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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K/A

Amendment No. 1



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|x | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2003.



or



| ̈ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------



Commission file number: 0-26994



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ADVENT SOFTWARE, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 94-2901952                          
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification Number)



301 Brannan Street,
San Francisco, California 94107

(Address of principal executive offices and zip code)



(415) 543-7696

(Registrants telephone number, including area code)



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



Securities registered pursuant to Section
12(g) of the Act:

Common Stock, $0.01 par value

(Title of Class)



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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.    Yes  x    No ̈



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



Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).    Yes  x    No ̈



The number of shares of the Registrants Common Stock outstanding as of
June 30, 2003 was 32,329,925. The aggregate market value of the Registrants Common Stock held by non-affiliates, based upon the closing price on June 30, 2003, as reported on the NASDAQ National Market System, was approximately $522 million.
Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.



As
of February 20, 2004, there were 33,083,734 shares of the Registrants Common Stock outstanding.



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##### Table of Contents

TABLE OF CONTENTS



|        |  |          |  |                                                                 |  |   
|------- |  | -------- |  | --------------------------------------------------------------- |  | --
|PART II |  |         
|        |  | Item 8.  |  | Financial Statements and Supplementary Data                     |  | 3 
|        | 
|PART IV |  |         
|        |  | Item 15. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K |  | 38



INTRODUCTORY NOTE



This Form 10-K/A is being filed solely for the purpose of
amending the Companys consolidated financial statements related to:



| |  | correction of an accounting error in the allocation of the purchase price in Advents common stock repurchases in 2001, 2002 and 2003 affecting the additional paid-in capital
and retained earnings amounts in the consolidated balance sheets and statements of stockholders equity in Item 8; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | correcting errors in Advents stock option activity in 2001, 2002 and 2003 affecting the options available for grant table in Note 11 of Item 8.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------



This amendment corrects information regarding
additional paid-in capital and retained earnings on the consolidated balance sheets and statements of stockholders equity. Advents income statement, cash and cash equivalents, total stockholders equity and shares of common stock
outstanding are unaffected by these adjustments for all periods. The amendment also corrects the options available for grant table in Note 11. This Form 10-K/A does not reflect events occurring after the filing of the original Form 10-K, or modify
or update the disclosures therein in any way other than as required to reflect the amendment set forth below.



2



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##### Table of Contents

PART II



Item 8. Financial Statements and Supplementary Data



ADVENT SOFTWARE, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)



|                                                                                                          |  |              |         |   |      |   |        
|--------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | -------
|                                                                                                          |  | December 31,
|                                                                                                          |  | 2003         |         |   | 2002
|ASSETS                                                                                                    |  |              |         |   |      |   |        
|Current assets:                                                                                           |  |              |         |   |      |   |        
|Cash and cash equivalents                                                                                 |  | $            | 83,334  |   |      | $ | 78,906 
|Marketable securities                                                                                     |  |              | 76,738  |   |      |   | 94,923 
|Accounts receivable, net of allowance for doubtful accounts of $641 and $1,410                            |  |              | 15,891  |   |      |   | 20,218 
|Prepaid expenses and other                                                                                |  |              | 11,526  |   |      |   | 11,373 
|Income taxes receivable                                                                                   |  |              | 1,639   |   |      |   | 6,289  
|Deferred income taxes                                                                                     |  |              |        |   |      |   | 4,714  
|                                                                                                          |  |              |         |   |      |   |        
|Total current assets                                                                                      |  |              | 189,128 |   |      |   | 216,423
|                                                                                                          |  |              |         |   |      |   |        
|Property and equipment, net                                                                               |  |              | 23,381  |   |      |   | 28,001 
|Goodwill                                                                                                  |  |              | 86,504  |   |      |   | 67,349 
|Other intangibles, net                                                                                    |  |              | 30,495  |   |      |   | 41,157 
|Other assets, net                                                                                         |  |              | 15,438  |   |      |   | 80,980 
|                                                                                                          |  |              |         |   |      |   |        
|Total assets                                                                                              |  | $            | 344,946 |   |      | $ | 433,910
|                                                                                                          |  |              |         |   |      |   |        
|                                                                                                          |  |             
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                      |  |              |         |   |      |   |        
|Current liabilities:                                                                                      |  |              |         |   |      |   |        
|Accounts payable                                                                                          |  | $            | 1,320   |   |      | $ | 2,637  
|Accrued liabilities                                                                                       |  |              | 17,245  |   |      |   | 14,704 
|Deferred revenues                                                                                         |  |              | 34,566  |   |      |   | 31,918 
|Income taxes payable                                                                                      |  |              | 8,206   |   |      |   | 5,817  
|                                                                                                          |  |              |         |   |      |   |        
|Total current liabilities                                                                                 |  |              | 61,337  |   |      |   | 55,076 
|Deferred income taxes                                                                                     |  |              | 2,812   |   |      |   |       
|Other long-term liabilities                                                                               |  |              | 2,338   |   |      |   | 5,479  
|                                                                                                          |  |              |         |   |      |   |        
|Total liabilities                                                                                         |  |              | 66,487  |   |      |   | 60,555 
|                                                                                                          |  |              |         |   |      |   |        
|Commitments and contingencies (See Note 8)                                                                |  |              |         |   |      |   |        
|Stockholders equity:                                                                                     |  |              |         |   |      |   |        
|Preferred stock; $0.01 par value: 2,000 shares authorized; none issued                                    |  |              |        |   |      |   |       
|Common stock; $0.01 par value: 120,000 shares authorized; 32,938 and 32,853 shares issued and outstanding |  |              | 329     |   |      |   | 329    
|Additional paid-in capital (restated)                                                                     |  |              | 340,394 |   |      |   | 339,622
|Retained earnings (accumulated deficit) (restated)                                                        |  |              | (71,093 | ) |      |   | 30,412 
|Accumulated other comprehensive income                                                                    |  |              | 8,829   |   |      |   | 2,992  
|                                                                                                          |  |              |         |   |      |   |        
|Total stockholders equity                                                                                |  |              | 278,459 |   |      |   | 373,355
|                                                                                                          |  |              |         |   |      |   |        
|Total liabilities and stockholders equity                                                                |  | $            | 344,946 |   |      | $ | 433,910
|                                                                                                          |  |              |         |   |      |   |        



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



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ADVENT SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)



|                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                              |  | Year Ended December 31, |        
|                                              |  | 2003                    |         |   | 2002 |   |         | 2001 | 
|Net revenues:                                 |  |                         |         |   |      |   |         |      |  |   |         |  
|License and development fees                  |  | $                       | 29,386  |   |      | $ | 46,260  |      |  | $ | 78,257  |  
|Maintenance and other recurring               |  |                         | 86,483  |   |      |   | 83,359  |      |  |   | 64,187  |  
|Professional services and other               |  |                         | 21,290  |   |      |   | 29,817  |      |  |   | 27,771  |  
|                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Total net revenues                            |  |                         | 137,159 |   |      |   | 159,436 |      |  |   | 170,215 |  
|                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Cost of revenues:                             |  |                         |         |   |      |   |         |      |  |   |         |  
|License and development fees                  |  |                         | 2,460   |   |      |   | 1,877   |      |  |   | 2,909   |  
|Maintenance and other recurring               |  |                         | 30,396  |   |      |   | 25,141  |      |  |   | 18,432  |  
|Professional services and other               |  |                         | 17,601  |   |      |   | 17,807  |      |  |   | 15,169  |  
|Amortization of developed technology          |  |                         | 6,567   |   |      |   | 4,847   |      |  |   | 1,868   |  
|                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Total cost of revenues                        |  |                         | 57,024  |   |      |   | 49,672  |      |  |   | 38,378  |  
|                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Gross margin                                  |  |                         | 80,135  |   |      |   | 109,764 |      |  |   | 131,837 |  
|                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Operating expenses:                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Sales and marketing                           |  |                         | 44,754  |   |      |   | 56,577  |      |  |   | 44,540  |  
|Product development                           |  |                         | 34,857  |   |      |   | 40,352  |      |  |   | 28,247  |  
|General and administrative                    |  |                         | 23,217  |   |      |   | 20,903  |      |  |   | 14,824  |  
|Amortization of other intangibles             |  |                         | 7,854   |   |      |   | 6,015   |      |  |   | 2,826   |  
|Purchased in-process research and development |  |                         |        |   |      |   | 1,450   |      |  |   |        |  
|Restructuring charges                         |  |                         | 9,112   |   |      |   |        |      |  |   |        |  
|                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Total operating expenses                      |  |                         | 119,794 |   |      |   | 125,297 |      |  |   | 90,437  |  
|                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Income (loss) from operations                 |  |                         | (39,659 | ) |      |   | (15,533 | )    |  |   | 41,400  |  
|Interest income and other expense, net        |  |                         | 3,526   |   |      |   | 5,854   |      |  |   | 8,273   |  
|Loss on investments                           |  |                         | (1,998  | ) |      |   | (13,521 | )    |  |   | (2,000  | )
|                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Income (loss) before income taxes             |  |                         | (38,131 | ) |      |   | (23,200 | )    |  |   | 47,673  |  
|Provision for (benefit from) income taxes     |  |                         | 59,412  |   |      |   | (3,964  | )    |  |   | 16,208  |  
|                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income (loss)                             |  | $                       | (97,543 | ) |      | $ | (19,236 | )    |  | $ | 31,465  |  
|                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Basic net income (loss) per share             |  | $                       | (3.00   | ) |      | $ | (0.57   | )    |  | $ | 0.98    |  
|                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Diluted net income (loss) per share           |  | $                       | (3.00   | ) |      | $ | (0.57   | )    |  | $ | 0.89    |  
|                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Weighted average shares:                      |  |                         |         |   |      |   |         |      |  |   |         |  
|Basic                                         |  |                         | 32,473  |   |      |   | 33,659  |      |  |   | 32,148  |  
|                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Diluted                                       |  |                         | 32,473  |   |      |   | 33,659  |      |  |   | 35,383  |  
|                                              |  |                         |         |   |      |   |         |      |  |   |         |  



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



4



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ADVENT SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the years ended December 31, 2003, 2002 and
2001

(in thousands)



|                                                       |  |              |   |  |                           |     |   |                                      |   |         |                                            |  |   |                           |   |  |   |       |   |  |   |         |  
|------------------------------------------------------ |  | ------------ | - |  | ------------------------- | --- | - | ------------------------------------ | - | ------- | ------------------------------------------ |  | - | ------------------------- | - |  | - | ----- | - |  | - | ------- | -
|                                                       |  | Common Stock |   |  | Additional Paid-inCapital |     |   | RetainedEarnings(AccumulatedDeficit) |   |         | AccumulatedOtherComprehensiveIncome (Loss) |  |   | Total StockholdersEquity |  
|                                                       |  | Shares       |   |  | Amount                    |     |   |                                      |   |        
|Balances, December 31, 2000                            |  | 30,498       |   |  | $                         | 305 |   |                                      | $ | 154,070 |                                            |  | $ | 55,156                    |   |  | $ | 70    |   |  | $ | 209,601 |  
|Exercise of stock options                              |  | 1,356        |   |  |                           | 13  |   |                                      |   | 15,408  |                                            |  |   |                           |   |  |   |       |   |  |   | 15,421  |  
|Tax benefit from exercise of stock options             |  |              |   |  |                           |     |   |                                      |   | 16,807  |                                            |  |   |                           |   |  |   |       |   |  |   | 16,807  |  
|Common stock issued under employee stock purchase plan |  | 69           |   |  |                           | 2   |   |                                      |   | 2,907   |                                            |  |   |                           |   |  |   |       |   |  |   | 2,909   |  
|Stock-based compensation                               |  |              |   |  |                           |     |   |                                      |   | 148     |                                            |  |   |                           |   |  |   |       |   |  |   | 148     |  
|Common stock issued in secondary offering, net         |  | 2,550        |   |  |                           | 26  |   |                                      |   | 138,014 |                                            |  |   |                           |   |  |   |       |   |  |   | 138,040 |  
|Common stock repurchased and retired (restated)        |  | (430         | ) |  |                           | (4  | ) |                                      |   | (3,907  | )                                          |  |   | (10,899                   | ) |  |   |       |   |  |   | (14,810 | )
|Warrant                                                |  |              |   |  |                           |     |   |                                      |   | 5,000   |                                            |  |   |                           |   |  |   |       |   |  |   | 5,000   |  
|Net income                                             |  |              |   |  |                           |     |   |                                      |   |         |                                            |  |   | 31,465                    |   |  |   |       |   |  |   | 31,465  |  
|Unrealized loss on marketable securities, net of tax   |  |              |   |  |                           |     |   |                                      |   |         |                                            |  |   |                           |   |  |   | (196  | ) |  |   | (196    | )
|Foreign currency translation adjustments               |  |              |   |  |                           |     |   |                                      |   |         |                                            |  |   |                           |   |  |   | 4     |   |  |   | 4       |  
|                                                       |  |              |   |  |                           |     |   |                                      |   |         |                                            |  |   |                           |   |  |   |       |   |  |   |         |  
|Comprehensive income                                   |  |              |   |  |                           |     |   |                                      |   |         |                                            |  |   |                           |   |  |   |       |   |  |   | 31,273  |  
|                                                       |  |              |   |  |                           |     |   |                                      |   |         |                                            |  |   |                           |   |  |   |       |   |  |   |         |  
|Balances, December 31, 2001 (restated)                 |  | 34,043       |   |  |                           | 342 |   |                                      |   | 328,447 |                                            |  |   | 75,722                    |   |  |   | (122  | ) |  |   | 404,389 |  
|Exercise of stock options                              |  | 836          |   |  |                           | 8   |   |                                      |   | 12,210  |                                            |  |   |                           |   |  |   |       |   |  |   | 12,218  |  
|Tax benefit from exercise of stock options             |  |              |   |  |                           |     |   |                                      |   | 8,948   |                                            |  |   |                           |   |  |   |       |   |  |   | 8,948   |  
|Common stock issued under employee stock purchase plan |  | 164          |   |  |                           | 1   |   |                                      |   | 3,306   |                                            |  |   |                           |   |  |   |       |   |  |   | 3,307   |  
|Common stock issued in connection with an acquisition  |  |              |   |  |                           |     |   |                                      |   | 1,782   |                                            |  |   |                           |   |  |   |       |   |  |   | 1,782   |  
|Stock-based compensation                               |  |              |   |  |                           |     |   |                                      |   | (2      | )                                          |  |   |                           |   |  |   |       |   |  |   | (2      | )
|Common stock repurchased and retired (restated)        |  | (2,355       | ) |  |                           | (24 | ) |                                      |   | (23,569 | )                                          |  |   | (26,074                   | ) |  |   |       |   |  |   | (49,667 | )
|Warrant                                                |  | 165          |   |  |                           | 2   |   |                                      |   | 8,500   |                                            |  |   |                           |   |  |   |       |   |  |   | 8,502   |  
|Net loss                                               |  |              |   |  |                           |     |   |                                      |   |         |                                            |  |   | (19,236                   | ) |  |   |       |   |  |   | (19,236 | )
|Unrealized loss on marketable securities, net of tax   |  |              |   |  |                           |     |   |                                      |   |         |                                            |  |   |                           |   |  |   | (17   | ) |  |   | (17     | )
|Foreign currency translation adjustments               |  |              |   |  |                           |     |   |                                      |   |         |                                            |  |   |                           |   |  |   | 3,131 |   |  |   | 3,131   |  
|                                                       |  |              |   |  |                           |     |   |                                      |   |         |                                            |  |   |                           |   |  |   |       |   |  |   |         |  
|Comprehensive loss                                     |  |              |   |  |                           |     |   |                                      |   |         |                                            |  |   |                           |   |  |   |       |   |  |   | (16,122 | )
|                                                       |  |              |   |  |                           |     |   |                                      |   |         |                                            |  |   |                           |   |  |   |       |   |  |   |         |  
|Balances, December 31, 2002 (restated)                 |  | 32,853       |   |  |                           | 329 |   |                                      |   | 339,622 |                                            |  |   | 30,412                    |   |  |   | 2,992 |   |  |   | 373,355 |  
|Exercise of stock options                              |  | 874          |   |  |                           | 8   |   |                                      |   | 7,800   |                                            |  |   |                           |   |  |   |       |   |  |   | 7,808   |  
|Common stock repurchased and retired(restated)         |  | (1,000       | ) |  |                           | (10 | ) |                                      |   | (10,337 | )                                          |  |   | (3,962                    | ) |  |   |       |   |  |   | (14,309 | )
|Common stock issued under employee stock purchase plan |  | 211          |   |  |                           | 2   |   |                                      |   | 2,781   |                                            |  |   |                           |   |  |   |       |   |  |   | 2,783   |  
|Stock-based compensation                               |  |              |   |  |                           |     |   |                                      |   | 501     |                                            |  |   |                           |   |  |   |       |   |  |   | 501     |  
|Tax benefit from exercise of stock options             |  |              |   |  |                           |     |   |                                      |   | 27      |                                            |  |   |                           |   |  |   |       |   |  |   | 27      |  
|Net loss                                               |  |              |   |  |                           |     |   |                                      |   |         |                                            |  |   | (97,543                   | ) |  |   |       |   |  |   | (97,543 | )
|Unrealized loss on marketable securities, net of tax   |  |              |   |  |                           |     |   |                                      |   |         |                                            |  |   |                           |   |  |   | (33   | ) |  |   | (33     | )
|Foreign currency translation adjustments               |  |              |   |  |                           |     |   |                                      |   |         |                                            |  |   |                           |   |  |   | 5,870 |   |  |   | 5,870   |  
|                                                       |  |              |   |  |                           |     |   |                                      |   |         |                                            |  |   |                           |   |  |   |       |   |  |   |         |  
|Comprehensive loss                                     |  |              |   |  |                           |     |   |                                      |   |         |                                            |  |   |                           |   |  |   |       |   |  |   | (91,706 | )
|                                                       |  |              |   |  |                           |     |   |                                      |   |         |                                            |  |   |                           |   |  |   |       |   |  |   |         |  
|Balances, December 31, 2003(restated)                  |  | 32,938       |   |  | $                         | 329 |   |                                      | $ | 340,394 |                                            |  | $ | (71,093                   | ) |  | $ | 8,829 |   |  | $ | 278,459 |  
|                                                       |  |              |   |  |                           |     |   |                                      |   |         |                                            |  |   |                           |   |  |   |       |   |  |   |         |  



