Edgar Filing: SunGard

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 June 30, 2015

¨	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		000-53653
SunGard Capital Corp. II		000-53654
SunGard Data Systems Inc.		001-12989

SunGard^®

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	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	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	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	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 June 30, 2015:


SunGard		258,839,495 shares of Class A common stock and 28,759,942 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

SUNGARD CAPITAL CORP. II

SUNGARD DATA SYSTEMS INC.

AND SUBSIDIARIES

INDEX


		PAGE
PART I.	FINANCIAL INFORMATION		1

Item 1.	Financial Statements: (unaudited)		2

SunGard

	Condensed Consolidated Balance Sheets as of December 31, 2014 and June 30, 2015		2

	Condensed Consolidated Statements of Income (Loss) for the three and six months ended June 30, 2014 and 2015		3

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2014 and 2015		4

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2015		5

SunGard Capital Corp. II

	Condensed Consolidated Balance Sheets as of December 31, 2014 and June 30, 2015		6

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2014 and 2015		7

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2015		8

SunGard Data Systems Inc.

	Condensed Consolidated Balance Sheets as of December 31, 2014 and June 30, 2015		9

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2014 and 2015		10

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2015		11

	Notes to Condensed Consolidated Financial Statements		12

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		34

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		52

Item 4.	Controls and Procedures		52

PART II.	OTHER INFORMATION		53

Item 1.	Legal Proceedings		53

Item 1A.	Risk Factors		53

Item 5.	Other Information		61

Item 6.	Exhibits		61

SIGNATURES			62

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, SunGard Capital Corp. II (“SCCII”) and SunGard Data Systems Inc. (“SDS”). SunGard 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 SDS. 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.

ITEM 1. FINANCIAL STATEMENTS

SunGard

Condensed Consolidated Balance Sheets

(In millions except share and per-share amounts)

(Unaudited)


	December 31,			June 30,
	2014			2015
*Assets*
Current:
Cash and cash equivalents	$	447		$	538
Trade receivables, less allowance for doubtful accounts of $22 and $21		572			446
Earned but unbilled receivables		114			115
Prepaid expenses and other current assets		116			108

Total current assets		1,249			1,207

Property and equipment, less accumulated depreciation of $414 and $433		152			149
Software products, less accumulated amortization of $1,754 and $1,771		224			222
Customer base, less accumulated amortization of $531 and $555		360			338
Other assets, less accumulated amortization of $22 and $23		94			73
Trade name		672			672
Goodwill		3,760			3,744

Total Assets	$	6,511		$	6,405

*Liabilities and Equity*
Current:
Short-term and current portion of long-term debt	$	—		$	3
Accounts payable		21			15
Accrued compensation and benefits		227			167
Accrued interest expense		30			29
Other accrued expenses		131			125
Deferred revenue		589			541

Total current liabilities		998			880

Long-term debt		4,669			4,669
Deferred and other income taxes		616			604
Other long-term liabilities		39			32

Total liabilities		6,322			6,185

Commitments and contingencies

Noncontrolling interest in preferred stock of SCCII subject to a put option		37			40
Class L common stock subject to a put option		57			58
Class A common stock subject to a put option		3			2

Stockholders’ equity:
Class L common stock, convertible, par value $.001 per share; cumulative 13.5% per annum, compounded quarterly; aggregate liquidation preference of $8,064 million and $8,659 million; 50,000,000 shares authorized, 29,062,421 shares issued		—			—
Class A common stock, par value $.001 per share; 550,000,000 shares authorized, 261,565,118 shares issued		—			—
Capital in excess of par value		2,674			2,672
Treasury stock, 442,460 and 302,479 shares of Class L common stock; and 3,985,453 and 2,725,623 shares of Class A common stock		(38	)		(26	)
Accumulated deficit		(3,902	)		(3,928	)
Accumulated other comprehensive income (loss)		(132	)		(174	)

Total SunGard stockholders’ equity (deficit)		(1,398	)		(1,456	)
Non-controlling interest in preferred stock of SCCII		1,490			1,576

Total equity		92			120

Total Liabilities and Equity	$	6,511		$	6,405

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

SunGard

Condensed Consolidated Statements of Income (Loss)

(In millions, except per share amounts)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2015			2014			2015
Revenue	$	673		$	687		$	1,326		$	1,358

Costs and expenses:
Cost of sales and direct operating (excluding items described in Note 1)		273			283			542			551
Sales, marketing and administration		158			161			326			313
Product development and maintenance		97			87			196			173
Depreciation		27			27			51			56
Amortization of acquisition-related intangible assets		41			21			84			42
Trade name impairment charge		—			—			339			—

Total costs and expenses		596			579			1,538			1,135

Operating income (loss)		77			108			(212	)		223
Other income (expense):
Interest income		1			1			1			1
Interest expense and amortization of deferred financing fees		(73	)		(71	)		(147	)		(142	)
Loss on extinguishment of debt		—			—			(61	)		—
Other income (expense)		—			1			—			1

Other income (expense)		(72	)		(69	)		(207	)		(140	)

Income (loss) from continuing operations before income taxes		5			39			(419	)		83
Benefit from (provision for) income taxes		(2	)		(6	)		99			(24	)

Income (loss) from continuing operations		3			33			(320	)		59
Income (loss) from discontinued operations, net of tax		—			—			(17	)		2

Net income (loss)		3			33			(337	)		61
Income attributable to the non-controlling interest		(40	)		(44	)		(90	)		(87	)

Net income (loss) attributable to SunGard	$	(37	)	$	(11	)	$	(427	)	$	(26	)

Basic earnings (loss) per share:
Allocation of net income (loss) to common shareholders - Basic:
Class L shareholders	$	255		$	292		$	491		$	562
Class A shareholders - continuing operations		(292	)		(302	)		(903	)		(590	)
Class A shareholders - total		(292	)		(302	)		(920	)		(588	)
Net income (loss) per share - Basic:
Class L shareholders	$	8.80		$	10.04		$	16.93		$	19.34
Class A shareholders - continuing operations		(1.12	)		(1.15	)		(3.46	)		(2.25	)
Class A shareholders - total		(1.12	)		(1.15	)		(3.53	)		(2.24	)
Weighted average number of shares - Basic:
Class L shareholders		29			29			29			29
Class A shareholders		261			262			261			262
Diluted earnings (loss) per share:
Allocation of net income (loss) to common shareholders - Diluted:
Class L shareholders	$	260		$	301		$	499		$	577
Class A shareholders - continuing operations		(298	)		(312	)		(903	)		(606	)
Class A shareholders - total		(298	)		(312	)		(920	)		(604	)
Net income (loss) per share - Diluted:
Class L shareholders	$	8.80		$	10.04		$	16.93		$	19.34
Class A shareholders - continuing operations		(1.12	)		(1.16	)		(3.46	)		(2.26	)
Class A shareholders - total		(1.12	)		(1.16	)		(3.53	)		(2.25	)
Weighted average number of shares - Diluted:
Class L shareholders		30			30			29			30
Class A shareholders		266			270			261			268

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

SunGard

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In millions)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2015			2014			2015
Net income (loss)	$	3		$	33		$	(337	)	$	61
Other comprehensive income (loss):
Foreign currency translation, net		(1	)		28			21			(39	)
Unrealized gain (loss) on derivative instruments, net of tax		(5	)		1			(2	)		(3	)

Other comprehensive income (loss), net of tax		(6	)		29			19			(42	)

Comprehensive income (loss)		(3	)		62			(318	)		19
Comprehensive income attributable to the non-controlling interest		(40	)		(44	)		(90	)		(87	)

Comprehensive income (loss) attributable to SunGard	$	(43	)	$	18		$	(408	)	$	(68	)

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

SunGard

Condensed Consolidated Statements of Cash Flows

(In millions)

(Unaudited)


	Six Months Ended June 30,
	2014			2015
*Cash flow from operations:*
Net income (loss)	$	(337	)	$	61
Income (loss) from discontinued operations		(17	)		2

Income (loss) from continuing operations		(320	)		59
Reconciliation of income (loss) from continuing operations to cash flow from (used in) operations:
Depreciation and amortization		135			98
Trade name impairment charge		339			—
Deferred income tax provision (benefit)		(90	)		(8	)
Stock compensation expense		20			23
Amortization of deferred financing costs and debt discount		10			8
Loss on extinguishment of debt		61			—
Other noncash items		—			(1	)
Changes in working capital:
Accounts receivable and other current assets		100			119
Accounts payable and accrued expenses		(111	)		(83	)
Accrued interest		(5	)		(1	)
Accrued income taxes		(25	)		15
Deferred revenue		(28	)		(47	)

Cash flow from (used in) continuing operations		86			182
Cash flow from (used in) discontinued operations		34			—

Cash flow from (used in) operations		120			182


*Investment activities:*
Cash paid for acquired businesses, net of cash acquired		—			(25	)
Additions to property and equipment, and software		(31	)		(27	)
Additions to capitalized software		(27	)		(28	)
Other investing activities		—			1

Cash provided by (used in) continuing operations		(58	)		(79	)
Cash provided by (used in) discontinued operations		5			1

Cash provided by (used in) investment activities		(53	)		(78	)


*Financing activities:*
Cash received from borrowings, net of fees		(7	)		3
Cash used to repay debt		(1,324	)		(1	)
Cash used to purchase treasury stock		(7	)		(2	)
Other financing activities		(9	)		(10	)

Cash provided by (used in) continuing operations		(1,347	)		(10	)
Cash provided by (used in) discontinued operations		887			—

Cash provided by (used in) financing activities		(460	)		(10	)

Effect of exchange rate changes on cash		1			(3	)

Increase (decrease) in cash and cash equivalents		(392	)		91
Beginning cash and cash equivalents, including cash of discontinued operations: 2014, $31; 2015, $-		706			447

Ending cash and cash equivalents	$	314		$	538


*Supplemental information:*
Interest paid	$	166		$	135

Income taxes paid, net of refunds of $12 million and $19 million, respectively	$	23		$	16

Non-cash financing activities:
Distribution of net assets of SpinCo (See Note 1)	$	223		$	—

Receipt of SpinCo Notes in connection with the AS Split-Off (See Note 1)	$	425		$	—

Exchange of SpinCo Notes for SDS Notes	$	389		$	—

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

SunGard Capital Corp. II

Condensed Consolidated Balance Sheets

(In millions except share and per-share amounts)

(Unaudited)


	December 31, 2014			June 30, 2015
*Assets*
Current:
Cash and cash equivalents	$	447		$	538
Trade receivables, less allowance for doubtful accounts of $22 and $21		572			446
Earned but unbilled receivables		114			115
Prepaid expenses and other current assets		116			108

Total current assets		1,249			1,207

Property and equipment, less accumulated depreciation of $414 and $433		152			149
Software products, less accumulated amortization of $1,754 and $1,771		224			222
Customer base, less accumulated amortization of $531 and $555		360			338
Other assets, less accumulated amortization of $22 and $23		94			73
Trade name		672			672
Goodwill		3,760			3,744

Total Assets	$	6,511		$	6,405

*Liabilities and Equity*
Current:
Short-term and current portion of long-term debt	$	—		$	3
Accounts payable		21			15
Accrued compensation and benefits		227			167
Accrued interest expense		30			29
Other accrued expenses		127			120
Deferred revenue		589			541

Total current liabilities		994			875

Long-term debt		4,669			4,669
Deferred and other income taxes		616			604
Other long-term liabilities		32			26

