**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-K/A**

**Amendment No. 1**

 

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| ý                                                | ** ** | **Annual  report pursuant to Section 13 or 15(d) of the Securities Exchange  Act of 1934**     |
|-------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
|                                                  | ** ** | ** **                                                                                               |
| **For the fiscal year ended December 31,  2004** |
| ** **                                            |
| **or**                                                |
| ** **                                            |
| o                                                     | ** ** | **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 itscharter)

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

 

**301 Brannan Street, SanFrancisco, California 94107**

(Address of principal executive offices andzip code)

 

**(415) 543-7696**

(Registrant’s telephone number, including areacode)

 

Securities registered pursuant to Section 12(b) ofthe Act:**  None**

 

Securities registered pursuant to Section 12(g) ofthe Act:

 

**Common Stock, $0.01 par value**

(Title of Class)

 

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Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or forsuch 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 delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. ý

 

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

Yes ý No o

 

The number of shares of the registrant’s common stockoutstanding as of June 30, 2004 was 33,230,362. The aggregate market valueof the registrant’s common stock held by non-affiliates, based upon the closingprice on June 30, 2004, as reported on the NASDAQ National Market System,was approximately $337 million. Shares of common stock held by each officer anddirector and by each person who owns 5% or more of the outstanding common stockhave been excluded in that such persons may be deemed to be affiliates. Thisdetermination of affiliate status is not necessarily a conclusive determinationfor other purposes.

 

As of March 15, 2005, there were 30,668,706shares of the registrant’s common stock outstanding.

 

**DOCUMENTS INCORPORATED BYREFERENCE**

 

Portions of the Registrants definitive ProxyStatement for the Annual Meeting of Stockholders to be held May 18, 2005are incorporated by reference into Part III of this Annual Report on Form 10-K/Ato the extent stated herein. Except with respect to information specificallyincorporated by reference in this Form 10-K/A, the Proxy Statement is notdeemed to be filed as part herein.

 

 

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**EXPLANATORY NOTE**

 

Advent Software, Inc. (the “Company”) isamending its Annual Report on Form 10-K (the “Original Form 10-K”)for the year ended December 31, 2004 (as amended, the “Form 10-K/A”)to restate its consolidated financial statements to correct the disclosureregarding pro forma stock-based employee compensation expense, as described inmore detail below.

 

As previously disclosed in the Company’s Current Reporton Form 8-K filed on May 11, 2005, in connection with its preparationof the condensed consolidated financial statements for the quarter ended March 31,2005, management determined that the financial statements for the years ended December 31,2002, 2003 and 2004 and for each of the first three quarters of 2003 and 2004 shouldnot be relied on. Specifically, its disclosures relating to pro formastock-based employee compensation expense under Statement of FinancialAccounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS123”), as amended by SFAS No. 148 “Accounting for Stock-Based Compensation– Transition and Disclosure” (“SFAS 148”), included in Note 1 to its previouslyissued financial statements contained in the Original Form 10-K and in theQuarterly Reports on Form 10-Q for each of the quarterly periods  referred to above, should not be relied uponbecause of errors in its disclosure of the pro forma effects on operatingresults as if the Company had used the fair value approach to account for allstock-based compensation plans. This error had no impact on the Company’sconsolidated balance sheets, statements of operations, cash flows,comprehensive income or stockholders’ equity for any period. On May 6,2005, management determined that these errors were the result of a controldeficiency with respect to the Company’s procedures for correctly calculatingand reporting its pro forma stock-based employee compensation expense underSFAS 123, as amended by SFAS 148, and has concluded that this controldeficiency constituted a material weakness as of December 31, 2004. As aresult of the errors and related material weakness, this Form 10-K/A isbeing filed to amend the Original Form 10-K as follows:

 

•                  Item8. Financial Statements and Supplementary Data — has been amended to: (1) addNote 16, “Restatement of Pro Forma Disclosure for Stock-Based EmployeeCompensation Expense” which provides a summary of the effects of the restatementon the calculation of the Company’s pro forma stock-based employee compensationexpense, net loss and net loss per share for fiscal 2004, 2003 and 2002 and toupdate the Supplementary Quarterly Financial Unaudited Data for each of thefirst three quarters of fiscal 2003 and 2004 had stock-based compensation expensebeen determined based on the fair value at the grant date for such awards, (2) restatethe disclosure for pro forma stock-based employee compensation expense includedin the “Stock-based compensation” disclosure for fiscal 2002, 2003 and 2004included in Note 1, “Summary of Significant Accounting Policies”, (3) restate“Management Report on Internal Control Over Financial Reporting” to include materialweaknesses related to the Company not maintaining effective controls over itsfinancial statement disclosures for stock-based employee compensation expense, and(4) to provide an updated “Report of Independent Registered PublicAccounting Firm” for matters related to the material weaknesses referred to in(3) above.

 

•                  Item9A. Controls and Procedures – has been amended to incorporate the amendeddisclosure in “Management Report on Internal Control Over Financial Reporting”in Item 8; and

 

•                  Item15. Exhibits and Financial Statement Schedules — has been amended to containthe following which are dated as of the date of the filing of this Form 10-K/A:(1) a revised consent from our independent registered public accountingfirm which is attached to this Form 10-K/A as Exhibit 23.1, and (2) certificationsfrom our Chief Executive Officer and Chief Financial Officer as required bySections 302 and 906 of the Sarbanes-Oxley Act of 2002 which are attached tothis Form 10-K/A as Exhibits 31.1, 31.2, 32.1 and 32.2.

 

The other items of the Original Form 10-K havenot been amended because the disclosure in those items was not affected. This Form 10-K/Adoes not reflect events occurring after the April 8, 2005 filing of theOriginal Form 10-K, or modify or update the disclosures therein in any wayother than as required to reflect the amendment as set forth above. Otherevents occurring after the date of the original filing or other informationnecessary to reflect subsequent events have been disclosed, if required, inreports filed with the Securities and Exchange Commission subsequent to thefiling of the Original Form 10-K.

 

2

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**TABLE OFCONTENTS**

 
| PART II  |                                         |   |
|---------------|----------------------------------------------|--------|
| Item 8.  | Financial  Statements and Supplementary Data | 4      |
| Item 9A. | Controls and Procedures                      | 47     |
|          |                                         |   |
| PART IV  |                                         | 49     |
| Item 15. | Exhibits and Financial  Statement Schedules  | 49     |

 

3

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**Item 8. Financial Statements and Supplementary Data**

 

**MANAGEMENT’SREPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING (as restated)**

 

Management of the Company is responsible forestablishing and maintaining adequate internal control over financial reportingas defined in Rules 13a-15(f) and 15d-15(f) under the SecuritiesExchange Act of 1934. The Company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. Internalcontrol over financial reporting includes those policies and procedures that (i) pertainto the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of assets of the Company; (ii) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the Company arebeing made only in accordance with authorizations of management and directorsof the Company; and (iii) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use or dispositionof the Company’s assets that could have a material effect on the financialstatements.

 

Because of its inherent limitations, internalcontrol over financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditionsor that the degree of compliance with the policies or procedures maydeteriorate.

 

The Company’s management assessed the effectivenessof the Company’s internal control over financial reporting as of December 31,2004. In making this assessment management used the criteria set forth by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO) in *Internal Control-Integrated Framework*.

 

A material weakness is a control deficiency, orcombination of control deficiencies, that results in more than a remotelikelihood that a material misstatement of the annual or interim financialstatements will not be prevented or detected. Management identified thefollowing material weaknesses in its assessment of the effectiveness of theCompany’s internal control over financial reporting:

 

1                  Asof December 31, 2004, the Company did not maintain effective controls overthe valuation of its property and equipment accounts, including the relatedrestructuring provision. Specifically, the Company’s impairment analysis of itsproperty and equipment accounts related to its decision to vacate a facilityfailed to identify and include all applicable assets. This control deficiencyresulted in a restatement of the Company’s financial statements for thequarters ended June 30, 2004 and September 30, 2004 and an adjustmentto the fourth quarter 2004 financial statements. Additionally, this controldeficiency could result in a misstatement to the property and equipmentaccounts and related restructuring provision that would result in a materialmisstatement to annual or interim financial statements that would not beprevented or detected. Accordingly, management has determined that this controldeficiency constitutes a material weakness.

 

2                  Asof December 31, 2004, the Company did not maintain effective controls overthe accounting for income taxes, including the determination of income taxespayable, deferred income tax assets and liabilities and the related income taxprovision. Specifically, the Company did not have controls to identify thatdeferred income tax assets and related income tax valuation allowances had beeninappropriately recorded. Further, the Company did not have controls in placeto include all state income tax liabilities in its income taxes payableaccount. These control deficiencies resulted in a restatement of the Company’sfinancial statements for the year ended December 31, 2003, the quartersended March 31, 2004, June 30, 2004 and September 30, 2004, andan adjustment to the fourth quarter 2004 financial statements. Additionally,these control deficiencies could result in a misstatement to the income taxespayable, deferred income tax asset and liabilities, and income tax provisionaccounts that would result in a material misstatement to annual or interimfinancial statements that would not be prevented or detected. Accordingly,management has determined that these control deficiencies constitute materialweaknesses.

 

3                  Asof December 31, 2004, the Company did not maintain effective controls over theaccuracy and presentation and disclosure of the pro forma stock-based employeecompensation expense in conformity with generally accepted accountingprinciples. Specifically, the Company did not maintain effective controls to:i) ensure the accuracy of the calculation of the remaining compensation cost tobe recognized after a stock option exchange, ii) ensure the completeness andaccuracy of the accounting for option forfeitures, and iii) ensure thecompleteness and accuracy of the accounting for the tax benefit or provisionassociated with the stock based compensation expense. These controldeficiencies resulted in a restatement of the Company’s consolidated financialstatements for fiscal 2002, 2003 and 2004 and also for each of the quarters offiscal 2003 and 2004.   Additionally,these control deficiencies could result in a misstatement to the Company’sfinancial statement disclosures of pro forma stock-based employee compensationexpense that would result in a material misstatement to the annual or interimfinancial statements that would not be prevented or detected.  Accordingly, management has determined thatthese control deficiencies constitute material weaknesses.

 

Because of these material weaknesses, management hasconcluded that the Company did not maintain effective internal control overfinancial reporting at December 31, 2004 based on the criteria set forthin the COSO *Internal Control-IntegratedFramework*.  Management hadpreviously concluded that the Company did not maintain effective internalcontrol over financial reporting because of the material weaknesses describedin 1) and 2) above. In connection with the restatement of the Company’sconsolidated financial statements described in Note 16 to the consolidatedfinancial statements, management has determined that the material weaknessesdescribed in 3) above also existed as of December 31, 2004. Accordingly,management has restated this report.

 

4

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Management’s assessment of the effectiveness of theCompany’s internal control over financial reporting as of December 31,2004 has been audited by PricewaterhouseCoopers LLP, an independent registeredpublic accounting firm, as stated in their report which is included herein.

 

**REMEDIATIONSTEPS TO ADDRESS MATERIAL WEAKNESSES**

 

The Company’s management has identified the stepsnecessary to address the material weaknesses in our internal control overfinancial reporting described above. Our remediation plan is:

 

•                  Todocument the standards established by our principal financial and accountingofficer and other senior accounting personnel for the review, analysis,verification and final determination of the proper accounting treatment for allcharges associated with the termination or abandonment of building leases,including establishing a checklist of items to be reviewed in connection withsuch transactions;

 

•                  Toimprove the skills, knowledge and experience available to the Company for thepreparation and review of our tax provision calculations, through potentiallyhiring additional tax accounting personnel and by utilizing outside taxconsultants;

 

•                  Toimprove the process, procedures and documentation standards relating to thepreparation of the income tax provision calculations;

 

•                  Toincrease the level of review of the preparation of the quarterly and annualincome tax provision calculations;

 

•                  Toimprove the skills, knowledge and experience available to the Company for thepreparation and review of our stock-based employee compensation expensedisclosures by utilizing outside consultants; and

 

•                  Toincrease the level of review of the preparation of the quarterly and annualstock-based employee compensation expense disclosures.

 

For an update on the progress of the Company’sremediation efforts, please see the disclosure in Part I, Item 4: “Controlsand Procedures” of the Company’s Form 10-Q filings for the quarters ended March 31,2005, June 30, 2005 and September 30, 2005.

 

 
| /s/ STEPHANIE G. DIMARCO              |                    | /s/ GRAHAM V. SMITH |
|---------------------------------------|-------------------------|---------------------|
| Stephanie G. DiMarco                  | Graham V. Smith         |
| President and Chief Executive Officer | Chief Financial Officer |

 

5

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

To the Board of Directors and Stockholders ofAdvent Software, Inc:

 

We have completed anintegrated audit of Advent Software, Inc.’s 2004 consolidated financialstatements and of its internal control over financial reporting as of December31, 2004 and audits of its 2003 and 2002 consolidated financial statements inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Our opinions, based on our audits, are presented below.

 

*Consolidatedfinancial statements and financial statement schedules*

 

In our opinion, theconsolidated financial statements listed in the index appearing under Item15(a)(1) present fairly, in all material respects, the financial position ofAdvent Software, Inc. and its subsidiaries at December 31, 2004 and 2003, andthe results of their operations and their cash flows for each of the threeyears in the period ended December 31, 2004 in conformity with accountingprinciples generally accepted in the United States of America. In addition, inour opinion, the financial statement schedules listed in the index appearingunder Item 15(a)(2) present fairly, in all material respects, the informationset forth therein when read in conjunction with the related consolidatedfinancial statements. These financial statements and financial statementschedules are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements andfinancial statement schedules based on our audits. We conducted our audits ofthese statements in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit of financialstatements includes examining, on a test basis, evidence supporting the amountsand disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, and evaluatingthe overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.

 

As described in Notes 2 and16 to the consolidated financial statements the Company has restated its 2004,2003, and 2002 consolidated financial statements.

 

*Internalcontrol over financial reporting*

 

Also, we have auditedmanagement’s assessment, included in Management’s Report on Internal ControlOver Financial Reporting (restated) appearing under Item 8, that AdventSoftware, Inc. did not maintain effective internal control over financialreporting as of December 31, 2004, because the Company did not maintaineffective controls over: (i) the valuation of its property and equipmentaccounts, including the related restructuring provision, (ii) the accountingfor income taxes, including the determination of income taxes payable, deferredincome tax assets and liabilities and the related income tax provision, and

 

6

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(iii) disclosures of pro forma stock-basedemployee compensation expense  based oncriteria established in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO). The Company’s management isresponsible for maintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal control over financialreporting. Our responsibility is to express opinions on management’s assessmentand on the effectiveness of the Company’s internal control over financialreporting based on our audit.

 

We conducted our audit ofinternal control over financial reporting in accordance with the standards ofthe Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether effective internal control over financial reporting was maintained inall material respects. An audit of internal control over financial reporting includesobtaining an understanding of internal control over financial reporting,evaluating management’s assessment, testing and evaluating the design andoperating effectiveness of internal control, and performing such otherprocedures as we consider necessary in the circumstances. We believe that ouraudit provides a reasonable basis for our opinions.

 

Acompany’s internal control over financial reporting is a process designed toprovide reasonable assurance regarding the reliability of financial reporting andthe preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (i)pertain to the maintenance of records that, in reasonable detail, accuratelyand fairly reflect the transactions and dispositions of the assets of thecompany; (ii) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance withgenerally accepted accounting principles, and that receipts and expenditures ofthe company are being made only in accordance with authorizations of managementand directors of the company; and (iii) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or dispositionof the company’s assets that could have a material effect on the financialstatements.

 

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

 

A material weakness is acontrol deficiency, or combination of control deficiencies, that results inmore than a remote likelihood that a material misstatement of the annual orinterim financial statements will not be prevented or detected. The followingmaterial weaknesses have been identified and included in management’sassessment:

 

1) As of December 31, 2004,the Company did not maintain effective controls over the valuation of itsproperty and equipment accounts, including the related restructuring provision.Specifically, the Company’s impairment analysis of its property and equipmentaccounts related to its decision to vacate a facility failed to identify andinclude all applicable assets. This control deficiency resulted in arestatement of the Company’s financial statements for the quarters ended June30, 2004 and September 30, 2004 and an adjustment to the fourth quarter 2004financial statements. Additionally, this control deficiency could result in amisstatement to the property and equipment accounts and related restructuringprovision that would result in a material misstatement to annual or interimfinancial statements that would not be prevented or detected. Accordingly, managementdetermined that this control deficiency constitutes a material weakness.

 

2) As of December 31, 2004,the Company did not maintain effective controls over the accounting for incometaxes, including the determination of income taxes payable, deferred income taxassets and liabilities and the related income tax provision. Specifically, theCompany did not have controls to identify that deferred income tax assets andrelated deferred income tax valuation allowances had been inappropriatelyrecorded. Further, the Company did not have controls in place to include allstate income tax liabilities in its income taxes payable account. These controldeficiencies resulted in a

 

7

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restatement of the Company’sfinancial statements for the year ended December 31, 2003, the quarters endedMarch 31, 2004, June 30, 2004 and September 30, 2004, and an adjustment to thefourth quarter 2004 financial statements. Additionally, these controldeficiencies could result in a misstatement to the income taxes payable, deferredincome tax asset and liabilities, and income tax provision accounts that wouldresult in a material misstatement to annual or interim financial statementsthat would not be prevented or detected. Accordingly, management determinedthat these control deficiencies constitute a material weakness.

 

3) As of December 31, 2004,the Company did not maintain effective controls over the accuracy andpresentation and disclosure of the pro forma stock-based employee compensationexpense in conformity with generally accepted accounting principles.Specifically, the Company did not maintain effective controls to: i) ensure theaccuracy of the calculation of the remaining compensation cost to be recognizedafter a stock option exchange, ii) ensure the completeness and accuracy of theaccounting for option forfeitures, and iii) ensure the completeness andaccuracy of the accounting for the tax benefit or provision associated with thestock based compensation expense. These control deficiencies resulted in arestatement of the Company’s consolidated financial statements for fiscal 2002,2003 and 2004 and also for each of the quarters of fiscal 2003 and 2004.   Additionally, these control deficienciescould result in a misstatement to the Company’s financial statement disclosuresof pro forma stock-based employee compensation expense that would result in amaterial misstatement to the annual or interim financial statements that wouldnot be prevented or detected. Accordingly, management has determined that these control deficienciesconstitute material weaknesses.

 

These material weaknesseswere considered in determining the nature, timing, and extent of audit testsapplied in our audit of the 2004 consolidated financial statements, and ouropinion regarding the effectiveness of the Company’s internal control overfinancial reporting does not affect our opinion on those consolidated financialstatements.

 

In our opinion, management’sassessment that Advent Software, Inc. did not maintain effective internalcontrol over financial reporting as of December 31, 2004, is fairly stated, inall material respects, based on criteria established in *Internal Control—Integrated Framework*issued by the COSO.  Also, in ouropinion, because of the effect of the material weaknesses described above onthe achievement of the objectives of the control criteria, Advent Software,Inc. has not maintained effective internal control over financial reporting asof December 31, 2004, based on criteria established in *Internal Control—Integrated Framework*issued by the COSO.

 

Management and we previouslyconcluded that the Company did not maintain effective internal control overfinancial reporting as of December 31, 2004 because of the material weaknessesdescribed in 1) and 2) above. In connection with the restatement of theCompany’s consolidated financial statements described in Note 16 to theconsolidated financial statements, management has determined that the materialweaknesses described in 3) above also existed at December 31, 2004. Accordingly,management and we have restated our respective reports on internal control overfinancial reporting to include this material weakness.

 
| /S/    PRICEWATERHOUSECOOPERS  LL P |   |
|---------------------------------------------------------|--------|
| PricewaterhouseCoopers LLP                              |
| San Jose, California                                    |

 

April 8, 2005, except for the restatementdescribed in Note 16 to the consolidated financial statements and the matterdescribed in the penultimate paragraph of Management’s Report on InternalControl Over Financial Reporting, as to which the date is November 30, 2005

 

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**ADVENTSOFTWARE, INC.**

**CONSOLIDATEDBALANCE SHEETS**

**(Inthousands, except per share amounts)**

 
| ** **                                                                                                  | ** ** | **December 31** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                                                  | ** ** | ** **           | ** ** | **(Restated,** | ** ** |
| ** **                                                                                                  | ** ** | ** **           | ** ** | **See Note 2)** | ** ** |
| ** **                                                                                                  | ** ** | **2004**             | ** ** | **2003** | ** ** |
| **ASSETS**                                                                                                  |       |                 |       |   |   |
| Current assets:                                                                                             |       |                 |       |   |   |
| Cash and  cash equivalents                                                                                  |       | $                    | 21,177     |   | $ | 34,761 |   |
| Marketable  securities                                                                                      |       | 144,352              |       | 125,311 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $611 and $641                               |       | 32,778               |       | 17,448 |   |
| Prepaid  expenses and other                                                                                 |       | 10,415               |       | 11,526 |   |
| Income taxes  receivable                                                                                    |       | —               |       | 1,639 |   |
| Total current  assets                                                                                       |       | 208,722              |       | 190,685 |   |
| Property and equipment, net                                                                                 |       | 18,432               |       | 23,381 |   |
| Goodwill                                                                                                    |       | 99,393               |       | 86,504 |   |
| Other intangibles, net                                                                                      |       | 14,668               |       | 30,495 |   |
| Other assets, net                                                                                           |       | 13,362               |       | 15,438 |   |
|                                                                                                        |       |                 |       |   |   |
| Total assets                                                                                                |       | $                    | 354,577    |   | $ | 346,503 |   |
|                                                                                                        |       |                 |       |   |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                               |       |                 |       |   |   |
| Current liabilities:                                                                                        |       |                 |       |   |   |
| Accounts  payable                                                                                           |       | $                    | 2,825      |   | $ | 1,320 |   |
| Accrued  liabilities                                                                                        |       | 16,855               |       | 16,101 |   |
| Deferred  revenues                                                                                          |       | 56,405               |       | 36,123 |   |
| Income taxes  payable                                                                                       |       | 4,036                |       | 3,596 |   |
| Total  current liabilities                                                                                  |       | 80,121               |       | 57,140 |   |
| Deferred income taxes                                                                                       |       | 2,250                |       | 2,812 |   |
| Other long-term liabilities                                                                                 |       | 6,531                |       | 3,482 |   |
|                                                                                                        |       |                 |       |   |   |
| Total  liabilities                                                                                          |       | 88,902               |       | 63,434 |   |
|                                                                                                        |       |                 |       |   |   |
| Commitments and contingencies (See Note 9)                                                                  |       |                 |       |   |   |
|                                                                                                        |       |                 |       |   |   |
| Stockholders’ equity:                                                                                  |       |                 |       |   |   |
| Preferred  stock; $0.01 par value: 2,000 shares authorized; none issued                                     |       |                 |       |   |   |
| Common  stock; $0.01 par value: 120,000 shares authorized; 32,733 and 32,938 shares  issued and outstanding |       | 327                  |       | 329 |   |
| Additional  paid-in capital                                                                                 |       | 339,995              |       | 340,394 |   |
| Accumulated  deficit                                                                                        |       | (86,921              | )          | (66,483 | ) |
| Accumulated  other comprehensive income                                                                     |       | 12,274               |       | 8,829 |   |
| Total  stockholders’ equity                                                                            |       | 265,675              |       | 283,069 |   |
|                                                                                                        |       |                 |       |   |   |
| Total  liabilities and stockholders’ equity                                                            |       | $                    | 354,577    |   | $ | 346,503 |   |

 

The accompanying notes arean integral part of these consolidated financial statements.