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



5



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##### Table of Contents

ADVENT SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|---------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                         |  | Year Ended December 31, |         
|                                                                                         |  | 2003                    |          |   | 2002 |   |          | 2001 | 
|Cash flows from operating activities:                                                    |  |                         |          |   |      |   |          |      |  |   |          |  
|Net income (loss)                                                                        |  | $                       | (97,543  | ) |      | $ | (19,236  | )    |  | $ | 31,465   |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                         |          |   |      |   |          |      |  |   |          |  
|Tax benefit from exercise of stock options                                               |  |                         | 27       |   |      |   | 8,948    |      |  |   | 16,807   |  
|Non-cash stock compensation                                                              |  |                         | 411      |   |      |   | (2       | )    |  |   | 148      |  
|Depreciation and amortization                                                            |  |                         | 23,160   |   |      |   | 19,142   |      |  |   | 10,434   |  
|Purchased in-process research and development                                            |  |                         |         |   |      |   | 1,450    |      |  |   |         |  
|Provision for (reduction of) doubtful accounts                                           |  |                         | (683     | ) |      |   | 2,407    |      |  |   | 3,105    |  
|Other than temporary loss on investments                                                 |  |                         | 1,998    |   |      |   | 13,816   |      |  |   | 2,000    |  
|Non-cash restructuring charges and impairment loss                                       |  |                         | 2,739    |   |      |   |         |      |  |   |         |  
|(Gain) loss on investments                                                               |  |                         | (35      | ) |      |   | 368      |      |  |   |         |  
|Deferred income taxes                                                                    |  |                         | 61,598   |   |      |   | (7,713   | )    |  |   | (6,009   | )
|Other                                                                                    |  |                         | 66       |   |      |   | (191     | )    |  |   | 476      |  
|Changes in operating assets and liabilities:                                             |  |                         |          |   |      |   |          |      |  |   |          |  
|Accounts receivable                                                                      |  |                         | 5,151    |   |      |   | 22,609   |      |  |   | (17,670  | )
|Prepaid and other assets                                                                 |  |                         | 3,817    |   |      |   | 3,257    |      |  |   | (5,569   | )
|Income taxes receivable                                                                  |  |                         | 4,650    |   |      |   | (6,289   | )    |  |   |         |  
|Accounts payable                                                                         |  |                         | (2,325   | ) |      |   | (1,150   | )    |  |   | (432     | )
|Accrued liabilities                                                                      |  |                         | (935     | ) |      |   | (5,124   | )    |  |   | 886      |  
|Deferred revenues                                                                        |  |                         | 2,581    |   |      |   | (457     | )    |  |   | 4,559    |  
|Income taxes payable                                                                     |  |                         | 2,372    |   |      |   | (1,878   | )    |  |   | 2,799    |  
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash provided by operating activities                                                |  |                         | 7,049    |   |      |   | 29,957   |      |  |   | 42,999   |  
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash flows from investing activities:                                                    |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash used in acquisitions                                                            |  |                         | (9,877   | ) |      |   | (89,010  | )    |  |   | (30,113  | )
|Purchases of property and equipment                                                      |  |                         | (6,803   | ) |      |   | (6,708   | )    |  |   | (9,109   | )
|Purchases of other investments                                                           |  |                         |         |   |      |   | (10,060  | )    |  |   | (13,992  | )
|Proceeds from sales of other investments                                                 |  |                         |         |   |      |   | 1,967    |      |  |   |         |  
|Purchases of marketable securities                                                       |  |                         | (155,833 | ) |      |   | (145,191 | )    |  |   | (198,779 | )
|Sales and maturities of marketable securities                                            |  |                         | 173,083  |   |      |   | 171,425  |      |  |   | 132,264  |  
|Deposits and other                                                                       |  |                         |         |   |      |   | (6,079   | )    |  |   |         |  
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash provided by (used in) investing activities                                      |  |                         | 570      |   |      |   | (83,656  | )    |  |   | (119,729 | )
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash flows from financing activities:                                                    |  |                         |          |   |      |   |          |      |  |   |          |  
|Proceeds from exercises of stock options                                                 |  |                         | 7,808    |   |      |   | 12,218   |      |  |   | 15,421   |  
|Proceeds from issuance and exercise of warrants                                          |  |                         |         |   |      |   | 2        |      |  |   | 5,000    |  
|Common stock repurchased                                                                 |  |                         | (14,309  | ) |      |   | (49,667  | )    |  |   | (14,810  | )
|Proceeds from issuance of common stock                                                   |  |                         |         |   |      |   |         |      |  |   | 145,630  |  
|Costs from issuance of common stock                                                      |  |                         |         |   |      |   |         |      |  |   | (7,590   | )
|Proceeds from common stock issued under the employee stock purchase plan                 |  |                         | 2,783    |   |      |   | 3,307    |      |  |   | 2,909    |  
|Repayment of capital leases                                                              |  |                         | (141     | ) |      |   | (134     | )    |  |   |         |  
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash provided by (used in) financing activities                                      |  |                         | (3,859   | ) |      |   | (34,274  | )    |  |   | 146,560  |  
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Effect of exchange rate changes on cash and cash equivalents                             |  |                         | 668      |   |      |   | 85       |      |  |   | (23      | )
|Net increase (decrease) in cash and cash equivalents                                     |  |                         | 4,428    |   |      |   | (87,888  | )    |  |   | 69,807   |  
|Cash and cash equivalents at beginning of period                                         |  |                         | 78,906   |   |      |   | 166,794  |      |  |   | 96,987   |  
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash and cash equivalents at end of period                                               |  | $                       | 83,334   |   |      | $ | 78,906   |      |  | $ | 166,794  |  
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Supplemental disclosure of cash flow information:                                        |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash paid for income taxes, net of refunds                                               |  | $                       | (3,318   | ) |      | $ | 5,378    |      |  | $ | 1,988    |  
|Cash paid for interest                                                                   |  | $                       | 70       |   |      | $ | 12       |      |  | $ | 4        |  



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



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. Summary of Significant Accounting Policies



Business description: We provide stand-alone and client/server software products, data and data interfaces and
related maintenance and services that automate, integrate and support certain mission-critical functions of the front, middle and back offices of investment management organizations. Our clients vary significantly in size and assets under management
and include investment advisors, brokerage firms, banks, hedge funds, corporations, public funds, foundations, universities and non-profit organizations.



Principles of consolidation: The consolidated financial statements include the accounts of Advent and its wholly-owned subsidiaries. All
intercompany transactions and amounts have been eliminated.



Foreign currency translation: The functional currency of our foreign subsidiaries is their local currencies. All assets and liabilities denominated in foreign currency are translated into U.S. dollars at the exchange rate on
the balance sheet date. Revenues, costs and expenses are translated at the average rate of exchange during the period.



Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. These estimates are based on information available as of the date of the financial statements. Actual results could differ from those estimates.



Fair value of financial instruments: The amounts reported for
cash equivalents, marketable securities, receivables, and accounts payable are considered to approximate their market values based on comparable market information available at the respective balance sheet dates and their short-term nature.



Cash and cash equivalents: Cash equivalents are
comprised of highly liquid investments purchased with an original or remaining maturity of 90 days or less. These securities are maintained with major financial institutions.



Marketable securities: All of our marketable securities are classified as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of any related tax effect, reported in accumulated comprehensive income in stockholders equity in the accompanying consolidated financial
statements. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in interest income and other expense, net.



Investments: Investments are included in other assets and consist of non-marketable investments in
privately held companies, most of which can be considered in the start-up or development stages. One of these investments is accounted for under the equity method of accounting because our Chief Executive Officer is a member of the investees
board of directors. Our portion of net income or loss for this investment has not been significant to date and is included in interest income and other expense, net in our statement of operations. The remaining investments are carried at the lower
of cost or fair value. Our investments in privately held companies are considered impaired when a review of the investees operations indicates that the decline in value of the investment is other than temporary. Such indicators include, but
are not limited to, limited capital resources, limited prospects of receiving additional financing, and prospects for liquidity of the related securities. Impaired investments in privately held companies are written down to estimated fair value.



Product development: Product development
expenses consist primarily of salary, benefits, and contractors fees for our development and technical support staff, and other costs associated with the enhancements of



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



existing products and services and development of new products and services. Costs incurred for software development prior to technological feasibility are
expensed as product development costs in the period incurred. Once the point of technological feasibility is reached, development costs are capitalized until the product is available for general release. Capitalized costs are then amortized on a
straight-line basis over the estimated useful life or on the ratio of current revenue to the total projected product revenue, whichever is greater. To date, the period between achieving technology feasibility, which we define as the establishment of
a working model and which typically occurs when beta testing commences, and the general availability of such software has been short. As such, software development costs qualifying for capitalization have been insignificant and therefore no costs
have been capitalized to date.



Capitalization of internal
use software: Costs incurred for web site design, creation and maintenance of content, graphics and user interface are expensed as incurred. Costs for development of internal use software are capitalized and amortized over their estimated
useful lives ranging from two to five years. Costs of $734,000, $414,000 and $836,000 related to development of internal use software were capitalized in 2003, 2002 and 2001, respectively.



Property and equipment: Property and equipment are stated at
cost, less accumulated depreciation and amortization. We calculate depreciation and amortization using the straight-line method over the assets estimated useful lives. Amortization of leasehold improvements is computed using the straight-line
method over the shorter of the estimated useful life of the assets or the remaining lease term. The cost and related accumulated depreciation applicable to property and equipment sold or no longer in service are eliminated from the accounts and any
gains or losses are included in interest income and other expense, net. Useful lives by principal classifications are as follows:



|                       |  |              
|---------------------- |  | -------------
|Office equipment       |  | 5 to 6 years 
|Computers and software |  | 3 to 6 years 
|Leasehold improvements |  | 3 to 11 years



Repairs and
maintenance expenditures, which are not considered improvements and do not extend the useful life of the property and equipment, are expensed as incurred.



Goodwill: Goodwill represents the excess of the purchase price of an acquired enterprise or assets over the fair values of the identifiable
assets acquired and liabilities assumed. On January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS 142), Goodwill and Other Intangible Assets, which requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for impairment at least annually. We complete our annual impairment test in the fourth quarter of each year. In accordance with SFAS 142, the Company continued to amortize goodwill
related to acquisitions completed prior to July 1, 2001, through December 31, 2001. The goodwill balances associated with acquisitions completed prior to July 1, 2001 were amortized over four to seven years years using the straight-line method.
Consistent with SFAS 142, the Company has not amortized goodwill related to acquisitions completed subsequent to June 30, 2001, but instead test the balance for impairment annually.



In accordance with SFAS 142, the Company tests for impairment whenever events or changes in circumstances indicate that the
carrying amount of goodwill may not be recoverable, or at least once a year. These tests are performed at the reporting unit level using a two-step, fair-value based approach. Advent has determined that it has only one reporting unit. The first step
compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, the second step, used to measure the amount of impairment loss, compares the implied
fair value of the reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. During the fourth quarter of 2003, as part of
our annual impairment test, we completed the first step which did not indicate impairment. Therefore, the second step of the impairment test was not necessary.



Accounting for long-lived assets: We review property and equipment and other intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Factors we consider important which could trigger an impairment review include the following (1) significant underperformance relative to expected historical or
projected future operating results; (2) significant changes in the manner of our use of the acquired assets or the strategy for our overall business; (3) significant negative industry or economic trends; (4) significant decline in our
stock price for a sustained period; and (5) our market capitalization relative to net book value. Recoverability is measured by comparison of the assets carrying amount to their expected future undiscounted net cash flows. If such assets are
considered to be impaired, the impairment loss to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value.



Other intangibles assets mainly represent completed technology, distributor licenses, customer lists and trade names acquired in business combinations.
Identifiable intangibles are amortized on a straight line basis over their estimated useful lives as follows:



|                              |  |             
|----------------------------- |  | ------------
|Completed technology          |  | 3 to 7 years
|Agreements                    |  | 5 to 7 years
|Customer base and trade names |  | 3 to 7 years



Revenue
recognition: We recognize revenue from software licenses, development fees, maintenance, other recurring revenues, professional services and other revenues. In addition, we earn commissions from customers who use our broker/dealer, Second
Street Securities, to soft dollar the purchase of non-Advent product and services. Soft dollaring enables the customers to use the commissions earned on trades to pay all or part of the fees owed to us for non-Advent products
or services. The commission revenues earned from soft dollaring non-Advent products or services are recorded as other revenues in professional services and other revenues.



We offer a wide variety of products and services to a large number of financially sophisticated customers. While many of our
lower priced license transactions, maintenance contracts, subscription-based transactions and professional services projects conform to a standard structure, many of our larger transactions are complex and may require significant review and judgment
in our application of generally accepted accounting principles.



Software license and development fees:We recognize revenue from the licensing of software when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed and determinable and
collection of the resulting receivable is reasonably assured. We use a signed license agreement as evidence of an arrangement. Sales through our distributors, primarily Advent Europe Holdings, our European distributor, are evidenced by a master
agreement governing the relationship together with binding order forms and signed contracts from the distributors customers. Revenue is recognized upon shipment to the distributors customer and when all other revenue recognition criteria
have been met. Delivery occurs when product is delivered to a common carrier F.O.B shipping point. While many of our arrangements generally do not include acceptance provisions, certain complex deals may involve acceptance criteria. If acceptance
provisions are provided, delivery is deemed to occur upon acceptance. We assess whether the fee is fixed and determinable based on the payment terms associated with the transaction. We assess whether the collectibility of the resulting receivable is
reasonably assured based on a number of factors, including the credit worthiness of the customer determined through review of credit reports, our transaction history with the customer, and other available information and pertinent country risk if
the customer is located outside of the United States. Software licenses are sold with



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



maintenance and, frequently, professional services. We allocate revenue to delivered components, normally the license component of the arrangement, using the
residual value method, based on objective evidence of the fair value of the undelivered elements, which is specific to us. We offer term licenses as an alternative to perpetual licenses and recognize revenue for term licenses ratably over the period
of the contract term. To date, revenue from term licenses has not been material.



Development fees are derived from contracts that we have entered into with other companies, including customers and development partners. Agreements for which we receive development fees generally provide for the
development of technologies and products that are expected to become part of our product offerings in the future. Revenues for license development projects are recognized primarily using the percentage-of-completion method of accounting, based on
costs incurred to date compared with the estimated cost of completion.



If a customer chooses to enter into a soft dollar arrangement through our in-house broker/dealer subsidiary, Second Street Securities, the soft dollar arrangement does not change or modify the original fixed or
determinable fee in the written contract. The customer is required to pay the original fee within one year. If insufficient trading volume is generated to pay the entire original fee within one year, the customer is still required to render payment
within one year. If the customer chooses to use a third-party broker/dealer, the original payment terms apply, regardless of the arrangement with the third-party broker/dealer. The option to soft dollar a transaction does not alter the
underlying revenue recognition for the transaction; all the revenue recognition criteria listed in the Software license section above must be assessed in determining how the revenue will be recognized.



