Form 10-Q

 

 

United States

Securities and Exchange Commission

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended March 31, 2013

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 numbers:

 

SunGard Capital Corp.

   000-53653

SunGard Capital Corp. II

   000-53654

SunGard Data Systems Inc.    

   001-12989

 

 

SunGard® Capital Corp.

SunGard® Capital Corp. II

SunGard® Data Systems Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   20-3059890
Delaware   20-3060101
Delaware   51-0267091

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

680 East Swedesford Road, Wayne, Pennsylvania 19087

(Address of principal executive offices, including zip code)

484-582-2000

(Registrants’ 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.

 

SunGard Capital Corp.

   Yes  x    No  ¨
SunGard Capital Corp. II    Yes  x    No  ¨
SunGard Data Systems Inc.    Yes  ¨    No  x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

SunGard Capital Corp.    Yes  x    No  ¨
SunGard Capital Corp. II    Yes  x    No  ¨
SunGard Data Systems Inc.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

SunGard Capital Corp.   Large accelerated filer  ¨.   Accelerated filer  ¨.   Non-accelerated filer  x.   Smaller reporting company  ¨.
SunGard Capital Corp. II   Large accelerated filer  ¨.   Accelerated filer  ¨.   Non-accelerated filer  x.   Smaller reporting company  ¨.
SunGard Data Systems Inc.   Large accelerated filer  ¨.   Accelerated filer  ¨.   Non-accelerated filer  x.   Smaller reporting company  ¨.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

SunGard Capital Corp.    Yes  ¨    No  x
SunGard Capital Corp. II    Yes  ¨    No  x
SunGard Data Systems Inc.    Yes  ¨    No  x

The number of shares of the registrants’ common stock outstanding as of March 31, 2013:

 

SunGard Capital Corp.   256,357,639 shares of Class A common stock and 28,484,182 shares of Class L common stock
SunGard Capital Corp. II   100 shares of common stock
SunGard Data Systems Inc.   100 shares of common stock

 

 

 


SUNGARD CAPITAL CORP.

SUNGARD CAPITAL CORP. II

SUNGARD DATA SYSTEMS INC.

AND SUBSIDIARIES

INDEX

 

         PAGE  

PART I.

  FINANCIAL INFORMATION      1   

Item 1.

  Financial Statements:   
SunGard Capital Corp.   
  Consolidated Balance Sheets as of December 31, 2012 and March 31, 2013 (unaudited)      2   
  Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 and 2013 (unaudited)      3   
  Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2013 (unaudited)      4   
  SunGard Capital Corp. II   
  Consolidated Balance Sheets as of December 31, 2012 and March 31, 2013 (unaudited)      5   
  Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 and 2013 (unaudited)      6   
  Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2013 (unaudited)      7   
SunGard Data Systems Inc.   
  Consolidated Balance Sheets as of December 31, 2012 and March 31, 2013 (unaudited)      8   
  Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 and 2013 (unaudited)      9   
  Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2013 (unaudited)      10   
  Notes to Consolidated Financial Statements (unaudited)      11   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      26   

Item 3.

  Quantitative and Qualitative Disclosures about Market Risk      35   

Item 4.

  Controls and Procedures      35   


PART II.

  OTHER INFORMATION      36   

Item 1.

  Legal Proceedings      36   

Item 1A.

  Risk Factors      36   

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      36   

Item 3.

  Defaults upon Senior Securities      36   

Item 4.

  Mine Safety Disclosures      36   

Item 5.

  Other Information      36   

Item 6.

  Exhibits      36   
SIGNATURES      37   


PART I. FINANCIAL INFORMATION

Explanatory Note

This Quarterly Report on Form 10-Q (“Report”) is a combined quarterly report being filed separately by three registrants: SunGard Capital Corp. (“SCC”), SunGard Capital Corp. II (“SCCII”) and SunGard Data Systems Inc. (“SunGard”). SCC and SCCII are collectively referred to as the “Parent Companies”. Unless the context indicates otherwise, any reference in this report to the “Company,” “we,” “us” and “our” refer to the Parent Companies together with their direct and indirect subsidiaries, including SunGard. Each registrant hereto is filing on its own behalf all of the information contained in this quarterly report that relates to such registrant. Each registrant hereto is not filing any information that does not relate to such registrant, and therefore makes no representation as to any such information.

 

1


ITEM 1. FINANCIAL STATEMENTS

SunGard Capital Corp.

Consolidated Balance Sheets

(In millions except share and per-share amounts)

(Unaudited)

 

     December 31,
2012
    March 31,
2013
 

Assets

    

Current:

    

Cash and cash equivalents

   $ 546      $ 537   

Trade receivables, less allowance for doubtful accounts of $30 and $29

     781        648   

Earned but unbilled receivables

     119        117   

Prepaid expenses and other current assets

     230        257   
  

 

 

   

 

 

 

Total current assets

     1,676        1,559   

Property and equipment, less accumulated depreciation of $1,509 and $1,569

     874        835   

Software products, less accumulated amortization of $1,649 and $1,688

     411        381   

Customer base, less accumulated amortization of $1,481 and $1,526

     1,367        1,305   

Other intangible assets, less accumulated amortization of $27 and $12

     132        138   

Trade name

     1,019        1,019   

Goodwill

     4,539        4,505   
  

 

 

   

 

 

 

Total Assets

   $ 10,018      $ 9,742   
  

 

 

   

 

 

 

Liabilities and Equity

    

Current:

    

Short-term and current portion of long-term debt

   $ 63      $ 441   

Accounts payable

     32        25   

Accrued compensation and benefits

     297        224   

Accrued interest expense

     41        84   

Other accrued expenses

     238        207   

Deferred revenue

     836        842   
  

 

 

   

 

 

 

Total current liabilities

     1,507        1,823   

Long-term debt

     6,599        6,121   

Deferred and other income taxes

     1,127        1,096   

Other long-term liabilities

     95        96   
  

 

 

   

 

 

 

Total liabilities

     9,328        9,136   
  

 

 

   

 

 

 

Commitments and contingencies

    

Noncontrolling interest in preferred stock of SCCII subject to a put option

     26        30   

Class L common stock subject to a put option

     45        49   

Class A common stock subject to a put option

     5        5   

Stockholders’ equity:

    

Class L common stock, convertible, par value $.001 per share; cumulative 13.5% per annum, compounded quarterly; aggregate liquidation preference of $6,154 million and $6,357 million; 50,000,000 shares authorized, 29,027,610 and 29,052,971 shares issued

     —          —     

Class A common stock, par value $.001 per share; 550,000,000 shares authorized, 261,251,822 and 261,480,074 shares issued

     —          —     

Capital in excess of par value

     2,483        2,484   

Treasury stock, 541,886 and 568,789 shares of Class L common stock; and 4,880,305 and 5,122,434 shares of Class A common stock

     (50     (52

Accumulated deficit

     (3,391     (3,463

Accumulated other comprehensive income (loss)

     (3     (47
  

 

 

   

 

 

 

Total SunGard Capital Corp. stockholders’ equity (deficit)

     (961     (1,078

Noncontrolling interest in preferred stock of SCCII

     1,575        1,600   
  

 

 

   

 

 

 

Total equity

     614        522   
  

 

 

   

 

 

 

Total Liabilities and Equity

   $ 10,018      $ 9,742   
  

 

 

   

 

 

 

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

 

2


SunGard Capital Corp.

Consolidated Statements of Comprehensive Income

(In millions)

(Unaudited)

 

     Three Months Ended March 31,  
     2012     2013  

Revenue:

    

Services

   $ 974      $ 949   

License and resale fees

     31        33   
  

 

 

   

 

 

 

Total products and services

     1,005        982   

Reimbursed expenses

     19        13   
  

 

 

   

 

 

 

Total revenue

     1,024        995   
  

 

 

   

 

 

 

Costs and expenses:

    

Cost of sales and direct operating (excluding depreciation)

     453        437   

Sales, marketing and administration

     253        242   

Product development and maintenance

     94        100   

Depreciation and amortization

     71        73   

Amortization of acquisition-related intangible assets

     101        87   
  

 

 

   

 

 

 

Total costs and expenses

     972        939   
  

 

 

   

 

 

 

Operating income (loss)

     52        56   

Interest expense and amortization of deferred financing fees

     (122     (108

Loss on extinguishment of debt

     (15     (5

Other income (expense)

     2        1   
  

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     (83     (56

Benefit from (provision for) income taxes

     7        9   
  

 

 

   

 

 

 

Income (loss) from continuing operations

     (76     (47

Income (loss) from discontinued operations, net of tax

     311        —     
  

 

 

   

 

 

 

Net income (loss)

     235        (47

Income attributable to the noncontrolling interest (including $—million and $—million in temporary equity)

     (62     (25
  

 

 

   

 

 

 

Net income (loss) attributable to SunGard Capital Corp.