 

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**ADVENTSOFTWARE, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(Inthousands, except per share data)**

 
| ** **                                                                    | ** ** | **Years Ended December 31** | ** ** |
|-------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                    | ** ** | ** **                       | ** ** | **(Restated,** | ** ** | ** ** | ** ** |
| ** **                                                                    | ** ** | ** **                       | ** ** | **See Note 2)** | ** ** | ** ** | ** ** |
| ** **                                                                    | ** ** | **2004**                         | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                                          |       |                             |       |   |   |   |   |
| **Net revenues:**                                                             |       |                             |       |   |   |   |   |
| License and development fees                                                  |       | $                                | 35,665     |   | $ | 29,386 |   | $ | 46,260 |   |
| Maintenance and other recurring                                               |       | 95,098                           |       | 86,483 |   | 83,359 |   |
| Professional services and other                                               |       | 19,227                           |       | 21,290 |   | 29,817 |   |
|                                                                          |       |                             |       |   |   |   |   |
| Total net  revenues                                                           |       | 149,990                          |       | 137,159 |   | 159,436 |   |
|                                                                          |       |                             |       |   |   |   |   |
| **Cost of revenues:**                                                         |       |                             |       |   |   |   |   |
| License and development fees                                                  |       | 2,138                            |       | 2,460 |   | 1,877 |   |
| Maintenance and other recurring                                               |       | 27,820                           |       | 30,396 |   | 25,141 |   |
| Professional services and other                                               |       | 16,526                           |       | 17,601 |   | 17,807 |   |
| Amortization and impairment of developed  technology                          |       | 6,471                            |       | 6,567 |   | 4,847 |   |
|                                                                          |       |                             |       |   |   |   |   |
| Total cost  of revenues                                                       |       | 52,955                           |       | 57,024 |   | 49,672 |   |
|                                                                          |       |                             |       |   |   |   |   |
| Gross margin                                                                  |       | 97,035                           |       | 80,135 |   | 109,764 |   |
|                                                                          |       |                             |       |   |   |   |   |
| **Operating expenses:**                                                       |       |                             |       |   |   |   |   |
| Sales and marketing                                                           |       | 38,893                           |       | 44,754 |   | 56,577 |   |
| Product development                                                           |       | 32,260                           |       | 34,857 |   | 40,352 |   |
| General and administrative                                                    |       | 26,641                           |       | 23,217 |   | 20,903 |   |
| Amortization and impairment of other  intangibles                             |       | 12,237                           |       | 7,854 |   | 6,015 |   |
| Purchased in-process research and  development                                |       | —                           |       | — |   | 1,450 |   |
| Restructuring charges                                                         |       | 5,133                            |       | 9,112 |   | — |   |
|                                                                          |       |                             |       |   |   |   |   |
| Total  operating expenses                                                     |       | 115,164                          |       | 119,794 |   | 125,297 |   |
|                                                                          |       |                             |       |   |   |   |   |
| Loss from operations                                                          |       | (18,129                          | )          | (39,659 | ) | (15,533 | ) |
| Interest income and other expense, net                                        |       | 1,905                            |       | 3,526 |   | 5,854 |   |
| Loss on investments                                                           |       | —                           |       | (1,998 | ) | (13,521 | ) |
|                                                                          |       |                             |       |   |   |   |   |
| Loss before income taxes                                                      |       | (16,224                          | )          | (38,131 | ) | (23,200 | ) |
| Provision for (benefit from) income taxes                                     |       | 20                               |       | 54,802 |   | (3,964 | ) |
|                                                                          |       |                             |       |   |   |   |   |
| **Net loss**                                                                  |       | $                                | (16,244    | ) | $ | (92,933 | ) | $ | (19,236 | ) |
|                                                                          |       |                             |       |   |   |   |   |
| Basic and diluted net loss per share                                          |       | $                                | (0.49      | ) | $ | (2.86 | ) | $ | (0.57 | ) |
|                                                                          |       |                             |       |   |   |   |   |
| Weighted  average shares used to compute basic and diluted net loss per share |       | 32,944                           |       | 32,473 |   | 33,659 |   |

 

The accompanying notes arean integral part of these consolidated financial statements.

 

10

----

 

**ADVENTSOFTWARE, INC.**

**CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ EQUITY**

**(Inthousands)**

 
| ** **                                                  | ** ** | ** **        | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | **Retained**      | ** ** | **Accumulated**        | ** ** | ** ** |   |
|-------------------------------------------------------------|------------|-------------------|------------|------------------|------------|-------------|------------|------------------|------------|-------------------|------------|------------------------|------------|------------|--------|
| ** **                                                  | ** ** | ** **        | ** ** | ** **       | ** ** | ** **  | ** ** | **Additional**   | ** ** | **Earnings**      | ** ** | **Other**              | ** ** | **Total**  |   |
| ** **                                                  | ** ** | **Comprehensive** | ** ** | **Common Stock** | ** ** | **Paid-In** | ** ** | **(Accumulated** | ** ** | **Comprehensive** | ** ** | **Stockholders’** |       |
| ** **                                                  | ** ** | **Loss**          | ** ** | **Shares**       | ** ** | **Amount**  | ** ** | **Capital**      | ** ** | **Deficit)**      | ** ** | **Income (Loss)**      | ** ** | **Equity** |   |
|                                                        |       |              |       |             |       |        |       |             |       |              |       |                   |       |       |   |
| Balances, December 31, 2001                            |       |              |       | 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                        |       | —            |       | (2,355           | )          | (24         | )          | (23,569          | )          | (26,074           | )          | —                 |       | (49,667    | )      |
| Warrant                                                     |       | —            |       | 165              |       | 2           |       | 8,500            |       | —            |       | —                 |       | 8,502      |   |
| Net loss                                                    |       | (19,236           | )          | —           |       | —      |       | —           |       | (19,236           | )          | —                 |       | (19,236    | )      |
| Unrealized loss on marketable securities, net of tax        |       | (17               | )          | —           |       | —      |       | —           |       | —            |       | (17                    | )          | (17        | )      |
| Foreign currency translation adjustments                    |       | 3,131             |       | —           |       | —      |       | —           |       | —            |       | 3,131                  |       | 3,131      |   |
| Comprehensive loss                                          |       | $                 | (16,122    | )                |       |        |       |             |       |              |       |                   |       |       |   |   |
| Balances, December 31, 2002                            |       |              |       | 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                        |       | —            |       | (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** **(**restated**, see Note 2)                |       | (92,933           | )          | —           |       | —      |       | —           |       | (92,933           | )          | —                 |       | (92,933    | )      |
| Unrealized loss on marketable securities, net of tax        |       | (33               | )          | —           |       | —      |       | —           |       | —            |       | (33                    | )          | (33        | )      |
| Foreign currency translation adjustments                    |       | 5,870             |       | —           |       | —      |       | —           |       | —            |       | 5,870                  |       | 5,870      |   |
| Comprehensive loss**(restated**, see Note 2)                |       | $                 | (87,096    | )                |       |        |       |             |       |              |       |                   |       |       |   |   |
| Balances, December 31, 2003 (**restated**, see Note 2) |       |              |       | 32,938           |       | $           | 329        |             | $          | 340,394           |       | $                      | (66,483    | )          | $      | 8,829 |   | $ | 283,069 |   |
|                                                        |       |              |       |             |       |        |       |             |       |              |       |                   |       |       |   |
| Exercise of stock options                                   |       | $                 | —     |             | 377        |        | 4          |             | 4,738      |              | —     |                   | —     |       | 4,742  |   |
| Common stock repurchased and retired                        |       | —            |       | (744             | )          | (8          | )          | (7,705           | )          | (4,186            | )          | —                 |       | (11,899    | )      |
| Common stock issued under employee stock purchase  plan     |       | —            |       | 162              |       | 2           |       | 2,536            |       | —            |       | —                 |       | 2,538      |   |
| Stock-based compensation                                    |       | —            |       | —           |       | —      |       | 21               |       | —            |       | —                 |       | 21         |   |
| Tax benefit from exercise of stock options                  |       | —            |       | —           |       | —      |       | 11               |       | —            |       | —                 |       | 11         |   |
| Other                                                       |       | —            |       | —           |       | —      |       | —           |       | (8                | )          | —                 |       | (8         | )      |
| Net loss                                                    |       | (16,244           | )          | —           |       | —      |       | —           |       | (16,244           | )          | —                 |       | (16,244    | )      |
| Unrealized loss on marketable securities                    |       | (335              | )          | —           |       | —      |       | —           |       | —            |       | (335                   | )          | (335       | )      |
| Foreign currency translation adjustments                    |       | 3,780             |       | —           |       | —      |       | —           |       | —            |       | 3,780                  |       | 3,780      |   |
| Comprehensive loss                                          |       | $                 | (12,799    | )                |       |        |       |             |       |              |       |                   |       |       |   |   |
| Balances, December 31, 2004                            |       |              |       | 32,733           |       | $           | 327        |             | $          | 339,995           |       | $                      | (86,921    | )          | $      | 12,274 |   | $ | 265,675 |   |

 

The accompanying notes arean integral part of these consolidated financial statements.

 

11

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**ADVENTSOFTWARE, INC.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(Inthousands)**

 
| ** **                                                                       | ** ** | **Years Ended December 31** | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                       | ** ** | ** **                       | ** ** | **(Restated** | ** ** | ** ** | ** ** |
| ** **                                                                       | ** ** | ** **                       | ** ** | **See Note 2)** | ** ** | ** ** | ** ** |
| ** **                                                                       | ** ** | **2004**                         | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Cash  flows from operating activities:**                                       |       |                             |       |   |   |   |   |
| Net loss                                                                         |       | $                                | (16,244    | ) | $ | (92,933 | ) | $ | (19,236 | ) |
| Adjustments  to reconcile net loss to net cash provided by operating activities: |       |                             |       |   |   |   |   |
| Tax benefit  from exercise of stock options                                      |       | 11                               |       | 27 |   | 8,948 |   |
| Non-cash  stock based compensation                                               |       | 21                               |       | 411 |   | (2 | ) |
| Depreciation  and amortization                                                   |       | 21,851                           |       | 22,273 |   | 19,142 |   |
| Purchased  in-process research and development                                   |       | —                           |       | — |   | 1,450 |   |
| Provision  for (reduction of) doubtful accounts                                  |       | 36                               |       | (683 | ) | 2,407 |   |
| Other than  temporary loss on investments                                        |       | —                           |       | 1,998 |   | 13,816 |   |
| Non-cash  restructuring charges and impairment loss                              |       | 6,275                            |       | 3,626 |   | — |   |
| (Gain) loss  on investments                                                      |       | 401                              |       | (35 | ) | 368 |   |
| Deferred  income taxes                                                           |       | (900                             | )          | 61,598 |   | (7,713 | ) |
| Other                                                                            |       | (347                             | )          | 66 |   | (191 | ) |
| Changes in  operating assets and liabilities, net of effect of acquisitions:     |       |                             |       |   |   |   |   |
| Accounts  receivable                                                             |       | 1,477                            |       | 4,305 |   | 21,898 |   |
| Prepaid and  other assets                                                        |       | 4,290                            |       | 3,817 |   | 3,257 |   |
| Income taxes  receivable                                                         |       | 1,641                            |       | 4,650 |   | (6,289 | ) |
| Accounts  payable                                                                |       | 396                              |       | (2,325 | ) | (1,150 | ) |
| Accrued  liabilities                                                             |       | 1,531                            |       | (935 | ) | (5,124 | ) |
| Deferred  revenues                                                               |       | 4,108                            |       | 3,427 |   | 254 |   |
| Income taxes  payable                                                            |       | 438                              |       | (2,238 | ) | (1,878 | ) |
| Net cash  provided by operating activities                                       |       | 24,985                           |       | 7,049 |   | 29,957 |   |
| **Cash  flows from investing activities:**                                       |       |                             |       |   |   |   |   |
| Cash used in  acquisitions, net of cash acquired                                 |       | (9,632                           | )          | (9,877 | ) | (89,010 | ) |
| Purchases of  property and equipment                                             |       | (3,667                           | )          | (6,803 | ) | (6,708 | ) |
| Purchases of  other investments                                                  |       | —                           |       | — |   | (10,060 | ) |
| Proceeds  from sales of other investments                                        |       | —                           |       | — |   | 1,967 |   |
| Purchases of  marketable securities                                              |       | (188,319                         | )          | (166,955 | ) | (164,891 | ) |
| Sales and  maturities of marketable securities                                   |       | 167,513                          |       | 184,557 |   | 171,425 |   |
| Deposits and  other                                                              |       | —                           |       | — |   | (6,079 | ) |
| Net cash  provided by (used in) investing activities                             |       | (34,105                          | )          | 922 |   | (103,356 | ) |
| **Cash  flows from financing activities:**                                       |       |                             |       |   |   |   |   |
| Proceeds  from exercises of stock options                                        |       | 4,742                            |       | 7,808 |   | 12,218 |   |
| Proceeds  from issuance and exercise of warrants                                 |       | —                           |       | — |   | 2 |   |
| Common stock  repurchased                                                        |       | (11,899                          | )          | (14,309 | ) | (49,667 | ) |
| Proceeds  from common stock issued under the employee stock purchase plan        |       | 2,538                            |       | 2,783 |   | 3,307 |   |
| Repayment of  capital leases                                                     |       | —                           |       | (141 | ) | (134 | ) |
| Net cash  used in financing activities                                           |       | (4,619                           | )          | (3,859 | ) | (34,274 | ) |
| Effect of  exchange rate changes on cash and cash equivalents                    |       | 155                              |       | 668 |   | 85 |   |
| Net increase  (decrease) in cash and cash equivalents                            |       | (13,584                          | )          | 4,780 |   | (107,588 | ) |
| Cash and  cash equivalents at beginning of period                                |       | 34,761                           |       | 29,981 |   | 137,569 |   |
| Cash and  cash equivalents at end of period                                      |       | $                                | 21,177     |   | $ | 34,761 |   | $ | 29,981 |   |
|                                                                             |       |                             |       |   |   |   |   |
| **Supplemental  disclosure of cash flow information:**                           |       |                             |       |   |   |   |   |
| Cash paid  (received) for income taxes, net of refunds                           |       | $                                | (858       | ) | $ | (9,607 | ) | $ | 5,378 |   |
| Cash paid  for interest                                                          |       | $                                | 87         |   | $ | 70 |   | $ | 12 |   |

 

The accompanying notes arean integral part of these consolidated financial statements.

 

12

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**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

**Note 1—Summary of Significant Accounting Policies**

 

*Business description*: Advent Software, Inc. (“Advent” or “theCompany”) provides stand-alone and client/server software products, data anddata interfaces and related maintenance and services that automate, integrateand support certain mission-critical functions of the front, middle and backoffices of investment management organizations. Advent’s clients varysignificantly in size and assets under management and include investmentadvisors, brokerage firms, banks, hedge funds, corporations, public funds,foundations, universities and non-profit organizations.

 

*Basis of presentation*: The consolidated financial statementsinclude the accounts of Advent and its wholly-owned subsidiaries. Allintercompany transactions and amounts have been eliminated.

 

*Year End*: Advent’s fiscal year ends on December 31.

 

*Foreign currency translation*: The functional currency of the Company’sforeign subsidiaries is their local currencies. All assets and liabilitiesdenominated in foreign currency are translated into U.S. dollars at theexchange rate on the balance sheet date. Revenues, costs and expenses aretranslated at the average rate of exchange during the period.

 

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

 

*Fair value of financialinstruments*: Theamounts reported for cash equivalents, marketable securities, receivables, andaccounts payable are considered to approximate their market values based oncomparable market information available at the respective balance sheet datesand their short-term nature.

 

*Cash and cash equivalents*: Cash equivalents are comprised of highlyliquid investments purchased with an original or remaining maturity of 90 daysor less at the date of purchase. These securities are maintained with majorfinancial institutions.

 

*Marketable securities*: All of Advent’s marketable securities areclassified as available-for-sale and are carried at fair value. The unrealizedgains and losses, net of any related tax effect, are reported in accumulatedcomprehensive income in stockholders’ equity in the accompanying consolidatedfinancial statements, with the exception of Advent’s broker/dealer subsidiary,which reports unrealized gains and losses in interest income and other expense,net. Realized gains and losses and declines in value judged to beother-than-temporary on available-for-sale securities are included in interestincome and other expense, net.

 

*Investments:* Investments are included in other assets andconsist of non-marketable investments in privately held companies, most ofwhich can be considered in the start-up or development stages. The Company’sinvestments in privately held companies are assessed for impairment when areview of the investee’s operations indicates that the decline in value of theinvestment is other than temporary. Such indicators include, but are notlimited to, limited capital resources, limited prospects of receivingadditional financing, and prospects for liquidity of the related securities.Impaired investments in privately held companies are written down to estimatedfair value. The Company estimates fair value using a variety of valuationmethodologies. Such methodologies include comparing the private company withpublicly traded companies in similar lines of business, applying revenuemultiples to estimated future operating results for the private company andestimating discounted cash flows for that company. Realized gains and lossesand declines in value judged to be other-than-temporary on investments areincluded in interest income and other expense, net.

 

*Product development*: Product development expenses consistprimarily of salary and benefits for the Company’s development and technicalsupport staff, contractors’ fees and other costs associated with theenhancements of existing products and services and development of new productsand services. Costs incurred for software development prior to technologicalfeasibility are expensed as product development costs in the period incurred.Once the point of technological feasibility is reached, which is generally thecompletion of a working prototype that has been certified as having no criticalbugs and is a release candidate or has alternative future uses, developmentcosts are capitalized until the product is ready for general release. To date,software development costs incurred between completion of a working prototypeand general availability of the related product have not been significant andhave not been capitalized.

 

13

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

 

*Capitalization of internal usesoftware*: Certaincosts related to computer software developed or obtained for internal use arecapitalized in accordance with American Institute of Certified PublicAccountants Statement of Position No. 98-1, “Accounting for the Costs ofComputer Software Developed or Obtained for Internal Use.” The Companyamortizes internal use software costs over their estimated useful lives, whichrange from two to five years. Costs of $403,000, $734,000 and $414,000 relatedto the development of internal use software were capitalized in 2004, 2003 and2002, respectively and classified as property and equipment on the consolidatedbalance sheets.

 

Additionally, Advent capitalizes certain costsincurred for web site design and development in accordance with Emerging IssueTask Force No. 00-2, “Accounting for Web Site Development costs.” Thesecosts are amortized over their estimated useful lives, which range from two tofive years. Web site design and development costs of $108,000 were capitalizedin 2004. No costs were capitalized in 2003 or 2002.

 

*Property and equipment*: Property and equipment are stated at cost,less accumulated depreciation and amortization. Advent calculates depreciationand amortization using the straight-line method over the assets’ estimateduseful lives. Amortization of leasehold improvements is computed using thestraight-line method over the shorter of the estimated useful life of theassets or the remaining lease term. The cost and related accumulateddepreciation applicable to property and equipment sold or no longer in serviceare eliminated from the accounts and any gains or losses are generally includedin operating expenses. Useful lives by principal classifications are asfollows:

 
| Computer equipment and  software |   | 1 to 6 years  |
|----------------------------------|--------|---------------|
| Leasehold improvements           |   | 2 to 5 years  |
| Furniture and fixtures           |   | 3 to 5 years  |
| Telephone system                 |   | 1 to 10 years |

 

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

 

*Goodwill*: Goodwill represents the excess of thepurchase price of an acquired enterprise or assets over the fair values of theidentifiable assets acquired and liabilities assumed. Goodwill and intangibleassets with indefinite useful lives are tested for impairment at leastannually, or whenever events or changes in circumstances indicate that the carryingamount of goodwill may not be recoverable. Advent completes the annualimpairment test in the fourth quarter (as of November 1) of each year.During 2004, Advent determined that its operations were organized into fivereporting units as of November 1, 2004.

 

These tests are performed at the reporting unitlevel using a two-step, fair-value based approach. The first step compares thefair value of each reporting unit with its respective carrying amount,including goodwill. If the fair value of a reporting unit exceeds its carryingamount, goodwill of the reporting unit is considered not impaired and thesecond step of the impairment test is unnecessary. The second step, used tomeasure the amount of impairment loss, compares the implied fair value of thereporting unit goodwill with the carrying amount of that goodwill. If thecarrying amount of the reporting unit goodwill exceeds the implied fair valueof that goodwill, an impairment loss is recognized in an amount equal to thatexcess. The process of evaluating the potential impairment of goodwill issubjective and requires judgment at many points during the test includingfuture revenue forecasts, discount rates and various reporting unitallocations. During the fourth quarter of 2004, as part of the Company’s annualimpairment test, Advent completed the first step which did not indicateimpairment. Therefore, the second step of the impairment test was notnecessary.

 

*Accounting for long-lived assets:* Advent reviews property and equipment andother intangible assets for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable. Factors the Company considers important which could trigger animpairment review include the following: (1) significant underperformancerelative to expected historical or projected future operating results; (2) significantchanges in the manner of Advent’s use of the acquired assets or the strategyfor Advent’s overall business; (3) significant negative industry oreconomic trends; (4) significant decline in the Company’s stock price fora sustained period; and (5) significant decline in Advent’s marketcapitalization relative to net book value. Recoverability is measured bycomparison of the assets’ carrying amount to their expected future undiscountednet cash flows. If such assets are considered to be impaired, the impairmentloss to be recognized is measured by the amount by which the carrying amount ofthe asset exceeds its fair value which is based on estimated cash flows fromthese assets.