Our standard practice is to enforce our contract terms and not allow our
customers to return software. We have, however, on limited occasions allowed customers to return software and have recorded sales returns reserves as offsets to revenue in the period the sales return becomes probable.



We do have three situations where we provide a contractual limited right of
return to end-user customers only: in shrink-wrap license agreements for Advent products, our MicroEdge product and our NPO product. The shrink-wrap license agreement for Advent product provides for a right of return within seven days of delivery of
the software. The MicroEdge software license agreements allow for a thirty-day money back guarantee. The NPO license agreement allows for a seven-day right of return. We recognize revenue on delivery since the fee is fixed and determinable, the
buyer is obligated to pay, the risk of loss passes to the customer, and we have the ability to estimate returns. Our ability to estimate returns is based on a long history of experience with relatively homogenous transactions and the fact that the
return period is short. We have recorded a sales returns reserve (contra revenue account) to account for these situations based on our historical experience.



Maintenance and other recurring revenues: We offer annual maintenance programs that provide for technical support and updates to our software
products. Maintenance fees are charged in the initial licensing year and at renewals of annual maintenance in subsequent years. We offer other recurring revenue services that are either subscription-based or transaction-based, and primarily include
the provision of software interfaces with, and the capability to download securities information from, third party data providers. Fair value for maintenance is based upon renewal rates stated in the contracts or, in limited cases, separate sales of
renewals to other customers. We recognize revenue for maintenance ratably over the contract term. We recognize revenue from recurring revenue transactions either ratably over the subscription period or as the transactions occur.



Subscription-based revenues and any related set-up fees are recognized
ratably over the term of the agreement.



Professional
services and other revenues: We offer a variety of professional services that include project management, implementation, data conversion, integration, custom report writing and training. Fair value for



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



professional services is based upon separate sales of these services by us to other customers. Our professional services are generally billed based on hourly
rates together with reimbursement for travel and accommodation expenses. Our professional services and other revenues also include revenue from our semi-annual user conferences. We recognize revenues as these professional services are performed.



Commission revenues received from soft dollar
transactions for products and services not related to Advent products and services are recorded as other revenues. Revenues for these soft dollar transactions are recognized on a trade-date basis as securities transactions occur.



Allowance for doubtful accounts and sales returns: We
analyze specific accounts receivable, historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts.
We also analyze customer demand and acceptance of our product and historical returns when evaluating the adequacy of the allowance for sales returns, which are not generally provided to our customers. Allowances for sales returns are accounted for
as deductions of net revenues and increases to reserves within deferred revenues.



Advertising costs:We expense advertising costs as incurred. Total advertising expenses were $78,000, $85,000, and $73,000 for the years ended December 31, 2003, 2002, and 2001, respectively.



Stock-based compensation:We use the intrinsic value method to account
for all of our stock-based employee compensation plans and have adopted the disclosure-only alternative of Statement of Financial Accounting Standards (SFAS) No. 123 Accounting for Stock-Based Compensation, as amended by SFAS
No. 148, Accounting for Stock-Based Compensation. We are required to disclose the pro forma effects on operating results as if we had elected to use the fair value approach to account for all our stock-based employee
compensation plans. Stock-based compensation for non-employees is based on the fair value of the related stock or options.



The fair value of warrants, options or stock exchanged for services is expensed over the period benefited. The warrants and options are valued using the
Black-Scholes option pricing model.



If compensation had been
determined based on the fair value at the grant date for awards in 2003, 2002 and 2001, consistent with the provisions of SFAS No. 123, our net income (loss) and net income (loss) per share for the year ended December 31, 2003, 2002 and 2001,
respectively, would have been as follows:



|                                                                                                                                                       |  |                                       |          |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------- | -------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                                                                       |  | Year Ended December 31,               |         
|                                                                                                                                                       |  | 2003                                  |          |   | 2002 |   |         | 2001 | 
|                                                                                                                                                       |  | (in thousands, except per share data) |         
|Net income (loss)as reported                                                                                                                          |  | $                                     | (97,543  | ) |      | $ | (19,236 | )    |  | $ | 31,465  |  
|Stock-based employee compensation expense (credit) included in reported net income (loss), net of related tax effects                                  |  |                                       | 501      |   |      |   | (2      | )    |  |   | 148     |  
|Total stock-based employee compensation expense determined under fair value based method for all awards granted since 1996, net of related tax
effects |  |                                       | (12,101  | ) |      |   | (14,113 | )    |  |   | (12,825 | )
|                                                                                                                                                       |  |                                       |          |   |      |   |         |      |  |   |         |  
|Net income (loss)pro forma                                                                                                                            |  | $                                     | (109,143 | ) |      | $ | (33,351 | )    |  | $ | 18,788  |  
|                                                                                                                                                       |  |                                       |          |   |      |   |         |      |  |   |         |  
|PER SHARE DATA                                                                                                                                         |  |                                       |          |   |      |   |         |      |  |   |         |  
|Basic                                                                                                                                                  |  |                                       |          |   |      |   |         |      |  |   |         |  
|Net income (loss)as reported                                                                                                                          |  | $                                     | (3.00    | ) |      | $ | (0.57   | )    |  | $ | 0.98    |  
|Net income (loss)pro forma                                                                                                                            |  | $                                     | (3.36    | ) |      | $ | (0.99   | )    |  | $ | 0.58    |  
|Diluted                                                                                                                                                |  |                                       |          |   |      |   |         |      |  |   |         |  
|Net income (loss)as reported                                                                                                                          |  | $                                     | (3.00    | ) |      | $ | (0.57   | )    |  | $ | 0.89    |  
|Net income (loss)pro forma                                                                                                                            |  | $                                     | (3.36    | ) |      | $ | (0.99   | )    |  | $ | 0.53    |  



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Such pro forma disclosures may not be representative of future compensation costs because options
vest over several years and additional grants are made each year.



The weighted-average grant-date fair value of options granted were $17.86, $39.85 and $26.32 per option for the years ended December 31, 2003, 2002, and 2001, respectively. The weighted-average grant-date fair value of the Employee Stock
Purchase Plan rights were $13.75, $15.73 and $19.56 per option for the years ended December 31, 2003, 2002, and 2001, respectively.



The fair value of each option grant and the Employee Stock Purchase Plan rights were estimated on the date of grant using the Black-Scholes valuation
model with the following weighted average assumptions:



|                             |  |                         |   |  |          |   |  |          |  
|---------------------------- |  | ----------------------- | - |  | -------- | - |  | -------- | -
|                             |  | Year Ended December 31, |  
|                             |  | 2003                    |   |  | 2002     |   |  | 2001     |  
|Stock Options                |  |                         |   |  |          |   |  |          |  
|Risk-free interest rate      |  | 2.67                    | % |  | 3.80     | % |  | 4.50     | %
|Volatility                   |  | 71.3                    | % |  | 71.8     | % |  | 65.9     | %
|Expected life                |  | 5 years                 |   |  | 5 years  |   |  | 5 years  |  
|Expected dividends           |  | None                    |   |  | None     |   |  | None     |  
|                             |  |                         |  
|Employee Stock Purchase Plan |  |                         |   |  |          |   |  |          |  
|Risk-free interest rate      |  | 1.10                    | % |  | 1.60     | % |  | 3.70     | %
|Volatility                   |  | 71.8                    | % |  | 71.8     | % |  | 65.9     | %
|Expected life                |  | 6 months                |   |  | 6 months |   |  | 6 months |  
|Expected dividends           |  | None                    |   |  | None     |   |  | None     |  



Income taxes:We account for income taxes under an asset and liability approach that requires the expected future tax consequences of temporary differences between book and tax bases of assets and liabilities be recognized as deferred tax assets and
liabilities. Generally accepted accounting principles require us to evaluate the realizability of our net deferred tax assets on an ongoing basis. A valuation allowance is recorded to reduce the net deferred tax assets to an amount that will more
likely than not be realized. Significant factors considered by management in assessing the need for a valuation allowance include our historical operating results, the length of time over which the differences will be realized, tax planning
opportunities and expectations for future earnings. In considering whether or not we will realize a future benefit from net deferred tax assets, recent losses must be given substantially more weight than any projections of future profitability.



Net income (loss) per share: Basic net income (loss)
per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for that period. Diluted net income per share is computed giving effect to all dilutive potential common shares that were outstanding
during the period. Dilutive potential shares consist of incremental common shares issuable upon exercise of stock options and warrants and conversion of preferred stock (none outstanding) for all periods.



Comprehensive income (loss): Comprehensive income (loss) consists of
net income (loss), net unrealized foreign currency translation adjustment and net unrealized gains or losses on available-for-sale marketable securities and is presented in the consolidated statements of stockholders equity.



Segment information:We have determined that we have a single
reportable segment consisting of the development, marketing and sale of stand-alone and client/server software products, data interfaces and related maintenance and services that automate, integrate and support certain mission critical functions of
investment management organizations. International sales represented 12% of our net revenues for the year ended



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



December 31, 2003, and less than 10% for the years ended December 31, 2002 and 2001. No one customer accounted for more than 10% of our net revenues for
the years ended December 31, 2003, 2002, and 2001.



Certain
risks and concentrations:Our product revenues are concentrated in the computer software industry, which is highly competitive and rapidly changing. Significant technological changes in the industry or customer requirements, or the emergence of
competitive products with new capabilities or technologies could adversely affect operating results. Additionally, we derive a majority of our revenues from licensing our Axys application and its ancillary products and services, and therefore its
market acceptance is essential to our success.



Financial
instruments that potentially subject us to concentrations of credit risks comprise, principally, cash, short-term marketable securities, and trade accounts receivable. We invest excess cash through banks, mutual funds, and brokerage houses primarily
in highly liquid securities and have investment policies and procedures that are reviewed periodically to minimize credit risk. Our marketable securities consist of diversified investment grade securities traded in the United States of America. We
believe no significant concentration of credit risk exists with respect to these securities.



With respect to accounts receivable, we perform ongoing credit evaluations of our customers and generally do not require collateral. We maintain reserves for potential credit losses on customer accounts when deemed
necessary. At December 31 2003, 2002 and 2001 no customer accounted for more than 10% of accounts receivable or 10% of revenues for the years then ended.



Reclassifications:Certain prior year amounts have been reclassified to conform to the current year presentation. Such reclassifications had no
effect on results of operations or stockholders equity.



Recent Accounting Pronouncement: In January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities. FIN 46 expands upon and strengthens existing accounting
guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. A variable interest entity is a corporation, partnership, trust, or any other legal structure used for
business purposes where (a) the equity investors in the entity do not have the characteristics of a controlling financial interest or (b) the equity investors do not have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entitys activities
or is entitled to receive a majority of the entitys residual returns or both (primary beneficiary). The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation
requirements apply to older entities in the first fiscal year or interim period ending after March 15, 2004. Disclosure requirements apply to any financial statements issued after January 31, 2003. We continue to evaluate the provisions of FIN 46
with respect to our independent European distributor to determine whether this distributor is a variable interest entity and, if so, if we are the primary beneficiary. It is reasonably possible that we would have to consolidate this distributor, but
we do not believe it will have a material impact on our financial results.



13



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##### Table of Contents

ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



2. Marketable Securities



At December 31, 2003, marketable securities were summarized as follows:



|                                               |  |                |         |                        |   |                         |  |   |                      |   |  |   |        
|---------------------------------------------- |  | -------------- | ------- | ---------------------- | - | ----------------------- |  | - | -------------------- | - |  | - | -------
|                                               |  | Amortized Cost |         | Gross Unrealized Gains |   | Gross Unrealized Losses |  |   | Aggregate Fair Value
|                                               |  |                |        
|                                               |  |                |        
|                                               |  | (in thousands)
|Corporate debt securities and commercial paper |  | $              | 132,968 |                        | $ | 72                      |  | $ | (98                  | ) |  | $ | 132,942
|U.S. government debt securities                |  |                | 14,032  |                        |   | 3                       |  |   | (1                   | ) |  |   | 14,034 
|Municipal debt securities                      |  |                | 700     |                        |   |                        |  |   |                     |   |  |   | 700    
|Corporate equity securities                    |  |                | 667     |                        |   |                        |  |   | (77                  | ) |  |   | 590    
|                                               |  |                |         |                        |   |                         |  |   |                      |   |  |   |        
|Total                                          |  | $              | 148,367 |                        | $ | 75                      |  | $ | (176                 | ) |  | $ | 148,266
|                                               |  |                |         |                        |   |                         |  |   |                      |   |  |   |        
|Reported as:                                   |  |                |         |                        |   |                         |  |   |                      |   |  |   |        
|Cash and cash equivalents                      |  |                |         |                        |   |                         |  |   |                      |   |  | $ | 71,528 
|Short-term marketable securities               |  |                |         |                        |   |                         |  |   |                      |   |  |   | 76,738 
|                                               |  |                |         |                        |   |                         |  |   |                      |   |  |   |        
|Total                                          |  |                |         |                        |   |                         |  |   |                      |   |  | $ | 148,266
|                                               |  |                |         |                        |   |                         |  |   |                      |   |  |   |        



The following table
summarizes the maturities of marketable securities at December 31, 2003:



|                            |  |                |         |                      |   |        
|--------------------------- |  | -------------- | ------- | -------------------- | - | -------
|                            |  | Amortized Cost |         | Aggregate Fair Value
|                            | 
|                            |  | (in thousands)
|Less than one year          |  | $              | 90,625  |                      | $ | 90,531 
|Due after one or more years |  |                | 57,742  |                      |   | 57,735 
|                            |  |                |         |                      |   |        
|Total                       |  | $              | 148,367 |                      | $ | 148,266
|                            |  |                |         |                      |   |        



All our marketable
securities are classified as available-for-sale. Management has the ability and intent, if necessary, to liquidate any of these investments in order to meet our liquidity needs within the normal operating cycle. Accordingly, all marketable
securities are classified as current assets. Marketable debt securities totaling $71.5 million have maturities less than three months and are classified as cash and cash equivalents. The remaining is included in short-term marketable securities.
Gross realized gains on sales of marketable debt securities were $139,000, $560,000, $587,000 in 2003, 2002 and 2001, respectively.



At December 31, 2002, marketable securities were summarized as follows:



|                                               |  |                |         |                  |   |                   |  |   |                      |   |  |   |        
|---------------------------------------------- |  | -------------- | ------- | ---------------- | - | ----------------- |  | - | -------------------- | - |  | - | -------
|                                               |  | Amortized Cost |         | Unrealized Gains |   | Unrealized Losses |  |   | Aggregate Fair Value
|                                               |  |                |        
|                                               |  | (in thousands)
|Corporate debt securities and commercial paper |  | $              | 85,956  |                  | $ | 78                |  | $ |                     |   |  | $ | 86,034 
|U.S. government debt securities                |  |                | 26,602  |                  |   | 79                |  |   | (1                   | ) |  |   | 26,680 
|Municipal debt securities                      |  |                | 34,366  |                  |   | 120               |  |   |                     |   |  |   | 34,486 
|Corporate equity securities                    |  |                | 662     |                  |   |                  |  |   | (327                 | ) |  |   | 335    
|                                               |  |                |         |                  |   |                   |  |   |                      |   |  |   |        
|Total                                          |  | $              | 147,586 |                  | $ | 277               |  | $ | (328                 | ) |  | $ | 147,535
|                                               |  |                |         |                  |   |                   |  |   |                      |   |  |   |        
|Reported as:                                   |  |                |         |                  |   |                   |  |   |                      |   |  |   |        
|Cash and cash equivalents                      |  |                |         |                  |   |                   |  |   |                      |   |  | $ | 52,612 
|Short-term marketable securities               |  |                |         |                  |   |                   |  |   |                      |   |  |   | 94,923 
|                                               |  |                |         |                  |   |                   |  |   |                      |   |  |   |        
|Total                                          |  |                |         |                  |   |                   |  |   |                      |   |  | $ | 147,535
|                                               |  |                |         |                  |   |                   |  |   |                      |   |  |   |        



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##### Table of Contents

ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



3. Acquisitions



Advent Netherlands BV



In May 2003, we purchased all of the common stock of Advent Netherlands BV from our independent European distributor for cash consideration of $9.5
million and $69,000 in acquisition costs. There is also a potential earn-out distribution to the selling members of up to $1.6 million through December 31, 2003 under a formula based on revenue results for the eight months ended December 31, 2003
plus 50% of any operating margins which exceed 20% for the year ending December 31, 2004. The earn-out distribution will be allocated to goodwill, if earned. Through December 31, 2003, no additional consideration had been earned or paid.