Total liabilities		6,311			6,174


Commitments and contingencies

Preferred stock subject to a put option		31			33

Stockholders’ equity:
Preferred stock, par value $.001 per share; cumulative 11.5% per annum, compounded quarterly; aggregate liquidation preference of $1,498 million and $1,593 million; 14,999,000 shares authorized, 10,060,069 shares issued		—			—
Common stock, par value $.001 per share; 1,000 shares authorized, 100 shares issued and oustanding		—			—
Capital in excess of par value		3,519			3,523
Treasury stock, 2,516,374 and 2,479,477 preferred shares		(280	)		(274	)
Accumulated deficit		(2,939	)		(2,878	)
Accumulated other comprehensive income (loss)		(132	)		(174	)

Total stockholder’s equity		168			197
Non-controlling Interest		1			1

Total Equity		169			198

Total Liabilities and Equity	$	6,511		$	6,405

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

SunGard Capital Corp. II

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In millions)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2015			2014			2015
Revenue	$	673		$	687		$	1,326		$	1,358

Costs and expenses:
Cost of sales and direct operating (excluding items described in Note 1)		273			283			542			551
Sales, marketing and administration		158			161			326			313
Product development and maintenance		97			87			196			173
Depreciation		27			27			51			56
Amortization of acquisition-related intangible assets		41			21			84			42
Trade name impairment charge		—			—			339			—

Total costs and expenses		596			579			1,538			1,135

Operating income (loss)		77			108			(212	)		223

Other income (expense):
Interest income		1			1			1			1
Interest expense and amortization of deferred financing fees		(73	)		(71	)		(147	)		(142	)
Loss on extinguishment of debt		—			—			(61	)		—
Other income (expense)		—			1			—			1

Other income (expense)		(72	)		(69	)		(207	)		(140	)

Income (loss) from continuing operations before income taxes		5			39			(419	)		83
Benefit from (provision for) income taxes		(2	)		(6	)		99			(24	)

Income (loss) from continuing operations		3			33			(320	)		59
Income (loss) from discontinued operations, net of tax		—			—			(17	)		2

Net income (loss)		3			33			(337	)		61

Other comprehensive income (loss):
Foreign currency translation, net		(1	)		28			21			(39	)
Unrealized gain (loss) on derivative instruments, net of tax		(5	)		1			(2	)		(3	)

Other comprehensive income (loss)		(6	)		29			19			(42	)

Comprehensive income (loss)	$	(3	)	$	62		$	(318	)	$	19

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

SunGard Capital Corp. II

Condensed Consolidated Statements of Cash Flows

(In millions)

(Unaudited)


	Six Months Ended June 30,
	2014			2015
*Cash flow from operations:*
Net income (loss)	$	(337	)	$	61
Income (loss) from discontinued operations		(17	)		2

Income (loss) from continuing operations		(320	)		59
Reconciliation of income (loss) from continuing operations to cash flow from (used in) operations:
Depreciation and amortization		135			98
Trade name impairment charge		339			—
Deferred income tax provision (benefit)		(90	)		(8	)
Stock compensation expense		20			23
Amortization of deferred financing costs and debt discount		10			8
Loss on extinguishment of debt		61			—
Other noncash items		—			(1	)
Changes in working capital:
Accounts receivable and other current assets		100			119
Accounts payable and accrued expenses		(111	)		(83	)
Accrued interest		(5	)		(1	)
Accrued income taxes		(25	)		15
Deferred revenue		(28	)		(47	)

Cash flow from (used in) continuing operations		86			182
Cash flow from (used in) discontinued operations		34			—

Cash flow from (used in) operations		120			182

*Investment activities:*
Cash paid for acquired businesses, net of cash acquired		—			(25	)
Additions to property and equipment, and software		(31	)		(27	)
Additions to capitalized software		(27	)		(28	)
Other investing activities		—			1

Cash provided by (used in) continuing operations		(58	)		(79	)
Cash provided by (used in) discontinued operations		5			1

Cash provided by (used in) investment activities		(53	)		(78	)

*Financing activities:*
Cash received from borrowings, net of fees		(7	)		3
Cash used to repay debt		(1,324	)		(1	)
Cash used to purchase treasury stock		(3	)		(1	)
Other financing activities		(13	)		(11	)

Cash provided by (used in) continuing operations		(1,347	)		(10	)
Cash provided by (used in) discontinued operations		887			—

Cash provided by (used in) financing activities		(460	)		(10	)

Effect of exchange rate changes on cash		1			(3	)

Increase (decrease) in cash and cash equivalents		(392	)		91
Beginning cash and cash equivalents, including cash of discontinued operations: 2014, $31; 2015, $-		706			447

Ending cash and cash equivalents	$	314		$	538

*Supplemental information:*

Interest paid	$	166		$	135

Income taxes paid, net of refunds of $12 million and $19 million, respectively	$	23		$	16

Non-cash financing activities:
Distribution of net assets of SpinCo (See Note 1)	$	223		$	—

Receipt of SpinCo Notes in connection with the AS Split-Off (See Note 1)	$	425		$	—

Exchange of SpinCo Notes for SDS Notes	$	389		$	—

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

SunGard Data Systems Inc.

Condensed Consolidated Balance Sheets

(In millions except share and per-share amounts)

(Unaudited)


	December 31, 2014			June 30, 2015
*Assets*
Current:
Cash and cash equivalents	$	447		$	538
Trade receivables, less allowance for doubtful accounts of $22 and $21		572			446
Earned but unbilled receivables		114			115
Prepaid expenses and other current assets		112			104

Total current assets		1,245			1,203

Property and equipment, less accumulated depreciation of $414 and $433		152			149
Software products, less accumulated amortization of $1,754 and $1,771		224			222
Customer base, less accumulated amortization of $531 and $555		360			338
Other assets, less accumulated amortization of $22 and $23		94			73
Trade name		672			672
Goodwill		3,760			3,744

Total Assets	$	6,507		$	6,401

*Liabilities and Equity*
Current:
Short-term and current portion of long-term debt	$	—		$	3
Accounts payable		21			15
Accrued compensation and benefits		227			167
Accrued interest expense		30			29
Other accrued expenses		127			120
Deferred revenue		589			541

Total current liabilities		994			875

Long-term debt		4,669			4,669
Deferred and other income taxes		608			596
Other long-term liabilities		31			26

Total liabilities		6,302			6,166

Commitments and contingencies

Stockholder’s equity:
Common stock, par value $.01 per share; 100 shares authorized, issued and outstanding		—			—
Capital in excess of par value		3,380			3,391
Accumulated deficit		(3,044	)		(2,983	)
Accumulated other comprehensive income (loss)		(132	)		(174	)

Total stockholder’s equity		204			234
Non-controlling Interest		1			1

Total Equity		205			235

Total Liabilities and Equity	$	6,507		$	6,401

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

SunGard Data Systems Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In millions)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2015			2014			2015
Revenue	$	673		$	687		$	1,326		$	1,358

Costs and expenses:
Cost of sales and direct operating (excluding items described in Note 1)		273			283			542			551
Sales, marketing and administration		158			161			326			313
Product development and maintenance		97			87			196			173
Depreciation		27			27			51			56
Amortization of acquisition-related intangible assets		41			21			84			42
Trade name impairment charge		—			—			339			—

Total costs and expenses		596			579			1,538			1,135

Operating income (loss)		77			108			(212	)		223

Other income (expense):
Interest income		1			1			1			1
Interest expense and amortization of deferred financing fees		(73	)		(71	)		(147	)		(142	)
Loss on extinguishment of debt		—			—			(61	)		—
Other income (expense)		—			1			—			1

Other income (expense)		(72	)		(69	)		(207	)		(140	)

Income (loss) from continuing operations before income taxes		5			39			(419	)		83
Benefit from (provision for) income taxes		(2	)		(6	)		99			(24	)

Income (loss) from continuing operations		3			33			(320	)		59
Income (loss) from discontinued operations, net of tax		—			—			(17	)		2

Net income (loss)		3			33			(337	)		61

Other comprehensive income (loss):
Foreign currency translation, net		(1	)		28			21			(39	)
Unrealized gain (loss) on derivative instruments, net of tax		(5	)		1			(2	)		(3	)

Other comprehensive income (loss)		(6	)		29			19			(42	)

Comprehensive income (loss)	$	(3	)	$	62		$	(318	)	$	19

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

SunGard Data Systems Inc.

Condensed Consolidated Statements of Cash Flows

(In millions)

(Unaudited)


	Six Months Ended June 30,
	2014			2015
*Cash flow from operations:*
Net income (loss)	$	(337	)	$	61
Income (loss) from discontinued operations		(17	)		2

Income (loss) from continuing operations		(320	)		59
Reconciliation of income (loss) from continuing operations to cash flow from (used in) operations:
Depreciation and amortization		135			98
Trade name impairment charge		339			—
Deferred income tax provision (benefit)		(90	)		(8	)
Stock compensation expense		20			23
Amortization of deferred financing costs and debt discount		10			8
Loss on extinguishment of debt		61			—
Other noncash items		—			(1	)
Changes in working capital:
Accounts receivable and other current assets		100			119
Accounts payable and accrued expenses		(111	)		(83	)
Accrued interest		(5	)		(1	)
Accrued income taxes		(25	)		15
Deferred revenue		(28	)		(47	)

Cash flow from (used in) continuing operations		86			182
Cash flow from (used in) discontinued operations		34			—

Cash flow from (used in) operations		120			182

*Investment activities:*
Cash paid for acquired businesses, net of cash acquired		—			(25	)
Additions to property and equipment, and software		(31	)		(27	)
Additions to capitalized software		(27	)		(28	)
Other investing activities		—			1

Cash provided by (used in) continuing operations		(58	)		(79	)
Cash provided by (used in) discontinued operations		5			1

Cash provided by (used in) investment activities		(53	)		(78	)

*Financing activities:*
Cash received from borrowings, net of fees		(7	)		3
Cash used to repay debt		(1,324	)		(1	)
Other financing activities		(16	)		(12	)

Cash provided by (used in) continuing operations		(1,347	)		(10	)
Cash provided by (used in) discontinued operations		887			—

Cash provided by (used in) financing activities		(460	)		(10	)

Effect of exchange rate changes on cash		1			(3	)

Increase (decrease) in cash and cash equivalents		(392	)		91
Beginning cash and cash equivalents, including cash of discontinued operations: 2014, $31; 2015, $-		706			447

Ending cash and cash equivalents	$	314		$	538

*Supplemental information:*

Interest paid	$	166		$	135

Income taxes paid, net of refunds of $12 million and $19 million, respectively	$	23		$	16

Non-cash Financing activities:
Distribution of net assets of SpinCo (See Note 1)	$	227		$	—

Receipt of SpinCo Notes in connection with the AS Split-Off (See Note 1)	$	425		$	—

Exchange of SpinCo Notes for SDS Notes	$	389		$	—

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

SUNGARD

SUNGARD CAPITAL CORP. II

SUNGARD DATA SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation:

SunGard (the “Company”), which was formerly named SunGard Capital Corp., is one of the world’s leading software and technology services companies and has two reportable segments: Financial Systems (“FS”) and Public Sector & Education (“PS&E”). The condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated.

SunGard Data Systems, a wholly-owned subsidiary of SunGard, (“SDS”) was acquired on August 11, 2005 in a leveraged buy-out (the “LBO”) 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”).

SDS is a wholly-owned, direct 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. All four of these companies were formed for the purpose of facilitating the LBO and are collectively referred to as the “Holding Companies.” SunGard, SCCII and SDS 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 SDS.

On June 4, 2015, SunGard filed a registration statement on Form S-1 for an initial public offering of common stock. An amended filing was made on July 17, 2015.

