Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER: 0-26994
ADVENT SOFTWARE, INC.(R)
(Exact name of registrant as specified in its charter)
DELAWARE 94-2901952
(State of incorporation) (IRS Employer Identification Number)
301 BRANNAN STREET, SAN FRANCISCO, CALIFORNIA 94107
(Address of principal executive offices and zip code)
(415) 543-7696
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Acts: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The number of shares of the registrant's Common Stock outstanding as of March
11, 2002 was 34,609,453. The aggregate market value of the registrant's Common
Stock held by non-affiliates, based upon the closing price on March 11, 2002, as
reported on the NASDAQ National Market System, was approximately $1.76 billion.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference into Parts II and
III of this Form 10-K: (1) 2001 Annual Report to Stockholders of the Registrant
(Part II of this Form 10-K); and (2) Definitive Proxy Statement for the
registrant's Annual Meeting of Stockholders to be held May 8, 2002 (Part III of
this Form 10-K).
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
From time to time, we make oral and written statements that may constitute
"forward-looking statements" as defined by the Securities and Exchange
Commission ("SEC") in its rules, regulations and releases including Section 27A
of the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended.
Forward-looking statements can be identified by the use of terminology such
as "may", "will", "should", "expect", "plan" "anticipate", "believe",
"estimate", "predict", "potential", "continue" or other similar terms or the
negative of such terms. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Forward-looking statements are made in this Form
10-K, as well as in other filings with the SEC and from time to time in public
announcements. Such forward-looking statements are based on our current plans
and expectations and are subject to risks and uncertainties that could cause
actual results to differ materially from those described in the forward-looking
statements. Where such forward-looking statements appear, we have sought to
supplement such statements with meaningful cautionary statements identifying
important factors that could cause actual results to differ materially from
those described in the forward-looking statements. Such factors include, but are
not limited to, the "Risk Factors" set forth in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," as well as other
risks identified from time to time in other SEC reports, registration statements
and public announcements.
Our forward looking statements are not guarantees of future results, levels
of activity, performance or achievements reflected in forward-looking
statements. Moreover, neither we nor any other person assumes responsibility for
the accuracy and completeness of such statements. We do not have any obligation
to release updates or any changes in events, conditions or circumstances on
which any forward-looking statement is based or to conform such statements to
actual results.
PART I
ITEM 1. BUSINESS
OVERVIEW
We are a leading provider of Enterprise Investment Management solutions that
automate and integrate mission-critical functions of investment management
organizations through software products, services and data integration. Our
solutions enable organizations of all sizes to run their business more
effectively, enhance client service and performance, and improve productivity
and communication throughout their organization.
Advent Office(TM), our suite of integrated products, addresses the demand to
automate the entire range of investment management functions, including
portfolio management, client relationship management, trade order management,
data warehousing, partnership accounting, reconciliation management, and
web-based portfolio, performance and analytic reporting. Advent Office contains
Axys(R), Moxy(R), Advent Partner(R), REX(TM), Advent Custodial Data(TM) , Advent
Warehouse(R) , Qube(R), MyAdvent(TM), Advent Browser Reporting(R) , and Advent
Corporate Actions(TM).
We were founded in 1983, incorporated in 1983 in California and
reincorporated in Delaware in November 1995. Our principal executive offices are
located at 301 Brannan Street, San Francisco, California 94107, and our
telephone number is (415) 543-7696.
INDUSTRY BACKGROUND AND OUR CLIENTS
Our clients include a range of organizations that manage investment
portfolios, including investment advisors, brokerage firms, banks and hedge
funds. Our clients also include corporations, public funds, foundations,
universities and non-profit organizations that manage investment portfolios and
perform similar portfolio management functions. Over the past decade, the
investment management industry has experienced significant growth, which, in
combination with other factors, has led to increasing demand for software
products that automate, simplify and integrate functions within investment
management organizations. This increasing demand is driven by several industry
dynamics. Financial assets under management have increased substantially during
the last decade. As the value of total financial assets under management has
increased, there has been a substantial increase in the number of investment
management organizations and a steady introduction of increasingly sophisticated
financial instruments. As a result, investment managers are faced with
increasingly complicated portfolio accounting and management requirements as
well as extensive and evolving industry standards and government regulations.
2
These dynamics have increased the volume and complexity of information and
data flows within investment management organizations and between such
organizations and third parties, such as brokerage firms, clients, custodians,
banks, pricing services and other data providers. Consequently, in order to
operate efficiently, investment management organizations must automate and
integrate their mission-critical and labor-intensive functions, including (i)
investment decision support and client relationship management, (ii) order
management and trading and (iii) portfolio accounting, performance measurement,
report generation and compliance. Investment management organizations
historically have relied on internally developed systems, timesharing services
or simple spreadsheet-based systems to manage information flows. Due to inherent
limitations in each of these types of systems, investment management
organizations are demanding highly functional, easy-to-use, scalable,
cost-effective and flexible software applications that automate and integrate
their mission-critical business functions.
THE ADVENT SOLUTION
The Advent solution combines a fully integrated suite of client-centric
software products, with a full range of professional services - from
implementation management and training to technical support and consulting
services, all aimed at accomplishing our clients' business objectives.
SOFTWARE PRODUCTS
We offer an integrated suite of software products for automating and
integrating data and work flows across the investment management organization,
as well as the information flows between the investment management organization
and external parties. Our products are intended to reduce client costs, improve
the accuracy of client information and generally enable clients to improve the
service they provide to their customers rather than focusing on operational
details. Each software component in the Advent Office suite focuses on certain
mission-critical functions of the investment management organization. Each
Advent Office implementation is tailored to meet the needs of a particular
client, as determined by size, assets under management and complexity of the
investment environment.
We believe that our Enterprise Investment Management solution is well suited
for the investment management functions of advisors, banks, brokerages,
corporations, public funds, partnerships, foundations, universities and
non-profit organizations. An Enterprise Investment Management solution is an
evolutionary process that encompasses three phases:
o Investment Process Integration - investment management organizations must
integrate their mission-critical and labor-intensive functions, including
(i) investment decision support and client relationship management, (ii)
order management and trading and (iii) portfolio accounting, performance
measurement, report generation and compliance with each other as well as
with standard productivity applications such as Microsoft Word,(R)
Outlook(R) and Excel(R). This integration eliminates ineffective
communication between processes and minimizes processing errors, enabling
growth by reducing bottlenecks within the organization.
o Data Collection and Reconciliation - enables the investment organization to
integrate the external data regarding pricing and settlements so that the
firm can quickly and efficiently settle transactions and monitor
performance in an automated fashion.
o Customer Responsiveness - incorporates numerous capabilities enabling our
clients to provide more personal, effective communication with their
customers. This capability enables decision makers for the firm to have
timely access to information in order to make more effective decisions on
behalf of the clients.
We offer three portfolio accounting and management applications: Axys,
Advent Partner and Geneva(R).. We also offer additional complimentary
applications, including our REX solution, which provides reconciliation
management, and our Advent Warehouse solution, which provides data warehousing
capabilities.
AXYS, our core application, introduced in 1993, is a highly functional
portfolio accounting and management system targeted towards investment
management organizations of all sizes. Axys provides investment professionals
with broad portfolio accounting functionality, timely decision support,
sophisticated performance measurement and flexible reporting. Specifically,
clients can record, account for and report on a variety of investment
instruments, including equities, fixed income, mutual funds and cash. Axys users
gain access on demand to portfolio holdings, asset allocation, realized and
unrealized gains and losses, actual and projected income and other valuable
data. Portfolio performance can be measured for individual portfolios or related
groups, and for any specified time period. Investment professionals can choose
from over 200 pre-defined reports with flexible "as-of" reporting, which can be
customized as to formats and fonts. Clients can easily generate fully customized
reports with the
3
assistance of the Axys Report Writer. Clients can also produce
presentation-quality graphics via an integrated link with Microsoft Excel's
charting capability. In addition, Axys offers integrated multi-currency
capabilities which, among other things, allows reports to be restated in any
currency, tracks reclaimable foreign withholding tax, and can identify
components of return attributable to market prices versus currency rate
fluctuations.