The acquisition was accounted for as a purchase transaction and
accordingly, the tangible assets and liabilities acquired were recorded at their fair value at the date of acquisition. The amounts allocated to identifiable intangibles were determined based upon managements estimates using established
valuation techniques. The results of operations of Advent Netherlands BV were included in our consolidated financial statements subsequent to the acquisition date.



The allocation of the Advent Netherlands BV purchase price was as follows:



|                         |  |                               |  |                         |        |  
|------------------------ |  | ----------------------------- |  | ----------------------- | ------ | -
|                         |  | EstimatedRemainingUseful Life |  | PurchasePriceAllocation |       
|                         |  |                               |  | (in thousands)          |       
|Goodwill                 |  |                               |  | $                       | 8,908  |  
|Customer relationships   |  | 5 Years                       |  |                         | 347    |  
|Sub-licensing agreement  |  | 5 Years                       |  |                         | 1,875  |  
|Non-compete agreements   |  | 1 Year                        |  |                         | 70     |  
|Tangible assets          |  |                               |  |                         | 1,809  |  
|Current liabilities      |  |                               |  |                         | (2,600 | )
|Deferred tax liabilities |  |                               |  |                         | (800   | )
|                         |  |                               |  |                         |        |  
|Total purchase price     |  |                               |  | $                       | 9,609  |  
|                         |  |                               |  |                         |        |  



Goodwill is not
expected to be deductible for tax purposes under Internal Revenue Code 197.



Advent Outsource Data Management, LLC.



In November 2002, we purchased all of the outstanding membership interests of Advent Outsource Data Management, LLC. (Advent Outsource), formerly Outsource Data Management, LLC. for $947,000, including
$184,000 in acquisition costs. Advent Outsource is an outsource solution provider of portfolio reconciliation and reporting services via the internet. This acquisition was consistent with our strategy to add products and services that meet the needs
of a wide variety of sectors in the financial services industry by adding outsourcing capabilities to the solutions we offer our clients, particularly in the financial planning and independent broker/dealer areas.



In addition to the initial cash consideration, there is also a potential
earn-out distribution to the selling members of up to $5 million through December 31, 2004 under a formula based on revenue results for the years ending December 31, 2003 and 2004, which, if paid, will result in an increase to goodwill. Through
December 31, 2003 no additional consideration had been earned or paid.



The acquisition was accounted for as a purchase transaction and accordingly, the tangible assets and liabilities acquired were recorded at their fair value at the date of the acquisition. The amounts allocated to



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##### Table of Contents

ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



identifiable intangibles were determined based upon managements estimates using established valuation techniques. The results of operations of Advent
Outsource were included in our consolidated financial statements subsequent to the acquisition date.



The purchase price allocation was as follows:



|                      |  |                                 |  |                           |        |  
|--------------------- |  | ------------------------------- |  | ------------------------- | ------ | -
|                      |  | Estimated Remaining Useful Life |  | Purchase Price Allocation |       
|                      | 
|                      | 
|                      |  |                                 |  | (in thousands)            |       
|Goodwill              |  |                                 |  | $                         | 1,700  |  
|Licensing agreements  |  | 7 years                         |  |                           | 3,700  |  
|Existing technologies |  | 2 years                         |  |                           | 400    |  
|Tangible assets       |  |                                 |  |                           | 230    |  
|Current liabilities   |  |                                 |  |                           | (1,383 | )
|Long-term liabilities |  |                                 |  |                           | (3,700 | )
|                      |  |                                 |  |                           |        |  
|Total purchase price  |  |                                 |  | $                         | 947    |  
|                      |  |                                 |  |                           |        |  



Goodwill was
determined to be deductible for tax purposes under Internal Revenue Code 197.



Advent Hellas



In
September 2002, we acquired all of the common stock of our Greek distributor, Advent Hellas, for a total purchase price of $6.6 million in cash. We acquired our Greek distributors operations to expand our direct ownership of European channels
for our products and services. In addition, in connection with this acquisition, we are required to pay 50% of Advent Hellas operating margins that exceed 20% for the two years after the acquisition, which, if paid, will be recorded as additional
goodwill. Through December 31, 2003, no payments had been earned or paid.



The acquisition was accounted for as a purchase transaction and accordingly, the tangible assets and liabilities acquired were recorded at their fair value at the date of the acquisition. The amounts allocated to
identifiable intangibles were determined based upon managements estimates using established valuation techniques. The results of operations of Advent Hellas were included in our consolidated financial statements subsequent to the acquisition
date.



In the quarter ended December 31, 2002, we adjusted our
initial allocation of the purchase price for a re-evaluation of the intangibles and an adjustment to deferred tax liabilities resulting in an increase to goodwill of $379,000.



The final allocation of the Advent Hellas purchase price was as follows:



|                         |  |                                 |  |                           |        |  
|------------------------ |  | ------------------------------- |  | ------------------------- | ------ | -
|                         |  | Estimated Remaining Useful Life |  | Purchase Price Allocation |       
|                         | 
|                         | 
|                         |  |                                 |  | (in thousands)            |       
|Goodwill                 |  |                                 |  | $                         | 5,800  |  
|Customer relationship    |  | 6 years                         |  |                           | 1,600  |  
|Tangible assets          |  |                                 |  |                           | 840    |  
|Deferred tax liabilities |  |                                 |  |                           | (600   | )
|Current liabilities      |  |                                 |  |                           | (1,000 | )
|                         |  |                                 |  |                           |        |  
|Total purchase price     |  |                                 |  | $                         | 6,640  |  
|                         |  |                                 |  |                           |        |  



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Goodwill was determined not to be deductible for tax purposes under Internal Revenue Code 197.



Techfi Corporation



In July 2002, we acquired Techfi Corporation, a privately held company.
Techfi provides software, technology and services to the financial intermediary market. This acquisition was consistent with our strategy to add products and services for meeting the needs of a wide variety of sectors in the financial services
industry, particularly in the financial planning and independent broker/dealer areas of Techfis strengths.



The total purchase price of $22.8 million included cash of $20.2 million, acquisition related expenses of approximately $800,000 and options to purchase
70,000 shares of our Common Stock valued at $1.8 million. The options were valued using the Black-Scholes method to determine fair value, have an exercise price of $17.39 per share, vest over five years, and expire in August 2012.



The acquisition was accounted for as a purchase transaction and accordingly,
the tangible assets and liabilities acquired were recorded at their fair value at the date of the acquisition. The amounts allocated to identifiable intangibles were determined based upon managements estimates using established valuation
techniques. The results of operations of Techfi Corporation were included in our consolidated financial statements subsequent to the acquisition date.



At the time of the acquisition, there was $2.3 million of additional contingent consideration held in escrow for 14 months for protection against
undisclosed liabilities. In 2003, we paid $2.0 million of the contingent consideration held in escrow and recorded an increase to goodwill. Further we paid an additional $185,000 of the contingent consideration in January 2004.



At the acquisition date, Techfis primary purchased in-process research
and development (IPR&D) projects involved the development of a web-enabled system for portfolio management, performance reporting and contact management; distributable macro language to automate operational tasks such as downloading,
importing and report printing; and enhancements to their currently offered AdvisorMart service.



Purchased IPR&D for Techfi represents the present value of the estimated after-tax cash flows expected to be generated by the purchased technology,
which, at the acquisition date, had not yet reached technological feasibility. The cash flow projections for revenues were based on estimated projected revenue and expenses beyond 2003 and expected industry benchmarks. Revenue estimates also include
an estimated annual attrition percentage to account for the fact that, as time passes, the portion of projected revenue attributable to purchased IPR&D technologies will become less as newer technology replaces the capabilities and functionality
of the purchased IPR&D technologies. Estimated operating expenses and income taxes were deducted from estimated revenue projections to arrive at after-tax cash flows. Projected operating expenses included costs of goods sold, research and
development, sales and marketing expenses and general and administrative expenses, including estimated costs to maintain the products once they have been introduced into the market and are generating revenue. The rates utilized to discount projected
cash flows were 20% to 35% for in-process technologies and were based primarily on rates of return and the overall level of market acceptance and the amount of time each respective technology has been in the marketplace. The projects were completed
in 2002 within budgeted guidelines.



As of the date of
acquisition, we concluded that the purchased in-process technology had no alternative future use after taking into consideration the potential use of the technology in different products, the stage of development and life cycle of each project and
resale of the software. Therefore, we immediately expensed the value of the purchased IPR&D of $1.5 million upon acquisition.



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



In the fourth quarter of 2002, we updated our initial allocation of the Techfi purchase price for
adjustments related to intangibles, assumed liabilities and deferred tax liabilities resulting in a net increase to goodwill of $300,000.



The final allocation of the Techfi purchase price was as follows:



|                                              |  |                                 |  |                          |        |  
|--------------------------------------------- |  | ------------------------------- |  | ------------------------ | ------ | -
|                                              |  | Estimated Remaining Useful Life |  | PurchasePrice Allocation |       
|                                              | 
|                                              | 
|                                              |  |                                 |  | (in thousands)           |       
|Goodwill                                      |  |                                 |  | $                        | 17,087 |  
|Existing technologies                         |  | 3.5 Years                       |  |                          | 2,060  |  
|Core technologies                             |  | 4 Years                         |  |                          | 490    |  
|Trade name/trademarks                         |  | 6 Years                         |  |                          | 200    |  
|Maintenance contracts                         |  | 7 Years                         |  |                          | 590    |  
|Non-compete agreements                        |  | 5 Years                         |  |                          | 3,150  |  
|Tangible assets                               |  |                                 |  |                          | 1,259  |  
|Deferred tax liabilities                      |  |                                 |  |                          | (211   | )
|Purchased in-process research and development |  |                                 |  |                          | 1,450  |  
|Liabilities assumed                           |  |                                 |  |                          | (3,289 | )
|                                              |  |                                 |  |                          |        |  
|Total purchase price                          |  |                                 |  | $                        | 22,786 |  
|                                              |  |                                 |  |                          |        |  



Goodwill was
determined not to be deductible for tax purposes under Internal Revenue Code 197.



Kinexus Corporation



In
February 2002, we acquired, Kinexus Corporation, a privately held company located in New York. Kinexus provides internal account aggregation and manual data management services. The purchase provides us core technologies for use in Advent Wealth
Service.



The total purchase price of $45.5 million included
cash of $34 million, closing costs of $3 million and a warrant to purchase 165,176 shares of our Common Stock valued at $8.5 million. The fair value of the warrant was calculated using the Black-Scholes method using the following assumptions: fair
value of common stock of $51.34 per share, interest rate of 3%, volatility of 65.9% and a dividend rate of zero. The warrant had an exercise price of $0.01 per share and was exercised in February 2002.



The acquisition was accounted for as a purchase transaction and accordingly,
the tangible assets and liabilities acquired were recorded at their fair value at the date of the acquisition. The amounts allocated to identifiable intangibles were determined based upon managements estimates using established valuation
techniques. The results of operations of Kinexus Corporation were included in our consolidated financial statements subsequent to the acquisition date.



During 2002, we adjusted Kinexus goodwill and liabilities assumed, decreasing both by $4.9 million. The adjustment primarily related to a reduction of the
estimated liability assumed in connection with a vacant Kinexus facility located in downtown Manhattan within a few blocks of the World Trade Center site and was based on additional analysis of the local commercial rental market.



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The final allocation of the Kinexus purchase price was as follows:



|                                     |  |                               |  |                         |         |  
|------------------------------------ |  | ----------------------------- |  | ----------------------- | ------- | -
|                                     |  | EstimatedRemainingUseful Life |  | PurchasePriceAllocation |        
|                                     |  |                               |  | (in thousands)          |        
|Goodwill                             |  |                               |  | $                       | 24,513  |  
|Existing technologies                |  | 3 Years                       |  |                         | 3,900   |  
|Existing technologiesinternal       |  | 2 Years                       |  |                         | 498     |  
|Core technologies                    |  | 3 Years                       |  |                         | 2,100   |  
|Trade name/trademarks                |  | 3 Years                       |  |                         | 600     |  
|Contracts and customer relationships |  | 3 Years                       |  |                         | 9,400   |  
|Tangible assets                      |  |                               |  |                         | 3,593   |  
|Net deferred tax assets              |  |                               |  |                         | 39,758  |  
|Liabilities assumed                  |  |                               |  |                         | (38,824 | )
|                                     |  |                               |  |                         |         |  
|Total purchase price                 |  |                               |  | $                       | 45,538  |  
|                                     |  |                               |  |                         |         |  



Goodwill was
determined not to be deductible for tax purposes under Internal Revenue Code 197.



At the time of the acquisition, there was a $3.8 million of additional contingent consideration held in escrow for 14 months for protection against undisclosed liabilities. In 2003, we paid $3.4 of the contingent
consideration held in escrow and recorded an increase to goodwill. The remaining $400,000 of contingent consideration was returned to reimburse us for undisclosed liabilities. There is a potential earn-out distribution to shareholders of up to $115
million in cash or stock at the option of Advent under a formula based on revenues and expenses. Through December 31, 2003, no payments were made under this earn-out provision as the performance criteria were not met.



Scandinavian Distributors



In November 2001, we acquired all of the common stock of our Scandinavian
distributors operations located in Norway, Sweden, and Denmark. We acquired our Scandinavian distributors operations to expand control over European channels for our products and services.



Including an adjustment to the purchase price in June 2002 and closing costs,
we paid a total of $14.2 million in cash and closing costs. In addition, we are required to pay 50% of operating margins that exceed 20% for the two years after the acquisition. Through December 31, 2003, no additional potential consideration
had been earned or paid.



The acquisition was accounted for as
a purchase transaction and accordingly, the tangible assets and liabilities acquired were recorded at their fair value at the date of the acquisition. The amounts allocated to identifiable intangibles were determined based upon managements
estimates using established valuation techniques. The results of operations of the Scandinavian distributors were included in our consolidated financial statements subsequent to the acquisition date.



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The final allocation of the purchase price was as follows:



|                         |  |                               |  |                         |        |  
|------------------------ |  | ----------------------------- |  | ----------------------- | ------ | -
|                         |  | EstimatedRemainingUseful Life |  | PurchasePriceAllocation |       
|                         |  |                               |  | (in thousands)          |       
|Goodwill                 |  |                               |  | $                       | 10,700 |  
|Customer relationships   |  | 5 years                       |  |                         | 7,850  |  
|Existing technology      |  | 3 years                       |  |                         | 250    |  
|Tangible assets          |  |                               |  |                         | 2,290  |  
|Deferred tax liabilities |  |                               |  |                         | (2,400 | )
|Current liabilities      |  |                               |  |                         | (4,500 | )
|                         |  |                               |  |                         |        |  
|Total purchase price     |  |                               |  | $                       | 14,190 |  
|                         |  |                               |  |                         |        |  



Goodwill was
determined not to be deductible for tax purposes under Internal Revenue Code 197.



ManagerLink.com



In
November 2001, we acquired certain assets of ManagerLink.com for a total purchase price of $2.9 million, consisting of $1.5 million in cash as well as $1.4 in net liabilities assumed, and acquisition related expenses. ManagerLink.com provides
consolidated portfolio reporting tools to CPAs, family offices, and other firms. We acquired ManagerLink.com to further increase our deployment of Advent Wealth Service.



The acquisition was accounted for as a purchase transaction and accordingly, the tangible assets and liabilities acquired
were recorded at their fair value at the date of the acquisition. The amounts allocated to identifiable intangibles were determined based upon managements estimates using established valuation techniques. The results of operations of
ManagerLink.com were included in our consolidated financial statements subsequent to the acquisition date.



The final allocation of the purchase price for ManagerLink.com was as follows:



|                        |  |                               |  |                         |        |  
|----------------------- |  | ----------------------------- |  | ----------------------- | ------ | -
|                        |  | EstimatedRemainingUseful Life |  | PurchasePriceAllocation |       
|                        |  |                               |  | (in thousands)          |       
|Goodwill                |  |                               |  | $                       | 1,500  |  
|Existing technology     |  | 5 years                       |  |                         | 1,300  |  
|Trade name              |  | 1 year                        |  |                         | 100    |  
|Tangible assets         |  |                               |  |                         | 178    |  
|Current liabilities     |  |                               |  |                         | (1,600 | )
|Net liabilities assumed |  |                               |  |                         | 1,400  |  
|                        |  |                               |  |                         |        |  
|Total purchase price    |  |                               |  | $                       | 2,878  |  
|                        |  |                               |  |                         |        |  



Goodwill was
determined to be deductible for tax purposes under Internal Revenue Code 197.