 

Other intangibles assets mainly represent completedtechnology, distributor licenses, customer lists and trade names acquired inbusiness combinations. Identifiable intangibles are amortized on a straightline basis over their estimated useful lives as follows:

 

14

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**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 
| Purchased technology   |   | 3 to 7 years |
|------------------------|--------|--------------|
| Customer relationships |   | 4 to 7 years |
| Other                  |   | 3 years      |

 

*Revenue recognition:* The Company recognizes revenue from softwarelicenses, development fees, maintenance, other recurring revenues, professionalservices and other revenues. In addition, Advent earns commissions fromcustomers who use the Company’s broker/dealer, Second Street Securities, to “softdollar” the purchase of non-Advent product and services. “Soft dollaring”enables the customers to use the commissions earned on trades to pay all orpart of the fees owed to the Company for non-Advent products or services, whichare initially paid for by Second Street Securities. The commission revenuesearned from “soft dollaring” non-Advent products or services are recorded asother revenues in professional services and other revenues.

 

Advent offers a wide variety of products andservices to a large number of financially sophisticated customers. While manyof the Company’s lower-priced license transactions, maintenance contracts,subscription-based transactions and professional services projects conform to astandard structure, many of the Company’s larger transactions are complex andmay require significant review and judgment in the application of generallyaccepted accounting principles.

 

*Software license and developmentfees:* Adventrecognizes revenue from the licensing of software when persuasive evidence ofan arrangement exists, the product has been delivered, the fee is fixed ordeterminable and collection of the resulting receivable is reasonably assured.Advent generally uses a signed license agreement as evidence of an arrangement.Sales through its distributors are evidenced by a master agreement governingthe relationship together with binding order forms and signed contracts fromthe distributor’s customers. Revenue is recognized upon shipment to the distributor’scustomer and when all other revenue recognition criteria have been met.Delivery occurs when product is delivered to a common carrier F.O.B shippingpoint. While many of the Company’s arrangements generally do not includeacceptance provisions, certain complex deals may involve acceptance criteria.If acceptance provisions are provided, delivery is deemed to occur uponacceptance. The Company assesses whether the fee is fixed or determinable basedon the payment terms associated with the transaction. The Company assesseswhether the collectibility of the resulting receivable is reasonably assuredbased on a number of factors, including the credit worthiness of the customerdetermined through review of credit reports, Advent’s transaction history withthe customer, and other available information and pertinent country risk if thecustomer is located outside the United States. Advent’s standard payment termsare “due on receipt”; however, terms may vary based on the country in which theagreement is executed. Software licenses are sold with maintenance and,frequently, professional services. Advent allocates revenue to deliveredcomponents, normally the license component of the arrangement, using theresidual method, based on vendor specific objective evidence, or VSOE, of fairvalue of the undelivered elements (generally the maintenance and professionalservices components), which is specific to Advent. Advent determines fair valueof the undelivered elements based on the historical evidence of the Company’sstand-alone sales of these elements to third parties. When VSOE does not existfor undelivered elements, then the entire arrangement fee is deferred untildelivery has occurred. Advent offers term licenses as an alternative toperpetual licenses and recognizes revenue for term licenses ratably over theperiod of the contract term. Advent has begun a transition from selling mostlyperpetual licenses to selling a mix of term and perpetual contracts. Includingour entry level product, Advent Office Essentials, we recognized approximately10%, 4% and 1% of license revenue from term licenses in fiscal 2004, 2003 and2002, respectively.

 

Development fees are derived from contracts that theCompany has entered into with other companies, including customers anddevelopment partners. Agreements for which Advent receives development feesgenerally provide for the development of technologies and products that areexpected to become part of the Company’s product offerings in the future.Revenues for license development projects are recognized primarily using thepercentage-of-completion method of accounting, based on costs incurred to datecompared with the estimated cost of completion, or using the completed contractmethod, when the development project is finished.

 

If a customer buys Advent software and chooses toenter into a “soft dollar” arrangement through the Company’s in-housebroker/dealer subsidiary, Second Street Securities, the “soft dollar”arrangement does not change or modify the original fixed or determinable fee inthe written contract. The customer is required to pay the original fee forAdvent software within one year. If insufficient trading volume is generated topay the entire original fee within one year, the customer is still required torender payment within one year. If the customer chooses to use a third-partybroker/dealer, the original payment terms apply, regardless of the arrangementwith the third-party broker/dealer. The option to “soft dollar” a transactiondoes not alter the underlying revenue recognition for the transaction; all therevenue recognition criteria listed in the “Software license and developmentfees” section above must be assessed in determining how the revenue willbe recognized.

 

15

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**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

Advent’s standard practice is to enforce contractterms and not allow customers to return software. Advent has, however, onlimited occasions allowed customers to return software and have recorded salesreturns reserves as offsets to revenue in the period the sales return becomesprobable, in accordance with FASB Statement No. 48, “Revenue Recognitionwhen Right of Return Exists.” The estimates for returns are adjusted periodicallybased upon historical rates of returns and other related factors.

 

Advent does have three situations where it providesa contractual limited right of return to end-user customers only: inshrink-wrap license agreements for Advent, and its MicroEdge and NPO products.The shrink-wrap license agreement for Advent product provides for a right ofreturn within seven days of delivery of the software. The MicroEdge softwarelicense agreement allows for a thirty-day money back guarantee. The NPO licenseagreement allows for a seven-day right of return. The Company recognizes revenueon delivery since the fee is fixed or determinable, the buyer is obligated topay, the risk of loss passes to the customer, and the Company has the abilityto estimate returns. The Company’s ability to estimate returns is based on along history of experience with relatively homogenous transactions and the factthat the return period is short. The Company has recorded a sales returnsreserve (contra revenue account) to account for these situations based onAdvent’s historical experience of $0.3 million, $1.3 million and $3.5 millionin fiscal 2004, 2003 and 2002, respectively.

 

*Maintenance and other recurringrevenues:* Adventoffers annual maintenance programs that provide for technical support andupdates to its software products. Maintenance fees are charged in the initiallicensing year and for renewals of annual maintenance in subsequent years.Advent offers other recurring revenue services that are eithersubscription-based or transaction-based, and primarily include the provision ofsoftware interfaces with, and the capability to download securities informationfrom, third party data providers. Fair value for maintenance is based uponrenewal rates stated in the contracts or, in limited cases, separate sales ofrenewals to other customers. Advent recognizes revenue for maintenance ratablyover the contract term. Advent recognizes revenue from recurring revenuetransactions either ratably over the subscription period or as the transactionsoccur.

 

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

 

*Professional services and otherrevenues:* The Companyoffers a variety of professional services that include project management, implementation,data conversion, integration, custom report writing and training. Fair valuefor professional services is based upon separate sales of these services byAdvent to other customers. The Company’s professional services are generallybilled based on hourly rates together with reimbursement for travel andaccommodation expenses. Advent’s professional services and other revenues alsoinclude revenue from its annual user conferences. The Company generallyrecognizes revenues as these professional services are performed. Certainprofessional services arrangements involve acceptance criteria. In these cases,revenue and related expenses are recognized upon acceptance.

 

Effective January 1, 2004, commission revenuesreceived from “soft dollar” transactions for products and services not relatedto Advent products and services, are recorded as other revenues on a net basisas Advent is not the primary obligor in these transactions. Revenues from these“soft dollar” transactions are recognized on a trade-date basis as securitiestransactions occur.

 

*Allowance for doubtful accountsand sales returns:*Advent analyzes specific accounts receivable, historical bad debts, customerconcentrations, customer credit-worthiness, current economic trends and changesin its customer payment terms when evaluating the adequacy of the allowance fordoubtful accounts. Advent also analyzes customer demand and acceptance ofproduct and historical returns when evaluating the adequacy of the allowancefor sales returns, which are not generally provided to customers. Allowancesfor sales returns are accounted for as deductions to net revenues and increasesto reserves within deferred revenues.

 

*Advertising costs:*The Company expenses advertising costs asincurred and classify these costs under sales and marketing expense. Totaladvertising expenses were $215,000, $78,000 and $85,000 for fiscal 2004, 2003and 2002, respectively.

 

*Stock-based compensation:*Advent uses the intrinsic value method toaccount for all stock-based employee compensation plans and has adopted thedisclosure-only alternative of Statement of Financial Accounting Standard (“SFAS”)No. 123 “Accounting for Stock-Based Compensation”, as amended by SFAS No. 148,*“Accounting for Stock-Based Compensation.”*Advent is required to disclose the pro forma effects on operating results as ifit had elected to use the fair value approach to account for all itsstock-based employee compensation plans. Stock-based compensation fornon-employees is based on the fair value of the related stock or options.

 

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

 

16

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

If compensation had been determined based on thefair value at the grant date for awards in 2004, 2003 and 2002, consistent withthe provisions of SFAS No. 123, Advent’s net loss and net loss per sharefor fiscal 2004, 2003 and 2002, respectively, would have been as follows (inthousands, except per share data):

 
| ** **                                                                                                                 | ** ** | **Fiscal Years** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|------------------|------------|
| ** **                                                                                                                 | ** ** | **(Restated,**   | ** ** | **(Restated, See** | ** ** | **(Restated,** | ** ** |
| ** **                                                                                                                 | ** ** | **See Note 16)** | ** ** | **Notes 2 and 16)** | ** ** | **See Note 16)** | ** ** |
| ** **                                                                                                                 | ** ** | **2004**         | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                                                                                       |       |             |       |   |   |   |   |
| Net loss -  as reported                                                                                                    |       | $                | (16,244    | ) | $ | (92,933 | ) | $ | (19,236 | ) |
| Stock-based  employee compensation expense included in reported net loss, net of tax                                       |       | 21               |       | 501 |   | (2 | ) |
| Total stock  based employee compensation expense determined under fair value based method  for all options, net of tax (1) |       | (16,626          | )          | (31,112 | ) | (19,414 | ) |
|                                                                                                                       |       |             |       |   |   |   |   |
| Net loss -  pro forma                                                                                                      |       | $                | (32,849    | ) | $ | (123,544 | ) | $ | (38,652 | ) |
|                                                                                                                       |       |             |       |   |   |   |   |
| Net loss per  share:                                                                                                       |       |             |       |   |   |   |   |
| Basic and  diluted - as reported                                                                                           |       | $                | (0.49      | ) | $ | (2.86 | ) | $ | (0.57 | ) |
| Basic and  diluted - pro forma                                                                                             |       | $                | (1.00      | ) | $ | (3.80 | ) | $ | (1.15 | ) |

 

----

(1)          Amounts are shown net of tax benefit (expense) of $0, $(8.0) millionand $5.8 million for fiscal 2004, 2003 and 2002, respectively. During thefourth quarter of 2003, the Company established a full valuation allowanceagainst the Company’s deferred tax assets. 

 

Such pro forma disclosures may not be representativeof future compensation costs because options vest over several years andadditional grants are made each year.

 

The weighted-average grant-date fair value ofoptions granted were $11.15, $9.78 and $23.80 per option for fiscal 2004, 2003and 2002, respectively. The weighted-average grant-date fair value of theEmployee Stock Purchase Plan rights was $4.77, $5.01 and $6.72 per option forfiscal 2004, 2003 and 2002, respectively.

 

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

 
| ** **                          | ** ** | **Fiscal Years** | ** ** |
|-------------------------------------|------------|------------------|------------|
| ** **                          | ** ** | **2004**         | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Stock  Options**                  | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Risk-free interest rate             |       | 3.1%             |       | 2.92% |   | 4.06% |   |
| Volatility                          |       | 66.6%            |       | 70.3% |   | 68.8% |   |
| Expected life                       |       | 5 years          |       | 5 years |   | 5 years |   |
| Expected dividends                  |       | None             |       | None |   | None |   |
|                                |       |             |       |   |   |   |   |
| **Employee  Stock Purchase Plan *** |       |             |       |   |   |   |   |
| Risk-free interest rate             |       | 1.82%            |       | 1.19% |   | 1.15% |   |
| Volatility                          |       | 32.3%            |       | 52.2% |   | 73.8% |   |
| Expected life                       |       | 6 months         |       | 6 months |   | 6 months |   |
| Expected dividends                  |       | None             |       | None |   | None |   |

 

----

*                 TheESPP periods begin every six months in the second and fourth quarter of eachyear. 

 

17

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

*Income taxes:*The Company accounts for income taxes underan asset and liability approach that requires the expected future taxconsequences of temporary differences between book and tax bases of assets andliabilities be recognized as deferred tax assets and liabilities. Generallyaccepted accounting principles require the Company to evaluate therealizability of net deferred tax assets on an ongoing basis. A valuationallowance is recorded to reduce the net deferred tax assets to an amount thatwill more likely than not be realized. Significant factors considered bymanagement in assessing the need for a valuation allowance include the Company’shistorical operating results, the length of time over which the differenceswill be realized, tax planning opportunities and expectations for futureearnings. In considering whether or not the Company will realize a future benefitfrom net deferred tax assets, recent losses must be given substantially moreweight than any projections of future profitability.

 

*Net income (loss) per share:* Basic net income (loss) per share iscomputed by dividing net income (loss) by the weighted average number of commonshares outstanding for that period. Diluted net income per share is computedgiving effect to all dilutive potential common shares that were outstandingduring the period. Dilutive potential shares consist of incremental common sharesissuable upon exercise of stock options and warrants and conversion ofpreferred stock (none outstanding) for all periods.

 

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

 

*Segment information:*The Company has determined that it has thefollowing two reportable segments: 1) Advent Investment Management, and 2)MicroEdge. Advent Investment Management derives revenues from the development,marketing and sale of stand-alone and client/server software products, datainterfaces and related maintenance and services that automate, integrate andsupport certain mission critical functions of investment managementorganizations. MicroEdge derives revenues from the sale of software andservices for grant management, matching gifts and volunteer tracking for thegrantmaking community worldwide.

 

International sales, which are based on the locationto which the product is shipped or services are delivered, represented 9%, 7%and 5% of the Company’s net revenues for fiscal 2004, 2003 and 2002,respectively. No single customer accounted for more than 10% of net revenuesfor fiscal 2004, 2003 or 2002.

 

*Certain risks and concentrations:*Product revenues are concentrated in thecomputer software industry, which is highly competitive and rapidly changing.Significant technological changes in the industry or customer requirements, orthe emergence of competitive products with new capabilities or technologiescould adversely affect operating results. Additionally, Advent derives asignificant portion of its revenues from licensing its Axys application and itsancillary products and services, and therefore its market acceptance isessential to the Company’s success.

 

Financial instruments that potentially subject theCompany to concentrations of credit risks comprise, principally, cash,short-term marketable securities, and trade accounts receivable. Advent investsexcess cash through banks, mutual funds, and brokerage houses primarily inhighly liquid securities and has investment policies and procedures that arereviewed periodically to minimize credit risk. Advent’s marketable securitiesconsist of diversified investment grade securities traded in the United Statesof America. The Company believes no significant concentration of credit riskexists with respect to these securities.

 

With respect to accounts receivable, Advent performsongoing credit evaluations of its customers and generally does not requirecollateral. The Company maintains reserves for potential credit losses oncustomer accounts when deemed necessary. At December 31, 2004, 2003 and2002, no single customer accounted for more than 10% of accounts receivable.

 

*Reclassifications:*Certain prior year amounts have beenreclassified to conform to the current year presentation. Suchreclassifications had no effect on results of operations or stockholders’equity.

 

*Common Stock Repurchases:*The number of shares repurchased by Adventand the timing of repurchases are based on several factors, including the priceof Advent’s stock, general market conditions, and alternative investmentopportunities. The purchases are funded from available working capital.

 

*Recent Accounting Pronouncements:* In December 2004, the FinancialAccounting Standards Board (“FASB”) issued SFAS 123R which requires themeasurement of all employee share-based payments to employees, including grantsof employee stock options, using a fair-value-based method and the recording ofsuch expense in Advent’s consolidated statements of operations. The 

 

18

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

accountingprovisions of SFAS 123R are effective for reporting periods beginning after June 15,2005. Advent is required to adopt SFAS 123R in the third quarter of fiscal2005. The pro forma disclosures previously permitted under SFAS 123 no longerwill be an alternative to financial statement recognition. See “Stock-BasedCompensation” above for the pro forma net loss and net loss per share amounts,for fiscal 2002 through fiscal 2004, as if Advent had used a fair-value-basedmethod similar to the methods required under SFAS 123R to measure compensationexpense for employee stock incentive awards. Although the Company has not yetdetermined whether the adoption of SFAS 123R will result in amounts that aresimilar to the current pro forma disclosures under SFAS 123, Advent isevaluating the requirements under SFAS 123R and expects the adoption to have asignificant adverse impact on Advent’s consolidated results of operations andnet income (loss) per share.

 

In December 2004, the FASB issued FASB StaffPosition No. FAS 109-1 (“FAS 109-1”), “Application of FASB Statement No. 109,“Accounting for Income Taxes,” to the Tax Deduction on Qualified ProductionActivities Provided by the American Jobs Creation Act of 2004 (“AJCA”).” TheAJCA introduces a special 9% tax deduction on qualified production activities.FAS 109-1 clarifies that this tax deduction should be accounted for as aspecial tax deduction in accordance with Statement 109. Advent does not expectthe adoption of these new tax provisions to have a material impact on itsconsolidated financial position, results of operations or cash flows.

 

In December 2004, the FASB issued FASB StaffPosition No. FAS 109-2 (“FAS 109-2”), “Accounting and Disclosure Guidancefor the Foreign Earnings Repatriation Provision within the American JobsCreations Act of 2004.” The AJCA introduces a limited time 85% dividendsreceived deduction on the repatriation of certain foreign earnings to a U.S.taxpayer (repatriation provision), provided certain criteria are met. FAS 109-2provides accounting and disclosure guidance for the repatriation provision.Because Advent has a policy of permanent reinvestment of foreign earnings,there is no tax benefit included in the current year’s provision for incometax. Advent does not expect the adoption of FAS 109-2 will have a materialimpact on its consolidated financial position, results of operations or cashflows.

 

In December 2004, the FASB issued SFAS No. 153,“Exchanges of Nonmonetary Assets, an amendment to APB Opinion No. 29” (APBNo. 29). SFAS No. 153 addresses the measurement of exchanges ofnonmonetary assets and redefines the scope of transaction that should bemeasured based on the fair value of the assets exchanged. SFAS No. 153 iseffective for nonmonetary asset exchanges entered into in fiscal periodsbeginning after June 15, 2005 and is required to be adopted by the Companyin third quarter of 2005. Advent does not expect the adoption of SFAS No. 153will have a material impact on its consolidated financial position, results ofoperations or cash flows.

 

In November 2004, the FASB issued EmergingIssues Task Force Issue No. 03-13 (“EITF 03-13”), “Applying the Conditionsin Paragraph 42 of FASB Statement No. 144 (“SFAS No. 144”), “Accountingfor the Impairment or Disposal of Long-Lived Assets,” in Determining Whether toReport Discontinued Operations”. EITF 03-13 clarifies the approach forassessing whether the conditions in paragraph 42 of SFAS No. 144 forreporting results of a disposed component as discontinued operations have beenmet. EITF 03-13 should be applied to a component of an enterprise that iseither disposed of or classified as held for sale in fiscal periods beginningafter December 15, 2004. Previously reported operating results related totransactions initiated within an enterprise’s fiscal year that includes thedate that this consensus is ratified may be reclassified to reflect theconsensus. EITF 03-13 did not, and is not expected to, have a material impact onthe Company’s consolidated financial position, results of operations or cashflows.

 

In June 2004, the FASB issued EITF 02-14, “Whetheran Investor Should Apply the Equity Method of Accounting to Investments OtherThan Common Stock.” EITF 02-14 addresses whether the equity method ofaccounting applies when an investor does not have an investment in votingcommon stock of an investee but exercises significant influence through othermeans. EITF 02-14 states that an investor should only apply the equity methodof accounting when it has investments in either common stock or in-substancecommon stock of a corporation, provided that the investor has the ability toexercise significant influence over the operating and financial policies of theinvestee. The accounting provisions of EITF 02-14 are effective for reportingperiods beginning after September 15, 2004. The adoption of EITF 02-14 didnot have a material impact on Advent’s consolidated financial position, resultsof operations or cash flows.

 

In March 2004, the FASB issued EITF issue No. 03-1(“EITF 03-1”), “The Meaning of Other-Than-Temporary Impairment and ItsApplication to Certain Investments”, as amended, which provides new guidanceassessing impairment losses on investments. Additionally, EITF 03-1 includesnew disclosure requirements for investments that are deemed to be temporarilyimpaired. In September 2004, the FASB delayed the accounting provisions ofEITF 03-1; however the disclosure requirements are effective for this annualreport for fiscal 2004. Advent will evaluate the impact of the accountingprovisions of EITF 03-1 once final guidance is issued.

 

19

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

In December 2003, the SEC issued StaffAccounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition”, whichrevises or rescinds portions of Staff Accounting Bulletin No. 101 (“SAB101”)*,* “Revenue Recognition inFinancial Statements.” The primary purpose of SAB 104 is to rescind accountingguidance contained in SAB 101 related to multiple element revenue arrangements,which was superceded as a result of the issuance of Emerging Issues Task Force00-21 (“EITF 00-21”), “Accounting for Revenue Arrangements with MultipleDeliverables.” SAB 104 also incorporated certain sections of the SEC’s “RevenueRecognition in Financial Statements—Frequently Asked Questions and Answers”document. While the wording of SAB 104 has changed to reflect the issuance ofEITF 00-21, the revenue recognition principles of SAB 101 remain largelyunchanged by the issuance of SAB 104. The adoption of SAB 104 did not have amaterial impact on Advent’s consolidated financial position, results ofoperations or cash flows.