     173        (72
  

 

 

   

 

 

 

Other Comprehensive income (loss):

    

Foreign currency translation, net

     33        (46

Unrealized gain (loss) on derivative instruments, net of tax

     3        2   
  

 

 

   

 

 

 

Other Comprehensive income (loss), net of tax

     36        (44
  

 

 

   

 

 

 

Comprehensive income (loss)

     271        (91

Comprehensive income (loss) attributable to the noncontrolling interest

     (62     (25
  

 

 

   

 

 

 

Comprehensive income (loss) attributable to SunGard Capital Corp.

   $ 209      $ (116
  

 

 

   

 

 

 

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

 

3


SunGard Capital Corp.

Consolidated Statements of Cash Flows

(In millions)

(Unaudited)

 

     Three Months Ended March 31,  
     2012     2013  

Cash flow from operations:

    

Net income (loss)

   $ 235      $ (47

Income (loss) from discontinued operations

     311        —     
  

 

 

   

 

 

 

Income (loss) from continuing operations

     (76     (47

Reconciliation of income (loss) from continuing operations to cash flow from (used in) operations:

    

Depreciation and amortization

     172        160   

Deferred income tax provision (benefit)

     34        (31

Stock compensation expense

     11        11   

Amortization of deferred financing costs and debt discount

     12        16   

Loss on extinguishment of debt

     15        5   

Other noncash items

     (2     —     

Accounts receivable and other current assets

     82        102   

Accounts payable and accrued expenses

     (179     (59

Deferred revenue

     1        21   
  

 

 

   

 

 

 

Cash flow from (used in) continuing operations

     70        178   

Cash flow from (used in) discontinued operations

     5        —     
  

 

 

   

 

 

 

Cash flow from (used in) operations

     75        178   
  

 

 

   

 

 

 

Investment activities:

    

Cash paid for acquired businesses, net of cash acquired

     (6     (1

Cash paid for property and equipment and software

     (60     (46

Other investing activities

     3        1   
  

 

 

   

 

 

 

Cash provided by (used in) continuing operations

     (63     (46

Cash provided by (used in) discontinued operations

     1,740        —     
  

 

 

   

 

 

 

Cash provided by (used in) investment activities

     1,677        (46
  

 

 

   

 

 

 

Financing activities:

    

Cash received from borrowings, net of fees

     (19     2,174   

Cash used to repay debt

     (1,225     (2,302

Cash used to purchase treasury stock

     (3     (3

Other financing activities

     (7     (2
  

 

 

   

 

 

 

Cash provided by (used in) continuing operations

     (1,254     (133

Cash provided by (used in) discontinued operations

     —          —     
  

 

 

   

 

 

 

Cash provided by (used in) financing activities

     (1,254     (133
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

     7        (8
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     505        (9

Beginning cash and cash equivalents includes cash of discontinued operations: 2012, $6; 2013, $-

     873        546   
  

 

 

   

 

 

 

Ending cash and cash equivalents includes cash of discontinued operations: 2012, $-; 2013, $-

   $ 1,378      $ 537   
  

 

 

   

 

 

 

Supplemental information:

    

Interest paid

   $ 101      $ 49   
  

 

 

   

 

 

 

Income taxes paid, net of refunds of $3 million and $1 million, respectively

   $ 19      $ 29   
  

 

 

   

 

 

 

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

 

4


SunGard Capital Corp. II

Consolidated Balance Sheets

(In millions except share and per-share amounts)

(Unaudited)

 

     December 31,
2012
    March 31,
2013
 

Assets

    

Current:

    

Cash and cash equivalents

   $ 546      $ 537   

Trade receivables, less allowance for doubtful accounts of $30 and $29

     781        648   

Earned but unbilled receivables

     119        117   

Prepaid expenses and other current assets

     230        256   
  

 

 

   

 

 

 

Total current assets

     1,676        1,558   

Property and equipment, less accumulated depreciation of $1,509 and $1,569

     874        835   

Software products, less accumulated amortization of $1,649 and $1,688

     411        381   

Customer base, less accumulated amortization of $1,481 and $1,526

     1,367        1,305   

Other intangible assets, less accumulated amortization of $27 and $12

     132        138   

Trade name

     1,019        1,019   

Goodwill

     4,539        4,505   
  

 

 

   

 

 

 

Total Assets

   $ 10,018      $ 9,741   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Current:

    

Short-term and current portion of long-term debt

   $ 63      $ 441   

Accounts payable

     32        25   

Accrued compensation and benefits

     297        224   

Accrued interest expense

     41        84   

Other accrued expenses

     235        206   

Deferred revenue

     836        842   
  

 

 

   

 

 

 

Total current liabilities

     1,504        1,822   

Long-term debt

     6,599        6,121   

Deferred and other income taxes

     1,127        1,095   

Other long-term liabilities

     76        77   
  

 

 

   

 

 

 

Total liabilities

     9,306        9,115   
  

 

 

   

 

 

 

Commitments and contingencies

    

Preferred stock subject to a put option

     24        27   

Stockholders’ equity:

    

Preferred stock, par value $.001 per share; cumulative 11.5% per annum, compounded quarterly; aggregate liquidation preference of $1,581 million and $1,605 million; 14,999,000 shares authorized, 10,048,018 and 10,056,798 issued

     —          —     

Common stock, par value $.001 per share; 1,000 shares authorized, 100 shares issued and oustanding

     —          —     

Capital in excess of par value

     3,492        3,495   

Treasury stock, 187,576 and 196,889 shares

     (30     (31

Accumulated deficit

     (2,771     (2,818

Accumulated other comprehensive income (loss)

     (3     (47
  

 

 

   

 

 

 

Total stockholders’ equity

     688        599   
  

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 10,018      $ 9,741   
  

 

 

   

 

 

 

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

 

5


SunGard Capital Corp. II

Consolidated Statements of Comprehensive Income

(In millions)

(Unaudited)

 

     Three Months Ended March 31,  
     2012     2013  

Revenue:

    

Services

   $ 974      $ 949   

License and resale fees

     31        33   
  

 

 

   

 

 

 

Total products and services

     1,005        982   

Reimbursed expenses

     19        13   
  

 

 

   

 

 

 

Total revenue

     1,024        995   
  

 

 

   

 

 

 

Costs and expenses:

    

Cost of sales and direct operating (excluding depreciation)

     453        437   

Sales, marketing and administration

     253        242   

Product development and maintenance

     94        100   

Depreciation and amortization

     71        73   

Amortization of acquisition-related intangible assets

     101        87   
  

 

 

   

 

 

 

Total costs and expenses

     972        939   
  

 

 

   

 

 

 

Operating income (loss)

     52        56   

Interest expense and amortization of deferred financing fees

     (122     (108

Loss on extinguishment of debt

     (15     (5

Other income (expense)

     2        1   
  

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     (83     (56

Benefit from (provision for) income taxes

     7        9   
  

 

 

   

 

 

 

Income (loss) from continuing operations

     (76     (47

Income (loss) from discontinued operations, net of tax

     311        —     
  

 

 

   

 

 

 

Net income (loss)

     235        (47
  

 

 

   

 

 

 

Other Comprehensive income (loss):

    

Foreign currency translation, net

     33        (46

Unrealized gain (loss) on derivative instruments, net of tax

     3        2   
  

 

 

   

 

 

 

Comprehensive income (loss)

   $ 271      $ (91
  

 

 

   

 

 

 

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

 

6


SunGard Capital Corp. II

Consolidated Statements of Cash Flows

(In millions)

(Unaudited)

 

     Three Months Ended March 31,  
     2012     2013  

Cash flow from operations:

    

Net income (loss)

   $ 235      $ (47

Income (loss) from discontinued operations

     311        —     
  

 

 

   

 

 

 

Income (loss) from continuing operations

     (76     (47

Reconciliation of income (loss) from continuing operations to cash flow from (used in) operations:

    