NPO Solutions, Inc



In
April 2001, we acquired all of the outstanding common stock of NPO Solutions, Inc. (NPO), a privately held provider of integrated computer software solutions for nonprofit organizations, located in London, New Hampshire, through our wholly-owned
subsidiary MicroEdge, Inc. The total purchase price was $8.1 million, with an additional $1.5 million potentially to be distributed to NPO stockholders if NPO meets certain



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



milestones. The purchase price consisted of the cash of $6.8 million, $1.3 million in net liabilities assumed and acquisition related expenses.



The acquisition was accounted for as a purchase transaction and
accordingly, the tangible assets and liabilities acquired were recorded at their fair value at the date of the acquisition. The amounts allocated to identifiable intangibles were determined based upon managements estimates using established
valuation techniques. The results of operations of NPO Solutions were included in our consolidated financial statements subsequent to the acquisition date.



The allocation of the purchase price was as follows:



|                        |  |                                 |  |                           |        |  
|----------------------- |  | ------------------------------- |  | ------------------------- | ------ | -
|                        |  | Estimated Remaining Useful Life |  | Purchase Price Allocation |       
|                        | 
|                        | 
|                        |  |                                 |  | (in thousands)            |       
|Goodwill                |  |                                 |  | $                         | 2,800  |  
|Customer relationship   |  | 7 years                         |  |                           | 2,900  |  
|Existing technology     |  | 5 years                         |  |                           | 1,600  |  
|License agreement       |  | 1 year                          |  |                           | 800    |  
|Tangible assets         |  |                                 |  |                           | 860    |  
|Current liabilities     |  |                                 |  |                           | (2,200 | )
|Net liabilities assumed |  |                                 |  |                           | 1,300  |  
|                        |  |                                 |  |                           |        |  
|Total purchase price    |  |                                 |  | $                         | 8,060  |  
|                        |  |                                 |  |                           |        |  



Goodwill was
determined to be deductible for tax purposes under Internal Revenue Code 197.



For the years ended December 31, 2003 and 2002, we paid earn-outs of $250,000 and $500,000, respectively and recorded increases to goodwill.



Rex Development Partners, L.P.



In January 2001, we acquired all outstanding equity of Rex Development Partners, L.P., a limited partnership, for $8.7
million in cash and acquisition costs. Rex Development Partners, L.P. was formed to accelerate the development of technology incorporated in our Rex service. This purchase provides us with core technologies for use in Advent TrustedNetwork.



The acquisition was accounted for as a purchase transaction
and accordingly, the tangible assets and liabilities acquired were recorded at their fair value at the date of the acquisition. The amounts allocated to identifiable intangibles were determined based upon managements estimates using
established valuation techniques. The results of operations of Rex Development Partners, L.P. were included in our consolidated financial statements subsequent to the acquisition date.



The final allocation of the purchase price was as follows:



|                      |  |                               |  |                         |       |  
|--------------------- |  | ----------------------------- |  | ----------------------- | ----- | -
|                      |  | EstimatedRemainingUseful Life |  | PurchasePriceAllocation |      
|                      |  |                               |  | (in thousands)          |      
|Existing technologies |  | 5 years                       |  | $                       | 8,500 |  
|Tangible assets       |  |                               |  |                         | 1,100 |  
|Current liabilities   |  |                               |  |                         | (900  | )
|                      |  |                               |  |                         |       |  
|Total purchase price  |  |                               |  | $                       | 8,700 |  
|                      |  |                               |  |                         |       |  



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Pro forma Information



The following supplemental pro forma information presents selected financial information as though the purchases Kinexus,
Techfi and Advent Outsource, acquired in 2002, had been completed at the beginning of the earliest period presented after giving effect to purchase accounting adjustments. The pro forma information results of operations for all other acquisitions
have been excluded because the impact was not material. The pro forma consolidated net income (loss) amounts include certain pro forma adjustments, primarily the amortization of identifiable intangible assets, tax provision (benefit) adjustments on
pro forma pre-tax income (loss) at a statutory tax rate of 41% and the elimination of interest income on cash used in the acquisition:



|                           |  |                                      |         |   |      |   |         |  
|-------------------------- |  | ------------------------------------ | ------- | - | ---- | - | ------- | -
|                           |  | Year Ended December 31,              |        
|                           |  | 2002                                 |         |   | 2001 |  
|                           |  | (in thousands,except per share data) |        
|Revenue                    |  | $                                    | 163,087 |   |      | $ | 180,379 |  
|Net Loss                   |  |                                      | (20,961 | ) |      |   | (7,383  | )
|Basic net loss per share   |  |                                      | (0.62   | ) |      |   | (0.23   | )
|Diluted net loss per share |  |                                      | (0.62   | ) |      |   | (0.23   | )



4. Balance Sheet Detail



The following is a summary of property and equipment:



|                                          |  |                   |         |   |                   |   |         |  
|----------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                          |  | December 31, 2003 |         |   | December 31, 2002 |  
|                                          |  | (in thousands)    |        
|Computer equipment                        |  | $                 | 32,471  |   |                   | $ | 30,520  |  
|Leasehold improvements                    |  |                   | 20,854  |   |                   |   | 19,092  |  
|Furniture and fixtures                    |  |                   | 2,857   |   |                   |   | 2,847   |  
|Telephone system                          |  |                   | 1,851   |   |                   |   | 1,854   |  
|Internet infrastructure                   |  |                   | 890     |   |                   |   | 2,126   |  
|                                          |  |                   |         |   |                   |   |         |  
|                                          |  |                   | 58,923  |   |                   |   | 56,439  |  
|Accumulated depreciation and amortization |  |                   | (35,542 | ) |                   |   | (28,438 | )
|                                          |  |                   |         |   |                   |   |         |  
|Property and equipment, net               |  | $                 | 23,381  |   |                   | $ | 28,001  |  
|                                          |  |                   |         |   |                   |   |         |  



Depreciation and
amortization expense was $8.7 million, $8.3 million and $5.7 million for the years ended December 31, 2003, 2002 and 2001, respectively. During 2003, we wrote off $1.8 million of software developed for internal use, which we no longer intend to use.
Software developed for internal use is included in internet infrastructure under property and equipment.



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following is a summary of intangibles:



|                        |  |                                                    |  |       |        |              |   |         |     |  |   |       
|----------------------- |  | -------------------------------------------------- |  | ----- | ------ | ------------ | - | ------- | --- |  | - | ------
|                        |  | AverageAmortizationPeriod (Years)                  |  | Gross |        | Amortization |   |         | Net
|                        |  | (in thousands, except average amortization period)
|As of December 31, 2003 |  |                                                    |  |       |        |              |   |         |     |  |   |       
|Purchased technologies  |  | 4.20                                               |  | $     | 19,784 |              | $ | (11,024 | )   |  | $ | 8,760 
|Customer relationships  |  | 4.90                                               |  |       | 31,444 |              |   | (12,840 | )   |  |   | 18,604
|Other intangibles       |  | 5.00                                               |  |       | 6,405  |              |   | (3,274  | )   |  |   | 3,131 
|                        |  |                                                    |  |       |        |              |   |         |     |  |   |       
|                        |  |                                                    |  | $     | 57,633 |              | $ | (27,138 | )   |  | $ | 30,495
|                        |  |                                                    |  |       |        |              |   |         |     |  |   |       
|As of December 31, 2002 |  |                                                    |  |       |        |              |   |         |     |  |   |       
|Purchased technologies  |  | 4.39                                               |  | $     | 22,192 |              | $ | (6,949  | )   |  | $ | 15,243
|Customer relationships  |  | 5.08                                               |  |       | 28,019 |              |   | (6,372  | )   |  |   | 21,647
|Other intangibles       |  | 5.10                                               |  |       | 6,526  |              |   | (2,259  | )   |  |   | 4,267 
|                        |  |                                                    |  |       |        |              |   |         |     |  |   |       
|                        |  |                                                    |  | $     | 56,737 |              | $ | (15,580 | )   |  | $ | 41,157
|                        |  |                                                    |  |       |        |              |   |         |     |  |   |       



The changes in the
carrying value of goodwill and intangible assets for the years ended December 31, 2003, 2002 and 2001 were as follows :



|                             |  |                |        |   |             |   |        |                         |  |   |         |   |  |   |         |  
|---------------------------- |  | -------------- | ------ | - | ----------- | - | ------ | ----------------------- |  | - | ------- | - |  | - | ------- | -
|                             |  |                |        |   | Intangibles |  
|                             |  | Goodwill       |        |   | Gross       |   |        | AccumulatedAmortization |  |   | Net     |  
|                             |  | (in thousands) |       
|Balance at December 31, 2000 |  | $              | 3,280  |   |             | $ | 2,020  |                         |  | $ | (1,077  | ) |  | $ | 943     |  
|Additions                    |  |                | 10,897 |   |             |   | 24,373 |                         |  |   |        |   |  |   | 24,373  |  
|Amortization                 |  |                | (1,527 | ) |             |   |       |                         |  |   | (3,641  | ) |  |   | (3,641  | )
|                             |  |                |        |   |             |   |        |                         |  |   |         |   |  |   |         |  
|Balance at December 31, 2001 |  |                | 12,650 |   |             |   | 26,393 |                         |  |   | (4,718  | ) |  |   | 21,675  |  
|Additions                    |  |                | 53,226 |   |             |   | 28,740 |                         |  |   |        |   |  |   | 28,740  |  
|Amortization                 |  |                |       |   |             |   |       |                         |  |   | (10,862 | ) |  |   | (10,862 | )
|Other adjustments            |  |                | 1,473  |   |             |   | 1,604  |                         |  |   |        |   |  |   | 1,604   |  
|                             |  |                |        |   |             |   |        |                         |  |   |         |   |  |   |         |  
|Balance at December 31, 2002 |  |                | 67,349 |   |             |   | 56,737 |                         |  |   | (15,580 | ) |  |   | 41,157  |  
|Additions                    |  |                | 14,592 |   |             |   | 2,292  |                         |  |   |        |   |  |   | 2,292   |  
|Amortization                 |  |                |       |   |             |   |       |                         |  |   | (14,421 | ) |  |   | (14,421 | )
|Other adjustments            |  |                | 4,563  |   |             |   | (1,396 | )                       |  |   | 2,863   |   |  |   | 1,467   |  
|                             |  |                |        |   |             |   |        |                         |  |   |         |   |  |   |         |  
|Balance at December 31, 2003 |  | $              | 86,504 |   |             | $ | 57,633 |                         |  | $ | (27,138 | ) |  | $ | 30,495  |  
|                             |  |                |        |   |             |   |        |                         |  |   |         |   |  |   |         |  



Amortization expense
totaled $14.4, million $10.9 million and $4.7 million for the years ended December 31, 2003, 2002 and 2001, respectively.



Additions to goodwill of $14.6 million in 2003 consisted of $8.9 million related to the acquisition of Advent Netherlands BV, and $3.4 million, $2.0
million and $0.3 million contingent consideration paid to the former stockholders of Kinexus Corporation, TechFi Corporation and NPO Solutions, Inc, respectively (See Note 3). Other adjustments of $4.6 million primarily represented translation
adjustments as the U.S. Dollar weakened against European currencies during 2003.



Additions to intangible assets of $2.3 million in 2003 were related to the acquisition of Advent Netherlands BV (See Note 3). Other adjustments consisted of a $1.4 million write-off of developed technology acquired as
part of our 2001 acquisition of Managerlink, and translation adjustments.



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



As of December 31, 2003, estimated intangible amortization expense for each calendar year ended
December 31 is: $13.3 million for 2004; $8.3 million for 2005; $4.9 million for 2006; $2.3 million for 2007; $1.2 million for 2008, and the remaining balance of $0.5 million in 2009.



Net income (loss) on a pro forma basis, excluding goodwill amortization expense, would have been as follows:



|                                       |  |                                       |         |   |      |   |         |      |  |   |       
|-------------------------------------- |  | ------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------
|                                       |  | Year Ended December 31, 2003         
|                                       |  | 2003                                  |         |   | 2002 |   |         | 2001
|                                       |  | (in thousands, except per share data)
|Net income (loss)                      |  |                                       |         |   |      |   |         |      |  |   |       
|Reported net income (loss)             |  | $                                     | (97,543 | ) |      | $ | (19,236 | )    |  | $ | 31,465
|Add: goodwill amortization, net of tax |  |                                       |        |   |      |   |        |      |  |   | 1,253 
|                                       |  |                                       |         |   |      |   |         |      |  |   |       
|Adjusted net income (loss)             |  | $                                     | (97,543 | ) |      | $ | (19,236 | )    |  | $ | 32,718
|                                       |  |                                       |         |   |      |   |         |      |  |   |       
|Basic income (loss) per share          |  |                                       |         |   |      |   |         |      |  |   |       
|Reported net income (loss)             |  | $                                     | (3.00   | ) |      | $ | (0.57   | )    |  | $ | 0.98  
|Goodwill amortization                  |  |                                       |        |   |      |   |        |      |  |   | 0.04  
|                                       |  |                                       |         |   |      |   |         |      |  |   |       
|Adjusted net income (loss)             |  | $                                     | (3.00   | ) |      | $ | (0.57   | )    |  | $ | 1.02  
|                                       |  |                                       |         |   |      |   |         |      |  |   |       
|Shares used in per share calculation   |  |                                       | 32,473  |   |      |   | 33,659  |      |  |   | 32,148
|                                       |  |                                       |         |   |      |   |         |      |  |   |       
|Diluted income (loss) per share        |  |                                       |         |   |      |   |         |      |  |   |       
|Reported net income (loss)             |  | $                                     | (3.00   | ) |      | $ | (0.57   | )    |  | $ | 0.89  
|Goodwill amortization                  |  |                                       |        |   |      |   |        |      |  |   | 0.04  
|                                       |  |                                       |         |   |      |   |         |      |  |   |       
|Adjusted net income (loss)             |  | $                                     | (3.00   | ) |      | $ | (0.57   | )    |  | $ | 0.93  
|                                       |  |                                       |         |   |      |   |         |      |  |   |       
|Shares used in per share calculation   |  |                                       | 32,473  |   |      |   | 33,659  |      |  |   | 35,383
|                                       |  |                                       |         |   |      |   |         |      |  |   |       



The following is a
summary of other assets, net:



|                        |  |                   |        |                   |   |       
|----------------------- |  | ----------------- | ------ | ----------------- | - | ------
|                        |  | December 31, 2003 |        | December 31, 2002
|                        |  | (in thousands)   
|Deferred income taxes   |  | $                 |       |                   | $ | 55,313
|Long-term investments   |  |                   | 8,903  |                   |   | 11,005
|Long-term prepaid       |  |                   | 5,096  |                   |   | 7,115 
|Cash held in escrow     |  |                   | 312    |                   |   | 6,079 
|Deposits                |  |                   | 1,127  |                   |   | 1,468 
|                        |  |                   |        |                   |   |       
|Total other assets, net |  | $                 | 15,438 |                   | $ | 80,980
|                        |  |                   |        |                   |   |       



Long-term investments
include equity investments in several privately held companies, most of which can still be considered in the start-up or development stages. In 2002, we acquired approximately 15% of the outstanding stock of LatentZero Limited
(LatentZero), a privately-held company located in England, for $7 million. Our investment is accounted for under the equity method of accounting because our Chief Executive Officer is a member of LatentZeros board of
directors. Our portion of net income or loss for this investment has not been significant to date.



We recorded write-downs of $2.0 million, $13.5 million and $2 million in 2003, 2002 and 2001, respectively, on various long-term equity investments, as a
result of other-than-temporary declines in the estimated fair market value of such investments.



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##### Table of Contents

ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following is a summary of accrued liabilities:



|                               |  |                   |        |                   |   |       
|------------------------------ |  | ----------------- | ------ | ----------------- | - | ------
|                               |  | December 31, 2003 |        | December 31, 2002
|                               |  | (in thousands)   
|Salaries and benefits payables |  | $                 | 7,479  |                   | $ | 8,151 
|Other                          |  |                   | 9,766  |                   |   | 6,553 
|                               |  |                   |        |                   |   |       
|                               |  | $                 | 17,245 |                   | $ | 14,704
|                               |  |                   |        |                   |   |       



The
following is a summary of other long-term liabilities:



|                                   |  |                   |       |                   |   |      
|---------------------------------- |  | ----------------- | ----- | ----------------- | - | -----
|                                   |  | December 31, 2003 |       | December 31, 2002
|                                   |  | (in thousands)   
|Long-term portion of loss on lease |  | $                 |      |                   | $ | 3,194
|Deferred rent                      |  |                   | 2,156 |                   |   | 2,285
|Other                              |  |                   | 182   |                   |   |     
|                                   |  |                   |       |                   |   |      
|                                   |  | $                 | 2,338 |                   | $ | 5,479
|                                   |  |                   |       |                   |   |      



5. Accumulated Other Comprehensive
Income



The components of accumulated other comprehensive
income were as follows:



|                                                                     |  |                   |       |   |                   |   |       |  
|-------------------------------------------------------------------- |  | ----------------- | ----- | - | ----------------- | - | ----- | -
|                                                                     |  | December 31, 2003 |       |   | December 31, 2002 |  
|                                                                     |  | (in thousands)    |      
|Accumulated net unrealized loss on marketable securities, net of tax |  | $                 | (67   | ) |                   | $ | (34   | )
|Accumulated foreign currency translation adjustments                 |  |                   | 8,896 |   |                   |   | 3,026 |  
|                                                                     |  |                   |       |   |                   |   |       |  
|                                                                     |  | $                 | 8,829 |   |                   | $ | 2,992 |  
|                                                                     |  |                   |       |   |                   |   |       |  



6. Restructuring Charges



In response to the downturn in the financial services
industry, the decline in information technology spending and duplicative efforts in parts of our business as a result of our various acquisitions, we implemented several phases of restructuring during 2003. These plans were implemented to reduce
costs and improve operating efficiencies by better aligning our resources to our near term revenue opportunities.



