Attached files

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EX-21 - LIST OF SUBSIDIARIES - INTERACTIVE DATA CORP/MA/dex21.htm
EX-31.1 - CERTIFICATION OF CEO PURSUANT TO SECTION 302 - INTERACTIVE DATA CORP/MA/dex311.htm
EX-31.2 - CERTIFICATION OF CFO PURSUANT TO SECTION 302 - INTERACTIVE DATA CORP/MA/dex312.htm
EX-10.32 - FORM OF SPONSOR DIRECTOR INDEMNIFICATION AGREEMENT - INTERACTIVE DATA CORP/MA/dex1032.htm
EX-10.24 - OPTION GRANT NOTICE AND AGREEMENT - INTERACTIVE DATA CORP/MA/dex1024.htm
EX-10.31 - INTERACTIVE DATA CORP. SEVERANCE PLAN - INTERACTIVE DATA CORP/MA/dex1031.htm
EX-10.30 - HEPSWORTH LETTER AGREEMENT - INTERACTIVE DATA CORP/MA/dex1030.htm
EX-10.29 - CONFIDENTIALITY, NON-INTERFERENCE AND INVENTION ASSIGNMENT AGREEMENT - INTERACTIVE DATA CORP/MA/dex1029.htm
EX-10.33 - SPONSOR AGREEMENT - INTERACTIVE DATA CORP/MA/dex1033.htm
EX-10.35 - IGLOO HOLDINGS CORP. AMENDMENT NO.2 TO 2010 STOCK INCENTIVE PLAN - INTERACTIVE DATA CORP/MA/dex1035.htm
EX-10.28 - EMPLOYMENT AGREEMENT, RAY D'ARCY - INTERACTIVE DATA CORP/MA/dex1028.htm
EX-10.27 - OPTION GRANT NOTICE AND AGREEMENT - INTERACTIVE DATA CORP/MA/dex1027.htm
EX-10.22 - EMPLOYMENT AGREEMENT, ALEXANDER GOOR - INTERACTIVE DATA CORP/MA/dex1022.htm
EX-10.25 - EMPLOYMENT AGREEMENT, JAY NADLER - INTERACTIVE DATA CORP/MA/dex1025.htm
EX-10.34 - FIRST REFINANCING AMENDMENT - INTERACTIVE DATA CORP/MA/dex1034.htm
EX-10.23 - CONFIDENTIALITY, NON-INTERFERENCE AND INVENTION ASSIGNMENT AGREEMENT - INTERACTIVE DATA CORP/MA/dex1023.htm
EX-10.26 - CONFIDENTIALITY, NON-INTERFERENCE AND INVENTION ASSIGNMENT AGREEMENT - INTERACTIVE DATA CORP/MA/dex1026.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-K

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 001-31555

Interactive Data Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   13-3668779

(State or other jurisdiction of

Incorporation or organization)

 

(I.R.S. Employer

Identification No.)

32 Crosby Drive

Bedford, Massachusetts

  01730
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (781) 687-8500

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  þ    No  ¨

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  þ    No  ¨

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 (§323.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    þ

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. (Check one):

Large accelerated filer  ¨            Accelerated filer  ¨             Non-accelerated filer  þ             Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ

The aggregate market value of the registrant’s voting and non-voting common stock held by non-affiliates (without admitting that any person whose shares are not included in such calculation is an affiliate for any other purpose) computed by reference to the price at which the common stock was last sold, as of the last business day of the registrant’s most recently completed second fiscal quarter was $1,254,968,934. As of March 28, 2011, there was no established public trading market for any of the common stock of the registrant. As of March 1, 2011, there were 10 shares of common stock of the registrant outstanding, all of which were owned by Igloo Intermediate Corporation.

Documents Incorporated by Reference: None

 

 

 


Table of Contents

TABLE OF CONTENTS

 

              Page  

PART I

  
  Item 1.   

Business

     1   
  Item 1A.   

Risk Factors

     10   
  Item 1B.   

Unresolved Staff Comments

     15   
  Item 2.   

Properties

     16   
  Item 3.   

Legal Proceedings

     16   
  Item 4.   

(Removed and Reserved)

     16   

PART II

  
  Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities      17   
  Item 6.    Selected Financial Data      18   
  Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      19   
  Item 7A.    Quantitative and Qualitative Disclosures about Market Risk      42   
  Item 8.    Financial Statements and Supplementary Data      43   
  Item 9.    Changes In and Disagreements With Accountants on Accounting and Financial Disclosure      97   
  Item 9A.    Controls and Procedures      97   
  Item 9B.    Other Information      97   

PART III

  
  Item 10.    Directors, Executive Officers and Corporate Governance      98   
  Item 11.    Executive Compensation      101   
  Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters      114   
  Item 13.    Certain Relationships and Related Transactions, and Director Independence      116   
  Item 14.    Principal Accountant Fees and Services      118   

PART IV

  
  Item 15.    Exhibits and Financial Statement Schedules      119   


Table of Contents

PART I

 

Item 1. Business

We are a leading provider of financial market data, analytics and related solutions that are used extensively by thousands of financial institutions and active traders, as well as hundreds of software and service providers. We are one of the world’s largest providers of financial data, serving the mutual fund, bank, money management, hedge fund, securities and financial instrument processing and administration sectors. We distribute our data and related offerings directly to customers and indirectly through value-added resellers (“VARs”), including software providers, processors and custodians.

On July 29, 2010, Interactive Data Corporation (“the Company”) was acquired in a merger (the “Merger”) by investment funds managed by Silver Lake Group, L.L.C. and Warburg Pincus LLC (“the Sponsors”). As further discussed in Note 1 “Summary of Significant Accounting Polices” and Note 3 “Merger”, in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, the Company is wholly-owned by Igloo Intermediate Corporation (“Intermediate”), which is wholly owned by Igloo Holdings Corporation (“Holdings”). Approximately 98% of the capital stock of Holdings is owned by investment funds affiliated with, and a co-investment vehicle controlled by, the Sponsors.

This Business Section and the consolidated financial statements of the Company following the Merger exclude the accounts of Intermediate and Holdings. The Company continued as the surviving corporation after the Merger and the accompanying Consolidated Financial Statements included elsewhere in this annual report on Form 10-K are presented for the period prior to the Merger from January 1 to July 29, 2010 (referred to as the Predecessor period) and the period following the Merger from July 30 to December 31, 2010 (referred to as the Successor period). Our discussion in this Business Section as well as in the Management Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) includes the sum of the results of the Predecessor period and Successor period on a combined basis, referred to as Combined 2010 or the combined year ended December 31, 2010. This presentation is not in accordance with generally accepted accounting principles in the United States (“GAAP”). Due to purchase accounting adjustments, Combined 2010 results may not be comparable to 2009 results. The Company believes that a presentation and discussion of Combined 2010 is meaningful as it enables a comparison to the comparable period in 2009.

Our financial reporting is currently based on four operating businesses that comprise two reportable operating segments: Institutional Services and Active Trader Services.

Institutional Services

Our Institutional Services segment primarily targets financial institutions such as banks, brokerage firms, mutual fund companies, exchange traded fund (ETF) sponsors, hedge funds, insurance companies and asset management firms. In addition, our Institutional Services segment markets its offerings to financial information providers, information media companies, and value added resellers (VARs) such as software providers, processors, custodians and other outsourcing organizations. The Institutional Services segment is composed of three businesses:

Interactive Data Pricing and Reference Data. Our Pricing and Reference Data business provides an extensive range of financial market data services to approximately 6,000 clients, including securities and brokerage firms, mutual funds, pension funds, ETF sponsors, investment advisors, hedge funds and VARs. This business offers daily opinions of value, which we refer to as evaluated pricing, on approximately 2.8 million fixed income securities, international equities and other hard-to-value financial instruments. Complementing our evaluated pricing services is a wide range of listed markets pricing and descriptive information covering over seven million global financial instruments for use across the securities and financial instrument processing lifecycle. This business accounted for $513.8 million, or 64.5%, of our revenue for the combined year ended December 31, 2010.

Interactive Data Real-Time Services. Our Real-Time Services business provides over 1,600 clients with a range of offerings comprising two complementary product areas: real-time feeds and ultra low latency trading solutions; and customized, hosted web-based solutions for wealth management and other applications. Our real-time feeds offerings include consolidated high-speed and delayed data feeds covering over six million financial instruments from over 450 exchanges, trading venues and data sources worldwide. This product area also includes ultra low latency trading solutions through which we provide direct exchange access, proximity hosting and support services that facilitate ultra low latency electronic trading. Our wealth management product area designs, builds and hosts customized, web-based financial information systems that support wealth management and other software-as-a-service (SaaS) applications that are used primarily by financial institutions and infomedia companies. Interactive Data Real-Time Services accounted for $168.5 million, or 21.2%, of our revenue for the combined year ended December 31, 2010.

Interactive Data Fixed Income Analytics. Our Fixed Income Analytics business provides approximately 400 clients with fixed income data and sophisticated fixed income portfolio analytics to help manage risks and analyze the sources of risk and return. This business markets BondEdge® and other related offerings which are used by financial institutions to simulate various fixed income market environments to help forecast performance results, validate investment strategies against a variety of benchmark indices, conduct stress testing, generate dynamic risk measures and asset cash flows, and respond to customer and regulatory reporting requirements. This business accounted for $34.7 million, or 4.4%, of our revenue for the combined year ended December 31, 2010.

Active Trader Services

Our Active Trader Services segment targets active traders, individual investors and investment community professionals. We consider active traders to be investors who typically make their own investment decisions, trade frequently and may earn a substantial portion of their income from trading. The Active Trader Services segment is composed of one business:

Interactive Data Desktop Solutions. Our Interactive Data Desktop Solutions business, formerly known as eSignal, provides real-time financial market information and access to decision-support tools under the Interactive Data, eSignal, MarketQ and FutureSource brands. These offerings support a base of approximately 54,000 direct subscription terminals used by active traders, individual investors, financial advisors, other investment community professionals and corporations in their analysis of financial instruments traded on major markets worldwide, including equities, futures and commodities. This business accounted for $79.6 million, or 10.0%, of our revenue for the combined year ended December 31, 2010.

 

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For revenue, income from operations, identifiable assets and the relevant percentages for each of our segments, in addition to revenue and long-lived assets by geographic region, please refer to Note 14 “Segment Information” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

Forward-looking Statements

Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934 (the Exchange Act), are made throughout this Annual Report on Form 10-K. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,” and similar expressions are intended to identify forward-looking statements. Any forward-looking statements are based on management’s beliefs and assumptions and a number of important factors could cause our results to differ materially from those indicated by such forward-looking statements, including those detailed under the heading, “Risk Factors” in Item 1A in Part I. While we may elect to update forward-looking statements in the future, we specifically disclaim any obligation to do so, even if our estimates change, and investors should not rely on those forward-looking statements as representing our views as of any date subsequent to the date of the filing of this report.

Corporate History

Interactive Data Corporation (formerly known as Data Broadcasting Corporation) was incorporated in 1992 under the laws of the State of Delaware. On February 29, 2000, the businesses of Data Broadcasting Corporation (now known as Interactive Data Corporation), which included the eSignal (now known as Interactive Data Desktop Solutions) and CMS BondEdge (now known as Interactive Data Fixed Income Analytics) businesses, were merged with the historical and end-of-day pricing, evaluations and information business then known as Interactive Data Corporation (now known as Interactive Data Pricing and Reference Data), an entity which has been in the financial data business for over 40 years and at the time of the merger was 100% indirectly owned by Pearson plc. Principally as a result of this merger, Pearson plc indirectly owned approximately 61% of our issued and outstanding common stock. On July 29, 2010, the Company was acquired by investment funds managed by the Sponsors. Refer to Note 3 “Merger” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further discussion.

Since the merger of Data Broadcasting Corporation and Interactive Data Corporation, we have completed 12 acquisitions, which have served to either expand our existing businesses or enabled us to enter adjacent market segments. The following provides a brief description of each of these acquisitions:

 

   

In January 2002, we acquired from Merrill Lynch, Pierce, Fenner & Smith Incorporated certain assets used in its Securities Pricing Service business. These assets were integrated into our Interactive Data Pricing and Reference Data business.

 

   

In February 2003, we acquired from The McGraw-Hill Companies, Inc. the stock of S&P ComStock, Inc., and the non-U.S. assets of certain related businesses in the United Kingdom, France, Australia, Singapore and Hong Kong, collectively referred to as ComStock. ComStock was later renamed Interactive Data Real-Time Services.

 

   

In October 2003, we acquired the real-time data feed customer base of HyperFeed Technologies, Inc., a provider of enterprise-wide real-time data processing and transaction technology software and services. The HyperFeed customer base has been integrated into our Real-Time Services business.

 

   

In September 2004, we acquired the net assets of FutureSource, LLC, and its subsidiaries, or FutureSource, a leading provider of real-time futures and commodities data. The FutureSource assets were integrated into our Interactive Data Desktop Solutions business.

 

   

In December 2005, we acquired 95.1% of the stock of IS.Teledata AG and its subsidiaries, or IS.Teledata, a leading provider of customized, hosted web-based financial information solutions. In 2006, we subsequently acquired the remaining IS.Teledata shares from minority stockholders, increasing our total ownership in IS.Teledata to 100%. The IS.Teledata business was renamed Interactive Data Managed Solutions and now forms the foundation of our wealth management product area.

 

   

In March 2006, we acquired the net assets of Quote.com and certain other related assets from Lycos, Inc. These assets, which included subscription-based services for active traders, QCharts and LiveCharts, and financial websites, Quote.com and RagingBull.com, were integrated into our Interactive Data Desktop Solutions business.

 

   

In May 2007, we acquired the net assets comprising the market data division of Xcitek LLC (“Xcitek”), as well as the market data assets of its affiliate Xcitax LLC (“Xcitax”). These assets included a broad range of North American corporate actions data, such as reorganization, cost basis and class action data. These assets were integrated into our Interactive Data Pricing and Reference Data business.

 

   

In August 2008, we acquired Kler’s, a leading provider of reference data to the Italian financial industry, including corporate actions and taxation information on Italian and international securities, with coverage of equities, listed and unlisted Italian bonds, funds, simple derivatives and warrants. Kler’s now markets its services as Interactive Data Kler’s.

 

   

In December 2008, we acquired 80% of NDF from NTT DATA Corporation and certain other minority stockholders. In 2009, we subsequently acquired an additional 10% interest and we acquired the remaining outstanding equity in December 2010. NDF is a leading provider of securities pricing, reference data and related services to most of the major financial institutions in Japan. NDF has been renamed Interactive Data Japan KK.

 

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In December 2009, we acquired certain assets of Dow Jones & Company, Inc.’s Online Financial Solutions (“OFS”) business. The OFS assets are used to develop and host web-based solutions, including news, market data, research and advanced charting, portfolio management and alerting capabilities. We have since been integrating this business into our wealth management product area, which is part of our Real-Time Services business. Related OFS products and services are now marketed under the Interactive Data brand.

 

   

In January 2010, we acquired the assets of Dubai-based Telerate Systems Limited (“TSL”), a sales agent for desktop services from Interactive Data’s Interactive Data Desktop Solutions division to the commodities, financial futures and foreign exchange trading community in the Middle East. The TSL assets have been rebranded under the Interactive Data name. These assets have been integrated into our UK-based business.

 

   

In January 2010, we acquired the assets of 7ticks, an innovative provider of electronic trading networks and managed services. This business specializes in providing direct exchange access, proximity hosting, and support services that facilitate ultra low latency electronic trading. The 7ticks business operates as part of our Real-Time Services business. The 7ticks services are now marketed as Interactive Data 7ticks.

Industry Background

Financial industry participants utilize a broad range of financial market data and information services to support a wide range of critical business functions across their operations, including the valuation of financial instruments, investment decision-making and compliance with regulatory requirements. This financial market data includes real-time and historic pricing and evaluation information, reference data such as dividends, corporate actions and key descriptive information about securities and other related business or financial content. In addition, the financial services industry utilizes sophisticated decision-support tools to analyze market data, hosted solutions to facilitate cost-effective access to market data (or access to various applications that rely on or incorporate market data). In addition, financial industry participants also utilize infrastructure-related and other technology services that help facilitate ultra low latency access to market data and the execution of trading strategies and infrastructure-related and other technology services that facilitate the execution of trading strategies.

It is costly and complex for financial institutions, information media companies and others to directly obtain, aggregate, store, evaluate and distribute financial market data from the securities exchanges and other financial markets worldwide. In addition, financial institutions and other organizations using financial market data typically strive to consistently obtain their content in a timely manner without sacrificing quality or security. Further, financial institutions often seek to seamlessly integrate financial content from third parties into analytical tools used for investment research as well as into the systems used in their operational workflow to help address their customer service and support, sales and marketing, regulatory compliance and other business challenges. In addition, active traders, individual investors and investment community professionals seek real-time information and related tools to assist them in formulating, validating and executing their trading strategies.

Extensive expertise and technical knowledge about the financial market data industry are required to effectively obtain, aggregate, store, evaluate and distribute the volume and diversity of financial content utilized within the financial services industry. This expertise and knowledge is highly specialized and diverse, as are the underlying technical infrastructure and related systems for delivering such content and analytics to customers.

For these reasons, financial institutions and other organizations contract with financial market data service providers like ourselves that specialize in aggregating and delivering financial content directly from many sources around the world, including securities exchanges such as the New York Stock Exchange and the London Stock Exchange; other financial markets that encompass fixed income, foreign exchange and derivatives including options and futures; and information providers such as news services. Aggregating this data requires establishing relationships with each of these sources to acquire this data and creating a global technical infrastructure capable of collecting the source data and incorporating it into a uniform structure so that it can be delivered in a reliable, consistent and timely manner. In addition, specialized financial market data vendors like us invest significant resources to identify and mitigate source or other errors in reporting, collecting, aggregating, storing and distributing information to customers. Further, specialized financial market data vendors like ourselves produce content such as evaluations that can assist financial institutions in their efforts to value their holdings, particularly fixed income financial instruments, that trade infrequently, if at all, in the secondary market. Related to this, financial institutions may find it valuable to obtain this data from an independent third party like us who is not involved in the underlying securities transactions. In addition, as financial institutions develop, deploy and execute sophisticated automated trading programs, they are increasingly looking for specialist providers like us to offer ultra low latency connectivity between their trading systems and a broad range of stock exchanges and trading venues. Financial institutions may also seek third-party solutions providers like us to help them design, build and host certain parts of their web sites. These customized, hosted web-based solutions typically aggregate content from third-parties together with internal information to cost-effectively support their wealth management, sales and marketing, client service and various other activities. Moreover, to make timely decisions in support of their investment strategies, many customers access sophisticated analytics like ours, or they utilize financial information portals and terminals that integrate financial content from an extensive range of market sources as well as provide access to advanced analytical tools.

We believe we are well positioned to capitalize on a number of favorable industry dynamics, including increased regulation, greater oversight and scrutiny by regulators, a strengthening of fair value accounting standards, an intensified focus on risk management, and the increasing number of clients seeking secondary and tertiary independent valuations. These trends have driven and, we expect, will continue to drive increasing demand for independent, third-party valuation services such as ours, as clients move away from historical practices such as sourcing quotes from brokerage firms. We believe this dynamic will also drive additional demand for our data services and analytical tools in our clients’ front-, middle- and back-offices as institutions attempt to address transparency and risk management concerns. We also believe demand for transparency will increase internationally as regulatory practices and accounting standards converge, resulting in international firms increasing their use of valuation services from third-party vendors. In total, we expect these trends to have a positive impact on our Pricing and Reference Data business. We expect our Real-Time Services business, including our real-time feeds and wealth management product areas, to benefit from certain trends such as the growth in algorithmic trading, favorable demographic shifts including the long-term growth in savings and investments as the baby boomer population ages, changes in the investment practices and regulatory structures in emerging international markets and the continued outsourcing of wealth management functions to third-party SaaS providers like ourselves by financial institutions.

 

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Services and Customers

We offer our financial market data services, analytics and related solutions to financial institutions and active traders, as well as software and service providers. Our businesses address the needs of these customers by providing time-sensitive, high-quality information regarding a broad spectrum of securities, commodities and derivative instruments as well as access to sophisticated decision-support tools. We target our customers through the businesses within our Institutional Services and Active Trader segments. There is no single customer the loss of which would have a material adverse effect on our business. No single direct or indirect customer (when aggregated for VAR relationships) accounted for more than 5.5% of our revenue during each of the past three years (which for 2010 was considered on a Combined 2010 basis).

Institutional Services

Our Interactive Data Pricing and Reference Data, Real-Time Services and Fixed Income Analytics businesses primarily focus on addressing the needs of financial institutions for financial market data, analytics and related services. Our customer base includes many of the world’s largest financial institutions, including 47 of the top 50 U.S. banks, 47 of the top 50 global asset managers, all of the top 50 U.S. mutual funds and the top 15 global custodians. The number of institutional customers for each of our institutionally oriented businesses includes all legal entities directly subscribing to our offerings. Certain units, divisions, regional affiliates and certain business units within a single legal entity or organization are considered by us to be separate distinct customers when they separately subscribe to our products and services. The number of institutional customers for each of our institutionally oriented businesses varies from year to year based on several factors, including new sales to new customers, new customers resulting from acquisitions, customer cancellations, and the impact of the consolidation of customers. In addition, through our VAR relationships, we maintained interfaces to over 500 software applications, technology solutions, outsourcing-related services and web portals. These VARs sublicense or redistribute data typically to medium and small institutions, and individual investors.

Interactive Data Pricing and Reference Data

Our Pricing and Reference Data business provides an extensive range of financial market data services to approximately 6,000 clients, including securities and brokerage firms, mutual funds, pension funds, ETF sponsors, investment advisors, hedge funds and VARs. Pricing and Reference Data offerings include intraday, end-of-day and historical pricing, evaluations and reference data for an extensive range of securities, commodities, derivative instruments, indices and foreign exchange rates from around the world. The core services for this business include:

Evaluated Pricing:

 

   

We deliver an extensive range of daily opinions of value on approximately 2.8 million fixed income securities, international equities and other hard-to-value financial instruments. Our evaluated prices are the result of developing and refining our proprietary processes and methodologies that combine sophisticated modeling techniques developed by our quantitative methodologists including math, finance, physics and statistics PhDs; information from an extensive range of market sources; and a team of approximately 180 skilled evaluators who integrate relative credit information, observed market movements and sector news into our evaluated pricing applications and models. Given that many fixed income securities and other financial instruments trade infrequently, if at all, in the secondary market, our evaluated prices represent our good faith opinion of the price a buyer in the marketplace would pay for certain fixed income securities and financial instruments (typically in an institutional round lot position) in a current sale. Our evaluated pricing services are typically used along with our listed markets pricing for asset and portfolio valuation (such as end-of-day mutual fund net asset values (“NAVs”), and risk management applications.

 

   

Our evaluated pricing coverage includes securities and financial instruments issued in North America such as corporate, government, municipal and agency fixed income securities, convertible bonds, debentures, pass-through securities and structured finance and foreign instruments issued in markets outside of North America such as convertible bonds, debentures, Eurobonds and sovereign and corporate bonds. Pricing and Reference Data’s evaluated pricing services also include our Fair Value Information ServiceSM through which we provide evaluations for certain international equity securities, equity options and equity index futures. The Fair Value Information Service is designed to provide customers with information that can be used to estimate a price for an international, exchange-traded issue that would likely prevail in a liquid market in view of information available at the time of evaluation.

Reference Data:

 

   

Complementing Pricing and Reference Data’s evaluated pricing services is a wide range of listed markets pricing and descriptive information covering over seven million global financial instruments for use across the financial instrument processing lifecycle. This content is supported by a global team of approximately 250 reference data collection professionals with language skills including English, German, French, Spanish, Portuguese, Italian, Mandarin, Japanese, Korean, Thai and Indonesian. Our reference data covers:

 

   

Listed and Non-listed Markets Pricing: Extensive, high-quality intraday, end-of-day and historical global pricing for securities typically used for portfolio valuation and risk management applications;

 

   

Corporate Actions: End-of-day and intraday corporate actions and income-related information such as capitalization changes, dividends, splits, earnings, shares outstanding and changes in credit ratings for fixed income and equity securities;

 

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Terms and Conditions: Key terms and conditions for fixed income financial instruments such as call, put and interest payment information; and

 

   

Identification Information: Name, ticker symbol, CUSIP®, SEDOL®, etc.