On March 31, 2014, the Company completed the split-off of its Availability Services (“AS”) business to its existing preferred stockholders, including its private equity owners, on a tax-free and pro-rata basis. As part of that transaction, the assets and liabilities of the AS business were contributed to a new subsidiary, and then SDS transferred all of its ownership interests in that subsidiary to Sungard Availability Services Capital, Inc. (“SpinCo”) in exchange for common stock of SpinCo, approximately $425 million of SpinCo senior notes (“SpinCo Notes”), and $1,005 million of net cash proceeds from the issuance of an AS term loan facility (“SpinCo Term Loan”). Immediately after these transactions, SDS distributed the common stock of SpinCo through SDS’ ownership chain ultimately to SCCII, and then all stockholders of preferred stock of SCCII exchanged a portion of their shares of preferred stock for all of the shares of common stock of SpinCo on a pro-rata basis (together, with the transactions described above, the “AS Split-Off”).

The AS business, which was split-off on March 31, 2014, and two small FS businesses, which were sold on January 31, 2014, have been included in our financial results as discontinued operations for all periods presented.

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, 2014. 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, 2015.

The Condensed Consolidated Statement of Comprehensive Income (Loss) for the three and six months ended June 30, 2014 has been revised to present stock compensation expense and developer time spent on customer billable professional services projects in the correct functional expense categories. Refer to Note 2 for additional details.

All of the previously-issued interim financial statements included in Quarterly Reports on Form 10-Q for 2014 included an error in the Condensed Consolidated Statements of Comprehensive Income (Loss) related to the removal of the cumulative foreign currency translation loss associated with the AS businesses that were split-off on March 31, 2014. The removal of the cumulative foreign currency translation loss was reflected in both the Condensed Consolidated Statements of Comprehensive Income (Loss) and the rollforwards of stockholders’ equity included in the notes to the condensed consolidated financial statements in each of the Quarterly Reports. However, the inclusion of this item in the 2014 Condensed Consolidated Statements of Comprehensive Income (Loss) was not appropriate since it relates to the distribution of the AS businesses to the Company’s owners and should have been excluded from the 2014 Other Comprehensive Income according to GAAP. Management does not believe the error is material to any of the previously-issued financial statements. The table below shows the impact of the correction of this error for the six months ended June 30, 2014.

The following table presents the amounts as originally reported and as revised for each of SunGard, SCCII and SDS (in millions):


	Six Months Ended June 30, 2014
	As Reported			As Revised
Other Comprehensive Income (loss)	$	(63	)	$	19
Comprehensive Income (Loss)		(400	)		(318	)
Comprehensive Income (Loss) attributable to SunGard (SunGard only)		(490	)		(408	)

Cost of Sales and Direct Operating

Cost of sales and direct operating represents the cost of providing the Company’s software and services offerings to customers and excludes depreciation, amortization and the cost of maintenance.

Recent Accounting Pronouncements

Recently Adopted

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Auditing Standards Update (“ASU”) 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” that changes the criteria for reporting a discontinued operation. According to the new guidance, only disposals of a component that represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results is a discontinued operation. The new guidance also requires expanded disclosures about discontinued operations and disposals of a significant part of an entity that does not qualify for discontinued operations reporting. ASU 2014-08 was effective beginning January 1, 2015, but only for disposals (or classifications as held for sale) that have not been reported in previously-issued financial statements. ASU 2014-08 will affect how the Company identifies and presents discontinued operations in the consolidated financial statements.

Recently Issued

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which outlines a comprehensive revenue recognition model and supersedes most current revenue recognition guidance. This new guidance establishes a five step process that companies must use in order to recognize revenue properly. Those five steps are: (i) identifying contract(s) with a customer, (ii) identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations in the contract, and (v) recognizing revenue when (or as) the entity satisfies a performance obligation. The new ASU will affect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. ASU 2014-09 was to be effective for the Company starting in the first quarter of fiscal 2017. However, in July 2015, the FASB voted to defer the effective date of the new revenue standard by one year, and to permit entities to adopt one year earlier if they choose (i.e., the original effective date). ASU 2014-09 allows for two methods of adoption: (a) “full retrospective” adoption, meaning the standard is applied to all periods presented, or (b) “modified retrospective” adoption, meaning the cumulative effect of applying ASU 2014-09 is recognized as an adjustment to the opening retained earnings balance. The Company is in the process of determining the adoption method as well as the effects the adoption of ASU 2014-09 will have on its consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” in conjunction with their initiative to reduce complexity in accounting standards. This new guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with presentation of a debt discount. The new standard is limited to the presentation of debt issuance costs and will not affect the recognition and measurement of debt issuance costs. ASU 2015-03 will be effective for the Company for the fiscal year beginning after December 15, 2015 and within those fiscal years with early adoption permitted. The adoption of ASU 2015-03 is not expected to have a material impact on the Company’s consolidated financial statements.

In April 2015, the FASB issued ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” Under the new standard, customers will apply the same criteria as vendors to determine whether a cloud computing arrangement contains a software license or is solely a service contract. For public companies, the new standard is effective for annual periods, including interim periods, beginning after December 15, 2015. The adoption of ASU 2015-05 is not expected to have a material impact on the Company’s consolidated financial statements.

2. Expense Classification:

Effective December 31, 2014, within the Condensed Consolidated Statements of Comprehensive Income (Loss), the Company revised its presentation of stock compensation expense. Formerly, the Company presented this expense entirely within sales, marketing and administration expense. The Company’s revised presentation allocates these costs to the appropriate functional areas. Further, the Company has revised its presentation of the costs for developer time spent on customer billable professional services projects. Formerly, the Company presented this expense within product development and maintenance expense. The Company’s revised presentation records these amounts to cost of sales and direct operating. There was no impact on total reported costs and expenses for any period as a result of the changes. Management does not believe these revisions are material to the previously issued financial statements.

The impact of these items within the functional areas for the three and six months ended June 30, 2014 is as follows (in millions):


	Three Months Ended June 30, 2014
	As reported		Revised presentation of stock compensation expense			Revised presentation of developer time spent on professional services projects			As presented in the statement of comprehensive income (loss)
Cost of sales and direct operating (See Note 1)	$	265	$	2		$	6		$	273
Sales, marketing and administration		162		(4	)		—			158
Product development and maintenance		101		2			(6	)		97

Total functional expenses	$	528	$	—		$	—		$	528


	Six Months Ended June 30, 2014
	As reported		Revised presentation of stock compensation expense			Revised presentation of developer time spent on professional services projects			As presented in the statement of comprehensive income (loss)
Cost of sales and direct operating (See Note 1)	$	528	$	3		$	11		$	542
Sales, marketing and administration		332		(6	)		—			326
Product development and maintenance		204		3			(11	)		196

Total functional expenses	$	1,064	$	—		$	—		$	1,064

3. Acquisitions and Discontinued Operations:

Acquisitions

During March 2015, the Company completed one acquisition in its FS segment, and in June 2015, the Company completed one acquisition in its PS&E segment. Total combined cash paid, net of cash acquired was $25 million. Below is a summary of the combined purchase price allocation (in millions):


	Six months ended June 30, 2015
Acquired businesses:
Software products	$	11
Customer base		6
Goodwill		17
Other intangible assets		2
Deferred income taxes		(6	)
Net current assets (liabilities) assumed		(5	)

Cash paid for acquired businesses	$	25

The acquisitions discussed above for March and June of 2015 were not material to the Company’s operations, financial position, or cash flows.

Discontinued Operations

On January 31, 2014, the Company completed the sale of two small businesses within the FS segment in exchange for €27 million paid at closing, €9 million to be paid no later than March 2016 (“deferred purchase price”), which is included in trade receivables, and €2 million to be paid upon the successful assignment of certain customer contracts. The deferred purchase price is unconditional and is secured by a bank guarantee. During the first quarter of 2015, the Company successfully assigned certain of these customer contracts and recognized a $2 million gain in discontinued operations. Also included in discontinued operations are the results of our former AS business as a result of the AS Split-Off (see Note 1), which was completed on March 31, 2014. These businesses have been included in our financial results as discontinued operations for all periods presented.

The results for discontinued operations for the three and six months ended June 30, 2014 and 2015 were as follows (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2015		2014			2015
Revenue	$	—	$	—	$	338		$	—

Operating income (loss)		—		—		(26	)		—
Interest expense		—		—		(18	)		—
Gain on sale of business		—		—		23			2

Income (loss) before income taxes		—		—		(21	)		2
Benefit from income taxes		—		—		4			—

Income (loss) from discontinued operations	$	—	$	—	$	(17	)	$	2

4. Intangible Assets and Goodwill:

Goodwill

The following table summarizes the changes in goodwill, by segment, for the six months ended June 30, 2015 (in millions):


	Cost								Accumulated impairment
	FS			PS&E		Subtotal			PS&E			Total
Balance at December 31, 2014	$	3,433		$	544	$	3,977		$	(217	)	$	3,760
2015 acquisitions		2			15		17			—			17
Effect of foreign currency translation		(32	)		—		(32	)		—			(32	)
Other		(1	)		—		(1	)		—			(1	)

Balance at June 30, 2015	$	3,402		$	559	$	3,961		$	(217	)	$	3,744

A portion of the Company’s goodwill is denominated in currencies other than the U.S. Dollar.

Intangible Asset amortization

The total expected amortization of acquisition-related intangible assets for years ended December 31 is as follows (in millions):


2015	$	85
2016		70
2017		61
2018		56
2019		49

5. Accumulated Other Comprehensive Income:

The following table provides a rollforward of the components of accumulated other comprehensive loss, net of tax, for the six months ended June 30, 2015 (in millions):


	Gains and Losses on Cash Flow Hedges			Currency Translation			Other			Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2014	$	(1	)	$	(125	)	$	(6	)	$	(132	)

Other comprehensive loss before reclassifications		(10	)		(39	)		—			(49	)
Amounts reclassified from accumulated other comprehensive income, net of tax		7			—			—			7

Net current-period other comprehensive loss		(3	)		(39	)		—			(42	)

Balance at June 30, 2015	$	(4	)	$	(164	)	$	(6	)	$	(174	)

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 and six months ended June 30, 2014 and 2015 (in millions):


	Three months ended June 30,						Six months ended June 30,						Affected Line Item in the Statement of Comprehensive Income (Loss) for Components Reclassified from OCI
Other Comprehensive Income (Loss) Components	2014			2015			2014			2015
Unrealized gain (loss) on derivative instruments	$	(8	)	$	(1	)	$	(6	)	$	(10	)

Loss (gain) on derivatives reclassified into income:
Interest rate contracts		1			2			3			4		Interest expense and amortization of deferred financing fees
Forward currency hedges		1			—			—			1		Cost of sales and direct operating

Total reclassified into income		2			2			3			5
Income tax benefit (expense)		1			—			1			2

Amounts reclassified from accumulated other comprehensive income, net of tax		3			2			4			7

Unrealized gain (loss) on derivative instruments, net of tax	$	(5	)	$	1		$	(2	)	$	(3	)

6. Debt and Derivatives:

On June 30, 2015, SDS had $593 million of available borrowing capacity and $7 million of outstanding letters of credit under its $600 million revolving credit facility. In addition, there were $4 million of letters of credit outstanding at June 30, 2015 that did not impact availability under the revolving credit facilities.

The ability to make dividend payments to SunGard’s equity holders is governed by the covenants in its debt agreements. Without obtaining an amendment to those documents, SunGard’s covenants currently limit such a dividend to a total of $200 million.