For the year ended December 31, 2003, we recorded total restructuring charges of $9.1 million consisting of $5 million for severance and benefits
associated with a workforce reduction of 176 employees, $3.2 million for costs to exit leased facilities, and $0.9 million for the write-off of property and equipment.



The workforce reduction of 176 employees consisted of 39 employees in client services and support, 25 employees in
professional services, 46 employees in product development, 42 employees in sales and marketing and 24 employees in general and administrative functions. These employees were located in San Francisco, California; New York, New York; Denver,
Colorado; Concord, California; and Melbourne, Australia. Included in the charge is $90,000 for non-cash severance associated with modification to a former employees stock options. The Company also incurred charges associated with consolidating
office space in the New York City area and vacating facilities in Melbourne, Australia; Concord, California; and Denver, Colorado. The Company estimated the cost of exiting and terminating the facility leases based on the contractual terms of the
agreements and real estate market conditions.



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Amounts related to the lease expense, net of anticipated sublease proceeds, will be paid over the
respective lease terms through 2008. The write-off of property and equipment consisted primarily of leasehold improvements, computer equipment and related software, and office equipment, furniture and fixtures which were abandoned as a result of
vacating various facilities.



The following table sets forth an
analysis of the components of the restructuring charges and the payments and non-cash charges made against the accrual as of December 31, 2003:



|                                                       |  |                       |        |   |                        |   |        |                                |  |   |       |   |  |   |        |  
|------------------------------------------------------ |  | --------------------- | ------ | - | ---------------------- | - | ------ | ------------------------------ |  | - | ----- | - |  | - | ------ | -
|                                                       |  | Severanceand Benefits |        |   | FacilityLeaseExit Cost |   |        | Property & Equipment Abandoned |  |   | Total |  
|                                                       |  |                       |       
|                                                       |  | (in thousands)        |       
|Restructuring expense                                  |  | $                     | 5,004  |   |                        | $ | 3,247  |                                |  | $ | 861   |   |  | $ | 9,112  |  
|Reversal of deferred rent related to facilities exited |  |                       |       |   |                        |   | 194    |                                |  |   |      |   |  |   | 194    |  
|Cash paid                                              |  |                       | (4,750 | ) |                        |   | (1,257 | )                              |  |   |      |   |  |   | (6,007 | )
|Non-cash charges                                       |  |                       | (90    | ) |                        |   | (3     | )                              |  |   | (861  | ) |  |   | (954   | )
|                                                       |  |                       |        |   |                        |   |        |                                |  |   |       |   |  |   |        |  
|Accrued restructuring at December 31, 2003             |  | $                     | 164    |   |                        | $ | 2,181  |                                |  | $ |      |   |  | $ | 2,345  |  
|                                                       |  |                       |        |   |                        |   |        |                                |  |   |       |   |  |   |        |  



As of December 31,
2003 the remaining excess facility costs are stated at estimated fair value, net of estimated sublease income of $1.1 million. We expect to pay the remaining obligations in connection with vacated facilities over the remaining lease terms, which
will expire on various dates through 2008. We expect to pay the remaining severance and benefits of $164,000 in the first two quarters of 2004.



7. Income Taxes



The components of income (loss) before income taxes were as follows:



|        |  |                         |         |   |      |   |         |      |  |   |       
|------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------
|        |  | Year Ended December 31,
|        |  | 2003                    |         |   | 2002 |   |         | 2001
|        |  | (in thousands)         
|US      |  | $                       | (34,455 | ) |      | $ | (21,729 | )    |  | $ | 46,456
|Foreign |  |                         | (3,676  | ) |      |   | (1,471  | )    |  |   | 1,217 
|        |  |                         |         |   |      |   |         |      |  |   |       
|Total   |  | $                       | (38,131 | ) |      | $ | (23,200 | )    |  | $ | 47,673
|        |  |                         |         |   |      |   |         |      |  |   |       



The components of the
income tax provision (benefit) included:



|         |  |                         |        |   |      |   |        |      |  |   |        |  
|-------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|         |  | Year Ended December 31, |       
|         |  | 2003                    |        |   | 2002 |   |        | 2001 | 
|         |  | (in thousands)          |       
|Current  |  |                         |        |   |      |   |        |      |  |   |        |  
|Federal  |  | $                       | (1,639 | ) |      | $ | 3,607  |      |  | $ | 16,497 |  
|State    |  |                         | 535    |   |      |   | 656    |      |  |   | 5,736  |  
|Foreign  |  |                         | 525    |   |      |   | 135    |      |  |   | (16    | )
|Deferred |  |                         |        |   |      |   |        |      |  |   |        |  
|Federal  |  |                         | 53,648 |   |      |   | (6,395 | )    |  |   | (2,135 | )
|State    |  |                         | 7,200  |   |      |   | (1,414 | )    |  |   | (3,874 | )
|Foreign  |  |                         | (857   | ) |      |   | (553   | )    |  |   |       |  
|         |  |                         |        |   |      |   |        |      |  |   |        |  
|Total    |  | $                       | 59,412 |   |      | $ | (3,964 | )    |  | $ | 16,208 |  
|         |  |                         |        |   |      |   |        |      |  |   |        |  



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The effective income tax rate on earnings differed from the United States statutory tax rate as
follows:



|                                     |  |                         |    |  |       |    |  |      |  
|------------------------------------ |  | ----------------------- | -- |  | ----- | -- |  | ---- | -
|                                     |  | Year Ended December 31, |   
|                                     |  | 2003                    |    |  | 2002  |    |  | 2001 |  
|Statutory federal rate               |  | (35.0                   | )% |  | (35.0 | )% |  | 35.0 | %
|State taxes                          |  | 19.8                    |    |  | (2.1  | )  |  | 2.5  |  
|Research and development tax credits |  | (1.9                    | )  |  | (10.0 | )  |  | (2.3 | )
|In-process research and development  |  |                        |    |  | 2.2   |    |  |     |  
|Change in valuation allowance        |  | 170.6                   |    |  | 22.4  |    |  |     |  
|Foreign taxes                        |  | 2.5                     |    |  | 6.5   |    |  |     |  
|Other (net)                          |  | (0.2                    | )  |  | (1.1  | )  |  | (1.2 | )
|                                     |  |                         |    |  |       |    |  |      |  
|Total                                |  | 155.8                   | %  |  | (17.1 | )% |  | 34.0 | %
|                                     |  |                         |    |  |       |    |  |      |  



During 2003, we
established a full valuation allowance against our deferred tax assets in the United States because we determined it is more likely than not that these deferred tax assets will not be realized in the foreseeable future. As of December 31, 2003, we
made no provision for a cumulative total of $5 million of undistributed earnings for certain non-U.S. subsidiaries, which have been or are intended to be permanently reinvested.



The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities
were as follows:



|                                                               |  |                   |         |   |                   |   |         |  
|-------------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                                               |  | December 31, 2003 |         |   | December 31, 2002 |  
|                                                               |  | (in thousands)    |        
|Current deferred tax assets:                                   |  |                   |         |   |                   |   |         |  
|Deferred revenue                                               |  | $                 | 418     |   |                   | $ | 1,497   |  
|Other accrued liabilities and reserves                         |  |                   | 3,526   |   |                   |   | 3,375   |  
|State taxes                                                    |  |                   | (5      | ) |                   |   | 21      |  
|Other                                                          |  |                   | 14      |   |                   |   | 17      |  
|Valuation allowance                                            |  |                   | (3,953  | ) |                   |   | (196    | )
|                                                               |  |                   |         |   |                   |   |         |  
|Total current                                                  |  |                   |        |   |                   |   | 4,714   |  
|                                                               |  |                   |         |   |                   |   |         |  
|Non-current deferred tax assets:                               |  |                   |         |   |                   |   |         |  
|Depreciation and amortization                                  |  |                   | 12,892  |   |                   |   | 16,238  |  
|Net operating losses, capital losses and credit carry forwards |  |                   | 71,972  |   |                   |   | 49,057  |  
|Other                                                          |  |                   | 899     |   |                   |   | 2,761   |  
|Valuation allowance                                            |  |                   | (88,575 | ) |                   |   | (12,743 | )
|                                                               |  |                   |         |   |                   |   |         |  
|Total non-current                                              |  |                   | (2,812  | ) |                   |   | 55,313  |  
|                                                               |  |                   |         |   |                   |   |         |  
|Net deferred tax assets (liabilities)                          |  | $                 | (2,812  | ) |                   | $ | 60,027  |  
|                                                               |  |                   |         |   |                   |   |         |  



At December 31, 2003,
the valuation allowance was increased to reduce the net deferred income tax assets in the United States due to the uncertainty surrounding the realization of the favorable tax attributes in future tax returns. At such time that it is determined that
it is more likely than not that the deferred tax assets are realizable, the valuation allowance will be reduced.



Deferred tax assets of $55.3 million were included in other assets, net at December 31, 2002, against which a valuation allowance was established at
December 31, 2002 for the deferred tax asset related to the capital loss



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



carry forward and unrealized capital losses of $6 million, and the remaining valuation allowance of $6.9 million was primarily attributable to
pre-acquisition net operating loss carry forwards from acquired companies.



At December 31, 2003, we had federal and state net operating loss carry forwards of $56.5 million that are attributable to acquired companies. Utilization of these loss carry forwards is subject to certain limitations
under the federal income tax laws. In addition, we had $61.8 million of federal and state net operating loss carry forwards not subject to these limitations. The carry forward period for the U.S. Federal and State net operating loss carry forwards
expires between 2020 and 2023. The capital loss carry forwards expire in 2007.



8. Commitments and Contingencies



We lease
office space and equipment under non-cancelable operating lease agreements, which expire at various dates through May 2012. Some operating leases contain escalation provisions for adjustments in the consumer price index. We are responsible for
maintenance, insurance, and property taxes. Future minimum payments under the non-cancelable operating leases consisted of the following at December 31, 2003:



|           |  |                       |        |                        |   |      
|---------- |  | --------------------- | ------ | ---------------------- | - | -----
|           |  | Future Lease Payments |        | Future Sublease Income
|           |  | (in thousands)       
|2004       |  | $                     | 8,640  |                        | $ | 221  
|2005       |  |                       | 8,629  |                        |   | 221  
|2006       |  |                       | 8,166  |                        |   | 221  
|2007       |  |                       | 6,645  |                        |   | 221  
|2008       |  |                       | 6,251  |                        |   | 165  
|Thereafter |  |                       | 7,829  |                        |   |     
|           |  |                       |        |                        |   |      
|Total      |  | $                     | 46,160 |                        | $ | 1,049
|           |  |                       |        |                        |   |      



Rent expense for 2003,
2002, and 2001, was $8.5 million, $7.7 million and $6.4 million, respectively, net of sub-rental income of $183,000, $159,000 and $133,000 in 2003, 2002 and 2001, respectively. For the majority of our primary lease contracts we have five-year
extension options.



An independent European distributor, Advent
Europe, and its subsidiaries that operate in certain European locations have the exclusive right to sell our software products, excluding Geneva, in certain locations in Europe and the Middle East. This right expires on a territory-specific basis,
the earliest of which is July 1, 2004 and the latest is October 31, 2005, subject to achieving certain revenue levels. Through October 31, 2005, Advent Europe has the contingent put right to require us to purchase any one or any group of
its subsidiaries. Our requirement to purchase is contingent upon the distributor achieving specified operating margins in excess of 20% and specified customer satisfaction criteria. The purchase price is equal to two times the preceding twelve
months total revenue of the purchased subsidiary, plus potential additional consideration equal to 50% of operating margins that exceed 20%, achieved in the two years subsequent to the acquisition. This purchase price may be varied by mutual
agreement. In addition, we have the call right to purchase any one or any group of Advent Europes subsidiaries under certain conditions. In the event these rights are exercised by us or Advent Europe, the purchase of these
subsidiaries would principally result in an increase in intangible assets, goodwill and amortization of intangible assets. In November 2001, we acquired three of Advent Europes companies located in Norway, Sweden, and Denmark. In September
2002, we acquired their Greek subsidiary and in May 2003 we acquired their Dutch subsidiary, Advent Netherlands. In March 2004, our Board approved a letter of intent to purchase certain subsidiaries and assets of Advent Europe for approximately $2.5
million in cash with additional potential consideration of approximately $6.2 million. See Note 12 of the Notes to Consolidated Financial Statements for additional information.



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



From time to time we are subject to various other legal proceedings, claims and litigation arising in
the ordinary course of business. We do not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated financial position, results of operations, or cash flows.



9. Employee Benefit Plans



401(K) Plan



We have a 401(k) deferred savings plan covering substantially all employees.
Employee contributions, limited to 15% of compensation up to $12,000, $10,500 and $10,500 are matched 50% by us, up to 6% of employee compensation for the years ended December 31, 2003, 2002 and 2001, respectively. Matching contributions by the
Company in 2003, 2002, and 2001, were $990,000, $1,273,000 and $923,000, respectively. In addition to the employer matching contribution, we may make profit sharing contributions at the discretion of the Board of Directors. We made no profit sharing
contributions in 2003 and 2002, and contributed $472,000 in 2001.



1995 Employee Stock Purchase Plan



All
individuals employed by Advent are eligible to participate in the Employee Stock Purchase Plan (Purchase Plan) if Advent employs them for at least 20 hours per week and at least five months per year. The Purchase Plan permits eligible employees to
purchase our Common Stock through payroll deductions at a price equal to 85% of the lower of the closing sale price for our Common Stock reported on the NASDAQ National Market at the beginning or the end of each six-month offering period. In any
calendar year, eligible employees can withhold up to 10% of their salary and certain variable compensation. In the second quarter of 2003, Advents shareholders approved an amendment to the Purchase Plan to increase the number of shares of
Common Stock reserved for issuance by 600,000. As of December 31, 2003, approximately 1,007,000 shares have been issued out of a total of 1,500,000 shares of Common Stock reserved for issuance under the Purchase Plan. The Company issued
approximately 211,000, 164,000, and 69,000 shares under the Purchase Plan at weighted average prices of $13.75, $20.11, and $42.09 in 2003, 2002 and 2001, respectively.



10. Net Income (Loss) Per Share



The following table sets forth the computation of basic and diluted net income (loss) per share:



|                                                                                                               |  |                                       |         |   |      |   |         |      |  |   |       
|-------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------
|                                                                                                               |  | Year Ended December 31,              
|                                                                                                               |  | 2003                                  |         |   | 2002 |   |         | 2001
|                                                                                                               |  | (in thousands, except per share data)
|Numerator for basic and diluted net income (loss) per sharenet income (loss) available to common stockholders |  | $                                     | (97,543 | ) |      | $ | (19,236 | )    |  | $ | 31,465
|                                                                                                               |  |                                       |        
|Denominator for basic net income (loss) per shareweighted average shares                                      |  |                                       | 32,473  |   |      |   | 33,659  |      |  |   | 32,148
|                                                                                                               |  |                                       |        
|Dilutive effect of stock options and warrants                                                                  |  |                                       |        |   |      |   |        |      |  |   | 3,235 
|                                                                                                               |  |                                       |         |   |      |   |         |      |  |   |       
|Denominator for diluted net income (loss) per shareweighted average shares assuming dilution                  |  |                                       | 32,473  |   |      |   | 33,659  |      |  |   | 35,383
|                                                                                                               |  |                                       |         |   |      |   |         |      |  |   |       
|Basic net income (loss) per share                                                                              |  | $                                     | (3.00   | ) |      | $ | (0.57   | )    |  | $ | 0.98  
|                                                                                                               |  |                                       |         |   |      |   |         |      |  |   |       
|Diluted net income (loss) per share                                                                            |  | $                                     | (3.00   | ) |      | $ | (0.57   | )    |  | $ | 0.89  
|                                                                                                               |  |                                       |         |   |      |   |         |      |  |   |       



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



As the Company incurred net losses in fiscal 2003 and 2002, options to purchase 5.2 million and 4.3
million shares, respectively, of the Companys common stock were excluded from the computation of diluted net loss per share, as the effect would have been antidilutive. Options to purchase 0.9 million shares of the Companys common stock
were excluded from the computation of diluted net income per share for fiscal 2001 as the options exercise price was greater than the average market price of the common stock and, therefore, the effect would have been antidilutive.