Depreciation and amortization

     172        160   

Deferred income tax provision (benefit)

     34        (31

Stock compensation expense

     11        11   

Amortization of deferred financing costs and debt discount

     12        16   

Loss on extinguishment of debt

     15        5   

Other noncash items

     (2     —     

Accounts receivable and other current assets

     82        102   

Accounts payable and accrued expenses

     (179     (58

Deferred revenue

     1        21   
  

 

 

   

 

 

 

Cash flow from (used in) continuing operations

     70        179   

Cash flow from (used in) discontinued operations

     5        —     
  

 

 

   

 

 

 

Cash flow from (used in) operations

     75        179   
  

 

 

   

 

 

 

Investment activities:

    

Cash paid for acquired businesses, net of cash acquired

     (6     (1

Cash paid for property and equipment and software

     (60     (46

Other investing activities

     3        1   
  

 

 

   

 

 

 

Cash provided by (used in) continuing operations

     (63     (46

Cash provided by (used in) discontinued operations

     1,740        —     
  

 

 

   

 

 

 

Cash used in investment activities

     1,677        (46
  

 

 

   

 

 

 

Financing activities:

    

Cash received from borrowings, net of fees

     (19     2,174   

Cash used to repay debt

     (1,225     (2,302

Cash used to purchase treasury stock

     (1     (1

Other financing activities

     (9     (5
  

 

 

   

 

 

 

Cash provided by (used in) continuing operations

     (1,254     (134

Cash provided by (used in) discontinued operations

     —          —     
  

 

 

   

 

 

 

Cash provided by (used in) financing activities

     (1,254     (134
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

     7        (8
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     505        (9

Beginning cash and cash equivalents includes cash of discontinued operations: 2012, $6; 2013, $-

     873        546   
  

 

 

   

 

 

 

Ending cash and cash equivalents includes cash of discontinued operations: 2012, $-; 2013, $-

   $ 1,378      $ 537   
  

 

 

   

 

 

 

Supplemental information:

    

Interest paid

   $ 101      $ 49   
  

 

 

   

 

 

 

Income taxes paid, net of refunds of $3 million and $1 million, respectively

   $ 19      $ 29   
  

 

 

   

 

 

 

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

 

7


SunGard Data Systems Inc.

Consolidated Balance Sheets

(In millions except share and per-share amounts)

(Unaudited)

 

     December 31,
2012
    March 31,
2013
 

Assets

    

Current:

    

Cash and cash equivalents

   $ 546      $ 537   

Trade receivables, less allowance for doubtful accounts of $30 and $29

     781        648   

Earned but unbilled receivables

     119        117   

Prepaid expenses and other current assets

     230        253   
  

 

 

   

 

 

 

Total current assets

     1,676        1,555   

Property and equipment, less accumulated depreciation of $1,509 and $1,569

     874        835   

Software products, less accumulated amortization of $1,649 and $1,688

     411        381   

Customer base, less accumulated amortization of $1,481 and $1,526

     1,367        1,305   

Other intangible assets, less accumulated amortization of $27 and $12

     132        138   

Trade name

     1,019        1,019   

Goodwill

     4,539        4,505   
  

 

 

   

 

 

 

Total Assets

   $ 10,018      $ 9,738   
  

 

 

   

 

 

 

Liabilities and Stockholder’s Equity

    

Current:

    

Short-term and current portion of long-term debt

   $ 63      $ 441   

Accounts payable

     32        25   

Accrued compensation and benefits

     297        224   

Accrued interest expense

     41        84   

Other accrued expenses

     238        206   

Deferred revenue

     836        842   
  

 

 

   

 

 

 

Total current liabilities

     1,507        1,822   

Long-term debt

     6,599        6,121   

Deferred and other income taxes

     1,120        1,087   

Other long-term liabilities

     76        77   
  

 

 

   

 

 

 

Total liabilities

     9,302        9,107   
  

 

 

   

 

 

 

Commitments and contingencies

    

Stockholder’s equity:

    

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

     —          —     

Capital in excess of par value

     3,490        3,496   

Accumulated deficit

     (2,771     (2,818

Accumulated other comprehensive income (loss)

     (3     (47
  

 

 

   

 

 

 

Total stockholder’s equity

     716        631   
  

 

 

   

 

 

 

Total Liabilities and Stockholder’s Equity

   $ 10,018      $ 9,738   
  

 

 

   

 

 

 

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

 

 

8


SunGard Data Systems Inc.

Consolidated Statements of Comprehensive Income

(In millions)

(Unaudited)

 

     Three Months Ended March 31,  
     2012     2013  

Revenue:

    

Services

   $ 974      $ 949   

License and resale fees

     31        33   
  

 

 

   

 

 

 

Total products and services

     1,005        982   

Reimbursed expenses

     19        13   
  

 

 

   

 

 

 

Total revenue

     1,024        995   
  

 

 

   

 

 

 

Costs and expenses:

    

Cost of sales and direct operating (excluding depreciation)

     453        437   

Sales, marketing and administration

     253        242   

Product development and maintenance

     94        100   

Depreciation and amortization

     71        73   

Amortization of acquisition-related intangible assets

     101        87   
  

 

 

   

 

 

 

Total costs and expenses

     972        939   
  

 

 

   

 

 

 

Operating income (loss)

     52        56   

Interest expense and amortization of deferred financing fees

     (122     (108

Loss on extinguishment of debt

     (15     (5

Other income (expense)

     2        1   
  

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     (83     (56

Benefit from (provision for) income taxes

     7        9   
  

 

 

   

 

 

 

Income (loss) from continuing operations

     (76     (47

Income (loss) from discontinued operations, net of tax

     311        —     
  

 

 

   

 

 

 

Net income (loss)

     235        (47
  

 

 

   

 

 

 

Other Comprehensive income (loss):

    

Foreign currency translation, net

     33        (46

Unrealized gain (loss) on derivative instruments, net of tax

     3        2   
  

 

 

   

 

 

 

Comprehensive income (loss)

   $ 271      $ (91
  

 

 

   

 

 

 

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

 

9


SunGard Data Systems Inc.

Consolidated Statements of Cash Flows

(In millions)

(Unaudited)

 

     Three Months Ended March 31,  
     2012     2013  

Cash flow from operations:

    

Net income (loss)

   $ 235      $ (47

Income (loss) from discontinued operations

     311        —     
  

 

 

   

 

 

 

Income (loss) from continuing operations

     (76     (47

Reconciliation of income (loss) from continuing operations to cash flow from (used in) operations:

    

Depreciation and amortization

     172        160   

Deferred income tax provision (benefit)

     34        (31

Stock compensation expense

     11        11   

Amortization of deferred financing costs and debt discount

     12        16   

Loss on extinguishment of debt

     15        5   

Other noncash items

     (2     —     

Accounts receivable and other current assets

     82        102   

Accounts payable and accrued expenses

     (179     (58

Deferred revenue

     1        21   
  

 

 

   

 

 

 

Cash flow from (used in) continuing operations

     70        179   

Cash flow from (used in) discontinued operations

     5        —     
  

 

 

   

 

 

 

Cash flow from (used in) operations

     75        179   
  

 

 

   

 

 

 

Investment activities:

    

Cash paid for acquired businesses, net of cash acquired

     (6     (1

Cash paid for property and equipment and software

     (60     (46

Other investing activities

     3        1   
  

 

 

   

 

 

 

Cash provided by (used in) continuing operations

     (63     (46

Cash provided by (used in) discontinued operations

     1,740        —     
  

 

 

   

 

 

 

Cash used in investment activities

     1,677        (46
  

 

 

   

 

 

 

Financing activities:

    

Cash received from borrowings, net of fees

     (19     2,174   

Cash used to repay debt

     (1,225     (2,302

Other financing activities

     (10     (6
  

 

 

   

 

 

 

Cash provided by (used in) continuing operations

     (1,254     (134

Cash provided by (used in) discontinued operations

     —          —     
  

 

 

   

 

 

 

Cash provided by (used in) financing activities

     (1,254     (134
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

     7        (8
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     505        (9

Beginning cash and cash equivalents includes cash of discontinued operations: 2012, $6; 2013, $-

     873        546   
  

 

 

   

 

 

 

Ending cash and cash equivalents includes cash of discontinued operations: 2012, $-; 2013, $-

   $ 1,378      $ 537   
  

 

 

   

 

 

 

Supplemental information:

    

Interest paid

   $ 101      $ 49   
  

 

 

   

 

 

 

Income taxes paid, net of refunds of $3 million and $1 million, respectively

   $ 19      $ 29   
  

 

 

   

 

 

 

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

 

10


SUNGARD CAPITAL CORP.