Axys also provides integration with a variety of investment tools and
data. These tools include (i) Moxy, our trade order management solution, (ii)
pricing, corporate actions, analytics and fundamental data via interfaces to
data vendors, (iii) automatic data entry and reconciliation of trades with
interfaces to the Depository Trust Corporation ("DTC"), brokerage firms and
custodians, (iv) integrating through the internet via our custodial data service
and software and (vi) internet reporting via Advent Browser Reporting for
Enterprise Users, our internet reporting service.
ADVENT PARTNER, introduced in December 1996, is an investment
partnership allocation solution, which integrates with Axys. This product is
specifically designed for hedge funds, venture funds and limited investment
partnerships that face the complex and time-consuming task of consistently and
accurately accounting for and reporting on partnership tax allocation and other
activities. The Windows-based system tracks partner-specific information,
handles the complexities of allocating realized and unrealized gains and losses
for tax purposes, allocates performance incentive fees, provides on-demand
partner and partnership reporting on an economic or tax allocation basis and
streamlines the production of partnership tax returns.
GENEVA, introduced to target organizations in 1995 and made
commercially available in October 1997, is a high-end portfolio accounting
system designed to meet the needs of large, global investment management
organizations with complex, international accounting requirements. Geneva offers
feature-rich global accounting, extensive reporting (including profit and loss
reporting by strategy) and sophisticated multi-currency capabilities. In
addition, Geneva's highly flexible design allows users to add newly created
financial instruments and tailor accounting treatments to their specific needs.
REX, introduced in 1997, is the Advent Office solution for
reconciliation management. REX is integrated with Axys and is designed for firms
that want to electronically reconcile their Axys information against their
custodial information. REX works in conjunction with Advent Custodial Data(TM)
and automates matching and helps users identify exceptions, correct or add
transactions to their portfolios or communicate and track changes required by
their custodian.
ADVENT CUSTODIAL DATA (ACD), introduced in 1997, provides data from a
firm's custodians in a single, secure account at Advent. Advent Custodial Data
then electronically feeds all this information into Advent Office(TM), which
allows a firm to further process the data against their own records.
ADVENT WAREHOUSE, introduced in 1998, is a data warehouse solution
designed to allow investment professionals to readily access investment data
regardless of how the data was created or maintained, without impacting the
performance of their high volume transaction-based Advent Office systems.
Relational technology and data warehousing tools provide an open environment for
ad hoc decision support and customized reporting on enterprise wide investment
information. Investment professionals can take advantage of the sea of
information captured during the investment process to improve client service and
gain competitive advantage.
ADVENT INX(TM), introduced in 2001, is a development toolkit for
on-demand delivery of portfolio information and derived data. Advent INX is a
solution intended for high-volume investor oriented websites and large internal
integration projects.
ADVENT REPORT CENTER(TM), launched in 2001, leverages Advent Warehouse
to generate distinctive investor reports. It is a scalable solution designed to
produce personalized, period-end statements tailored for different investor
profiles and integrating third party data elements. Investment firms can
customize their report output with their own characteristics and marketing
message.
ADVENT CORPORATE ACTIONS, introduced in May 1999, is a comprehensive,
integrated corporate actions solution from our subsidiary, Hub Data, and is
designed to integrate with Axys to automate and simplify the process of manually
tracking and processing corporate actions. Advent Corporate Actions
electronically tracks and consolidates corporate action information from a host
of high-quality sources and delivers daily e-mail reports to portfolio managers
and other key staff.
ADVENT OUTSOURCE(SM), introduced in September 2000, is a service that
brings our portfolio reporting solution to investment firms in an application
service provider ("ASP") model. Investment management firms that wish to
outsource the management of their portfolio reporting will be able to leverage
the full power of Axys, our portfolio accounting, management
4
and reporting solution. Investment firms that choose Advent Outsource will have
their client data housed for them and will be provided secure access over the
internet to their accounts. This ASP solution is especially attractive to firms
that may not have the resources required to maintain technology operations
in-house or are looking specifically to outsource all of their data management.
Advent Outsource is provided by an independent company using Advent's
technology.
Additionally, Advent licenses tax modules specifically for certain
European countries These modules, released in 1999, extract portfolio data from
Axys and combine it with additional tax factors provided by tax authorities to
calculate local taxes and deductions, and generate the formal tax forms.
MOXY, introduced in 1995, automates and streamlines the trading and
order management process. Moxy facilitates accurate trade order management and
preparation, tracks trade-order status, automates the allocation of block trades
across multiple portfolios and electronically interfaces with Axys to provide an
integrated solution. Moxy supports fixed income, mutual funds and equity trading
and offers multi-currency capabilities. Moxy enables investment managers to
accurately adjust portfolio holdings, rebalance portfolios against models,
interactively assess "what-if" scenarios and automatically create orders to be
executed. For traders, Moxy tracks cash and positions during the trading day,
enables the accurate preparation of block trades and internal electronic trade
tickets, facilitates compliance with investment restrictions and trading
requirements and minimizes trading errors. Moxy also allows traders and others
to view the status of orders via customizable screens and maintain an electronic
audit trail of the trade process. Moxy automates the allocation process of
partial and complete executions and allows the user to send allocation results
using OASYS, an electronic allocation system, to communicate allocations to
brokers electronically. Moxy also provides internet-ready electronic order
routing based on the industry standard FIX messaging protocol so that Moxy users
can route trades electronically to any FIX-compliant broker or crossing network
that supports the internet or other TCP/IP connections. Moxy users can choose to
route equity orders via SunGard Direct(TM) which links them to participating
brokers and execution venues. Trades are executed, processed, settled and
accounted for without manual intervention. Moxy electronically posts allocated
trades into Axys on demand, eliminating time-consuming and error-prone manual
entry.
QUBE, introduced in 1995, is designed to help securities professionals
develop and improve client relationships by automating scheduling, client
communications and client data. For example, Qube integrates with portfolio
information on Axys and enables investment professionals to interactively screen
client investment profiles and notes of conversations to identify appropriate
candidates for various investment opportunities. In addition, Qube can be used
to enhance direct marketing campaigns by matching clients with market
opportunities. Qube captures extensive investment profile information, has
online query capability, networking features and mail merge capabilities and
facilitates information sharing across professionals in an office.
MYADVENT, introduced in May 2000 provides a browser-based portal to
Advent Office for investment professionals to quickly view summary information
they need in one place in order to know exactly where they stand at any point in
the day. Users are able to review information then immediately drill down into
detailed data and functionality in other Advent Office components, and in Advent
Alliance Partner applications.
ADVENT BROWSER REPORTING(R) FOR DECISION MAKERS, introduced in 1998,
puts the power of data analysis on the portfolio managers' desktop via the
internet. Using our Online Analytical Processing tools (OLAP), investment data
can be sliced and diced to improve the decision making process. ADVENT BROWSER
REPORTING FOR INVESTORS, also introduced in 1998, allows investment managers to
post Axys reports to a secure website where their clients can access these
reports 24 hours a day, 7 days a week. ADVENT BROWSER REPORTING FOR ENTERPRISE
USERS allows investment professionals the ability to access Axys from remote
locations via the internet and run Axys reports as if they were in their office.
ADVENT TRUSTEDNETWORK(R), introduced in March 2000, is an automated
account consolidation solution that enables financial institutions to use the
internet to deliver cross-institutional, consolidated views of individual
investor portfolios. The investment advisors can provide a consolidated
statement showing the individual investor's portfolio of assets, transaction
data (buys, sells, interest, dividends, deposits and withdrawals), performance
analysis and other detailed account information. The data can be manipulated and
new data interpolated from it. The consolidated information can then be shared
simultaneously between investors and trusted financial advisors. Our solution,
in contrast to account aggregation solutions, is designed to employ our data
gathering and reporting tools to accept account and transactional information
from bank and brokerage back office systems, aggregate those transactions by
investor, and deliver the information to participating institutions and their
clients online.
WEALTHLINE(SM), announced in November 2001, is a secure,
private-labeled hosted investor-facing website offered through a partnership
between Advent & Microsoft. Through the integration of Advent's software
solutions and Advent TrustedNetwork data service with Microsoft's .Net
FinancialAdvisor, advisors can provide investors content and tools, such
5
as Axys holdings dynamically tied to market data services, Axys reports and
graphs, consolidated portfolio holdings, aggregation of checking, savings, and
credit card balances, propriety research and information, as well as stock and
mutual fund quotes, charts, and news. The service also allows personal
communication between the advisor and investor. Microsoft's .Net
FinancialAdvisor is a Web-based service built for professional financial
advisors that offers the customer communications tools they need most by
combining .NET My Services (Passport, notifications, etc.) with secure document
publishing, portfolio reporting, and financial content.
