result
in price reductions, reduced gross margins and loss of market share, any of
which would materially adversely affect the Company's business, financial
condition, and results of operations.
The Company believes the principal competitive factors in its industry include
product performance and functionality, ease of use, scalability, ability to
integrate external data sources and processing systems, product and company
reputation, client service and support, and price. Although the Company believes
it currently competes effectively with respect to such factors, there can be no
assurance that the Company will be able to maintain its competitive position
against current and potential competitors.
Proprietary Rights
The Company primarily relies on a combination of copyright, trademark, and trade
secret laws and license agreements to establish and protect proprietary rights
of its products. The source code for the Company's products is protected as both
a trade secret and an unpublished copyrighted work. In addition, the Company
generally enters into confidentiality and/or license agreements with its
employees, distributors, clients, and potential clients and limits access to,
and distribution of, its software, documentation, and other proprietary
information. Despite these precautions, it may be possible for a third party to
copy or otherwise obtain and use the Company's products or technology without
authorization or to develop similar technology independently. In addition,
effective copyright and trade protection may be unavailable or limited in
certain foreign countries. In January 1996, the Company licensed the use of
certain of its source code to General American Life Insurance Company and
Conning Asset Management Company, affiliates of certain stockholders of the
Company.
Because the software development industry is characterized by rapid
technological change, the Company believes factors such as technological and
creative skills of its personnel, new product developments, frequent product
enhancements, name recognition, and reliable service and support are more
important to establishing and maintaining a leadership position than legal
protections of its technology.
Employees
As of December 31, 1998, the Company had 462 full-time employees, consisting of
123 employees in research and development, 93 employees in consulting and
services, 57 employees in sales and marketing, 58 employees in client support,
45 employees in finance and administration, and 86 employees in the Company's
international operations. None of these employees is covered by any collective
bargaining agreements. The Company believes its relationship with its employees
is good. The future success of the Company will depend upon its ability to
attract and retain qualified personnel. Competition for such personnel is often
intense, and there can be no assurance that the Company will be able to attract
and retain adequate numbers of qualified personnel in the future.
9
ITEM 2. PROPERTIES
The Company leases its corporate offices, consisting of 54,000 square feet
of office space, in Windsor, Connecticut. It relocated from a building it
continues to own in Bloomfield, Connecticut during the second quarter of 1998.
The initial lease term is for ten years and the Company has the right to extend
the lease for one additional term of five years. The lease requires annual
payments of $717,000 for each of the first five years and annual payments of
$757,000 for each of the remaining five years. In support of direct sales and
support operations, the Company utilizes facilities and offices in ten locations
in the United States and Canada and also has offices in London, England;
Amsterdam, Netherlands; and Kuala Lumpur, Malaysia.
ITEM 3. LEGAL PROCEEDINGS
On March 18, 1997, Elery G. Montagna and Marjory G. Montagna filed a
purported class action lawsuit in the United States District Court for the
Southern District of New York (the "New York Complaint") against the Company and
certain of its executive officers, as well as against BT Alex. Brown
Incorporated (as successor to Alex. Brown & Sons Incorporated, "Alex. Brown")
and Hambrecht & Quist LLC ("Hambrecht & Quist"), the lead managers of the
Company's initial public offering. On April 8, 1997, Marc A. Feiner filed a
purported class action lawsuit in the United States District Court for the
District of Connecticut (the "Connecticut Complaint") against the Company, its
directors and certain of its executive officers, as well as against Alex. Brown
and Hambrecht & Quist. On July 8, 1997, Marc A. Feiner, Joseph Aogiere, Arthur
S. Davis, Theodore S. Davis, James Gregory, Brian Kreidler, Daniel Kreidler,
Robert Miller, Elery Montagna, Marjory Montagna and Gilda Shapiro Trust filed a
Consolidated Amended Class Action Complaint in the United States District Court
for the District of Connecticut (the "Consolidated Complaint") in which the New
York Complaint and the Connecticut Complaint were consolidated and amended. The
Consolidated Complaint claims that the Prospectus for the Company's initial
public offering allegedly made material misrepresentations in violation of
Sections 11 and 12(2) of the Securities Exchange Act of 1933. The plaintiffs are
seeking an undetermined amount of damages and costs and expenses of the
litigation. The plaintiffs filed a motion to certify a class in this matter on
May 29, 1998. The Company filed its opposition to class certification on
September 25, 1998, and Alex. Brown and Hambrecht & Quist filed a separate
opposition on September 29, 1998. The plaintiffs filed a reply brief on the
class certification issue on October 26, 1998, and the defendants filed surreply
briefs on November 10, 1998. The court has not yet ruled on the motion for class
certification. The matter is now in the discovery phase. The Company believes it
has meritorious defenses to the claims made in the lawsuit and intends to
contest the Consolidated Complaint vigorously. Although the amounts claimed may
be substantial, management cannot predict the ultimate outcome or estimate the
potential loss, if any, related to these claims. Management believes that the
disposition of this matter will not have a material adverse effect on the
Company's consolidated financial position. However, the adverse resolution of
one or more of these claims could materially affect the Company's consolidated
results of operations or liquidity in any one annual or quarterly reporting
period.