Debt consisted of the following (in millions):


	December 31, 2014		June 30, 2015
Senior Secured Credit Facilities:
Secured revolving credit facility due March 8, 2018	$	—	$	—
Tranche C due February 28, 2017, effective interest rate of 4.44% and 4.44%		400		400
Tranche E due March 8, 2020, effective interest rate of 4.31% and 4.31%		1,918		1,918

Total Senior Secured Credit Facilities		2,318		2,318
Senior Notes due 2018 at 7.375%		511		511
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 3.16% and 3.19%		140		140
Other		—		3

Total debt	$	4,669	$	4,672

Short-term borrowings and current portion of long-term debt	$	—	$	3
Long-term debt		4,669		4,669

Total debt	$	4,669	$	4,672

Future Maturities

At June 30, 2015, the contractual future maturities of debt are as follows (in millions):


	Contractual Maturities
2015	$	—
2016		3
2017		400
2018		511
2019		1,140
Thereafter		2,618

Total debt	$	4,672

SDS uses interest rate swaps to manage the amount of its floating rate debt in order to reduce its exposure to variable rate interest payments associated with the Amended and Restated Credit Agreement dated as of August 11, 2005, as amended from time to time (“Credit Agreement”). Each swap agreement is designated as a cash flow hedge. SDS pays a stream of fixed interest payments for the term of the swap, and in turn, receives variable interest payments based on LIBOR. At June 30, 2015, one-month and three-month LIBOR were 0.19% and 0.28%, respectively. The net receipt or payment from the interest rate swap agreements is included in the Condensed Consolidated Statements of Comprehensive Income (Loss) as interest expense. The interest rates in the components of the debt table above reflect the impact of the swaps.

A summary of the Company’s interest rate swaps at June 30, 2015 follows (in millions):


Inception	Maturity	Notional amount (in millions)		Weighted- average Interest rate paid	Interest rate received (LIBOR)
August-September 2012	February 2017	$	400	0.69%	1-Month
June 2013	June 2019		100	1.86%	3-Month
September 2013	June 2019		100	2.26%	3-Month
February-March 2014	March 2020		300	2.27%	3-Month

Total / Weighted-Average Interest Rate		$	900	1.52%

The fair values of the swap agreements at December 31, 2014 were $1 million and $5 million and were included in other assets and other accrued expenses, respectively. The fair value of the swap agreements at June 30, 2015 was $7 million and was included in other accrued expenses.

The Company has no ineffectiveness related to its swap agreements. During the next twelve months, the Company expects to reclassify approximately $8 million from accumulated other comprehensive income (loss) into earnings, specifically interest expense and amortization of deferred financing fees, related to the Company’s interest rate swaps based on the borrowing rates at June 30, 2015.

7. Fair Value Measurements:

Accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Under this guidance, the Company is required to classify certain assets and liabilities based on the following fair value hierarchy:

•

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the measurement date;

•

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

•

Level 3 – Unobservable inputs for the asset or liability.

The following table summarizes assets and liabilities measured at fair value on a recurring basis at June 30, 2015 (in millions):


		Fair Value Measures Using
	Balance Sheet Caption	Level 1		Level 2		Level 3		Total
Assets
Money market funds	Cash and cash equivalents	$	55	$	—	$	—	$	55
Currency forward contracts	Prepaid expenses and other current assets		—		2		—		2

Total		$	55	$	2	$	—	$	57

Liabilities
Interest rate swap agreements	Other accrued expenses	$	—	$	7	$	—	$	7
Currency forward contracts	Other accrued expenses		—		2		—		2

		$	—	$	9	$	—	$	9

The following table summarizes assets and liabilities measured at fair value on a recurring basis at December 31, 2014 (in millions):


		Fair Value Measures Using
	Balance Sheet Caption	Level 1		Level 2		Level 3		Total
Assets
Money market funds	Cash and cash equivalents	$	106	$	—	$	—	$	106
Interest rate swap agreements	Other assets		—		1		—		1
Currency forward contracts	Prepaid expenses and other current assets		—		3		—		3

Total		$	106	$	4	$	—	$	110

Liabilities
Interest rate swap agreements	Other accrued expenses	$	—	$	5	$	—	$	5
Currency forward contracts	Other accrued expenses		—		1		—		1

Total		$	—	$	6	$	—	$	6

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”) exchange rates. These INR forward contracts are designated as cash flow hedges. The fair value of these currency forward contracts is determined using currency exchange market rates, obtained from reliable, independent, third party banks, at the balance sheet date. The 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 in connection with INR cash flow hedges. 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 INR forward contracts.

The fair value of the trade name is categorized as Level 3, a non-recurring fair value measurement using significant unobservable inputs, and is estimated by discounted cash flows based on projected future revenues. This requires the use of various assumptions including projections of future cash flows, perpetual growth rates and discount rates. During the six months ended June 30, 2014, the Company recorded a $339 million trade name impairment charge. See Notes 1 and 7 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

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. Derivative financial instruments are recorded 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.

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, 2014 and June 30, 2015 (in millions):


	December 31, 2014				June 30, 2015
	Carrying Value		Fair Value		Carrying Value		Fair Value
Floating rate debt	$	2,458	$	2,431	$	2,458	$	2,458
Fixed rate debt		2,211		2,286		2,214		2,293

8. Non-controlling Interest:

A rollforward of SunGard’s non-controlling interest for the six months ended June 30, 2015 is as follows (in millions):


	Non-controlling interest
	Temporary equity			Permanent equity			Total
Balances at December 31, 2014	$	37		$	1,490		$	1,527
Net income		2			85			87
Purchase of treasury stock		—			(1	)		(1	)
Transfer intrinsic value of vested restricted stock units to temporary equity		6			—			6
Cancellation of put options due to employee terminations		(5	)		2			(3	)

Balances at June 30, 2015	$	40		$	1,576		$	1,616

A rollforward of SunGard’s non-controlling interest for the six months ended June 30, 2014 follows (in millions):


	Non-controlling interest
	Temporary equity			Permanent equity			Total
Balances at December 31, 2013	$	42		$	1,741		$	1,783
Net income		—			90			90
Purchase of treasury stock		—			(2	)		(2	)
Impact of exchange of SpinCo common stock for SCCII preferred stock		(1	)		(428	)		(429	)
Impact of modification of SunGard Awards		(4	)		—			(4	)
Impact of modification of SpinCo Awards		(6	)		—			(6	)
Transfer intrinsic value of vested restricted stock units to temporary equity		7			—			7
Cancellation of put options due to employee terminations		(6	)		5			(1	)

Balances at June 30, 2014	$	32		$	1,406		$	1,438

9. Earnings (Loss) per Share:

Earnings (loss) per share for SunGard is calculated using the two-class method, which is an earnings allocation formula that determines earnings (loss) per share for the holders of the Company’s Class A common stock and the holders of Class L common stock, as if all earnings for the period were distributed pursuant to their contractual right to receive dividends. Class L common stock is legally designated as common stock, but is entitled to a preferential return equal to the sum of (i) an $81 per share base amount plus (ii) an amount sufficient to generate an internal rate of return equal to 13.5% per annum (compounded quarterly). After this amount has been distributed, the Class L participates in all distributions on a pro-rata basis with the Class A.

The numerator in calculating Class L basic and diluted income per share is an amount equal to the 13.5% preferential return for the reporting period. The preferential 13.5% rate of return for the Class L common stock is computed by multiplying the initial $81 per share liquidation preference by the stated preferential return of 13.5%, compounded quarterly from the LBO to the current balance sheet date of June 30, 2015.

The numerator in calculating Class A basic earnings (loss) per share is Net income (loss) attributable to SunGard, less an amount equal to the 13.5% preferential return for the reporting period. In determining the net income (loss) attributable to Class A stockholders for purposes of computing diluted earnings (loss) per share, the Company increased the loss to reflect the preference amount for dilutive Class L shares. The basic and diluted earnings (loss) per share attributable to Class A stockholders is presented for both continuing and discontinued operations for all periods.

Reconciliations of the numerators and denominators used in the computation of basic and diluted earnings (loss) per common share are as follows (in millions, except per share amounts):


	Three Months ended June 30,						Six Months ended June 30,
	2014			2015			2014			2015
Numerators:
Net income (loss) attributable to SunGard	$	(37	)	$	(11	)	$	(427	)	$	(26	)
Income (loss) from discontinued operations, net of tax		—			—			(17	)		2

Income (loss) from continuing operations attributable to SunGard		(37	)		(11	)		(410	)		(28	)
Less: Additional income attributable to the non-controlling interest for vested unissued shares		—			1			(2	)		—
Less: Preference amount for Class L outstanding and vested unissued shares		(255	)		(292	)		(491	)		(562	)

Numerator for basic earnings (loss) per share - Income available to Class A stockholders from continuing operations	$	(292	)	$	(302	)	$	(903	)	$	(590	)

Less: Additional income attributable to the non-controlling interest for options and unvested restricted stock units		(1	)		(1	)		—			(2	)
Less: Preference amount for Class L options and unvested Class L shares included in restricted stock units		(5	)		(9	)		—			(14	)

Numerator for diluted earnings (loss) per share - Income available to Class A stockholders from continuing operations	$	(298	)	$	(312	)	$	(903	)	$	(606	)

Denominators:
Class A common stock:
Weighted average number of shares - basic		261			262			261			262
Effect of potentially dilutive Class A shares		5			8			—			6

Weighted average number of shares - diluted		266			270			261			268

Class L common stock:
Weighted average number of shares - basic		29			29			29			29
Effect of potentially dilutive Class L shares		1			1			—			1

Weighted average number of shares - diluted		30			30			29			30

Earnings (loss) per share:
Net income (loss) per share - basic:
Class L stockholders	$	8.80		$	10.04		$	16.93		$	19.34
Class A stockholders - continuing operations		(1.12	)		(1.15	)		(3.46	)		(2.25	)
Class A stockholders - discontinued operations		—			—			(0.06	)		0.01

Class A stockholders - total	$	(1.12	)	$	(1.15	)	$	(3.53	)	$	(2.24	)

Net income (loss) per share - diluted:
Class L stockholders	$	8.80		$	10.04		$	16.93		$	19.34
Class A stockholders - continuing operations		(1.12	)		(1.16	)		(3.46	)		(2.26	)
Class A stockholders - discontinued operations		—			—			(0.06	)		0.01

Class A stockholders - total	$	(1.12	)	$	(1.16	)	$	(3.53	)	$	(2.25	)

The Company included $9 million in the calculation of diluted earnings per share for Class L stockholders for the six months ended June 30, 2014 related to the preference amount for dilutive Class L options and Class L shares included in restricted stock units. This amount is excluded from the calculation of diluted earnings (loss) per share for Class A stockholders for the same period as the effect would be anti-dilutive.

The following potential common shares (in millions) were excluded from the calculation of earnings (loss) per share attributable to common stockholders because their effect would have been anti-dilutive for the periods presented:


	Three Months ended June 30,				Six Months ended June 30,
	2014		2015		2014		2015
Denominators:
Class A common stock:
Restricted stock units		8		7		9		7
Stock options		14		12		18		12
Stock appreciation rights		7		6		7		6

Class L common stock:
Restricted stock units		1		1		1		1
Stock options		1		1		1		1
Stock appreciation rights		1		1		1		1

10. Income Taxes:

The effective income tax rates for the three month periods ended June 30, 2015 and 2014 were 13% and 32%, respectively. The Company’s effective tax rate reflects changes in the mix of income or losses in jurisdictions with a wide range of tax rates, permanent differences between GAAP and local tax laws, the impact of valuation allowances, unrecognized tax benefits, and the timing of recording discrete items. For the three months ended June 30, 2015, the provision for income taxes includes a benefit of $10 million recorded as a discrete item for the reversal of a portion of the Company’s reserve for uncertain tax positions, triggered by a favorable decision received by the Company from an appellate body on a matter between the Company and a state taxing authority during the period. Also for the period, the Company continued to generate losses in France which exceed the scheduled reversal of deferred tax liabilities. As a result, no benefit has been recorded for these losses for the three months ended June 30, 2015. Changes in the mix of income, losses in particular jurisdictions or the total amount of income for 2015 may significantly impact the estimated effective income tax rate for the year.