SUNGARD CAPITAL CORP. II

SUNGARD DATA SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation:

SunGard Data Systems Inc. (“SunGard”) was acquired on August 11, 2005 (the “LBO”) in a leveraged buy-out by a consortium of private equity investment funds associated with Bain Capital Partners, The Blackstone Group, Goldman Sachs & Co., Kohlberg Kravis Roberts & Co., Providence Equity Partners, Silver Lake and TPG (collectively, the “Sponsors”).

SunGard is a wholly owned subsidiary of SunGard Holdco LLC, which is wholly owned by SunGard Holding Corp., which is wholly owned by SunGard Capital Corp. II (“SCCII”), which is a subsidiary of SunGard Capital Corp. (“SCC”). All four of these companies were formed for the purpose of facilitating the LBO and are collectively referred to as the “Holding Companies.” SCC, SCCII and SunGard are separate reporting companies and, together with their direct and indirect subsidiaries, are collectively referred to as the “Company.” The Holding Companies have no other operations beyond those of their ownership of SunGard.

SunGard is one of the world’s leading software and technology services companies and has three segments: Financial Systems (“FS”), Availability Services (“AS”) and Public Sector & Education (“PS&E”), which is comprised of the Company’s Public Sector business and K-12 Education business. The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated.

The accompanying interim consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. Interim financial reporting does not include all of the information and footnotes required by GAAP for annual financial statements. The interim financial information is unaudited, but, in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments necessary to provide a fair statement of results for the interim periods presented. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

As discussed in Note 2 and Note 12, the presentation of certain prior year amounts has been revised to conform to the current year presentation.

Recent Accounting Pronouncements

On July 27, 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. The Update simplifies the guidance for testing the decline in the realizable value (impairment) of indefinite-lived intangible assets other than goodwill. Examples of intangible assets subject to the guidance include indefinite-lived trademarks, licenses, and distribution rights. The amendment allows an organization the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. An organization electing to perform a qualitative assessment is no longer required to calculate the fair value of an indefinite-lived intangible asset unless the organization determines, based on a qualitative assessment, that it is “more likely than not” that the asset is impaired. Under former guidance, an organization was required to test an indefinite-lived intangible asset for impairment on at least an annual basis by comparing the fair value of the asset with its carrying amount. If the carrying amount of an indefinite-lived intangible asset exceeded its fair value, an impairment loss was recognized in an amount equal to the difference. The amendments in this Update are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company has not yet adopted this Update and has used the former, more extensive testing during its 2012 impairment tests. The Company intends to evaluate the Update as it performs its 2013 impairment review in the third quarter.

 

11


2. Expense Classification:

During a review of spending by functional area, the Company identified a misclassification of certain expenses in 2010, 2011 and 2012. The misclassification stems from the treatment of certain offshore resources by functional area. It resulted in an understatement of product development and maintenance expense with an offsetting overstatement within cost of sales and direct operating expense and sales, marketing and administration expense. There was no impact on total reported expenses for any period and therefore no impact on operating or net income.

Accordingly, for the three months ended March 31, 2012, product development and maintenance expense has been revised from $86 million to $94 million, cost of sales and direct operating has been revised from $458 million to $453 million, and sales, marketing and administration has been revised from $256 million to $253 million. For 2010, product development and maintenance expense has been revised from $350 million to $391 million, cost of sales and direct operating has been revised from $1,895 million to $1,877 million, and sales, marketing and administration has been revised from $1,057 million to $1,034 million. For 2011, product development and maintenance expense has been revised from $393 million to $426 million, cost of sales and direct operating has been revised from $1,848 million to $1,822 million, and sales, marketing and administration has been revised from $1,108 million to $1,101 million. For 2012, product development and maintenance expense has been revised from $353 million to $393 million, cost of sales and direct operating has been revised from $1,740 million to $1,735 million, and sales, marketing and administration has been revised from $1,039 million to $1,004 million. In future filings, any comparative period presentation will be revised when those periods are presented. The misclassifications were not material to the consolidated financial statements.

3. Discontinued Operations:

In January 2012, the Company sold its Higher Education (“HE”) business and used the net cash proceeds (as defined in its senior secured credit agreement) of $1,222 million, which is the gross transaction value of $1,775 million less applicable taxes and fees, to repay a pro-rata portion of its outstanding term loans. In July 2012, the Company sold its FS subsidiary SunGard Global Services France for gross proceeds of €14 million. The results for discontinued operations have been represented for the three months ended March 31, 2012 to show the impact of these sales.

The results for the discontinued operations for the three months ended March 31, 2012 and 2013 were as follows (in millions):

 

     Three Months Ended  
     March 31, 2012     March 31, 2013  

Revenue

   $ 37      $ —     
  

 

 

   

 

 

 

Operating income (loss)

     (3     —     

Gain on sale of business

     563        —     
  

 

 

   

 

 

 

Income (loss) before income taxes

     560        —     

Benefit from (provision for) income taxes

     (249     —     
  

 

 

   

 

 

 

Income (loss) from discontinued operations

   $ 311      $ —     
  

 

 

   

 

 

 

In the first quarter of 2012, the Company recorded a $563 million pre-tax gain on the sale of the HE business.

 

12


4. Goodwill and Intangibles:

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

 

     Cost     Accumulated Impairment        
     FS     AS     PS&E      Subtotal     AS     PS&E     Subtotal     Total  

Balance at December 31, 2012

   $ 3,516      $ 2,243      $ 544       $ 6,303      $ (1,547   $ (217   $ (1,764   $ 4,539   

Effect of foreign currency translation

     (21     (12     —           (33     —          —          —          (33

Other

     (1     —          —           (1     —          —          —          (1
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2013

   $ 3,494      $ 2,231      $ 544       $ 6,269      $ (1,547   $ (217   $ (1,764   $ 4,505   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Based on amounts recorded at March 31, 2013, total expected amortization of all acquisition-related intangible assets in each of the years ended December 31 follows (in millions):

 

2013

   $          340   

2014

     290   

2015

     234   

2016

     214   

2017

     207   

5. Accumulated Other Comprehensive Income:

The following table summarizes the unrealized gains (losses) on derivative instruments including the impact of components reclassified into net income from accumulated other comprehensive income for the three months ended March 31, 2012 and 2013 (in millions):

 

     Three Months Ended
March 31,
     

Other Comprehensive Income Components

   2012     2013    

Affected Line Item in the Statement of Comprehensive Income

for Components Reclassified from OCI

Unrealized gain (loss) on cash flow hedges and other

   $ —        $ 1     
  

 

 

   

 

 

   

Less: gain (loss) on cash flow hedges reclassified into income

      

Interest rate contracts

     4        3      Interest expense and amortization of deferred financing fees

Currency forward contracts

     —          (1   Cost of sales and direct operating
  

 

 

   

 

 

   

Total reclassified into income

     4        2     

Less: income tax benefit (expense)

     (1     (1  
  

 

 

   

 

 

   

Unrealized gain (loss) on derivative instruments, net of tax

   $ 3      $ 2     
  

 

 

   

 

 

   

The following table provides a rollforward of the components of accumulated other comprehensive loss, net of tax, through March 31, 2013 as follows (in millions):

 

     Gains and Losses on
Cash Flow Hedges
     Currency
Translation
    Accumulated
Other
Comprehensive
Income
 

Balance at December 31, 2012

   $ 1       $ (4   $ (3
  

 

 

    

 

 

   

 

 

 

Other comprehensive income before reclassifications

     1         (46     (45

Amounts reclassified from accumulated other comprehensive income net of tax

     1         —          1   
  

 

 

    

 

 

   

 

 

 

Net current-period other comprehensive income

     2         (46     (44
  

 

 

    

 

 

   

 

 

 

Balance at March 31, 2013

   $ 3       $ (50   $ (47
  

 

 

    

 

 

   

 

 

 

6. Debt and Derivatives:

On January 2, 2013, SunGard repaid a $50 million revolving Credit Advance borrowed under its secured accounts receivable facility.