From time to time, the Company is subject to certain 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
Name Age Position
- ---- --- --------
William C. Stone 43 President, Chief Executive Officer
and Chairman of the Board of Directors
Anthony R. Guarascio 45 Senior Vice President, Chief
Financial Officer and Treasurer
David A. Varsano 37 Senior Vice President
and Chief Technology Officer
Marc W. Zimmerman 44 Senior Vice President, Mergers &
Alliances
Steven M. Helmbrecht 36 Senior Vice President, International
Michael Morini 36 Senior Vice President, Asset Management
10
William C. Stone founded the Company in 1986 and has served as Chairman of
the Board of Directors and Chief Executive Officer since the Company's
inception. He has also served as the Company's President from inception through
April 1997 and since March 1999. Prior to founding the Company, he directed the
financial services consulting practice of KPMG Peat Marwick LLP in Hartford,
Connecticut and was Vice President of Administration and Special Investment
Services at Advest, Inc.
Anthony R. Guarascio is Senior Vice President, Chief Financial Officer
and Treasurer of the Company. Mr. Guarascio joined the Company in October 1998,
after serving as Vice President, Finance and Administration and Chief Financial
Officer for Executone Information Systems, Inc., a company specializing in
integrated voice and data communications, from January 1994 to September 1998.
Prior thereto he was Vice President and Corporate Controller since January 1990.
David A. Varsano is Senior Vice President and Chief Technology Officer of
the Company. Mr. Varsano joined the Company in September 1995, after serving as
Vice President at Dunn & Bradstreet Software, where he was responsible for the
client/server platform and decision support business from March 1994 to
September 1995.
Marc W. Zimmerman is Senior Vice President, Mergers and Alliances of the
Company. From August 1995 to March 1999, Mr. Zimmerman served as Senior Vice
President, Strategic Sales of the Company. From 1993 to 1995, he served as Vice
President of Market Investment Solutions, Inc., an investment software and
consulting services provider.
Steven M. Helmbrecht is Senior Vice President, International of the
Company. From October 1997 to March 1999, Mr. Helmbrecht served as Senior Vice
President, Europe, the Middle East and Africa of the Company. From November 1996
to October 1997, Mr. Helmbrecht served as Vice President, International of the
Company. From July 1993 to November 1996, Mr. Helmbrecht served as a sales
representative for the Company.
Michael Morini is Senior Vice President, Asset Management of the Company.
Mr. Morini joined the Company in September 1997, after serving as the Senior
Vice President of Sales and Professional Services for Advent Software, Inc., a
provider of computer software and services, from October 1994 to August 1997.
From January 1994 to October 1994, he served as Vice President/General Manager
of the Northeast for American Software, Inc.