The effective income tax rates for the six month periods ended June 30, 2015 and 2014 were 28% and 24%, respectively. The Company’s effective tax rate reflects changes in the mix of income or losses in jurisdictions with a wide range of tax rates, permanent differences between GAAP and local tax laws, the impact of valuation allowances, unrecognized tax benefits, and the timing of recording discrete items. For the six months ended June 30, 2015, the provision for income taxes includes a benefit of $10 million recorded as a discrete item for the reversal of a portion of the Company’s reserve for uncertain tax positions, triggered by a favorable decision received by the Company from an appellate body on a matter between the Company and a state taxing authority during the period. Also for the period, the Company continued to generate losses in France which exceed the scheduled reversal of deferred tax liabilities. As a result, no benefit has been recorded for these losses for the six months ended June 30, 2015.

For the six months ended June 30, 2014, the benefit for income taxes includes a benefit of $138 million recorded as a discrete item related to the impairment of the trade name, an expense of $46 million recorded as a discrete item due to changes in certain state deferred tax rates, primarily driven by the change in the legal entity ownership of the trade name caused by the AS Split-Off, and an expense of $9 million recorded as a discrete item to increase the valuation allowance on state net operating losses driven by the change in management’s judgment of their realizability due to the AS Split-Off.

In evaluating the realizability of deferred tax assets, management considered the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax planning strategies in making this assessment. Changes in the mix of income, losses in particular jurisdictions or the total amount of income for 2015 may significantly impact the estimated effective income tax rate for the year.

11. Segment Information:

The Company’s measure of segment profit or loss is Adjusted EBITDA. Management believes Adjusted EBITDA is an effective tool to measure the Company’s operating performance since it excludes non-cash items, including depreciation (which includes amortization of capitalized software), amortization of acquisition-related intangible assets, trade name and goodwill impairment charges and stock compensation expense, and certain variable charges including severance and facility closure costs, management fees paid to the Sponsors and certain other costs. Management uses Adjusted EBITDA extensively to measure the financial performance of the Company and its reportable segments, and also to report the Company’s results to its board of directors. The Company uses a similar measure, as defined in SDS’s Credit Agreement, for purposes of computing its debt covenants. The operating results apply to each of SunGard, SCCII and SDS unless otherwise noted.

The operating results for the three and six months ended June 30, 2015 and 2014 for each segment follow (in millions):


	Three Months Ended June 30, 2015
	FS		PS&E		Sum of segments		Corporate ⁽¹⁾			Total
Software	$	227	$	35	$	262	$	—		$	262
SaaS and cloud		260		10		270		—			270
Services		144		11		155		—			155

Total revenue	$	631	$	56	$	687	$	—		$	687

Adjusted EBITDA	$	173	$	17	$	190	$	(12	)	$	178
Depreciation ⁽²⁾		24		3		27		—			27
Amortization of acquisition-related intangible assets		20		1		21		—			21
Capital expenditures		24		3		27		—			27

	Three Months Ended June 30, 2014
	FS		PS&E		Sum of segments		Corporate ⁽¹⁾			Total
Software	$	222	$	35	$	257	$	—		$	257
SaaS and cloud		256		9		265		—			265
Services		140		11		151		—			151

Total revenue	$	618	$	55	$	673	$	—		$	673

Adjusted EBITDA	$	154	$	17	$	171	$	(12	)	$	159
Depreciation ⁽²⁾		24		2		26		1			27
Amortization of acquisition-related intangible assets		38		2		40		1			41
Capital expenditures		27		3		30		—			30


	Six Months Ended June 30, 2015
	FS		PS&E		Sum of segments		Corporate ⁽¹⁾			Total
Software	$	445	$	69	$	514	$	—		$	514
SaaS and cloud		528		19		547		—			547
Services		275		22		297		—			297

Total revenue	$	1,248	$	110	$	1,358	$	—		$	1,358

Adjusted EBITDA	$	347	$	33	$	380	$	(27	)	$	353
Depreciation ⁽²⁾		50		5		55		1			56
Amortization of acquisition-related intangible assets		40		2		42		—			42
Capital expenditures		46		7		53		2			55

	Six Months Ended June 30, 2014
	FS		PS&E		Sum of segments		Corporate ⁽¹⁾			Total
Software	$	439	$	69	$	508	$	—		$	508
SaaS and cloud		515		18		533		—			533
Services		264		21		285		—			285

Total revenue	$	1,218	$	108	$	1,326	$	—		$	1,326

Adjusted EBITDA	$	293	$	33	$	326	$	(22	)	$	304
Depreciation ⁽²⁾		46		4		50		1			51
Amortization of acquisition-related intangible assets		79		4		83		1			84
Capital expenditures		53		5		58		—			58

(1)	Corporate is included to reconcile each item to the total for the Company.

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2015			2014			2015
Adjusted EBITDA (including corporate)	$	159		$	178		$	304		$	353
Depreciation ⁽²⁾		(27	)		(27	)		(51	)		(56	)
Amortization of acquisition-related intangible assets		(41	)		(21	)		(84	)		(42	)
Trade name impairment		—			—			(339	)		—
Severance and facility closure costs		(2	)		(2	)		(7	)		(4	)
Stock compensation expense		(11	)		(13	)		(20	)		(23	)
Management fees		(1	)		(2	)		(3	)		(4	)
Other costs (included in operating income)		—			(5	)		(12	)		(1	)
Interest expense, net		(72	)		(70	)		(146	)		(141	)
Loss on extinguishment of debt		—			—			(61	)		—
Other income (expense)		—			1			—			1

Income (loss) from continuing operations before income taxes	$	5		$	39		$	(419	)	$	83

(2)	Includes amortization of capitalized software.

12. Employee Termination Benefits and Facility Closures:

The following table provides a rollforward of the liability balances for workforce reductions and facility closures for the six months ended June 30, 2015 (in millions):


	Workforce-related			Facilities			Total
Balance at December 31, 2014	$	12		$	13		$	25
Expense related to 2015 actions		7			—			7
Paid		(10	)		(3	)		(13	)
Other adjustments		(3	)		—			(3	)

Balance at June 30, 2015	$	6		$	10		$	16

The majority of the workforce-related actions are expected to be completed over the next 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.

13. Related Party Transactions:

Sponsor 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 for each of the three month periods ended June 30, 2014 and 2015. The Company recorded $4 million of management fees in sales, marketing and administration expenses for each of the six month periods ended June 30, 2014 and 2015. In the six months ended June 30, 2014, the Company recorded approximately $1 million of management fees in income (loss) from discontinued operations. At December 31, 2014 and June 30, 2015, the Company had accrued management fees included in other accrued expenses of $3 million and $2 million, respectively.

For the six months ended June 30, 2014, Goldman Sachs & Co. and/or its respective affiliates, received less than $1 million in connection with amendments to SDS’s Credit Agreement.

In addition to the amounts above, on March 31, 2014 the Company recorded $15 million of management fees, which is included in income (loss) from discontinued operations, as provided in the Management Agreement for services rendered in connection with the issuance of the $1.025 billion SpinCo Term Loan and $425 million of SpinCo Notes. Also during the first quarter of 2014, the Company recorded $1 million of management fees which is included in income (loss) from discontinued operations resulting from the sale of two FS businesses.

AS Transactions

In connection with the Global Master Services Agreement (“GMSA”) with AS, the Company incurred expenses of $9 million for services provided under the GMSA, most of which are included in cost of sales and direct operating, in the condensed consolidated statement of comprehensive income (loss) for each of the three months ended June 30, 2014 and 2015, respectively. The Company incurred expenses of $18 million for services provided under the GMSA, most of which are included in cost of sales and direct operating, in the condensed consolidated statement of comprehensive income (loss) for the six months ended June 30, 2015. At June 30, 2015, the Company had recorded approximately $3 million of accounts payable due to AS under the GMSA. The Company has incurred a total of $42 million to date under the GMSA, and has a remaining commitment, which expires on March 31, 2016, of approximately $24 million.

In addition, for each of the three months ended June 30, 2014 and 2015, AS purchased certain data center outsourcing services and treasury products from FS, for which FS recognized revenue of approximately $1 million. Also, during the six months ended June 30, 2015, AS purchased certain data center outsourcing services and treasury products from FS, for which FS recognized revenue of approximately $1 million. At June 30, 2015, the Company had recorded approximately $1 million of accounts receivable related to certain data center outsourcing and treasury products provided to AS.

14. Commitments and Contingencies:

The Company is presently a party to certain lawsuits arising in the ordinary course of its business. In the opinion of management, none of its current legal proceedings are expected to have a material impact on the Company’s business or financial results. The Company’s customer contracts generally include typical indemnification of customers, primarily for intellectual property infringement claims. Liabilities in connection with such obligations have not been material.

The Company has had patent infringement lawsuits filed against it or certain of its customers claiming that certain of its products infringe the intellectual property rights of others. Adverse results in these lawsuits may include awards of substantial monetary damages, costly royalty or licensing agreements, or limitations on the Company’s ability to offer certain features, functionalities, products, or services, and may also cause the Company to change its business practices, and require development of non-infringing products or technologies, which could result in a loss of revenues and otherwise harm the Company’s business. Also, certain agreements with previously owned businesses of the Company require indemnification to the new owners for certain matters as part of the sale of those businesses. At June 30, 2015, the Company does not have any significant accruals related to patent indemnification or infringement claims.

The Company evaluates, on a regular basis, developments in its legal matters. The Company records a provision for a liability when it believes that it is both probable that a liability has been incurred, and the amount can be reasonably estimated.

With respect to any current legal proceedings or claims pending against the Company for which it has not made an accrual, but for which it is reasonably possible that a loss may occur, the Company is unable to estimate a range of loss due to various reasons, including, among others: (1) that the proceedings are in early stages, (2) that there is uncertainty as to the outcome of pending appeals, motions, or settlements, (3) that there are significant factual issues to be resolved, and (4) that there are novel legal issues presented. Such legal matters are inherently unpredictable and subject to significant uncertainties, some of which are beyond the Company’s control. Based on current knowledge, the Company believes that the final outcome of the matters discussed above will not, individually or in the aggregate, have a material adverse effect on its business, consolidated financial position, results of operations, or cash flows. While the Company intends to vigorously defend these matters, in light of the uncertainties involved in such matters, there exists the possibility of adverse outcomes, and the final outcome of a particular matter could have a material adverse effect on results of operations or cash flows in a particular period.

The Company has recorded a reserve for unrecognized tax benefits and related accrued interest for certain matters. Also, the Company is under examination in various federal, state and local and foreign jurisdictions related to income and non-income tax matters. Based on current knowledge, the Company believes that resolution of these matters, giving recognition to the reserve for unrecognized tax benefits, will not have a materially adverse impact on its business, consolidated financial position, results of operations or cash flows.

The State of Delaware, Department of Finance, Division of Revenue (Unclaimed Property) and nine other states are currently conducting a joint examination of the books and records of certain wholly owned subsidiaries of the Company to determine compliance with the unclaimed property laws. Additionally, the Company has entered into voluntary disclosure agreements to address the potential unclaimed property exposure for certain entities not included in the scope of the ongoing unclaimed property examination. The potential exposure related to the examination and the voluntary disclosure programs is not currently determinable.

15. Supplemental Guarantor Condensed Consolidating Financial Statements:

SDS’ 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 SDS (collectively, the “Guarantors”). Each of the Guarantors is 100% owned, directly or indirectly, by SDS. None of the other subsidiaries of SDS, 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.