The combination of Pricing and Reference Data’s listed markets pricing information, evaluated pricing and Fair Value Information Services help mutual funds, pension funds, custodians, and asset managers to value their holdings. For example, each U.S. mutual fund has a regulatory obligation to determine the fund’s NAV each trading day. The NAV is the price per share for all investments in and redemptions from the mutual fund for that day. Many mutual funds consider the pricing and evaluation data we provide as an important input to their own daily valuation determinations, and we believe we are the leading provider of market data that supports the NAV calculation processes within the U.S. mutual fund industry.

Financial institutions also utilize Pricing and Reference Data content to support an array of other applications. For example, our reference data is used by financial services firms to settle purchases and sales of financial instruments, and prepare reports and account statements internally and for clients. In addition, financial institutions utilize Pricing and Reference Data’s securities information as they perform activities required to meet various regulatory requirements. Intraday, end-of-day and historical data from this business is also used by customers to research investment decisions.

This business has developed proprietary methods for receiving and packaging source data. In addition, when practicable, teams of professionals work to enhance the quality and completeness of the data before it is delivered to customers. Our customers receive a majority of their data through computer-to-computer links and Internet-based applications. This business also works closely with redistributors who typically use their own delivery systems or serve as an interface between their clients’ and our delivery systems to redistribute and/or process the data provided by this business. We design Pricing and Reference Data’s data feeds to be compatible with third-party software applications and standard industry protocols to allow institutional customers to integrate these data feeds into their infrastructures. At the same time, our offerings are typically tightly integrated into our customers’ systems and workflows, often as the result of significant historical investment by these customers. Our business continues to refine and enhance its proprietary methodologies for evaluating fixed income financial instruments by combining sophisticated modeling techniques, information from market sources and teams of skilled evaluators who integrate relative credit information, observed market movements and sector news into the evaluated pricing applications and models.

Our Pricing and Reference Data business is regarded as the top provider in the pricing and valuations services sector based on research compiled by Aite Group in November 2009. To capitalize on growth opportunities in this market segment, Pricing and Reference Data business actively seeks to enhance its existing services and develop new offerings by establishing business alliances, automating key data collection and evaluation processes, expanding its data coverage, (particularly in the area of hard-to-value financial instruments), increasing the delivery frequency of its services and adding new capabilities including those designed to assist customers with their operational workflow and regulatory compliance challenges.

Real-Time Services

Our Real-Time Services business provides over 1,600 clients with a range of offerings comprising two complementary product areas: real-time feeds and ultra low latency trading solutions; and customized, hosted web-based solutions for wealth management and other applications. The core services for this business include:

Real-Time Feeds:

 

   

Our real-time feeds offerings provide cost-effective access to disparate real-time data sources without having to maintain direct connections. Through our PlusFeedSM service, customers receive consolidated real-time and/or delayed financial data from over 450 global exchanges, trading venues and data sources covering listed and OTC securities. Our Real-Time Services business offers a variety of delivery methods for PlusFeed, including client site deployed solutions with leased-line connectivity, hosted Internet delivery via a secure virtual private network (PlusFeed VPN) and a secure leased-line connection for cost-effective access to a specified “watch-list” of instruments (PlusFeed Select). Over the years, we have invested considerable resources to improve PlusFeed’s latency, which we define as the time it takes for information to be received from a stock exchange and redistributed to a client. Our PlusFeed service is complemented by PlusTickSM, which provides financial institutions with access to tick and trade data for global securities in order to assist them in their compliance with “best execution” requirements, transaction cost analysis and advanced charting applications.

 

   

Our real-time feeds product area also includes ultra low latency trading solutions in which we provide direct exchange access, proximity hosting and support services that facilitate ultra low latency electronic trading. These solutions enable a broad range of financial institutions to execute their automated trading programs by offering ultra low latency connectivity between their trading systems and a broad range of stock exchanges and trading venues. We gained this capability through the January 2010 acquisition of 7ticks and we now market these offerings as Interactive Data 7ticks.

Wealth Management:

 

   

Our wealth management product area is focused on designing, building and hosting customized, web-based financial information solutions primarily for financial institutions and infomedia companies. Our wealth management offerings consist of financial market data, access to decision-support tools and hosting services. These offerings utilize a flexible web services architecture designed to meet the needs of our customers, from consumer portals to the front-, middle- and back-office professionals within financial institutions.

 

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The primary wealth management offerings are PrimePortal, PrimeTerminal and Market-Q. PrimePortal is a customized, web-based application that displays market data. PrimeTerminal and Market-Q are hosted market data terminals sold in Europe and North America, respectively (Market-Q was developed by Interactive Data Desktop Solutions and revenue from that product is allocated to the Desktop Solutions business). All of these offerings aggregate content that may be sourced from both the customer and from a number of information providers, including us, and then tailor the visual display of the content to the needs and specifications of clients. By using a SaaS business model for our web-based hosted solutions, we enable clients to lower expenses by reducing the need for owning and maintaining costly IT infrastructure and managing market data volumes. In addition, by developing modules that can be customized to the specific needs of clients, our wealth management offerings can reduce the customer’s need to devote development resources to these projects. Often our web-based financial information solutions are integrated into critical customer workflows, which promotes increased customer loyalty.

Our Real-Time Services business continually seeks to expand its market coverage by adding new stock exchanges, financial markets and news sources. We are also making enhancements to our services designed to ease the challenges faced by our customers related to managing rising market data volumes and reducing data latency. In addition, we are adding capabilities that can make it easier for clients to implement our services, with an emphasis on helping clients transition from their incumbent suppliers. We also plan to support the expansion of our ultra low latency trading solutions by continuing to increase its U.S. equities coverage and extending further into Asia and Europe. In addition, we expect to enhance our suite of customized, web-based hosted solutions for wealth management applications by developing new tools for displaying and analyzing investment portfolios, adding new capabilities to identify a broader range of derivative instruments, options, futures and investment funds, and by creating new statistical and analytics tools designed to enable customers to better track the performance of their investments.

Fixed Income Analytics

Our Fixed Income Analytics business provides approximately 400 financial institutions with fixed income data and sophisticated fixed income portfolio analytics to help manage risks and analyze the sources of risk and return. These offerings are used by financial institutions to simulate various fixed income market environments to help forecast performance results, validate investment strategies against a variety of benchmark indices, conduct stress testing, generate dynamic risk measures, analyze asset cash flows and support the customers compliance with certain state regulatory reporting requirements. The core services for this business include the following:

 

   

Fixed Income Analytics’s flagship offering is BondEdge®, which provides access to interest rate and credit risk management tools, access to an extensive global fixed income financial instruments database as well as regulatory reporting and compliance tools. BondEdge interfaces with many of the major third-party accounting and asset/liability software packages, in order to reduce duplicate manual data entry and to facilitate improved accuracy and efficiency within an organization. Our Fixed Income Analytics customers are provided access to daily financial market data updates via the Internet to assist in the creation of high-quality analytic calculations and reports. The primary users of BondEdge within these financial institutions are fixed income portfolio managers who invest in or sell fixed income financial instruments, particularly complex securities. During the past two years, we have upgraded our BondEdge service to offer improved functionality including new options such as a set of Application Programming Interface tools that extend its utility across a wider customer base. BondEdge is offered via an array of delivery options, including client-server (BondEdge), ASP/Internet accessible (eBondEdge®) and local area network/wide area network configurations (BondEdge ES). In 2010, Fixed Income Analytics introduced BondEdge® OnDemand, a fully-hosted offering that provides clients an alternative to installing and managing BondEdge as an in-house application.

 

   

Fixed Income Analytics also provides a service bureau offering, BondEdge BureauSM, whereby Fixed Income Analytics professionals run BondEdge on behalf of customers and provide customers with certain fixed income portfolio analysis and risk management information. In addition, this business markets BondEdge FeedSM (which has also been marketed as Analytix DirectSM in the U.S.), a fixed income data feed service that provides a variety of risk measures independent of a dedicated software application. This service is designed to meet the needs of large financial institutions that operate centralized data warehouses to support multiple departments and various applications throughout the institution.

Active Trader Services

Our Desktop Solutions business, formerly known as eSignal, targets active traders, financial advisors, individual investors, investment community professionals and corporations.

Desktop Solutions

Our Interactive Data Desktop Solutions business, formally known as eSignal, provides real-time financial market information and access to decision-support tools under the Interactive Data, eSignal, MarketQ and FutureSource brands. These offerings support a base of approximately 54,000 direct subscription terminals used by active traders, individual investors, financial advisors, other investment community professionals and corporations in their analysis of financial instruments traded on major markets worldwide, including equities, futures and commodities. The core services for this business include:

 

   

Subscription services targeting active traders including its eSignal-branded workstation and related offerings such as eSignal®, eSignal Advanced GET® Edition, eSignal OnDemand, LiveCharts®, QCharts®, eSignal Market ScannersSM and Interactive Data Mobile (formerly known as Quotrek) for wireless access to real-time streaming market data;

 

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Real-time market data platforms designed for corporations, financial advisors and other investment community professionals: eSignal®, FutureSource® Workstation and the web-based Market-QSM desktop solution; and

 

   

Trading education services aimed at active traders through its eSignal Learning seminar offerings.

The financial data available to these subscribers includes equities, options, commodities, derivative instrument data, single stock futures, indices, market depth from various major exchanges including the NASDAQ Stock Market, the New York Stock Exchange, the Chicago Mercantile Exchange and the Chicago Board of Trade, as well as ECN and foreign exchange market information, fixed income data, mutual fund data and money market data. In addition, subscribers receive access to decision-support tools including historical databases, technical charting, customizable analytics, back testing, portfolio tracking and news and commentary. Although Desktop Solutions has historically targeted active traders (which we define as investors who typically make their own investment decisions, trade frequently and may earn a substantial portion of their income from trading), this business has experienced increased institutional interest in certain offerings in recent years.

Business Strategy

We are focused on expanding our position as a trusted leader in financial information services market. A key element of our strategy involves working closely with our largest direct institutional customers and redistributors to better understand and address their current and future financial market data needs. By better understanding customer needs, we believe we can develop enhancements to existing services and introduce new services. As part of our efforts to build strong customer relationships, we continue to invest significant resources to provide high-quality, responsive customer support and service. We believe that our combination of strong account management and responsive customer support has contributed to our high customer retention rates within our Institutional Services segment, as well as enhanced our ability to attract new customers.

We plan to expand on our leadership position in the financial information industry by investing in internal development programs in ways that can enable us to deliver high-value services and solutions and extend our global reach. In addition, strategic acquisitions have complemented our internal investment activities in the past and we may elect to pursue certain strategic acquisitions in the future in order to achieve key business objectives in the future. In addition, we plan to advance programs that can further improve our technical infrastructure, increase our operational efficiency and optimize our cost structure. Our business has historically generated a high level of recurring revenue and cash flow from operations. We have historically invested our financial resources in organic growth initiatives and strategic acquisitions. As a result of the Merger, we have incurred significant debt and our payment obligations for our debt will reduce our cash flow. However, even given these new uses of cash, we believe our business will continue to generate sufficient cash flow from operations to fund our currently planned, growth-oriented initiatives as well as other elements of our strategy.

Marketing

To support the sales efforts of our businesses, we implement a range of promotional and lead generating activities such as public relations, direct mail, email, seminars, targeted trade shows and customer-oriented events (both in person and online), community involvement and advertising. Our marketing initiatives also include advertising in leading vertical publications and on the Internet, publishing newsletters, issuing press releases and having our executives and managers quoted in various articles. When possible, our businesses coordinate sales, marketing and development activities to cost-effectively address the needs of mutual customers in a timely manner. We also work closely with VARs and other business partners to jointly market our services to current and prospective customers.

Specific marketing strategies within our Institutional Services and Active Trader Services segments include:

Institutional Services

In recent years, we have implemented a range of global marketing initiatives to reinforce our value proposition and emphasize the “Interactive Data” brand to institutional clients. Our institutionally oriented sales teams possess specialized industry and product expertise. They provide on-site and remote demonstrations of our services and interact directly with our customers and prospects. In 2011, we intend to continue to monitor changes in our industry and the evolving needs of our customers. We will also continue to foster our long-standing customer relationships and work closely with our institutional customers to identify new sales opportunities, and better leverage and coordinate selling efforts across our organization.

Active Trader Services

Each of the core Active Trader Services offerings is marketed by sales and product support specialists within our Desktop Solutions organization. These offerings are supported by our Desktop Solutions business through the promotional campaigns discussed above as well as through third-party developer relationships that market our various Desktop Solutions offerings to their customers. We also invite third-party software developers to write software that is compatible with our systems and ask trading educators to consider use of our services in their seminars. In addition to direct sales, re-distributor channel partners are an important source of new subscribers.

Competition

The market for providing financial market data, analytics and related services is highly competitive in each of our business segments. Some of our established competitors have greater financial, technical, sales, marketing, and support resources, and are able to devote more significant resources to the research and development of new services than we can. In addition, these competitors may have diverse service-line offerings that allow them the flexibility to price their services more aggressively. Some of our competitors also have more extensive customer bases and broader customer relationships than we do, including relationships with prospective customers in their local geographies. Another challenge includes customers self-sourcing financial data and news directly from brokers, exchanges and news services. Across our businesses, we believe that our primary competitive advantages include the following:

 

   

Our timely and reliable delivery and the quality and breadth of coverage of our data and related services compared with those of our competitors;

 

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Our ability to expand and customize our data and related services to meet the current and evolving needs of our customers;

 

   

Our expertise and experience in each of our core businesses, which further enhances our ability to deliver market data and analytic services using a variety of delivery platforms and technologies, and to cost-effectively integrate this content into the operational workflow of our customers;

 

   

Our ability to deliver our data and related services using a variety of delivery platforms and technologies, and to cost-effectively integrate our data and related services into the operational workflow of our customers;

 

   

Our ability to timely launch new services in response to the needs of our customers;

 

   

Our high-quality customer service and support; and

 

   

Our VAR network, which adds significant distribution scale and enables us to contract, either directly or indirectly, with small- and medium-sized customers.

Institutional Services

Competition within our Institutional Services segment ranges from large, established suppliers of news and financial data to smaller, more specialized vendors.

Pricing and Reference Data

The main competitors with respect to our institutionally oriented Pricing and Reference Data business include large global suppliers of financial and business news and financial market data such as Thomson Reuters Corporation, SIX Telekurs, S&P Valuation Services and Bloomberg L.P. Additionally, competitors in structured products, derivatives and other complex, esoteric securities include Markit Group Limited, J.P. Morgan Pricing Direct (formerly Bear Stearns Pricing Direct), Pricing Partners, and SuperDerivatives.

Real-Time Services

The main competitors with respect to our institutionally oriented real-time feeds include Thomson Reuters Corporation, Bloomberg L.P., SIX Telekurs, Morningstar and Activ Financial. Competitors in the ultra low latency trading solutions area include global managed services providers such as BT Radianz, Savvis and NYSE Technologies. Competitors targeting the wealth management operations of financial institutions include workstation providers such as Thomson Reuters Corporation, FactSet Research Systems Inc., SIX Telekurs and Morningstar. Other specialist hosted solutions providers include Wall Street on Demand (recently acquired by Markit Group Limited) and Quote Media.

Fixed Income Analytics

As a specialty service provider, Interactive Data Fixed Income Analytics competes against other financial services analytical software companies such as FactSet Research Systems Inc. (as a result of its 2005 acquisition of Derivative Solutions Inc.), The Yield Book, Inc., (a wholly owned subsidiary of Citigroup Capital Markets), Barclays Bank PLC’s POINT® (as a result of its acquisition of Lehman Brothers) and Wilshire Associates Incorporated. Other competition unique to this business includes the use of specialized spreadsheet applications, and financial institutions that develop their own in-house software solutions. We believe that additional competitive advantages are that our Fixed Income Analytics offerings include analytics that are independent of a brokerage or asset management firm, advanced modeling analytics that enable evaluation of fixed income financial instruments individually or in a portfolio context, a data feed service that support data warehouse applications and flexible reporting capabilities.

Active Trader Services

Within the Active Trader Services segment of our business, our Desktop Solutions business competes against numerous competitors including CQG, Inc., DTN Holding Company, Inc. (a business owned by Telvent), Thomson Reuters, TradeStation, Realtick (part of Convergex Group) and other smaller vendors, as well as online and traditional brokerage businesses that have developed their own analytics tools for active traders. However, in addition to the advantages cited above, we also believe that our other competitive advantages with respect to our Active Trader services include price, ease of use, compatibility with third-party software packages and analytics that are independent of a brokerage or asset management firm yet provide access to these firms.

Technology Infrastructure

Our global technology infrastructure and operations support all the segments of our business. As we move forward, we are upgrading and consolidating our extensive content databases and delivery platforms to more effectively support our broad range of service offerings, accelerate time to market for new services and better leverage the combined capabilities of the different product groups across our

 

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organization. In addition, we are also in the process of enhancing our global real-time network and related processing capabilities to extend and leverage the Interactive Data 7ticks infrastructure. Across all segments of our business, we invest in technology oriented initiatives designed to further enhance the quality and expand the breadth of coverage in our data offerings, as well as the features and functionality of various product and service offerings.

Our technology infrastructure is designed to facilitate the reliable and efficient processing and delivery of data and analytics to customers worldwide. Our systems contain multiple layers of redundancy to enhance system performance, including maintaining, processing and storing data at multiple data centers. In our Real-Time Services business, user connections are load-balanced between our data centers and, in the event of a site failure, equipment problem or regional disaster, have the capacity to handle the additional load through the remaining data centers. We continue to be focused on maintaining a global technical infrastructure that allows us to support our growing businesses, and provide data and analytics using various delivery methods designed to meet the needs of our customers worldwide.

Intellectual Property

We maintain a portfolio of intellectual property, including registered and common law trademarks and service marks and copyrights. Additionally, we have three patents issued, one patent that has been approved for issuance and one patent pending. Our issued patents expire in August 2021, December 2022, and September 2027. We have rights to approximately 80 trademarks and service marks. We place significant emphasis on our branding and consider our trademark and service mark portfolio to be an important part of our ongoing branding initiative. In addition, we own the copyrights to our internally developed software applications and data delivery services (with the exception of certain rights unrelated to our business that we jointly own with Nookco as described below under the heading, “Related Party Transactions” in Part III of this Annual Report on Form 10-K). Other than with respect to the value of services marks and trademarks as described in Note 3, “Merger” in the Notes to the Consolidated Financial Statement Included in Item 8 of this Annual Report on Form 10-K, no single trademark, service mark, copyright, or patent, if lost, would materially adversely affect our business or our results of operations. License agreements, both as licensor with our customers and as licensee with suppliers of data, are important to our business.

New Products and Research and Development

Our business includes the development and introduction of new services and may include entry into new markets. We are not currently committed to any new services that require the investment of a material amount of our funds, nor do we have any definitive plans to enter new markets that would require such an investment.

Geographic Areas

Through subsidiaries and affiliates, we conduct business in numerous countries outside of the United States. Our international businesses are subject to risks customarily encountered in international operations, including fluctuations in foreign currency exchange rates, import and export controls, and other laws, policies and regulations of local governments. During the past three years, our revenue by geographic region was as follows:

 

            Successor      Predecessor  

(In thousands)

   Combined
2010
     Period from July 30
through
December 31,

2010
     Period from
January 1
through July 29,

2010
     As of and for the Year
Ended  December 31,
 
            2009      2008  

Revenue (a):

                

United States

   $ 575,614       $ 246,924       $ 328,690       $ 536,474       $ 529,586   

United Kingdom

     74,509         32,161         42,348         72,896         85,715   

All other European countries

     114,747         49,422         65,325         118,384         116,839   

Asia Pacific

     31,775         13,594         18,181         29,464         18,401   
                                            

Total

   $ 796,645       $ 342,101       $ 454,544       $ 757,218       $ 750,541   
                                            

At December 31, 2010, 2009 and 2008, respectively, long-lived assets by geographic region are as follows:

 

(In thousands)

   As of
December 31,
2010
     As of
December 31,
2009
     As of
December 31,
2008
 

Long-lived assets:

        

United States

   $ 2,851,782       $ 584,292       $ 582,763   

United Kingdom

     620,711         114,390         100,467   

All other European countries

     164,530         103,088         104,169   

Asia Pacific

     177,349         36,687         34,746   
                          

Total

   $ 3,814,372       $ 838,457       $ 822,145   
                          

 

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Employees

We had approximately 2,450 employees as of December 31, 2010.

Working Capital Requirements

There are no special requirements or credit terms extended to customers that could have a material adverse effect on our working capital.

Regulation

Interactive Data Pricing and Reference Data, Inc., one of our subsidiaries, is registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940.

Our Interactive Data (Australia) Pty Ltd subsidiary is licensed by the Australian Securities and Investment Commission, or ASIC, to provide certain financial services in Australia under the Corporations Act 2001.

Our U.K. eSignal business is registered with the United Kingdom Financial Services Authority.

Internet Address and SEC Reports

We maintain a website with the address www.interactivedata.com. We are not currently subject to any reporting requirements of Section 15(d) or Section 13 of the Securities Exchange Act of 1934. However, we currently intend to comply with certain reporting provisions of the indenture governing our Senior Notes due 2018 by filing with the Securities and Exchange Commission annual, quarterly and current reports on Form 10-K, 10-Q, and 8-K, respectively. We will make available to the trustee of the Senior Notes due 2018 and the holders of the Senior Notes due 2018 (without exhibits), without cost to the holder, within 15 days after we file the reports with the Securities and Exchange Commission, copies of such reports. We are not including the information contained on our website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. Our SEC filings are also available on the Internet at the SEC’s website at www.sec.gov.

 

Item 1A. Risk Factors

Set forth below are the risks that we believe are material to our investors. This section contains forward-looking statements. You should refer to the explanation of the qualifications and limitations on forward-l looking statements appearing just before “Corporate History” above.

Risks Related to Our Indebtedness

Our substantial leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent the interest rate on our variable rate debt increases and prevent us from meeting our obligations under the notes.

As a result of completing the Merger and related financing transactions on July 29, 2010 (the “Transactions”), we became highly leveraged. As of December 31, 2010, our total indebtedness was $2,023,350,000. We also have an additional $160,000,000 available for borrowing under our revolving credit facility at that date (excluding $4,462,000 of letters of credit that were outstanding as of December 31, 2010 related to certain operating leases). The following table shows our level of indebtedness and certain other information as of December 31, 2010.

 

(in thousands)

   As of December 31,
2010
 

Revolving credit facility(1)

   $ —     

Term loan facility(2)

     1,323,350   

Senior unsecured notes

     700,000   
        

Total indebtedness

   $ 2,023,350   
        

 

(1) Our revolving credit facility, which has a 5-year maturity, provides for borrowing up to $160,000,000 aggregate principal amount (without giving effect to $4,462,000 of letters of credit that were outstanding as of December 31, 2010).
(2) We entered into a $1,330,000,000 aggregate principal amount senior secured term loan facility with a 6.5-year maturity. The term loan was issued at a 3%, or $39,900,000, original issue discount, which will be amortized and included as interest expense using the effective interest method in our statements of operations over the life of the term loan.

Our high degree of leverage could have important consequences for holders of senior unsecured notes, including:

 

   

making it more difficult for us to make payments on the notes;

 

   

increasing our vulnerability to general economic and industry conditions;

 

   

requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;

 

   

exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under our senior secured credit facilities will be at variable rates of interest;

 

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restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

 

   

limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions and general corporate or other purposes; and

 

   

limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future, subject to the restrictions contained in our senior secured credit facilities and the indenture governing the Senior Notes due 2018. If new indebtedness is added to our current debt levels, the related risks that we now face could intensify.