 

13


On March 8, 2013, SunGard amended and restated its senior secured credit agreement (“Credit Agreement”) to, among other things, (i) issue an additional term loan of $2,200 million (“tranche E”) maturing on March 8, 2020, the proceeds of which were used to (a) repay in full the $1,719 million tranche B term loan and (b) repay $481 million of the tranche C term loan; (ii) replace the $880 million of revolving commitments with $850 million of new revolving commitments, which will mature on March 8, 2018; and (iii) modify certain covenants and other provisions in order to, among other things (x) modify (and in the case of the term loan facility, remove) the financial maintenance covenants included therein and (y) permit the Company to direct the net cash proceeds of permitted dispositions otherwise requiring a pro rata prepayment of term loans to the prepayment of specific tranches of term loans at the Company’s sole discretion. The interest rate on tranche E is LIBOR plus 3% with a 1% LIBOR floor, which at March 31, 2013 was 4.00%. SunGard is required to repay installments in quarterly principal amounts of 0.25% of its funded tranche E principal amount through the maturity date, at which time the remaining aggregate principal balance is due. Tranche E and the new revolving commitments are subject to certain springing maturities which are described in the Credit Agreement. As a result of this transaction, the Company incurred a loss on the extinguishment of debt of approximately $5 million.

On March 28, 2013, SunGard voluntarily prepaid $50 million of its tranche A term loan. The related loss on the extinguishment of debt was not material to the Company’s operations, financial position or cash flows.

Debt consisted of the following (in millions):

 

     December 31,
2012
    March 31,
2013
 

Senior Secured Credit Facilities:

    

Secured revolving credit facility

   $ —        $ —     

Tranche A, effective interest rate of 1.96% and 1.95%

     207        157   

Tranche B, effective interest rate of 4.35%

     1,719        —     

Tranche C, effective interest rate of 4.17% and 4.41%

     908        427   

Tranche D, effective interest rate of 4.50% and 4.50%

     720        718   

Tranche E, effective interest rate of 4.00%

     —          2,200   
  

 

 

   

 

 

 

Total Senior Secured Credit Facilities

     3,554        3,502   

Senior Secured Notes due 2014 at 4.875%, net of discount of $4 and $3

     246        247   

Senior Notes due 2018 at 7.375%

     900        900   

Senior Notes due 2020 at 7.625%

     700        700   

Senior Subordinated Notes due 2019 at 6.625%

     1,000        1,000   

Secured accounts receivable facility, at 3.71% and 3.70%

     250        200   

Other, primarily foreign bank debt and capital lease obligations

     12        13   
  

 

 

   

 

 

 

Total debt

     6,662        6,562   
  

 

 

   

 

 

 

Short-term borrowings and current portion of long-term debt

     (63     (441
  

 

 

   

 

 

 

Long-term debt

   $ 6,599      $ 6,121   
  

 

 

   

 

 

 

SunGard uses interest rate swap agreements to manage the amount of its floating rate debt in order to reduce its exposure to variable rate interest payments associated with the Credit Agreement. Each swap agreement is designated as a cash flow hedge. SunGard pays a stream of fixed interest payments for the term of the swap, and in turn, receives variable interest payments based on LIBOR. At March 31, 2013, one-month LIBOR was 0.20%. The net receipt or payment from the interest rate swap agreements is included in interest expense. As a result of amending the Credit Agreement and issuing tranche E in March 2013, SunGard settled $500 million of interest rate swaps in March 2013 that were due to mature in May 2013. The interest rates in the table above reflect the impact of the swaps. A summary of the Company’s interest rate swaps at March 31, 2013 follows (in millions):

 

 

Inception

   Maturity    Notional
Amount
(in millions)
     Interest
rate paid
    Interest
rate
received
(LIBOR)

August-September 2012

   February 2017    $ 400         0.69   1-Month

The fair values of interest rate swaps designated as cash flow hedging instruments, included in other accrued expenses on the consolidated balance sheets, are $5 million and $1 million as of December 31, 2012 and March 31, 2013, respectively.

The Company has no ineffectiveness related to its swap agreements. The Company expects to reclassify in the next twelve months approximately $2 million from other comprehensive income (loss) into earnings related to the Company’s interest rate swaps based on the borrowing rates at March 31, 2013.

 

14


7. Fair Value Measurements:

The following table summarizes assets and liabilities measured at fair value on a recurring basis at March 31, 2013 (in millions):

 

     Fair Value Measures Using         
         Level 1              Level 2              Level 3              Total      

Assets

           

Cash and cash equivalents—money market funds

   $ 200       $ —         $ —         $ 200   

Currency forward contracts

     —           8         —           8   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     200         8         —           208   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Interest rate swap agreements

   $ —         $ 1       $ —         $ 1   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table summarizes assets and liabilities measured at fair value on a recurring basis at December 31, 2012 (in millions):

 

     Fair Value Measures Using         
         Level 1              Level 2              Level 3              Total      

Assets

           

Cash and cash equivalents—money market funds

   $ 227       $ —         $ —         $ 227   

Currency forward contracts

     —           4         —           4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 227       $ 4       $ —         $ 231   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Interest rate swap agreements and other

   $ —         $ 4       $ —         $ 4   
  

 

 

    

 

 

    

 

 

    

 

 

 

A Level 1 fair value measure is based upon quoted prices in active markets for identical assets or liabilities. A Level 2 fair value measure is based upon quoted prices for similar assets and liabilities in active markets or inputs that are observable. A Level 3 fair value measure is based upon inputs that are unobservable (for example, cash flow modeling inputs based on assumptions).

Cash and cash equivalents—money market funds are recognized and measured at fair value in the Company’s financial statements. Fair values of the interest rate swap agreements are calculated using a discounted cash flow model using observable applicable market swap rates and assumptions and are compared to market valuations obtained from brokers.

The Company uses currency forward contracts to manage its exposure to fluctuations in costs caused by variations in Indian Rupee (“INR”) and British Pound Sterling (“GBP”) exchange rates. These forward contacts are designated as cash flow hedges. The fair value of these currency forward contracts is determined using currency exchange market rates, obtained from independent, third party banks, at the balance sheet date. This fair value of forward contracts is subject to changes in currency exchange rates. The Company has no ineffectiveness related to its use of currency forward contracts.

 

15


The following table presents the carrying amount and estimated fair value of the Company’s debt, including the current portion and excluding the interest rate swaps, as of December 31, 2012 and March 31, 2013 (in millions):

 

     December 31, 2012      March 31, 2013  
     Carrying
Value
     Fair
Value
     Carrying
Value
     Fair
Value
 

Floating rate debt

   $ 3,803       $ 3,826       $ 3,702       $ 3,740   

Fixed rate debt

     2,859         3,023         2,860         3,018   

The fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, to the extent the underlying liability will be settled in cash, approximate carrying values because of the short-term nature of these instruments. The derivative financial instruments are carried at fair value. The fair value of the Company’s floating rate and fixed rate long-term debt (Level 2) is determined using actual market quotes and benchmark yields received from independent vendors.

8. Equity:

A rollforward of SCC’s equity for 2013 follows (in millions):

 

     SunGard Capital Corp. stockholders     Noncontrolling interest  
     Class L -
temporary
equity
    Class A -
temporary
equity
     Permanent
equity
    Total     Temporary
equity
    Permanent
equity
    Total  

Balance at December 31, 2012

   $ 45      $ 5       $ (961   $ (911   $ 26      $ 1,575      $ 1,601   

Net income (loss)

     —          —           (72     (72     —          25        25   

Foreign currency translation

     —          —           (46     (46     —          —          —     

Net unrealized gain on derivative instruments

     —          —           2        2        —          —          —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     —          —           (116     (116     —          25        25   

Stock compensation expense

     —          —           11        11        —          —          —     

Termination of put options due to employee terminations and other

     (3     —           3        —          (1     2        1   

Purchase of treasury stock

     —          —           (1     (1     —          (2     (2

Transfer intrinsic value of vested restricted stock units

     7        —           (12     (5     5        —          5   

Other

     —          —           (2     (2     —          —          —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2013

   $ 49      $ 5       $ (1,078   $ (1,024   $ 30      $ 1,600      $ 1,630   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

A rollforward of SCC’s equity for 2012 follows (in millions):

 

     SunGard Capital Corp. stockholders     Noncontrolling interest  
     Class L -
temporary
equity
    Class A -
temporary
equity
    Permanent
equity
    Total     Temporary
equity
    Permanent
equity
    Total  