Each officer serves at the discretion of the Board of Directors. There are
no family relationships among any of the directors and executive officers of the
Company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock has been trading on the Nasdaq National Market
under the symbol "SSNC" since the Company's initial public offering on May 31,
1996. The following table sets forth, for the fiscal periods indicated, the high
and low sales prices per share of Common Stock as reported on the Nasdaq
National Market:
FISCAL 1998 FISCAL 1997
Price Range Price Range
--------------- -------------
Quarter High Low High Low
------- ------ ------ ------ ------
First $19.25 $ 9.50 $ 8.00 $ 5.13
Second 24.25 14.25 7.25 5.13
Third 23.75 10.88 11.38 5.63
Fourth 14.75 8.75 12.38 9.50
There were 63 stockholders of record of the Company's Common Stock as of
March 23, 1999. The number of stockholders of record may not be representative
of the number of beneficial owners because many shares are held by depositories,
brokers or other nominees.
11
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain earnings, if any, to support its
growth strategy and does not anticipate paying cash dividends in the foreseeable
future. Payment of future dividends, if any, will be at the discretion of the
Company's Board of Directors after taking into account various factors,
including the Company's financial condition, operating results, current and
anticipated cash needs, and plans for expansion.
The following information relates to the use of 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 December 31,
1998, the Company has used the net offering proceeds to the Company as follows:
Corporate move and equipment
purchases $ 7,272,000
Acquisition of other business $ 5,333,000
Repayment of indebtedness $ 3,141,000
Working capital $ 5,038,000
Marketable securities $32,016,000
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. SELECTED FINANCIAL DATA
The information required by this item is contained under the caption
"Selected Financial Data" appearing in the Company's 1998 Annual Report to
Stockholders (the "1998 Annual Report") and is incorporated herein by this
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is contained under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing in the 1998 Annual Report and is incorporated herein by
this reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is contained under the caption
"Market Risks" appearing in the 1998 Annual Report and is incorporated herein by
this reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is contained in the Consolidated
Financial Statements and related footnotes appearing in the 1998 Annual Report
and is incorporated herein by this reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item 10 is set forth in the proxy statement to
be provided to stockholders in connection with the Company's 1999 Annual Meeting
of Stockholders (the "Proxy Statement") under the headings "Directors and
Nominees for Director" and "Section 16(a) Beneficial Ownership Reporting
Compliance," which information is incorporated herein by reference. The name,
age and position of each executive officer of the Company is set forth under the
heading "Executive Officers of the Registrant" in Part I of this Annual Report
on Form 10-K, which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item 11 is set forth in the Proxy Statement
under the headings "Compensation of Executive Officers" and "Director
Compensation," which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item 12 is set forth in the Proxy Statement
under the heading "Security Ownership of Certain Beneficial Owners and
Management," which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item 13 is set forth in the Proxy Statement
under the heading "Certain Transactions," which information is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents Filed as a Part of this Form 10-K:
1. Financial Statements. The Consolidated Financial Statements
are included in the 1998 Annual Report, portions of which are
filed as an exhibit to this Annual Report on Form 10-K. The
Consolidated Financial Statements include: Consolidated
Balance Sheets, Consolidated Statements of Operations,
Consolidated Statements of Cash Flows, Consolidated Statements
of Changes in Stockholder's Equity, and Notes to Consolidated
Financial Statements.
2. Exhibits. The Exhibits listed in the Exhibit Index immediately
preceding such Exhibits are filed as part of this Annual Report
on Form 10-K.
(b) Reports on Form 8-K: The Company filed no reports on Form 8-K during
the fourth quarter of 1998.
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ William C. Stone
----------------------
William C. Stone
President, Chief Executive Officer
and Chairman of the Board of Directors
Date: March 31, 1999
14
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ William C. Stone President, Chief Executive March 31, 1999
- ------------------------- Officer and Chairman of
William C. Stone the Board of Directors
(Principal Executive Officer)
/s/Anthony R. Guarascio Senior Vice President, Chief March 31, 1999
- ------------------------- Financial Officer and Treasurer
Anthony R. Guarascio (Principal Financial and
Accounting Officer)
/s/ David L. Blankenship Director March 31, 1999
- -------------------------
David L. Blankenship
Director
- -------------------------
David W. Clark, Jr.