Our pro forma cash interest expense for the combined year ended December 31, 2010 would have been approximately $163,749,000. When calculating the pro forma amount, we assumed the full principal amount of the debt we incurred on July 29, 2010 was outstanding as of January 1, 2010 and remained outstanding at a constant level for the full year ended December 31, 2010.

On February 11, 2011, we completed a refinancing of our term loan facility through an amendment to the credit agreement. The amendment provides for, among other things, a reduction in interest rates, an increase in the amount of the facility to $1,345,000,000 and an extension of the maturity of the term loan facility to February 11, 2018.

Our debt agreements contain restrictions that limit our flexibility in operating our business.

Our senior secured credit facilities and the indenture governing the senior unsecured notes contain various covenants that limit our ability to engage in specified types of transactions. These covenants limit our and our restricted subsidiaries’ ability to, among other things:

 

   

incur additional indebtedness or issue certain preferred shares;

 

   

pay dividends on, repurchase or make distributions in respect of our capital stock or make other restricted payments;

 

   

make certain investments;

 

   

sell or transfer assets;

 

   

create liens;

 

   

consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and

 

   

enter into certain transactions with our affiliates.

In addition, under our senior secured credit facilities we are required to satisfy and maintain specified financial ratios and other financial condition tests. Our ability to meet those financial ratios and tests can be affected by events beyond our control. We may not meet those ratios and tests. A breach of any of these covenants could result in a default under each of our senior secured credit facilities. Upon the occurrence of an event of default under our senior secured credit facilities, the lenders under our senior secured credit facilities could elect to declare all amounts outstanding under our senior secured credit facilities to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders under our senior secured credit facilities could proceed against the collateral granted to them to secure each such indebtedness. We have pledged substantially all of our assets as collateral under our senior secured credit facilities. If any of the lenders under our senior secured credit facilities accelerate the repayment of borrowings, we cannot assure holders of senior unsecured Senior Notes due 2018 that we will have sufficient assets to repay our senior secured credit facilities and the Senior Notes due 2018.

Risks Related to Our Business

The impact of cost-cutting pressures across the industry we serve could lower demand for our services.

We are seeing customers maintain their focus on controlling or reducing spending as a result of the recent financial crisis and the challenging market conditions many of them continue to face. Customers within the financial services industry that strive to reduce their operating costs may seek to reduce their spending on financial market data and related services. If a large number of smaller customers or a critical number of larger customers reduce their spending with us, our results of operations could be materially adversely affected. Alternatively, customers may use other strategies to reduce their overall spending on financial market data services, by consolidating their spending with fewer vendors, by selecting other vendors with lower-cost offerings or by self-sourcing their need for financial market data. If customers elect to consolidate their spending on financial market data services with other vendors and not us, if we lose business to lower priced competitors, or if customers elect to self-source their financial market data needs, our results of operations could be materially adversely affected.

Consolidation of financial services within and across industries, or the failure of financial services firms, could lower demand for our services.

The recent financial crisis resulted in consolidation among some participants in the financial markets and the collapse of others. Since that time, there have been additional consolidations between participants in the financial markets, and there may be additional consolidations or failures in the future. As consolidation occurs and synergies are achieved, there may be fewer potential customers for our services. From our perspective, there are two types of consolidations: consolidations within an industry, such as banking; and across industries, such as consolidations of insurance, banking and brokerage companies. When two companies that separately subscribe to or use our services combine, they may terminate or reduce duplicative subscriptions for our services, or if they are billed on a usage basis, usage may decline due to synergies created by the business combination. We experienced cancellations and/or service downgrades in prior years as a result of this trend and these consolidations and cancellations may continue. A large number of cancellations, or lower utilization on an absolute dollar

 

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basis resulting from consolidations, could have a material adverse effect on our revenue. Consolidation in the past few years, for example, has had an adverse impact on revenue for our Fixed Income Analytics business. In addition, if a customer who accounts for a material percentage of our revenue or profit ceases operations as a result of bankruptcy such event could have a material adverse effect on our results of operations.

Declining activity levels in the securities markets, weak or declining financial performance of financial market participants or the failure of market participants, could lower demand for our services.

Our business is dependent upon the health of the global financial markets as well as the financial health of the participants in those markets. For example, the recent financial crisis, which adversely affected many financial institutions, led to an increased focus on cost containment or reduction, including market data and related services costs. Further, the recent financial crisis resulted in lower activity levels, including lower trading volumes and a substantial reduction in the number of issuances of new securities. It also led to the collapse of some market participants and may lead to the collapse of additional market participants. Some of the demand for financial market data and related services is dependent upon activity levels in the securities markets and the financial health of financial institutions and other market participants while other demand is static and is not dependent on such factors. Downturns in global financial markets that result in prolonged, significant declines in activity levels in the securities markets or that have an adverse impact on the financial condition of market participants could have a material adverse effect on our revenue. In recent years, declining activity levels in the securities markets has adversely impacted the revenue in Active Trader segment. In addition, although we did continue to grow annual revenue during and following the recent financial crisis, our revenue growth rate slowed.

We face intense competition.

We operate in highly competitive markets in which we compete with other vendors of financial market data, analytics and related services. We expect competition to continue to be intense. Some of our competitors and potential competitors have significantly greater financial, technical and marketing resources than we have. These competitors may be able to expand their offerings and data content more effectively, use their financial resources to sustain aggressive pricing or respond more rapidly than us to new or emerging technologies, changes in the industry or changes in customer needs. They may also be in a position to devote greater resources to the development, promotion and distribution of their services. Increased competition in the future or our inability to compete effectively could adversely affect our market share or profit margins and could have a material adverse effect on our financial condition or results of operations.

A prolonged outage at one of our data centers or a disruption of our computer operations or those of our suppliers, or our failure to timely deliver high-quality services due to other reasons, could result in the loss of customers.

Our customers rely on us for the delivery of time-sensitive, up-to-date and high-quality financial market data analytics and related solutions. Our business is dependent on our ability to rapidly and efficiently process substantial volumes of data and calculations on our computer-based networks and systems. Our computer operations and those of our suppliers and customers are vulnerable to interruption by fire, natural disaster, power loss, telecommunications failure, terrorist attacks, acts of war, Internet failures, computer viruses and other events beyond our reasonable control. The occurrence of any of these events could significantly disrupt our operations or result in a significant interruption in the delivery of our services which may induce our customers to seek alternative service suppliers. In addition, timely, reliable delivery of our services is subject to a wide array of technical production processes that enable our delivery platforms to leverage an extensive range of content databases. Further, significant portions of the data we deliver to customers we obtain from stock exchanges and other third-party sources and we are reliant on these sources delivering high-quality data. If any of the data residing within our content databases is not of sufficient quality, if any of our production processes are compromised, or if any of our delivery platforms are impaired, the delivery of our data may fail to meet the time requirements of our clients or the quality standards set by our clients, either of which could adversely affect our ability to compete for new customers or induce existing customers to seek alternative service suppliers. Loss of a large number of smaller customers or a critical number of larger customers as a result of any such events could have a material adverse effect on our results of operations.

If we are unable to maintain relationships with key suppliers and providers of market data, we would not be able to provide our services to our customers.

We depend on key suppliers for the data we provide to our customers. Some of this data is exclusive to particular suppliers, such as national stock exchanges, such as the New York Stock Exchange, Tokyo Stock Exchange or the London Stock Exchange, and in some cases cannot be obtained from other suppliers. In other cases, although the data may be available from secondary sources, the secondary source may not be as adequate or reliable as the primary or preferred source, or we may not be able to obtain replacement data from an alternative supplier without undue cost and expense, if at all. The disruption or termination of one or more of our major data supplier relationships could disrupt our operations and could have a material adverse effect on our results of operations.

If we are unable to maintain relationships with service bureaus and custodian banks, our revenue will decrease.

Part of our strategy is to serve as a major data supplier to service bureaus and custodian banks and thereby to benefit from the trend of major financial institutions in North America outsourcing their back office operations to such entities. While we believe the importance of back office operations will continue to increase, if this trend shifts or any of our relationships with service bureaus or custodian banks are disrupted or terminated, any such event could have a material adverse effect on our results of operations.

New offerings by competitors or new technologies or other industry changes could cause our services to become less competitive or obsolete or we may not be able to develop new and enhanced service offerings.

We operate in an industry that is characterized by rapid and significant technological change, frequent new service introductions, data content and coverage enhancements, and evolving industry standards. Without the timely introduction of new services, or the expansion or enhancement of our data content and coverage, our services could become technologically obsolete or inadequate over time, in which case our revenue and results of operations would suffer. We expect our competitors to continue to improve the performance of their current services, to enhance data content and coverage and to introduce new services and technologies. These competitors may adapt to new technologies, changes in the industry and changes in customers’ requirements more quickly than we can. If we fail to adequately and accurately anticipate customers’ needs and industry trends, we will be unable to introduce new services into the market and our existing services may become obsolete. Further, we may be unsuccessful at developing and introducing new services that are appealing to

 

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customers, with acceptable prices and terms, or any such new services may not be made available in a timely manner. Any of these events could adversely impact our ability to compete effectively and could have a material adverse effect on our results of operations. Related to this, a key part of our strategy is expanding into new markets around the world, as well as continuing to grow our existing international businesses. In order to do so, we must develop new region specific services, or add to our existing services so that they meet the needs of customers in specific geographic locations. Any new services or data content that we may develop and introduce may not achieve market acceptance. Lack of market acceptance of our services could have a material adverse effect on our results of operations.

New legislation or changes in governmental or quasi-governmental rules, regulations, directives or standards may reduce demand for our services, prevent us from offering certain services or increase our expenses.

Our customers must comply with governmental and quasi-governmental rules, regulations, directives and standards. We develop, configure and market services to assist customers in meeting these requirements. New legislation, or a significant change in rules, regulations, directives or standards, including some of those recently introduced in the wake of the recent financial crisis, as well as ones that may in the future be introduced, could cause our services to become obsolete, reduce demand for our services or increase our expenses in order to continue providing services to clients, any of which event could have a material adverse impact on our results of operations. Furthermore, we may become subject to new legislation or rules with regard to the services we offer which could cause us to be prohibited from providing certain services or make provision of affected services more expensive, either of which event could have a material adverse effect on our results of operations.

Our cost-saving plans may not be effective which may adversely affect our financial results.

Our business strategy includes goals such as data center consolidation, raising productivity, outsourcing, and reducing corporate overhead expenses and business unit operational expenses. While we have begun to implement and will continue to implement these and other strategies aimed at reducing expenses without compromising product quality, sales effectiveness or customer service, we may not be able to do so successfully and we may not fully realize the projected benefits of these or any other cost-saving plans that we may seek to implement in the future. If we are unable to realize these anticipated cost reductions, our results of operation may be adversely affected. Moreover, our continued implementation of cost-saving plans and facilities integration may disrupt our operations and could have an adverse effect on our results of operations. While we expect our cost-saving initiatives to result in significant cost savings throughout our organization, our estimated savings are based on several assumptions that may prove to be inaccurate, and as a result we may not realize these cost savings. The failure to achieve our estimated cost savings would negatively affect our financial condition and results of operations.

Our continued growth depends, in part, on our ability to successfully identify and complete acquisitions and enter into strategic business alliances.

Our business strategy includes growth through acquisition of assets and businesses that complement or augment our existing services and through the creation of strategic business alliances. We intend to continue to address the need to develop new services, enhance existing services and expand into complementary service areas through acquisitions of other companies, service offerings, technologies and personnel, however, acquisitions may not be available to us on favorable terms, if at all. Promising acquisitions are difficult to identify and complete for a number of reasons, including competition among prospective buyers and, in some instances, the need for regulatory, including antitrust, approvals. We may not be able to identify and successfully complete acquisition or strategic business alliance transactions. Any acquisition we may complete may be made at a substantial premium over the fair value of the net assets of the acquired business. Our debt agreements place certain restrictions on our ability to complete acquisitions and we will need to consider these restrictions as we examine potential acquisition opportunities. Should any acquisition we wish to pursue require consent of our lenders, we may not be able to obtain such consent.

We may fail to realize the anticipated benefits from any strategic acquisitions or alliances that we enter into.

Strategic alliances have also been and continue to be important to expanding our customer base and enhancing the appeal of our offerings. We have established strategic business alliances with companies who redistribute our services to their customers or who provide us with additional content that we can redistribute to our customers. The success of any acquisition depends in part on our ability to integrate the acquired business or assets, including customers, employees, operating systems, operating procedures and information technology systems. We may not be able to effectively integrate and manage the operations of any acquired business. In addition, the process of integrating acquired businesses or assets may involve unforeseen difficulties and integration could take longer than anticipated. Integrating any newly acquired businesses may require a disproportionate amount of management’s attention and financial and other resources, and detract from the resources remaining for our pre-existing business. Further, we may not be able to maintain or improve the historical financial performance of acquired businesses. Finally, we may not fully derive all of the anticipated benefits from our acquisitions, such as supply cost synergies or reduced operating costs due to centralized or shared technical infrastructure. The success of our strategic alliances depends in part on our ability to work collaboratively with these business partners to jointly market our services and content. We may not be able to effectively or efficiently deliver our services to these business partners or agree to financial terms that are mutually satisfactory, or fully achieve the expected benefits from these alliances.

We are subject to regulatory oversight and we provide services to financial institutions that are subject to significant regulatory oversight, and any investigation of us or our customers relating to our services could be expensive, time consuming and harm our reputation.

The securities laws and other regulations that govern certain of our activities and the activities of our customers are complex. Compliance with these regulations may be reviewed by federal agencies, including the SEC, state authorities and other governmental entities both in the United States and foreign countries. To the extent any of our customers become the subject of a regulatory investigation or a civil lawsuit relating to actual or alleged violations of one or more of their regulatory obligations, we could also become subject to intense scrutiny. This intense scrutiny could involve an examination by regulators of whether the services we provided to the customer during the time period of the alleged violation were related to or contributed to the commission of the alleged or actual violation or result in a claim or civil lawsuit filed against us by the customer or the customer’s clients seeking damages. Any investigation by a regulatory agency of one of our customers or us, whether or not founded, or a claim or civil lawsuit filed against us could cause us to incur substantial costs and would distract our management from our business. In addition, the negative publicity associated with any public investigation could adversely affect our ability to attract and/or retain customers and could have a material adverse effect on our results of operations.

 

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Certain of our subsidiaries are subject to complex regulations and licensing requirements.

Our Pricing and Reference Data subsidiary is a registered investment adviser with the SEC and is subject to significant regulatory obligations under the Investment Advisers Act of 1940. The securities laws and other regulations that govern Pricing and Reference Data’s activities as a registered investment adviser are complex. If we were to ever lose our investment adviser status, this could impact on our ability to compete and could have a material adverse impact on our results of operations. Our Interactive Data (Australia) Pty Ltd subsidiary is licensed by the Australian Securities and Investment Commission, or ASIC, to provide certain financial services in Australia under the Corporations Act 2001. Our U.K. Desktop Solutions business, which was formerly known as eSignal, is registered with the United Kingdom Financial Services Authority, or FSA. The financial services laws and other regulations that govern our regulated activities are complex. If we were to fail to maintain our regulatory licenses or registrations, with these government agencies, the affected subsidiary might no longer be able to operate those portions of our business that require the license to be held or registration to be maintained, or such event could adversely affect our ability to attract and/or retain customers and could have a material adverse effect on our results of operations. In addition, in order to offer new financial services we could be required to extend our licenses or regulatory authorizations, which is at the discretion of the government agencies and we may not be able to secure the required extension. If this resulted in us not being able to provide one or more of our services, or resulted in us not being able to compete as effectively, depending on the services affected, this could have a material adverse effect on our results of operations.

We are subject to the risks of doing business internationally.

For the combined year ended December 31, 2010, approximately 28% of our revenue was generated outside of the United States. Our growth strategy includes seeking to increase this percentage. Because we sell our services outside the United States, our business is subject to risks associated with doing business internationally. Accordingly, a variety of factors, could have a material adverse effect on our results of operation including, without limitation:

 

   

fluctuations in foreign currency exchange rates;

 

   

inflation;

 

   

changes in political or economic conditions;

 

   

changes in local laws and regulatory requirements;

 

   

difficulty of effective enforcement of contractual provisions in some local jurisdictions;

 

   

the inadequate intellectual property protection laws in some local jurisdictions;

 

   

trade-protection measures, import or export licensing requirements such as Export Administration Regulations promulgated by the U.S. Department of Commerce and fines, penalties or suspension or revocation of export privileges; and

 

   

changes in local tax law or policy.

We are involved in intellectual property disputes from time to time and we may be involved in additional such disputes in the future. These disputes divert management’s attention, cause us to incur costs, which in some cases can be significant, and could under certain circumstances prevent us from providing, or increase our costs to provide, certain services.

Third parties may assert intellectual property infringement claims against us. While we believe that (a) our services do not infringe in any material respect upon proprietary rights of other parties and (b) that meritorious defenses exist with respect to any assertions to the contrary (or would exist with respect to any future assertions to the contrary), our services may be found to infringe on the proprietary rights of others. Any claims that our services infringe third parties’ rights, regardless of their merit or final resolution, could be costly and may divert the efforts and attention of our management and technical personnel from our day-to-day operations and the advancement of our strategic objectives. We may not prevail in such proceedings given the complex technical issues and the inherent uncertainties in intellectual property litigation. If such proceedings result in an adverse outcome, we could be required, among other things, to pay substantial damages, which could have a material adverse effect on our results of operation.

We may fail to adequately protect client data.

Some of our products and services involve the storage and transmission of proprietary information and sensitive or confidential client data, including limited client portfolio information. Misappropriation of client data by an employee or an external third party could occur and may result in claims against us and liability for client losses resulting from such misappropriation. Any such occurrence could result in the loss of existing or potential customers, damage to our brand and reputation, impact our ability to compete and could have a material adverse effect on our results of operation.

We may face liability for, or incur costs to defend, information published in our services.

We may be subject to claims for defamation, libel, copyright or trademark infringement, fraud or negligence, or based on other theories of liability, in each case relating to the data, articles, commentary, ratings or other information we publish in our services. We could also be subject to claims based upon the content that is accessible from our corporate website or those websites that we own and operate through links to other websites. Costs to defend or liability arising as a result of such claims could have a material adverse effect on our results of operation.

Our success is dependent in part upon our ability to attract and retain a qualified management team and other key personnel.

We depend on our ability to attract and retain a qualified management team and other key personnel to operate and expand our business, and we may not be able to retain the services of our key personnel. In the event of any departures, our ability to replace key personnel may be difficult and may take an extended period of time because of the limited number of key personnel in the financial market data industry with the breadth of skills and experience required to operate and expand a business such as ours successfully or perform the key business functions we require. Competition to hire from this limited pool of human resources is intense, and we may not be able to hire

 

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or retain such personnel. We have entered into agreements with some members of our management team and other key personnel regarding their employment with us. While these employment agreements may mitigate some of the risks we face in retaining key personnel, we still face risk in this area. If we are unable to retain, attract and hire key personnel, such failure could have a material adverse effect on our operations and our results of operations. We recently made significant changes to our management team and, while we do not anticipate any additional significant changes, our board of directors and our chief executive officer regularly evaluate whether changes should be made to the management team, which may include changes to the our organizational and reporting structures.

Our stockholders control us and our stockholders may have conflicts of interest with us or holders of our debt in the future.

The Sponsors, and a co-investment vehicle controlled by the Sponsors, indirectly own, through their ownership in our parent companies, approximately 98% of our capital stock, immediately after consummation of the Transactions. In addition, pursuant to a stockholders agreement by and among us, our parent companies, the Sponsors, and the co-investment vehicle controlled by the Sponsors, the Sponsors have the right to designate a majority of the members of our board of directors and the boards of directors of our parent companies. As a result, the Sponsors have control over our decisions to enter into any corporate transaction and have the ability to prevent any transaction that requires the approval of the board of directors or stockholders of us or any of the parent companies, regardless of whether such transaction may be in the best interests of the holders of our Senior Notes due 2018. For example, the Sponsors could cause us to (i) make acquisitions that increase the amount of indebtedness that is secured by our assets or (ii) sell some of our assets. These or other actions implemented by the Sponsors could impair our ability to make payments under our senior secured credit facilities or the senior unsecured notes. Additionally, the Sponsors are in the business of making investments in companies and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us. One or more of the Sponsors may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. So long as investment funds affiliated with, and the co-investment vehicle controlled by, the Sponsors continue to indirectly own a significant amount of the outstanding shares of our common stock, even if such amount is less than 50%, the Sponsors will continue to be able to strongly influence or effectively control our decisions.

 

Item 1B. Unresolved Staff Comments

None.

 

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Item 2. Properties

We own no real estate but lease the following principal facilities for use as corporate headquarters, sales offices and data centers:

 

Location

  

Operating

Unit/Segment

   Square
Feet
     2011
Annual
Rental
Rate
    

Expiration Date

Bedford, MA

   Institutional and Corporate      103,716       $ 2,461,000       June 2016

Boston, MA

   Institutional      17,751       $ 592,000       March 2021

Boxborough, MA

   Institutional, Active Trader, and Corporate      100,226       $ 677,000       September 2018

Channel Islands, UK

   Institutional      2,301       $ 86,000       December 2018

Cheltenham, UK

   Institutional      3,500       $ 69,000       May 2012

Chicago, IL

   Institutional and Active Trader      6,307       $ 92,000       September 2011

Chicago, IL

   Active Trader      3,465       $ 87,000       October 2012

Chicago, IL

   Institutional      5,548       $ 127,000       February 2012

Chicago, IL

   Institutional      4,726       $ 84,000       September 2011

Cologne, Germany

   Institutional      9,182       $ 244,000       December 2013

Dublin, Ireland

   Institutional      12,017       $ 358,000       February 2012

Frankfurt, Germany

   Institutional      78,548       $ 2,131,000       December 2016

Hayward, CA

   Active Trader      60,158       $ 1,243,000       June 2013

Hong Kong

   Institutional      2,224       $ 120,000       June 2012

Houston, TX

   Active Trader      1,635       $ 19,000       July 2012

Lombard, IL

   Active Trader      9,356       $ 69,000       May 2011

London, UK

   Institutional and Active Trader      68,943       $ 1,071,000       April 2025

Luxembourg

   Institutional      3,368       $ 137,000       December 2015

Madrid, Spain

   Institutional      3,315       $ 122,000       January 2014

Melbourne, Australia

   Institutional and Active Trader      4,828       $ 159,000       November 2015

Milan, Italy

   Institutional      2,799       $ 87,000       December 2015

Minneapolis, MN

   Institutional      6,741       $ 53,000       May 2016

New York, NY

   Institutional      87,337       $ 2,360,000       May 2013

New York, NY

   Institutional      50,661       $ 2,107,000       November 2024

Paris, France

   Institutional      2,670       $ 178,000       December 2011

Parsippany, NJ

   Corporate      2,584       $ 44,000       January 2012

Rome, Italy

   Institutional      5,918       $ 168,000       July 2014

Santa Monica, CA

   Institutional      22,877       $ 784,000       November 2012

Singapore

   Institutional      2,530       $ 159,000       October 2012

Tokyo, Japan

   Institutional      5,978       $ 358,000       July 2012

White Plains, NY

   Institutional      46,000       $ 1,251,000       October 2019

Zurich, Switzerland

   Institutional      3,305       $ 192,000       June 2013

We have excluded leased properties with less than 1,500 square feet. We believe our facilities are in good condition, and are suitable and adequate for our current and currently planned operations. If we are unable to renew any of the leases that are due to expire in 2011, we believe that suitable replacement properties are available on commercially reasonable terms.

 

Item 3. Legal Proceedings

We are involved in litigation from time to time in the ordinary course of business with a portion of the defense and/or settlement cost being covered, in some cases, by various commercial liability insurance policies and third party indemnifications. We believe that there is no litigation pending against us that would have, individually or in the aggregate, a material adverse effect on our financial position, results of operations or cash flows.