Balance at December 31, 2011

   $ 47      $ 6      $ (663   $ (610   $ 28      $ 2,038      $ 2,066   

Net income (loss)

     —          —          173        173        —          62        62   

Foreign currency translation

     —          —          33        33        —          —          —     

Net unrealized gain on derivative instruments

     —          —          3        3        —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     —          —          209        209        —          62        62   

Stock compensation expense

     —          —          11        11        —          —          —     

Termination of put options due to employee terminations and other

     (7     (1     9        1        (3     2        (1

Purchase of treasury stock

     —          —          (1     (1     —          (1     (1

Transfer intrinsic value of vested restricted stock units

     3        —          (5     (2     1        —          1   

Other

     —          —          (8     (8     —          1        1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2012

   $ 43      $ 5      $ (448   $ (400   $ 26      $ 2,102      $ 2,128   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

16


9. Segment Information:

The Company has three reportable segments: FS, AS and PS&E. The Company evaluates the performance of its segments based on Segment Internal Adjusted EBITDA. Segment Internal Adjusted EBITDA, a non-GAAP measure, is defined as operating income before the following items:

 

   

depreciation and amortization,

 

   

amortization of acquisition-related intangible assets,

 

   

goodwill impairment,

 

   

severance and facility closure charges,

 

   

stock compensation,

 

   

management fees, and

 

   

certain other costs.

While these charges may be recurring, management excludes them in order to better analyze the segment results and evaluate the segment performance. This analysis is used extensively by management and is also used to communicate the segment results to the Company’s board of directors. In addition, management reviews Internal Adjusted EBITDA and Segment Internal Adjusted EBITDA on a constant currency basis, especially when comparing to the prior year results. While Internal Adjusted EBITDA and Segment Internal Adjusted EBITDA are useful for analysis purposes, they should not be considered as alternatives to the Company’s reported GAAP results. Also, Internal Adjusted EBITDA and Segment Internal Adjusted EBITDA may not be comparable to similarly titled measures used by other companies. Internal Adjusted EBITDA and Segment Internal Adjusted EBITDA are similar, but not identical, to adjusted EBITDA as defined in the Credit Agreement for purposes of SunGard’s debt covenants. The operating results apply to each of SCC, SCCII and SunGard unless otherwise noted. The operating results for the three months ended March 31, 2013 for each segment follow (in millions):

 

Three Months Ended March 31, 2013

   FS     AS     PS&E     Sum of
segments
 

Revenue

   $ 600      $ 345      $ 50      $ 995   

Internal Adjusted EBITDA

     130        105        14        249   

Internal Adjusted EBITDA margin

     21.6     30.5     29.1     25.1

Year to year revenue change

     (3 )%      (3 )%      (1 )%      (3 )% 

Year to year Internal Adjusted EBITDA change

     3     (6 )%      (12 )%      (2 )% 

Year to year revenue change at constant currency

     (3 )%      (3 )%      (1 )%      (3 )% 

Year to year Internal Adjusted EBITDA change at constant currency

     2     (6 )%      (12 )%      (3 )% 

Reconciliation of Segment Internal Adjusted EBITDA to income (loss) from continuing operations before income taxes:

 

     2013  

Internal Adjusted EBITDA (sum of segments)

   $ 249   

Corporate

     (13

Depreciation (1)

     (73

Amortization of acquisition-related intangible assets

     (87

Severance and facility closure costs

     (3

Stock compensation expense

     (11

Management fees

     (2

Other costs (included in operating income)

     (4

Interest expense, net

     (108

Loss on extinguishment of debt

     (5

Other income (expense)

     1   
  

 

 

 

Income (loss) from continuing operations before income tax

   $ (56
  

 

 

 

 

17


Depreciation and amortization and capital expenditures by segment follow (in  millions):

 

Three Months Ended March 31, 2013

   FS      AS      PS&E      Sum of
segments
     Corporate      Total  

Capital expenditures

   $ 21       $ 23       $ 2       $ 46       $ —         $ 46   

Depreciation(1)

     22         49         2         73         —           73   

Amortization of acquisition-related intangible assets

     44         39         4         87         —           87   

The operating results for the three months ended March 31, 2012 for each  segment follow (in millions):

 

Three Months Ended March 31, 2012

   FS     AS     PS&E     Sum of
segments
 

Revenue

   $ 618      $ 355      $ 51      $ 1,024   

Internal Adjusted EBITDA

     126        113        16        255   

Internal Adjusted EBITDA margin

     20.4     31.7     32.7     24.9
Reconciliation of Internal Adjusted EBITDA to income (loss) from continuing operations before income taxes:   

 

     2012  

Internal Adjusted EBITDA (sum of segments)

   $ 255   

Corporate

     (14

Depreciation(1)

     (71

Amortization of acquisition-related intangible assets

     (101

Severance and facility closure costs

     (2

Stock compensation expense

     (11

Management fees

     (2

Other costs (included in operating income)

     (2

Interest expense, net

     (122

Loss on extinguishment of debt

     (15

Other income (expense)

     2   
  

 

 

 

Income (loss) from continuing operations before income tax

   $ (83
  

 

 

 

Depreciation and amortization and capital expenditures by segment follow (in  millions):

 

Three Months Ended March 31, 2012

   FS      AS      PS&E      Sum of
segments
     Corporate      Total  

Capital expenditures

   $ 20       $ 38       $ 2       $ 60       $ —         $ 60   

Depreciation(1)

     21         48         2         71         —           71   

Amortization of acquisition-related intangible assets

     53         43         5         101         —           101   

(1)  Includes amortization of capitalized software.

 

18


10. Employee Termination Benefits and Facility Closures:

The following table provides a rollforward of the liability balances for workforce reductions and facility closures, which occurred through March 31, 2013 (in millions):

 

                                                                                                             
     Balance
12/31/2012
     Expense      Paid     Other
Adjustments*
    Balance
3/31/2013
 

Workforce-related

   $ 32       $ 4       $ (10   $ (3   $ 23   

Facilities

     22         1         (2     —          21   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 54       $ 5       $ (12   $ (3   $ 44   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

* The other adjustments column in the table principally relates to changes in estimates from when the initial charge was recorded and also foreign currency translation and other adjustments.

The workforce related actions are expected to be paid out over the next 18 months (the majority within 12 months). The facilities accruals are for ongoing obligations to pay rent for vacant space and are net of sublease reserves. The lengths of these obligations vary by lease with the majority ending in 2019.

11. Related Party Transactions:

In accordance with the Management Agreement between the Company and affiliates of the Sponsors, the Company recorded $2 million of management fees in sales, marketing and administration expenses during the three months ended March 31, 2012 and 2013, respectively. At December 31, 2012 and March 31, 2013, $4 million and $2 million, respectively, was included in other accrued expenses.

During the first quarter of 2012, in connection with the sale of HE, the Company paid the Sponsors $17.8 million of management fees, which are included in the results of discontinued operations.

In each of March 2012 and 2013, Goldman Sachs & Co. and/or its respective affiliates received fees of approximately $1 million in connection with amendments of SunGard’s Credit Agreement in each year.

12. Supplemental Guarantor Condensed Consolidating Financial Statements:

SunGard’s senior unsecured notes are jointly and severally, fully and unconditionally guaranteed on a senior unsecured basis and the senior subordinated notes are jointly and severally, fully and unconditionally guaranteed on an unsecured senior subordinated basis, in each case, subject to certain exceptions, by substantially all wholly owned, domestic subsidiaries of SunGard (collectively, the “Guarantors”). Each of the Guarantors is 100% owned, directly or indirectly, by SunGard. None of the other subsidiaries of SunGard, either direct or indirect, nor any of the Holding Companies, guarantee the senior notes and senior subordinated notes (“Non-Guarantors”). The Guarantors and SunGard Holdco LLC also unconditionally guarantee the senior secured credit facilities. The Guarantors are subject to release under certain circumstances as described below.

The indentures evidencing the guarantees provide for a Guarantor to be automatically and unconditionally released and discharged from its guarantee obligations in certain circumstances, including upon the earliest to occur of:

 

   

The sale, exchange or transfer of the subsidiary’s capital stock or all or substantially all of its assets;

 

   

Designation of the Guarantor as an “unrestricted subsidiary” for purposes of the indenture covenants;

 

   

Release or discharge of the Guarantor’s guarantee of certain other indebtedness; or

 

   

Legal defeasance or covenant defeasance of the indenture obligations when provision has been made for them to be fully satisfied.