GIFTS(R) FOR WINDOWS is a proposal tracking and grants management
system that allows the user to retrieve and classify requests, generate
personalized letters, manage contacts, schedule and monitor activities, maintain
complete organization history, track payments, contingencies and report
requests. This software is primarily used by the philanthropic community such as
foundations, corporations and other organizations to manage their grant-making
activities. The Internet Grant Application Module (IGAM) allows grant seekers to
submit online grant applications and facilitates more efficient communication
between everyone involved in the initial review process, and GIFTS Connections,
an internet suite of modules including MyGIFTS, ReviewerConnnect,
GranteeConnect, and EmployeeConnect, that enables Web browser access to
personalized relevant information for anyone involved in the grant making
process, from any location.
FIMS(TM) is a modular, integrated information management system for
nonprofit organizations. Modules include Profiles (Communications), Gifts
(Fundraising/Development), Grants, Accounts Payable, General Ledger (Fund
Accounting and Portfolio Balancing) and FACTS (Pooled Investment Allocation),
united in a single database.
FOUNDATIONPOWER(TM) is a Windows based customized information
management application for nonprofit organizations. Because each system is
customized to only one foundation, it reflects the procedures, policies and
nomenclature at each organization.
MAINTENANCE SUPPORT AND SUBSCRIPTION-BASED/TRANSACTION-BASED SERVICES
We earn recurring revenues by offering a choice of maintenance contracts and
by providing subscription-based and transaction-based services. Our
subscription-based and transaction-based services allow clients to (1) download
pricing, corporate actions and other data from third party vendors such as
Interactive Data Corporation ("Interactive Data"), a wholly owned indirect
subsidiary of Pearson plc, and (2) interface with DTC, certain brokerage firms
and custodians for trading activity. Many of our clients use our proprietary
interface to electronically retrieve pricing and other data from Interactive
Data. Interactive Data pays us a commission based on Interactive Data's revenues
from providing such data to our clients.
Our Hub Data subsidiary consolidates securities information and data from
various third party providers such as Merrill Lynch, Interactive Data, J.J.
Kenny, a division of The McGraw-Hill Companies, Xcitek, CCH Incorporated,
Telekurs and others, and provides data feeds and services to a range of
financial institutions via electronic interfaces to many portfolio software
systems.
Due to the mission-critical nature of our products, many clients purchase
annual maintenance contracts, which entitle them to technical support and
product upgrades as they become available. We continually upgrade and enhance
our products to respond to changing market needs, evolving regulatory
requirements and new technologies.
INTERNET CAPABILITIES
The internet has proven to be a low-cost communications platform for
integrating external information into our products, thereby providing our
clients with straight through processing ("STP") of business information. To
take advantage of the internet, Advent continues to develop capabilities that
bring internet-based products and services to our clients. We launched Advent
Custodial Data (ACD), our first internet service during the second quarter of
1997. Using the internet, ACD consolidates communication and information from
all participating custodians, enabling our clients to quickly and easily
reconcile transactions and holdings with a click of the mouse. Our second
internet-based product, Advent Browser Reporting, was introduced in 1998. Advent
Browser Reporting is a reporting component of Advent Office, which enables users
to access Advent Office information through a web browser. In 1999, we
introduced Advent Corporate Actions, an enterprise-wide notification service
that automates and simplifies the process of tracking corporate actions such as
mergers, spin-offs and bankruptcies. We announced several internet-based
products and services during 2000 including: Advent Outsource, MyAdvent and
Advent TrustedNetwork. Advent Outsource brings our portfolio reporting solution
to investment firms in an ASP model. MyAdvent is a browser-based portal to the
Advent Office suite. Advent TrustedNetwork enables financial institutions to
deliver cross-institutional, consolidated views of
6
individual investor portfolios across the internet. In 2001, we introduced
Advent INX, a development toolkit for on-demand delivery of portfolio
information and derived data.
Additionally we have added Distance Learning and Advent Connection. Distance
Learning is Advent's online interactive classroom offering education services
via the internet. Now our clients can participate in an interactive education
session with a certified Advent instructor from their office or home. Advent
Connection is our client-only website which provides technical information,
support, educational offerings, discussion groups and a software center that
allows our clients to download free client reports.
From time to time, as we begin the development of new products and services
for the internet, we plan to continue to enter into development agreements with
information providers, clients, or other companies in order to accelerate the
delivery of new products and services.
ALLIANCE PROGRAM
Our Alliance Program was launched in May 1998 and is designed to benefit
both our clients and our partners. The program provides a formal process through
which partners can develop, promote, and sell their products, services, and
solutions in conjunction with our suite of applications. Our Alliance Program
was created to further extend our breadth of product and service offerings.
PROFESSIONAL SERVICES
Professional services consist of consulting, implementation management,
integration management, custom report writing, and training. Many of our clients
purchase consulting services from us to support their implementations, assist in
the conversion of the clients' historical data and provide ongoing training and
education. Consulting services may be required for as little as two days for
small systems or for up to many weeks for large implementations. We believe that
consulting services facilitate a client's early success with our products,
strengthen the relationship with the client and generate valuable feedback for
us.
Implementation management provides a single point-of-contact who will work
closely with our client's project team to plan the implementation, to optimize
the use of our products, to coordinate Advent resources, to advocate on their
behalf, and to minimize schedule delays and project risks. Additionally,
implementation managers provide documentation for the implementation from
planning through production.
Integration management provides services to clients with multifaceted needs.
Integration managers work with clients to integrate their systems and workflows
with our products during implementation. The services include: development of
custom interfaces from back-office systems to our Axys and Moxy products,
configuration and management of large volumes of data, and strategies for
deployment of our products for distributed sites.
We provide our clients with custom report writing services that enable
clients to tailor end-user reports to their own specifications. We also provide
training sessions to our clients at various sites across the country.
Additionally, we host semi-annual conferences in the United States, as well as
Australian and European conferences, that provide product information and user
workshops for our clients.
CLIENTS
Our clients vary significantly in size and assets under management and
include investment advisors, brokerage firms, banks, hedge funds, corporations,
public funds, universities and non-profit organizations. At present, we have
licensed products to over 6,500 institutions in 55 countries for use by more
than 60,000 concurrent users.
SALES AND MARKETING
We license and sell our products and services primarily through a direct
sales organization comprised of field sales and telesales representatives. Our
field sales force is organized by geographic region and is primarily responsible
for selling our suite of products to mid-sized and large investment management
organizations. We have sales offices in San Francisco, California; New York, New
York; Cambridge, Massachusetts; Sydney and Melbourne, Australia; Oslo, Norway;
Stockholm, Sweden; and Copenhagen, Denmark. Our telesales organization is
primarily focused on selling our products to existing Axys clients and small
7
and mid-sized investment management organizations. Our telesales representatives
are located in San Francisco, California, and New York, New York. Our sales
force is supported by extensive, ongoing product and sales training.
Our marketing department is responsible for assessing market opportunities,
product planning and management and specific sales support. In addition to its
traditional marketing functions, our marketing organization is actively involved
in a process called "Market Validation."(SM) Market Validation uses a system of
interaction with and input from potential and existing clients, product
development, sales and client services and support departments to define the
scope, features and functionality of new products and product upgrades. In
addition, our product managers are responsible for all phases of a product life
cycle from product development through product introduction and beyond. Our
marketing department is also responsible for corporate marketing, including
generating client leads, targeted direct mail campaigns, seminars, advertising,
trade shows and conferences and public relations efforts and also provides the
sales force with appropriate written and electronic materials to use during the
sales process.
PRODUCT DEVELOPMENT
In recent years, we have substantially increased our product development
expenditures in order to accelerate the rate of new product introductions,
incorporate new technologies and sustain the quality of our products. In 2001,
2000, and 1999, our product development expenditures were approximately $27.4
million, $21.6 million, and $16.8 million respectively. Our product development
activities include the identification and validation of product specifications
as well as engineering, quality assurance and documentation.