 

**Note 2—Restatement of Financial Statements**

 

In connection with its preparation of theconsolidated financial statements for the fiscal year ended December 31,2004, management of the Company determined that the previously issued financialstatements contained in the Company’s Annual Report on Form 10-K/A for theyear ended December 31, 2003 and the Quarterly Reports on Form 10-Qfor the quarters ended March 31, 2004, June 30, 2004 and September 30,2004 should be restated to correct errors in those financial statements. Thedecision to restate these financial statements was made after management’sdiscovery of the following errors:

 
|         | • |   | Included in the Company’s balance for income taxes payable at December 31,  2003 was a tax contingency reserve of $5.8 million. This reserve had been  specifically established for certain tax deductions that were included in the  deferred tax asset balance at that date. In the fourth quarter of 2003, the  Company recorded a full valuation allowance against its deferred tax assets.  The establishment of this full valuation allowance against the Company’s  deferred tax assets is described in Note 8, “Income Taxes”, to these  consolidated financial statements. Advent believes that the tax contingency  reserve, which was established for the probable disallowance of certain tax deductions,  should have been classified as a reduction of the related deferred tax assets  and not as a separate liability at December 31, 2003. As a result, the  valuation allowance that was recorded in that year should be reduced by  $5.8 million; |
|--------------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|    | • |   | Estimated state income tax liabilities of $1.2 million had not been  accrued in the year ended December 31, 2003. This error was not detected  in the review process for the Company’s tax provision;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|         |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|         | • |   | During the quarter ended June 30, 2004, the Company vacated a  facility in San Francisco, California and should have recognized additional  non-cash restructuring charges related to abandoned property and equipment.  As a result, the Company has recognized additional non-cash impairment  charges of $0.9 million for the quarter ended June 30, 2004 to  reduce impaired property and equipment assets, and reduced depreciation  expense by $36,000 and $35,000 for the quarters ended September 30, 2004  and December 31, 2004, respectively; and                                                                                                                                                                                                                                                                                                                                                                                                                        |
|         |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|         | • |   | Effective January 1, 2004, Advent corrected the classification  of revenue from its subsidiary, Second Street Securities, when it engages in  soft dollaring of third party products or services. Under such arrangements,  Second Street Securities returns a portion of its commission revenues  received from its customers in the form of third party products or services.  As a result, revenues and cost of revenues for the three quarterly periods  ending March 31, June 30 and September 30, 2004 have been  restated to reflect revenue recognition on a net basis from these  transactions as Second Street Securities is not the primary obligor. This  change does not affect gross margin, operating loss, or net loss for any  periods presented. Advent has not changed revenues and cost of revenues in  periods prior to fiscal 2004 as the amounts were not material.                                                                                               |

 

These corrections had no significant impact on theCompany’s financial statements in periods prior to the quarter ended December 31,2003.

 

20

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

The following is a summary of the effect of thesechanges on the Company’s consolidated balance sheet as of December 31,2003 and the consolidated statement of operations, consolidated statement ofstockholders’ equity and consolidated statement of cash flows for the yearended December 31, 2003 (in thousands):

 
| ** **                 | ** ** | **Consolidated Balance Sheet** | ** ** |
|----------------------------|------------|--------------------------------|------------|
| ** **                 | ** ** | **As Previously**              | ** ** | ** ** | ** ** | **As** | ** ** |
| **December 31, 2003** | ** ** | **Reported**                   | ** ** | **Adjustments** | ** ** | **Restated** | ** ** |
| Income taxes payable       |       | $                              | 8,206      |   | $ | (4,610 | ) | $ | 3,596 |   |
| Total current liabilities  |       | $                              | 61,750     |   | $ | (4,610 | ) | $ | 57,140 |   |
| Total liabilities          |       | $                              | 68,044     |   | $ | (4,610 | ) | $ | 63,434 |   |
| Accumulated deficit        |       | $                              | (71,093    | ) | $ | 4,610 |   | $ | (66,483 | ) |
| Total stockholders equity  |       | $                              | 278,459    |   | $ | 4,610 |   | $ | 283,069 |   |

 
| ** **                                   | ** ** | **Consolidated Statement of  Operations** | ** ** |
|----------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                   | ** ** | **As Previously**                         | ** ** | ** ** | ** ** | **As** | ** ** |
| **Fiscal year ended December 31, 2003** | ** ** | **Reported**                              | ** ** | **Adjustments** | ** ** | **Restated** | ** ** |
| Provision for (benefit from) income taxes    |       | $                                         | 59,412     |   | $ | (4,610 | ) | $ | 54,802 |   |
| Net loss                                     |       | $                                         | (97,543    | ) | $ | 4,610 |   | $ | (92,933 | ) |
| Basic and diluted net loss per share         |       | $                                         | (3.00      | ) | $ | 0.14 |   | $ | (2.86 | ) |

 
| ** **                                   | ** ** | **Consolidated Statement of** | ** ** |
|----------------------------------------------|------------|-------------------------------|------------|
| ** **                                   | ** ** | **Stockholders’ Equity** | ** ** |
| ** **                                   | ** ** | **As Previously**             | ** ** | ** ** | ** ** | **As** | ** ** |
| **Fiscal year ended December 31, 2003** | ** ** | **Reported**                  | ** ** | **Adjustments** | ** ** | **Restated** | ** ** |
| Net loss                                     |       | $                             | (97,543    | ) | $ | 4,610 |   | $ | (92,933 | ) |
| Retained earnings (accumulated deficit)      |       | $                             | (71,093    | ) | $ | 4,610 |   | $ | (66,483 | ) |
| Total stockholders’ equity              |       | $                             | 278,459    |   | $ | 4,610 |   | $ | 283,069 |   |
| Comprehensive loss                           |       | $                             | (91,706    | ) | $ | 4,610 |   | $ | (87,096 | ) |

 
| ** **                                   | ** ** | **Consolidated Statement of Cash  Flows** | ** ** |
|----------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                   | ** ** | **As Previously**                         | ** ** | ** ** | ** ** | **As** | ** ** |
| **Fiscal year ended December 31, 2003** | ** ** | **Reported**                              | ** ** | **Adjustments** | ** ** | **Restated** | ** ** |
| Net loss                                     |       | $                                         | (97,543    | ) | $ | 4,610 |   | $ | (92,933 | ) |
| Income taxes payable                         |       | $                                         | 2,372      |   | $ | (4,610 | ) | $ | (2,238 | ) |

 

See Note 16, “Restatement of Disclosure for Stock-BasedEmployee Compensation Expense,” to these consolidated financial statements foradditional information regarding the restatement of the Company’s disclosurefor stock-based employee compensation expense for fiscal 2002, 2003 and 2004.

 

**Note 3—Marketable Securities**

 

Based upon the Company’s re-evaluation of thematurity dates associated with auction rate securities, these instruments havebeen reclassified from cash and cash equivalents to short-term marketablesecurities in the accompanying consolidated balance sheet as of December 31,2003. Auction rate securities are variable rate bonds tied to short terminterest rates with maturities on the face of the securities in excess of 90days. Although these securities are issued and rated as long term bonds, theyare priced and traded as short term instruments because of the liquidityprovided through interest rate resets which occur every 7, 28 or 35 days. Inaddition, “Purchases of marketable securities” and “Sales and maturities ofmarketable securities”, included on the accompanying consolidated statements ofcash flows, have been revised to reflect the purchase and sale of auction ratesecurities during the periods presented. These reclassifications had no impacton Advent’s results of operations or operating cash flows for the periodspresented.

 

21

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

The following table summarizes the balancespreviously reported and as reclassified as of December 31, 2003 (inthousands):

 
| ** **                | ** ** | ** **       | ** ** | **Previously** | ** ** |
|---------------------------|------------|------------------|------------|----------------|------------|
| ** **                | ** ** | **Reclassified** | ** ** | **Reported**   | ** ** |
| Cash and cash equivalents |       | $                | 34,761     |           | $          | 83,334 |   |
| Marketable securities     |       | 125,311          |       | 76,738         |       |
| Total                     |       | $                | 160,072    |           | $          | 160,072 |   |

 

At December 31, 2004, marketable securitieswere summarized as follows (in thousands):

 
| ** **                                      | ** ** | ** **    | ** ** | **Gross**      | ** ** | **Gross**      | ** ** | ** **     | ** ** |
|-------------------------------------------------|------------|---------------|------------|----------------|------------|----------------|------------|----------------|------------|
| ** **                                      | ** ** | **Amortized** | ** ** | **Unrealized** | ** ** | **Unrealized** | ** ** | **Aggregate**  | ** ** |
| ** **                                      | ** ** | **Cost**      | ** ** | **Gains**      | ** ** | **Losses**     | ** ** | **Fair Value** | ** ** |
|                                            |       |          |       |           |       |           |       |           |       |
| Corporate debt securities and commercial  paper |       | $             | 96,592     |           | $          | 40             |       | $              | (212       | ) | $ | 96,420 |   |
| U.S. government debt securities                 |       | 66,274        |       | 23             |       | (253           | )          | 66,044         |       |
| Total                                           |       | $             | 162,866    |           | $          | 63             |       | $              | (465       | ) | $ | 162,464 |   |
|                                            |       |          |       |           |       |           |       |           |       |
| Reported as:                                    |       |          |       |           |       |           |       |           |       |
| Cash and cash equivalents                       |       |          |       |           |       |           |       | $              | 18,112     |   |
| Short-term marketable securities                |       |          |       |           |       |           |       | 144,352        |       |
| Total                                           |       |          |       |           |       |           |       | $              | 162,464    |   |

 

The following table provides the breakdown ofmarketable securities with unrealized losses at December 31, 2004 (inthousands):

 
| ** **                                       | ** ** | **Less than 12 months** | ** ** | **Greater than 12 months** | ** ** | **Total**  | ** ** |
|--------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|------------|------------|
| ** **                                       | ** ** | ** **              | ** ** | **Gross**                  | ** ** | ** ** | ** ** | **Gross** | ** ** | ** ** | ** ** | **Gross** | ** ** |
| ** **                                       | ** ** | **Fair**                | ** ** | **Unrealized**             | ** ** | **Fair**   | ** ** | **Unrealized** | ** ** | **Fair** | ** ** | **Unrealized** | ** ** |
| ** **                                       | ** ** | **Value**               | ** ** | **Losses**                 | ** ** | **Value**  | ** ** | **Losses** | ** ** | **Value** | ** ** | **Losses** | ** ** |
|                                             |       |                    |       |                       |       |       |       |   |   |   |   |   |   |
| Commercial  debt securities and commercial paper |       | $                       | 40,308     |                       | $          | (196       | )          | $ | 2,676 |   | $ | (16 | ) | $ | 42,984 |   | $ | (212 | ) |
| U.S.  government debt securities                 |       | 49,720                  |       | (253                       | )          | —     |       | — |   | 49,720 |   | (253 | ) |
| Total                                            |       | $                       | 90,028     |                       | $          | (449       | )          | $ | 2,676 |   | $ | (16 | ) | $ | 92,704 |   | $ | (465 | ) |

 

The gross unrealized losses related to investmentsare primarily due to a decrease in the fair value of debt securities as aresult of an increase in interest rates during fiscal 2004. Advent hasdetermined that the gross unrealized losses on its investments at December 31,2004 are temporary in nature. Advent regularly reviews its investment portfolioto identify and evaluate investments that have indications of possibleimpairment. Factors considered in determining whether a loss is temporaryinclude the length of time and extent to which fair value has been less thanthe cost basis, the financial condition, credit quality and near-term prospectsof the investee, and Advent’s ability to hold the investment for a period oftime sufficient to allow for any anticipated recovery in market value.

 

The following table summarizes the maturities ofmarketable securities at December 31, 2004 (in thousands):

 
| ** **                | ** ** | **Amortized** | ** ** | **Aggregate**  |   |
|---------------------------|------------|---------------|------------|----------------|--------|
| ** **                | ** ** | **Cost**      | ** ** | **Fair Value** |   |
| ** **                | ** ** | ** **    | ** ** | ** **     |   |
| Due less than one year    |       | $             | 120,659    |           | $      | 120,476 |   |
| Due greater than one year |       | 42,207        |       | 41,988         |   |
| Total                     |       | $             | 162,866    |           | $      | 162,464 |   |

 

22

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

Advent’s marketable securities are classified asavailable-for-sale. Management has the ability and intent, if necessary, toliquidate any of these investments in order to meet the Company’s liquidityneeds within the normal operating cycle. Accordingly, all marketable securitiesare classified as current assets. Marketable debt securities totaling $18.1million have maturities less than three months and are classified as cash andcash equivalents at December 31, 2004. The remaining is included inshort-term marketable securities.

 

The following table provides gross realized gainsand losses related to the Company’s investments (in thousands):

 
| ** **                | ** ** | **Fiscal Years** | ** ** |
|---------------------------|------------|------------------|------------|
| ** **                | ** ** | **2004**         | ** ** | **2003** | ** ** | **2002** | ** ** |
|                      |       |             |       |   |   |   |   |
| Gross realized gains      |       | $                | 173        |   | $ | 235 |   | $ | 566 |   |
| Gross realized losses     |       | (232             | )          | (96 | ) | (6 | ) |
| Net realized  gain (loss) |       | $                | (59        | ) | $ | 139 |   | $ | 560 |   |

 

At December 31, 2003, marketable securitieswere summarized as follows (in thousands): 

 
| ** **                                      | ** ** | ** **    | ** ** | **Gross**      | ** ** | **Gross**      | ** ** | ** **     | ** ** |
|-------------------------------------------------|------------|---------------|------------|----------------|------------|----------------|------------|----------------|------------|
| ** **                                      | ** ** | **Amortized** | ** ** | **Unrealized** | ** ** | **Unrealized** | ** ** | **Aggregate**  | ** ** |
| ** **                                      | ** ** | **Cost**      | ** ** | **Gains**      | ** ** | **Losses**     | ** ** | **Fair Value** | ** ** |
|                                            |       |          |       |           |       |           |       |           |       |
| 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                       |       |          |       |           |       |           |       | $              | 22,955     |   |
| Short-term marketable securities                |       |          |       |           |       |           |       | 125,311        |       |
| Total                                           |       |          |       |           |       |           |       | $              | 148,266    |   |

 

**Note 4—Acquisitions**

 

*Advent United Kingdom and Switzerland*

 

On May 3, 2004, Advent acquired the remainingindependent distributor businesses from its independent European distributor,Advent Europe Holding BV (“Advent Europe”), in the United Kingdom and Switzerland,as well as certain assets of Advent Europe. Advent made these acquisitions inorder to gain direct control over all of its European operations, which itviews as an increasingly important market. The consideration of $6.0 millionconsisted of $5.7 million in cash, $242,000 of assumed liabilities and $83,000of closing costs. A total of $5.5 million of the cash consideration was paid atclosing and the remaining $0.2 million was retained by the Company for possiblebreach of general representations and warranties. The Company will pay thisamount to Advent Europe approximately one year after the closing date in theevent no such breach of general representations or warranties exists. Inaddition, the Company paid an earn-out distribution of approximately $1.8million under a formula based on revenue bookings, which was recorded asadditional goodwill in the second quarter of 2004. No further earn-outdistributions were earned or paid.

 

The acquisition has been accounted for using thepurchase method of accounting and accordingly, the purchase price has beenallocated to the tangible and identifiable intangible assets and liabilitiesacquired on the basis of their respective fair values on the acquisition date.The amounts allocated to identifiable intangibles were determined based uponmanagement’s estimates using established valuation techniques. The results ofoperations of Advent United Kingdom and Advent Switzerland are included in theconsolidated statement of operations subsequent to the acquisition date.

 

23

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

The allocation of the purchase price for AdventUnited Kingdom, Advent Switzerland and certain assets of Advent Europe at thedate of purchase was as follows (in thousands, except estimated remaininguseful life):

 
| ** **               | ** ** | **Estimated**   | ** ** | ** **         | ** ** |
|--------------------------|------------|-----------------|------------|--------------------|------------|
| ** **               | ** ** | **Remaining**   | ** ** | ** **         | ** ** |
| ** **               | ** ** | **Useful Life** | ** ** | **Purchase Price** | ** ** |
| ** **               | ** ** | **(Years)**     | ** ** | **Allocation**     | ** ** |
| ** **               | ** ** | ** **      | ** ** | ** **         | ** ** |
| Goodwill                 |       |            |       | $                  | 3,765      |   |
| Customer relationships   |       | 4               |       | 326                |       |
| Sub-licensing agreements |       | 4               |       | 913                |       |
| Employment agreements    |       | 3               |       | 232                |       |
| Developed technology     |       | 3               |       | 710                |       |
| Tangible assets          |       |            |       | 2,754              |       |
| Current liabilities      |       |            |       | (2,387             | )          |
| Deferred tax liabilities |       |            |       | (337               | )          |
|                     |       |            |       |               |       |
| Total  purchase price    |       |            |       | $                  | 5,976      |   |

 

Residual goodwill has been recorded based on thepurchase price remaining after allocating the purchase price to the fair marketvalue of assets purchased less liabilities assumed and to identifiableintangible assets. Residual goodwill arises as a result of, among other factors,new customers as well as the implicit value of future cost savings as a resultof the combining of entities. Goodwill resulting from this acquisition wasassigned to the Advent Investment Management segment and was expected to benon-deductible for tax purposes under Internal Revenue Code 197.

 

*Advent Netherlands BV*

 

In May 2003, Advent purchased all of the commonstock of Advent Netherlands BV from its independent European distributor for atotal purchase price of $9.6 million, which includes repayment of a loan and isnet of approximately $180,000 cash acquired. In addition, there was a potentialearn-out distribution to the selling stockholders of up to $1.6 million throughDecember 31, 2003 under a formula based on revenue results for the eightmonths ended December 31, 2003, plus 50% of any operating margins whichexceed 20% for the year ending December 31, 2004. The right to receivethis earn-out was effectively terminated with the purchase of certain assets ofAdvent Europe on May 3, 2004. Through this date, no additionalconsideration had been earned or paid.

 

The acquisition has been accounted for using thepurchase method of accounting and accordingly, the purchase price has beenallocated to the tangible and identifiable intangible assets and liabilitiesacquired on the basis of their respective fair values on the acquisition date.The amounts allocated to identifiable intangibles were determined based uponmanagement’s estimates using established valuation techniques. The acquisitionincludes distribution rights in Belgium, the Netherlands and Luxembourg. Theresults of operations of Advent Netherlands BV were included in theconsolidated financial statements subsequent to the acquisition date. Adventhas not presented the pro forma results of operations of Advent Netherlands BVas the results are not material to Advent’s results of operations. Theallocation of the Advent Netherlands BV purchase price was as follows (inthousands, except estimated remaining useful life):

 

24

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 
| ** **               | ** ** | **Estimated**   | ** ** | ** **         | ** ** |
|--------------------------|------------|-----------------|------------|--------------------|------------|
| ** **               | ** ** | **Remaining**   | ** ** | ** **         | ** ** |
| ** **               | ** ** | **Useful Life** | ** ** | **Purchase Price** | ** ** |
| ** **               | ** ** | **(Years)**     | ** ** | **Allocation**     | ** ** |
| ** **               | ** ** | ** **      | ** ** | ** **         | ** ** |
| Goodwill                 |       |            |       | $                  | 8,908      |   |
| Customer relationships   |       | 5               |       | 347                |       |
| Sub-licensing agreement  |       | 5               |       | 1,875              |       |
| Non-compete agreements   |       | 1               |       | 70                 |       |
| Tangible assets          |       |            |       | 1,809              |       |
| Current liabilities      |       |            |       | (2,600             | )          |
| Deferred tax liabilities |       |            |       | (800               | )          |
|                     |       |            |       |               |       |
| Total  purchase price    |       |            |       | $                  | 9,609      |   |

 

Goodwill resulting from the acquisition was assignedto the Advent Investment Management segment and was determined to benon-deductible for tax purposes under Internal Revenue Code 197.

 

*Advent Outsource Data Management, LLC.*

 

In November 2002, the Company purchased all ofthe outstanding membership interests of Advent Outsource Data Management, LLC (“AdventOutsource”), formerly Outsource Data Management, LLC for $947,000, including$184,000 in acquisition costs. Advent Outsource is an outsource solutionprovider of portfolio reconciliation and reporting services via the internet.This acquisition was consistent with the Company’s strategy to add products andservices that meet the needs of a wide variety of sectors in the financialservices industry by adding outsourcing capabilities to the solutions Adventoffers clients, particularly in the financial planning and independentbroker/dealer areas.

 

In addition to the initial cash consideration, thereis a potential earn-out distribution to the selling members of up to $5 millionthrough December 31, 2004 under a formula based on revenue bookings.Through December 31, 2004, the Company accrued earn-out distributions ofapproximately $3.9 million, of which $3.1 million was paid in 2004 and $0.8million will be paid in the first quarter of 2005. The contingent considerationwas recorded as additional goodwill.

 

The acquisition was accounted for as a purchasetransaction and accordingly, the tangible assets and liabilities acquired wererecorded at their fair value at the date of the acquisition. The amountsallocated to identifiable intangibles were determined based upon management’sestimates using established valuation techniques. The results of operations ofAdvent Outsource were included in Advent’s consolidated financial statementssubsequent to the acquisition date.

 

The purchase price allocation was as follows (inthousands, except estimated remaining useful life):

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

 

25

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

Goodwill resulting from the acquisition was assignedto the Advent Investment Management segment and was determined to be deductiblefor tax purposes under Internal Revenue Code 197.

 

*Advent Hellas*

 

In September 2002, Advent acquired all of thecommon stock of its Greek distributor, Advent Hellas, for a total purchaseprice of $6.6 million in cash. Advent acquired its Greek distributor’soperations to expand its direct ownership of European channels for Advent’sproducts and services. In connection with this acquisition, Advent was requiredto pay 50% of Advent Hellas’ operating margins that exceed 20% for the twoyears after the acquisition. This earn-out was effectively terminated with thepurchase of certain assets of Advent Europe on May 3, 2004. Through thisdate, no additional consideration had been earned or paid.

 

The acquisition was accounted for as a purchasetransaction and accordingly, the tangible assets and liabilities acquired wererecorded at their fair value at the date of the acquisition. The amountsallocated to identifiable intangibles were determined based upon management’sestimates using established valuation techniques. The results of operations ofAdvent Hellas were included in Advent’s consolidated financial statementssubsequent to the acquisition date. Advent has not presented the pro formaresults of operations of Advent Hellas as the results are not material toAdvent’s results of operations.