As a result of the AS Split-Off, all U.S. subsidiaries of AS were removed as guarantors as of March 31, 2014.

The following tables present the financial position, results of operations and cash flows of SDS (referred to as “Parent Company” for purposes of this note only), the Guarantor subsidiaries, the Non-Guarantor subsidiaries and Eliminations as of December 31, 2014 and June 30, 2015, and for the three and six month periods ended June 30, 2014 and 2015, to arrive at the information for SDS on a consolidated basis. SunGard 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 2014.


(in millions)	Supplemental Condensed Consolidating Balance Sheet December 31, 2014
	Parent Company		Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current:
Cash and cash equivalents	$	202	$	1		$	244	$	—		$	447
Intercompany balances		—		3,049			500		(3,549	)		—
Trade receivables, net		1		446	^(a)		239		—			686
Prepaid expenses, taxes and other current assets		32		43			39		(2	)		112

Total current assets		235		3,539			1,022		(3,551	)		1,245
Property and equipment, net		—		94			58		—			152
Intangible assets, net		68		348			262		—			678
Trade name		—		672			—		—			672
Deferred income taxes		69		—			—		(69	)		—
Intercompany balances		194		8			154		(356	)		—
Goodwill		—		3,099			661		—			3,760
Investment in subsidiaries		8,039		1,366			—		(9,405	)		—

Total Assets	$	8,605	$	9,126		$	2,157	$	(13,381	)	$	6,507

Liabilities and Equity
Current:
Short-term and current portion of long-term debt	$	—	$	—		$	—	$	—		$	—
Intercompany balances		3,549		—			—		(3,549	)		—
Accounts payable and other current liabilities		59		510			427		(2	)		994

Total current liabilities		3,608		510			427		(3,551	)		994
Long-term debt		4,529		—			140		—			4,669
Intercompany debt		162		—			194		(356	)		—
Deferred and other income taxes		101		559			17		(69	)		608
Other liabilities		—		18			13		—			31

Total liabilities		8,400		1,087			791		(3,976	)		6,302

Total equity		205		8,039			1,366		(9,405	)		205

Total Liabilities and Equity	$	8,605	$	9,126		$	2,157	$	(13,381	)	$	6,507

(a)

This balance is primarily comprised of a receivable from the Company’s accounts receivable financing subsidiary, which is a non-guarantor, resulting from the normal, recurring sale of accounts receivable under the receivables facility. In a liquidation, the first $140 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.


(in millions)	Supplemental Condensed Consolidating Balance Sheet June 30, 2015
	Parent		Guarantor			Non- Guarantor
	Company		Subsidiaries			Subsidiaries		Eliminations			Consolidated
Assets
Current:
Cash and cash equivalents	$	254	$	(5	)	$	289	$	—		$	538
Intercompany balances		—		3,289			472		(3,761	)		—
Trade receivables, net		—		407	^(a)		154		—			561
Prepaid expenses, taxes and other current assets		18		49			45		(8	)		104

Total current assets		272		3,740			960		(3,769	)		1,203
Property and equipment, net		1		97			51		—			149
Intangible assets, net		60		330			243		—			633
Trade name		—		672			—		—			672
Deferred income taxes		74		—			—		(74	)		—
Intercompany balances		178		6			155		(339	)		—
Goodwill		—		3,112			632		—			3,744
Investment in subsidiaries		8,266		1,353			—		(9,619	)		—

Total Assets	$	8,851	$	9,310		$	2,041	$	(13,801	)	$	6,401

Liabilities and Stockholders’ Equity
Current:
Short-term and current portion of long-term debt	$	—	$	—		$	3	$	—		$	3
Intercompany balances		3,761		—			—		(3,761	)		—
Accounts payable and other current liabilities		70		474			336		(8	)		872

Total current liabilities		3,831		474			339		(3,769	)		875
Long-term debt		4,529		—			140		—			4,669
Intercompany debt		161		—			178		(339	)		—
Deferred and other income taxes		95		555			20		(74	)		596
Other liabilities		—		15			11		—			26

Total liabilities		8,616		1,044			688		(4,182	)		6,166

Total stockholders’ equity		235		8,266			1,353		(9,619	)		235

Total Liabilities and Stockholders’ Equity	$	8,851	$	9,310		$	2,041	$	(13,801	)	$	6,401

(a)


(in millions)	Supplemental Condensed Consolidating Schedule of Comprehensive Income (Loss) Three Months Ended June 30, 2014
	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	479		$	316		$	(122	)	$	673
Costs and expenses		23			422			273			(122	)		596

Operating income (loss)		(23	)		57			43			—			77
Net interest income (expense)		(67	)		—			(5	)		—			(72	)
Net earnings (losses) of equity affiliates		65			29			—			(94	)		—

Income (loss) from continuing operations before income taxes		(25	)		86			38			(94	)		5
Benefit from (provision for) income taxes		28			(21	)		(9	)		—			(2	)

Income (loss) from continuing operations		3			65			29			(94	)		3
Income (loss) from discontinued operations, net of tax		—			—			—			—			—

Net income (loss)	$	3		$	65		$	29		$	(94	)	$	3

Comprehensive income (loss)	$	(3	)	$	68		$	32		$	(100	)	$	(3	)


(in millions)	Supplemental Condensed Consolidating Schedule of Comprehensive Income (Loss) Three Months Ended June 30, 2015
	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	497		$	291		$	(101	)	$	687
Costs and expenses		25			393			262			(101	)		579

Operating income (loss)		(25	)		104			29			—			108
Net interest income (expense)		(67	)		—			(3	)		—			(70	)
Net earnings (losses) of equity affiliates		89			17			—			(106	)		—
Other income (expense)		—			—			1			—			1

Income (loss) from continuing operations before income taxes		(3	)		121			27			(106	)		39
Benefit from (provision for) income taxes		36			(32	)		(10	)		—			(6	)

Income (loss) from continuing operations		33			89			17			(106	)		33
Income (loss) from discontinued operations, net of tax		—			—			—			—			—

Net income (loss)	$	33		$	89		$	17		$	(106	)	$	33

Comprehensive income (loss)	$	62		$	112		$	40		$	(152	)	$	62


(in millions)	Supplemental Condensed Consolidating Schedule of Comprehensive Income (Loss) Six Months Ended June 30, 2014
	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	950		$	584		$	(208	)	$	1,326
Costs and expenses		48			1,162			536			(208	)		1,538

Operating income (loss)		(48	)		(212	)		48			—			(212	)
Net interest income (expense)		(136	)		—			(10	)		—			(146	)
Net earnings (losses) of equity affiliates		(133	)		36			—			97			—
Other income (expense)		(61	)		—			—			—			(61	)

Income (loss) from continuing operations before income taxes		(378	)		(176	)		38			97			(419	)
Benefit from (provision for) income taxes		68			42			(11	)		—			99

Income (loss) from continuing operations		(310	)		(134	)		27			97			(320	)
Income (loss) from discontinued operations, net of tax		(27	)		1			9			—			(17	)

Net income (loss)	$	(337	)	$	(133	)	$	36		$	97		$	(337	)

Comprehensive income (loss)	$	(318	)	$	(158	)	$	58		$	100		$	(318	)

All of the previously-issued interim financial statements included in Quarterly Reports on Form 10-Q for 2014 included an error in the Condensed Consolidated Statements of Comprehensive Income (Loss) related to the removal of the cumulative foreign currency translation loss associated with the AS businesses that were split-off on March 31, 2014. The removal of the cumulative foreign currency translation loss was reflected in the 2014 Supplemental Condensed Consolidated Schedule of Comprehensive Income (Loss). However, the inclusion of this item was not appropriate since it relates to the distribution of the AS businesses to the Company’s owners and should have been excluded from the 2014 Other Comprehensive Income according to GAAP. Management does not believe the error is material to any of the previously-issued financial statements. The table below shows the impact of the correction of this error for the six months ended June 30, 2014 (in millions).


	Six Months Ended June 30, 2014
	As Reported			As Revised
Comprehensive Income - Parent	$	(400	)	$	(318	)
Comprehensive Income - Guarantor		(191	)		(158	)
Comprehensive Income - Non-Guarantor		9			58
Comprehensive Income - Eliminations		182			100


(in millions)	Supplemental Condensed Consolidating Schedule of Comprehensive Income (Loss) Six Months Ended June 30, 2015
	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	980		$	570		$	(192	)	$	1,358
Costs and expenses		48			762			517			(192	)		1,135

Operating income (loss)		(48	)		218			53			—			223
Net interest income (expense)		(134	)		—			(7	)		—			(141	)
Net earnings (losses) of equity affiliates		180			31			—			(211	)		—
Other income (expense)		—			—			1			—			1

Income (loss) from continuing operations before income taxes		(2	)		249			47			(211	)		83
Benefit from (provision for) income taxes		63			(69	)		(18	)		—			(24	)

Income (loss) from continuing operations		61			180			29			(211	)		59
Income (loss) from discontinued operations, net of tax		—			—			2			—			2

Net income (loss)	$	61		$	180		$	31		$	(211	)	$	61

Comprehensive income (loss)	$	19		$	156		$	8		$	(164	)	$	19


(in millions)	Supplemental Condensed Consolidating Schedule of Cash Flows Six Months Ended June 30, 2014
	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flow from operations:
Net income (loss)	$	(337	)	$	(133	)	$	36		$	97		$	(337	)
Income (loss) from discontinued operations		(27	)		1			9			—			(17	)

Income (loss) from continuing operations		(310	)		(134	)		27			97			(320	)
Non cash adjustments		238			291			43			(97	)		475
Changes in operating assets and liabilities		(98	)		46			(17	)		—			(69	)

Cash flow from (used in) continuing operations		(170	)		203			53			—			86
Cash flow from (used in) discontinued operations		(43	)		52			25			—			34

Cash flow from (used in) operations (a)		(213	)		255			78			—			120

Investment activities:
Intercompany transactions		85			(75	)		38			(48	)		—
Cash paid for property and equipment and software		(1	)		(36	)		(21	)		—			(58	)

Cash provided by (used in) continuing operations		84			(111	)		17			(48	)		(58	)
Cash provided by (used in) discontinued operations		1,041			(41	)		(995	)		—			5

Cash provided by (used in) investment activities		1,125			(152	)		(978	)		(48	)		(53	)

Financing activities:
Intercompany dividends		—			(24	)		(24	)		48			—
Net repayments of long-term debt		(1,269	)		—			(62	)		—			(1,331	)
Other financing activities		(16	)		—			—			—			(16	)

Cash provided by (used in) continuing operations		(1,285	)		(24	)		(86	)		48			(1,347	)
Cash provided by (used in) discontinued operations		—			(80	)		967			—			887

Cash provided by (used in) financing activities		(1,285	)		(104	)		881			48			(460	)

Effect of exchange rate changes on cash		—			—			1			—			1

Increase (decrease) in cash and cash equivalents		(373	)		(1	)		(18	)		—			(392	)
Beginning cash and cash equivalents (b)		403			2			301			—			706

Ending cash and cash equivalents	$	30		$	1		$	283		$	—		$	314

(a)

Cash flows from (used in) operations for the Parent Company and Guarantor Subsidiaries do not include any amounts related to their respective stand-alone income tax liabilities as the Company has not historically cash settled the intercompany balances associated with the push down of such liabilities to the Guarantor Subsidiaries. During the six months ended June 30, 2014, the Parent Company allocated approximately $96 million of tax liabilities to its Guarantor Subsidiaries. During the three months ended March 31, 2014, the Parent Company and the Guarantor Subsidiaries decided to effect a non-cash settlement of the accumulated income tax receivable and payable balances in the amount of approximately $1.5 billion. Therefore, these transactions are not reflected in the Condensed Consolidating Statement of Cash Flows presented above.