Our new products and product upgrades require varying degrees of development
time, depending upon the complexity of the accounting requirements and
securities regulations which they are intended to address, as well as the number
and type of features incorporated. To date, we have primarily relied upon the
internal development of our products. We have in the past acquired, and may
again in the future acquire, additional technologies or products from third
parties. We intend to continue to support industry standard operating
environments, client/server architectures and network protocols.
COMPETITION
The market for investment management software is divided by the relative
size of the organizations that manage investment portfolios. The market is
intensely competitive and highly fragmented, subject to rapid change and highly
sensitive to new product introductions and marketing efforts by industry
participants. Our competitors include providers of software and related services
as well as providers of timeshare services. Competitors vary in size, scope of
services offered and platforms supported. In addition, we compete indirectly
with existing and potential clients, many of whom develop their own software for
their particular needs and therefore may be reluctant to license software
products offered by independent vendors such as Advent. With respect to the
market for our portfolio accounting products, we currently compete primarily
with Financial Models Company, Inc., Shaw Data, a division of SunGard Data
Systems, Inc.; Thomson Financial, a division of The Thomson Corporation;
Security APL, a division of Checkfree Investment Services; Performance
Technologies, a subsidiary of Charles Schwab and with a number of other
companies. We believe that the principal competitive factors affecting our
market include product performance and functionality, ease of use, scalability,
ability to integrate external data sources, product and company reputation,
client service and support and price. We may not compete successfully against
current and future competitors, and competitive pressures could result in price
reductions, reduced operating margins or the loss of market share.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
Our success is dependent in part on our ability to protect our proprietary
technology. We rely on a combination of copyright and trademark laws, trade
secrets, software security measures, confidentiality agreements and license
agreements to establish and protect our proprietary rights and our software. We
have registered trademarks for many of our products and services and will
continue to evaluate the registration of additional trademarks as appropriate.
We generally enter into confidentiality agreements with our employees and with
our resellers and customers. Despite these efforts, it may be possible for
unauthorized third parties to copy certain portions of our products or to
reverse engineer or otherwise obtain and use our proprietary information. We do
not have any patents, and existing copyright laws afford only limited
protection. In addition, we cannot be certain that others will not develop
substantially equivalent or superseding proprietary technology, or that
equivalent products will not be marketed in competition with our products,
thereby substantially reducing the value of our proprietary rights. Furthermore,
confidentiality agreements between us and our employees or any license
agreements with our clients may not provide meaningful protection of our
proprietary information in the event of any unauthorized use or disclosure of
it. In addition, the laws of certain countries do not protect our proprietary
rights to the same extent, as do the laws of the United States. Accordingly, we
may not be able to
8
protect our proprietary software in the United States or abroad against
unauthorized third party copying or use, which could significantly harm our
business.
EMPLOYEES
As of December 31, 2001, we had approximately 837 employees on a full-time
basis, including 88 in sales, 201 in professional services, 44 in marketing, 249
in product development, 129 in client services and support and 126 in finance,
administration, operations and general management. We believe that we maintain
competitive compensation, benefits, equity participation and work environment
policies to assist in attracting and retaining qualified personnel. Our success
depends to a significant extent upon the continued contributions of our senior
management and other key personnel, many of who would be difficult to replace.
The loss of the service of one or more senior managers or other employees could
have a material adverse effect upon our business, operating results and
financial condition. None of our employees are represented by a labor union. We
have not experienced any work stoppages and we believe our employee relations
are good.
ITEM 2. PROPERTIES
Our principal executive offices are located in San Francisco, California where
we lease approximately 59,000 square feet under a lease that expires in 2008
with a five-year extension option; approximately 32,000 square feet under a
lease that expires in 2004 with a five-year extension option; and approximately
18,400 square feet under a lease that expires in 2005 with a five-year extension
option. We lease two separate offices in New York; approximately 30,100 square
feet under a lease that expires in 2010 with a five-year extension option and
approximately 29,000 square feet under a lease that expires in 2008 with a
five-year extension option. We also lease space (typically less than 10,000
square feet) in various geographic locations throughout the United States;
Sydney and Melbourne, Australia; Oslo, Norway; Stockholm, Sweden; and
Copenhagen, Denmark, primarily for sales and support personnel. We believe that
these facilities are adequate for our near-term needs and that suitable
additional or alternative space will be available as needed.
ITEM 3. LEGAL PROCEEDINGS
From time to time we are involved in litigation incidental to the conduct of
our business. We are not party to any lawsuit or proceeding that, in our
opinion, is likely to seriously harm our business.
On November 8, 2001, Charles Schwab & Co, Inc. ("Schwab") filed suit against
us alleging claims for declaratory relief, anticipatory breach of contract and
breach of the covenant of good faith and fair dealing, arising from our
intention to cease maintenance of an existing software interface that allows
institutional investment customers to download data received from Schwab's
systems into our software product used by the investment customers. We intended
to cease maintenance of the existing interface and to transition to a new, and
what we believe to be improved, software interface (the "Advent Custodial Data"
or "ACD" system). On December 11, 2001, Schwab filed a motion for preliminary
injunction seeking to enjoin us from ceasing maintenance of the existing
interface. On December 17, 2001, we filed a motion to dismiss the action and
compel arbitration of the suit. On December 24, 2001, we filed a demurrer to
Schwab's complaint, challenging the sufficiency of the allegations in Schwab's
complaint. On January 11, 2002, the court signed an order granting Schwab's
motion for preliminary injunction and denying our request for arbitration. On
January 28, 2002, the court overruled our demurrer to Schwab's complaint and
directed Schwab to answer the complaint. The parties are currently investigating
potential avenues of resolution, and we continue to evaluate the merits of
Schwab's claims and our defenses. At this time it is too early to estimate any
potential losses from this action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
None.
PART I
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the executive officers
of Advent as of March 11, 2002:
NAME AGE POSITION
------------------------ ----- -------------------------------------
Stephanie G. DiMarco 44 Chairman of the Board
Peter M. Caswell 45 President and Chief Executive Officer
9
Lily S. Chang 53 Executive Vice President and Chief Technology Officer
Collin A. Cohen 38 Executive Vice President, Corporate and New Business Development
John Geraci 49 Executive Vice President, Eastern Operations/Europe
Irv Lichtenwald 46 Executive Vice President, Chief Financial Officer and Secretary
Armistead D. Puryear 55 Senior Vice President, Sales
Ms. DiMarco founded Advent in June 1983. She became Chairman of the Board in
November 1995. In addition, she served as President until April 1997 and Chief
Executive Officer until November 1999. Ms. DiMarco holds a B.S. in Business
Administration from the University of California at Berkeley.
Mr. Caswell joined Advent in December 1993 as Vice President, Sales and
Professional Services. In 1996, Mr. Caswell took on responsibility for our
marketing efforts and was promoted to Senior Vice President. In April 1997, Mr.
Caswell became President and Chief Operating Officer. In November 1999, Mr.
Caswell was promoted to President, Chief Executive Officer, and member of the
Board of Directors. Prior to joining Advent, Mr. Caswell held various management
positions, including Vice President and General Manager, Western Region, with
Dun & Bradstreet Software Services, Inc. and its predecessor, Management Science
America, Inc., a supplier of computer software for finance, marketing,
manufacturing and human resource functions. Mr. Caswell holds a diploma in
Management Studies (M.B.A. equivalent) and a Higher National Diploma in
Agriculture (B.S. equivalent) from Seale Hayne College in England.
Ms. Chang joined Advent in May 1993 as Vice President, Technology. In April
1997, Ms. Chang was promoted to Executive Vice President, Technology and was
also named Chief Technology Officer. From July 1989 to May 1993, Ms. Chang held
various positions, including Vice President, Strategic Accounts and Vice
President of Oracle Financial Applications, with Oracle Corporation, a software
licensing and consulting business. Ms. Chang holds a B.S. in Biochemistry from
Taiwan University.
Mr. Cohen joined Advent in March 1998 as Vice President of Corporate
Development. He is currently an Executive Vice President responsible for the
Client Solutions Group and for Corporate and New Business Development. Prior to
joining Advent, Mr. Cohen was a Principal at American Industrial Partners, a
buyout fund managing approximately $800 million in equity. Mr. Cohen also was a
Senior Manager at Bain & Company, a leading international management consulting
firm. Mr. Cohen holds an M.B.A. from Harvard University and a B.A. from Stanford
University.