 

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

 

The final allocation of the Advent Hellas purchaseprice was as follows (in thousands, except estimated remaining useful life):
| ** **               | ** ** | **Estimated**   | ** ** | ** **         | ** ** |
|--------------------------|------------|-----------------|------------|--------------------|------------|
| ** **               | ** ** | **Remaining**   | ** ** | ** **         | ** ** |
| ** **               | ** ** | **Useful Life** | ** ** | **Purchase Price** | ** ** |
| ** **               | ** ** | **(Years)**     | ** ** | **Allocation**     | ** ** |
| ** **               | ** ** | ** **      | ** ** | ** **         | ** ** |
| Goodwill                 |       |            |       | $                  | 5,800      |   |
| Customer relationship    |       | 6               |       | 1,600              |       |
| Tangible assets          |       |            |       | 840                |       |
| Deferred tax liabilities |       |            |       | (600               | )          |
| Current liabilities      |       |            |       | (1,000             | )          |
|                     |       |            |       |               |       |
| Total  purchase price    |       |            |       | $                  | 6,640      |   |

 

Goodwill resulting from the acquisition was assignedto the Advent Investment Management segment and was determined to benon-deductible for tax purposes under Internal Revenue Code 197.

 

During 2004, Advent recorded a non-cash impairmentcharge of $1.4 million to write off the carrying value of intangible assetsrelated to Advent Hellas. See Note 5, “Balance Sheet Detail” for additionalinformation.

 

*Techfi Corporation*

 

In July 2002, Advent acquired TechfiCorporation, a privately held company. Techfi provides software, technology andservices to the financial intermediary market. This acquisition was consistentwith Advent’s strategy to add products and services for meeting the needs of awide variety of sectors in the financial services industry, particularly in thefinancial planning and independent broker/dealer areas of Techfi’s strengths.

 

The total purchase price of $22.8 million includedcash of $20.2 million, acquisition related expenses of approximately $800,000and options to purchase 70,000 shares of Advent common stock valued at $1.8million. The options were valued using the 

 

26

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

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 transactionand accordingly, the tangible assets and liabilities acquired were recorded attheir fair value at the date of the acquisition. The amounts allocated toidentifiable intangibles were determined based upon management’s estimatesusing established valuation techniques. The results of operations of TechfiCorporation were included in Advent’s consolidated financial statementssubsequent to the acquisition date.

 

At the time of the acquisition, there was $2.3million of additional contingent consideration held in escrow for 14 months forprotection against undisclosed liabilities. In 2003 and 2004, Advent paid $2.0million and $0.3 million, respectively, of the contingent considerationheld in escrow and recorded increases to goodwill.

 

At the acquisition date, Techfi’s primary purchasedin-process research and development (“IPR&D”) projects involved thedevelopment of a web-enabled system for portfolio management, performancereporting and contact management; distributable macro language to automate operationaltasks such as downloading, importing and report printing; and enhancements totheir currently offered AdvisorMart service.

 

Purchased IPR&D for Techfi represents thepresent value of the estimated after-tax cash flows expected to be generated bythe purchased technology, which, at the acquisition date, had not yet reachedtechnological feasibility. The cash flow projections for revenues were based onestimated projected revenue and expenses beyond 2003 and expected industrybenchmarks. Revenue estimates also include an estimated annual attritionpercentage to account for the fact that, as time passes, the portion ofprojected revenue attributable to purchased IPR&D technologies will becomeless as newer technology replaces the capabilities and functionality of thepurchased IPR&D technologies. Estimated operating expenses and income taxeswere deducted from estimated revenue projections to arrive at after-tax cashflows. Projected operating expenses included costs of goods sold, research anddevelopment, sales and marketing expenses and general and administrativeexpenses, including estimated costs to maintain the products once they havebeen introduced into the market and are generating revenue. The rates utilizedto discount projected cash flows were 20% to 35% for in-process technologiesand were based primarily on rates of return and the overall level of marketacceptance and the amount of time each respective technology has been in themarketplace. The projects were completed in 2002 within budgeted guidelines.

 

As of the date of acquisition, Advent concluded thatthe purchased in-process technology had no alternative future use after takinginto consideration the potential use of the technology in different products,the stage of development and life cycle of each project and resale of thesoftware. Therefore, Advent immediately expensed the value of the purchasedIPR&D of $1.5 million upon acquisition.

 

In the fourth quarter of 2002, Advent updated theinitial allocation of the Techfi purchase price for adjustments related tointangibles, assumed liabilities and deferred tax liabilities resulting in anet increase to goodwill of $300,000.

 

The final allocation of the Techfi purchase pricewas as follows (in thousands, except estimated remaining useful life):

 

26

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

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

 

Goodwill resulting from the acquisition was assignedto the Advent Investment Management segment and was determined to benon-deductible for tax purposes under Internal Revenue Code 197.

 

During 2004, Advent recorded a non-cash impairmentcharge of $3.4 million to write off the carrying value of intangible assetsrelated to the Techfi product line. See Note 5, “Balance Sheet Detail” foradditional information.

 

*Kinexus Corporation*

 

In February 2002, Advent acquired KinexusCorporation, a privately held company located in New York. Kinexus providesinternal account aggregation and manual data management services. The purchaseprovided core technologies for use in Advent Wealth Services.

 

The total purchase price of $45.5 million includedcash of $34 million, closing costs of $3 million and a warrant to purchase165,176 shares of Advent common stock valued at $8.5 million. The fair value ofthe warrant was calculated using the Black-Scholes method using the followingassumptions: fair value of common stock of $51.34 per share, interest rate of3%, volatility of 65.9% and a dividend rate of zero. The warrant had anexercise price of $0.01 per share and was exercised in February 2002.

 

The acquisition was accounted for as a purchasetransaction and accordingly, the tangible assets and liabilities acquired wererecorded at their fair value at the date of the acquisition. The amountsallocated to identifiable intangibles were determined based upon management’sestimates using established valuation techniques. The results of operations ofKinexus Corporation were included in Advent’s consolidated financial statementssubsequent to the acquisition date.

 

During 2002, Advent adjusted Kinexus goodwill andliabilities assumed, decreasing both by $4.9 million. The adjustment primarilyrelated to a reduction of the estimated liability assumed in connection with avacant Kinexus facility located in downtown Manhattan within a few blocks ofthe World Trade Center site and was based on additional analysis of the localcommercial rental market.

 

The final allocation of the Kinexus purchase pricewas as follows (in thousands, except estimated remaining useful life):

 

27

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

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

 

Goodwill resulting from the acquisition was assignedto the Advent Investment Management segment and was determined to benon-deductible for tax purposes under Internal Revenue Code 197.

 

During 2004, Advent recorded a non-cash impairmentcharge of $681,000 to write off the carrying value of intangible assets relatedto the Kinexus acquisition, currently referred to as Advent Wealth Services.See Note 5, “Balance Sheet Detail” for additional information.

 

*Pro forma Information*

 

The following supplemental unaudited pro formainformation presents selected financial information as though the purchases ofAdvent United Kingdom and Switzerland, acquired in 2004, had been completed atthe beginning of each period presented after giving effect to purchaseaccounting adjustments. The pro forma consolidated net loss amounts includecertain pro forma adjustments, primarily the amortization of identifiableintangible assets and the elimination of interest income on cash used in theacquisition (in thousands, except per share data):

 

| ** **                           | ** ** | **Fiscal Years** | ** ** |
|--------------------------------------|------------|------------------|------------|
| ** **                           | ** ** | **2004**         | ** ** | **2003** | ** ** |
| ** **                           | ** ** | ** **       | ** ** | ** ** | ** ** |
| Net revenues                         |       | $                | 151,121    |   | $ | 139,824 |   |
| Net loss                             |       | $                | (17,176    | ) | $ | (91,745 | ) |
| Net loss per share-basic and diluted |       | $                | (0.52      | ) | $ | (2.83 | ) |

 

The following supplemental unaudited pro formainformation presents selected financial information as though the purchases ofKinexus, Techfi and Advent Outsource, acquired in 2002, had been completed atthe beginning of each period presented after giving effect to purchase accountingadjustments. The pro forma consolidated net loss amounts include certain proforma adjustments, primarily the amortization of identifiable intangibleassets, 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 cashused in the acquisition (in thousands, except per share data):

 

| ** **                           | ** ** | **Fiscal Year** | ** ** |
|--------------------------------------|------------|-----------------|------------|
| ** **                           | ** ** | **2002**        | ** ** |
| ** **                           | ** ** | ** **      | ** ** |
| Net revenues                         |       | $               | 163,087    |   |
| Net loss                             |       | $               | (20,961    | ) |
| Net loss per share-basic and diluted |       | $               | (0.62      | ) |

 

28

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

**Note 5—Balance Sheet Detail**

 

Effective April 1, 2004, Advent changed itsmethodology for recording accounts receivable and deferred revenues. In priorperiods, Advent netted down amounts in deferred revenues that were stilloutstanding as a receivable. Beginning on April 1, 2004, accountsreceivable and deferred revenues (except for future maintenance and contractdeliverables not yet earned) are presented gross instead of net, as no offsetentry is made. This has the effect of increasing accounts receivable anddeferred revenues by equal amounts. There is no impact on the consolidatedstatements of operations.

 

Supplemental comparative disclosures, as if thechange had been retroactively applied, are presented below (in thousands):

 
| ** **               | ** ** | **December 31** | ** ** |
|--------------------------|------------|----------------------|------------|
| ** **               | ** ** | **2003**             | ** ** |
| ** **               | ** ** | ** **           | ** ** |
| Accounts receivable, net |       | $                    | 32,752     |   |
|                     |       |                 |       |
| Deferred revenues        |       | $                    | 51,427     |   |

 

The following is a summary of property and equipment(in thousands):

 
| ** **                                | ** ** | **December 31** | ** ** |
|-------------------------------------------|------------|----------------------|------------|
| ** **                                | ** ** | **2004**             | ** ** | **2003** | ** ** |
| ** **                                | ** ** | ** **           | ** ** | ** ** | ** ** |
| Computer equipment and software           |       | $                    | 29,670     |   | $ | 33,361 |   |
| Leasehold improvements                    |       | 22,522               |       | 20,854 |   |
| Furniture and fixtures                    |       | 2,913                |       | 2,857 |   |
| Telephone system                          |       | 1,744                |       | 1,851 |   |
| Property and  equipment, gross            |       | 56,849               |       | 58,923 |   |
| Accumulated depreciation and amortization |       | (38,417              | )          | (35,542 | ) |
| Property and  equipment, net              |       | $                    | 18,432     |   | $ | 23,381 |   |

 

Depreciation and amortization expense was $8.6million, $8.7 million and $8.3 million for fiscal 2004, 2003 and 2002,respectively.

 

The changes in the carrying value of goodwill forfiscal 2004, 2003 and 2002 were as follows (in thousands):

 
| ** **                        | ** ** | **Advent**     | ** ** | ** **    | ** ** | ** ** | ** ** |
|-----------------------------------|------------|----------------|------------|---------------|------------|------------|------------|
| ** **                        | ** ** | **Investment** | ** ** | ** **    | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **Management** | ** ** | **MicroEdge** | ** ** | **Total**  | ** ** |
| ** **                        | ** ** | ** **     | ** ** | ** **    | ** ** | ** ** | ** ** |
| Balance at December 31, 2001 |       | $              | 10,854     |          | $          | 1,796      |       | $ | 12,650 |   |
| Additions                         |       | 52,737         |       | 489           |       | 53,226     |       |
| Other adjustments                 |       | 872            |       | 601           |       | 1,473      |       |
|                              |       |           |       |          |       |       |       |
| Balance at December 31, 2002 |       | 64,463         |       | 2,886         |       | 67,349     |       |
| Additions                         |       | 14,342         |       | 250           |       | 14,592     |       |
| Other adjustments                 |       | 4,563          |       | —        |       | 4,563      |       |
|                              |       |           |       |          |       |       |       |
| Balance at December 31, 2003 |       | 83,368         |       | 3,136         |       | 86,504     |       |
| Additions                         |       | 9,719          |       | —        |       | 9,719      |       |
| Other adjustments                 |       | 3,170          |       | —        |       | 3,170      |       |
|                              |       |           |       |          |       |       |       |
| Balance at December 31, 2004 |       | $              | 96,257     |          | $          | 3,136      |       | $ | 99,393 |   |

 

29

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

Additions to goodwill of $9.7 million in 2004consisted of $5.6 million related to the acquisitions of Advent United Kingdomand Advent Switzerland, and contingent consideration of $3.9 million and $0.3million paid to the former stockholders of Advent Outsource and TechfiCorporation, respectively (see Note 4, “Acquisitions”, to the consolidatedfinancial statements for additional information regarding these acquisitions).Other adjustments of $3.2 million represent translation adjustments as the U.S.dollar weakened against European currencies during fiscal 2004.

 

Additions to goodwill of $14.6 million in 2003consisted 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 paidto the former stockholders of Kinexus Corporation, Techfi Corporation and NPOSolutions, Inc., respectively. Other adjustments of $4.6 million primarilyrepresented translation adjustment as the U.S. dollar weakened against Europeancurrencies during fiscal 2003.

 

The following is a summary of intangible assets (inthousands, except weighted average amortization period):

 
| ** **                         | ** ** | **Weighted Average** | ** ** | **Other**        | ** ** | ** **       | ** ** | **Other**        | ** ** |
|------------------------------------|------------|----------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                         | ** ** | **Amortization**     | ** ** | **Intangibles,** | ** ** | **Accumulated**  | ** ** | **Intangibles,** | ** ** |
| ** **                         | ** ** | **Period (Years)**   | ** ** | **Gross**        | ** ** | **Amortization** | ** ** | **Net**          | ** ** |
| ** **                         | ** ** | ** **           | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| Purchased technologies             |       | 4.9                  |       | $                | 12,776     |             | $          | (9,779           | )          | $ | 2,997 |   |
| Customer relationships             |       | 5.5                  |       | 22,589           |       | (11,099          | )          | 11,490           |       |
| Other intangibles                  |       | 2.5                  |       | 307              |       | (126             | )          | 181              |       |
| Balance at December 31,  2004 |       |                 |       | $                | 35,672     |             | $          | (21,004          | )          | $ | 14,668 |   |

 
| ** **                         | ** ** | **Weighted Average** | ** ** | **Other**        | ** ** | ** **       | ** ** | **Other**        | ** ** |
|------------------------------------|------------|----------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                         | ** ** | **Amortization**     | ** ** | **Intangibles,** | ** ** | **Accumulated**  | ** ** | **Intangibles,** | ** ** |
| ** **                         | ** ** | **Period (Years)**   | ** ** | **Gross**        | ** ** | **Amortization** | ** ** | **Net**          | ** ** |
|                               |       |                 |       |             |       |             |       |             |       |
| Purchased technologies             |       | 4.2                  |       | $                | 19,784     |             | $          | (11,024          | )          | $ | 8,760 |   |
| Customer relationships             |       | 4.9                  |       | 31,444           |       | (12,840          | )          | 18,604           |       |
| Other intangibles                  |       | 5.0                  |       | 6,405            |       | (3,274           | )          | 3,131            |       |
| Balance at December 31,  2003 |       |                 |       | $                | 57,633     |             | $          | (27,138          | )          | $ | 30,495 |   |

 

The changes in the carrying value of intangible assetsfor fiscal 2004, 2003 and 2002 were as follows (in thousands):

 

30

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 
| ** **                        | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** |
|-----------------------------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **                        | ** ** | **Gross**  | ** ** | **Amortization** | ** ** | **Net**    | ** ** |
| ** **                        | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** |
| Balance at December 31, 2001 |       | $          | 26,393     |             | $          | (4,718     | )          | $ | 21,675 |   |
| Additons                          |       | 28,740     |       | —           |       | 28,740     |       |
| Amortization                      |       | —     |       | (10,862          | )          | (10,862    | )          |
| Other adjustments                 |       | 1,604      |       | —           |       | 1,604      |       |
|                              |       |       |       |             |       |       |       |
| Balance at December 31, 2002 |       | 56,737     |       | (15,580          | )          | 41,157     |       |
| Additons                          |       | 2,292      |       | —           |       | 2,292      |       |
| Amortization                      |       | —     |       | (13,534          | )          | (13,534    | )          |
| Impairment                        |       | (1,400     | )          | 513              |       | (887       | )          |
| Other adjustments                 |       | 4          |       | 1,463            |       | 1,467      |       |
|                              |       |       |       |             |       |       |       |
| Balance at December 31, 2003 |       | 57,633     |       | (27,138          | )          | 30,495     |       |
| Additons                          |       | 2,181      |       | —           |       | 2,181      |       |
| Amortization                      |       | —     |       | (13,296          | )          | (13,296    | )          |
| Impairment                        |       | (25,692    | )          | 20,280           |       | (5,412     | )          |
| Other adjustments                 |       | 1,550      |       | (850             | )          | 700        |       |
|                              |       |       |       |             |       |       |       |
| Balance at December 31, 2004 |       | $          | 35,672     |             | $          | (21,004    | )          | $ | 14,668 |   |

 

Additions to intangible assets of $2.2 million in2004 were related to the acquisitions of Advent United Kingdom and AdventSwitzerland. Additions to intangible assets of $2.3 million in 2003 wererelated to the Advent Netherlands acquisition. See Note 4, “Acquisitions”, tothe consolidated financial statements for additional information regardingacquisitions.

 

The following is a summary of amortization andimpairment of the Company’s developed technology and other intangible assetsfor the periods presented (in thousands):

 
| ** **                         | ** ** | **Fiscal Years** | ** ** |
|------------------------------------|------------|------------------|------------|
| ** **                         | ** ** | **2004**         | ** ** | **2003** | ** ** | **2002** | ** ** |
|                               |       |             |       |   |   |   |   |
| Developed technology:              |       |             |       |   |   |   |   |
| Amortization                       |       | $                | 5,187      |   | $ | 5,680 |   | $ | 4,847 |   |
| Impairment                         |       | 1,284            |       | 887 |   | — |   |
| Sub-total                          |       | 6,471            |       | 6,567 |   | 4,847 |   |
|                               |       |             |       |   |   |   |   |
| Other intangibles:                 |       |             |       |   |   |   |   |
| Amortization                       |       | 8,109            |       | 7,854 |   | 6,015 |   |
| Impairment                         |       | 4,128            |       | — |   | — |   |
| Sub-total                          |       | 12,237           |       | 7,854 |   | 6,015 |   |
|                               |       |             |       |   |   |   |   |
| Total  amortization and impairment |       | $                | 18,708     |   | $ | 14,421 |   | $ | 10,862 |   |

 

The intangible asset impairment charges incurred infiscal 2004 and 2003 were associated with the Advent Investment Managementreporting segment.

 

During 2004, Advent recorded a non-cash impairmentcharge of $3.4 million to write off the carrying value of intangible assetsrelated to the Techfi product line. Of this amount, $1.0 million was includedin amortization and impairment of developed technology within cost of revenuesas it relates to existing and core technology and the remaining $2.4 millionwas included in operating expenses. In September 2004, the Company decidedto discontinue certain products within the Techfi product line, which wasacquired in July 2002, as demand for the Techfi product line has beensignificantly lower than expected. As a result of this

 

31

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

triggeringevent, the Company began a review of the recoverability of its Techfi-relatedintangible assets. Recoverability was measured by a comparison of the assets’carrying amount to their expected future undiscounted net cash flows. TheCompany determined that these intangible assets had no remaining value andwrote off the remaining carrying value in 2004.

 

During 2004, Advent recorded a non-cash impairmentcharge of $681,000 to write off the carrying value of intangible assets relatedto Advent Wealth Services (“AWS”). Of this amount, $255,000 was included inamortization and impairment of developed technology within cost of revenues asit relates to existing and core technology and the remaining $426,000 wasincluded in operating expenses. During the fourth quarter of 2004, as a resultof the combined triggering events of significant underperformance by AWSrelative to historical and projected future operating results, as well asAdvent’s decision to re-focus the Company’s direction on its core businesses,the Company began a review of the recoverability of its AWS-related intangibleassets. Recoverability was measured by a comparison of the assets’ carryingamount to their expected future undiscounted net cash flows. The Companydetermined that these intangible assets had no remaining value and wrote offthe remaining carrying value in 2004.

 

During 2004, Advent recorded a non-cash impairmentcharge of $1.4 million, included in operating expenses, to write off thecarrying value of intangible assets related to Advent Hellas. During the fourthquarter of 2004, as a result of the triggering event of significantunderperformance by Advent Hellas relative to historical and projected futureoperating results, the Company began a review of the recoverability of itsAdvent Hellas intangible assets. Recoverability was measured by a comparison ofthe assets’ carrying amount to their expected future undiscounted net cashflows. The Company determined that these intangible assets had no remainingvalue and wrote off the remaining carrying value in 2004.

 

During 2003, Advent recorded a non-cash impairmentcharge of $887,000, included in cost of revenues, to write off the carryingvalue of intangible assets acquired as part of the acquisition of ManagerLinkin November 2001. When Advent acquired Kinexus in February 2002, someredundancy existed between the technology acquired from ManagerLink and thetechnology acquired from Kinexus. The Company transitioned business operationsoff the ManagerLink platform and abandoned the technology as of September 2003.As a result, the Company began a review of the recoverability of itsManagerLink-related intangible assets. Recoverability was measured by acomparison of the assets’ carrying amount to their expected future undiscountednet cash flows. The Company determined that these intangible assets had noremaining value and wrote off the remaining carrying value in 2003.

 

Based on the carrying amount of intangible assets asof December 31, 2004, the estimated future amortization is as follows (in thousands):

 
| ** **           | ** ** | **Fiscal Years** | ** ** |
|----------------------|------------|------------------|------------|
| ** **           | ** ** | **2005**         | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **Total** | ** ** |
| ** **           | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Developed technology |       | $                | 2,439      |   | $ | 480 |   | $ | 78 |   | $ | — |   | $ | — |   | $ | 2,997 |   |
| Other intangibles    |       | 4,306            |       | 4,107 |   | 1,868 |   | 948 |   | 442 |   | 11,671 |   |
|                 |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Total                |       | $                | 6,745      |   | $ | 4,587 |   | $ | 1,946 |   | $ | 948 |   | $ | 442 |   | $ | 14,668 |   |

 

The following is a summary of other assets, net (inthousands):

 
| ** **                                                            | ** ** | **December 31** | ** ** |
|-----------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                            | ** ** | **2004**             | ** ** | **2003** | ** ** |
|                                                                  |       |                 |       |   |   |
| Long-term investments, gross                                          |       | $                    | 16,300     |   | $ | 16,558 |   |
| Accumulated write-downs due to other-than-temporary  decline in value |       | (7,658               | )          | (7,655 | ) |
| Long-term investments, net                                            |       | 8,642                |       | 8,903 |   |
| Long-term prepaids                                                    |       | 3,303                |       | 5,096 |   |
| Cash held in escrow                                                   |       | —               |       | 312 |   |
| Depsits                                                               |       | 1,417                |       | 1,127 |   |
|                                                                  |       |                 |       |   |   |
| Total other  assets, net                                              |       | $                    | 13,362     |   | $ | 15,438 |   |

 

Long-term investments include equity investments inseveral privately held companies, most of which can still be considered in thestart-up or development stages. In 2002, Advent acquired approximately 15% ofthe outstanding stock of LatentZero Limited

 

32

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

(“LatentZero”),a privately-held company located in the United Kingdom, for $7 million. ThroughDecember 28, 2004, LatentZero was accounted for under the equity method ofaccounting as Advent’s Chief Executive Officer was a member of LatentZero’sboard of directors and Advent accordingly considered itself to have significantinfluence over this company. The Company’s portion of net loss from this investeewas $257,000, $104,000 and $58,000 for fiscal 2004, 2003 and 2002,respectively. Effective December 28, 2004, Advent’s Chief ExecutiveOfficer resigned her seat on the investee’s board of directors and as a result,Advent no longer believes it has significant influence over LatentZero.Therefore, this investment is carried at the lower of cost or fair value at December 31,2004, similar to the Company’s other investments.

