Basis of presentation:    The consolidated financial statements include the accounts of Advent and its subsidiaries after elimination of all intercompany transactions and amounts. The Company has prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the SEC.

        Effective with the first quarter of 2011, the Company changed the presentation of the components of net revenues to recurring and non-recurring to reflect the predominant nature of the Company's sources of revenue. Recurring revenues are comprised of term license, maintenance from legacy perpetual arrangements, and other recurring revenues. Non-recurring revenues are comprised of professional services and other revenues, which now include perpetual license fees. Prior periods have been reclassified to reflect this change.

Marketable securities:    Marketable securities consist primarily of U.S. government and U.S. Government Sponsored Entities (GSE's), foreign government debt securities and high credit quality corporate debt securities not otherwise classified as cash equivalents. All marketable securities are considered available-for-sale and are carried at fair value on the Company's consolidated balance sheets. Short-term marketable securities mature twelve months or less from the date of the balance sheet and long-term marketable securities mature greater than twelve months from the date of the balance sheet.

        Advent periodically reviews the realizability of each short-term and long-term marketable security when impairment indicators exist with respect to the security. If an other-than-temporary impairment of value of the security exists, the carrying value of the security is written down to its estimated fair value. Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition, credit quality and near-term prospects of the investee, and Advent's ability to hold the securities for a period of time sufficient to allow for any anticipated recovery in market value.

Investments:    Investments are included in "other assets" on the consolidated balance sheets and consist of non-marketable investments in privately held companies, most of which can be considered in the start-up or development stages. Investments are recorded at cost and reviewed for impairment. It is Advent's policy to review investments in privately held companies on a regular basis to evaluate the carrying amount and economic viability of these companies. This policy includes, but is not limited to, reviewing each of the companies' cash position, financing needs, earnings/revenue outlook, operational performance, management/ownership changes and competition. The evaluation process is based on information that Advent requests from these privately held companies. This information is not subject to the same disclosure regulations as U.S. publicly traded companies, and as such, the basis for these evaluations is subject to timing and the accuracy of the data received from these companies.

        The Company's investments in privately held companies are assessed for impairment when a review of the investee's operations indicate that there exists a decline in value of the investment and the decline is other than temporary. Such indicators include, but are not limited to, limited capital resources, limited prospects of receiving additional financing, and prospects for liquidity of the related securities. Impaired investments in privately held companies are written down to estimated fair value. The Company estimates fair value using a variety of valuation methodologies. Such methodologies include comparing the private company with publicly traded companies in similar lines of business, applying revenue multiples to estimated future operating results for the private company and estimating discounted cash flows for that company.

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

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

Goodwill:    Advent reviews its goodwill for impairment annually during the fourth quarter of our fiscal year, as of November 1, and more frequently if an event or circumstance indicates that an impairment loss has occurred. Goodwill is tested for impairment at the reporting unit level. Advent has determined that it has one reporting unit which comprises the Advent Investment Management segment, for the goodwill impairment testing performed during the fourth quarter of 2012. In October 2012, the Company reorganized its operations which resulted in a change in the internal management reporting structure to a global functional structure. Prior to October 2012, the Company had two reporting units, Domestic and International, which together comprised the Advent Investment Management segment.

        Advent's test for goodwill impairment starts with a qualitative assessment to determine whether it is necessary to perform the quantitative goodwill impairment test. If Advent determines, based on the qualitative factors, that the fair value of the reporting unit is not more likely than not greater than the carrying amount, then quantitative goodwill impairment test is required.

        The quantitative test for goodwill impairment is a two-step process. The first step compares the fair value of each reporting unit with its respective carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of our reporting unit is considered not impaired, thus the second step of the impairment test is unnecessary. The second step, used to measure the amount of impairment loss, compares the implied fair value of each reporting unit's goodwill with the respective carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess.

        Determining the fair value of a reporting unit is subjective and requires judgment at many points during the test including the development of future revenue and expense forecasts used to calculate future cash flows, the selection of risk-adjusted discount rates, and determination of market comparable entities.

Accounting for long-lived assets:    Advent reviews its long-lived assets, including property and equipment and other intangibles, for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable.