Mr. Geraci joined Advent Software in April of 2001 and became an Executive
Officer in August 2001 as our Executive Vice President, Eastern
Operations/Europe. Mr. Geraci has 21 years of experience in the applications
software industry. Prior to joining Advent, Mr. Geraci spent three and one-half
years with IMI Software as President IMI Americas and Chief Operating Officer.
IMI specialized in complex, mission critical order management software.
Additionally, Mr. Geraci was Senior Vice President of Western Europe for MSA
Software as well as President of Information Associates. Prior to his business
experience, Mr. Geraci spent 6 years in the United States Army. He received a
Bachelor degree from the US Military Academy at West Point and an Executive MBA
from Emory University.
Mr. Lichtenwald joined Advent in March 1995 as Chief Financial Officer. From
February 1984 to March 1995, Mr. Lichtenwald served as Chief Financial Officer
of Trinzic Corporation, a computer software developer, and its predecessor Aion
Corporation. From February 1982 to February 1984, he served as controller of
Visicorp, a computer software developer. Mr. Lichtenwald holds an M.B.A. from
the University of Chicago and a B.B.A. from Saginaw Valley State College. Mr.
Lichtenwald is a Certified Public Accountant.
Mr. Puryear joined Advent in December 1994 as Director of Client Sales. In
July 1998, Mr. Puryear was promoted to Senior Vice President, Sales with
responsibility for sales to Advent's client base, new business development and
telemarketing. Before joining Advent, he was with Oracle Corporation and was
responsible for their Western Sales Telesales organization. Mr. Puryear has 14
years of software and technology experience as well as two years in the
investment management industry with Paine Webber, Inc. Prior to his business
career he was a pilot in the U.S. Air Force and received a Bachelor of Science
degree from the U.S. Air Force Academy.
PART II
With the exception of the information incorporated by reference to the 2001
Annual Report to Stockholders in Part II of this Form 10-K, Advent's 2001 Annual
Report to Stockholders is not deemed to be filed as part of this Form 10-K.
10
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
We have approximately 63 stockholders of record at March 11, 2002. Because
many of our shares of Common Stock are held by brokers and other institutions on
behalf of stockholders, we are unable to estimate the total number of
stockholders represented by these record holders. Other information required by
this Item is incorporated by reference to the sections entitled "Selected
Financial Data - Price Range of Common Stock" and "Corporate Information - Stock
Information" in our 2001 Annual Report to Stockholders.
ITEM 6. SELECTED FINANCIAL DATA
Other information required by this Item is incorporated by reference to the
sections entitled "Selected Financial Data - Selected Annual Data" and "Selected
Financial Data - Selected Quarterly Data" in our 2001 Annual Report to
Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated by reference to the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in our 2001 Annual Report to Stockholders.
RISK FACTORS
OUR OPERATING RESULTS FLUCTUATE SIGNIFICANTLY AND WE MAY NOT BE ABLE TO MAINTAIN
OUR EXISTING GROWTH RATES.
Licenses into multi-user networked environments have increased both in
individual size and number, and the timing and size of individual license
transactions are becoming increasingly important factors in quarterly operating
results. The sales cycles for these transactions are often lengthy and
unpredictable. We may not be successful in closing large license transactions
such as these on a timely basis or at all. Accordingly, because revenues from
large licenses are increasing as a portion of our net revenues, the timing of
such licenses could cause additional variability in our quarterly operating
results. Software product backlog at the beginning of any quarter typically
represents only a small portion of that quarter's expected revenues. Our expense
levels are based in significant part on our expectations of future revenues and
therefore are relatively fixed in the short term. Due to the fixed nature of
these expenses combined with the relatively high gross margin historically
achieved by us on products and services, an unanticipated decline in net
revenues in any particular quarter is likely to disproportionately adversely
affect our operating results.
We have generally realized lower revenues from license fees in the first
quarter of the year than in the last quarter of the prior year. We believe that
this has been due primarily to the concentration by some clients of larger
capital purchases in the fourth quarter of the calendar year and their lower
purchasing activity during the subsequent first quarter. We believe our annual
incentive compensation plans, which tend to produce increased year-end sales
activity, compound this factor. Furthermore, we have often recognized a
substantial portion of each quarter's license revenues in the last month, weeks
or even days of that quarter. As a result, the magnitude of quarterly
fluctuations in revenue or earnings may not be evident until late in or after
the close of a particular quarter and a disruption late in the quarter may have
a disproportionately large negative impact on our quarterly results.
Because of the above factors, we believe that period-to-period comparisons
of our operating results are not necessarily meaningful and that these
comparisons cannot be relied upon as indicators of future performance.
Our stock price has fluctuated significantly since our initial public
offering in November 1995. Like many companies in the technology and emerging
growth sector, our stock price may be subject to wide fluctuations, particularly
during times of high market volatility. If net revenues or earnings in any
quarter fail to meet the investment community's expectations, our stock price is
likely to decline. In addition, our stock price may be affected by trends in the
financial service sector and by broader market trends unrelated to our
performance.
OUR SALES CYCLE IS LONG AND WE HAVE LIMITED ABILITY TO FORECAST THE TIMING AND
AMOUNT OF SPECIFIC SALES.
Because the purchase of our software products often requires significant,
executive-level investment and systems architecture decisions by prospective
customers, we must generally engage in a relatively lengthy sales effort. These
transactions may be
11
delayed during the customer decision process because we must provide a
significant level of education to prospective customers regarding the use and
benefit of our products. As a result, the sales cycle associated with the
purchase of our software products is typically between two and twelve months
depending upon the size of the client, though it can be considerably longer, and
is subject to a number of significant risks over which we have little or no
control, including customers' budgeting constraints and internal selection
procedures, among other factors. As a result of a lengthy and unpredictable
sales cycle, we have limited ability to forecast the timing and amount of
specific sales. The timing of large individual sales is especially difficult to
forecast. As a result, there can be no assurance that we will be successful in
closing large license transactions on a timely basis or at all. In addition,
customers may postpone their purchases of our existing products or product
enhancements in advance of the anticipated introduction of new products or
product enhancements by us or our competitors. Because our expenses are
generally relatively fixed in the near term, any shortfall from anticipated
revenues could result in significant variations in our operating results from
quarter to quarter.
WE DEPEND HEAVILY ON OUR PRODUCT, AXYS.
In 2001, 2000, and 1999, we derived a majority of our net revenues from the
licensing of Axys, part of our Advent Office suite, and related applications and
services. In addition, many of our other applications, such as Moxy, Qube and
various data interfaces were designed to operate with Axys to provide an
integrated solution. As a result, we believe that a majority of our net
revenues, for the foreseeable future, will depend upon continued market
acceptance of Axys, enhancements or upgrades to Axys and related products and
services.
WE DEPEND UPON FINANCIAL MARKETS.
The target clients for our products include a range of organizations that
manage investment portfolios, including investment advisors, brokerage firms,
banks and hedge funds. In addition, we target corporations, public funds,
universities and non-profit organizations, which also manage investment
portfolios and have many of the same needs. The success of many of our clients
is intrinsically linked to the health of the financial markets. We believe that
demand for our products could be disproportionately affected by fluctuations,
disruptions, instability or downturns in the financial markets which may cause
clients and potential clients to exit the industry or delay, cancel or reduce
any planned expenditures for investment management systems and software
products. In addition, a slowdown in formation of new investment firms or a
decline in the growth of assets under management would cause a decline in demand
for our products. Any resulting decline in demand for our products could have a
material adverse effect on our business and results of operations.
DIFFICULTIES IN INTEGRATING OUR ACQUISITIONS COULD ADVERSELY IMPACT OUR BUSINESS
AND WE FACE RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS, INVESTMENTS OR
DIVESTITURES.
In 2001 we completed acquisitions of Rex Development Partners, L.P., NPO
Solutions, Inc., ManagerLink.com and our Scandinavian distributors located in
Norway, Sweden and Denmark and signed a definitive agreement to acquire Kinexus
Corporation, which acquisition was completed in February 2002. Our acquisition
of Kinexus Corporation is our largest acquisition to date, and the number of
acquisitions completed in 2001 is unprecedented for us.