 

Item 4. (Removed and Reserved)

 

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PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

We are a privately held company with no established public trading market for our common stock. As of March 1, 2011, the Company had one record holder of our common stock, Igloo Intermediate Corporation; Igloo Intermediate Corporation had one holder of its common stock, Igloo Holdings Corporation; Igloo Holdings Corporation had ten (10) holders of its common stock. See “Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for additional information about the ownership of Igloo Holdings Corporation’s stock.

We are currently restricted in our ability to pay dividends under various covenants of our debt agreements, including under the credit agreement governing our Senior Secured Credit Facilities and the indenture governing our Senior Notes due 2018. We do not expect for the foreseeable future to pay dividends on our common stock. Any future determination to pay dividends will depend upon, among other factors, our results of operations, financial condition, capital requirements, any contractual restrictions and any other considerations our Board deems relevant.

Stockholders

As of March 28, 2011, there were 10 outstanding shares of our common stock held by 1 stockholder of record.

Dividends

Predecessor

In fiscal year 2008, our Predecessor’s Board of Directors declared the following dividends:

 

Declaration Date

   Dividend Per
Share of
Common Stock
    

Type

  

Record Date

   Total Amount
(in thousands)
    

Payment Date

May 21, 2008

   $ 0.15       Regular (cash)    June 6, 2008    $ 14,100       June 27, 2008

July 15, 2008

   $ 0.15       Regular (cash)    September 5, 2008    $ 14,117       September 26, 2008

September 15, 2008

   $ 0.15       Regular (cash)    November 12, 2008    $ 14,054       December 10, 2008

December 4, 2008 (1)

   $ 0.20       Regular (cash)    March 2, 2009    $ 18,705       March 31, 2009
                    

Total

   $ 0.65               
                    

 

(1) On December 4, 2008, our Board of Directors (i) approved increasing the Company’s regular quarterly dividend by 33%, raising it from $0.15 per share to $0.20 per share of common stock and (ii) declared the first quarter 2009 dividend (payment date: March 31, 2009 and record date March 2, 2009). The dividend declared amount of $18,705,000 is included in dividends payable as of December 31, 2008. The estimated liability for this declared dividend was determined based on the number of shares of common stock outstanding as of the December 4, 2008 declaration date.

In fiscal year 2009, our Predecessor’s Board of Directors declared the following dividends:

 

Declaration Date

   Dividend Per
Share of
Common Stock
    

Type

  

Record Date

   Total Amount
(in thousands)
    

Payment Date

May 20, 2009

   $ 0.20       Regular (cash)    June 8, 2009    $ 18,807       June 29, 2009

July 13, 2009

   $ 0.20       Regular (cash)    September 8, 2009    $ 18,798       September 29, 2009

October 1, 2009

   $ 0.20       Regular (cash)    December 8, 2009    $ 18,860       December 30, 2009
                    

Total

   $ 0.60               
                    

The dividend for the first quarter of 2009 was declared in December 2008 and as such is included in the fiscal year 2008 table above.

In fiscal year 2010, our Predecessor’s Board of Directors declared the following dividends:

 

Declaration Date

   Dividend Per
Share of
Common Stock
    

Type

  

Record Date

   Total Amount
(in thousands)
    

Payment Date

February 19, 2010

   $ 0.20       Regular (cash)    March 3, 2010    $ 18,944       March 31, 2010
                    

Total

   $ 0.20               
                    

All of the above cash dividends were paid from our existing cash resources.

 

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Successor

The Company has not paid a dividend since the time of the Merger. The Senior Secured Credit Facilities and Senior Notes due 2018 contain covenants limiting the Company’s ability to pay dividends. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” and Note 19 “Debt” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

 

Item 6. Selected Financial Data

The selected consolidated financial data set forth below should be read in conjunction with our consolidated financial statements and notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Form 10-K. The selected consolidated statement of operations data for the period from January 1, 2010 through July 29, 2010 and the period from July 30, 2010 through December 31, 2010 and years ended December 31, 2009 and 2008 and the selected consolidated balance sheet data as of December 31, 2010 and 2009 have been derived from our audited consolidated financial statements, which are included in Item 8 of this Form 10-K. The selected consolidated statement of operations data for the fiscal years ended December 31, 2008 and 2007, and the selected consolidated balance sheet data as of December 31, 2008, 2007 and 2006 have been derived from other audited consolidated financial statements not included herein.

 

     Successor      Predecessor  
                        For the Year Ended December 31,  

(In thousands, except per share amounts)

   Combined
2010
    Period from
July 30
through
December 31,
2010
    Period
from
January 1
through
July 29,
2010
     2009 (1)      2008      2007      2006  

Revenue

   $ 796,645      $ 342,101      $ 454,544       $ 757,218       $ 750,541       $ 689,610       $ 612,403   

(Loss) income from operations

     (7,092     (46,571     39,479         207,749         209,683         175,620         144,565   

Net (loss) income attributable to Interactive Data Corporation

     (71,789     (94,263     22,474         141,234         142,648         125,983         93,362   

Net income per common share

                  

Basic

     N/A        N/A        N/A         1.50         1.52         1.34         1.00   

Diluted

     N/A        N/A        N/A         1.47         1.48         1.30         0.98   

Weighted average common shares

                  

Basic

     N/A        N/A        N/A         94,001         93,984         94,038         93,240   

Diluted

     N/A        N/A        N/A         96,200         96,674         97,060         95,600   
 

Cash dividends declared per common share

     N/A        N/A      $ 0.20       $ 0.60       $ 0.65       $ 1.15       $ 0.80   

 

     Successor      Predecessor  
            As of December 31,  

(In thousands)

   2010      2009 (1)      2008      2007      2006  

Total assets

   $ 4,133,877       $ 1,281,171       $ 1,182,525       $ 1,228,226       $ 1,103,804   

Borrowings, net of current portion and original issue discount

     1,967,751         —           —           —           —     

Stockholders’ equity (Interactive Data Corporation)

     1,252,471         1,082,106         959,807         963,524         911,585   

 

(1) Out-of-Period Accounting Adjustment

The Company recorded a $10,889,000 out-of-period accounting adjustment in the second quarter of 2009 related to the write-down of certain assets and the accrual of certain liabilities associated with the Company’s European real-time market data services operation, which is included in the Company’s Institutional Services Segment. The Company’s European real-time market data services operation represented approximately five percent of the Company’s total revenue in 2008. The out-of-period accounting adjustment decreased second quarter 2009 revenue by $2,294,000, increased second quarter 2009 cost of services expense by $7,487,000, most of which related to data acquisition expenses, and increased second quarter 2009 selling, general and administrative expenses by $1,108,000 which was mainly associated with sales commissions, commissions paid to third parties, and premises costs. The revenue and expenses associated with this out-of-period adjustment were not properly recorded in prior periods, primarily in 2008 and the first quarter of 2009. This matter is not expected to have a significant impact on the Company’s ongoing operations. All expenses related to this out-of-period accounting adjustment have been paid, and the Company’s relationships with its customers and business partners have been unaffected. The Company recorded the out-of-period accounting adjustment after various management reviews were conducted following the departure of an accountant within the European real-time market data services operation. Based on management’s review, the Company concluded that this former employee incorrectly recorded certain journal entries and that these errors were limited to the European real-time market data services operation. The Company has taken action to enhance the control structure including the clarification and centralization of the financial reporting lines within its various business units, and the recruitment of additional senior-level financial management and staff to its finance team.

Based upon an evaluation of all relevant quantitative and qualitative factors, and after considering the provisions of Accounting Principles Board (“APB”) Opinion No. 28 “Interim Financial Reporting,” (“APB 28”), paragraph 29, as codified in FASB ASC Topic 250, “Accounting Changes and Error Corrections” (“ASC 250”) and FASB ASC Subtopic 270-10, “Interim Reporting” (“ASC 270-10”), FASB SFAS No. 154 “Accounting Changes and Error Corrections” (“SFAS 154”), as codified in ASC 250, and SEC Staff Accounting Bulletin (“SAB”) No. 99 “Materiality” (“SAB 99”) and No. 108 “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current

 

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Year Financial Statements” (“SAB 108”), the Company does not believe that the effects of the out-of-period accounting adjustment are material to its full-year 2009 financial results. The Company also does not believe that the out-of-period accounting adjustment, individually or in the aggregate, is material to any previously issued annual or quarterly financial statements. Because the out-of-period accounting adjustment, both on an individual account basis and in the aggregate, was not material to any of the prior year’s financial statements and is not material to the full-year 2009 financial results, the out-of-period accounting adjustment was recorded in the Company’s financial statements for the second quarter of 2009. As a result of all of these factors, the Company has not restated its previously issued annual financial statements or interim financial data.

The table below shows the total impact of the out-of-period accounting adjustment in the second quarter of 2009 by revenue and total expenses, as it relates to prior reporting periods, recorded in the second quarter of 2009 at the actual monthly average foreign exchange rates in effect at the time of the errors:

 

(in thousands)

   Three Months
Ended
March 31,
2009
    

 

Year Ended

     Total  
      December 31,      December 31,      December 31,     
      2008      2007      2006     

Decrease in revenue

   $ 191       $ 1,694       $ 200       $ 209       $ 2,294   

Increase in total costs and expenses

     1,308         6,554         611         122         8,595   
                                            

Total- pretax impact on current period income

   $ 1,499       $ 8,248       $ 811       $ 331       $ 10,889   
                                            

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with Item 6 “Selected Financial Data” and our consolidated financial statements included in Item 8 “Financial Statements and Supplementary Data”. Dollar amounts presented in the tables in this Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”), including footnotes to the tables, are shown in thousands, except per share data.

Overview

We are a leading provider of financial market data, analytics and related solutions that are used extensively by thousands of financial institutions and active traders, as well as hundreds of software and service providers. We are one of the world’s largest providers of financial data, serving the mutual fund, bank, asset management, hedge fund, security and financial instrument processing and securities administration sectors. We distribute our data and related offerings directly to customers and indirectly through value-added resellers (“VARs”), including software providers, processors and custodians.

On July 29, 2010, the Company was acquired by the Sponsors. This Management‘s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) excludes the accounts of Intermediate and Holdings and reflects only the accounts of the Company, as the surviving corporation following the Merger. Refer to Note 1 ”Summary of Significant Accounting Policies” and Note 3 “Merger” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information.

The Consolidated Financial Statements included in Item 8 of this on Form 10-K are presented for the period prior to the Merger from January 1 to July 29, 2010 (referred to as the Predecessor period) and the period following the Merger from July 30 to December 31, 2010 (referred to as the Successor period). Our discussion in this MD&A includes the sum of the results of the Predecessor period and Successor period on a combined basis, referred to as Combined 2010 or the combined year ended December 31, 2010. This presentation is not in accordance with GAAP. Due to purchase accounting adjustments, Combined 2010 results may not be comparable to 2009 results. The Company believes that a presentation and discussion of Combined 2010 is meaningful as it enables a comparison to the comparable period in 2009.

Our financial reporting is currently based on four operating businesses that comprise two reportable operating segments: Institutional Services and Active Trader Services.

Institutional Services

Our Institutional Services segment primarily targets financial institutions such as banks, brokerage firms, mutual fund companies, exchange traded fund sponsors, hedge funds, insurance companies and money management firms. In addition, our Institutional Services segment markets its offerings to financial information providers, information media companies, and VARs such as software providers, processors, custodians and other outsourcing organizations. The Institutional Services segment is composed of three businesses:

 

   

Pricing and Reference Data provides an extensive range of financial market data services to approximately 6,000 clients, including securities and brokerage firms, mutual funds, pension funds, ETF sponsors, investment advisors, hedge funds and VARs.

 

   

Real-Time Services provides over 1,600 clients with a range of offerings comprising two complementary product areas: real-time feeds and ultra low latency trading solutions; and customized, hosted web-based solutions for wealth management and other applications.

 

   

Fixed Income Analytics provides approximately 400 financial institutions with fixed income data and sophisticated fixed income portfolio analytics to help manage risks and analyze the sources of risk and return.

 

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Active Trader Services

Our Active Trader Services segment targets active traders, individual investors and investment community professionals. We consider active traders to be investors who typically make their own investment decisions, trade frequently and may earn a substantial portion of their income from trading. The Active Trader Services segment is composed of one business:

 

   

Interactive Data Desktop Solutions, formerly known as eSignal, provides active traders, individual investors, financial advisors, other investment community professionals and corporations with real-time financial market information and access to decision-support tools under the Interactive Data, eSignal, MarketQ and FutureSource brands. These offerings support a base of approximately 54,000 direct subscription terminals used by active traders, financial advisors and other investment community professionals and corporations in their analysis of financial instruments traded on major markets worldwide, including equities, futures and commodities.

Development of Business

Combined 2010 results include the activities of our Interactive Data Pricing and Reference Data, Interactive Data Real-Time Services (including approximately 11 months of 7ticks and a full year of the OFS assets), Interactive Data Fixed Income Analytics, and Interactive Data Desktop Solutions businesses. Our results of operations for 2009 include the activities of our Interactive Data Pricing and Reference Data (including Kler’s and NDF), Interactive Data Real-Time Services (including 30 days of the OFS assets), Interactive Data Fixed Income Analytics, and Interactive Data Desktop Solutions businesses. Our results of operations for 2008 include the activities of our Interactive Data Pricing and Reference Data (including 5 months of Kler’s and 16 days of NDF), Interactive Data Real-Time Services, Interactive Data Fixed Income Analytics, and Interactive Data Desktop Solutions businesses.

Business and Market Trends

The global financial markets have experienced extreme volatility and disruption in recent years. As a result, financial institutions globally have acted to control or reduce operational spending. Nevertheless, during this time, we have maintained positive overall revenue growth, although certain business areas have experienced declining revenue.

We expect that uncertainty with respect to spending on financial information and related services will persist through 2011. While in some areas the anticipated impact of current trends may lead to reduced demand for market data and related services, we believe overall spending on financial information services will grow modestly over the next several years. At this time, however, it remains unclear which segments of the financial market data industry will be most impacted by the current market and regulatory environment and the continued focus on controlling or reducing spending.

Institutional Services

We believe that the following trends will influence the growth of the financial information services industry in general and our businesses within the Institutional Services segment in particular.

 

   

Increased U.S. and global regulation, convergence of accounting standards and growing emphasis on risk management within financial services: We believe that increased regulation, greater oversight and scrutiny by regulators worldwide, combined with a global strengthening of fair value accounting standards and an intensifying focus on risk management and transparency, will increase demand for our Pricing and Reference Data offerings and analytical decision-support tools. However, it is unclear at this time how and to what degree these trends will impact our business.

 

   

Favorable global demographic trends: We believe that there is a confluence of dynamics influencing how financial services companies manage their global wealth management capabilities, including the ways in which they utilize market data and related solutions. These trends include long-term growth in savings and investments related to the population born in the years following World War II (referred to as the baby boom generation), the privatization of various pension programs, significant wealth accumulation in certain emerging markets and other changing investment policies. We expect these trends to have a favorable impact on the wealth management product area of our business.

 

   

Increased focus on cost containment and operational efficiency: We expect the recent financial crisis and related after-effects to continue to influence spending on market data and related services in 2011 as financial institutions remain focused on containing or reducing their costs. Related to this, there has been and continues to be an industry trend for financial institutions to outsource various financial market data applications and services. In addition to outsourcing specific applications, many North American financial institutions outsource their back-office operations to service bureaus and custodian banks. Market conditions appear to have stabilized in recent quarters, and cancellation levels in our Institutional Services segment decreased modestly during 2010 from 2009 levels. Although we have continued to grow annual revenue during and following the financial crisis, our growth rate has slowed and certain product areas have experienced declines. The cost containment and outsourcing trends, individually or in combination with each other, may impact our business either positively through increased adoption of our products and services as clients seek to outsource by leveraging our services; or adversely through longer sales cycles, increased cancellations, service downgrades, reductions in the growth of usage-related revenue, and increased pricing pressure.

 

   

Continued innovation in electronic trading systems: Financial institutions are increasingly deploying automated algorithmic and electronic trading applications to more efficiently execute their trading strategies. These applications require connectivity to a broad range of stock exchanges and trading venues with minimal latency. In addition, the trend toward algorithmic and other electronic trading programs is contributing to significant growth in market data volumes, thereby requiring both market data suppliers like ourselves and financial institutions to increase network capacity to address these volume issues. Our recent acquisition of 7ticks, a provider of ultra low latency connectivity services, combined with our consolidated real-time data feed offerings, enhances our ability to participate in the growing demand for services that support electronic trading applications.

 

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Consolidation within and across the financial services industry: Over the past decade, there have been a considerable number of merger and acquisition (“M&A”) transactions involving financial institutions of varying sizes. The merger of two or more financial institutions can often lead to the elimination of redundant data sources. Our experience is that the integration of two or more financial institutions that merge may take up to two or more years, and can present the Company with both opportunity and risk for our future revenue as a result. The opportunity is that we may gain a larger customer that may seek to spend more with us across their consolidated operations. The risk is we may lose revenue if the combined entity either elects to consolidate data services with another vendor or eliminates data sourcing that is redundant. We deliver market data services to a number of customers involved in recent M&A activity. It remains unclear how our customers’ recent M&A activity will affect their near and long-term spending on our offerings. M&A activity within the financial services industry may adversely impact our future revenue.

 

   

Recent and anticipated innovation in structuring financial instruments: The complexity of financial instruments has escalated in recent years, although new issuances of certain asset classes slowed significantly in the wake of the recent financial crisis. Despite the recent slowdown, we believe that there will be continued innovation in the types of financial instruments being issued and we expect that this will provide us with additional growth opportunities. Determining the fair value of highly complex instruments requires specialized expertise, and the firms trading these instruments often seek to leverage efficiencies by working with independent third-party providers like ourselves to assist in valuing these instruments. Furthermore, while there has been a recovery in the new issuance of certain fixed income financial instruments, it is unclear whether such recovery and the continued innovation in financial instruments will be sustained or extends across other fixed income asset classes.

Our Pricing and Reference Data business continued to grow in 2010, primarily driven by its strong revenue retention rates, as discussed below, increased demand for its broad range of services, from existing customers and, to a lesser extent, new customers, shifting usage revenue trends and the effect of annual price increases. Maintaining existing business and closing new sales are dependent on our ability to meet the current and evolving needs of our customers, particularly as regulatory changes occur and as financial instruments become more numerous and complex. We have recently introduced an innovative client management and compliance oversight tool that is designed to provide audit trails and compliance reports for a customer’s pricing challenge process. We also added evaluated pricing for European money market instruments, further complementing our existing coverage of US and Asian money market instruments. Usage-related revenue growth moderated over the last several quarters due to several factors, including asset class shifts and funds consolidation by certain customers as well as extensive cost-savings reviews that reduced the number of securities for which they needed information, the frequency of service delivery or both.

Our Real-Time Services business grew in 2010 primarily due to the contributions of the acquired OFS and 7ticks assets, as well as through modest organic expansion. Revenue growth for our real-time feeds, excluding the contribution from 7ticks, has been challenged for the past two years due primarily to higher cancellations levels arising from the difficult economic environment and market conditions. These cancellations, which increased during the first half of 2009, returned to historical levels in 2010 and this business generated improved revenue performance in the fourth quarter of 2010. In 2010, we continued to experience modest growth for our web-based solutions primarily due to higher new sales in the U.S. and improved results in Europe. Growth in Real-Time Services is dependent, in large part, on a combination of the following: continuing to sustain our improved retention levels, increasing real-time feeds sales, driving adoption of the 7ticks services and expanding our web-based solutions business globally, especially in the wealth management sector.

Our Fixed Income Analytics business experienced improved revenue performance in 2010 due to next-generation BondEdge upgrades by existing customers. In recent years, new sales have been mostly offset by cancellations, the majority of which are the result of customer consolidation activities. This business continues to invest in product and business development activities designed to expand business with existing and prospective customers.

We have historically achieved high revenue retention rates within our Institutional Services segment. We measure institutional revenue retention rates by using the following formula: we divide the dollar magnitude of institutional cancellations we received during the prior 12 months by the annualized quarterly institutional revenue entering that same 12-month period. We then subtract this percentage from 100% to derive the annualized quarterly revenue retention rate. Our annualized quarterly revenue retention rates for our Institutional Services businesses have averaged 94% since 2007, and our annualized revenue retention rate at the end of 2010 was also 94%. Service downgrades and renegotiations are not included when we determine the amount of cancellations. Cancellations are measured in value in US dollars. Generally, there is a lag time between when we receive a cancellation notice and when the cancellation impacts revenue. Consequently, notwithstanding a current overall high level of revenue retention, cancellation notices we receive in any given quarter or those received over multiple quarters, have the potential to adversely impact our revenue in future periods. In addition, renegotiation of existing agreements by customers can adversely impact our revenue in future periods while not impacting our revenue retention rates.

Active Trader Services

Our Desktop Solutions business, formerly known as eSignal, has been impacted by challenging conditions in the active trader market in the past several years. Expansion of this business is partly dependent on the growth in online trading accounts managed by active traders and the trend in stock market volatility. During periods of low volatility in the major stock markets, our active trader clients tend to trade less frequently, and cancellations of our services increase and new sales slow. Periods of declines in the major stock markets also have greater potential to lead to an increase in cancellations of desktop solutions by customers. In addition to factors such as price and ease of use, active traders consider the range of services, including the ability to directly execute their trades, when selecting a financial information desktop solutions service provider. The competition to acquire new subscribers remains intense and is impacted by online brokerage firms continuing to upgrade the features and tools they provide to their active trader customers. If our subscribers can obtain the financial information services we offer directly from the brokerage firms that use to execute trades, they are less likely to contract with us. Although major stock markets have recovered in recent quarters, this recovery has not translated into a meaningful increase in the number of our active trader direct subscribers and it is unclear if or when it will do so. Increased trading activity in the energy and commodities sectors has benefited certain of our offerings, including our FutureSource® Workstation and Market-QSM products, which are used by financial institutions and corporations, as well as active traders.

 

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The combination of all of these trends has impacted our ability to grow our direct subscriber base. As of December 31, 2010, Desktop Solutions supported approximately 54,000 direct subscription terminals, a 3.6% decline from approximately 56,000 direct subscription terminals as of December 31, 2009. In addition, the mix of subscribers may shift slightly from period to period, which can also impact revenue. At the same time, we are positioning certain products, such as Market-Q and eSignal®, to target the wealth management operations of financial institutions including financial advisors, stock brokers and other investment community professionals.

Across each of our businesses, regardless of business segment, our offerings are contracted with customers through fixed fee subscriptions (on either a multi-year, annual, quarterly or monthly basis), variable fee based on usage or a combination of fixed fee subscription and usage-based fees. In addition, some of our services generate one-time or non-recurring revenue, such as one time purchases of historical data or installations (including installations of product upgrades). Our contracts typically renew automatically unless canceled by one of the parties.