(b)	Includes cash of discontinued operations.


(in millions)	Supplemental Condensed Consolidating Schedule of Cash Flows Six Months Ended June 30, 2015
	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flow from operations:
Net income (loss)	$	61		$	180		$	31		$	(211	)	$	61
Income (loss) from discontinued operations		—			—			2			—			2

Income (loss) from continuing operations		61			180			29			(211	)		59
Non cash adjustments		(153	)		24			38			211			120
Changes in operating assets and liabilities		(56	)		64			(5	)		—			3

Cash flow from (used in) continuing operations		(148	)		268			62			—			182
Cash flow from (used in) discontinued operations		—			—			—			—			—

Cash flow from (used in) operations (a)		(148	)		268			62			—			182

Investment activities:
Intercompany transactions		214			(195	)		23			(42	)		—
Cash paid for acquired businesses, net of cash acquired		—			(21	)		(4	)		—			(25	)
Cash paid for property and equipment and software		(2	)		(37	)		(16	)		—			(55	)
Other investing activities		—			—			1			—			1

Cash provided by (used in) continuing operations		212			(253	)		4			(42	)		(79	)
Cash provided by (used in) discontinued operations		—			—			1			—			1

Cash provided by (used in) investment activities		212			(253	)		5			(42	)		(78	)

Financing activities:
Intercompany dividends		—			(21	)		(21	)		42			—
Net repayments of long-term debt		—			—			2			—			2
Other financing activities		(12	)		—			—			—			(12	)

Cash provided by (used in) continuing operations		(12	)		(21	)		(19	)		42			(10	)
Cash provided by (used in) discontinued operations		—			—			—			—			—

Cash provided by (used in) financing activities		(12	)		(21	)		(19	)		42			(10	)

Effect of exchange rate changes on cash		—			—			(3	)		—			(3	)

Increase (decrease) in cash and cash equivalents		52			(6	)		45			—			91
Beginning cash and cash equivalents		202			1			244			—			447

Ending cash and cash equivalents	$	254		$	(5	)	$	289		$	—		$	538

(a)

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, 2014 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 Condensed 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 SDS, which are materially the same as the results of operations and financial condition of SunGard and SCCII. Therefore, the discussions provided are applicable to each of SunGard, SCCII and SDS unless otherwise noted.

Overview

SunGard is a leading provider of mission-critical software to financial institutions globally. Our solutions automate a wide range of complex business processes across the financial services industry, including those associated with trading, securities operations, administering investment portfolios, accounting for investment assets, and managing risk and compliance requirements. We are the largest provider of industry-specific software by revenue to the segments that we serve, and are differentiated by the breadth of our offerings, leading edge technology, operating scale, deep domain expertise, and global reach.

Our business model is founded on software, which is surrounded by services, resulting in strong recurring revenue streams with attractive profit margins and strong cash flows. At the heart of our business model is our proprietary intellectual property that is licensed or rented to customers for periods typically ranging from three to seven years and also offered as a service, which we refer to as our SaaS offering. Our license offerings have traditionally been run on our customers’ premises but are increasingly delivered from our private cloud. In addition, we provide professional services and business processing as a service, or BPaaS (collectively, “Services”).

Because we sell our software maintenance, rentals, SaaS, cloud and BPaaS offerings under long-term contracts and recognize the revenue ratably over the term of the contracts, we have good visibility into future revenue, which helps us to manage spending proactively. We refer to this contractually committed revenue as “recurring revenue.” Our revenue streams are highly recurring as a result of our deeply embedded solutions and long-running contracts typically ranging from three to seven years for software maintenance, rentals, SaaS, cloud and BPaaS offerings. In 2014, these offerings comprised 70% of our revenue, with a revenue retention rate of 95%. Our revenue retention rate is defined as the percentage of the prior year’s recurring revenue retained in the current year. Our revenue retention rate reflects attrition due to competitive losses, including where customers have deployed in-house solutions. It also reflects losses due to customer bankruptcies and mergers. Revenue attrition resulting from discontinued SunGard products and reductions due to price adjustments are not reflected in the revenue retention rate.

The remaining 30% of our 2014 total revenue was comprised of software license fees and professional services revenue.

We classify our revenue into three categories: Software revenue, SaaS and cloud revenue and Services revenue, as described below.

Software Revenue

Our Software revenue represented 40% of our 2014 total revenue and is comprised of traditional software license fees, maintenance and support fees, and fees from the resale of third-party software licenses. These software license fees include term licenses, perpetual licenses and, for customers who would prefer a periodic fee instead of a larger up-front payment, rental fees. Maintenance and support fees provide customers with periodic technology updates and interactive support related to our software.

Within Software, perpetual and term licenses revenue is generally recognized at the time of sale. The majority of our software license revenue results from the sale of term licenses, which generally have terms of three to seven years. The scheduled renewals of these term licenses provide good visibility to our future revenue pipeline. However, the timing of these license sales can significantly impact our revenue and profitability in any given quarter.

SaaS and Cloud Revenue

Our SaaS and cloud offerings comprised 38% of our total revenue in 2014. SaaS and cloud offerings are delivered from SunGard’s private cloud to provide customers with a secure and reliable environment operated by qualified SunGard personnel. These offerings allow customers to take advantage of SunGard’s deep domain expertise while avoiding the upfront cost of licensing and IT infrastructure. SaaS and cloud revenue also includes revenue from our proprietary trading algorithms and trade execution network.

Our cloud offerings have been a source of consistent growth in recent years as an increasing number of customers have opted to deploy their licensed SunGard applications in our private cloud. In these instances, we charge separately for hosting these licensed SunGard applications in our private cloud. We classify that hosting revenue in our SaaS and cloud revenue category, while the corresponding software license, maintenance and rental revenue is classified in our Software revenue category.

Our SaaS offerings include fully integrated software, hosting and application management services, which are also delivered from SunGard’s private cloud. All revenue related to our SaaS offerings is classified in our SaaS and cloud revenue category, noting the fully integrated service that we provide.

These SaaS and cloud offerings are generally sold on multi-year contracts. As such, they form a strong recurring revenue stream for our company and have historically generated high customer renewal rates. Consistent with industry trends, we expect SaaS and cloud revenue to become a greater portion of our overall revenue going forward.

Services Revenue

Professional services and BPaaS revenue represented approximately 22% of our 2014 total revenue. Professional services offerings help customers to install, optimize and integrate SunGard’s software into their computing environment.

As is typical in our industry, our profit margins on professional services revenue are lower than on our revenue from software offerings. We are currently investing to expand our global professional services delivery capacity in order to further improve our customers’ adoption of our core technologies.

Our BPaaS offerings typically provide back-office processing services to our customers where the process is built on a SunGard application. The combination of our industry and application knowledge, coupled with our customers’ desire to focus on their core competencies, is resulting in continued growth in these BPaaS offerings. Recently, we have expanded our BPaaS services to include utility offerings covering derivatives processing and U.S. transfer agency services. These utilities are based on SunGard’s proprietary software and allow us to service multiple customers from a single delivery center. We expect revenue to grow from these utility offerings, modestly increasing the percentage of SunGard revenue that is recurring. However, the margins from these offerings are expected to be lower than our software and SaaS & cloud revenue margins, especially over the next few years as we invest to establish these offerings.

Results of Operations

We evaluate our performance using both U.S. GAAP (accounting principles generally accepted in the United States) and non-GAAP measures. Our primary non-GAAP measure is Adjusted EBITDA. For a definition of Adjusted EBITDA and a reconciliation to net income, please refer to “Non-GAAP Financial Measures” included elsewhere in this document.

We are supplementing certain GAAP measures with comparable measures on a constant-currency basis, a non-GAAP measure, which exclude the impacts from changes in currency translation. We believe providing the year-to-year variances in 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 of our international operations, total revenues and expenses are affected by changes in the U.S. Dollar against international currencies. To present our constant currency year-over-year changes, 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.

Three Months Ended June 30, 2015 Compared to Three Months Ended June 30, 2014

Consolidated Results of Operations - Unaudited


($ in millions)	Three Months Ended June 30,												Year-over-Year Change
							% of Revenue									At Constant Currency
	2014			2015			2014			2015			As Reported			At Constant Currency
Revenue	$	673		$	687			100	%		100	%		2	%		6	%
Costs and expenses:
Cost of sales and direct operating		273			283			41	%		41	%		3	%		7	%
Sales, marketing and administration		158			161			24	%		23	%		2	%		7	%
Product development and maintenance		97			87			14	%		13	%		(11	)%		(4	)%
Depreciation		27			27			4	%		4	%		1	%		4	%
Amortization of acquisition-related intangible assets		41			21			6	%		3	%		(48	)%		(46	)%

Total costs and expenses		596			579			89	%		84	%		(3	)%		2	%

Operating income		77			108			11	%		16	%		43	%		38	%

Operating margin		11.4	%		15.9	%								4.	5pts		3.	4pts

Other income (expense):
Interest income		1			1			0	%		0	%		nm			nm
Interest expense and amortization of deferred financing fees		(73	)		(71	)		(11	)%		(10	)%		(1	)%		nm
Other income (expense)		—			1			0	%		0	%		nm			nm

Other income (expense)		(72	)		(69	)		(11	)%		(10	)%		nm			nm

Income (loss) from continuing operations before income taxes		5			39			1	%		6	%		nm			nm
Provision for income taxes		(2	)		(6	)		(0	)%		(1	)%		nm			nm

Net income		3			33			0	%		5	%		nm			nm
Income attributable to non-controlling interests		(40	)		(44	)		(6	)%		(6	)%		nm			nm

Net loss attributable to SunGard	$	(37	)	$	(11	)		(6	)%		(2	)%		nm			nm

Other Financial Information
Adjusted EBITDA ⁽¹⁾	$	159		$	178			24	%		26	%		12	%		11	%

Adjusted EBITDA margin		23.7	%		26.0	%								2.	3pts		1.	2pts

Note: Columns may not total due to rounding.

“nm” = not meaningful

pts = points

(1)	Adjusted EBITDA is a non-GAAP financial measure we use to evaluate the performance of SunGard and its reportable segments. Please refer to “Non-GAAP Financial Measures” for more information and a reconciliation to the nearest comparable GAAP financial measure.

Revenue

Total revenue increased $14 million, or 2%, to $687 million in the second quarter of 2015. Foreign currency translation had a $24 million net unfavorable impact on the current period results. Excluding the effects of foreign currency changes, total revenue increased $38 million, or 6%, in the second quarter of 2015. Our revenue growth was primarily due to increased license fees related to our new technology and increased renewals, higher SaaS and broker-dealer volumes and adoption of our cloud offerings, and growth in Services revenue related to our BPaaS utilities and professional services. This growth was particularly evident in the established markets. For each of the quarters ended June 30, 2015 and 2014, the mix of our revenue was similar, with Software representing 38% of total revenue, SaaS and cloud revenue representing 39% of total revenue, and Services revenue representing 23% of total revenue.

Please refer to the Segment Results of Operations section for additional information about revenue for the three-month periods ended June 30, 2015 and 2014.

Cost of Sales and Direct Operating

Cost of sales and direct operating increased $10 million, or 3%, to $283 million in the second quarter of 2015. Foreign currency translation had an $11 million net favorable impact on the current period results. Excluding the effects of foreign currency translation, cost of sales and direct operating increased $21 million, or 7%, in the current-year quarter. The variance in cost of sales and direct operating was primarily due to an $8 million increase in employment-related expenses related to the delivery of services and start-up of BPaaS utilities, including wages, employer taxes and employee benefit costs; $5 million of foreign currency transaction losses related to the re-measurement of intercompany notes, and a $4 million increase in expenses associated with customer trading activity in our broker/dealer business that have a direct correlation with trading volumes, including clearing fees, trading ticket charges, and electronic communication network (ECN) fees. Cost of sales and direct operating was 41% of total revenue in each of the quarters ended June 30, 2015 and 2014.