The complex process of integrating Kinexus and our other acquisitions has
required and will continue to require significant resources, particularly in
light of our relative inexperience integrating acquisitions. Integrating these
acquisitions has been and will continue to be time consuming, expensive and
disruptive to our business. This integration process has strained our financial
and managerial controls and reporting systems and procedures, and has resulted
in the diversion of management and financial resources from our core business
objectives. Failure to achieve the anticipated benefits of these acquisitions or
to successfully integrate the operations of these entities could harm our
business, results of operations and cash flows. We may not realize the benefits
we anticipate from these acquisitions because of the following significant
challenges:
o expected synergy benefits from these acquisitions, such as lower costs,
may not be realized or may be realized more slowly than anticipated,
particularly with regard to costs associated with a reduction in
headcount and facilities;
o potentially incompatible cultural differences between the companies;
o incorporating these companies' technologies and products into our
current and future product lines;
o geographic dispersion of operations and the complexities of
international operations;
o integrating the technical teams of these companies with our engineering
organizations;
o generating market demand for an expanded product line;
o integrating the products of these companies with our business, because
we do not have distribution, manufacturing, marketing or support
experience for these products;
12
o the difficulty of leveraging our combined technologies and capabilities
across all product lines and customer bases; and
o our inability to retain previous customers or employees of these
entities.
We have incurred and expect to continue to incur significant costs and commit
significant management time integrating the operations, technology, development
programs, products, information systems, customers and personnel of these
acquisitions. These costs have been and will likely continue to be substantial
and include costs for:
o integrating and reorganizing operations, including combining teams,
facilities and processes in various functional areas;
o identifying duplicative or redundant resources and facilities,
developing plans for resource consolidation and implementing those
plans;
o fees and expenses of professionals and consultants involved in
completing the integration process;
o settling existing liabilities of these companies;
o uncovering through our audit process new issues reflected on the
companies' financial statements;
o costs associated with vacating, subleasing and closing facilities;
o employee relocation, redeployment or severance costs;
o integrating technology and products; and
o other transaction costs associated with the acquisition, including
financial advisor, attorney, accountant and exchange agent fees.
We may make additional acquisitions of complementary companies, products or
technologies in the future which would further exacerbate these issues. In
addition, we continually evaluate the performance of all our products and
product lines and may sell or discontinue current products or product lines.
Failure to achieve the anticipated benefits of any future acquisition or
divestiture could also harm our business, results of operations and cash flows.
Furthermore, we may have to incur debt, write-off investments, infrastructure
costs or other assets, incur severance liabilities, write-off impaired goodwill
or other intangible assets or issue equity securities to pay for any future
acquisitions. The issuance of equity securities could dilute our existing
stockholders' ownership. Finally, we may not identify suitable businesses to
acquire or negotiate acceptable terms for acquisitions.
GENERAL ECONOMIC CONDITIONS MAY REDUCE OUR REVENUES.
We believe that the market for large management software systems may be
negatively impacted by a number of factors, including reductions in capital
expenditures by large customers; poor performance of major financial markets,
and increasing competition. Those factors may, in turn, give rise to a number of
market trends that may slow revenue growth across the industry, including longer
sales cycles, deferral or delay of information technology projects and generally
reduced expenditures for software and related services, and increased price
competition.
If the current economic slowdown continues, the presence of these factors in
the market for large management software systems could materially adversely
affect our business and results of operations.
BUSINESS INTERRUPTIONS COULD ADVERSELY AFFECT OUR BUSINESS.
Our operations are exposed to interruption by fire, earthquake, power loss,
telecommunications failure, and other events beyond our control.
Additionally, we are vulnerable to interruption caused by political and
terrorist incidents. Our facilities in New York were temporarily closed due to
the September 11, 2001 terrorist attacks. Immediately after the terrorist
attacks, our clients who were located in the World Trade Center area were
concentrating on disaster recovery rather than licensing additional software
components, while the grounding of transportation impeded our ability to deliver
professional services at client sites. Additionally, during the temporary
closure of the U.S. stock markets, our clients did not use our market data
services. Such interruptions could affect our ability to sell and deliver
products and services and other critical functions of our business and could
seriously harm us. Further, such attacks could cause instability in the
financial markets upon which we depend.
WE ARE CONTINUING TO EXPAND OUR INTERNET BASED PRODUCTS.
13
To take advantage of the internet, we are continuing to develop services to
bring internet-based products and services to clients. As we develop these new
products and services, we have entered, and will continue to enter, into
development agreements with information providers, clients or other companies in
order to accelerate the delivery of new products and services. We may not be
successful in marketing our internet services or in developing other internet
services. Additionally, we may not be successful in being able to replace our
current technology with new technology. Our failure to do so could seriously
harm our business. In addition, we cannot assure you that there will not be
disruptions in internet services beyond our control or that of our third party
vendors. Any such disruptions could harm our business.
SECURITY RISKS AND CONCERNS MAY DETER THE USE OF THE INTERNET FOR CONDUCTING
BUSINESS.
A significant barrier to commerce and communications over public networks is
the secure transmission of confidential information. Advances in computer
capabilities, new discoveries in the field of cryptography or other events or
developments could result in compromises or breaches of our security systems or
those of other web sites to protect proprietary information. If any
well-publicized compromises of security were to occur, it could have the effect
of substantially reducing the use of the internet for commerce and
communications. Anyone who circumvents our security measures could
misappropriate proprietary information or cause interruptions in our services or
operations. The internet is a public network, and data is sent over this network
from many sources. In the past, computer viruses, software programs that disable
or impair computers, have been distributed and have rapidly spread over the
internet. Computer viruses could be introduced into our systems or those of our
customers or other third parties, which could disrupt or make it inaccessible to
customers. We may be required to expend significant capital and other resources
to protect against the threat of security breaches or to alleviate problems
caused by breaches. To the extent that our activities may involve the storage
and transmission of proprietary information, security breaches could expose us
to a risk of loss or litigation and possible liability. Our security measures
may be inadequate to prevent security breaches, and our business would be harmed
if we do not prevent them.
WE FACE RISKS RELATED TO OUR NEW BUSINESS AREAS.
We have expanded in recent periods into a number of new business areas to
foster long-term growth including international operations, strategic alliances,
and Advent TrustedNetwork. These areas are still relatively new to our product
development and sales personnel. New business areas require significant
management time and resources prior to generating significant revenues and may
divert management from our core business. There is no assurance that we will
compete effectively or will generate significant revenues in these areas. The
success of our ability to develop and market new internet based products and
services, in particular, is difficult to predict because it represents a new
area of business for our entire industry. Additionally, to help manage our
growth, we will need to continually improve our operational, financial,
management and information systems and controls.
WE EXPECT OUR GROSS AND OPERATING MARGINS MAY FLUCTUATE OVER TIME.
We expect that our gross and operating margins may fluctuate from period to
period as we continue to introduce new products, expand our professional
services organization and associated revenue, continue to hire additional
personnel and increase other expenses to support our business. We plan our
expense levels based primarily on forecasted revenue levels. Because these
expenses are relatively fixed in the short term, a fluctuation in revenue could
lead to operating results differing from expectations.
WE MUST CONTINUE TO INTRODUCE NEW PRODUCTS AND PRODUCT ENHANCEMENTS.
The market for our products is characterized by rapid technological change,
changes in customer demands and evolving industry standards. As a result, our
future success will continue to depend upon our ability to develop new products
or product enhancements that address the future needs of our target markets and
to respond to these changing standards and practices. We may not be successful
in developing, introducing and marketing new products or product enhancements on
a timely and cost effective basis, or at all, and our new products and product
enhancements may not adequately meet the requirements of the marketplace or
achieve market acceptance. Delays in the commencement of commercial shipments of
new products or enhancements may result in client dissatisfaction and delay or
loss of product revenues. If we are unable, for technological or other reasons,
to develop and introduce new products or enhancements of existing products in a
timely manner in response to changing market conditions or client requirements,
or if new products or new versions of existing products do not achieve market
acceptance, our business would be seriously harmed. In addition, our ability to
develop new products and product enhancements is dependent upon the products of
other software vendors, including certain system software vendors, such as
Microsoft Corporation, database vendors and development tool vendors. If the
products of such vendors have design defects or flaws, or if such products are
unexpectedly delayed in their introduction, our business could be seriously
harmed. Software products as
14
complex as those offered by us may contain undetected defects or errors when
first introduced or as new versions are released. Although we have not
experienced adverse effects resulting from any software errors, we cannot assure
you that, despite testing by us and our clients, defects or errors will not be
found in new products after commencement of commercial shipments, resulting in
loss of or delay in market acceptance, which could seriously harm our business.