11. Stockholders Equity



Secondary Offering



In August 2001, we completed a secondary public offering of 2,750,000 shares
of common stock at $57.11 per share, excluding offering costs. Of the 2,750,000 shares offered, 200,000 were sold by a selling stockholder. The net proceeds of the offering to us were $138 million.



Common Stock Repurchase



In 2001, Advents Board of Directors authorized the repurchase of up to
one million shares of outstanding common stock. A total of 430,000 shares were repurchased in 2001. The Company paid $14.8 million at an average price of $34.44 per share. In May and June 2002, our Board of Directors authorized the repurchase of an
additional 1,000,000 and 2,000,000 shares, respectively. During 2002, we repurchased and retired a total of 2,355,000 shares for which we paid $49.7 million at an average price of $21.09 per share. In the first quarter of 2003, we repurchased and
retired an additional 1,000,000 shares of our Common Stock at an average price of $14.31 per share.



Warrants



In March 2001 we issued a fully vested non-forfeitable stock purchase warrant to purchase a total of 191,644 shares of our Common Stock to a customer from
whom we had revenue of $56,000, $3.4 million and $7.1 million in 2003, 2002 and 2001, respectively. The warrant was issued for cash consideration of $5 million, which was the estimated Black-Scholes fair value. The warrant has an exercise price of
$45.375 per share, is immediately exercisable, and expires in March 2006.



In February 2002, we acquired Kinexus Corporation, a privately held company located in New York. The total purchase price of $45.5 million included cash of $34 million, closing costs of $3 million and a warrant to
purchase 165,176 shares of our Common Stock valued at $8.5 million. The fair value of the warrant was calculated using the Black-Scholes method using the following assumptions: fair value of common stock of $51.34 per share, interest rate of 3%,
volatility of 65.9% and a dividend rate of zero. The warrant had an exercise price of $0.01 per share and was exercised in February 2002.



Stock Option Exchange



In November 2002, the Company commenced a voluntary stock option exchange program made available to certain eligible employees of the Company. The
Chairman of the Board, Chief Executive Officer, Chief Financial Officer, Chief Technology Officer and Executive Vice President of Corporate Development were specifically excluded from participating in the exchange program. Under the program,
eligible employees were given the option to cancel each outstanding stock option granted to them at an exercise price greater than or equal to $20 per share, in exchange for a new option to buy 0.8 shares of the Companys Common Stock to
be granted on June 5, 2003, six months and one day from December 4, 2002, the expiration date of the offer, and the date the



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



old options of participating employees were cancelled. Additionally, options granted in the six months prior to this exchange offer, irrespective of their
exercise prices, were cancelled for all employees that elected to participate in this exchange program. There was no credit given for option vesting during the period between cancellation of the outstanding option and the grant of the new option.
The exercise price of the new option is equal to the fair market value of the Companys Common Stock on the date of grant. In total, 3,336,504 option shares were eligible to participate in this program and 2,462,102 options were surrendered for
cancellation ranging in exercise price from $17.39 to $60.375 with a weighted average exercise price of $47.33 per share. In the second quarter of 2003, in connection with this voluntary stock option exchange program, we granted 1,770,786
replacement options to employees at an exercise price equal to the fair market value of the stock on the date of grant, which was $18.88 per share. The exchange program did not result in additional compensation charges or variable option plan
accounting.



Stock Options



We have three stock option plans, the 2002 Stock Plan (Plan), 1998
Non-statutory Stock Option Plan (Non-statutory Plan) and 1995 Director Option Plan (Director Plan).



The PlanIn February and May 2002, the Board of Directors and the stockholders, respectively, approved the 2002 Stock Plan.
Under our 2002 Stock Plan (Plan) we may grant options to purchase Common Stock to employees and consultants. Options granted may be incentive stock options or non-statutory stock options and shall be granted at a price not less than fair market
value on the date of grant. Fair market value (as defined in the Plan) and the vesting of these options shall be determined by the Board of Directors. The options generally vest over 5 years and expire no later than 10 years from the date of grant.
Unvested options on termination of employment are canceled and returned to the Plan. The 2002 Stock Plan has an evergreen provision which adds an annual increase to the plan on the last day of the Companys fiscal year beginning in
2002 equal to the lesser of (i) 1,000,000 shares, (ii) 2% of the Companys outstanding shares on such date, or (iii) a lesser number of shares determined by the Board of Directors. All remaining options from the expired 1992 Stock Plan have
rolled over to the 2002 Stock Plan. The terms of the 1992 Stock Plan were substantively the same as the terms of the new 2002 Stock Plan.



In July 2002, we acquired Techfi Corporation, a privately held company. The total purchase price of $22.8 million includes cash of $20.2 million,
acquisition related expenses of $800,000 and options to purchase 70,000 shares of our Common Stock valued at $1.8 million. The options were issued under the 1992 Stock Plan and were valued using the Black-Scholes method to determine fair value, have
an exercise price of $17.39 per share, vest over five years, and expire in August 2012.



In 2001, we granted 25,000 stock options to certain employees of a distributor that have an exercise price of $40, vest over 5 years and have a term of 10 years. The options are subject to variable plan accounting,
which requires us to re-measure compensation cost for outstanding options each reporting period based on changes in the market value of the underlying common stock until the time the options are exercised, are forfeited or expire unexercised. With
respect to these stock options, we recorded stock compensation expense of $240,000, stock-based credits of $2,000 and stock compensation expense of $148,000 for 2003, 2002 and 2001, respectively.



During 2003, we also recorded stock compensation expense of $261,000 related
to the extension of vesting schedules on the outstanding stock options held by employees affected by the work-force reductions.



Non-Statutory Plan    In November 1998, the Board of Directors approved the 1998 Non-statutory Stock Option Plan (Non-statutory
Plan) and reserved 300,000 shares of Common Stock for issuance thereunder. Under our 1998 Non-statutory Plan, we may grant options to purchase Common Stock to employees and consultants,



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



excluding persons who are executive officers and directors. Options granted are non-statutory stock options and shall be granted at a price not less than
fair market value on the date of grant. Fair market value (as defined in the Non-statutory Plan) and the vesting of these options shall be determined by the Board of Directors. The options generally vest over 5 years and expire no later than 10
years from the date of grant. Unvested options on termination of employment are canceled and returned to the Non-statutory Plan.



Director Plan    Our 1995 Director Option Plan (Director Plan) provides for the grant of non-statutory stock options to our
non-employee directors (outside directors). Under the Director Plan, each outside director is granted a non-qualified option to purchase 30,000 shares on the latter of the date of effectiveness of the Director Plan or the date upon which
such person first becomes a director. The exercise price of each option is equal to the fair market value of our Common Stock as of the date of the grant. In subsequent years, each outside director is automatically granted an option to purchase
6,000 shares on December 1 with an exercise price equal to the fair value of our Common Stock on that date. Initial options granted under the Director Plan vest one-fifth of the shares on the first anniversary date of grant and the remaining shares
vest ratably each month over the ensuing four years. Subsequent option grants begin to vest on the fourth anniversary of the date of grant and vest ratably each month over the next 12-month period. All Director Plan options have a ten-year term.



A summary of the status of the Companys stock option
plans as of December 31, 2003, 2002 and 2001 and changes during the years ended on those dates is presented below.



|                                 |  |                 |   |      |                              |       |                 |        |   |                              |   |                 |  |        |                              |  |   |      
|-------------------------------- |  | --------------- | - | ---- | ---------------------------- | ----- | --------------- | ------ | - | ---------------------------- | - | --------------- |  | ------ | ---------------------------- |  | - | -----
|                                 |  | 2003            |   | 2002 |                              | 2001 
|                                 |  | Numberof Shares |   |      | WeightedAverageExercisePrice |       | Numberof Shares |        |   | WeightedAverageExercisePrice |   | Numberof Shares |  |        | WeightedAverageExercisePrice
|                                 |  | (in thousands)  |   |      |                              |       | (in thousands)  |        |   |                              |   | (in thousands)  |  |        |                             
|Outstanding at beginning of year |  | 4,265           |   |      | $                            | 19.03 |                 | 6,930  |   |                              | $ | 26.67           |  | 7,193  |                              |  | $ | 19.95
|Options granted                  |  | 2,977           |   |      | $                            | 17.86 |                 | 923    |   |                              | $ | 39.67           |  | 1,455  |                              |  | $ | 44.70
|Options exercised                |  | (875            | ) |      | $                            | 8.93  |                 | (833   | ) |                              | $ | 14.67           |  | (1,357 | )                            |  | $ | 11.37
|Options canceled                 |  | (1,162          | ) |      | $                            | 25.94 |                 | (2,755 | ) |                              | $ | 46.46           |  | (361   | )                            |  | $ | 22.94
|                                 |  |                 |   |      |                              |       |                 |        |   |                              |   |                 |  |        |                              |  |   |      
|Outstanding at end of year       |  | 5,205           |   |      | $                            | 18.51 |                 | 4,265  |   |                              | $ | 19.03           |  | 6,930  |                              |  | $ | 26.67
|                                 |  |                 |   |      |                              |       |                 |        |   |                              |   |                 |  |        |                              |  |   |      
|Exercisable at end of year       |  | 3,027           |   |      | $                            | 17.98 |                 | 2,963  |   |                              | $ | 16.13           |  | 3,013  |                              |  | $ | 18.17
|                                 |  |                 |   |      |                              |       |                 |        |   |                              |   |                 |  |        |                              |  |   |      



The options and
warrants outstanding and currently exercisable by exercise price at December 31, 2003 were as follows:



|                  |  |                     |  |                                                  |  |                              |       |                   |       |                              |   |      
|----------------- |  | ------------------- |  | ------------------------------------------------ |  | ---------------------------- | ----- | ----------------- | ----- | ---------------------------- | - | -----
|                  |  | Options Outstanding |  | Options Exercisable                             
|Exercise Price    |  | NumberOutstanding   |  | WeightedAverageRemainingContractualLife in years |  | WeightedAverageExercisePrice |       | NumberExercisable |       | WeightedAverageExercisePrice
|                  |  | (in thousands)      |  |                                                  |  |                              |       | (in thousands)    |       |                             
|$  1.67 - $  9.46 |  | 1,043               |  | 3.68                                             |  | $                            | 8.81  |                   | 1,041 |                              | $ | 8.81 
|$  9.58 - $16.55  |  | 1,122               |  | 7.97                                             |  | $                            | 14.83 |                   | 333   |                              | $ | 13.03
|$17.13 - $18.70   |  | 303                 |  | 9.59                                             |  | $                            | 17.42 |                   | 90    |                              | $ | 17.17
|$18.88 - $18.88   |  | 1,486               |  | 7.26                                             |  | $                            | 18.88 |                   | 661   |                              | $ | 18.88
|$18.96 - $39.13   |  | 941                 |  | 6.3                                              |  | $                            | 24.02 |                   | 667   |                              | $ | 24.02
|$40.00 - $60.38   |  | 310                 |  | 7.26                                             |  | $                            | 47.15 |                   | 235   |                              | $ | 46.31
|                  |  |                     |  |                                                  |  |                              |       |                   |       |                              |   |      
|                  |  | 5,205               |  | 6.66                                             |  | $                            | 18.51 |                   | 3,027 |                              | $ | 17.98
|                  |  |                     |  |                                                  |  |                              |       |                   |       |                              |   |      



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The options available for grant at December 31, 2003 were as follows:



|                             |  |                |   |  |       |   |  |        |  
|---------------------------- |  | -------------- | - |  | ----- | - |  | ------ | -
|                             |  | 2003           |   |  | 2002  |   |  | 2001   |  
|                             |  | (in thousands) |  
|Beginning balance (restated) |  | 3,892          |   |  | 1,403 |   |  | 1,476  |  
|Authorized                   |  | 659            |   |  | 657   |   |  | 1,021  |  
|Options granted              |  | (2,977         | ) |  | (923  | ) |  | (1,455 | )
|Options canceled             |  | 1,162          |   |  | 2,755 |   |  | 361    |  
|                             |  |                |   |  |       |   |  |        |  
|Ending balance (restated)    |  | 2,736          |   |  | 3,892 |   |  | 1,403  |  
|                             |  |                |   |  |       |   |  |        |  



12. Subsequent Events



In February 2004, we reached a settlement involving a
claim with a former employee. As a result of this settlement, Advent has recorded a receivable of $775,000. This amount was included in Advents results of operations for 2003.



In March 2004, our Board approved a letter of intent to purchase certain subsidiaries and assets of our independent European
distributor, Advent Europe, for approximately $2.5 million in cash, with additional potential consideration of approximately $6.2 million. The initial $2.5 million purchase consideration is due upon execution of the agreement, and
$2.5 million is due when Advent Europe meets certain non-financial goals associated with the business transaction. The balance of the consideration is contingent on Advent Europe achieving certain revenue goals in 2004. We expect the
transaction to close in the second quarter of 2004.



13. Restatement of
Stock Repurchase Accounting and Options Available for Grant



In July 2004 the Company determined that it would restate its financial statements for fiscal years 2001, 2002 and 2003. The Company has reviewed its stock repurchases in 2001, 2002 and 2003 and determined that its allocation of the entire
cash paid in excess of par value for these repurchases to additional paid-in capital was not the correct accounting treatment. The correct accounting treatment is to calculate the average additional paid-in capital per outstanding share at the
beginning of each period in which stock was repurchased, and then allocate the difference between the repurchase price per share and the sum of the par value and average additional paid-in capital per share as a reduction to retained earnings.