 

Advent recorded write-downs of $2.0 million and$13.5 million in 2003 and 2002, respectively, on various long-term equityinvestments, as a result of other-than-temporary declines in the estimated fairmarket value of such investments. Advent did not record any write-downs infiscal 2004.

 

The following is a summary of accrued liabilities(in thousands):

 
| ** **                    | ** ** | **December 31** | ** ** |
|-------------------------------|------------|----------------------|------------|
| ** **                    | ** ** | **2004**             | ** ** | **2003** | ** ** |
|                          |       |                 |       |   |   |
| Salaries and benefits payable |       | $                    | 8,208      |   | $ | 7,479 |   |
| Accrued restructuring         |       | 1,127                |       | 1,201 |   |
| Other                         |       | 7,520                |       | 7,421 |   |
|                          |       |                 |       |   |   |
| Total  accrued liabilities    |       | $                    | 16,855     |   | $ | 16,101 |   |

 

The following is a summary of other long-termliabilities (in thousands):

 
| ** **                               | ** ** | **December 31** | ** ** |
|------------------------------------------|------------|----------------------|------------|
| ** **                               | ** ** | **2004**             | ** ** | **2003** | ** ** |
|                                     |       |                 |       |   |   |
| Deferred rent                            |       | $                    | 3,171      |   | $ | 2,156 |   |
| Accrued restructuring, long-term portion |       | 3,042                |       | 1,144 |   |
| Other                                    |       | 318                  |       | 182 |   |
|                                     |       |                 |       |   |   |
| Total other  long-term liabilities       |       | $                    | 6,531      |   | $ | 3,482 |   |

 

**Note 6—Accumulated Other Comprehensive Income**

 

The components of accumulated other comprehensiveincome were as follows (in thousands):

 
| ** **                                                | ** ** | **December 31** | ** ** |
|-----------------------------------------------------------|------------|----------------------|------------|
| ** **                                                | ** ** | **2004**             | ** ** | **2003** | ** ** |
| ** **                                                | ** ** | ** **           | ** ** | ** ** | ** ** |
| Accumulated net unrealized loss on  marketable securities |       | $                    | (402       | ) | $ | (67 | ) |
| Accumulated foreign currency translation  adjustments     |       | 12,676               |       | 8,896 |   |
| Accumulated  other comprehensive income                   |       | $                    | 12,274     |   | $ | 8,829 |   |

 

**Note 7—Restructuring Charges**

 

In response to the downturn in the financialservices industry, the decline in information technology spending andduplicative efforts in parts of Advent’s Investment Management reportingsegment as a result of various acquisitions, Advent implemented several phasesof restructuring beginning in 2003. These plans were implemented to reducecosts and improve operating efficiencies by better aligning the Company’sresources to its near-term revenue opportunities.

 

33

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

For fiscal 2004, Advent recorded total restructuringcharges of $5.1 million consisting of $5.0 million to exit leased facilities,$0.9 million for the write-off of property and equipment, $136,000 forseverance and benefits associated with the termination of nine employees, andnet benefits of $893,000 to adjust original estimates for vacated facilitiesand severance charges.

 

Advent continued to consolidate office space during2004 and incurred charges of $4.9 million for facility and exit costs and $0.9million of property and equipment impairment charges related to vacating afacility in San Francisco, California, and $78,000 to vacate a portion of afacility in Cambridge, Massachusetts. Advent estimated the cost of exiting andterminating the facility leases based on the contractual terms of theagreements and real estate market conditions. During the year, Advent enteredinto sub-lease agreements on vacated facilities in San Francisco and New Yorkand recognized accretion expense to adjust the present value of leaseobligations on vacated facilities at December 31, 2004, resulting in a netadjustment to our original estimates of $794,000. During the year, Advent alsoincurred charges of $136,000 for severance and benefits related to thetermination of nine employees located primarily in New York, and reversed$99,000 of severance and benefits primarily related to employees terminated in2003, as costs were lower than previously anticipated.

 

For fiscal 2003, Advent recorded total restructuringcharges of $9.1 million consisting of $5 million for severance and benefitsassociated with a workforce reduction of 176 employees, $3.2 million for coststo exit leased facilities, and $0.9 million for the write-off of property andequipment.

 

The workforce reduction of 176 employees consistedof 39 employees in client services and support, 25 employees in professionalservices, 46 employees in product development, 42 employees in sales andmarketing and 24 employees in general and administrative functions. These employeeswere located in San Francisco, California; New York, New York; Denver,Colorado; Concord, California; and Melbourne, Australia. Included in the chargeis $90,000 for non-cash severance associated with modification to a formeremployee’s stock options. The Company also incurred charges associated withconsolidating office space in the New York City area and vacating facilities inMelbourne, Australia; Concord, California; and Denver, Colorado. The Companyestimated the cost of exiting and terminating the facility leases based on thecontractual terms of the agreements and real estate market conditions. Thewrite-off of property and equipment consisted primarily of leaseholdimprovements, computer equipment and related software, and office equipment, furnitureand fixtures which were abandoned as a result of vacating various facilities.

 

The following table sets forth an analysis of thecomponents of the restructuring charges and the payments and non-cash chargesmade against the accrual as of December 31, 2004 (in thousands):

 
| ** **                                                  | ** ** | ** **        | ** ** | ** **        | ** ** | **Property &** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------|------------|-------------------|------------|-------------------|------------|-------------------------|------------|------------|------------|
| ** **                                                  | ** ** | **Facility Exit** | ** ** | **Severance and** | ** ** | **Equipment**           | ** ** | ** ** | ** ** |
| ** **                                                  | ** ** | **Costs**         | ** ** | **Benefits**      | ** ** | **Abandoned**           | ** ** | **Total**  | ** ** |
|                                                        |       |              |       |              |       |                    |       |       |       |
| Balance of restructuring accrual at December 31,  2002 |       | $                 | —     |              | $          | —                  |       | —     |       | $ | — |   |
|                                                        |       |              |       |              |       |                    |       |       |       |
| Restructuring  charges                                      |       | 3,247             |       | 5,004             |       | 861                     |       | 9,112      |       |
| Reversal of  deferred rent related to facilities exited     |       | 194               |       | —            |       | —                  |       | 194        |       |
| Cash  payments                                              |       | (1,257            | )          | (4,750            | )          | —                  |       | (6,007     | )          |
| Non-cash  charges                                           |       | (3                | )          | (90               | )          | (861                    | )          | (954       | )          |
| Balance of  restructuring accrual at December 31, 2003 |       | 2,181             |       | 164               |       | —                  |       | 2,345      |       |
|                                                        |       |              |       |              |       |                    |       |       |       |
| Restructuring charges                                       |       | 5,027             |       | 136               |       | 863                     |       | 6,026      |       |
| Reversal of  deferred rent related to facilities exited     |       | 272               |       | —            |       | —                  |       | 272        |       |
| Cash  payments                                              |       | (2,529            | )          | (189              | )          | —                  |       | (2,718     | )          |
| Non-cash  charges                                           |       | —            |       | —            |       | (863                    | )          | (863       | )          |
| Adjustment  of prior restructuring costs                    |       | (794              | )          | (99               | )          | —                  |       | (893       | )          |
| Balance of restructuring accrual at December 31,  2004 |       | $                 | 4,157      |              | $          | 12                      |       | $          | —     |   | $ | 4,169 |   |
|                                                             |            |                   |            |                   |            |                         |            |            |            |  |  |  |  |

 

Of the remaining restructuring accrual of $4.2million at December 31, 2004, $1.1 million and $3.1 million are includedin accrued liabilities and other long-term liabilities, respectively. Theremaining excess facility costs of $4.2 million are stated at estimated fairvalue, net of estimated sub-lease income of $5.4 million. Advent expects to paythe remaining obligations in connection with vacated facilities over theremaining lease terms, which will expire on various dates through 2012. Adventexpects to pay the remaining severance and benefits in 2005.

 

34

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

**Note 8—Income Taxes**

 

The components of loss before income taxes were asfollows (in thousands):

 

| ** ** | ** ** | **Fiscal Years** | ** ** |
|------------|------------|------------------|------------|
| ** ** | ** ** | **2004**         | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** ** | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** |
| U.S.       |       | $                | (12,086    | ) | $ | (34,455 | ) | $ | (21,729 | ) |
| Foreign    |       | (4,138           | )          | (3,676 | ) | (1,471 | ) |
| Total      |       | $                | (16,224    | ) | $ | (38,131 | ) | $ | (23,200 | ) |

 

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

 

| ** ** | ** ** | **Fiscal Years** | ** ** |
|------------|------------|------------------|------------|
| ** ** | ** ** | ** **       | ** ** | **(Restated,** | ** ** | ** ** | ** ** |
| ** ** | ** ** | ** **       | ** ** | **See Note 2)** | ** ** | ** ** | ** ** |
| ** ** | ** ** | **2004**         | ** ** | **2003** | ** ** | **2002** | ** ** |
| Current:   |       |             |       |   |   |   |   |
| Federal    |       | $                | —     |   | $ | (6,219 | ) | $ | 3,607 |   |
| State      |       | 903              |       | 505 |   | 656 |   |
| Foreign    |       | 303              |       | 525 |   | 135 |   |
| Deferred:  |       |             |       |   |   |   |   |
| Federal    |       | —           |       | 53,648 |   | (6,395 | ) |
| State      |       | —           |       | 7,200 |   | (1,414 | ) |
| Foreign    |       | (1,186           | )          | (857 | ) | (553 | ) |
| Total      |       | $                | 20         |   | $ | 54,802 |   | $ | (3,964 | ) |

 

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

 
| ** **                           | ** ** | **Fiscal Years** | ** ** |
|--------------------------------------|------------|------------------|------------|
| ** **                           | ** ** | ** **       | ** ** | **(Restated,** | ** ** | ** ** | ** ** |
| ** **                           | ** ** | ** **       | ** ** | **See Note 2)** | ** ** | ** ** | ** ** |
| ** **                           | ** ** | **2004**         | ** ** | **2003** | ** ** | **2002** | ** ** |
| Statutory federal rate               |       | (35.0            | )%         | (35.0 | )% | (35.0 | )% |
| State taxes                          |       | 5.6              |       | 19.8 |   | (2.1 | ) |
| Research and development tax credits |       | (9.2             | )          | (1.9 | ) | (10.0 | ) |
| In-process research and development  |       | —           |       | — |   | 2.2 |   |
| Change in valuation allowance        |       | 34.7             |       | 158.5 |   | 22.4 |   |
| Foreign taxes                        |       | 1.5              |       | 2.5 |   | 6.5 |   |
| Other (net)                          |       | 2.5              |       | (0.2 | ) | (1.1 | ) |
| Total                                |       | 0.1              | %          | 143.7 | % | (17.1 | )% |

 

As of December 31, 2004, Advent made noprovision for a cumulative total of $383,000 of undistributed earnings forcertain non-U.S. subsidiaries, which have been or are intended to bepermanently reinvested.

 

The tax effects of temporary differences that gaverise to significant portions of the deferred tax assets and liabilities were asfollows (in thousands):

 

35

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 
| ** **                                                     | ** ** | **December 31** | ** ** |
|----------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                     | ** ** | **2004**             | ** ** | **2003** | ** ** |
| Current deferred tax assets:                                   |       |                 |       |   |   |
| Deferred  revenue                                              |       | $                    | 198        |   | $ | 418 |   |
| Other  accrued liabilities and reserves                        |       | 5,910                |       | 3,526 |   |
| State taxes                                                    |       | —               |       | (5 | ) |
| Other                                                          |       | 22                   |       | 14 |   |
| Valuation  allowance                                           |       | (6,130               | )          | (3,953 | ) |
| Total  current                                                 |       | —               |       | — |   |
| Non-current deferred tax assets:                               |       |                 |       |   |   |
| Depreciation  and amortization                                 |       | 15,870               |       | 15,704 |   |
| Net  operating losses, capital losses and credit carryforwards |       | 78,022               |       | 66,172 |   |
| Other                                                          |       | 1,335                |       | 899 |   |
| Valuation  allowance                                           |       | (95,227              | )          | (82,775 | ) |
| Total  non-current                                             |       | —               |       | — |   |
| Deferred tax assets                                            |       | —               |       | — |   |
| Deferred tax liabilities                                       |       | (2,250               | )          | (2,812 | ) |
| Net deferred  tax liabilities                                  |       | $                    | (2,250     | ) | $ | (2,812 | ) |

 

The Company has a full valuation allowance againstits deferred tax assets in the United States due to the uncertainty surroundingthe realization of the favorable tax attributes in future tax returns. At suchtime it is determined that it is more likely than not that the deferred taxassets are realizable, the valuation allowance will be reduced.

 

At December 31, 2004, Advent had federal netoperating loss carryforwards of approximately $110 million. Utilization ofthese loss carryforwards is subject to certain limitations under the federalincome tax laws. These net operating loss carryforwards expire between 2010 and2024.

 

Advent also had federal research credits of $9.7million which expire between 2019 and 2024 and California research credits of$7.3 million which do not expire.

 

**Note 9—Commitments and Contingencies**

 

Advent leases office space and equipment undernon-cancelable operating lease agreements, which expire at various datesthrough May 2012. Some operating leases contain escalation provisions foradjustments in the consumer price index. Advent is responsible for maintenance,insurance, and property taxes. Future minimum payments and receipts under thenon-cancelable operating leases consisted of the following at December 31,2004 (in thousands):

 

| ** ** | ** ** | **Future**         | ** ** | **Future**           | ** ** |
|------------|------------|--------------------|------------|----------------------|------------|
| ** ** | ** ** | **Lease Payments** | ** ** | **Sub-lease Income** | ** ** |
| ** ** | ** ** | ** **         | ** ** | ** **           | ** ** |
| 2005       |       | $                  | 8,932      |                 | $          | 621 |   |
| 2006       |       | 8,202              |       | 1,022                |       |
| 2007       |       | 6,626              |       | 1,022                |       |
| 2008       |       | 6,252              |       | 966                  |       |
| 2009       |       | 3,219              |       | 801                  |       |
| Thereafter |       | 4,616              |       | 1,910                |       |
| Total      |       | $                  | 37,847     |                 | $          | 6,342 |   |

 

Rent expense for fiscal 2004, 2003 and 2002 was $7.7million, $8.5 million and $7.7 million, respectively, net of sub-lease incomeof $236,000, $183,000 and $159,000 in fiscal 2004, 2003 and 2002, respectively.

 

36

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**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

Advent has contingent liabilities related to the acquisitionof Advent Outsource Data Management and the remaining independent distributorbusinesses of Advent Europe in the United Kingdom and Switzerland in the formof potential earn-out distributions up to $8.6 million under a formula based onrevenue results through December 31, 2004. Through December 31, 2004,$5.7 million was earned and recorded as additional goodwill under thisprovision, of which approximately $0.8 million will be paid in the firstquarter of 2005. Advent does not anticipate any further earn-outs related tothese acquisitions.

 

As permitted or required under Delaware law and tothe maximum extent allowable under that law, Advent has certain obligations toindemnify its current and former officers and directors for certain events oroccurrences while the officer or director is, or was serving, at Advent’srequest in such capacity. These indemnification obligations are valid as longas the director or officer acted in good faith and in a manner the personreasonably believed to be in or not opposed to the best interests of thecorporation, and, with respect to any criminal action or proceeding, had noreasonable cause to believe his or her conduct was unlawful. The maximumpotential amount of future payments Advent could be required to make underthese indemnification obligations is unlimited; however, Advent has a directorand officer insurance policy that mitigates Advent’s exposure and enablesAdvent to recover a portion of any future amounts paid. As a result of Advent’sinsurance policy coverage, the Company believes the estimated fair value ofthese indemnification obligations is minimal.

 

From time to time, Advent is involved in claims andlegal proceedings that arise in the ordinary course of business. Based oncurrently available information, management does not believe that the ultimateoutcome of these unresolved matters, individually and in the aggregate, arelikely to have a material adverse effect on Advent’s financial position orresults of operations. However, litigation is subject to inherent uncertaintiesand Advent’s view of these matters may change in the future. Were anunfavorable outcome to occur, there exists the possibility of a materialadverse impact on Advent’s financial position and results of operations for theperiod in which the unfavorable outcome occurs, and potentially in futureperiods.

 

On March 8, 2005, certain of the formershareholders and the shareholders’ representative of Kinexus filed suit againstAdvent in the Delaware Chancery Court. See Note 15, “Subsequent Events,” forfurther discussion.

 

**Note 10—Employee Benefit Plans**

 

**401(k) Plan**

 

Advent sponsors a 401(k) Plan to provide retirementbenefits for its U.S. employees. This Plan provides for tax-deferred salarydeductions for eligible employees. Employees may contribute between 1% and 15%of their annual compensation to this Plan, limited by an annual maximum amountas determined by the Internal Revenue Service. The Company also makes a 50%matching contribution of up to 6% of employee compensation. The Company’smatching contributions to this plan totaled $1.4 million, $1.0 million and $1.3million for fiscal 2004, 2003 and 2002, respectively. In addition to theemployer matching contribution, Advent may make profit sharing contributions atthe discretion of the Board of Directors. Advent did not make any profitsharing contributions in fiscal 2004, 2003 or 2002.

 

**1995 Employee Stock Purchase Plan**

 

All individuals employed by Advent are eligible toparticipate in the Employee Stock Purchase Plan (Purchase Plan) if Adventemploys them for at least 20 hours per week and at least five months per year.The Purchase Plan permits eligible employees to purchase Advent common stockthrough payroll deductions at a price equal to 85% of the lower of the closingsale price for the Company’s common stock reported on the NASDAQ NationalMarket at the beginning or the end of each six-month offering period. In anycalendar year, eligible employees can withhold up to 10% of their salary andcertain variable compensation. In the second quarter of 2003, Advent’sshareholders approved an amendment to the Purchase Plan to increase the numberof shares of common stock reserved for issuance by 600,000. As of December 31,2004, approximately 1,169,000 shares have been issued out of a total of1,500,000 shares of common stock reserved for issuance under the Purchase Plan.The Company issued approximately 162,000, 211,000, and 164,000 shares under thePurchase Plan at weighted average prices of $15.69, $13.75, and $20.11 in 2004,2003 and 2002, respectively.

 

**Note 11—Net Loss per Share**

 

The following table sets forth the computation ofbasic and diluted net loss per share (in thousands, except per share data):

 

37

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 
| ** **                                                                                            | ** ** | **Fiscal Years** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|------------------|------------|
| ** **                                                                                            | ** ** | ** **       | ** ** | **(Restated,** | ** ** | ** ** | ** ** |
| ** **                                                                                            | ** ** | ** **       | ** ** | **See Note 2)** | ** ** | ** ** | ** ** |
| ** **                                                                                            | ** ** | **2004**         | ** ** | **2003** | ** ** | **2002** | ** ** |
| Numerator  for basic and diluted net loss per share — net loss available to common  stockholders |       | $                | (16,244    | ) | $ | (92,933 | ) | $ | (19,236 | ) |
|                                                                                                  |       |             |       |   |   |   |   |
| Denominator  for basic and diluted net loss per share — weighted average shares                  |       | 32,944           |       | 32,473 |   | 33,659 |   |
|                                                                                                  |       |             |       |   |   |   |   |
| Basic and  diluted net loss per share                                                                 |       | $                | (0.49      | ) | $ | (2.86 | ) | $ | (0.57 | ) |
|                                                                                                       |            |                  |            |  |  |  |  |  |  |  |  |

 

As the Company incurred net losses in fiscal 2004, 2003and 2002, options and warrants to purchase an aggregate 5.7 million, 5.2million and 4.3 million shares, respectively, of the Company’s common stockwere excluded from the computation of diluted net loss per share, as the effectwould have been antidilutive.

 

**Note 12—Stockholders’ Equity**

 

**Common Stock Repurchase**

 

During 2001 and 2002, the Board of Directors (the “Board”)authorized the repurchase of up to 4.0 million shares of outstanding commonstock. Through May 2004 when this program was terminated, Advent hadrepurchased and retired 3.8 million shares of common stock since inception ofthis stock repurchase plan for a total cost of $78.8 million and an averageprice of $20.82 per share.

 

In May 2004, the Board approved a plan torepurchase up to 1.2 million shares of Advent’s common stock in the openmarket. In September 2004, the Board authorized an extension of this stockrepurchase program to cover the repurchase of an additional 0.8 million sharesof outstanding common stock. Through December 2004, Advent had repurchased0.7 million shares under this plan for a total cost of $11.9 million and anaverage price of $15.99 per share. As of December 31, 2004, approximately1.3 million additional shares were available to be repurchased under this sharerepurchase plan.

 

On February 22, 2005, the Company’s Board ofDirectors approved an extension of the Company’s stock repurchase program toauthorize the repurchase of an additional 1.8 million shares of common stock.From January 1, 2005 through March 10, 2005, Advent repurchased 2.1million shares under its current common stock repurchase plan for a total costof $38 million and an average price of $17.87 per share.

 

**Warrants**

 

In March 2001, the Company issued a fullyvested non-forfeitable stock purchase warrant to purchase a total of 191,644shares of Advent common stock to a customer from whom Advent had revenue ofapproximately $580,000 $56,000 and $3.4 million in 2004, 2003 and 2002,respectively. The warrant was issued for cash consideration of $5 million,which was the estimated Black-Scholes fair value. The warrant has an exerciseprice of $45.375 per share, is immediately exercisable, and expires in March 2006.