The following tables present the financial position, results of operations and cash flows of SunGard (referred to as “Parent Company” for purposes of this note only), the Guarantor subsidiaries, the Non-Guarantor subsidiaries and Eliminations as of December 31, 2012 and March 31, 2013, and for the three month periods ended March 31, 2012 and 2013 to arrive at the information for SunGard on a consolidated basis. SCC and SCCII are neither parties to nor guarantors of the debt issued as described in Note 5 of Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for 2012.

 

19


(in millions)    Supplemental Condensed Consolidating Balance Sheet
December 31, 2012
 
     Parent
Company
     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
     Eliminations     Consolidated  

Assets

            

Current:

            

Cash and cash equivalents

   $ 220       $ (3   $ 329       $ —        $ 546   

Intercompany balances

     —           2,457        742         (3,199     —     

Trade receivables, net

     3         566 (a)      331         —          900   

Prepaid expenses, taxes and other current assets

     1,312         70        89         (1,241     230   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total current assets

     1,535         3,090        1,491         (4,440     1,676   

Property and equipment, net

     —           574        300         —          874   

Intangible assets, net

     112         2,413        404         —          2,929   

Deferred income taxes

     39         —          —           (39     —     

Intercompany balances

     254         7        76         (337     —     

Goodwill

     —           3,470        1,069         —          4,539   

Investment in subsidiaries

     8,620         2,101        —           (10,721     —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Assets

   $ 10,560       $ 11,655      $ 3,340       $ (15,537   $ 10,018   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Liabilities and Stockholder’s Equity

            

Current:

            

Short-term and current portion of long-term debt

   $ 57       $ —        $ 6       $ —        $ 63   

Intercompany balances

     3,199         —          —           (3,199     —     

Accounts payable and other current liabilities

     70         1,983        632         (1,241     1,444   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total current liabilities

     3,326         1,983        638         (4,440     1,507   

Long-term debt

     6,343         2        254         —          6,599   

Intercompany debt

     83         —          254         (337     —     

Deferred and other income taxes

     92         1,000        67         (39     1,120   

Other long-term liabilities

     —           50        26         —          76   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities

     9,844         3,035        1,239         (4,816     9,302   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total stockholder’s equity

     716         8,620        2,101         (10,721     716   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Liabilities and Stockholder’s Equity

   $ 10,560       $ 11,655      $ 3,340       $ (15,537   $ 10,018   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

(a) This balance is primarily comprised of a receivable from the Company’s AR Financing LLC subsidiary, which is a non-Guarantor, resulting from the normal, recurring sale of accounts receivable under the receivables facility. In a liquidation, the first $250 million (plus interest) of collections of accounts receivable sold to this subsidiary are due to the receivables facility lender. The remaining balance would be available for collection for the benefit of the Guarantors.

 

20


(in millions)    Supplemental Condensed Consolidating Balance Sheet
March 31, 2013
 
     Parent
Company
     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
     Eliminations     Consolidated  

Assets

            

Current:

            

Cash and cash equivalents

   $ 173       $ (2   $ 366       $ —        $ 537   

Intercompany balances

     —           2,588        704         (3,292     —     

Trade receivables, net

     7         515 (b)      243         —          765   

Prepaid expenses, taxes and other current assets

     1,361         81        112         (1,301     253   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total current assets

     1,541         3,182        1,425         (4,593     1,555   

Property and equipment, net

     —           555        280         —          835   

Intangible assets, net

     116         2,347        380         —          2,843   

Deferred income taxes

     37         —          —           (37     —     

Intercompany balances

     248         6        77         (331     —     

Goodwill

     —           3,468        1,037         —          4,505   

Investment in subsidiaries

     8,607         2,056        —           (10,663     —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Assets

   $ 10,549       $ 11,614      $ 3,199       $ (15,624   $ 9,738   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Liabilities and Stockholder’s Equity

            

Current:

            

Short-term and current portion of long-term debt

   $ 434       $ —        $ 7       $ —        $ 441   

Intercompany balances

     3,292         —          —           (3,292     —     

Accounts payable and other current liabilities

     103         1,984        595         (1,301     1,381   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total current liabilities

     3,829         1,984        602         (4,593     1,822   

Long-term debt

     5,915         2        204         —          6,121   

Intercompany debt

     83         —          248         (331     —     

Deferred and other income taxes

     91         978        55         (37     1,087   

Other liabilities

     —           43        34         —          77   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities

     9,918         3,007        1,143         (4,961     9,107   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total stockholder’s equity

     631         8,607        2,056         (10,663     631   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Liabilities and Stockholder’s Equity

   $ 10,549       $ 11,614      $ 3,199       $ (15,624   $ 9,738   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

(b) This balance is primarily comprised of a receivable from the Company’s AR Financing LLC subsidiary, which is a non-Guarantor, resulting from the normal, recurring sale of accounts receivable under the receivables facility. In a liquidation, the first $200 million (plus interest) of collections of accounts receivable sold to this subsidiary are due to the receivables facility lender. The remaining balance would be available for collection for the benefit of the Guarantors.

 

21


(in millions)    Supplemental Condensed Consolidating Schedule of Comprehensive  Income
Three Months Ended March 31, 2012
 
     Parent
Company
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Total revenue

   $ —        $ 713      $ 398      $ (87   $ 1,024   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

          

Cost of sales and administrative expenses (excluding depreciation)

     25        534        328        (87     800   

Depreciation and amortization

     —          48        23        —          71   

Amortization of acquisition-related intangible assets

     —          84        17        —          101   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     25        666        368        (87     972   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (25     47        30        —          52   

Net interest income (expense)

     (114     —          (8     —          (122

Equity in earnings of unconsolidated subsidiaries (c)

     160        27        —          (187     —     

Other income (expense)

     (15     —          2          (13
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     6        74        24        (187     (83

Benefit from (provision for) income taxes

     10        (3     —          —          7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     16        71        24        (187     (76

Income (loss) from discontinued operations, net of tax

     219        89        3        —          311   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     235        160        27        (187     235   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 271      $ 185      $ 49      $ (234   $ 271   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(c) The Supplemental Condensed Consolidating Schedule of Comprehensive Income for Parent Company and Guarantor Subsidiaries for the three months ended March 31, 2012 has been revised to present all equity in earnings of unconsolidated subsidiaries in a single caption within Other income (expense). The portion of equity in earnings of unconsolidated subsidiaries which related to the investees’ income (loss) from discontinued operations had previously been presented separately in the Income (loss) from discontinued operations, net of tax caption for the Parent Company and Guarantor Subsidiaries. This revision has also been reflected in the Net income (loss) and Income (loss) from discontinued operations captions in the Supplemental Condensed Consolidating Schedule of Cash Flows for Parent Company and Guarantor Subsidiaries for the same periods.

While these revisions have no impact on the previously reported Net Income or total cash flows from operations of the Parent Company or Guarantor Subsidiaries, they resulted in the following changes to previously reported amounts. For the Parent Company in 2012, Equity in earnings of unconsolidated subsidiaries changed from $71 million to $160 million; Income (loss) from continuing operations changed from $(77) million to $16 million; and Income (loss) from discontinued operations, net of tax changed from $312 million to $219 million. For the Guarantor Subsidiaries in 2012, Equity in earnings of unconsolidated subsidiaries changed from $24 million to $27 million; Income (loss) from continuing operations changed from $67 million to $71 million; and Income (loss) from discontinued operations, net of tax changed from $93 million to $89 million. These revisions had no impact on the consolidated results of the Company and were not material to the Supplemental Condensed Consolidating Schedule of Comprehensive Income or the Supplemental Condensed Consolidating Schedule of Cash Flows for any period.