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Company has restated its financial statements for these periods to reflect the proper allocation,
resulting in additional paid-in capital increasing by a cumulative amount of approximately $41 million and retained earnings decreasing by the same amount. The Companys income statement, cash and cash equivalents, total stockholders
equity and shares of common stock outstanding are unaffected by these adjustments for all periods. Supplemental comparative disclosures of the previously reported and restated consolidated balance sheets as of December 31, 2003 and 2002 are
presented below (in thousands):



|                                                                                                          |  |                   |         |   |                         |   |         |            |  |                         |         |  |   |        
|--------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ----------------------- | - | ------- | ---------- |  | ----------------------- | ------- |  | - | -------
|                                                                                                          |  | December 31, 2003 |         |   | December 31, 2002      
|                                                                                                          |  | (Restated)        |         |   | (As PreviouslyReported) |   |         | (Restated) |  | (As PreviouslyReported)
|ASSETS                                                                                                    |  |                   |         |   |                         |   |         |            |  |                         |         |  |   |        
|Current assets:                                                                                           |  |                   |         |   |                         |   |         |            |  |                         |         |  |   |        
|Cash and cash equivalents                                                                                 |  | $                 | 83,334  |   |                         | $ | 83,334  |            |  | $                       | 78,906  |  | $ | 78,906 
|Marketable securities                                                                                     |  |                   | 76,738  |   |                         |   | 76,738  |            |  |                         | 94,923  |  |   | 94,923 
|Accounts receivable, net of allowance for doubtful accounts of $641 and $1,410                            |  |                   | 15,891  |   |                         |   | 15,891  |            |  |                         | 20,218  |  |   | 20,218 
|Prepaid expenses and other                                                                                |  |                   | 11,526  |   |                         |   | 11,526  |            |  |                         | 11,373  |  |   | 11,373 
|Income taxes receivable                                                                                   |  |                   | 1,639   |   |                         |   | 1,639   |            |  |                         | 6,289   |  |   | 6,289  
|Deferred income taxes                                                                                     |  |                   |        |   |                         |   |        |            |  |                         | 4,714   |  |   | 4,714  
|                                                                                                          |  |                   |         |   |                         |   |         |            |  |                         |         |  |   |        
|Total current assets                                                                                      |  |                   | 189,128 |   |                         |   | 189,128 |            |  |                         | 216,423 |  |   | 216,423
|                                                                                                          |  |                   |         |   |                         |   |         |            |  |                         |         |  |   |        
|Property and equipment, net                                                                               |  |                   | 23,381  |   |                         |   | 23,381  |            |  |                         | 28,001  |  |   | 28,001 
|Goodwill                                                                                                  |  |                   | 86,504  |   |                         |   | 86,504  |            |  |                         | 67,349  |  |   | 67,349 
|Intangibles, net                                                                                          |  |                   | 30,495  |   |                         |   | 30,495  |            |  |                         | 41,157  |  |   | 41,157 
|Other assets, net                                                                                         |  |                   | 15,438  |   |                         |   | 15,438  |            |  |                         | 80,980  |  |   | 80,980 
|                                                                                                          |  |                   |         |   |                         |   |         |            |  |                         |         |  |   |        
|Total assets                                                                                              |  | $                 | 344,946 |   |                         | $ | 344,946 |            |  | $                       | 433,910 |  | $ | 433,910
|                                                                                                          |  |                   |         |   |                         |   |         |            |  |                         |         |  |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                      |  |                   |         |   |                         |   |         |            |  |                         |         |  |   |        
|Current liabilities:                                                                                      |  |                   |         |   |                         |   |         |            |  |                         |         |  |   |        
|Accounts payable                                                                                          |  | $                 | 1,320   |   |                         | $ | 1,320   |            |  | $                       | 2,637   |  | $ | 2,637  
|Accrued liabilities                                                                                       |  |                   | 17,245  |   |                         |   | 17,245  |            |  |                         | 14,704  |  |   | 14,704 
|Deferred revenues                                                                                         |  |                   | 34,566  |   |                         |   | 34,566  |            |  |                         | 31,918  |  |   | 31,918 
|Income taxes payable                                                                                      |  |                   | 8,206   |   |                         |   | 8,206   |            |  |                         | 5,817   |  |   | 5,817  
|                                                                                                          |  |                   |         |   |                         |   |         |            |  |                         |         |  |   |        
|Total current liabilities                                                                                 |  |                   | 61,337  |   |                         |   | 61,337  |            |  |                         | 55,076  |  |   | 55,076 
|Deferred income taxes                                                                                     |  |                   | 2,812   |   |                         |   | 2,812   |            |  |                         |        |  |   |       
|Other long-term liabilities                                                                               |  |                   | 2,338   |   |                         |   | 2,338   |            |  |                         | 5,479   |  |   | 5,479  
|                                                                                                          |  |                   |         |   |                         |   |         |            |  |                         |         |  |   |        
|Total liabilities                                                                                         |  |                   | 66,487  |   |                         |   | 66,487  |            |  |                         | 60,555  |  |   | 60,555 
|                                                                                                          |  |                   |         |   |                         |   |         |            |  |                         |         |  |   |        
|Commitments and contingencies (See note 8)                                                                |  |                   |         |   |                         |   |         |            |  |                         |         |  |   |        
|Stockholders equity:                                                                                     |  |                   |         |   |                         |   |         |            |  |                         |         |  |   |        
|Preferred stock; $0.01 par value: 2,000 share authorized; none issued                                     |  |                   |        |   |                         |   |        |            |  |                         |        |  |   |       
|Common stock; $0.01 par value: 120,000 shares authorized; 32,938 and 32,853 shares issued and outstanding |  |                   | 329     |   |                         |   | 329     |            |  |                         | 329     |  |   | 329    
|Additional paid-in capital                                                                                |  |                   | 340,394 |   |                         |   | 299,459 |            |  |                         | 339,622 |  |   | 302,649
|Retained earnings (accumulated deficit)                                                                   |  |                   | (71,093 | ) |                         |   | (30,158 | )          |  |                         | 30,412  |  |   | 67,385 
|Accumulated other comprehensive income                                                                    |  |                   | 8,829   |   |                         |   | 8,829   |            |  |                         | 2,992   |  |   | 2,992  
|                                                                                                          |  |                   |         |   |                         |   |         |            |  |                         |         |  |   |        
|Total stockholders equity                                                                                |  |                   | 278,459 |   |                         |   | 278,459 |            |  |                         | 373,355 |  |   | 373,355
|                                                                                                          |  |                   |         |   |                         |   |         |            |  |                         |         |  |   |        
|Total liabilities and stockholders equity                                                                |  | $                 | 344,946 |   |                         | $ | 344,946 |            |  | $                       | 433,910 |  | $ | 433,910
|                                                                                                          |  |                   |         |   |                         |   |         |            |  |                         |         |  |   |        



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ADVENT SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Supplemental comparative disclosures of the previously reported and restated ending balances of the
consolidated statements of stockholders equity as of December 31, 2003, 2002 and 2001 are presented below (in thousands):



|                                                   |  |              |  |                            |     |                                         |   |         |                                               |   |         |                          |  |   |       |   |  |   |        
|-------------------------------------------------- |  | ------------ |  | -------------------------- | --- | --------------------------------------- | - | ------- | --------------------------------------------- | - | ------- | ------------------------ |  | - | ----- | - |  | - | -------
|                                                   |  | Common Stock |  | Additional Paid-in Capital |     | Retained Earnings (Accumulated Deficit) |   |         | Accumulated Other Comprehensive Income (Loss) |   |         | TotalStockholdersEquity
|                                                   |  | Shares       |  | Amount                     |     |                                         |   |        
|Balances, December 31, 2001 as previously reported |  | 34,043       |  | $                          | 342 |                                         | $ | 317,548 |                                               | $ | 86,621  |                          |  | $ | (122  | ) |  | $ | 404,389
|Restatement adjustment                             |  |             |  |                            |    |                                         |   | 10,899  |                                               |   | (10,899 | )                        |  |   |      |   |  |   |       
|                                                   |  |              |  |                            |     |                                         |   |         |                                               |   |         |                          |  |   |       |   |  |   |        
|Balances, December 31, 2001 as restated            |  | 34,043       |  |                            | 342 |                                         |   | 328,447 |                                               |   | 75,722  |                          |  |   | (122  | ) |  |   | 404,389
|                                                   |  |              |  |                            |     |                                         |   |         |                                               |   |         |                          |  |   |       |   |  |   |        
|Balances, December 31, 2002 as previously reported |  | 32,853       |  |                            | 329 |                                         |   | 302,649 |                                               |   | 67,385  |                          |  |   | 2,992 |   |  |   | 373,355
|Restatement adjustment                             |  |             |  |                            |    |                                         |   | 36,973  |                                               |   | (36,973 | )                        |  |   |      |   |  |   |       
|                                                   |  |              |  |                            |     |                                         |   |         |                                               |   |         |                          |  |   |       |   |  |   |        
|Balances, December 31, 2002 as restated            |  | 32,853       |  |                            | 329 |                                         |   | 339,622 |                                               |   | 30,412  |                          |  |   | 2,992 |   |  |   | 373,355
|                                                   |  |              |  |                            |     |                                         |   |         |                                               |   |         |                          |  |   |       |   |  |   |        
|Balances, December 31, 2003 as previously reported |  | 32,938       |  |                            | 329 |                                         |   | 299,459 |                                               |   | (30,158 | )                        |  |   | 8,829 |   |  |   | 278,459
|Restatement adjustment                             |  |             |  |                            |    |                                         |   | 40,935  |                                               |   | (40,935 | )                        |  |   |      |   |  |   |       
|                                                   |  |              |  |                            |     |                                         |   |         |                                               |   |         |                          |  |   |       |   |  |   |        
|Balances, December 31, 2003 as restated            |  | 32,938       |  | $                          | 329 |                                         | $ | 340,394 |                                               | $ | (71,093 | )                        |  | $ | 8,829 |   |  | $ | 278,459
|                                                   |  |              |  |                            |     |                                         |   |         |                                               |   |         |                          |  |   |       |   |  |   |        



In addition, the
Company has corrected errors in its options activity in 2001, 2002 and 2003, affecting the options available for grant table in Note 11. Supplemental comparative disclosures of the previously reported and restated options available
for grant table for fiscal 2003, 2002 and 2001 are presented below (in thousands):



|                  |  |            |   |  |                          |   |  |        |   |  |        |   |  |        |   |  |        |  
|----------------- |  | ---------- | - |  | ------------------------ | - |  | ------ | - |  | ------ | - |  | ------ | - |  | ------ | -
|                  |  | 2003       |   |  | 2002                     |   |  | 2001   |   |  | 2003   |   |  | 2002   |   |  | 2001   |  
|                  |  | (Restated) |   |  | (As Previously Reported) |  
|Beginning balance |  | 3,892      |   |  | 1,403                    |   |  | 1,476  |   |  | 5,164  |   |  | 6,298  |   |  | 6,371  |  
|Authorized        |  | 659        |   |  | 657                      |   |  | 1,021  |   |  | 659    |   |  | 657    |   |  | 1,021  |  
|Options granted   |  | (2,977     | ) |  | (923                     | ) |  | (1,455 | ) |  | (2,977 | ) |  | (923   | ) |  | (1,455 | )
|Options canceled  |  | 1,162      |   |  | 2,755                    |   |  | 361    |   |  | 1,162  |   |  | 2,756  |   |  | 361    |  
|Expired           |  |           |   |  |                         |   |  |       |   |  | (773   | ) |  | (3,624 | ) |  |       |  
|                  |  |            |   |  |                          |   |  |        |   |  |        |   |  |        |   |  |        |  
|Ending balance    |  | 2,736      |   |  | 3,892                    |   |  | 1,403  |   |  | 3,235  |   |  | 5,164  |   |  | 6,298  |  
|                  |  |            |   |  |                          |   |  |        |   |  |        |   |  |        |   |  |        |  



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders of Advent Software, Inc.:



In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders equity and cash flows present fairly, in all material respects, the financial position of Advent Software, Inc. and its subsidiaries at December 31, 2003 and 2002, and the results of their
operations and cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the
Companys management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements 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. An audit 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, and evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.



As discussed in Note 1 to
the consolidated financial statements, effective January 1, 2002, the Company changed its method of accounting for goodwill in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.



As discussed in Note 13 to the accompanying consolidated
financial statements, the Company has restated its consolidated financial statements for the fiscal years 2001, 2002 and 2003.



/s/ PricewaterhouseCoopers LLP



PricewaterhouseCoopers LLP

San Jose, California

March 11, 2004, except for Note 13, as to which the date is July 30, 2004.



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Supplementary Quarterly Financial Data (Unaudited)



|                                    |  |                                       |         |   |               |   |         |              |  |   |               |   |  |   |         |  
|----------------------------------- |  | ------------------------------------- | ------- | - | ------------- | - | ------- | ------------ |  | - | ------------- | - |  | - | ------- | -
|                                    |  | FirstQuarter                          |         |   | SecondQuarter |   |         | ThirdQuarter |  |   | FourthQuarter |  
|                                    |  | (in thousands, except per share data) |        
|2003                                |  |                                       |         |   |               |   |         |              |  |   |               |   |  |   |         |  
|Net revenues                        |  | $                                     | 33,044  |   |               | $ | 32,758  |              |  | $ | 34,484        |   |  | $ | 36,873  |  
|Gross margin                        |  |                                       | 19,869  |   |               |   | 18,217  |              |  |   | 19,975        |   |  |   | 22,074  |  
|Loss from operations                |  |                                       | (11,679 | ) |               |   | (13,977 | )            |  |   | (8,652        | ) |  |   | (5,351  | )
|Net loss                            |  |                                       | (7,480  | ) |               |   | (9,596  | )            |  |   | (5,449        | ) |  |   | (75,018 | )
|Basic net loss per share            |  |                                       | (0.23   | ) |               |   | (0.30   | )            |  |   | (0.17         | ) |  |   | (2.29   | )
|Diluted net loss per share          |  |                                       | (0.23   | ) |               |   | (0.30   | )            |  |   | (0.17         | ) |  |   | (2.29   | )
|                                    |  |                                       |         |  
|2002                                |  |                                       |         |   |               |   |         |              |  |   |               |   |  |   |         |  
|Net revenues                        |  | $                                     | 49,197  |   |               | $ | 38,868  |              |  | $ | 35,110        |   |  | $ | 36,261  |  
|Gross margin                        |  |                                       | 37,939  |   |               |   | 26,494  |              |  |   | 22,342        |   |  |   | 22,989  |  
|Income (loss) from operations       |  |                                       | 9,413   |   |               |   | (4,678  | )            |  |   | (10,644       | ) |  |   | (9,624  | )
|Net income (loss)                   |  |                                       | 7,309   |   |               |   | (12,112 | )            |  |   | (8,328        | ) |  |   | (6,105  | )
|Basic net income (loss) per share   |  |                                       | 0.21    |   |               |   | (0.35   | )            |  |   | (0.25         | ) |  |   | (0.19   | )
|Diluted net income (loss) per share |  |                                       | 0.20    |   |               |   | (0.35   | )            |  |   | (0.25         | ) |  |   | (0.19   | )

---

|(1) | Subsequent to our press release in January 2004, we reached a settlement involving a claim with a former employee in February 2004. As a result of this settlement, we recorded a
receivable of $775,000 and a corresponding reduction in general and administrative expenses in the fourth quarter of 2003.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | In the fourth quarter of 2003, we began presenting amortization of developed technology within cost of revenues. All prior periods have been reclassified to conform to the current
presentation. See Reclassifications within Managements Discussion and Analysis of Financial Condition and Results of Operations for additional information on this reclassification.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The fourth quarter of 2003 included a provision for income taxes of $70.5 million as a result of recording a full valuation allowance against our deferred tax assets in the United
States.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | In the second quarter of 2003, we changed our classification of certain revenues, cost of revenues and operating expense items. In addition, we changed our classification of related
amounts on the balance sheet between accounts receivable, prepaid expenses and accrued liabilities. All prior period amounts have been reclassified to conform to the current presentation. See Reclassifications within Managements
Discussion and Analysis of Financial Condition and Results of Operations for additional information on these reclassifications.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | In the second quarter of 2002, we recorded a write-down of $9 million for an other-than-temporary decline in the estimated fair market value of a privately-held investment.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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PART IV



Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K



3. Exhibits



The
following exhibits are filed as part of, or incorporated by reference into this Form 10-K/A:



|              |  |                                                                                             
|------------- |  | --------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Document                                                                     
|              | 
|23.1          |  | Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm        
|              | 
|31.1          |  | Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002
|              | 
|31.2          |  | Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002
|              | 
|32.1          |  | Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002
|              | 
|32.2          |  | Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002



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SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 on Form
10-K/A to be signed on its behalf by the undersigned thereunto duly authorized, on this 30th day of July, 2004.



ADVENT SOFTWARE, INC.By:

/s/    GRAHAM V. SMITHGraham V. Smith Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)




Pursuant to the
requirements of the Securities Exchange Act of 1934, as amended, this Amendment No. 1 on Form 10-K/A has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                                                |  |                                                                                                              |  |              
|----------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | -------------
|Signature                                       |  | Title                                                                                                        |  | Date         
|                                                |  |                                                                                                             
|/s/    STEPHANIE G.
DIMARCOStephanie G.
DiMarco |  | Chief Executive Officer and President (Principal Executive Officer)                                          |  | July 30, 2004
|                                                |  |                                                                                                             
|/s/    GRAHAM V. SMITHGraham V. Smith           |  | Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) |  | July 30, 2004
|                                                |  |                                                                                                             
|*  TERRY H. CARLITZTerry H. Carlitz             |  | Director                                                                                                     |  | July 30, 2004
|                                                |  |                                                                                                             
|/s/    JAMES ROEMERJames Roemer                 |  | Director                                                                                                     |  | July 30, 2004
|                                                |  |                                                                                                             
|*  JOHN H. SCULLYJohn H. Scully                 |  | Chairman of the Board                                                                                        |  | July 30, 2004
|                                                |  |                                                                                                             
|*  WENDELL G. VAN AUKENWendell G. Van Auken     |  | Director                                                                                                     |  | July 30, 2004
|                                                |  |                                                                                                             
|/s/    WILLIAM F.
ZUENDTWilliam F. Zuendt       |  | Director                                                                                                     |  | July 30, 2004



|     |  |                                 
|---- |  | --------------------------------
|     | 
|*By: |  | /s/    GRAHAM V. SMITH          
|     |  | Graham V. Smith Attorney-in-Fact



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##### Table of Contents

POWER OF ATTORNEY



KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints GRAHAM V. SMITH
his attorney-in-fact, with full power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K/A and to file the same, with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.



|                                          |  |          |  |              
|----------------------------------------- |  | -------- |  | -------------
|Signature                                 |  | Title    |  | Date         
|                                          |  |         
|/S/    JAMES
ROEMERJames Roemer           |  | Director |  | July 30, 2004
|                                          |  |         
|/s/    WILLIAM F.
ZUENDTWilliam F. Zuendt |  | Director |  | July 30, 2004



40