 

In February 2002, Advent acquired KinexusCorporation, a privately held company located in New York. The total purchaseprice of $45.5 million included cash of $34 million, closing costs of $3million and a warrant to purchase 165,176 shares of Advent common stock valuedat $8.5 million. The fair value of the warrant was calculated using the Black-Scholesmethod using the following assumptions: fair value of common stock of $51.34per share, interest rate of 3%, volatility of 65.9% and a dividend rate ofzero. The warrant had an exercise price of $0.01 per share and was exercised inFebruary 2002.

 

**Stock Option Exchange**

 

In November 2002, the Company commenced avoluntary stock option exchange program made available to certain eligibleemployees of the Company. The Chairman of the Board, Chief Executive Officer,Chief Financial Officer, Chief Technology Officer and Executive Vice Presidentof Corporate Development were specifically excluded from participating in theexchange program.

 

38

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**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

Underthe program, eligible employees were given the option to cancel eachoutstanding stock option granted to them at an exercise price greater than orequal to $20 per share, in exchange for a new option to buy 0.8 shares of theCompany’s common stock to be granted on June 5, 2003, six months and oneday from December 4, 2002, the expiration date of the offer, and the datethe old options of participating employees were cancelled. Additionally,options granted in the six months prior to this exchange offer, irrespective oftheir exercise prices, were cancelled for all employees that elected toparticipate in this exchange program. There was no credit given for optionvesting during the period between cancellation of the outstanding option andthe grant of the new option. The exercise price of the new option is equal tothe fair market value of the Company’s common stock on the date of grant. Intotal, 3,336,504 option shares were eligible to participate in this program and2,462,102 options were surrendered for cancellation ranging in exercise pricefrom $17.39 to $60.375 with a weighted average exercise price of $47.33 pershare. In the second quarter of 2003, in connection with this voluntary stockoption exchange program, Advent granted 1,770,786 replacement options toemployees at an exercise price equal to the fair market value of the stock onthe date of grant, which was $18.88 per share. The exchange program did notresult in additional compensation charges or variable option plan accounting.

 

**Stock Options**

 

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

 

**The Plan**    In February and May 2002,the Board of Directors and the stockholders, respectively, approved the 2002Stock Plan. Under the 2002 Stock Plan, the Company may grant options topurchase common stock to employees and consultants. Options granted may beincentive stock options or non-statutory stock options and shall be granted ata 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 determinedby the Board of Directors. The options generally vest over 5 years and expireno later than 10 years from the date of grant. Unvested options on terminationof 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 dayof the Company’s fiscal year beginning in 2002 equal to the lesser of: (i) 1,000,000shares, (ii) 2% of the Company’s outstanding shares on such date, or (iii) alesser number of shares determined by the Board of Directors. All remainingoptions from the expired 1992 Stock Plan were rolled over to the 2002 StockPlan. The terms of the 1992 Stock Plan were substantively the same as the termsof the new 2002 Stock Plan.

 

In 2001, Advent granted 25,000 stock options tocertain employees of its independent European distributor that have an exerciseprice of $40, vest over 5 years and have a term of 10 years. The options weresubject to variable plan accounting, which requires Advent to re-measurecompensation cost for outstanding options each reporting period based onchanges in the market value of the underlying common stock until the time theoptions are exercised, are forfeited or expire unexercised. With respect tothese stock options, Advent recorded stock compensation expense of $21,000 and$240,000 in fiscal 2004 and 2003, respectively, and a stock-based credit of$2,000 in fiscal 2002. With the acquisition of the remaining distributorbusinesses in the United Kingdom and Switzerland in 2004, these employeeseither became employees of Advent or no longer provide services to Advent.Therefore, Advent ceased recognizing compensation expense related to theseoptions during 2004.

 

During 2003, Advent also recorded stock compensationexpense of $261,000 related to the extension of vesting schedules on theoutstanding stock options held by employees affected by the work-forcereductions.

 

**Non-Statutory Plan**    In November 1998,the Board of Directors approved the 1998 Non-statutory Stock Option Plan andreserved 300,000 shares of common stock for issuance thereunder. Under theCompany’s 1998 Non-statutory Plan, Advent may grant options to purchase commonstock to employees and consultants, excluding persons who are executiveofficers and directors. Options granted are non-statutory stock options andshall be granted at a price not less than fair market value on the date ofgrant. Fair market value (as defined in the Non-statutory Plan) and the vestingof these options shall be determined by the Board of Directors. The optionsgenerally vest over 5 years and expire no later than 10 years from the date ofgrant. Unvested options on termination of employment are canceled and returnedto the Non-statutory Plan.

 

**Director Plan**    Advent’s 1995Director Option Plan provides for the grant of non-statutory stock options tothe Company’s non-employee directors (“outside directors”). Under the DirectorPlan, each outside director is granted a non-qualified option to purchase30,000 shares on the latter of the date of effectiveness of the Director Planor the date upon which such person first becomes a director. The exercise priceof each option is equal to the fair market value of Advent common stock as ofthe date of the grant. In subsequent years, each outside director isautomatically granted an option to purchase 6,000 shares on December 1with an exercise price equal to the fair value of Advent common stock on thatdate. Initial options granted under the Director Plan vest one-fifth of the

 

39

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**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

shareson the first anniversary date of grant and the remaining shares vest ratablyeach month over the ensuing four years. Subsequent option grants vestone-twelfth of the shares four years and one month after the date of grant andthe remaining shares vest ratably each month over the next 11-month period. AllDirector Plan options have a ten-year term.

 

A summary of the status of the Company’s stockoption plans for the periods presented is as follows (in thousands, exceptweighted average exercise price):

 
| ** **                        | ** ** | **2004**      | ** ** | **2003**     | ** ** | **2002**      | ** ** |
|-----------------------------------|------------|---------------|------------|--------------|------------|---------------|------------|
| ** **                        | ** ** | ** **    | ** ** | **Weighted** | ** ** | ** **    | ** ** | **Weighted** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **                        | ** ** | ** **    | ** ** | **Average**  | ** ** | ** **    | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| ** **                        | ** ** | **Number of** | ** ** | **Exercise** | ** ** | **Number of** | ** ** | **Exercise** | ** ** | **Number of** | ** ** | **Exercise** | ** ** |
| ** **                        | ** ** | **Shares**    | ** ** | **Price**    | ** ** | **Shares**    | ** ** | **Price** | ** ** | **Shares** | ** ** | **Price** | ** ** |
|                              |       |          |       |         |       |          |       |   |   |   |   |   |   |
| Outstanding at  beginning of year |       | 5,205         |       | $            | 18.51      |          | 4,265      |   | $ | 19.03 |   | 6,930 |   | $ | 26.67 |   |
| Options  granted                  |       | 1,468         |       | $            | 19.29      |          | 2,977      |   | $ | 17.86 |   | 923 |   | $ | 39.67 |   |
| Options  exercised                |       | (377          | )          | $            | 12.56      |          | (874       | ) | $ | 8.93 |   | (836 | ) | $ | 14.67 |   |
| Options  canceled                 |       | (586          | )          | $            | 22.60      |          | (1,163     | ) | $ | 25.94 |   | (2,752 | ) | $ | 46.46 |   |
| Outstanding  at end of year       |       | 5,710         |       | $            | 18.69      |          | 5,205      |   | $ | 18.51 |   | 4,265 |   | $ | 19.03 |   |
| Exercisable  at end of year       |       | 3,165         |       | $            | 18.54      |          | 3,027      |   | $ | 17.98 |   | 2,963 |   | $ | 16.13 |   |

 

The options and warrants outstanding and currentlyexercisable by exercise price at December 31, 2004 were as follows:

 
| ** **         | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
|--------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **         | ** ** | ** **              | ** ** | **Weighted**            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **         | ** ** | ** **              | ** ** | **Average**             | ** ** | **Weighted** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **         | ** ** | ** **              | ** ** | **Remaining**           | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| ** **         | ** ** | **Number**              | ** ** | **Contractual**         | ** ** | **Exercise** | ** ** | **Number** | ** ** | **Exercise** | ** ** |
| **Exercise Price** | ** ** | **Outstanding**         | ** ** | **Life (in years)**     | ** ** | **Price** | ** ** | **Exercisable** | ** ** | **Price** | ** ** |
| ** **         | ** ** | **(in thousands)**      | ** ** | ** **              | ** ** | ** ** | ** ** | **(in thousands)** | ** ** | ** ** | ** ** |
| $1.67 - $12.42     |       | 963                     |       | 2.56                    |       | $ | 9.10 |   | 963 |   | $ | 9.10 |   |
| $12.50 - $17.13    |       | 999                     |       | 7.79                    |       | $ | 15.53 |   | 450 |   | $ | 15.33 |   |
| $17.16 - $18.71    |       | 885                     |       | 9.33                    |       | $ | 18.04 |   | 30 |   | $ | 17.65 |   |
| $18.88 - $18.88    |       | 1,256                   |       | 6.28                    |       | $ | 18.88 |   | 788 |   | $ | 18.88 |   |
| $18.95 - $21.38    |       | 1012                    |       | 7.8                     |       | $ | 20.57 |   | 399 |   | $ | 21.05 |   |
| $21.54 - $60.38    |       | 595                     |       | 5.67                    |       | $ | 36.88 |   | 535 |   | $ | 35.90 |   |
|               |       | 5,710                   |       | 6.59                    |       | $ | 18.69 |   | 3,165 |   | $ | 18.54 |   |

 

The options available for grant for the periodspresented were as follows (in thousands):

 

| ** **         | ** ** | **Fiscal Years** | ** ** |
|--------------------|------------|------------------|------------|
| ** **         | ** ** | **2004**         | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **         | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Beginning balance  |       | 2,736            |       | 3,892 |   | 1,403 |   |
| Options authorized |       | 655              |       | 658 |   | 660 |   |
| Options granted    |       | (1,468           | )          | (2,977 | ) | (923 | ) |
| Options canceled   |       | 586              |       | 1,163 |   | 2,752 |   |
| Ending balance     |       | 2,509            |       | 2,736 |   | 3,892 |   |

 

40

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**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

**Note 13—Segment and Geographical Information**

 

*Description of Segments*

 

SFAS No. 131, “Disclosures about Segments of anEnterprise and Related Information,” established standards for reportinginformation about operating segments in annual financial statements andrequires selected information about operating segments in interim reports. Italso established standards for related disclosures about products and services,major customers and geographic areas. Operating segments are defined ascomponents of an enterprise about which separate financial information isavailable that is evaluated regularly by the chief operating decision maker(CODM), or decision making group, in deciding how to allocate resources and inassessing performance. Advent’s CODM is the Chief Executive Officer.

 

Advent’s organizational structure is based on anumber of factors that the CODM uses to evaluate, view and run its businessoperations which include, but are not limited to, customer base, homogeneity ofproducts and technology. Advent’s operating segments are based on thisorganizational structure and information reviewed by Advent’s CODM to evaluatethe operating segment results. During fiscal 2004, Advent determined that itsoperations were organized into two reportable segments: 1) Advent InvestmentManagement; and 2) MicroEdge. The segment information for fiscal 2003 and 2002below reflect this organizational change. Future changes to this organizationalstructure may result in changes to the business segments disclosed. Adescription of the types of products and services provided by each operatingsegment follows.

 

Advent Investment Management is the Company’s corebusiness and derives revenues from the development, marketing and sale ofsoftware products, data interfaces and related maintenance and services thatautomate, integrate and support certain mission critical functions ofinvestment management organizations. MicroEdge derives revenues from the saleof software and services for grant management, matching gifts and volunteertracking for the grantmaking community worldwide.

 

*Segment Data*

 

The results of the operating segments are deriveddirectly from Advent’s internal management reporting system. The accountingpolicies used to derive operating segment results are substantially the same asthose used by the consolidated company. Management measures the performance ofeach operating segment based on several metrics, including income (loss) fromoperations. These results are used, in part, to evaluate the performance of,and to assign resources to, each of the operating segments. Certain operatingexpenses, including amortization and impairment of developed technology andother intangibles, which Advent manages separately at the corporate level, arenot allocated to the operating segments. Advent does not separately accumulateand review asset information by segment.

 

Segment information for the periods presented is asfollows (in thousands):

 

41

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**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 
| ** **                                           | ** ** | **Fiscal Years** | ** ** |
|------------------------------------------------------|------------|------------------|------------|
| ** **                                           | ** ** | **2004**         | ** ** | **2003** | ** ** | **2002** | ** ** |
| Net revenues:                                        |       |             |       |   |   |   |   |
| Advent  Investment Management                        |       | $                | 130,358    |   | $ | 115,445 |   | $ | 134,454 |   |
| MicroEdge                                            |       | 16,967           |       | 14,970 |   | 15,828 |   |
| Other                                                |       | 2,665            |       | 6,744 |   | 9,154 |   |
| Total net  revenues                                  |       | $                | 149,990    |   | $ | 137,159 |   | $ | 159,436 |   |
|                                                 |       |             |       |   |   |   |   |
| Income (loss) from operations:                       |       |             |       |   |   |   |   |
| Advent  Investment Management                        |       | $                | (139       | ) | $ | (26,095 | ) | $ | (8,454 | ) |
| MicroEdge                                            |       | 675              |       | 965 |   | 2,613 |   |
| Other                                                |       | 43               |       | (108 | ) | 1,170 |   |
| Unallocated  corporate operating costs and expenses: |       |             |       |   |   |   |   |
| Amortization  and impairment of developed technology |       | (6,471           | )          | (6,567 | ) | (4,847 | ) |
| Amortization  and impairment of other intangibles    |       | (12,237          | )          | (7,854 | ) | (6,015 | ) |
| Total loss  from operations                          |       | $                | (18,129    | ) | $ | (39,659 | ) | $ | (15,533 | ) |
|                                                 |       |             |       |   |   |   |   |
| Depreciation expense:                                |       |             |       |   |   |   |   |
| Advent  Investment Management                        |       | $                | 7,795      |   | $ | 8,032 |   | $ | 7,935 |   |
| MicroEdge                                            |       | 729              |       | 682 |   | 313 |   |
| Other                                                |       | 31               |       | 25 |   | 32 |   |
| Total  depreciation expense                          |       | $                | 8,555      |   | $ | 8,739 |   | $ | 8,280 |   |

 

*Major Customers*

 

No single customer represented 10% or more of Advent’stotal net revenue in any fiscal year presented.

 

*Geographic Information*

 

Geographical information as of and for the periodspresented is as follows (in thousands):

 
| ** **               | ** ** | **December 31** | ** ** |
|--------------------------|------------|----------------------|------------|
| ** **               | ** ** | **2004**             | ** ** | **2003** | ** ** | **2002** | ** ** |
| Long-lived assets (1):   |       |                 |       |   |   |   |   |
| United  States           |       | $                    | 22,665     |   | $ | 29,635 |   | $ | 42,374 |   |
| International            |       | 486                  |       | 282 |   | 290 |   |
| Total  long-lived assets |       | $                    | 23,151     |   | $ | 29,917 |   | $ | 42,664 |   |

 
| ** **                | ** ** | **Fiscal Years** | ** ** |
|---------------------------|------------|------------------|------------|
| ** **                | ** ** | **2004**         | ** ** | **2003** | ** ** | **2002** | ** ** |
| Geographic net sales (2): |       |             |       |   |   |   |   |
| United  States            |       | $                | 136,804    |   | $ | 127,676 |   | $ | 151,511 |   |
| International             |       | 13,186           |       | 9,483 |   | 7,925 |   |
| Total net  sales          |       | $                | 149,990    |   | $ | 137,159 |   | $ | 159,436 |   |

 

----

| (1) | Long-lived assets exclude goodwill, intangible assets, financial  instruments and deferred tax assets. |
|-----|--------------------------------------------------------------------------------------------------------|
| (2) | Geographic net sales are based on the location to which the product  is shipped.                       |

 

42

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**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

**Note 14—Related Party Transactions**

 

Through December 28, 2004, Stephanie DiMarco,Chief Executive Officer of the Company, was a director of LatentZero. Whenpurchasing certain Advent products, customers have the option to purchaseLatentZero products to provide additional functionality. Based on sales of theLatentZero products by the Company, Advent pays a royalty fee to LatentZero. Adventhas made royalty payments to LatentZero of $0.5 million, $0.2 million and $0.5million during fiscal 2004, 2003 and 2002 respectively. The Company owedamounts to LatentZero totaling $0.2 million and $0.3 million as of December 31,2004 and 2003, respectively. Effective December 28, 2004, Ms. DiMarcoresigned her seat on LatentZero’s board.

 

During fiscal 2004, Advent entered into a sub-leaseagreement with LatentZero on one of Advent’s facilities in New York, New York.Sub-lease income from LatentZero was $70,000 for fiscal 2004. Accountsreceivable from LatentZero was $11,000 as of December 31, 2004.

 

As of December 31, 2004, Citigroup, Inc.owned more than 10% of the voting stock of Advent. Advent recognizedapproximately $1.1 million of revenue from Citigroup during fiscal 2004. TheCompany’s accounts receivable from Citigroup was $0.7 million as of December 31,2004.

 

In addition, Advent acts as trustee for the company’sshort-term disability plan—Advent Software California Voluntary Disability Plan(VDI). Fiscal 2004 employee withholdings and disbursements totaled $0.4 millionand $0.2 million, respectively. As of December 31, 2004, cash held byAdvent related to the VDI was $0.2 million which is included in “other assets,net” in the consolidated balance sheets.

 

**Note 15—Subsequent Events**

 

On February 22, 2005, Advent’s Board approvedan extension of the Company’s stock repurchase program to authorize therepurchase of up to an additional 1.8 million shares of common stock.

 

From January 1, 2005 through March 10,2005, Advent repurchased 2.1 million shares under its current common stockrepurchase plan for a total cost of $38 million and an average price of $17.87per share.

 

On March 8, 2005 certain of the formershareholders and the shareholders’ representative of Kinexus filed suit againstAdvent in the Delaware Chancery Court. The complaint alleges that Adventbreached the Agreement and Plan of Merger dated as of December 31, 2001pursuant to which Advent acquired all of the outstanding shares of Kinexus dueprincipally to the fact that no amount was paid by Advent on an earn-out of upto $115 million. The earn-out, which was payable in cash or stock at theelection of Advent, was based upon Kinexus meeting certain revenue targets inboth 2002 and 2003. The complaint seeks unspecified compensatory damages, anaccounting and restitution for unjust enrichment. Advent advised theshareholders’ representative in January 2003 that the earn-out terms hadnot been met in 2002 and accordingly that no earn-out was payable for 2002 andwould not be payable for 2003. Advent disputes the plaintiffs’ claims andbelieves that it has meritorious defenses and counterclaims and intends tovigorously defend this action. Management believes that any potential lossassociated with this litigation is neither probable nor reasonably estimable atthis time and accordingly has not accrued any amounts for any potential loss.

 

On April 6, 2005, the NASDAQ ListingQualifications Department (the “Nasdaq Staff”) notified Advent that the Companywas not in compliance with the requirements of the NASDAQ Marketplace Rule 4310(c)(14)because it had not yet filed its Annual Report on Form 10-K for the periodended December 31, 2004 (the “2004 10-K”) with the Securities and ExchangeCommission as of April 5, 2005. Consequently, Advent common stock issubject to delisting from the Nasdaq Stock Market. The Company’s delay infiling its 2004 10-K is the only listing deficiency cited by the Nasdaq Staff.

 

Advent intends to request an appeal hearing before aNasdaq Listing Qualifications Panel (the “Panel”) to review the delistingdetermination. Under the Nasdaq Marketplace Rules, the delisting of Advent’scommon stock will be stayed pending the Panel’s review and determination. Untilthe Panel’s ultimate determination, the date of which is not yet known, Adventcommon shares will continue to be traded on the Nasdaq Stock Market, but Advent’strading symbol as of April 7, 2005, was amended from “ADVS” to “ADVSE”, toreflect the Company’s filing delinquency.

 

43

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

**Note 16—Restatement of Pro Forma Disclosure for Stock-Based EmployeeCompensation Expense**

 

In connection with its preparation of the condensedconsolidated financial statements for the quarter ended March 31, 2005,management of the Company determined that the Company’s pro forma disclosuresrelating to stock-based employee compensation expense presented in itsconsolidated financial statements for the years ending December 31, 2002,2003 and 2004 and for the first three quarters of 2003 and 2004 were incorrect.Specifically, the errors related to the calculation of the effect of a stockoption exchange program that took place on December 4, 2002, and theoverall determination of the tax treatment of the pro forma option expense. Asa result of these errors, Advent has restated the disclosure for stock-basedemployee compensation expense for fiscal 2002, 2003 and 2004 presented below, whichare reflected in Note 1 to the financial statements of this Annual Report on Form 10-K/Afor the year ended December 31, 2004. These errors had no impact on ourbalance sheets, statements of operations, cash flows, comprehensive income orstockholders’ equity for any period.