 

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Results of Operations

Selected Financial Data

 

           Successor     Predecessor     Predecessor         
           Period from
July 30
through
December 31,

2010
    Period from
January 1
through
July 29,

2010
    For the year ended
December 31,
     % Change  

(audited, in thousands)

   Combined
2010
        2009 (1)      2008      2010 vs 2009     2009 vs 2008  

REVENUE

   $ 796,645      $ 342,101      $ 454,544      $ 757,218       $ 750,541         5.2     0.9

COSTS AND EXPENSES:

                

Cost of services

     277,075        115,176        161,899        250,105         241,880         10.8     3.4

Selling, general and administrative

     282,619        124,409        158,210        237,041         244,248         19.2     (3.0 )% 

Merger costs

     119,992        67,258        52,734        —           —           —          —     

Depreciation

     38,466        15,962        22,504        31,800         27,044         21.0     17.6

Amortization

     85,585        65,867        19,718        30,523         27,686         180.4     10.2
                                              

Total costs and expenses

     803,737        388,672        415,065        549,469         540,858         46.3     1.6
                                              

(LOSS) INCOME FROM OPERATIONS

     (7,092     (46,571     39,479        207,749         209,683         (103.4 )%      (0.9 )% 

Interest (expense) income, net

     (77,604     (78,364     760        1,680         7,570         (4,719.3 )%      (77.8 )% 

Other income, net

     570        321        249        139         (2      310.1     —     
                                              

(LOSS) INCOME BEFORE INCOME TAXES

     (84,126     (124,614     40,488        209,568         217,251         (140.1 )%      (3.5 )% 

Income tax (benefit) expense

     (12,337     (30,351     18,014        68,162         74,582         (118.1 )%      (8.6 )% 
                                              

NET (LOSS) INCOME

   $ (71,789   $ (94,263   $ 22,474      $ 141,406       $ 142,669         (150.8 )%      (0.9 )% 

Less: Net income attributable to noncontrolling interest

     (—       (—       (—       (172      (21      100.0 %     (719.0 )% 
                                              

NET (LOSS) INCOME ATTRIBUTABLE TO INTERACTIVE DATA CORPORATION

   $ (71,789   $ (94,263   $ 22,474      $ 141,234       $ 142,648         (150.8 )%      (1.0 )% 

 

(1) Out-of-Period Accounting Adjustment

The Company recorded a $10,889,000 out-of-period accounting adjustment in the second quarter of 2009 related to the write-down of certain assets and the accrual of certain liabilities associated with the Company’s European real-time market data services operation, which is included in the Company’s Institutional Services Segment. The Company’s European real-time market data services operation represented approximately five percent of the Company’s total revenue in 2008. The out-of-period accounting adjustment decreased second quarter 2009 revenue by $2,294,000, increased second quarter 2009 cost of services expense by $7,487,000, most of which related to data acquisition expenses, and increased second quarter 2009 selling, general and administrative expenses by $1,108,000 which was mainly associated with sales commissions, commissions paid to third parties, and premises costs. The revenue and expenses associated with this out-of-period adjustment were not properly recorded in prior periods, primarily in 2008 and the first quarter of 2009. This matter is not expected to have a significant impact on the Company’s ongoing operations. All expenses related to this out-of-period accounting adjustment have been paid, and the Company’s relationships with its customers and business partners have been unaffected. The Company recorded the out-of-period accounting adjustment after various management reviews were conducted following the departure of an accountant within the European real-time market data services operation. Based on management’s review, the Company has concluded that this former employee incorrectly recorded certain journal entries and that these errors were limited to the European real-time market data services operation. The Company has taken action to enhance the control structure including the clarification and centralization of the financial reporting lines within its various business units, and the recruitment of additional senior-level financial management and staff to its finance team.

Based upon an evaluation of all relevant quantitative and qualitative factors, and after considering the provisions of Accounting Principles Board (“APB”) Opinion No. 28 “Interim Financial Reporting,” (“APB 28”), paragraph 29, as codified in FASB ASC Topic 250, “Accounting Changes and Error Corrections” (“ASC 250”) and FASB ASC Subtopic 270-10, “Interim Reporting” (“ASC 270-10”), FASB SFAS No. 154 “Accounting Changes and Error Corrections” (“SFAS 154”), as codified in ASC 250, and SEC Staff Accounting Bulletin (“SAB”) No. 99 “Materiality” (“SAB 99”) and No. 108 “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), the Company does not believe that the effects of the out-of-period accounting adjustment are material to its full-year 2009 financial results. The Company also does not believe that the out-of-period accounting adjustment, individually or in the aggregate, is material to any previously issued annual or quarterly financial statements. Because the out-of-period accounting adjustment, both on an individual account basis and in the aggregate, was not material to any of the Company’s prior year’s financial statements and is not material to the Company’s full year 2009 financial results, the out-of-period accounting adjustment was recorded in the Company’s financial statements for the second quarter of 2009. As a result of all of these factors, the Company has not restated its previously issued annual financial statements or interim financial data.

 

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The table below shows the total impact of the out-of-period accounting adjustment in the second quarter of 2009 by revenue and total expenses, as it relates to prior reporting periods, recorded in the second quarter of 2009 at the actual monthly average foreign exchange rates in effect at the time of the errors:

 

(in thousands)

   Three Months
Ended
March 31,
2009
     Year Ended      Total  
      December 31,
2008
     December 31,
2007
     December 31,
2006
    

Decrease in revenue

   $ 191       $ 1,694       $ 200       $ 209       $ 2,294   

Increase in total costs and expenses

     1,308         6,554         611         122         8,595   
                                            

Total- pretax impact on current period income

   $ 1,499       $ 8,248       $ 811       $ 331       $ 10,889   
                                            

Impact of Foreign Exchange

On a quarterly and annual basis we calculate the impact of the change in foreign exchange rates between the current reporting period and the respective prior year reporting period. We provide the U.S. dollar impact resulting from the change in foreign exchange rates on current period revenue, cost of services, selling, general and administrative, depreciation and amortization expenses. We calculate this impact by comparing the average foreign exchange rates for each operating currency for the current reporting period to the average foreign exchange rates for such operating currency for the respective year-ago reporting period.

Management uses constant foreign exchange rates in determining the Company’s growth rate in order to view business results without the impact of changing foreign exchange rates, thereby facilitating period-to-period comparisons of our underlying business. Foreign currency fluctuations are outside the company’s control and the impact on results of operations of currency fluctuations may not be indicative of the underlying performance of the business. Management believes that providing this information facilitates period-to-period comparisons of our underlying business. Generally, when the U.S. dollar either strengthens or weakens against other currencies, the growth at constant foreign exchange rates will be higher or lower than growth reported at actual exchange rates. Use of this constant exchange rate is considered Non-GAAP. In 2010, the value of the U.S. Dollar strengthened against the Euro and the UK Pound.

Merger Fair Value Purchase Price Allocation

In connection with the purchase price allocations relating to the Merger, we reduced the carrying value of deferred revenue by $4,642,000 (the “purchase price allocation adjustment to deferred revenue”). This amount will be amortized over the remaining terms of the related contracts (one year or less) as a reduction to revenue and is allocated among our segments and businesses. In 2010, the amount amortized was $3,656,000.

Also in connection with the purchase price allocations relating to the Merger, we increased the carrying value of fixed assets by $12,216,000. This amount will be depreciated over the remaining lives of the related assets which range from 3.7 to 7.7 years. For the period from July 30, 2010 through December 31, 2010, we recorded additional depreciation expense of $1,220,000 associated with this increase in carrying value. In addition, we reduced the carrying value of fixed assets by approximately $26,975,000 relating to completed capitalized development, which for purchase accounting purposes is now reflected in our completed technology intangible asset at fair value. In addition, in connection with the purchase price allocations relating to the Merger, we recorded intangible assets of $2,046,500,000. This amount will be amortized over the respective economic benefit periods which range from 3.4 years to 25 years. For the period from July 30, 2010 through December 31, 2010, we recorded amortization expense of $65,867,000 associated with these intangible assets.

Please refer to Note 3, “Merger” and Note 6, “Goodwill and Intangible Assets” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information.

COMBINED 2010 VERSUS 2009

Revenue

 

     For the Year Ended December 31,  

(In thousands)

   Combined
2010
     2009      % Change     2010
Foreign
Exchange
     2010  Adjusted
Revenue

(Non-GAAP)
     Adjusted %
Change
 

Institutional Services:

                

Pricing and Reference Data

   $ 513,821       $ 499,385         2.9   $ (412    $ 513,409         2.8

Real-Time Services

     168,510         141,302         19.3     1,801         170,311         20.5

Fixed Income Analytics

     34,692         33,156         4.6     11         34,703         4.7
                                  

Total Institutional Services

   $ 717,023       $ 673,843         6.4   $ 1,400       $ 718,423         6.6

Active Trader Services

                

Desktop Solutions

   $ 79,622       $ 83,375         (4.5 )%    $ (31    $ 79,591         (4.5 )% 
                                  

Total Active Trader Services

     79,622         83,375         (4.5 )%      (31    $ 79,591         (4.5 )% 
                                  

TOTAL REVENUE

   $ 796,645       $ 757,218         5.2   $ 1,369       $ 798,014         5.4
                                  

Combined 2010 revenue increased by $39,427,000, or 5.2%, to $796,645,000 (or an increase of $40,796,000, or 5.4%, excluding the impact of foreign exchange). The change in foreign exchange rates decreased Combined 2010 revenue by $1,369,000, mainly due to a stronger US dollar against the UK pound and the Euro. The OFS assets (acquired in December 2009) and the 7ticks assets (acquired in mid-January 2010), contributed incremental revenue of $11,136,000 and $14,697,000, respectively. The purchase price allocation adjustment to deferred revenue decreased Combined 2010 revenue by $3,656,000. The out-of-period accounting adjustment recorded in the second quarter of 2009 at our European real-time market data services operation decreased revenue in 2009 by $2,294,000.

 

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Institutional Services

Combined 2010 revenue within the Institutional Services segment increased by $43,180,000 or 6.4%, to $717,023,000. The change in foreign exchange rates decreased Combined 2010 revenue by $1,400,000. Excluding the impact of foreign exchange within the Institutional Services segment, Combined 2010 revenue grew $44,580,000, or 6.6%. The acquired OFS and 7ticks assets contributed incremental revenue of $11,136,000 and $14,697,000, respectively, in 2010. The purchase price allocation adjustment to deferred revenue decreased Combined 2010 Institutional Services revenue by $3,250,000. The out-of-period accounting adjustment recorded in the second quarter of 2009 decreased Institutional Services revenue in 2009 by $2,294,000.

Combined 2010 revenue for the Pricing and Reference Data business increased by $14,436,000, or 2.9%, to $513,821,000. The change in foreign exchange rates increased Combined 2010 revenue in the Pricing and Reference Data business by $412,000. Excluding the impact of foreign exchange, Combined 2010 revenue grew $14,024,000, or 2.8%, primarily due to higher demand for fixed income evaluations and reference data in the United States and Asia Pacific regions and the impact of price increases. The purchase price allocation adjustment to deferred revenue decreased Combined 2010 Pricing and Reference Data revenue by $2,479,000.

Combined 2010 revenue for the Real-Time Services business increased by $27,208,000, or 19.3%, to $168,510,000. The change in foreign exchange rates decreased Combined 2010 revenue in the Real-Time Services business by $1,801,000. Excluding the impact of foreign exchange, Combined 2010 revenue increased $29,009,000, or 20.5%, due primarily to revenue from the acquired OFS and 7ticks assets of $11,494,000 and $14,697,000, respectively. The remaining increase was due to stronger demand for web-based solutions mostly offset by lower real-time market data services revenue resulting from the impact of cancellations in prior quarters. The purchase price allocation adjustment to deferred revenue decreased 2010 Combined Real-Time Services revenue by $674,000. The out-of-period accounting adjustment recorded in the second quarter of 2009 decreased Real-Time Services revenue by $2,294,000 in 2009. Revenue for the Real-Time Services business in 2009 includes $495,000 from the OFS assets that were acquired in December 2009.

Combined 2010 revenue for the Fixed Income Analytics business increased by $1,536,000, or 4.6%, to $34,692,000. The change in foreign exchange rates decreased Combined 2010 revenue by $11,000. Excluding the impact of foreign exchange, Combined 2010 revenue grew $1,547,000, or 4.7%, primarily due to BondEdge upgrades by existing customers. The purchase price allocation adjustment to deferred revenue decreased Combined 2010 Fixed Income Analytics revenue by $97,000.

Active Trader Services

Within the Active Trader Services segment, Combined 2010 revenue decreased by $3,753,000, or 4.5%, to $79,622,000. The change in foreign exchange rates increased Combined 2010 revenue by $31,000. Excluding the impact of foreign exchange, Combined 2010 revenue decreased $3,784,000, or 4.5%, primarily due to continued declines in the number of core direct subscription terminals. The purchase price allocation adjustment to deferred revenue decreased Combined 2010 Active Trader services revenue by $406,000.

Cost of Services

Cost of services expenses are composed mainly of personnel-related expenses, communication, data acquisition, and consulting costs and expenditures associated with software and hardware maintenance agreements.

 

       For the Year Ended December 31,  

(In thousands)

   Combined
2010
     2009      % Change     2010
Foreign
Exchange
     2010 Adjusted
COS

(Non-GAAP)
     Adjusted %
Change
 

COST OF SERVICES

   $ 277,075       $ 250,105         10.8   $ 1,740       $ 278,815         11.5

Combined 2010 cost of services expenses increased by $26,970,000, or 10.8%, to $277,075,000. The change in foreign exchange rates decreased Combined 2010 cost of services expenses by $1,740,000. Excluding the impact of foreign exchange, Combined 2010 cost of services expenses increased by $28,710,000, or 11.5%, due primarily to the 7ticks and OFS acquired assets, which contributed incremental cost of services expenses of $12,981,000 and $5,985,000, respectively. The fair value purchase accounting adjustment on certain operating leases decreased Combined 2010 cost of services expenses by $87,000. The out-of-period accounting adjustment recorded in the second quarter of 2009 at our European real-time market data services operation increased cost of services expense in 2009 by $7,487,000.

The remaining increase in Combined 2010 cost of services expenses of $17,318,000 is primarily due to higher personnel-related costs of $8,717,000 associated with increased headcount levels and annual merit-based salary increases. Additionally, Combined 2010 cost of services include higher stock-based compensation costs of $3,960,000 due to the Merger related acceleration of unvested stock options, partially offset by lower non-Merger related stock based compensation costs. Also included in Combined 2010 cost of services expenses are higher premises expenses of $2,424,000, and non-Merger related higher consulting and communications expenses of $1,094,000 and $580,000, respectively. Cost of services expenses as a percentage of revenue was 34.8% in 2010 compared with 33.0% in 2009.

Selling, General and Administrative Expenses

Selling, general and administrative expenses are composed mainly of personnel-related expenses, outside professional services, advertising and marketing expenses, occupancy-related expenses, and commissions paid to third parties for distribution of our data to customers.

 

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Table of Contents
     For the Year Ended December 31,  

(In thousands)

   Combined
2010
   2009      % Change     2010
Foreign
Exchange
     2010
Adjusted
SG&A
(Non-GAAP)
     Adjusted %
Change
 

SELLING, GENERAL AND ADMINISTRATIVE

   $282,619    $ 237,041         19.2   $ 620       $ 283,239         19.5

Combined 2010 selling, general and administrative expenses increased by $45,578,000, or 19.2%, to $282,619,000. The change in foreign exchange rates decreased Combined 2010 selling, general, and administrative expenses by $620,000. Excluding the impact of foreign exchange, Combined 2010 selling, general and administrative expenses increased by $46,198,000, or 19.5%, partially due to the 7ticks and OFS acquired assets, which contributed incremental selling, general and administrative expenses of $5,798,000 and $2,123,000, respectively. The out-of-period accounting adjustment recorded in the second quarter of 2009 at our European real-time market data services operation increased selling, general and administrative expense by $1,108,000 in 2009.

The remaining increase in Combined 2010 selling, general, and administrative expenses of $39,385,000 is mainly due to higher personnel costs of $18,843,000 principally related to higher headcount, annual merit-based salary increases implemented in January 2010, and increased severance-related costs, as well as higher bonus expenses of $13,408,000 primarily related to incentive bonus compensation programs. Additionally, Combined 2010 selling, general and administrative costs include higher stock-based compensation costs of $3,962,000 resulting from the Merger related acceleration of unvested stock options, partially offset by lower non-Merger related stock based compensation costs. Also included in the Combined 2010 selling, general and administration costs is approximately $3,308,000 of non-recurring costs associated with the Company’s abandonment of certain in process software related projects that are no longer required as well as higher legal and premises expense of $955,000 and $392,000, respectively. Finally, Combined 2010 selling, general and administration costs include $452,000 of foreign exchange loss resulting primarily from the revaluation of European bank balances and inter-company balances due to the strengthening of the U.S. Dollar against the local currencies (primarily the Euro and the UK Pound).

These increases were partially offset by decreased commissions paid to third parties for the distribution of data of $1,145,000, decreased advertising and marketing expense of $1,320,000, and lower non-income tax expenses mainly related to a one-time tax incentive of $940,000.

Selling, general, and administrative expenses as a percentage of revenue was 35.5% in 2010 compared with 31.3% in 2009.

Merger Costs

     For the Year Ended December 31,  

(In thousands)

   Combined
2010
     2009      % Change      2010
Foreign
Exchange
     2010
Adjusted
Merger  Costs
(Non-GAAP)
     Adjusted %
Change
 

MERGER COSTS

   $ 119,992       $  —           —           —         $ 119,992         —     

Combined 2010 Merger costs of $119,992,000 represent transaction, legal, accounting, advisor, valuation, transaction bonuses, and tax advisor fees in connection with the Merger. Please refer to Note 3 “Merger” in the Notes to the Consolidated Financial Statements in item 8 of this Annual Report on Form 10-K for additional information.

Depreciation

 

     For the Year Ended December 31,  

(In thousands)

   Combined
2010
     2009      % Change     2010
Foreign
Exchange
     2010
Adjusted
Depreciation
(Non-GAAP)
     Adjusted %
Change
 

DEPRECIATION

   $ 38,466       $ 31,800         21.0   $ 182       $ 38,648         21.5

Combined 2010 depreciation expense increased by $6,666,000, or 21.0%, to $38,466,000. The change in foreign exchange rates decreased the Combined 2010 depreciation expense by $182,000 in 2010. Excluding the impact of foreign exchange, Combined 2010 depreciation expense increased by $6,848,000, or 21.5%, due in part to the 7ticks and OFS acquired assets which contributed incremental depreciation expense of $1,875,000 and $103,000, respectively. Depreciation expense also increased by $1,300,000 due to the commencement of depreciation in the current year on leasehold improvements on space under operating leases that we started using in 2010. The purchase price allocation adjustment increased Combined 2010 depreciation expense by $1,220,000. The remaining increase in Combined 2010 depreciation was due to increased capitalized software development depreciation, increased capital spending during the last 12 months, partially offset by certain assets reaching the end of their useful lives.

 

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Amortization

 

     For the Year Ended December 31,  

(In thousands)

   Combined
2010
     2009      % Change     2010
Foreign
Exchange
     2010
Adjusted
Amortization

(Non-GAAP)
     Adjusted %
Change
 

AMORTIZATION

   $ 85,585       $ 30,523         180.4   $ 620       $ 86,205         182.4

Combined 2010 amortization expense increased by $55,062,000, or 180.4%, to $85,585,000. The change in foreign exchange rates decreased Combined 2010 amortization expense by $620,000. Excluding the impact of foreign exchange, Combined 2010 amortization expense increased by $55,682,000 or 182.4%, due to incremental amortization expense of $65,867,000 resulting from the revalued intangible assets following the Merger.

Other Consolidated Financial Information

Combined 2010 loss from operations was $7,092,000 compared to income from operations of $207,749,000 in 2009. The change of $214,841,000 is due to factors discussed above.

Combined 2010 interest expense, net was $77,604,000 in 2010 compared to interest income, net of $1,680,000 in 2009. The Combined 2010 interest expense, net reflects average borrowings of $2,186,675,000 at an average rate of 7.45% over the successor period from July 30, 2010 through December 31, 2010 (excluding non-cash expense) on the financing obtained by the Company to effect the Merger. The 2009 interest income, net represented interest earned on investments which were liquidated in 2010 to help finance the Merger.

Combined 2010 other income, net increased by $431,000 to $570,000. The increase in other income is primarily due to a fair value adjustment related to the 7ticks earn-out. Refer to Note 4, “Acquisitions” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information.

Combined loss before income taxes was $84,126,000 in 2010 compared to income before income taxes of $209,568,000 in 2009. The change in (loss) income before income taxes of $293,694,000 is due to the factors discussed above.

2009 VERSUS 2008

Revenue

 

     For the Year Ended December 31,  

(In thousands)

   2009      2008      % Change     2009
Foreign
Exchange
     2009
Adjusted
Revenue

(Non-GAAP)
     Adjusted %
Change
 

Institutional Services:

                

Pricing and Reference Data

   $ 499,385       $ 475,803         5.0   $ 18,453       $ 517,838         8.8

Real-Time Services

     141,302         152,989         (7.6 )%      8,932         150,234         (1.8 )% 

Fixed Income Analytics

     33,156         32,846         0.9     46         33,202         1.1
                                        

Total Institutional Services

   $ 673,843       $ 661,638         1.8   $ 27,431       $ 701,274         6.0

Active Trader Services

                

Desktop Solutions

   $ 83,375       $ 88,903         (6.2 )%    $ 1,677       $ 85,052         (4.3 )% 
                                        

Total Active Trader Services

     83,375         88,903         (6.2 )%      1,677         85,052         (4.3 )% 
                                        

TOTAL REVENUE

   $ 757,218       $ 750,541         0.9   $ 29,108       $ 786,326         4.8
                                        

Total revenue increased by $6,677,000, or 0.9%, to $757,218,000 in 2009 (or an increase of $35,785,000, or 4.8% excluding the impact of foreign exchange). The change in foreign exchange rates decreased revenue by $29,108,000 in 2009, mainly due to the strength of the US dollar against the UK pound and the Euro. In 2009, the out-of-period accounting adjustment, as referred to above, decreased revenue by $2,294,000 at our European real-time market data services operation. Total revenue increased at our Pricing and Reference Data business by $23,582,000, and revenue at our Fixed Income Analytics business increased $310,000. This revenue growth was partially offset by decreased revenue of $11,687,000 at our Real-Time Services business, which includes lower revenue of $2,294,000 related to the out-of-period accounting adjustment as referred to above. In addition, revenue decreased $5,528,000 at our Interactive Data Desktop Solutions business. Three acquisitions contributed a total of $14,797,000 to 2009 revenue. First, the Kler’s business, which we acquired in August 2008, contributed incremental revenue of $5,984,000 in 2009. Second, the NDF business, in which we acquired a majority interest in December 2008, and subsequently acquired an additional 10% interest during the second quarter of 2009, contributed incremental revenue of $7,836,000 in 2009, net of intercompany eliminations. In addition, the OFS data and tools assets, acquired in December 2009 from Dow Jones & Company, Inc., contributed revenue of $977,000 in 2009.

 

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Institutional Services

Revenue within the Institutional Services segment increased by $12,205,000, or 1.8%, to $673,843,000 in 2009. The change in foreign exchange rates decreased revenue by $27,431,000 in 2009. Excluding the impact of foreign exchange within the Institutional Services segment, revenue grew $39,636,000, or 6.0%, in 2009. In 2009, the out-of-period accounting adjustment decreased revenue by $2,294,000 at our European real-time market data services operation.

Revenue for the Pricing and Reference Data business increased by $23,582,000, or 5.0%, to $499,385,000 in 2009. The change in foreign exchange rates decreased revenue in the Pricing and Reference Data business by $18,453,000 in 2009. Excluding the impact of foreign exchange, revenue grew $42,035,000, or 8.8%, in 2009. The Kler’s business contributed incremental revenue of $5,984,000 in 2009 and the NDF business contributed incremental revenue of $7,836,000, net of intercompany eliminations, in 2009. The remaining increase in revenue for the Pricing and Reference Data business was attributable to growth across all geographic regions mainly due to higher demand for our evaluated pricing and reference data content, increased net new business during 2009, and moderately higher usage levels.

Revenue for the Real-Time Services business decreased by $11,687,000, or 7.6%, to $141,302,000 in 2009. The change in foreign exchange rates decreased revenue in the Real-Time Services business by $8,932,000 in 2009. Excluding the impact of foreign exchange, revenue decreased $2,755,000, or 1.8%, in 2009 mainly due to the out-of-period accounting adjustment of $2,294,000 coupled with the impact of cancellations related to real-time data feed services. This revenue decline was partially offset by the continued adoption of web-based financial market information solutions in North America and Europe. Additionally, the OFS data and tools assets, acquired in December 2009, contributed revenue of $977,000 in 2009.

Revenue for the Fixed Income Analytics business increased by $310,000, or 0.9%, to $33,156,000 in 2009. The change in foreign exchange rates decreased revenue by $46,000 in 2009. Excluding the impact of foreign exchange, revenue grew $356,000, or 1.1%, in 2009.

