Full-year 2004 net income and diluted net income per share includes an after-tax gain of approximately $46 million, or $0.16 per diluted share, from the sale of Brut LLC in September 2004. Merger and spin-off costs and related items were $0.02 per share in 2004, compared to zero in 2003. Excluding the gain from the sale of Brut and all merger and spin-off costs, diluted net income per share was $1.40, up 10% over comparable results of $1.27 in 2003. The Notes to this release include further details concerning merger and spin-off costs, and the gain from the sale of Brut.
For the fourth quarter, net income and diluted net income per share was $112 million and $0.38 per diluted share, about the same as reported in the fourth quarter of 2003. Merger and spin-off costs were $0.02 per share in the quarter, compared to a $0.01 per share benefit in the fourth quarter of 2003 from the reversal of previously-recorded merger costs. Diluted net income per share before merger and spin-off costs was $0.40 for the quarter, representing an increase of 8% from the fourth quarter of last year.
Revenue for full-year 2004 was $3.56 billion, an increase of 20% over the $2.96 billion reported for 2003. Revenue for the fourth quarter was $917 million, an increase of 14% over the $804 million reported in the year ago period. Internal revenue (revenue from businesses owned for at least one year and excluding revenue from Brut) grew 2% for 2004 and 4% in the fourth quarter, with the impact of favorable exchange rates contributing approximately 2% in each period.
"SunGard grew stronger and posted record revenue and net income in 2004," commented CristÃ³bal Conde, president and chief executive officer. "We are a trusted partner to our many customers. In Software & Processing, this includes some of the world's elite financial services, higher education and public sector institutions, and in Availability Services, this includes customers across the entire spectrum of information availability needs, from "always on" production services to "always ready" standby services. Our competitiveness is better than ever."
On October 4, 2004, SunGard announced a plan to spin off its Availability Services business to stockholders through a tax-free distribution of shares. The spin-off is now expected to be completed during the second quarter of 2005, subject to customary conditions including the receipt of a favorable ruling from the Internal Revenue Service.
"The separation of the businesses is expected to have a positive impact on growth for both the company's Software & Processing business and its Availability Services business over time. Before completion of the spin-off, each of the two businesses will provide financial guidance as a standalone company. In the interim, we are providing our 2005 outlook for the combined company," said Mr. Conde.
SunGard's 2005 outlook assumes a continuation of the current demand environment for its products and services. To provide an outlook on a comparable basis to 2004 results, the 2005 outlook excludes an estimated charge of $10 to $15 million related to the relocation of an availability services facility during the first quarter of 2005, spin-off costs and stock option expenses. This outlook also assumes no merger-related items in 2005 because the timing and magnitude of merger costs are unpredictable.
On this basis, the company's outlook for 2005 diluted net income per share is in the range of $1.51 to $1.57 per share, representing growth of between 8% and 12%. As in prior years, SunGard ended 2004 with a software license backlog that is included in the 2005 outlook. This year's backlog was higher than usual, totaling $19 million, with the largest portion coming from license-fee businesses acquired in 2004. SunGard expects growth in internal revenue in both its Software & Processing business and its Availability Services business to be in the low to middle single digits for the full year 2005.
Software & Processing, comprising Investment Support Systems and Higher Education and Public Sector Systems, provides a broad range of integrated solutions primarily to two verticals, financial services and higher education. For the year, this business grew revenue by 32%, reaching $2.36 billion. For the fourth quarter revenue grew by 22%. Internal revenue grew by 3% for the year and 6% for the quarter. The impact of favorable exchange rates contributed approximately 2% to internal revenue growth in each period. License fees were $211 million for the year and $64 million for the fourth quarter.
Investment Support Systems (ISS) revenue grew 15% to $1.84 billion for the year. Fourth quarter revenue grew by 2% to $466 million. ISS internal revenue grew 2.5% for the year and 5% in the fourth quarter, including a 2% favorable impact from currency changes during each period. Most of the improvement came from the buy-side. ISS license sales were $149 million for the year and $46 million for the quarter. Cost-cutting continues to be important to many customers, resulting in more scrutiny and pricing pressure, but investment in growth opportunities and regulatory compliance continue to increase in importance. Some notable deals signed this quarter include:
* A global provider of electronics, information and communications products selected AvantGard to manage its global treasury operations. AvantGard's centralized structure will help improve their operational efficiencies and procedures.
* One of the UK's largest banks selected SunGard's Basel II solution to provide it the ability to fully comply with the transparency and auditability that the regulation demands.
* A large provider of corporate trust services signed a five-year contract renewal for the BondMaster, CertMaster and FiRRe systems.
Higher Education and Public Sector Systems (HE/PS) revenue increased 193% to $525 million for the year. Fourth quarter revenue increased 207% to $145 million. Internal revenue increased approximately 5% for the year and 11% in the fourth quarter. HE/PS license sales were $62 million for the year and $18 million for the quarter. Colleges and universities have escalating IT requirements, as they seek to develop integrated enterprise architectures to replace disparate legacy systems and as students, faculty and administrators demand 24/7 Web-based self-service. The public sector is under pressure to comply with new federal and state mandates that require significant investments to upgrade its technology. Some notable deals signed this quarter include:
* A comprehensive, internationally renowned research university and academic health center in Alabama selected the SCT Banner Unified Digital Campus solution to support its more than 16,000 students.
* Building on a 30 year relationship, SunGard SCT signed a multi-million dollar agreement with a state university and community college system which covers their 19 campuses.
* SunGard OSSI, which provides technology solutions to public safety agencies, signed an agreement with a city in North Carolina.
Availability Services (AS) revenue increased 2% to $1.19 billion for the year. Fourth quarter revenue increased 1% to $306 million. The impact of favorable exchange rates contributed approximately 2% to revenue growth in each period. AS serves information-dependent enterprises of all types by helping to ensure the continuity of their business. Today more than half of outgoing customer proposals bundle two or more services, representing a gradual change over the past several years from when most customers shopped for standalone services. SunGard is positioned better than ever to meet the increasing demands of customers across the spectrum of both always-on and always-ready services. The more complex the challenge, the more differentiated SunGard's offerings become. More than 600 new name accounts were signed in 2004. Some notable contracts signed this quarter include:
* One of North America's largest railroads selected an information availability solution including asynchronous replication, traditional recovery services and professional services.
* A major insurance company, that intended to move its availability solution in-house, renewed its contract with SunGard and engaged professional services for assistance in developing an architected solution.
* A leading financial services institution signed an agreement with SunGard to provide a tertiary site to its own primary and secondary data centers.
SunGard has exceptional financial strength, which enables it to invest in its existing businesses and acquire new ones. Cash flow from operations for the full year was approximately $785 million. Total debt at December 31, 2004 was $554 million, a net increase of $355 million from December 31, 2003, after issuing $500 million of unsecured senior notes in January 2004. These proceeds and existing cash balances were used during 2004 to fund ten acquisitions totaling $774 million (net of cash acquired) and capital expenditures of $240 million company wide. At the end of 2004, cash balances were $675 million, an increase of $196 million from December 31, 2003.
In February of 2004 SunGard announced a five million share repurchase program to provide shares for SunGard's employee stock purchase and stock option programs. Through December 31, 2004, 3.93 million shares were repurchased for a total cost of $104 million. The company does not expect to repurchase any additional shares under this program, which will expire later this month.