        Recoverability is measured by comparing the carrying amount of the assets to the expected future undiscounted net cash flows to be generated by those assets. If such assets are considered to be impaired, the impairment to be recognized is measured based on the amount by which the carrying amount of the asset exceeds its fair value.

        Other intangible assets mainly represent completed technology, distributor licenses, customer lists, trademark/tradenames and non-compete agreements acquired in business combinations. Acquired identifiable intangibles are amortized on a straight-line basis over their estimated useful lives as follows:

Software license fees.    Advent recognizes revenue from the licensing of software when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed or determinable and collection of the resulting receivable is probable. Advent generally uses a signed license agreement as evidence of an arrangement. Sales through the Company's distributors are evidenced by a master agreement governing the relationship together with binding order forms and signed contracts from the distributor's customers. Revenue is recognized once delivery to the distributor's customer has taken place and when all other revenue recognition criteria have been met. Delivery occurs upon notification that software is available for electronic download through our fulfillment vendor, or when a product is delivered to a common carrier F.O.B shipping point, or upon confirmation that product delivered F.O.B shipping destination has been received. Some of the Company's arrangements include acceptance provisions; if such acceptance provisions are present, delivery is deemed to occur upon acceptance. Advent assesses whether the fee is fixed or determinable based on the payment terms associated with the transaction. Advent assesses whether the collectability of the resulting receivable is probable based on a number of factors, including the credit worthiness of the customer determined through a credit review process, including credit reporting agency reports, publicly available customer information, financial statements and other available information and pertinent country risk if the customer is located outside the United States. The Company's standard payment terms are due at 180 days or less, but payment terms may vary based on the country in which the agreement is executed. Software licenses are sold with maintenance, and often professional services.

        Advent typically licenses its products on a per server, per user basis with the price per customer varying based on the selection of the products licensed, the assets under administration, the number of site installations and the number of authorized users.

        Advent categorizes revenues in its consolidated statements of operations as recurring revenues and non-recurring revenues. Recurring revenues are comprised of term license, perpetual maintenance arrangements and other recurring revenue (which includes revenues from Black Diamond, Advent OnDemand and incremental Assets Under Administration ("AUA") fees from perpetual licenses). Non-recurring revenues are comprised of perpetual license fees, professional services and other revenue.

• Recurring Revenues:

        Recurring product revenues for fiscal 2012, 2011 and 2010 were as follows (in thousands):

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  Term licenses

• Term license contracts include both the software license and maintenance. Advent offers multi-year term licenses by which a customer makes a binding commitment that typically spans three years. For multi-year term licenses, Advent has not established vendor specific objective evidence, or VSOE, of fair value for the software license and maintenance components and, as a result, in situations where the Company is also performing related professional services, it defers all revenue and directly-related expenses under the arrangement until the implementation services are complete and the remaining services are substantially complete. At the point professional services are substantially completed, Advent recognizes a pro-rata amount of the term license revenue, professional services fees earned and related expenses, based on the elapsed time from the start of the term license to the substantial completion of professional services. Advent determines whether services are substantially complete by consulting with the professional services group and applying management judgment. Term license revenue for the remaining contract years, the remaining deferred professional services revenue and related expenses are recognized ratably over the remaining contract length. When multi-year term licenses are sold and do not include related professional services, Advent recognizes the entire term license revenue ratably over the period of the contract term from the effective date of the license agreement assuming all other revenue recognition criteria have been met.

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  Maintenance

• Advent offers annual maintenance programs on perpetual licenses that provide for technical support and updates to the Company's software products. Maintenance fees are bundled with perpetual license fees in the initial licensing period and charged separately for renewals of annual maintenance in subsequent years. Fair value for maintenance is based upon either renewal rates stated in the contracts or separate sales of renewals to customers. Revenue is recognized ratably, or daily, over the term of the maintenance period, which is typically one year.