Active Trader Services

Within the Active Trader Services segment, revenue decreased by $5,528,000, or 6.2%, to $83,375,000 in 2009. The change in foreign exchange rates decreased revenue by $1,677,000 in 2009. Excluding the impact of foreign exchange, revenue decreased $3,851,000, or 4.3%, in 2009. This revenue decrease was primarily related to a decline in average Interactive Data Desktop Solutions terminal subscription fees and lower advertising revenue. This was partially offset by a modest increase in the number of direct subscription terminals to 56,492 at the end of 2009 from 54,870 at the end of 2008.

Cost of Services

Cost of services expenses are composed mainly of personnel-related expenses, communication, data acquisition, and consulting costs and expenditures associated with software and hardware maintenance agreements.

 

     For the Year Ended December 31,  

(In thousands)

   2009      2008      % Change     2009
Foreign
Exchange
     2009 Adjusted
COS

(Non-GAAP)
     Adjusted
%
Change
 

COST OF SERVICES

   $ 250,105       $ 241,880         3.4   $ 8,562       $ 258,667         6.9

Cost of services expenses increased by $8,225,000, or 3.4%, to $250,105,000 in 2009. The change in foreign exchange rates decreased cost of services expense by $8,562,000 in 2009. Excluding the impact of foreign exchange cost of services expenses increased by $16,787,000 or 6.9%. Three acquisitions contributed a total of $3,258,000 to cost of services. First, the Kler’s business contributed incremental cost of services expense of $881,000 in 2009. Second, the NDF business contributed incremental cost of services expenses of $1,860,000 in 2009. In addition, the OFS data and tools assets contributed incremental cost of services expenses of $517,000 in 2009.

The remaining increase in cost of services expenses is mainly due to higher personnel-related costs of $5,625,000 mainly associated with increased headcount levels, lower capitalization of salaries related to internal software development, and the full year effect in 2009 of prior year annual merit increases that went into effect on April 1, 2008. This is coupled with higher data acquisition expense of $1,814,000, increased communications expenditures of $1,305,000, and higher premises expense of $499,000. This is partially offset by lower consulting-related spending of $1,386,000, lower incentive-based compensation expense of $721,000, and a decrease in travel and supplies expenditures of $727,000 and $415,000, respectively. Cost of services expenses as a percentage of revenue was 33.0% in 2009 compared with 32.2% in 2008.

In 2009, the out-of-period accounting adjustment recorded in the second quarter of 2009 at our European real-time market data services operation increased cost of services expenses by $7,487,000 and was comprised mainly of data acquisition-related expense.

Selling, General and Administrative Expenses

Selling, general and administrative expenses are composed mainly of personnel-related expense, outside professional services, advertising and marketing expenses, occupancy-related expenses, and commissions paid to third parties for distribution of our data to customers.

 

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     For the Year Ended December 31,  

(In thousands)

   2009      2008      % Change     2009
Foreign
Exchange
     2009 Adjusted
SG&A
(Non-GAAP)
     Adjusted %
Change
 

SELLING, GENERAL AND ADMINISTRATIVE

   $ 237,041       $ 244,248         (3.0 )%    $ 9,444       $ 246,485         0.9

Selling, general and administrative expenses decreased by $7,207,000, or 3.0%, to $237,041,000 in 2009. The change in foreign exchange rates decreased selling, general, and administrative expenses by $9,444,000 in 2009. Excluding the impact of foreign exchange, selling, general and administrative expenses increased by $2,237,000 or 0.9% in 2009. In 2009, the out-of-period accounting adjustment recorded in the second quarter of 2009 at our European real-time market data services operation increased selling, general and administrative expense by $1,108,000 and was comprised mainly of sales commission, commissions paid to third parties, and premises costs. Three acquisitions contributed a total of $4,440,000 to selling, general and administrative expenses. First, the Kler’s business contributed incremental selling, general and administrative expenses of $1,527,000 in 2009. Second, the NDF business contributed incremental selling, general and administrative expenses of $2,823,000. In addition, the OFS data and tools assets contributed incremental selling, general, and administrative expenses of $90,000 in 2009. The change in foreign exchange related to transactional gain/losses (resulting primarily from the revaluation of European bank balances and inter-company balances) increased selling, general and administrative expenses by $6,760,000.

Additional increases in selling, general and administrative expenses included higher personnel-related costs of $9,783,000 primarily associated with increased headcount levels, the full year effect in 2009 of prior year annual merit increases that went into effect on April 1, 2008, and higher long-term incentive compensation expense. Included in the higher personnel-related costs is a $2,212,000 charge for stock-based compensation pertaining to our former Chief Executive Officer’s announced retirement on March 2, 2009. Furthermore there was an additional expense associated with the Company’s overseas pension plan of $3,427,000 as a result of an updated pension valuation, higher premises expense of $2,507,000 in 2009, increased bad debt expense of $629,000, and higher hardware/software maintenance expense of $361,000. These increases in selling, general, and administrative expenses are partially offset by lower incentive-based compensation expense of $17,244,000 in response to our financial performance, and lower sales commission expense of $3,604,000. Additional reductions in selling, general and administrative expenses included decreased marketing expense of $2,533,000, decreased travel costs of $2,333,000, and lower training expenditures of $453,000. Also contributing to the decrease in selling, general, and administrative expenses is lower audit fees of $359,000 and decreased legal costs of $235,000. Selling, general, and administrative expenses as a percentage of revenue was 31.3% in 2009 compared with 32.5% in 2008.

Depreciation

 

     For the Year Ended December 31,  

(In thousands)

   2009      2008      % Change     2009
Foreign
Exchange
     2009 Adjusted
Depreciation
(Non-GAAP)
     Adjusted %
Change
 

DEPRECIATION

   $ 31,800       $ 27,044         17.6   $ 586       $ 32,386         19.8

Depreciation expense increased by $4,756,000 or 17.6%, to $31,800,000 in 2009. The change in foreign exchange rates decreased depreciation expense by $586,000 in 2009. Excluding the impact of foreign exchange, depreciation expense increased by $5,342,000 or 19.8% in 2009 due to capital spending during the last twelve months and increased capitalized software development amortization in 2009. In addition, the NDF business contributed $41,000 of incremental depreciation in 2009. This is partially offset by certain assets reaching the end of their useful lives.

Amortization

 

     For the Year Ended December 31,  

(In thousands)

   2009      2008      % Change     2009
Foreign
Exchange
     2009
Adjusted
Amortization
(Non-GAAP)
     Adjusted %
Change
 

AMORTIZATION

   $ 30,523       $ 27,686         10.2   $ 200       $ 30,723         11.0

Amortization expense increased by $2,837,000, or 10.2%, to $30,523,000 in 2009. The change in foreign exchange rates decreased amortization expense by $200,000 in 2009. Excluding the impact of foreign exchange, amortization expense increased by $3,037,000 or 11.0% in 2009. The increase in amortization expense is primarily due to the incremental expense associated with acquisitions. The acquisitions of NDF and Kler’s contributed incremental amortization of $1,900,000 and $813,000, respectively, and the acquisition of the OFS data and tools assets contributed $98,000 of amortization expense in 2009.

Other Consolidated Financial Information

Income from operations decreased by $1,934,000, or 0.9%, to $207,749,000 in 2009 due to the factors discussed above.

Interest income decreased by $5,890,000, or 77.8%, to $1,680,000 in 2009. The decrease in interest income is primarily due to a decline in interest rates.

Income before income taxes decreased by $7,683,000 or 3.5% to $209,568,000 in 2009 due to the factors discussed above.

 

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Net income decreased by $1,263,000, or 0.9%, to $141,406,000 in 2009. The decrease in net income is primarily due to a lower effective tax rate of 32.5% in 2009 compared with 34.3% in 2008.

Liquidity and Capital Resources

As of December 31, 2010, we had cash and cash equivalents of $123,704,000 and had $155,538,000 available under our revolving credit facility. Our cash needs arise from our debt obligations, the purchase of equipment, improvements of facilities (including investments in our underlying infrastructure to increase the efficiency and capacity of business operations as well as the technology platforms that support or services such as our data centers and ticker plants), working capital requirements, and acquisitions. Management believes that our cash and cash equivalents, combined with expected cash flows generated by operating activities, will be sufficient to meet our operating cash needs for the next several years. In connection with the Merger, we incurred indebtedness totaling $2,032,000,000. Note 19 “Debt” and Note 20 “Subsequent Events” in the Notes to the Consolidated Financial Statements and the discussion below provide additional information regarding our debt obligations.

The following table shows our level of indebtedness and certain other information as of December 31, 2010:

 

(in thousands)

   As of December 31, 2010  

Revolving credit facility(1)

   $ —     

Term loan facility(2)

     1,323,350   

Senior unsecured notes

     700,000   
        

Total indebtedness

   $ 2,023,350   
        

 

(1) Our revolving credit facility, which has a 5-year maturity, provides for borrowing up to $160,000,000 aggregate principal amount (without giving effect to $4,462,000 of letters of credit that were outstanding as of December 31, 2010).
(2) We entered into a $1,330,000,000 aggregate principal amount senior secured term loan facility with a 6.5-year maturity. The term loan was issued at a 3%, or $39,900,000, original issue discount, which will be amortized and included as interest expense using the effective interest method in our statements of operations over the life of the term loan.

Prior to the Merger, we had no long term debt. The following table summarizes our cash flow activities for the periods indicated:

 

     Years Ended December 31,        

(in thousands)

   Combined
2010
    2009     2008  

Cash flow provided by (used in):

      

Operating activities

   $ 23,815      $ 208,134      $ 196,242   

Investing activities

     (3,359,089     (82,993     (90,962

Financing activities

     3,255,994        (79,796     (137,060

Effect of exchange rates on cash balances

     (6,962     10,439        (19,528
                        

Net increase (decrease) in cash and cash equivalents

   $ (86,242   $ 55,784      $ (51,308
                        

Operating Activities

Combined 2010 net cash provided by operating activities decreased by $184,319,000, or 88.6%, to $23,815,000. The decrease in net cash provided by operating activities was primarily due to a decrease in Combined 2010 net income of $213,195,000, offset by an increase in our non cash items related to depreciation and amortization expense of $61,727,000, amortization of deferred financing costs of $8,402,000 and higher stock compensation expense of $7,916,000. The combination of these items comprise $135,150,000 of the total $184,319,000 decline in cash flows from operating activities. The remaining decrease of $49,169,000 was primarily due to payments made to satisfy pension obligations at the time of the Merger of $85,941,000, offset by other changes in working capital, primarily related to the change in interest payable of $30,647,000 and the change in accrued expenses, of which $13,764,000 related to increased employee bonuses.

Net cash provided by operating activities increased by $11,892,000, or 6.1%, to $208,134,000 in 2009. The increase in net cash provided by operating activities was primarily due to net income being materially consistent with the prior year, while including higher amortization and depreciation expense of $7,593,000, an increase in stock compensation of $1,836,000, a higher provision for doubtful accounts and sales credits of $2,323,000 and decrease in cash used by working capital of $7,594,000 mainly due to improved collections of receivables and the timing of payables in 2009 as compared with 2008. This is partially offset by an increase in utilization of deferred tax balances $7,147,000.

Investing Activities

Combined 2010 capital expenditures increased by $1,531,000, or 3.6%, to $44,360,000, mainly due to timing of capital expenditures that were accrued for at the end of 2009, but were paid in the first quarter of 2010.

 

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Capital expenditures decreased by $2,680,000, or 5.9%, to $42,829,000 in 2009 mainly due to timing of maintenance-related capital expenditures at our Managed Solutions business in 2008 and 2009 partially offset by continued investment in expanding and optimizing our underlying infrastructure and delivery platforms.

Capital expenditures increased by $8,700,000, or 23.6%, to $45,509,000 in 2008 mainly due to infrastructure investments related to the expansion of our data center and expenditures associated with the Managed Solutions business. This increase was partially offset by lower capital expenditures at our Pricing and Reference Data business.

We have no material capital expenditure commitments and we expect that capital expenditures in 2011 will not vary significantly from recent years.

In 2010, we purchased municipal bonds of $64,136,000 with original maturities greater than 90 days but remaining maturities of less than one year. In connection with the consummation of the Merger, we sold all of our U.S. marketable securities. Total proceeds from the sale and maturies of marketable securities totaled $159,428,000 in the year ended December 31, 2010. We have made no purchases of marketable securities since the Merger.

In 2009, we purchased municipal bonds of $257,390,000 with original maturities greater than 90 days but remaining maturities of less than one year and had redeemed $233,957,000 of municipal bonds, which matured during 2009.

In 2008, we purchased municipal bonds of $172,068,000 with original maturities greater than 90 days but remaining maturities of less than one year and had redeemed $170,281,000 of municipal bonds, which matured during 2008.

On December 16, 2010, we purchased the remaining 10% of outstanding equity (or 400 common shares) of NDF for 302,000,000 JPY (or $3,582,000 at the currency exchange rate on the date acquired) bringing the Company’s ownership of the outstanding equity to 100% as of December 31, 2010.

On September 30, 2010, the Company acquired certain assets of FAIT Internet Software GmbH for a purchase price of $2,361,000, which was funded from operating cash.

On January 15, 2010, we acquired the assets of 7ticks, LLC (“7ticks”) for a purchase price of $30,000,000, plus an initial working capital payment of $120,000, for a total payment of $30,120,000. An additional working capital payment was made during the first quarter of 2010 in the amount of $402,000 increasing the purchase price to $30,522,000.

On December 1, 2009, we acquired certain assets of Dow Jones & Company, Inc.’s Online Financial Solutions (“OFS”) business for a purchase price of $13,500,000, which was funded from operating cash.

On April 28, 2009, we purchased an additional 400 common shares of NDF for 302,000,000 JPY (or $3,126,000 at the currency exchange rate on the date of acquisition) from one of the remaining minority stockholders (noncontrolling interests), bringing the Company’s ownership of the outstanding equity to 90% as of April 28, 2009.

On December 15, 2008, we acquired 79% of Japan-based NDF. On December 19, 2008, we acquired an additional 1% to increase our ownership to 80% of NDF. In total we paid 2,416,000,000 JPY (or $26,697,000 at the currency exchange rate on the date of acquisition), offset by cash acquired of 938,369,000 JPY (or $10,369,000 at the currency exchange rate at the date of acquisition). We funded this acquisition from our existing cash resources.

On August 1, 2008, we completed the acquisition of Kler’s, for a purchase price of 19,000,000 in cash (or approximately $29,566,000 at the currency exchange rate at acquisition date), offset by cash acquired of 1,689,000 (or $2,628,000 at the currency exchange rate at acquisition date). We funded this acquisition from our existing cash resources.

Financing Activities

In connection with the Merger, the Company’s former stockholders received $33.86 cash for each share of common stock they owned and the holders of options to purchase common stock received the excess of $33.86 over the exercise price of those options. The aggregate purchase price paid for all of the equity securities of the Company was approximately $3.4 billion. The purchase price was primarily funded by equity financing provided or secured primarily by investment funds affiliated with, and a co-investment vehicle controlled by, the Sponsors in the amount of $1,353,969,000 and through financing, with combined net proceeds of $1,923,856,000, provided by a new term loan facility and a new revolving credit facility (the “Senior Secured Credit Facilities”) and the issuance of debt securities (the “Senior Notes due 2018”). We made a total of $8,650,000 in principal payments on our long term debt subsequent to the Merger, which consisted of $6,650,000 on our term loan facility and $2,000,000 on our revolving credit facility. Refer to Note 19 “Debt” and Note 20 “Subsequent Events” in the Notes to the Consolidated Financial Statements for additional information on our debt. In addition, we paid deferred financing costs of $26,089,000 related to the debt, which costs are capitalized in the company’s financial results for the Successor period. Refer to Note 3 “Merger” in the Notes to the Consolidated Financial Statements in Item 8 for additional information.

Prior to the Merger, we paid regular quarterly dividends to our stockholders. Details on the last regular quarterly dividend paid under this program are as follows:

 

Payment Date

   Record Date   

Type

   Amount Per
Common Share
     Total
Dividend Paid
 

March 31, 2010

   March 3, 2010    Regular (cash)    $ 0.20       $ 18,944   

 

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In 2009, we paid cash dividends to stockholders in the following amounts on the following dates:

 

Payment Date

   Record Date     

Type

   Amount Per
Common Share
     Total
Dividend Paid
 

March 31, 2009 (1)

     March 2, 2009       Regular (cash)    $ 0.20       $ 18,746,000   

June 29, 2009

     June 8, 2009       Regular (cash)    $ 0.20       $ 18,807,000   

September 29, 2009

     September 8, 2009       Regular (cash)    $ 0.20       $ 18,798,000   

December 30, 2009

     December 8, 2009       Regular (cash)    $ 0.20       $ 18,860,000   
                 
            $ 75,211,000   
                 

 

(1) On December 4, 2008, our Board of Directors (i) approved increasing the regular quarterly dividend by 33%, from $0.15 per share to $0.20 per share of common stock and (ii) declared the first quarter 2009 dividend (with a payment date of March 31, 2009 and a record date of March 2, 2009). This declared dividend was unpaid and included in dividends payable as of December 31, 2008.

In 2008, we paid cash dividends to stockholders in the following amounts on the following dates:

 

Payment Date

   Record Date     

Type

   Amount Per
Common Share
     Total
Dividend Paid
 

January 24, 2008 (1)

     January 4, 2008       Special, Cash    $ 0.50       $ 47,184,000   

March 31, 2008 (2)

     March 3, 2008       Regular, Cash    $ 0.15       $ 14,141,000   

June 27, 2008

     June 6, 2008       Regular, Cash    $ 0.15       $ 14,100,000   

September 26, 2008

     September 5, 2008       Regular, Cash    $ 0.15       $ 14,117,000   

December 10, 2008

     November 12, 2008       Regular, Cash    $ 0.15       $ 14,054,000   
                 
            $ 103,596,000   
                 

 

(1) Unpaid dividends declared in the amount of $47,184,000 were included in dividends payable as of December 31, 2007.
(2) On December 11, 2007, our Board of Directors (i) approved increasing the Company’s regular quarterly dividend by 20%, raising it from $0.125 per share to $0.15 per share of common stock and (ii) declared the first quarter 2008 dividend (payment date: March 31, 2008 and record date March 3, 2008). The March 2008 total dividend paid amount of $14,141,000 was included in dividends payable as of December 31, 2007.

These cash dividends were paid from our existing cash resources.

The various covenants of our debt agreements, including our Senior Secured Credit Facilities and the indenture governing the Senior Notes due 2018, restrict our ability to pay dividends. We do not expect for the foreseeable future to pay dividends on our common stock. Any future determination to pay dividends will depend upon, among other factors, our results of operations, financial conditions, capital requirements, any contractual restrictions and any other considerations our Board deems relevant.

In 2010, prior to the Merger, we received $28,397,000 from the exercise of options and settlement of deferred and restricted stock units to purchase 1,513,000 shares of common stock issued pursuant to our 2000 Long-Term Incentive Plan and 2009 Long-Term Incentive Plan and the purchase of 200,000 shares of common stock by employees, under our 2001 Employee Stock Purchase Plan. We did not repurchase any outstanding shares of common stock under the stock buyback program in 2010.

In 2009, we utilized $30,670,000 to repurchase 1,280,700 outstanding shares of common stock under our publicly announced stock buyback program. Also in 2009, we received $23,379,000 from the exercise of options to purchase 1,695,000 shares of common stock issued pursuant to our 2000 Long-Term Incentive Plan and the purchase of 235,000 shares of common stock by employees under our 2001 Employee Stock Purchase Plan.

In 2008, we utilized $52,494,000 to repurchase 1,976,000 outstanding shares of common stock under our publicly announced stock buyback program. Also in 2008, we received $17,010,000 from the exercise of options to purchase 980,000 shares of common stock issued pursuant to our 2000 Long-Term Incentive Plan and the purchase of 184,000 shares of common stock by employees under our 2001 Employee Stock Purchase Plan.

Debt related to the Merger

Overview

On July 29, 2010, in connection with the Merger, we entered into debt totaling $2,190,000,000. Details of the debt are described below. Fees totaling $76,639,000, representing direct issuance costs and commitment fees paid to the underwriters of $50,550,000 and external transaction costs of $26,089,000 were capitalized as deferred financing costs and are reported in Deferred Financing Costs on the consolidated balance sheet of the Successor in our audited consolidated financial statements. These costs will be amortized from the July 29, 2010 merger date over the remaining term of each debt instrument using the effective interest rate method.

 

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Senior Secured Credit Facilities

We entered into a $1,330,000,000 term loan facility with a term of six and a half years. In addition, we entered into a $160,000,000 revolving credit facility with a term of five years. We borrowed $2,000,000 under the revolving credit facility at the time of the merger, which was repaid as of September 30, 2010. The terms and conditions of these two facilities, which we refer to as our Senior Secured Credit Facilities, are documented in a single credit agreement.

Interest Rate and Fees

Interest on the Senior Secured Credit Facilities is payable at a rate equal to, at our option either (a) British Bankers Association LIBOR plus an applicable margin of 5.00% or (b) the highest of (1) the prime commercial lending rate publicly announced by Bank of America as the “prime rate,” (2) the federal funds effective rate plus 0.50% and (3) the one-month LIBOR rate plus 1.00%, plus an applicable margin (refer to Note 18 “Debt” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for more information). However, we made an irrevocable election to pay interest for the term loan facility solely equal to LIBOR plus an applicable margin of 5.00%. In September 2010, we designated as accounting hedges three forward starting interest rate caps related to the term loan facility with notional amounts up to $700,000,000 and declining to $450,000,000 over three years to receive interest at variable rates equal to LIBOR and pay interest at fixed rates of 2.00% starting on September 30, 2011 and increasing to 4.00% by September 30, 2014. The interest rate caps are not effective until September 30, 2011, and accordingly do not impact the interest rate on the debt at December 31, 2010 (refer to Note 18 “Derivatives” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for more information). In addition to paying interest on outstanding principal amounts, we are required to pay the lenders a commitment fee of 0.75% per annum on the amounts available under the revolving credit facility. The commitment fee percentage may be reduced to 0.50% subject to us reducing our leverage to specified ratios. In February of 2011, we refinanced our term loan facility, reducing the interest rates, among other things, as further discussed further below.

Installment Payments under the Term Loan Facility

We are required to pay equal quarterly principal installments in aggregate annual amounts equal to 1% of the original funded principal amount of the term loan facility with the balance being payable on the final maturity date in January 2017. As of December 31, 2010, we paid the first two scheduled principal payments totaling $6,650,000. In February 2011, we refinanced our term loan facility which resulted in extending the maturity date, among other things, as discussed further below.

Prepayments

We are required to prepay outstanding amounts under the term loan facility, subject to certain limits and exceptions, with:

 

   

50% of Excess Cash Flow for each fiscal year commencing with the 2011 fiscal year (which percentage will be reduced to 25% if our Total Leverage Ratio is equal to or less than 4.75x and to 0% if our Total Leverage Ratio is equal to or less than 4.00x);

 

   

100% of the net cash proceeds of all non-ordinary course asset sales or other dispositions of property, subject to our right to reinvest the proceeds; and

 

   

100% of the net cash proceeds of any incurrence of debt, other than proceeds from debt permitted under the Senior Secured Credit Facilities.

We may voluntarily repay outstanding loans under the Senior Secured Credit Facilities at any time without premium or penalty, other than customary breakage costs with respect to LIBOR loans and other than a 1% premium in connection with certain repricing transactions consummated within the first year of the closing of the Senior Secured Credit Facilities. Excess Cash Flow and Total Leverage Ratio are defined in the credit agreement and are discussed in further detail below.