Sales, Marketing and Administration

Sales, marketing and administration expense increased $3 million, or 2%, to $161 million in the second quarter of 2015. Foreign currency translation had an $8 million net favorable impact on the current period results. Excluding the effects of foreign currency changes, sales, marketing and administration expense increased $11 million, or 7%, in the current-year quarter. The variance in sales, marketing and administration expense was primarily due to $8 million of increased employment-related expenses related to sales commissions and investments in additional sales resources. Sales, marketing and administration expense was 23% and 24% of total revenue in the quarters ended June 30, 2015 and 2014, respectively.

Product Development and Maintenance

Product development and maintenance expense decreased $10 million, or 11%, to $87 million in the second quarter of 2015. Foreign currency translation had a $6 million net favorable impact on the current period results. Excluding the effects of foreign currency changes, product development and maintenance expense decreased $4 million, or 4%, in the current-year quarter. The variance in product development and maintenance expense was primarily due to a $3 million decrease in employment-related expenses consisting primarily of wages, employer taxes and employee benefit costs, stemming primarily from headcount reductions which occurred in late 2014. Product development and maintenance expense was 13% and 14% of total revenue in the quarters ended June 30, 2015 and 2014, respectively.

Depreciation

Depreciation expense was $27 million in each of the quarters ended June 30, 2015 and 2014. Foreign currency translation had a $1 million net favorable impact on the current period results. Excluding the effects of foreign currency changes, depreciation expense increased $1 million, or 4%, in the current-year quarter. The slight variance in depreciation expense was due to increased capitalization of software assets in the past year. Depreciation expense was 4% of total revenue in each of the quarters ended June 30, 2015 and 2014.

Amortization of Acquisition-Related Intangible Assets

Amortization of acquisition-related intangible assets decreased $20 million, or 48%, to $21 million in the second quarter of 2015. Foreign currency translation had a $1 million net favorable impact on the current period results. Excluding the effects of foreign currency changes, amortization of acquisition-related intangible assets decreased $19 million, or 46%, in the current-year quarter. The variance in amortization of acquisition-related intangible assets was primarily due to the continued runoff of certain acquisition-related intangible assets primarily stemming from the LBO transaction in 2005. Amortization of acquisition-related intangible assets was 3% and 6% of total revenue in the quarters ended June 30, 2015 and 2014, respectively.

Operating Income

Operating income increased $31 million, or 43%, to $108 million in the second quarter of 2015. Foreign currency translation had a $3 million net favorable impact on the current period results. Excluding the effects of foreign currency changes, operating income increased $28 million, or 38%, and operating margin increased by 3.4 points in the current-year quarter. Operating income was impacted by the items discussed above.

Adjusted EBITDA

Adjusted EBITDA increased $19 million, or 12%, to $178 million in the second quarter of 2015. Foreign currency translation had a $2 million net favorable impact on the current period results. Excluding the effects of foreign currency changes, adjusted EBITDA margin increased by 1.2 points in the current-year quarter primarily due to the growth in our Software, SaaS and cloud, and Services revenues and decreases in employee-related product development spending, which was partially offset by higher employment-related costs related to the start-up of BPaaS utilities and higher incentive compensation for sales personnel.

Interest expense and amortization of deferred financing fees

Interest expense and amortization of deferred financing fees decreased $2 million, or 3%, to $71 million in the second quarter of 2015. This decrease was primarily due to the write-off of deferred financing costs during the prior year resulting from the repayment and retirement of debt resulting from the AS Split-Off.

Benefit from (provision for) income taxes

Income attributable to the non-controlling interest (SunGard only)

Accrued dividends on SCCII’s cumulative preferred stock were $44 million and $40 million in the quarters ended June 30, 2015 and 2014, respectively. The increase in accrued dividends is due to the compounding of the cumulative, undeclared dividend.

Segment Results of Operations

Our business is organized into two segments, FS and PS&E. Corporate spending, which includes the costs of various support functions such as corporate finance, human resources, and legal, are not allocated to our reporting segments. As reflected below, we measure our financial performance using Adjusted EBITDA, which is a non-GAAP financial measure. We believe Adjusted EBITDA is an effective tool to measure our operating performance since it excludes non-cash items and certain variable charges. We use Adjusted EBITDA extensively to measure the financial performance of SunGard and its reportable segments, and also to report our results to our board of directors. Please refer to “Non-GAAP Financial Measures” for more information and a reconciliation to the nearest comparable GAAP financial measure.

Financial Systems segment


							Year-over-Year Change
	Three Months Ended June 30,									At Constant
	2014			2015			As Reported			Currency
	(in millions)
Software	$	222		$	227			2	%		8	%
SaaS and cloud		256			260			2	%		4	%
Services		140			144			3	%		8	%

Total FS Revenue	$	618		$	631			2	%		6	%

Adjusted EBITDA	$	154		$	173			13	%		12	%
Adjusted EBITDA margin		24.8	%		27.5	%		2.7	pts		1.5	pts

Revenue

Total FS revenue increased $13 million, or 2%, to $631 million in the second quarter of 2015. Foreign currency translation had a $24 million net unfavorable impact on the current period results. Excluding the effects of foreign currency changes, total FS revenue increased $37 million, or 6%, in the current-year quarter. The variance in total FS revenue was driven by growth in Software, SaaS and cloud, and Services revenue. These results reflect the customer reception of our new technology offerings, growth in the established markets, and growth in the array of services that surround and support our software. In the second quarters of 2015 and 2014, Software revenue was 36%, SaaS and cloud revenue was 41%, and Services revenue was 23% of total FS revenue.

FS Software revenue increased $5 million, or 2%, to $227 million in the second quarter of 2015. Foreign currency translation had a $13 million net unfavorable impact on the current period results. Excluding the effects of foreign currency changes, FS Software revenue increased $18 million, or 8%, in the current-year quarter. The variance in FS Software revenue was primarily due to strong license sales of our latest technology to both new and existing customers and increased renewals, particularly within our Risk and Compliance and Securities Finance and Processing businesses. Reported software license fee revenue was $50 million, a $14 million, or 40% increase, from the prior-year period.

FS SaaS and cloud revenue increased $4 million, or 2%, to $260 million in the second quarter of 2015. Foreign currency translation had a $5 million net unfavorable impact on the current period results. Excluding the effects of foreign currency changes, FS SaaS and cloud revenue increased $9 million, or 4%, in the current-year quarter. This variance in FS SaaS and cloud revenue was primarily due to increased SaaS and broker-dealer volumes and greater adoption of our cloud offerings.

FS Services revenue increased $4 million, or 3%, to $144 million in the second quarter of 2015. Foreign currency translation had a $7 million net unfavorable impact on the current period results. Excluding the effects of foreign currency changes, FS Services revenue increased $11 million, or 8%, in the current-year quarter. The variance in FS Services revenue was primarily due to growth in BPaaS utilities and professional services tied to our new technology offerings, as customers increased their spending to implement our solutions and integrate them into their operating environments, particularly within our Post-trade Derivatives Utility and Asset Management businesses.

FS total revenue from emerging markets, comprised of China, India, Southeast Asia, the Middle East, Africa, Latin America and Eastern Europe, decreased 3% in the second quarter of 2015 over the prior-year period. Excluding the effects of foreign currency changes, FS total revenue from emerging markets was flat year over year, where growth in software license, SaaS and cloud was offset by a decrease in professional services, reflecting the completion of key milestones in the second quarter of the prior year. FS total revenue in established markets, comprised of the US, Western Europe, Japan and Australia, increased approximately 3% in the second quarter of 2015 over the prior-year period. Excluding the effects of foreign currency changes, FS total revenue from established markets increased approximately 7% in the current-year quarter primarily due to strong license sales of our latest technology and increased Services revenue.

Adjusted EBITDA

FS adjusted EBITDA increased $19 million, or 13%, to $173 million in the second quarter of 2015. Foreign currency translation had a $2 million net favorable impact on the current period results. Excluding the effects of foreign currency changes, FS adjusted EBITDA margin increased by 1.5 points in the current-year quarter primarily due to the growth in our Software, SaaS and cloud, and Services revenues and decreases in employment-related product development spending, which was partially offset by higher employment-related costs related to the start of BPaaS utilities and higher incentive compensation for sales personnel.

Public Sector & Education segment


							Year-over-Year Change
	Three Months Ended June 30,									At Constant
	2014			2015			As Reported			Currency
	(in millions)
Software	$	35		$	35			3	%		3	%
SaaS and cloud		9			10			—	%		—	%
Services		11			11			5	%		5	%

Total FS Revenue	$	55		$	56			2	%		2	%

Adjusted EBITDA	$	17		$	17			(1	)%		(1	)%
Adjusted EBITDA margin		31.3	%		30.1	%		(1.2	)pts		(1.2	)pts

Revenue

Total PS&E revenue increased $1 million, or 2%, to $56 million in the second quarter of 2015 driven by growth in SaaS and cloud revenue. During the second quarters of 2015 and 2014, PS&E Software revenue comprised 63%, PS&E SaaS and cloud revenue was approximately 17%, and PS&E Services revenue was approximately 20% of total PS&E revenue. Total PS&E revenue, costs and expenses are unaffected by changes in foreign currency exchange rates since these businesses primarily transact in U.S. dollars.

PS&E Software revenue was $35 million for the quarters ended June 30, 2015 and 2014, and increased 3% primarily due to an increase in software license fees for public safety solutions. PS&E SaaS and cloud revenue was $10 million and $9 million for the quarters ended June 30, 2015 and 2014, respectively, due to increased SaaS revenue, which was offset by lower cloud services. PS&E Services revenue was $11 million for the quarters ended June 30, 2015 and 2014, and increased 5% primarily due to continuing to deliver the contracted backlog resulting from new software license sales and product upgrades from 2013 and 2014 which generate related implementation and integration services. There is no business processing services revenue in this segment.

Adjusted EBITDA

PS&E adjusted EBITDA was $17 million for the quarters ended June 30, 2015 and 2014, and decreased 1% in the second quarter of 2015. The PS&E adjusted EBITDA margin declined by 1.2 points during the current-year quarter to 30.1% driven by a higher mix professional services.

Corporate

Corporate spending, as measured on an adjusted EBITDA basis, was $12 million for the quarters ended June 30, 2015 and 2014.

Six Months Ended June 30, 2015 Compared to Six Months Ended June 30, 2014

Consolidated Results of Operations - Unaudited


($ in millions)	Six Months Ended June 30,												Year-over-Year Change
							% of Revenue									At Constant
	2014			2015			2014			2015			As Reported			Currency
Revenue	$	1,326		$	1,358			100	%		100	%		2	%		6	%
Costs and expenses:
Cost of sales and direct operating		542			551			41	%		41	%		2	%		5	%
Sales, marketing and administration		326			313			25	%		23	%		(4	)%		0	%
Product development and maintenance		196			173			15	%		13	%		(11	)%		(6	)%
Depreciation		51			56			4	%		4	%		8	%		12	%
Amortization of acquisition-related intangible assets		84			42			6	%		3	%		(50	)%		(47	)%
Trade name impairment		339			—			26	%		—	%		nm			nm

Total costs and expenses		1,538			1,135			116	%		84	%		(26	)%		(23	)%

Operating income (loss)		(212	)		223			(16	)%		16	%		205	%		202	%

Operating margin		(16.0	)%		16.5	%								32.5	pts		31.5	pts
Other income (expense):

Interest income		1			1			0	%