IF OUR RELATIONSHIP WITH INTERACTIVE DATA IS TERMINATED, OUR BUSINESS MAY BE
HARMED.
Many of our clients use our proprietary interface to electronically retrieve
pricing and other data from Interactive Data. Interactive Data pays us a
commission based on their revenues from providing this data to our clients. Our
software products have been customized to be compatible with their system and
this software would need to be redesigned if their services were unavailable for
any reason. Termination of our agreement with Interactive Data would require at
least two years notice by either us or them, or 90 days in the case of material
breach. If our relationship with Interactive Data were terminated or their
services were unavailable to our clients for any reason, replacing these
services could be costly and time consuming.
WE FACE INTENSE COMPETITION.
The market for investment management software is intensely competitive and
highly fragmented, subject to rapid change and highly sensitive to new product
introductions and marketing efforts by industry participants. Our competitors
include providers of software and related services as well as providers of
timeshare services.
Our competitors vary in size, scope of services offered and platforms
supported. In addition, we compete indirectly with existing and potential
clients, many of whom develop their own software for their particular needs and
therefore may be reluctant to license software products offered by independent
vendors like us. Many of our competitors have longer operating histories and
greater financial, technical, sales and marketing resources than we do. In
addition, we also face competition from potential new entrants into our market
who may develop innovative technologies or business models. We cannot guarantee
that we will be able to compete successfully against current and future
competitors or that competitive pressures will not result in price reductions,
reduced operating margins and loss of market share, any one of which could
seriously harm our business.
WE FACE CHALLENGES IN EXPANDING OUR INTERNATIONAL OPERATIONS.
We market and sell our products in the United States and, to a lesser
extent, internationally. In November 1998, we established a subsidiary located
in Australia, Advent Australia Pty. Ltd., to market and license our products in
Australia. In addition, we entered into a distributor relationship in 1999 with
Advent Europe, an independent distributor of our products in selected European
markets. In November 2001, we acquired the Norwegian, Swedish, and Danish
companies of this independent distributor. In order to further expand our
international operations, we will need to continue to establish additional
facilities, acquire other businesses or enter into additional distribution
relationships in other parts of the world. The expansion of our existing
international operations and entry into additional international markets will
require significant management attention and financial resources. We cannot be
certain that our establishment of facilities in other countries will produce
desired levels of revenue. We currently have limited experience in developing
localized versions of our products and marketing and distributing our products
internationally. In addition, international operations are subject to other
inherent risks, including:
o The impact of recessions in economies outside the United States;
o Greater difficulty in accounts receivable collection and longer
collection periods;
o Unexpected changes in regulatory requirements;
o Difficulties in successfully adapting our products to the language,
regulatory and technology standards of other countries;
o Difficulties and costs of staffing and managing foreign operations;
o Reduced protection for intellectual property rights in some
countries;
o Potentially adverse tax consequences; and
o Political and economic instability.
The revenues, expenses, assets and liabilities of our international
subsidiaries are primarily denominated in local currencies. We have not
historically undertaken foreign exchange hedging transactions to cover potential
foreign currency exposure. Future fluctuations in currency exchange rates may
adversely affect revenues from international sales and the U.S. dollar value of
our
15
foreign subsidiaries' revenues, expenses, assets and liabilities. Our
international revenues from our distributors are generally denominated in U.S.
dollars.
UNDETECTED SOFTWARE ERRORS OR FAILURES FOUND IN NEW PRODUCTS MAY RESULT IN LOSS
OF OR DELAY IN MARKET ACCEPTANCE OF OUR PRODUCTS THAT COULD SERIOUSLY HARM OUR
BUSINESS.
Our products may contain undetected software errors or failures when first
introduced or as new versions are released. Despite testing by us and by current
and potential customers, errors may not be found in new products until after
commencement of commercial shipments, resulting in loss of or a delay in market
acceptance, which could seriously harm our business.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY WE MAY BE SUBJECT TO
INCREASED COMPETITION THAT COULD SERIOUSLY HARM OUR BUSINESS.
Our success depends significantly upon our proprietary technology. We
currently rely on a combination of copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect our proprietary
rights. We have registered trademarks for many of our products and services and
will continue to evaluate the registration of additional trademarks as
appropriate. We generally enter into confidentiality agreements with our
employees and with our resellers and customers. We seek to protect our software,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection. Despite these efforts, it may be possible
for unauthorized third parties to copy certain portions of our products or to
reverse engineer or otherwise obtain and use our proprietary information. We do
not have any patents, and existing copyright laws afford only limited
protection. In addition, we cannot be certain that others will not develop
substantially equivalent or superseding proprietary technology, or that
equivalent products will not be marketed in competition with our products,
thereby substantially reducing the value of our proprietary rights. We cannot
assure you that we will develop proprietary products or technologies that are
patentable, that any patent, if issued, would provide us with any competitive
advantages or would not be challenged by third parties, or that the patents of
others will not adversely affect our ability to do business.
Litigation may be necessary to protect our proprietary technology. This
litigation may be time-consuming and expensive. Despite our efforts to protect
our proprietary rights, unauthorized parties may attempt to copy aspects of our
products or to obtain and use information that we regard as proprietary. In
addition, the laws of some foreign countries do not protect proprietary rights
to as great an extent as do the laws of the United States. We cannot assure you
that our means of protecting our proprietary rights will be adequate or that our
competitors will not independently develop similar technology, duplicate our
products or design around any patent that may be issued to us or other
intellectual property rights of ours.
WE MUST RETAIN KEY EMPLOYEES AND RECRUIT QUALIFIED TECHNICAL AND SALES
PERSONNEL.
We believe that our success will depend on the continued employment of our
senior management and key technical personnel, none of who has an employment
agreement with us. Additionally, our continued success depends, in part, on our
ability to identify, attract, motivate and retain qualified technical, sales and
other personnel. Because our future success is dependent on our ability to
continue to enhance and introduce new products, we are particularly dependent on
our ability to identify, attract, motivate and retain qualified engineers with
the requisite education, backgrounds and industry experience. Competition for
qualified engineers, particularly in Northern California and the San Francisco
Bay Area, is intense. The loss of the services of a significant number of our
engineers or sales people could be disruptive to our development efforts or
business relationships and could seriously harm our business.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks, including changes in foreign
currency exchange rates and interest rates. Much of our revenue and capital
spending is transacted in U.S. dollars. However, since the formation of our
subsidiaries in Australia and Scandinavia, whose revenues, expenses and capital
spending are transacted in local currencies, we have greater exposure to foreign
currency fluctuations. Results of operations from our international subsidiaries
are not material to our operating results; therefore, we believe that foreign
currency exchange rates should not materially adversely affect our overall
financial position, results of operations or cash flows. We believe that the
fair value of our investment portfolio or related income would not be
significantly impacted by increases or decreases in interest rates due mainly to
the short-term nature of our investment portfolio. However, immediate sharp
increases in interest rates could have a material adverse affect on the fair
value of our investment portfolio. Conversely, immediate sharp declines in
interest rates could seriously harm interest earnings of our investment
portfolio.
16
The table below presents principal amounts by expected maturity (in U.S.
dollars) and related weighted average interest rates by year of maturity for our
investment portfolio.
ESTIMATED FAIR VALUE
AT DECEMBER 31,
2002 2003 2004 Total
Federal Instruments $ 18,250,000 $ 11,750,000 $ 6,000,000 $ 36,000,000
Weighted Average Interest Rate 3.76 3.01 3.96 3.55
Commercial Paper & Short-term obligations $ 92,970,000 $ - $ - $ 92,970,000
Weighted Average Interest Rate 2.16 2.16
Corporate Notes & Bonds $ 30,401,000 $ 12,735,000 $ 4,381,000 $ 47,517,000
Weighted Average Interest Rate 5.20 6.23 7.26 5.68
Municipal Notes & Bonds $ 4,000,000 $ 22,400,000 $ 1,500,000 $ 27,900,000
Weighted Average Interest Rate 4.50 5.58 5.25 5.44
--------------------------------------------------------------
TOTAL PORTFOLIO, EXCLUDING EQUITY SECURITIES $ 145,621,000 $ 46,885,000 $ 11,881,000 $ 204,387,000
At December 31, 2001, cash, cash equivalents and short-term marketable
securities totaled approximately $288.6 million, which is comprised of the
$204.4 million in our investment portfolio presented above and an additional
$84.2 million in cash and cash equivalents.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(1) Financial Statements.