Guarantees

All obligations under the Senior Secured Credit Facilities are unconditionally guaranteed by Intermediate and each of our existing and subsequently acquired or organized direct or indirect wholly-owned domestic subsidiaries (subject to certain exceptions). The Senior Secured Credit Facilities contain a number of covenants that, among other things, restrict our ability to incur additional indebtedness, create liens, enter into sale and leaseback transactions, engage in mergers or consolidations, sell or transfer assets, pay dividends and distributions or repurchase our capital stock, make investments, loans or advances, prepay certain subordinated indebtedness, make certain acquisitions, engage in certain transactions with affiliates, amend material agreements governing certain subordinated indebtedness, and change our fiscal year. The Senior Secured Credit Facilities also require us to maintain a maximum senior secured leverage ratio and a minimum cash interest coverage ratio, and contain certain customary affirmative covenants and events of default, including a change of control.

February 2011 Term Loan Facility Refinancing

On February 11, 2011, we completed a refinancing of the Senior Secured Term Loan Facility through an amendment to the credit agreement. The amendment provides for, among other things, the following:

 

   

a reduction of the LIBOR borrowing rate from LIBOR plus 5.0% to LIBOR plus 3.5%, subject to a further reduction of 0.25% upon the company achieving certain leverage ratios,

 

   

a reduction in the LIBOR floor from 1.75% to 1.25%,

 

   

an extension of the maturity of the term loan facility to February 11, 2018;

 

   

an extension of the commencement date for amortization payments on the term loans to June 30, 2011; and

 

   

an increase in the amount of the facility to $1,345,000,000.

 

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Senior Notes due 2018

We issued $700,000,000 of unsecured senior notes due 2018 (the “Senior Notes due 2018”) bearing annual interest at 10.25% of the aggregate principal amount. Interest payments are due semi-annually on February 1 and August 1 of each year until maturity. Our first interest payment of $36,274,000 was paid on February 1, 2011.

The Senior Notes due 2018 are our senior unsecured obligations that rank senior in right of payment to future debt; rank equally in right of payment with all of our existing and future senior indebtedness; are effectively subordinated in right of payment to our existing and future secured obligations, including indebtedness under our Senior Secured Credit Facilities, to the extent of the value of the assets securing such obligations; and are effectively subordinated in right of payment to all existing and future indebtedness and other liabilities of our non-guarantor subsidiaries (other than indebtedness and liabilities owed to us or one of our guarantor subsidiaries).

Guarantees

The Senior Notes due 2018 are fully and unconditionally guaranteed on a senior unsecured basis by each of our existing and future direct or indirect wholly owned domestic subsidiaries that guarantee our obligations under our Senior Secured Credit Facilities. The indenture contains a number of covenants that, among other things, restrict, subject to certain exceptions, our ability and the ability of our restricted subsidiaries to incur additional debt or issue certain preferred shares, pay dividends on or make other distributions in respect of our capital stock or make other restricted payments, make certain investments, sell or transfer certain assets, create liens on certain assets to secure debt, consolidate, merge, sell or otherwise dispose of all or substantially all of the our assets, enter into certain transactions with the our affiliates and designate our subsidiaries as unrestricted subsidiaries. The indenture provides for events of default which, if any of them occurs, would permit or require the principal of and accrued interest on the Senior Notes due 2018 to become or to be declared due and payable. The indenture also contains certain customary affirmative covenants pertaining to notice and filings with the Trustee.

Optional Redemption

The Senior Notes due 2018 are redeemable in whole or in part, at our option, at any time at varying redemption prices that generally include premiums, which are defined in the indenture governing the Senior Notes due 2018 (refer to Note 19, “Debt” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further details.) In addition, upon a change in control, we are required to make an offer to redeem all of the Senior Notes due 2018 at a redemption price equal to 101% of the aggregate principal amount of the notes plus accrued and unpaid interest.

After giving effect to the February 2011 refinancing of the term loan facility, the revised future minimum principal payment obligations due per our Senior Secured Credit Facilities and Senior Notes due 2018 are set forth in the below table. Refer to Note 20 “Subsequent Events” in the Notes to the Consolidated Financial Statements for more information regarding the February 2011 term loan facility refinancing.

 

Year Ending December 31,

   Principal
Payments
(in thousands)
 

2011

   $ 10,088   

2012

   $ 13,450   

2013

   $ 13,450   

2014

   $ 13,450   

2015

   $ 13,450   

2016 and thereafter

   $ 1,959,462   
        

Total

   $ 2,023,350   
        

Covenant Compliance

Under the credit agreement and indenture governing the Senior Notes due 2018, certain limitations, restrictions and defaults could occur if we are not able to satisfy and remain in compliance with specified financial covenants. There are two principal financial covenants: Total Leverage Ratio and Interest Coverage Ratio. As of December 31, 2010, we were in compliance with the Total Leverage Ratio and Interest Coverage Ratio covenants. The Company did not have any covenant reporting requirements for any period prior to December 31, 2010.

 

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Total Leverage Ratio

Under the credit agreement, we have agreed that we will not permit our Total Leverage Ratio as of the last day of any fiscal quarter ending on any date during any period set forth in the below table to be greater than the ratio set forth below opposite such period. Total Leverage Ratio is defined in the credit agreement as the ratio of Consolidated Net Debt to Consolidated Adjusted EBITDA, which terms are likewise defined terms under the credit agreement.

 

Fiscal Year

  First
Quarter
    Second
Quarter
    Third
Quarter
    Fourth
Quarter
 
2010     NA        NA        NA        7.85:1   
2011     7.85:1        7.85:1        7.85:1        7.85:1   
2012     7.85:1        7.75:1        7.75:1        7.50:1   
2013     7.25:1        7.00:1        7.00:1        6.75:1   
2014     6.50:1        6.50:1        6.25:1        6.00:1   
2015     5.75:1        5.75:1        5.50:1        5.50:1   
2016     5.25:1        5.25:1        5.00:1        5.00:1   
2017     5.00:1        5.00:1        5.00:1        5.00:1   

Interest Coverage Ratio

Under the credit agreement, we have agreed that we will not permit our Interest Coverage Ratio for any period of four consecutive fiscal quarters to be less than the ratio set forth in the table below opposite such period. Interest Coverage Ratio is defined in the credit agreement as the ratio of Consolidated Adjusted EBITDA to Consolidated Cash Interest Expense, which terms are likewise defined terms under the credit agreement.

 

Fiscal Year

  First
Quarter
    Second
Quarter
    Third
Quarter
    Fourth
Quarter
 
2010     NA        NA        NA        1.40:1   
2011     1.40:1        1.40:1        1.40:1        1.40:1   
2012     1.40:1        1.45:1        1.45:1        1.45:1   
2013     1.45:1        1.50:1        1.50:1        1.50:1   
2014     1.50:1        1.55:1        1.55:1        1.55:1   
2015     1.55:1        1.60:1        1.60:1        1.60:1   
2016     1.60:1        1.65:1        1.65:1        1.65:1   
2017     1.65:1        1.65:1        1.65:1        1.65:1   

Consolidated Adjusted EBITDA (or Covenant EBITDA) as defined in the credit agreement governing the senior secured credit facilities and the indenture governing the Senior Notes due 2018 is used to determine the Company’s compliance with certain covenants. EBITDA is calculated by adding back to GAAP net (loss) income the following items, interest and other financing costs, net, income taxes, and depreciation and amortization. Covenant EBITDA is a non-GAAP measure calculated by adding back to EBITDA unusual or non-recurring charges and certain non-cash charges and by adding to EBITDA certain expected cost savings as permitted under the credit agreement. We believe that presenting Covenant EBITDA is appropriate to provide additional information to investors regarding our compliance with our credit agreement. Any breach of the credit agreement covenants that are based on ratios involving Covenant EBITDA could result in a default under that agreement, and the lenders could elect to declare all amounts borrowed to be due and payable. Any such acceleration would also result in a default under the indenture. Additionally, under the debt agreements, our ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is also tied to ratios based on Covenant EBITDA.

 

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The calculations of EBITDA and Covenant EBITDA¹ (which are both considered non-GAAP measures) under the credit agreement are as follows:

 

     (Millions)
Year ended
December 31,
2010
 

EBITDA:

  

GAAP Net (loss) income

   $ (71.8

Interest (expense) income, net

     77.6   

Other (loss) income, net

     (0.6

Income tax (benefit)

     (12.3

Depreciation and amortization

     124.1   
        

EBITDA

   $ 117.0   

Adjustments for Covenant EBITDA:

  

EBITDA

   $ 117.0   

Non-cash stock-based compensation

     24.1   

Transaction related expenses

     120.0   

Other non-recurring items2

     25.0   

Other charges

     3.3   

Pro forma cost-savings3

     30.0   
        

Covenant EBITDA1

   $ 319.4   
        

 

1 Covenant EBITDA excludes items that are either not part of our ongoing core operations, do not require a cash outlay, or are not otherwise expected to recur (or recur at the same levels) in the ordinary course of business as well as certain other adjustments as permitted under the credit agreement. Covenant EBITDA is based on the definition of EBITDA set forth in the credit agreement.
2 Other non-recurring charges include the impact of the deferred revenue adjustment, the write-off of certain capitalized software and other assets, severance and retention expenses and the impact of a 2009 out-of-period accounting adjustment.
3 Pro forma cost savings is an adjustment permitted under our debt agreements for activities that may include, but are not limited to, the consolidation of a number of legacy organizational silos, technology platforms and content databases. Under the terms of the credit agreement and the indenture the pro-forma cost-savings adjustment cannot exceed $30,000,000.

EBITDA and Covenant EBITDA are not recognized terms under GAAP, and are considered Non-GAAP measures under Item 10 of Regulation S-K. EBITDA and Covenant EBITDA are not intended to be presented as an alternative to GAAP net income or income from continuing operations as a measure of operating performance or to GAAP cash flows from operating activities as a measure of liquidity. Additionally, EBITDA and Covenant EBITDA are not a measure of free cash flow available for management’s discretionary use. Certain cash requirements such as interest payments, tax payments and debt service requirements are added back to GAAP net income for the purpose of calculating EBITDA. The presentation of EBITDA and Covenant EBITDA should not be considered in isolation, or as a substitute for analysis of our results as reported in accordance with GAAP. We believe EBITDA and Covenant EBITDA provide useful information to investors.

EBITDA provides useful information about underlying core business trends as it excludes the results of decisions that are outside the control of operating management and can differ significantly from company to company depending on, among other things, long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. In addition, EBITDA is a defined term under our credit agreement and is a critical component of determining Covenant EBITDA (also defined in the credit agreement) which in turn is used to calculate key credit agreement financial covenants.

 

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Covenant EBITDA, as defined in the credit agreement, includes certain near term cost savings and excludes certain non-recurring charges or allows for other adjustments. Covenant EBITDA was contractually agreed between us and our lenders and is used for the purposes of determining our compliance with financial covenants under the credit agreement. The breach of covenants in our senior secured credit facilities that are tied to ratios based on Covenant EBITDA could result in a default and the lenders could elect to declare all amounts borrowed due and payable. Any such acceleration would also result in a default under the indenture governing our Senior Notes due 2018. Additionally, under our debt agreements, our ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is also tied to ratios based on Covenant EBITDA.

We believe that the inclusion of information on the adjustments to EBITDA applied in determining Covenant EBITDA is useful additional information to investors regarding certain items we believe will materially impact future results of operations, that we do not expect to reoccur or that we do not expect will continue at the same level in the future. The exclusion of items from Covenant EBITDA is not intended to indicate that management does not believe such items will occur in the future. Covenant EBITDA includes a cost savings allowance related to projected cost savings expected to be achieved in the future. Specifically, Covenant EBITDA can include up to $30 million of projected cost savings for specified actions initiated on or prior to July 29, 2012, to the extent such savings are not already realized in EBITDA. The aggregate amount of cost savings added back when determining Covenant EBITDA in any four consecutive quarters is calculated on a proforma basis as though such cost savings had been realized on the first day of the consecutive four quarter period. EBITDA and Covenant EBITDA are also used by management as measures of liquidity.

Since not all companies use identical EBITDA or Covenant EBITDA calculations, our EBITDA and Covenant EBITDA may not be comparable to other similarly titled metrics used by other companies. We believe the non-GAAP financial measures we provide to investors supplement GAAP results to provide a more complete understanding of the factors and trends affecting our business than GAAP results alone.

Income Taxes

The Successor period effective tax rate is 24.4% as compared to the Predecessor effective tax rate of 44.5% and 2009 effective tax rate of 32.5%. The Successor period effective tax rate includes an impact of 4.9% resulting from discrete items, principally consisting of non-deductible transaction costs, foreign taxes, tax provision to tax return adjustment with respect to the filing prior years’ return in the US and foreign jurisdictions, offset by expiration of various statutes of limitation and various settlement of audits. The Predecessor effective tax rate primarily differs from the statutory rate because of the tax expense associated with the transaction related expenses.

The Successor period effective tax rate for the 5 months ended December 31, 2010 decreased to a recorded tax benefit rate of 24.4% as compared to the recorded tax expense rate of 32.5% for the year ended December 31, 2009, primarily due to a pretax loss in the United States, an increase in income generated in lower tax jurisdictions, and certain transaction costs incurred as part of the Merger (refer to Note 3 “Merger” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further information) which are not deductible for income tax purposes. The decrease in the effective rate was further impacted by the release of unrecognized tax benefits for various tax jurisdictions due to lapsing of statutes of limitation, favorable settlements of state tax audits and a tax benefit for the US research credit, which was extended for two years by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 enacted on December 17, 2010.

The Predecessor period effective tax rate increased the recorded tax expense rate to 44.5% as compared to a recorded tax expense rate of 32.5% for the year ended December 31, 2009, primarily due to a pretax loss in the United States, an increase in income generated in lower tax jurisdictions, and certain transaction costs incurred as part of the July 29, 2010 acquisition (described in detail in Note 3 “Merger” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K) which are not deductible for income tax purposes. The increase was offset by foreign tax credits realized in the period.

We recognize future tax benefits or expenses attributable to our taxable temporary differences and net operating loss carry forwards. Recognition of deferred tax assets is subject to our determination that realization is more likely than not. Based on taxable income projections, we believe that the recorded deferred tax assets will be realized.

Other than favorable settlements related to various foreign and state tax audits and the expiration of various statutes of limitation, there were no material changes to our unrecognized tax benefits in 2010. The increase in unrecognized tax benefits at December 31, 2010 as compared to December 31, 2009 primarily relate to tax uncertainties attributed to transaction costs. As of December 31, 2010, we had approximately $10,474,000 of unrecognized tax benefits which would affect our effective tax rate if recognized. We believe that it is reasonably possible that approximately $1,967,000 of our currently remaining unrecognized tax positions may be recognized within the next twelve months as a result of the lapse of the statute of limitations in various tax jurisdictions.

The following table summarizes our Combined 2010 activity for Unrecognized Tax Benefits, pursuant to the provisions of FIN 48 now codified under ASC 740:

 

      Successor     Predecessor  

(in thousands)

   July 30, 2010
through
December 31, 2010
    January 1, 2010
through

July 29,
2010
    2009  

Balance at January 1

   $ 13,720      $ 11,912      $ 18,801   

Additions based on tax positions related to the current year

     1,229        1,864        1,553   

Additions for tax positions of prior years

     2,243        (56     833   

Expiration of statutes

     (1,412     —          (2,690

Reductions for tax positions for prior years

     (2,970     —          (4,107

Settlements

     (688     —          (2,458
                        

Balance at December 31

   $ 12,122      $ 13,720      $ 11,912   
                        

We recognize interest and penalties related to uncertain tax positions in income tax expense. During Combined 2010, $505,000 of interest and penalties was provided in income tax expense for uncertain tax positions, as compared to $705,000 for the year ended December 31, 2009. Reserves for interest and penalties of $632,000 and $1,876,000 have been provided at December 31, 2010 and 2009, respectively.

 

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We file federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. In the normal course of business, we are subject to examination by taxing authorities in various jurisdictions. Generally, the 2007 through 2009 tax years remain subject to examination for federal, 2006 through 2009 for significant states, and 2004 through 2009 for foreign tax authorities.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. For a detailed discussion on the application of these and other accounting policies, see Note 1 “Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to stock-based compensation, revenue recognition, goodwill and intangible assets, accrued liabilities and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies require our most significant judgments and estimates used in the preparation of our consolidated financial statements:

Stock-Based Compensation

ASC 718, “Compensation-Stock Compensation”, requires that all share-based payments to employees, including grants of stock options be recognized in the financial statements based on the grant-date fair value of awards expected to vest. We amortize the grant-date fair value of our stock-based awards, less estimated forfeitures, over the requisite service period of the award.

Refer to Note 8, “Stock-based Compensation” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further discussion.

Revenue Recognition

Revenue recognition is governed by Staff Accounting Bulletin No. 104, “Revenue Recognition,” We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sale price is fixed or determinable and collectibility is reasonably assured. For customer service contracts that include a fixed subscription fee for the right to access data over a specified contractual period, revenue is recognized on a straight line basis over the contract term. For customer contracts that include variable fees based on usage, revenue is recognized in the month that the data is delivered to customers. We also evaluate our revenue recognition in accordance with Emerging Issues Task Force No. (“EITF”) 99-19, “Reporting Revenue Gross as Principal versus net as an Agent”, as codified in FASB ASC Subtopic 605-45, “Revenue Recognition- Principal Agent Considerations” (“ASC 605-45”).

Deferred revenue represents contractual billings in excess of revenue recognized. We record revenue net of applicable sales tax collected and remitted to state and local taxing jurisdictions. Taxes collected from customers are recorded as a liability in the balance sheet.

Allowance for Doubtful Accounts

We maintain a reserve for an allowance for doubtful accounts and sales credits that is our best estimate of potentially uncollectible trade receivables. Provisions are made based upon a specific review of all significant outstanding invoices that are considered potentially uncollectible in whole or in part. For the invoices not specifically reviewed or considered uncollectible, general provisions are provided at different rates based upon the age of the receivable, historical experience, and other currently available evidence.

Goodwill

Goodwill is recorded in connection with business acquisitions and represents the excess purchase price over the fair value of identifiable net assets at the acquisition date.

We perform impairment tests of goodwill assigned to our reporting units on an annual basis or whenever events or circumstances indicate impairment may exist.

At December 31, 2010, we had two reportable segments; Institutional Services and Active Trader Services. Within the Institutional Services segment, there are three reporting units; Pricing and Reference Data Services, Real-Time Services and Fixed Income Analytics. Within the Active Trader Services segment, there is one reporting unit; Interactive Data Desktop Solutions. All of these reporting units are at the operating segment level or one level below.

Testing goodwill for impairment requires a two-step process. Step 1 involves comparing the estimated fair value of each reporting unit (which we estimate by using significant assumptions and judgments) to the carrying value of the reporting unit’s assigned assets (including related goodwill) and liabilities. Fair values for each reporting unit are established using discounted cash flows that incorporate specific reporting unit assumptions for revenue and operating expenses. Such assumptions take into account numerous factors including historical experience, anticipated economic and market conditions for purposes of determining market value from a market participant perspective. These cash flows are then discounted at an implied rate of return that we believe a market participant would require for an investment in a company having similar risks and business characteristics to the reporting unit being assessed. If the estimated fair value of the reporting unit exceeds the respective carrying value of the reporting unit’s assigned assets and liabilities, no impairment is recorded and no further analysis is performed.

 

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If the estimated fair value of the reporting unit is less than the carrying value of the reporting unit’s assigned assets and liabilities, we would perform the Step 2 calculation. In Step 2, the implied fair value of the reporting unit’s goodwill is determined by assigning a fair value to all of the reporting unit’s assets and liabilities, including any unrecognized intangible assets, as if the reporting unit had been acquired in a business combination at fair value. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss would be recognized in an amount equal to that excess.

In determining the estimated fair value of the reporting units for our annual impairment test, certain assumptions were used, including but not limited to revenue growth rates, expected changes in operating expenses, discount rate, and tax rate. Based on our annual assessment, including application of the assumptions described above, a hypothetical 10% reduction in the estimated fair value of each of the reporting units would not result in an impairment condition at any of the reporting units.

Based upon the fiscal 2010 annual impairment testing analysis conducted by management, including consideration of reasonably likely adverse changes in assumptions, management believes it is not reasonably likely that an impairment will occur over the next twelve months.

Intangible Assets

Other intangible assets include securities data and databases, completed technology, trademarks (definite and indefinite lived), exchange relationships and customer lists arising principally from acquisitions. Such intangibles are valued on the acquisition dates based on a combination of replacement cost, comparable purchase methodologies and discounted cash flows and are amortized over their respective economic benefit periods which range from two years to twenty five years. We review the recoverability of definite-lived intangible assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. If the estimated future undiscounted cash flows from the use of an asset are less than its carrying value, a write-down is recorded to reduce the related asset to estimated fair value. Indefinite-lived intangible assets are reviewed annually for impairment in conjunction with the Company’s goodwill impairment calculation or whenever events or circumstances indicate an impairment may exist.

Fair Value of Financial Instruments

We adopted SFAS No. 157, “Fair Value Measurements” effective January 1, 2008, as codified in FASB ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”), which defines fair value as the amount that would be received if an asset was sold or a liability transferred in an orderly transaction between market participants at the measurement date. Refer to discussion in Note 16, “Fair Value Measurements” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further discussion surrounding the fair value of our financial instruments.

Income Taxes

We determine our income tax expense in each of the jurisdictions in which we operate. The income tax expense includes an estimate of the current tax expense as well as a deferred tax expense, which results from the determination of temporary differences arising from the different treatment of items for book and tax purposes.

Deferred tax assets and liabilities are determined based on differences between the financial reporting and the tax basis of assets and liabilities and are measured by applying enacted tax rates and laws to taxable years in which such differences are expected to reverse.

We currently provide U.S. income taxes on the earnings of foreign subsidiaries to the extent these earnings are currently taxable or expected to be remitted. U.S. taxes have not been provided on net accumulated foreign unremitted earnings. The cumulative amount of undistributed earnings of the foreign subsidiaries held for investment is approximately $193,000,000 at December 31, 2010. Quantification of the deferred tax liability associated with indefinitely reinvested earning is not practicable.

We recognize future tax benefits or expenses attributable to our taxable temporary differences and net operating loss carry forwards. We recognize deferred tax assets to the extent that the recoverability of these assets satisfy the “more likely than not” recognition criteria in SFAS No. 109 “Accounting for Income Taxes,” now codified in ASC 740. Based upon projections of future taxable income, we believe that the recorded deferred tax assets will be realized.

Commitments and Contingencies

We have obligations under non-cancelable operating leases for real estate and equipment. Real estate leases are for the Company’s corporate headquarters, sales offices, major operating units and data centers. Certain of the leases include renewal options and escalation clauses. In addition, the Company has purchase obligations for data content.

 

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Our known contractual obligations on a combined basis as of December 31, 2010 are summarized in the table below:

 

     Payment Due by Period  

(In thousands)

   Total      Less Than
1 Year
     1-3
Years
     3-5
Years
     More Than
5 Years
 

Contractual Obligations

              

Long Term Debt Obligations

   $ 2,023,350       $ 10,088       $ 26,900       $ 26,900       $ 1,959,462   

Operating Lease Obligations

     157,526         18,625         36,082         28,908         73,911   

Purchase Obligations

     17,073         17,073         —           —           —     

Derivatives

     4,986         415         3,324        1,247        —     
                                            

Total

   $ 2,202,935       $ 46,201       $ 66,306       $ 57,055       $ 2,033,373   
                                            

We expect to satisfy our contractual obligations from our existing cash as well as our cash flow from operations. Our key operating locations operate in facilities under long-term leases, the earliest of which will expire in 2011 and 2012. If we are unable to renew any of the leases that are due to expire in 2011 or 2012, we believe that suitable replacement properties are available on commercially reasonable terms.

Rental expense was $23,743,000, $22,620,000 and $22,165,000 for Combined 2010 and the years ended December 31, 2009 and 2008, respectively.

Purchase Obligations include our estimate of the minimum outstanding obligations under agreements to purchase goods or services that we believe are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable at any time without penalty.