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  Assets Under Administration Revenues

• Certain of Advent's perpetual and term license contracts include asset-based fee structures that provide additional revenues based on the assets that the client manages using the Company's software ("Assets Under Administration" or "AUA"). Contracts containing an AUA fee structure have a defined measurement period which requires the client to self-report actual AUA in arrears of the specified period. The Company recognizes term AUA contract minimum fees over the period of service. AUA fees above the stated minimum fee for the same period are considered incremental fees. Because incremental fees are neither determinable nor due and payable until the conclusion of the measurement period and reported, they are both earned and recognized upon completion of the measurement period and receipt of the report, on a quarterly or annual basis. Incremental fees from both term AUA and perpetual AUA contract are included in "Recurring revenues" in the consolidated statement of operations.

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  Other Recurring Revenues

• Other recurring revenues include revenues from the Company's Software-as-a-Service (SaaS) services, data services and other recurring revenue transactions.

  SaaS services include Advent OnDemand, Advent OnDemand with Data Management, and Black Diamond. Advent OnDemand is the hosting and SaaS delivery of the Company's suite of investment management solutions. Advent recognizes revenue ratably over the period of service which is generally one year. Advent OnDemand with Data Management services include access to software on a SaaS basis as well as full account aggregation, daily portfolio reconciliation, corporate actions processing and reference data management. The Company prices this comprehensive service offering based on the number of accounts managed for each customer. Advent measures the number of accounts quarterly in arrears and recognizes revenue for these services as they are performed. Black Diamond offers a platform that provides outsourced daily reconciliation and data management services as well as portfolio management and reporting delivered through an online web-based application. The Company prices Black Diamond services based on the number of customer's accounts and the daily average of the assets under management (AUM) within those accounts. The Company measures the number of accounts and AUM within customer accounts monthly in arrears and recognizes revenues for these services as they are performed.

  Advent's data services revenues include Advent Custodial Data (ACD), Advent Corporate Actions (ACA) and Advent Index Data. The Company recognizes revenue from data services either ratably over the subscription period or as the transactions occur within the subscription, based on the terms of the arrangement.

  The Company recognizes revenue from other recurring revenue transactions either ratably over the subscription period or as the transactions occur, based on the terms of the arrangement. Our SaaS-based products are included in "Recurring Revenues" in the Company's consolidated statements of operations.

  Non-Recurring Revenues:

  Non-recurring services revenues for fiscal 2012, 2011 and 2010 were as follows (in thousands):

• •

  Professional services and other revenues.

• We offer a variety of professional services that include project management, implementation, data conversion, integration, custom report writing and training. We establish VSOE of fair value for professional services upon separate sales of these services to customers. Our professional services are generally billed on a time and materials basis using hourly rates together with reimbursement for travel and accommodation expenses. We recognize revenue as these professional services are performed except in the case of multi-year term license contracts which are described in the "term licenses" section above. Certain professional services arrangements involve acceptance criteria. In these cases, revenue and related expenses are recognized upon acceptance. Occasionally, professional services are performed under a fixed fee arrangement. For these arrangements, we defer revenue and related expenses until the services are complete. Professional services and other revenues also include revenue from our user conferences which is recognized upon completion of the conference.

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  Perpetual licenses

  Advent allocates revenue to delivered elements, normally the license component of the arrangement, using the residual method, based on VSOE of fair value of the undelivered elements (generally the maintenance and professional services elements), which is specific to the Company. Advent determines the fair value of the undelivered elements based on the historical evidence of the Company's stand-alone sales of these elements to third parties and/or renewal rates. If VSOE of fair value does not exist for any undelivered elements, then the entire arrangement fee is deferred until delivery of that element has occurred unless the only undelivered element is maintenance. Revenues from perpetual licenses are included in "Non-recurring revenues" in the Company's consolidated statements of operations.

Allowance for doubtful accounts and sales returns:    Advent analyzes specific accounts receivable, historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in its customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. Advent has recorded a provision for bad debt of $0.4 million in fiscal 2012 and $0.2 million in each of fiscal years 2011 and 2010.

        Advent also analyzes customer demand and acceptance of product and historical returns when evaluating the adequacy of the allowance for sales returns, which are not generally provided to customers. Allowances for sales returns are accounted for as deductions to net revenues and increases to reserves within deferred revenues. Advent's standard practice is to enforce its contract terms and not allow its customers to return software. The Company has, however, allowed customers to return software on a limited case-by-case basis. The Company only provides a contractual limited right of return to the end-user customer when it sells shrink-wrap license agreements. The shrink-wrap license agreement provides for a right of return within seven days of delivery of the software.