The following financial statements of Advent and the Report of
Independent Accountants are incorporated by reference to page 36
through 56 of our 2001 Annual Report to Stockholders:
Consolidated Balance Sheets - December 31, 2001 and 2000
Consolidated Statements of Income and Comprehensive Income -
Years Ended December 31, 2001, 2000, and 1999
Consolidated Statements of Stockholders' Equity - Years Ended
December 31, 2001, 2000, and 1999
Consolidated Statements of Cash Flows - Years Ended December
31, 2001, 2000, and 1999
Notes to Consolidated Financial Statements
Report of Independent Accountants
(2) Financial Statement Schedule.
The following financial statement schedule for the years ended
December 31, 2001, 2000, and 1999 is filed as part of this Form
10-K and should be read in conjunction with our Consolidated
Financial Statements.
Report of Independent Accountants S-1
17
Schedule II - Valuation and Qualifying Accounts S-2
Schedules not listed above have been omitted because they are
not applicable or are not required or because the required
information is included in the Consolidated Financial Statements or
Notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Certain information required by Part III is omitted from this Form 10-K in
that the Registrant will file a definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended, ("Proxy
Statement") not later than 120 days after the end of the fiscal year covered by
this Form 10-K and certain information included therein is incorporated herein
by reference. Only those sections of the Proxy Statement that specifically
address the items set forth herein are incorporated by reference and such
incorporation does not include, specifically, the Performance Graph included in
such Proxy Statement.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item relating to our directors and nominees
and disclosure relating to compliance with Section 16(a) of the Securities
Exchange Act of 1934 ("Exchange Act") is included under the captions "Election
of Directors" and "Compliance with Section 16(a) of the Exchange Act" in our
Proxy Statement for the 2002 Annual Meeting of Stockholders and is incorporated
by reference. The information required by this item relating to our executive
officers and key employees is included under the caption "Executive Officers of
the Registrant" under Item 4 in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference to our Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is incorporated by reference to our Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is incorporated by reference to our Proxy
Statement.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Form 10-K:
1. Consolidated Financial Statements required to be filed
by Item 8 of Form 10-K. See the list of Financial
Statements contained in Item 8 of this Report.
2. Financial Statement Schedule required to be filed by
Item 8 of Form 10-K. See the list of Financial Statement
Schedule contained in Item 8 of this Report.
3. Exhibits.
The Exhibits listed on the accompanying Index to
Exhibits immediately following the financial statement
schedules are filed as part of, or incorporated by
reference into, this Form 10-K.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
-------- ------------------------------------------------
18
2.1++++ Agreement and Plan of Merger by and among Advent
Software, Inc., Kayak Acquisition Corp, and
Kinexus Corporation dated as of December 31,
2001.
3.1**** Second Amended and Restated Certificate of Incorporation of Registrant.
3.2*** Amended and Restated Bylaws of Registrant.
4.1+ Specimen Common Stock Certificate of Registrant.
10.1+ Form of Indemnification Agreement for Executive Officers and Directors.
10.2++ 1992 Stock Plan, as amended.
10.3+ 1993 Profit Sharing & Employee Savings Plan, as amended.
10.4+ 1995 Employee Stock Purchase Plan.
10.5+++ 1995 Director Option Plan.
10.6 2002 Stock Option Plan
10.7+ Severance Agreement between Advent and Peter M. Caswell dated December
10, 1993.
10.8+* Agreement between Advent and Interactive Data
Corporation dated January 1, 1995.
10.9** Office Lease dated August 1, 1998, between SOMA Partners, L.P. and
Advent for facilities located at 301 Brannan in San Francisco,
California.
10.10*** Office Lease dated July 22, 1999, between 405
Lexington, L.L.C. and Advent for facilities
located at 666 Third Avenue in New York, New
York.
13.1 Selected Portions of Advent Software, Inc.'s 2001 Annual Report to
Stockholders.
21.1 Subsidiaries of Advent.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1 Power of Attorney (included on page 19 of this Form 10-K).
----------
+ Incorporated by reference to the exhibit filed
with Advent's registration statement filed on Form
SB-2 (commission file number 33-97912-LA),
declared effective on November 15, 1995
++ Incorporated by reference to the exhibit filed
with Advent's registration statement filed on Form
S-8 on May 28, 1999.
+++ Incorporated by reference to the exhibit filed
with Advent's registration statement filed on Form
S-8 on August 11, 2000.
++++ Incorporated by reference to the exhibit filed
with Advent's report on Form 8-K filed February
28, 2002.
* Confidential treatment requested as to certain portions of this exhibit.
** Incorporated by reference to Advent's Annual Report on Form 10-K for the
year ended December 31, 1998.
*** Incorporated by reference to Advent's Annual
Report on Form 10-K for the year ended December
31, 1999.
**** Incorporated by reference to Advent's Annual
Report on Form 10K for the year ended December 31,
2000.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 15th day of March, 2002.
ADVENT SOFTWARE, INC.
By: /s/ Peter M. Caswell
---------------------
Peter M. Caswell
CHIEF EXECUTIVE OFFICER,
PRESIDENT AND DIRECTOR
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Caswell and Irv H. Lichtenwald, jointly
and severally, his or her attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
or her substitute or substitutes, may do or cause to be done by virtue hereof.
19
Pursuant to the requirements of the Securities Exchange Act of 1934 this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
---------------------------------- ------------------------------------- ---------------
/s/ Peter M. Caswell Chief Executive Officer, President March 15, 2002
-------------------- and Director
Peter M. Caswell (Principal Executive Officer)
/s/ Irv H. Lichtenwald Executive Vice President, Chief March 15, 2002
---------------------- Financial Officer and Secretary
Irv H. Lichtenwald (Principal Financial Officer)
/s/ Patricia Voll Vice President, Finance March 15, 2002
------------------ (Principal Accounting Officer)
Patricia Voll
/s/ Stephanie G. Dimarco Chairman of the Board and March 15, 2002
------------------------ Director
Stephanie G. DiMarco
/s/ Frank H. Robinson Director March 15, 2002
---------------------
Frank H. Robinson
/s/ Wendell G. Van Auken Director March 15, 2002
------------------------
Wendell G. Van Auken
/s/ William F. Zuendt Director March 15, 2002
---------------------
William F. Zuendt
/s/ Monte Zweben Director March 15, 2002
----------------
Monte Zweben
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Advent Software, Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 4, 2002, except for the matters discussed in Note 10, as to which
the date is February 14, 2002, which appear in Advent Software, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 2001, also included an audit
of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K.
In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PricewaterhouseCoopers LLP
San Jose, California
February 4, 2002
20
SCHEDULE II
ADVENT SOFTWARE, INC
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000, AND 2001
ADDITIONS
BALANCE AT CHARGED CHARGED BALANCE AT
BEGINNING TO TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSE ACCOUNTS DEDUCTIONS PERIOD
- ------------------------------------ --------------- -------------- ------------- -------------- -------------
Allowance for doubtful accounts:
1999 $ 362,000 $ 1,130,000 -- $ 776,000 $ 716,000
2000 $ 716,000 $ 1,154,000 -- $ 907,000 $ 963,000
2001 $ 963,000 $ 3,105,000 -- $ 1,348,000 $2,720,000
ADDITIONS
BALANCE AT CHARGED CHARGED BALANCE AT
BEGINNING TO TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSE ACCOUNTS DEDUCTIONS PERIOD
- ------------------------------------ --------------- ------------- ------------ ------------- -------------
Allowance for returns:
1999 $ 557,000 $ 1,890,000 -- $ 1,550,000 $ 897,000
2000 $ 897,000 $ 1,493,000 -- $ 1,210,000 $ 1,180,000
2001 $ 1,180,000 $ 1,935,000 -- $ 1,675,000 $ 1,440,000
21