 

22


(in millions)   Supplemental Condensed Consolidating Schedule of Comprehensive  Income
Three Months Ended March 31, 2013
 
    Parent
Company
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Total revenue

  $ —        $ 692      $ 381      $ (78   $ 995   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

         

Cost of sales and administrative expenses (excluding depreciation)

    23        509        325        (78     779   

Depreciation and amortization

    —          49        24        —          73   

Amortization of acquisition-related intangible assets

    —          71        16        —          87   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    23        629        365        (78     939   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    (23     63        16        —          56   

Net interest income (expense)

    (101     —          (7     —          (108

Equity in earnings of unconsolidated subsidiaries

    41        8        —          (49     —     

Other income (expense)

    (5     —          1        —          (4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

    (88     71        10        (49     (56

Benefit from (provision for) income taxes

    41        (30     (2     —          9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

    (47     41        8        (49     (47

Income (loss) from discontinued operations, net of tax

    —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    (47     41        8        (49     (47
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

  $ (91   $ 1      $ (26   $ 25      $ (91
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

23


(in millions)   Supplemental Condensed Consolidating Schedule of Cash
Flows

Three Months Ended March 31, 2012
 
    Parent
Company
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash flow from operations:

         

Net income (loss)

  $ 235      $ 160      $ 27      $ (187   $ 235   

Income (loss) from discontinued operations

    219        89        3        —          311   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

    16        71        24        (187     (76

Non cash adjustments

    (75     94        36        187        242   

Changes in operating assets and liabilities

    8        (68     (36     —          (96
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flow from (used in) continuing operations

    (51     97        24        —          70   

Cash flow from (used in) discontinued operations

    (2     —          7        —          5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flow from (used in) operations

    (53     97        31        —          75   

Investment activities:

         

Intercompany transactions (d)

    1,828        (24     (33     (1,771     —     

Cash paid for acquired businesses, net of cash acquired

    —          —          (6     —          (6

Cash paid for property and equipment and software

    —          (41     (19     —          (60

Other investing activities

    1        —          2        —          3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by (used in) continuing operations

    1,829        (65     (56     (1,771     (63

Cash provided by (used in) discontinued operations

    —          1,740        —          —          1,740   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by (used in) investment activities

    1,829        1,675        (56     (1,771     1,677   

Financing activities:

         

Intercompany dividends of HE sale proceeds

    —          (1,771     —          1,771        —     

Net repayments of long-term debt

    (1,241     (1     (2     —          (1,244

Premium paid to retire debt

    —          —          —          —          —     

Dividends paid

    —          —          —          —          —     

Other financing activities

    (10     —          —          —          (10
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by (used in) continuing operations

    (1,251     (1,772     (2     1,771        (1,254

Cash provided by (used in) discontinued operations

    —          —          —          —       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by (used in) financing activities

    (1,251     (1,772     (2     1,771        (1,254

Effect of exchange rate changes on cash

    —          —          7        —          7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

    525        —          (20     —          505   

Beginning cash and cash equivalents

    529        (15     359        —          873   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending cash and cash equivalents

  $ 1,054      $ (15   $ 339      $ —        $ 1,378   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(d) The intercompany cash transactions reflected above within investment activities largely reflect cash dividends or the return of capital, including the cash dividend of $1.8 billion from Guarantor Subsidiaries to Parent in connection with the sale of our Higher Education business.

 

24


(in millions)    Supplemental Condensed Consolidating Schedule of Cash Flows
Three Months Ended March 31, 2013
 
     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash flow from operations:

          

Net income (loss)

   $ (47   $ 41      $ 8      $ (49   $ (47

Income (loss) from discontinued operations

     —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (47     41        8        (49     (47

Non cash adjustments

     (9     89        32        49        161   

Changes in operating assets and liabilities

     (14     34        45        —          65   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flow from (used in) continuing operations

     (70     164        85        —          179   

Cash flow from (used in) discontinued operations

     —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flow from (used in) operations

     (70     164        85        —          179   

Investment activities:

          

Intercompany transactions

     108        (121     35        (22     —     

Cash paid for acquired businesses, net of cash acquired

     (1     —          —          —          (1

Cash paid for property and equipment and software

     —          (32     (14     —          (46

Other investing activities

     —          1        —          —          1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by (used in) continuing operations

     107        (152     21        (22     (46

Cash provided by (used in) discontinued operations

     —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by (used in) investment activities

     107        (152     21        (22     (46

Financing activities:

          

Intercompany dividends of HE sale proceeds

     —          —          —          —          —     

Intercompany dividends

     —          (11     (11     22        —     

Net repayments of long-term debt

     (78     —          (50     —          (128

Premium paid to retire debt

     —          —          —          —          —     

Dividends paid

     (1     —          —          —          (1

Other financing activities

     (5     —          —          —          (5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by (used in) continuing operations

     (84     (11     (61     22        (134

Cash provided by (used in) discontinued operations

     —          —          —          —       
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by (used in) financing activities

     (84     (11     (61     22        (134

Effect of exchange rate changes on cash

     —          —          (8     —          (8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     (47     1        37        —          (9

Beginning cash and cash equivalents

     220        (3     329        —          546   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending cash and cash equivalents

   $ 173      $ (2   $ 366      $ —        $ 537   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


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

Introduction

The following discussion and analysis supplements management’s discussion and analysis in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 and presumes that readers are familiar with the discussion and analysis in that filing. The following discussion and analysis includes historical and certain forward-looking information that should be read together with the accompanying Consolidated Financial Statements, related footnotes, and the discussion below of certain risks and uncertainties that could cause future operating results to differ materially from historical results or from the expected results indicated by forward-looking statements. The following discussion reflects the results of operations and financial condition of SCC, which are materially the same as the results of operations and financial condition of SCCII and SunGard. Therefore, the discussions provided are applicable to each of SCC, SCCII and SunGard unless otherwise noted.

Except as otherwise noted, all explanations below exclude the impacts from changes in currency translation, which we refer to as constant currency, a non-GAAP measure. We believe presenting our results on a constant currency basis is meaningful for assessing how our underlying businesses have performed due to the fact that we have international operations that are material to our overall operations. As a result, total revenues and expenses are affected by changes in the U.S. Dollar against international currencies. To present this constant currency information, current period results for entities reporting in currencies other than U.S. Dollars are converted to U.S. Dollars at the average exchange rate used in the prior year period rather than the actual exchange rates in effect during the current year period. In each of the tables below, we present the percent change based on actual, unrounded results in reported currency and in constant currency. Also, percentages may not add due to rounding.

We evaluate our performance using both GAAP and non-GAAP measures. Our primary non-GAAP measure is Internal Adjusted EBITDA, whose corresponding GAAP measure is income from continuing operations before income taxes (see Note 9 of Notes to Consolidated Financial Statements). Internal Adjusted EBITDA is defined as operating income excluding the following items:

 

   

depreciation and amortization,

 

   

amortization of acquisition-related intangible assets,

 

   

goodwill impairment,

 

   

severance and facility closure charges,

 

   

stock compensation,

 

   

management fees, and

 

   

certain other costs.

We believe Internal Adjusted EBITDA is an effective tool to measure our operating performance since it excludes non-cash items and certain variable charges. We use Internal Adjusted EBITDA extensively to measure both SunGard and its reportable segments within the Company and also to our board of directors.

While Internal Adjusted EBITDA is useful for analysis purposes, it should not be considered as an alternative to our reported GAAP results. Also, Internal Adjusted EBITDA may not be comparable to similarly titled measures used by other companies. Internal Adjusted EBITDA is similar, but not identical, to adjusted EBITDA as defined in the Credit Agreement (as defined above) for purposes of our debt covenants.

 

26


Results of Operations:

Three Months Ended March 31, 2013 Compared To Three Months Ended March 31, 2012

The following table sets forth, for the periods indicated, certain supplemental revenue data and the percentage change in those amounts from period to period (in millions).

 

Three Months Ended March 31, 2013

     FS     AS     PS&E     Total  
Total revenue      $ 600      $ 345      $ 50      $ 995   

Year to year revenue change

       (3 )%      (3 )%      (1 )%      (3 )% 

Year to year revenue change at constant currency

       (3 )%      (3 )%      (1 )%      (3 )% 

Services

     $ 566      $ 340      $ 43      $ 949   

Year to year services revenue change

       (3 )%      (2 )%      —       (3 )% 

Year to year services revenue change at constant currency

       (3 )%      (2 )%      —       (2 )% 

License and resale fees

     $ 27      $ —        $ 6      $ 33   

Year to year license and resale fees revenue change

       11     13     (10 )%      6

Year to year license and resale fees revenue change at constant currency

       12     13     (10 )%      7

Reimbursable expenses

     $ 7      $ 5      $ 1      $ 13   

Year to year reimbursable expenses revenue change

       (33 )%      (27 )%      8     (29 )% 

Year to year reimbursable expenses revenue change at constant currency

       (33 )%      (26 )%      8     (29 )%