 

The following is a summary of the effect of thesecorrections on the pro forma calculation of Advent’s stock-based employeecompensation expense, net loss and net loss per share for fiscal 2004, 2003 and2002 had compensation been determined based on the fair value at the grant datefor awards (in thousands, except per share data):

 
| ** **                                                                                                             | ** ** | **As Previously** | ** ** | ** **      | ** ** | **As**       | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------|------------|--------------|------------|
| ** **                                                                                                             | ** ** | **Reported**      | ** ** | **Adjustments** | ** ** | **Restated** | ** ** |
| **Fiscal  2004**                                                                                                       |       |              |       |            |       |         |       |
| Net loss -  as reported                                                                                                |       | $                 | (16,244    | )               | $          | —       |       | $ | (16,244 | ) |
| Stock-based  employee compensation expense included in reported net loss, net of tax                                   |       | 21                |       | —          |       | 21           |       |
| Total  stock-based employee compensation expense determined under fair value based  method for all options, net of tax |       | (9,443            | )          | (7,183          | )          | (16,626      | )          |
|                                                                                                                   |       |              |       |            |       |         |       |
| Net loss -  pro forma                                                                                                  |       | $                 | (25,666    | )               | $          | (7,183       | )          | $ | (32,849 | ) |
|                                                                                                                   |       |              |       |            |       |         |       |
| Net loss per  share:                                                                                                   |       |              |       |            |       |         |       |
| Basic and  diluted - as reported                                                                                       |       | $                 | (0.49      | )               | $          | —       |       | $ | (0.49 | ) |
| Basic and  diluted - pro forma                                                                                         |       | $                 | (0.78      | )               | $          | (0.22        | )          | $ | (1.00 | ) |
|                                                                                                                   |       |              |       |            |       |         |       |
| **Fiscal  2003**                                                                                                       |       |              |       |            |       |         |       |
| Net loss -  as reported                                                                                                |       | $                 | (92,933    | )               | $          | —       |       | $ | (92,933 | ) |
| Stock-based  employee compensation expense included in reported net loss, net of tax                                   |       | 501               |       | —          |       | 501          |       |
| Total  stock-based employee compensation expense determined under fair value based  method for all options, net of tax |       | (12,101           | )          | (19,011         | )          | (31,112      | )          |
|                                                                                                                   |       |              |       |            |       |         |       |
| Net loss -  pro forma                                                                                                  |       | $                 | (104,533   | )               | $          | (19,011      | )          | $ | (123,544 | ) |
|                                                                                                                   |       |              |       |            |       |         |       |
| Net loss per  share:                                                                                                   |       |              |       |            |       |         |       |
| Basic and  diluted - as reported                                                                                       |       | $                 | (2.86      | )               | $          | —       |       | $ | (2.86 | ) |
| Basic and  diluted - pro forma                                                                                         |       | $                 | (3.22      | )               | $          | (0.58        | )          | $ | (3.80 | ) |
|                                                                                                                        |            |                   |            |                 |            |              |            |  |  |  |  |

 

44

----

 

**ADVENT SOFTWARE, INC.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 
| ** **                                                                                                             | ** ** | **As Previously** | ** ** | ** **      | ** ** | **As**       | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------|------------|--------------|------------|
| ** **                                                                                                             | ** ** | **Reported**      | ** ** | **Adjustments** | ** ** | **Restated** | ** ** |
| **Fiscal 2002**                                                                                                        | ** ** | ** **        | ** ** | ** **      | ** ** | ** **   | ** ** |
| Net loss -  as reported                                                                                                |       | $                 | (19,236    | )               | $          | —       |       | $ | (19,236 | ) |
| Stock-based  employee compensation expense included in reported net loss, net of tax                                   |       | (2                | )          | —          |       | (2           | )          |
| Total  stock-based employee compensation expense determined under fair value based  method for all options, net of tax |       | (14,113           | )          | (5,301          | )          | (19,414      | )          |
|                                                                                                                   |       |              |       |            |       |         |       |
| Net loss -  pro forma                                                                                                  |       | $                 | (33,351    | )               | $          | (5,301       | )          | $ | (38,652 | ) |
|                                                                                                                   |       |              |       |            |       |         |       |
| Net loss per  share:                                                                                                   |       |              |       |            |       |         |       |
| Basic and  diluted - as reported                                                                                       |       | $                 | (0.57      | )               | $          | —       |       | $ | (0.57 | ) |
| Basic and  diluted - pro forma                                                                                         |       | $                 | (0.99      | )               | $          | (0.16        | )          | $ | (1.15 | ) |
|                                                                                                                        |            |                   |            |                 |            |              |            |  |  |  |  |

 

45

----

 

**Supplementary Quarterly Financial Data (Unaudited)(8)**

 
| ** **                             | ** ** | **First**                                  | ** ** | **Second**  | ** ** | **Third**   | ** ** | **Fourth**  | ** ** |
|----------------------------------------|------------|--------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **                             | ** ** | **Quarter**                                | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** |
| ** **                             | ** ** | **(in thousands, except per share  data)** | ** ** |
| 2004*(1)(2)(3)(4):                     |       |                                       |       |        |       |        |       |        |       |
| Net revenues                           |       | $                                          | 35,722     |        | $          | 36,024      |       | $           | 37,288     |   | $ | 40,956 |   |
| Gross margin                           |       | $                                          | 23,333     |        | $          | 22,821      |       | $           | 23,851     |   | $ | 27,030 |   |
| Loss from operations                   |       | $                                          | (1,274     | )           | $          | (9,126      | )          | $           | (4,563     | ) | $ | (3,166 | ) |
| Net loss                               |       | $                                          | (1,148     | )           | $          | (9,247      | )          | $           | (5,133     | ) | $ | (716 | ) |
| Net loss per share - basic and diluted |       | $                                          | (0.03      | )           | $          | (0.28       | )          | $           | (0.16      | ) | $ | (0.02 | ) |
|                                   |       |                                       |       |        |       |        |       |        |       |
| 2003(5)(6)(7)                          |       |                                       |       |        |       |        |       |        |       |
| 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     | ) | $ | (70,408 | ) |
| Net loss per share - basic and diluted |       | $                                          | (0.23      | )           | $          | (0.30       | )          | $           | (0.17      | ) | $ | (2.15 | ) |

 

----

*                          Our results of operations for the first,second and third quarters of 2004 have been restated. See (1) below foradditional information.

 

(1)                   Effective January 1, 2004, we corrected our classification ofrevenue from our subsidiary, Second Street Securities, when they engage in thesoft dollaring of third party products or services. Revenues and cost ofrevenues for fiscal 2004 have been changed to reflect revenue recognition on anet basis from these transactions. As a result, we recorded reductions to netrevenues of $1.1 million, $1.0 million and $1.3 million in the first, secondand third quarters of 2004, respectively. These changes do not affect grossmargin, operating loss, or net loss for any period presented. We have notchanged revenues and cost of revenues in periods prior to fiscal 2004 as theamounts were not material.

 

Inaddition, subsequent to our press release on February 1, 2005, we recordedcorrections to our results of operations for the second, third and fourthquarters of 2004. For the second quarter of 2004, we recorded a correction toincur an additional non-cash restructuring charge of $0.9 million. Totalrestructuring charges for the second quarter were $5.9 million. As a result ofthe additional restructuring charges, we recorded reductions to depreciationexpense of $36,000 and $35,000 in the third and fourth quarters of 2004,respectively. For the fourth quarter of 2004, we also recorded an adjustment torent expense of $354,000 to properly account for a rent holiday associated withan operating lease. These corrections resulted in a restatement to our resultsof operations for the second and third quarters of 2004. See Note 2, “Restatementof Financial Statements,” to the consolidated financial statements foradditional information.

 

Thefollowing is a summary of the effect of these corrections on the Company’sconsolidated statement of operations for the quarters ended March 31,2004, June 30, 2004, and September 30, 2004 (in thousands):

 

46

----

 
| ** **                                | ** ** | **As Previously** | ** ** | ** **      | ** ** | ** **      | ** ** |
|-------------------------------------------|------------|-------------------|------------|-----------------|------------|-----------------|------------|
| ** **                                | ** ** | **Reported**      | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
| **Quarter ended March 31, 2004**     |       |              |       |            |       |            |       |
| Net revenues                              |       | $                 | 36,836     |            | $          | (1,114          | )          | $ | 35,722 |   |
|                                      |       |              |       |            |       |            |       |
| **Quarter ended June 30, 2004**      |       |              |       |            |       |            |       |
| Net revenues                              |       | $                 | 37,003     |            | $          | (979            | )          | $ | 36,024 |   |
| Loss from operations                      |       | $                 | (8,263     | )               | $          | (863            | )          | $ | (9,126 | ) |
| Net loss                                  |       | $                 | (8,384     | )               | $          | (863            | )          | $ | (9,247 | ) |
| Net loss per share-basic and diluted      |       | $                 | (0.25      | )               | $          | (0.03           | )          | $ | (0.28 | ) |
|                                      |       |              |       |            |       |            |       |
| **Quarter ended September 30, 2004** |       |              |       |            |       |            |       |
| Net revenues                              |       | $                 | 38,616     |            | $          | (1,328          | )          | $ | 37,288 |   |
| Loss from operations                      |       | $                 | (4,599     | )               | $          | 36              |       | $ | (4,563 | ) |
| Net loss                                  |       | $                 | (5,169     | )               | $          | 36              |       | $ | (5,133 | ) |
| Net loss per share-basic and diluted      |       | $                 | (0.16      | )               | $          | —          |       | $ | (0.16 | ) |

 

(2)                                  Our quarterly results of operations for 2004included the operating results of Advent United Kingdom and Switzerland,subsequent to their acquisition in May of 2004.

 

(3)                                  In the third quarter of 2004, we recorded animpairment charge of $3.4 million to write-off our Techfi-related intangibleassets resulting from our decision to sunset certain products within our Techfiproduct line.

 

(4)                                  In the fourth quarter of 2004, we recordedimpairment charges totaling $2.1 million. This amount included $1.4 million and$0.7 million to write off the carrying value of Advent Hellas and Advent WealthService’s (AWS) intangible assets, respectively, as a result of significantunderperformance by Advent Hellas and AWS relative to historical and projectedfuture operating results as well as our decision to re-focus our strategicdirection on our core businesses.

 

(5)                                  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 acorresponding reduction in general and administrative expenses in the fourthquarter of 2003. We also recorded corrections to reduce our income taxprovision by a net $4.6 million for the fourth quarter of 2003. This amountincluded $5.8 million to reduce our valuation allowance, offset by $1.2 millionto accrue additional state tax liabilities. These corrections resulted in arestatement to our results of operations for the fourth quarter of 2003. SeeNote 2, “Restatement of Financial Statements,” for additional information.

 

The following is a summary of the effect of thesechanges on the Company’s consolidated statement of operations for the quarterended December 31, 2003 (in thousands):

 
| ** **                                | ** ** | **As Previously** | ** ** | ** **      | ** ** | ** **       | ** ** |
|-------------------------------------------|------------|-------------------|------------|-----------------|------------|------------------|------------|
| ** **                                | ** ** | **Reported**      | ** ** | **Adjustments** | ** ** | **As Presented** | ** ** |
| **Quarter ended December 31, 2003**  |       |              |       |            |       |             |       |
| Net loss                                  |       | $                 | (75,018    | )               | $          | 4,610            |       | $ | (70,408 | ) |
| Net loss per share—basic and diluted |       | $                 | (2.29      | )               | $          | 0.14             |       | $ | (2.15 | ) |

 

(6)                                  In the fourth quarter of 2003, we beganpresenting amortization of developed technology within cost of revenues. Allprior periods have been reclassified to the current presentation.

 

(7)                                  The fourth quarter of 2003 included aprovision for income taxes of $65.9 million (as restated) as a result ofrecording a full valuation allowance against our deferred tax assets in theUnited States.

 

(8)           In addition, the following supplementaryquarterly data is a summary of the effect of corrections on the pro formacalculation of Advent’s stock-based employee compensation expense, net loss andnet loss per share for the first three quarters of fiscal 2003 and 2004 hadcompensation been determined based on the fair value at the grant date forawards (in thousands, except per share data):

 
| **Three  months ended March 31, 2004**                                                                            |   |   |    |   |   |   |   |
|------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|--------|
| Net loss -  as reported                                                                                                |   | $      | (1,148  | )      | $      | — |   | $ | (1,148 | ) |
| Stock-based  employee compensation expense included in reported net loss, net of tax                                   |   | 12     |    | — |   | 12     |   |
| Total  stock-based employee compensation expense determined under fair value based  method for all options, net of tax |   | (2,551 | )       | (2,029 | )      | (4,580 | )      |
|                                                                                                                   |   |   |    |   |   |   |   |
| Net loss -  pro forma                                                                                                  |   | $      | (3,687  | )      | $      | (2,029 | )      | $ | (5,716 | ) |
|                                                                                                                   |   |   |    |   |   |   |   |
| Net loss per  share:                                                                                                   |   |   |    |   |   |   |   |
| Basic and  diluted - as reported                                                                                       |   | $      | (0.03   | )      | $      | — |   | $ | (0.03 | ) |
| Basic and  diluted - pro forma                                                                                         |   | $      | (0.11   | )      | $      | (0.06  | )      | $ | (0.17 | ) |
|                                                                                                                   |   |   |    |   |   |   |   |
| **Three  months ended June 30, 2004**                                                                             |   |   |    |   |   |   |   |
| Net loss -  as reported                                                                                                |   | $      | (9,247  | )      | $      | — |   | $ | (9,247 | ) |
| Stock-based  employee compensation expense included in reported net loss, net of tax                                   |   | 6      |    | — |   | 6      |   |
| Total  stock-based employee compensation expense determined under fair value based  method for all options, net of tax |   | (2,516 | )       | (1,477 | )      | (3,993 | )      |
|                                                                                                                   |   |   |    |   |   |   |   |
| Net loss -  pro forma                                                                                                  |   | $      | (11,757 | )      | $      | (1,477 | )      | $ | (13,234 | ) |
|                                                                                                                   |   |   |    |   |   |   |   |
| Net loss per  share:                                                                                                   |   |   |    |   |   |   |   |
| Basic and  diluted - as reported                                                                                       |   | $      | (0.28   | )      | $      | — |   | $ | (0.28 | ) |
| Basic and  diluted - pro forma                                                                                         |   | $      | (0.35   | )      | $      | (0.05  | )      | $ | (0.40 | ) |
|                                                                                                                   |   |   |    |   |   |   |   |
| **Three  months ended September 30, 2004**                                                                        |   |   |    |   |   |   |   |
| Net loss -  as reported                                                                                                |   | $      | (5,133  | )      | $      | — |   | $ | (5,133 | ) |
| Stock-based  employee compensation expense included in reported net loss, net of tax                                   |   | 3      |    | — |   | 3      |   |
| Total  stock-based employee compensation expense determined under fair value based  method for all options, net of tax |   | (2,247 | )       | (1,844 | )      | (4,091 | )      |
|                                                                                                                   |   |   |    |   |   |   |   |
| Net loss -  pro forma                                                                                                  |   | $      | (7,377  | )      | $      | (1,844 | )      | $ | (9,221 | ) |
|                                                                                                                   |   |   |    |   |   |   |   |
| Net loss per  share:                                                                                                   |   |   |    |   |   |   |   |
| Basic and  diluted - as reported                                                                                       |   | $      | (0.16   | )      | $      | — |   | $ | (0.16 | ) |
| Basic and  diluted - pro forma                                                                                         |   | $      | (0.22   | )      | $      | (0.06  | )      | $ | (0.28 | ) |

 
| ** **                                                                                                             | ** ** | **As Previously** | ** ** | ** **      | ** ** | **As**       | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------|------------|--------------|------------|
| ** **                                                                                                             | ** ** | **Reported**      | ** ** | **Adjustments** | ** ** | **Restated** | ** ** |
| **Three  months ended March 31, 2003**                                                                            |       |              |       |            |       |         |       |
| Net loss -  as reported                                                                                                |       | $                 | (7,480     | )               | $          | —       |       | $ | (7,480 | ) |
| Stock-based  employee compensation expense included in reported net loss, net of tax                                   |       | —            |       | —          |       | —       |       |
| Total  stock-based employee compensation expense determined under fair value based  method for all options, net of tax |       | (1,908            | )          | (2,856          | )          | (4,764       | )          |
|                                                                                                                   |       |              |       |            |       |         |       |
| Net loss -  pro forma                                                                                                  |       | $                 | (9,388     | )               | $          | (2,856       | )          | $ | (12,244 | ) |
|                                                                                                                   |       |              |       |            |       |         |       |
| Net loss per  share:                                                                                                   |       |              |       |            |       |         |       |
| Basic and  diluted - as reported                                                                                       |       | $                 | (0.23      | )               | $          | —       |       | $ | (0.23 | ) |
| Basic and  diluted - pro forma                                                                                         |       | $                 | (0.29      | )               | $          | (0.09        | )          | $ | (0.38 | ) |
|                                                                                                                   |       |              |       |            |       |         |       |
| **Three  months ended June 30, 2003**                                                                             |       |              |       |            |       |         |       |
| Net loss -  as reported                                                                                                |       | $                 | (9,596     | )               | $          | —       |       | $ | (9,596 | ) |
| Stock-based  employee compensation expense included in reported net loss, net of tax                                   |       | 180               |       | 81              |       | 261          |       |
| Total  stock-based employee compensation expense determined under fair value based  method for all options, net of tax |       | (2,372            | )          | (2,422          | )          | (4,794       | )          |
|                                                                                                                   |       |              |       |            |       |         |       |
| Net loss -  pro forma                                                                                                  |       | $                 | (11,788    | )               | $          | (2,341       | )          | $ | (14,129 | ) |
|                                                                                                                   |       |              |       |            |       |         |       |
| Net loss per  share:                                                                                                   |       |              |       |            |       |         |       |
| Basic and  diluted - as reported                                                                                       |       | $                 | (0.30      | )               | $          | —       |       | $ | (0.30 | ) |
| Basic and  diluted - pro forma                                                                                         |       | $                 | (0.37      | )               | $          | (0.07        | )          | $ | (0.44 | ) |

 
| ** **                                                                                                             | ** ** | **As Previously** | ** ** | ** **      | ** ** | **As**       | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------|------------|--------------|------------|
| ** **                                                                                                             | ** ** | **Reported**      | ** ** | **Adjustments** | ** ** | **Restated** | ** ** |
| **Three  months ended September 30, 2003**                                                                        |       |              |       |            |       |         |       |
| Net loss -  as reported                                                                                                |       | $                 | (5,449     | )               | $          | —       |       | $ | (5,449 | ) |
| Stock-based  employee compensation expense included in reported net loss, net of tax                                   |       | 85                |       | 42              |       | 127          |       |
| Total stock-based  employee compensation expense determined under fair value based method for  all options, net of tax |       | (1,731            | )          | (2,592          | )          | (4,323       | )          |
|                                                                                                                   |       |              |       |            |       |         |       |
| Net loss -  pro forma                                                                                                  |       | $                 | (7,095     | )               | $          | (2,550       | )          | $ | (9,645 | ) |
|                                                                                                                   |       |              |       |            |       |         |       |
| Net loss per  share:                                                                                                   |       |              |       |            |       |         |       |
| Basic and  diluted - as reported                                                                                       |       | $                 | (0.17      | )               | $          | —       |       | $ | (0.17 | ) |
| Basic and  diluted - pro forma                                                                                         |       | $                 | (0.22      | )               | $          | (0.08        | )          | $ | (0.30 | ) |

 

**Item 9A. Controls andProcedures**

 

**Evaluation of Disclosure Controls and Procedures**

 

The Company’s management evaluated, under thesupervision and with the participation of the Chief Executive Officer and ChiefFinancial Officer, the effectiveness of the Company’s disclosure controls andprocedures, as such term is defined under Rule 13a-15(e) and 15d-15(e)under the Securities Exchange Act of 1934, as of the end of the period coveredby this Annual Report on Form 10-K/A. Based on this evaluation, the ChiefExecutive Officer and Chief Financial Officer have concluded that because ofthe material weaknesses in internal control over financial reporting identifiedin Management’s Report on Internal Control over Financial Reporting (restated) appearingon page 4, our

 

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disclosurecontrols and procedures were ineffective as of December 31, 2004, to ensurethat information we are required to disclose in reports that we file or submitunder the Securities Exchange Act of 1934 is recorded, processed, summarizedand reported within the time periods specified in Securities and ExchangeCommission rules and forms and that such information is accumulated andcommunicated to the Company’s management, including its Chief Executive Officerand Chief Financial Officer, as appropriate, to allow timely decisionsregarding required disclosures.

 

**Changes in internal control over financial reporting**

 

There was no change in ourinternal control over financial reporting which was identified in connectionwith the evaluation required by Rule 13a-15(e) of the Exchange Actthat occurred during the quarter ended December 31, 2004 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrols over financial reporting.

 

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**PART IV**

 

**Item 15. Exhibits andFinancial Statement Schedules**

 

**3. Exhibits**

 

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

 
| **Exhibit  Number** | ** ** | **Description of Document**                                                                        |
|---------------------|------------|----------------------------------------------------------------------------------------------------|
|                |       |                                                                                               |
| 23.1                |       | Consent of 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 or15(d) of the Securities Exchange Act of 1934, the registrant has dulycaused this Report on Form 10-K/A to be signed on its behalf by theundersigned thereunto duly authorized, on this 30th day of November, 2005.

 
|       | ADVENT SOFTWARE, INC.                                                                                                |
|------------|----------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                 |
|       | By:                                                                                                                  | /s/    GRAHAM V. SMITH |   |
|       | Graham V. Smith                                                                                                      |
| ** ** | ***Executive Vice President,  Chief Financial Officer and Secretary  (Principal Financial and Accounting Officer)*** |

 

**POWER OF ATTORNEY**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, as amended, this report has been signed below by the followingpersons on behalf of the registrant and in the capacities and on the datesindicated.

 
| **Signature**                               | ** ** | **Title**                                                                                                    | ** ** | **Date**               |
|---------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------|------------|------------------------|
|                                        |       |                                                                                                         |       |                   |
| *                                           |       | Chief Executive Officer and President(Principal Executive Officer)                                           |       | November 30, 2005 |
| **Stephanie G. DiMarco**                    |       |                                                                                                         |       |                   |
|                                        |       |                                                                                                         |       |                   |
| /s/    GRAHAM  V. SMITH |       | Executive Vice President, Chief Financial Officer and Secretary(Principal Financial and  Accounting Officer) |       | November 30, 2005 |
| **Graham V. Smith**                         |       |                                                                                                         |       |                   |
|                                        |       |                                                                                                         |       |                   |
| *                                           |       | Director                                                                                                     |       | November 30, 2005 |
| **A. George Battle**                        |       |                                                                                                         |       |                   |
|                                        |       |                                                                                                         |       |                   |
| *                                           |       | Director                                                                                                     |       | November 30, 2005 |
| **Terry H. Carlitz**                        |       |                                                                                                         |       |                   |
|                                        |       |                                                                                                         |       |                   |
| *                                           |       | Director                                                                                                     |       | November 30, 2005 |
| **James P. Roemer**                         |       |                                                                                                         |       |                   |
|                                        |       |                                                                                                         |       |                   |
| *                                           |       | Chairman of the Board                                                                                        |       | November 30, 2005 |
| **John H. Scully**                          |       |                                                                                                         |       |                   |
|                                        |       |                                                                                                         |       |                   |
| *                                           |       | Director                                                                                                     |       | November 30, 2005 |
| **Wendell G. Van Auken**                    |       |                                                                                                         |       |                   |
|                                        |       |                                                                                                         |       |                   |
| *                                           |       | Director                                                                                                     |       | November 30, 2005 |
| **William F. Zuendt**                       |       |                                                                                                         |       |                   |

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

 

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