/s/ Joseph H. Fisher Director March 31, 1999
- -------------------------
Joseph H. Fisher
/s/ Stephen P. Reynolds Director March 31, 1999
- ------------------------
Stephen P. Reynolds
/s/ Jonathan M. Schofield Director March 31, 1999
- -------------------------
Jonathan M. Schofield
/s/ William W. Wyman Director March 31, 1999
- -------------------------
William W. Wyman
15
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
2.1 Asset Purchase Agreement, dated as of March 20, 1998, by and among the
Registrant, AEGON USA Realty Advisors, Inc. and Quantra Corporation is
incorporated herein by reference to Exhibit 2 to the Registrant's
Current Report on Form 8-K, dated March 20, 1998 (File No. 000-28430)
2.2 Stock Purchase Agreement, dated as of April 9, 1998, by and among the
Registrant, Savid International, Inc., The Savid Group, Inc. and
Diane Cossin, is incorporated herein by reference to Exhibit 2 to the
Registrant's Current Report on Form 8-K, dated April 9, 1998 (File No.
000-28430)
3.1 Amended and Restated Certificate of Incorporation of the Registrant is
incorporated herein by reference to Exhibit 3.2 to the Registrant's
Registration Statement on Form S-1, as amended (File No. 333-3094)
(the "Form S-1")
3.2 Amended and Restated By-Laws of the Registrant is incorporated herein
by reference to Exhibit 3.4 to the Form S-1
4 Specimen Certificate for shares of Common Stock, $.01 par value per
share, of the Registrant is incorporated herein by reference to
Exhibit 4 to the Form S-1
10.1* 1993 Stock Option Plan is incorporated herein by reference to Exhibit
10.1 to the Form S-1
10.2* 1994 Stock Option Plan, as amended, is incorporated herein by
reference to Exhibit 10.2 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996 (File No. 000-28430)
10.3* 1996 Director Stock Option Plan, as amended, is incorporated
herein by reference to Exhibit 10.3 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1996 (File No. 000-28430)
10.4* 1998 Stock Incentive Plan is incorporated herein by reference to
Annex A to the Registrant's Definitive Schedule 14A filed April 6,
1998 (File No. 000-28430)
10.5* Employment Agreement between the Registrant and William C. Stone,
dated March 28, 1996, is incorporated herein by reference to Exhibit
10.5 to the Form S-1
10.6 Stock and Note Purchase Agreement, dated September 25, 1990, as
amended on September 20, 1994, among the Registrant and certain
stockholders of the Registrant is incorporated herein by reference to
Exhibit 10.10 to the Form S-1
10.7 Series B Preferred Stock Purchase Agreement, dated September 20, 1994,
among the Registrant and certain stockholders of the Registrant is
incorporated herein by reference to Exhibit 10.11 to the Form S-1
10.8 Series C Preferred Stock Purchase Agreement, dated March 31, 1995,
among the Registrant and certain stockholders of the Registrant is
incorporated herein by reference to Exhibit 10.12 to the Form S-1
10.9+ Software License Agreement between the Registrant and Conning Asset
Management Company, dated January 27, 1996, is incorporated herein by
reference to Exhibit 10.15 to the Form S-1
10.10 Reseller Agreement between the Registrant and PFX(USA), Inc., dated
June 22, 1993, is incorporated herein by reference to Exhibit 10.16 to
the Form S-1
10.11 Lease Agreement, dated September 23, 1997, by and between the
Registrant and Monarch Life Insurance Company, as amended, is
incorporated herein by reference to Exhibit 10.15 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997 (File
No. 000-28430)
13 Portions of the Registrant's 1998 Annual Report to Stockholders (which
is not deemed to be "filed" except to the extent that portions thereof
are expressly incorporated by reference in this Annual Report on Form
10-K)
21 Subsidiaries of the Registrant
23 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule for the year ended December 31, 1998
_______________
* Management contract or compensatory plan or arrangement filed herewith in
response to Item 14(a)(3) of the Instructions to the Annual Report on Form
10-K.
+ Confidential treatment previously granted as to certain portions of such
document.