        Advent has the ability to estimate returns based on a long history of experience with relatively homogenous transactions and the fact that the return period is short. The Company has recorded sales return provisions as offsets to revenue in the period the sales return becomes probable. The estimates for returns are adjusted periodically based upon historical rates of returns and other related factors. Advent has a methodology for calculating the value of reserves that takes the previous 12 months of experience into account. Advent has recorded a sales returns provision (benefit) to decrease (increase) revenue for these situations based on the Company's historical experience of $1.2 million, $(0.2) million and $(0.6) million in fiscal 2012, 2011 and 2010, respectively.

Stock-based compensation:    Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period.

        Advent uses the Black-Scholes option pricing model to determine the fair value of stock options, stock appreciation rights ("SARs") and employee stock purchase plan shares. The fair value of the Company's restricted stock units is calculated based on the fair market value of Advent's stock on the date of grant. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by Advent's stock price as well as assumptions regarding a number of complex and subjective variables. These variables include Advent's expected stock price volatility over the term of the awards, actual and projected employee exercise behaviors, risk-free interest rate and expected dividends.

        As the stock-based compensation expense recognized on the consolidated statements of operations for fiscal 2012, 2011 and 2010 is based on awards ultimately expected to vest, such amount has been reduced for estimated forfeitures at the time of grant and is revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on the Company's historical experience over the last ten years.

        Advent assesses on a quarterly basis the adequacy of the Company's pool of windfall tax benefits to determine if there are any deficiencies which require recognition in the Company's consolidated statements of operations.

Income taxes:    Advent accounts for worldwide income taxes under an asset and liability approach that requires the expected future tax consequences of temporary differences between book and tax bases of assets and liabilities be recognized as deferred tax assets and liabilities. A valuation allowance is recorded to reduce the net deferred tax assets to an amount that is more likely than not to be realized.

        The Company has elected to use the "with and without" approach in determining the order in which tax attributes are utilized. As a result, the Company will only recognize a tax benefit from stock-based awards in additional paid-in capital if an incremental tax benefit is realized after all other tax attributes currently available to the Company have been utilized. In addition, the Company has elected to account for the impact of stock-based awards on other tax attributes, such as the research tax credit, through the consolidated statements of operations.

Segment information:    On October 1, 2009, Advent completed the sale of its MicroEdge subsidiary and accordingly, the results of MicroEdge have been classified as a discontinued operation in the consolidated statements of operations for all periods presented. The Company now operates under a single reportable segment, Advent Investment Management. Refer to Note 4 "Discontinued Operation" to these Notes to Consolidated Financial Statements, for additional information on the Microedge discontinued operation.

        Sales outside the U.S., which are based on the location to which the product is shipped or services are delivered, represented 17%, 18%, and 15% of the Company's net revenues for fiscal 2012, 2011 and 2010, respectively. No single customer accounted for more than 10% of net revenues for fiscal 2012, 2011 or 2010.

Certain risks and concentrations:    Product revenues are concentrated in the investment management software industry, which is highly competitive and rapidly changing. Significant technological changes in the industry or customer requirements, or the emergence of competitive products with new capabilities or technologies could adversely affect operating results. Additionally, Advent derives a significant portion of its revenues from its Geneva, APX, Axys and Moxy applications and ancillary products and services, and therefore their market acceptance is essential to the Company's success.

        Financial instruments that potentially subject the Company to concentrations of credit risks comprise, principally, cash, cash equivalents, marketable securities, trade accounts receivable and debt. Advent invests excess cash through banks, mutual funds, and brokerage houses primarily in highly liquid securities and has investment policies and procedures that attempt to minimize credit risk. Advent's marketable securities consist of diversified investment grade securities and foreign debt securities. The Company believes no significant concentration of credit risk exists with respect to these securities.

        With respect to accounts receivable, Advent performs ongoing credit evaluations of its customers and does not require collateral. The Company maintains reserves for potential credit losses on customer accounts when deemed necessary. At December 31, 2012 and 2011, no single customer accounted for more than 10% of accounts receivable.