On February 11, 2011, we refinanced our Term Loan Facility. Refer to Note 20 “Subsequent Events” in the Notes to the Consolidated Financial Statements for further discussion. Long Term Debt Obligations in the above table include our obligations under the Senior Secured Credit Facilities and the Senior Notes due 2018. The amended future term loan facility obligations are reflected and for the purpose of this calculation, amounts disclosed assume interest rates on floating rate obligations remain unchanged from levels at February 11, 2011 (after given effect to the February 2011 refinancing) throughout the life of the obligation. Outstanding letters of credit totaled $4,462,000 at December 31, 2010.

Outstanding letters of credit totaled $4,462,000 at December 31, 2010. The letters of credit principally secure performance obligations, and allow the holder to draw funds up to the face amount of the letter of credit, bank guarantee or surety bond if the applicable business unit does not perform as contractually required.

In addition to the amounts shown in the table above, $12,122,000 of unrecognized tax benefits have been recorded in income taxes payable in accordance with ASC 740 (FIN 48), as we are uncertain if or when such amounts may be settled. Related to these unrecognized tax benefits, we have also recorded in income taxes payable $632,000 for potential interest and penalties at December 31, 2010. Reserves for unrecognized tax benefits have not been included in the above table due to the inability to predict the timing of tax audit resolutions.

In connection with the provision of services in the ordinary course of business, the Company often makes representations affirming, among other things, that its services do not infringe on the intellectual property rights of others and agrees to indemnify customers against third-party claims for such infringement. The Company has not been required to make material payments under such provisions. The Company is involved in litigation and is the subject of claims made from time to time in the ordinary course of business, including with respect to intellectual property rights. A portion of the defense and/or settlement costs in some such cases is covered by various commercial liability insurance policies. In other cases, the defense and/or settlement costs are paid from the company’s existing cash resources. In addition, the Company’s third-party data suppliers audit the Company from time to time in the ordinary course of business to determine if data the Company licenses for redistribution has been properly accounted for in accordance with the terms of the applicable license agreement. In view of the Company’s financial condition and the accruals established for related matters, management does not believe that the ultimate liability, if any, related to any of these matters will have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

In connection with the sale of services in the ordinary course of business, the Company often makes representations affirming that its services do not infringe on the intellectual property rights of others and agrees to indemnify customers against third-party claims for such infringement.

Inflation

Although management believes that inflation has not had a material effect on the results of operations during the past three years, there can be no assurance that results of operations will not be affected by inflation in the future.

Seasonality and Market Activity

Historically, we have not experienced any material seasonal fluctuations in our business and we do not expect to experience seasonal fluctuations in the future. However, financial information market demand is largely dependent upon activity levels in the securities markets, including trading volumes and the number of new securities that are issued. The recent global financial crisis resulted in a significant decline in investor activity in trading securities and a significant reduction in the number of new securities issuances. This has impacted revenue at our Interactive Data Desktop solutions business unit. While overall we have grown our business in recent years, our sales and revenue in other parts of our business were also adversely affected by the recent financial crisis and related ramifications and we continue to be impacted by our customers continuing focus on cost-containment in the aftermath of the financial crisis.

 

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Recently Issued Accounting Pronouncements

Business Combinations

In December 2010, the FASB issued ASU 2010-29, “Business Combinations (Topic 805)” (“ASU 2010-29”). ASU 2010-29 specifies that if an entity presents comparative financial statements, the entity shall disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. In addition, ASU 2010-29 expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-29 is effective prospectively for business combinations with acquisition dates occurring on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. ASU 2010-29 concerns disclosure only and will not have an impact on the Company’s financial position, results of operations, or cash flows.

In December 2007, the FASB issued updated guidance on business combinations, originally issued in Statement of Financial Accounting Standards No. 141(R) (revised), Business Combinations (codified primarily in ASC 805, Business Combinations) which includes the measurement of acquirer shares issued in consideration for a business combination, the recognition of contingent consideration, the accounting for pre-acquisition gain and loss contingencies, the recognition of capitalized in-process research and development, the accounting for acquisition-related restructuring cost accruals, the treatment of acquisition related transaction costs and the recognition of changes in the acquirer’s income tax valuation allowance. Adoption of this guidance on January 1, 2009 did not have a material impact on the Company’s financial position or results of operations for the year ended December 31, 2009. However, the adoption of this statement resulted in the Company recognizing Merger costs of $67,258,000 and $52,734,000 in the period from July 30, 2010 through December 31, 2010 and the period from January 1, 2010 through July 29, 2010, respectively.

Intangibles – Goodwill and Other

In December 2010, the FASB issued ASU 2010-28, “Intangibles-Goodwill and Other (Topic 350)” (“ASU 2010-28”). ASU 2010-28 modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. ASU 2010-28 is effective for fiscal years and interim periods, beginning after December 15, 2010. Early adoption is not permitted. The Company does not expect the adoption of ASU 2010-28 to have a material impact on the Company’s financial position, results of operations or cash flows.

Variable Interest Entities

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”), which amends the consolidation guidance applicable to variable interest entities. The amendments will significantly affect the overall consolidation analysis under FASB Interpretation No. 46(R), as codified in FASB ASC Topic 810, “Consolidation” (“ASC 810”). The adoption of SFAS 167, now codified in ASC 810, effective January 1, 2010, did not have a material impact on the Company’s financial position, results of operations or cash flows.

Revenue Recognition

In October 2009, the FASB issued ASU 2009-13, “Multiple-Deliverable Revenue Arrangements” (“ASU 2009-13”), regarding ASC Subtopic 605-25 “Revenue Recognition—Multiple-element Arrangements.” ASU 2009-13 addresses how revenues should be allocated among all products and services in sales arrangements. ASU 2009-13 will require companies to allocate the overall consideration to each deliverable by using a best estimate of the selling price of individual deliverables in the arrangement in the absence of vendor-specific objective evidence or other third-party evidence of the selling price. It also significantly expands the disclosure requirements for such arrangements.

In October 2009, the FASB issued ASU 2009-14, “Software: Certain Revenue Arrangements That Include Software Elements” (“ASU 2009-14”), regarding ASC Topic 985 “Software—Revenue Recognition.” This ASU modifies the scope of ASC Subtopic 965-605, “Software Revenue Recognition,” to exclude (a) non-software components of tangible products and (b) software components of tangible products that are sold, licensed, or leased with tangible products when the software components and non-software components of the tangible product function together to deliver the tangible product’s essential functionality.

ASU 2009-13 and ASU 2009-14 will be effective for the Company beginning in fiscal 2011. Early adoption will be permitted. The adoption of ASU 2009-13 and ASU 2009-14 will not have a material impact on the Company’s financial position, results of operations or cash flows.

Fair Value Measurements

In January 2010, the FASB issued ASU 2010-06, “Fair Value Measurements and Disclosures (Topic 820) -Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”). ASU 2010-06 requires additional disclosures and clarifications of existing disclosures for recurring and nonrecurring fair value measurements. ASU 2010-06 amends ASC 820 to add new disclosure requirements for significant transfers in and out of Level 1 and 2 measurements and to provide a gross presentation (purchases, sales, issuances and settlements) of the activities within the Level 3 rollforward. The revised guidance is effective for interim and annual reporting periods beginning in fiscal 2010, except for the disclosures about purchases, sales, issuances, and settlements required in the Level 3 rollforward, which is effective for the Company in fiscal 2011. ASU 2010-06 concerns disclosure only and will not have an impact on the Company’s financial position or results of operations or cash flows.

Subsequent Events

In February 2010, the FASB issued ASU 2010-09, “Subsequent Events (Topic 855) – Amendments to Certain Recognition and Disclosure Requirements” (“ASU 2010-09”). ASU 2010-09 defines an SEC filer within the FASB Codification and eliminates the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated in order to remove potential conflicts with current SEC guidance. The relevant provisions of ASU 2010-09 were effective upon the date of issuance, and the Company adopted the amendments accordingly. The adoption of ASU 2010-09 did not have a material impact on the Company’s financial position, results of operations or cash flows.

Information Regarding Forward-Looking Statements

From time to time, including in this Annual Report on Form 10-K, we may issue forward-looking statements relating to such matters as anticipated financial performance, business prospects, strategy, plans, critical accounting policies, technological developments, new services, consolidation activities, research and development activities, regulatory, market and industry trends, and similar matters. The Private Securities Litigation Reform Act of 1995 and federal securities laws provide safe harbors for forward-looking statements. We note that a variety of factors, including known and unknown risks and uncertainties as well as incorrect assumptions we may make could cause our

 

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actual results to differ materially from the anticipated results or other expectations expressed in such forward-looking statements. The factors that may affect the operations, performance, development and results of our business include those discussed under Item 1A, “Risk Factors” of this Annual Report on Form 10-K.

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The company is exposed to market risk from changes in currency exchange rates and interest rates which could affect its future results of operations and financial condition.

Foreign Currency Risk

A portion of our business is conducted outside the United States through our foreign subsidiaries and branches. We have foreign currency exposure related to operations in international markets where we transact business in foreign currencies and, accordingly, we are subject to exposure from adverse movements in foreign currency exchange rates. Our foreign subsidiaries maintain their accounting records in their respective local currencies. Consequently, changes in currency exchange rates may impact the translation of foreign statements of operations into US dollars, which may in turn affect our consolidated statements of operations. Currently, our primary exposure to foreign currency exchange rate risk rests with the UK pound and the Euro to US dollar exchange rates due to the significant size of our operations in Europe. Historically we have not entered into forward currency-exchange contracts. The effect of foreign exchange on our business historically has varied from quarter to quarter and may continue to do so.

Please refer to Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion of the impact of foreign exchange our business and results of operation.

Total revenue for the periods below by geographic region outside the United States, are as follows:

 

(In thousands)

          Successor            Predecessor  
   Combined
2010
    

Period from

July 30

through

December 31,

          

Period from
January 1
through

July 29,

     As of and for the Year
Ended December 31,
 
      2010            2010      2009      2008  

Revenue:

                  

United Kingdom

   $ 74,509       $ 32,161           $ 42,348       $ 72,896       $ 85,715   

All other European countries

     114,747         49,422             65,325         118,384         116,839   

Asia Pacific

     31,775         13,594             18,181         29,464         18,401   
                                                

Total

   $ 221,031       $ 95,177           $ 125,854       $ 220,744       $ 220,955   
                                                

At December 31, 2010, 2009 and 2008, long-lived assets by geographic region outside the United States are as follows:

 

(In thousands)

   As of
December 31,
2010
     As of
December 31,
2009
     As of
December 31,
2008
 

United Kingdom

   $ 620,711       $ 114,390       $ 100,467   

All other European countries

     164,530         103,088         104,169   

Asia Pacific

     177,349         36,687         34,746   
                          

Total

   $ 962,590       $ 254,165       $ 239,382   
                          

Interest Rate Risk

Historically, we invested excess cash balances in cash deposits held at major banks, money market fund accounts, and marketable securities. The money market fund accounts and marketable securities primarily consisted of municipal bonds; accordingly, we were exposed to market risk related to changes in interest rates.

In connection with the Merger we incurred significant debt, including variable rate debt (subject to interest rate caps). As of December 31, 2010, we had $1,323,350,000 of debt outstanding under our Senior Secured Credit Facilities, which debt bears interest determined by reference to a variable rate index. We entered into forward starting interest rate caps to help mitigate our variable interest rate risk. Beginning with the annual period that commences September 30, 2011, we will have interest rate cap coverage for up to $700,000,000 of our variable rate debt. In subsequent periods, we will continue to have interest rate cap protection, however, the principal amount of variable debt subject to interest rate caps decreases. Until this September 30, 2011 interest rate cap goes into effect, all of our variable rate debt is subject to changes in underlying interest rates, and, accordingly, our interest payments will fluctuate. Once the interest rate cap is in place, a portion of our variable rate debt will no longer be subject to interest rate risk. Prior to the effectiveness of our interest rate cap, an increase of 1% in these variable rates above our December 31, 2010 floor of 1.75% would increase our annual interest expense by approximately $13 million. Commencing on September 30, 2011 approximately 52% of our variable interest rate exposure will be hedged with the interest rate caps. Please refer to Note 18 “Derivatives” and Note 19 “Debt” in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further discussion of our debt and derivatives.

 

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Item 8. Financial Statements and Supplementary Data

 

     Page  

Index to Consolidated Financial Statements:

  

Report of Independent Registered Public Accounting Firm

     44   

Consolidated Statements of Operations for the periods from July 30, 2010 through December  31, 2010 and January 1, 2010 through July 29, 2010 and for the years ended December 31, 2009 and 2008

     45   

Consolidated Balance Sheets as of December 31, 2010 and 2009

     46   

Consolidated Statements of Cash Flows for the periods from July 30, 2010 through December  31, 2010 and January 1, 2010 through July 29, 2010 and for the years ended December 31, 2009 and 2008

     47   

Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the periods from July  30, 2010 through December 31, 2010 and January 1, 2010 through July 29, 2010 and for the years ended December 31, 2009 and 2008

     48   

Notes to Consolidated Financial Statements

     51   

Quarterly Financial Information (Unaudited)

     94   

Index to Financial Statement Schedule:

  

Schedule II Valuation and Qualifying Accounts

     96   

 

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Interactive Data Corporation and Subsidiaries:

We have audited the accompanying consolidated balance sheet of Interactive Data Corporation and subsidiaries (the Successor) as of December 31, 2010, and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for the period from July 30, 2010 to December 31, 2010 and the consolidated balance sheet of Interactive Data Corporation and subsidiaries (the Predecessor) as of December 31, 2009, and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for the period from January 1, 2010 to July 29, 2010 and for each of the two years in the period ended December 31, 2009. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Successor’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Successor’s or the Predecessor’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Successor’s or the Predecessor’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Interactive Data Corporation and subsidiaries (the Successor) at December 31, 2010, and the consolidated results of its operations and its cash flows for the period from July 30, 2010 to December 31, 2010 and the consolidated financial position of Interactive Data Corporation and subsidiaries (the Predecessor) at December 31, 2009, and the consolidated results of its operations and its cash flows for the period from January 1, 2010 to July 29, 2010 and for each of the two years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, effective January 1, 2009, the company adopted the guidance originally issued in Statement of Financial Accounting Standards No. 141(R) (revised, “Business Combinations” codified primarily in FASB ASC Topic 805, Business Combinations).

/s/    Ernst & Young LLP

Boston, Massachusetts

March 31, 2011

 

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PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

INTERACTIVE DATA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

 

     Successor            Predecessor  
     Period from
July 30
through
December 31,
           Period from
January 1
through
July 29,
     Year Ended
December 31,
 
     2010            2010      2009      2008  

REVENUE

   $ 342,101           $ 454,544       $ 757,218       $ 750,541   

COSTS AND EXPENSES:

               

Cost of services

     115,176             161,899         250,105         241,880   

Selling, general and administrative

     124,409             158,210         237,041         244,248   

Merger costs

     67,258             52,734         —           —     

Depreciation

     15,962             22,504         31,800         27,044   

Amortization

     65,867             19,718         30,523         27,686   
                                       

Total costs and expenses

     388,672             415,065         549,469         540,858   
                                       

(LOSS) INCOME FROM OPERATIONS

     (46,571          39,479         207,749         209,683   

Interest (expense) income, net

     (78,364          760         1,680         7,570   

Other income (expense), net

     321             249         139         (2
                                       

(LOSS) INCOME BEFORE INCOME TAXES

     (124,614          40,488         209,568         217,251   

Income tax (benefit) expense

     (30,351          18,014         68,162         74,582   
                                       

NET (LOSS) INCOME

     (94,263          22,474         141,406         142,669   

Less: Net income attributable to noncontrolling interest

     —               —           (172      (21
                                       

NET (LOSS) INCOME ATTRIBUTABLE TO INTERACTIVE DATA CORPORATION

   $ (94,263        $ 22,474       $ 141,234       $ 142,648   
                                       

 

 

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

 

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INTERACTIVE DATA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share information)

 

     Successor            Predecessor  
     December 31,
2010
           December 31,
2009
 
ASSETS          

Assets:

         

Cash and cash equivalents

   $ 123,704           $ 209,946   

Marketable securities

     —               96,077   

Accounts receivable, net of allowance for doubtful accounts and sales credits of $6,618 and $8,449 at December 31, 2010 and December 31, 2009, respectively

     107,067             108,349   

Due from parent

     7,500             —     

Prepaid expenses and other current assets

     21,079             21,810   

Income tax receivable

     40,764             —     

Deferred income taxes

     7,574             6,532   
                     

Total current assets

     307,688             442,714   
                     

Property and equipment, net

     110,386             123,245   

Goodwill

     1,638,268             570,256   

Intangible assets, net

     1,994,461             138,988   

Deferred financing costs, net

     71,827             —     

Other assets

     11,247             5,968   
                     

Total Assets

   $ 4,133,877           $ 1,281,171   
                     
LIABILITIES AND EQUITY          

Liabilities:

         

Accounts payable, trade

   $ 22,232           $ 20,957   

Accrued liabilities

     92,020             76,195   

Payables to affiliates

     —               1,999   

Borrowings, current

     10,088             —     

Interest payable

     30,647             —     

Income taxes payable

     5,521             4,500   

Deferred revenue

     24,296             34,586   
                     

Total current liabilities

     184,804             138,237   
                     

Income taxes payable

     11,314             10,986   

Deferred tax liabilities

     677,793             33,871   

Other liabilities

     48,130             15,971   

Borrowings, net of current portion and original issue discount

     1,959,365             —     
                     

Total Liabilities

     2,881,406             199,065   
                     

Commitments and contingencies (Note 10)

         
 

Equity:

         

Interactive Data Corporation stockholders’ equity:

         

Predecessor Preferred stock, $0.01 par value, 5,000,000 shares authorized; no shares issued or outstanding at December 31, 2009

     —               —     

Predecessor Common stock, $0.01 par value, 200,000,000 shares authorized, 104,666,781 issued and 94,181,518 outstanding at December 31, 2009

     —               1,046   

Successor Common stock, $0.01 par value, 1,000 shares authorized, 10 issued and outstanding at December 31, 2010

     —               —     

Additional paid-in-capital

     1,327,115             1,019,133   

Treasury stock, at cost, zero and 10,485,263 shares, at December 31, 2010 and December 31, 2009 respectively

     —               (221,246

Accumulated (loss) earnings

     (94,263          279,096   

Accumulated other comprehensive income

     19,619             4,077   
                     

Total Interactive Data Corporation stockholders’ equity

     1,252,471             1,082,106   

Noncontrolling interest

     —               —     
                     

Total Equity

     1,252,471             1,082,106   
                     

Total Liabilities and Equity

   $ 4,133,877           $ 1,281,171   
                     

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

 

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Table of Contents

INTERACTIVE DATA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

     Successor            Predecessor  
  

Period from
July 30
through

December 31,

          

Period from
January 1
through

July 29,

    Year Ended
December 31,
 
     2010            2010     2009     2008  

Cash flows (used in) provided by operating activities:

             

Net (loss) income

   $ (94,263        $ 22,474      $ 141,406      $ 142,669   

Adjustments to reconcile net income to net cash provided by operating activities:

             

Depreciation and amortization

     81,829             42,222        62,323        54,730   

Asset abandonment

     3,307             —          —          —     

Amortization of discounts and premiums on marketable securities, net

     —               766        1,948        648   

Amortization of deferred financing costs and accretion of note discounts

     8,402             —          —          —     

Deferred income taxes

     (9,090          7,270        (6,292     855   

Excess tax benefits from stock-based compensation

     —               (3,625     (2,768     (2,020

Stock-based compensation

     111             23,985        16,180        14,344   

Non-cash interest expense

     468             —          —          —     

Changes in reserve levels for doubtful accounts and sales credits

     (1,802          103        1,813        (510

Loss on dispositions of fixed assets

     112             114        729        325   

Changes in operating assets and liabilities, net

             

Accounts receivable

     41,527             (37,572     2,233        (1,839

Prepaid expenses and other current assets

     2,284             1,314        (1,969     (332

Accounts payable, interest payable and income taxes payable and receivable, net

     6,876             (11,404     6,887        (9,993

Accrued expenses and other liabilities

     11,108             20,282        (13,210     (2,602

Pension cessation payments

     (3,200          (82,741     —          —     

Deferred revenue

     (27,344          20,302        (1,146     (33
                                     

NET CASH PROVIDED BY OPERATING ACTIVITIES

     20,325             3,490        208,134        196,242   

Cash flows provided by (used in) investing activities:

             

Purchase of fixed assets

     (17,965          (26,395     (42,829     (45,509

Business and asset acquisitions, net of acquired cash

     (5,943          (29,923     (16,731     (43,666

Acquisition of Interactive Data Corporation and Subsidiaries

     (3,374,155          —          —          —     

Purchase of marketable securities

     —               (64,136     (257,390     (172,068

Proceeds from maturities and sales of marketable securities

     —               159,428        233,957        170,281   
                                     

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

     (3,398,063          38,974        (82,993     (90,962

Cash flows provided by (used in) financing activities:

             

Proceeds from exercise of stock options and employee stock purchase plan

     —               28,397        23,379        17,010   

Purchase of treasury stock

     —               —          (30,670     (52,494

Common stock cash dividends paid

     —               (18,964     (75,273     (103,596

Excess tax benefits from stock-based compensation

     —               3,625        2,768        2,020   

Borrowings under revolving credit facility

     2,000             —          —          —     

Repayments on revolving credit facility

     (2,000 )           —          —          —     

Proceeds from issuance of long-term debt, net of issuance costs

     1,897,617             —          —          —     

Principal payments on long-term debt

     (8,650          —          —          —     

Investment by parent company

     1,353,969             —          —          —     
                                     

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

     3,242,936             13,058        (79,796     (137,060

Effect of change in exchange rates on cash and cash equivalents

     1,786             (8,748     10,439        (19,528
                                     

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

     (133,016 )           46,774        55,784        (51,308

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

     256,720             209,946        154,162        205,470   
                                     

CASH AND CASH EQUIVALENTS AT END OF PERIOD

   $ 123,704           $ 256,720      $ 209,946      $ 154,162   
                                     

Supplemental disclosure of cash flow information:

             

Cash received (paid) for taxes

   $ 857           $ (19,154   $ (73,657   $ (75,051

Cash (paid) received for interest

   $ (40,401        $ 1,566      $ 3,634      $ 8,181   

Non-cash financing activity:

             

Dividends declared and unpaid in dividends payable

     —               —          —        $ 18,705   

Issuance of Holdings common stock classified as restricted stock liability

   $ 34,500                       —          —     

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

 

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Table of Contents

INTERACTIVE DATA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

(In thousands)

Predecessor

 

    Common Stock     Treasury
Stock
Cost
    Accumu-
lated
Earnings
    Accumulated
Other
Compre-
hensive
Income
(Loss)
    NonControlling
Interest
    Total
Equity
    Compre-
hensive
Income
 

(in thousands)

  Number
of
Shares
    Par
Value
    Additional
Paid-In
Capital
    Treasury
Stock
Number
of
Shares
             

Balance, December 31, 2007

    101,573      $ 1,015      $ 941,265        7,229      $ (137,506   $ 113,595      $ 45,155        —        $ 963,524      $ 138,157   
                         

Exercise of stock options and issuance of deferred and restricted stock units

    980        10        12,793        —          —          —          —          —          12,803        —     

Issuance of stock in connection with employee stock purchase plan

    184        2        4,205        —          —          —          —          —          4,207        —     

Tax benefit from exercise of stock options and employee stock purchase plan

    —          —          3,510        —          —          —          —          —          3,510        —     

Purchase of treasury stock

    —          —          —          1,976        (52,494     —          —          —          (52,494     —     

Stock-based compensation (Note 7)

    —          —          14,344        —          —          —          —          —          14,344        —     

Other comprehensive loss (Note 14)

    —          —          —          —          —          —          (67,759     —          (67,759     (67,759

Common stock dividends awarded to holders of restricted stock units

    —          —          534        —          —          (534     —          —          —          —     

Common stock cash dividends declared to Interactive Data stockholders (Note 8)

    —          —          —          —          —          (60,976     —          —          (60,976     —     

Noncontrolling interest in NDF common stock

    —          —          —          —          —          —          —          575        575        —     

Net income

    —          —          —          —          —          142,648        —          21        142,669        142,669