FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended: November 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ________ to ________
Commission file number 1-11869
FACTSET RESEARCH SYSTEMS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3362547
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
ONE GREENWICH PLAZA
GREENWICH, CT 06830
(203) 863-1500
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 60 days. Yes X - No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of each class Outstanding at November 30, 1996
- ------------------- --------------------------------
Common Stock, par value $.01 9,546,328
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FACTSET RESEARCH SYSTEMS INC.
TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Statements of Financial Condition
November 30, 1996 and August 31, 1996........................... 3
Consolidated Statements of Income
for the three months ended November 30, 1996 and 1995........... 4
Consolidated Statements of Cash Flows
for the three months ended November 30, 1996 and 1995........... 5
Notes to the Consolidated Financial Statements...................... 6
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition....................... 7
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings................................................... 9
ITEM 2 - Changes In Securities............................................... 9
ITEM 3 - Submission of Matters to a Vote of Security Holders................. 9
ITEM 4 - Other Information................................................... 9
ITEM 5 - Reports on Form 8-K................................................. 9
Signatures................................................................... 9
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ITEM 1
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FactSet Research Systems Inc.
Consolidated Statements of Financial Condition
(in thousands)
(Unaudited)
November 30, August 31,
1996 1996
---- ----
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ASSETS
Cash and cash equivalents $ 18,299 $ 15,700
Investments 1,367 1,338
Receivable from clients and clearing brokers 5,858 6,181
Receivable from employees 932 946
Deferred taxes 2,268 2,214
Other current assets 425 465
............... ................
Total current assets 29,149 26,844
Property, equipment, and leasehold improvements, net 8,749 8,149
Deferred taxes 592 624
Other assets 884 893
............... ................
Total assets $ 39,374 $ 36,510
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 1,624 $ 1,156
Accrued compensation 2,123 1,980
Deferred fees and commissions 3,474 3,798
Current taxes payable 932 793
Deferred rent 130 114
............... ................
Total current liabilities 8,283 7,841
Deferred taxes 145 133
Deferred rent 366 339
............... ................
Total liabilities 8,794 8,313
............... ................
Stockholders' Equity:
Common stock 96 96
Capital in excess of par value 1,931 1,431
Retained earnings 28,620 26,658
Treasury stock (259) (164)
Unrealized gain on investments, net of taxes 192 176
............... ................
Total stockholders' equity 30,580 28,197
............... ................
Total liabilities and stockholders' equity $ 39,374 $ 36,510
=============== ================
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The accompanying notes are an integral part of these
consolidated financial statements.
3
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FactSet Research Systems Inc.
Consolidated Statements of Income
(unaudited)
(in thousands, except per share data)
Three Months Ended
November 30,
1996 1995
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Commissions 5,982 5,627
Fee Income 6,842 4,510
............. .............
Total revenues 12,824 10,137
Employee compensation costs 3,793 3,191
Clearing costs 1,068 1,043
Data costs 937 798
Communication costs 744 696
Computer equipment 811 659
Promotion 696 539
Occupancy 794 536
Other expenses 641 352
............. .............
Total costs and expenses 9,484 7,814
............. .............
Income from operations 3,340 2,323
Other income 117 246
............. .............
Income before provision for income taxes 3,457 2,569
Provision for income taxes 1,495 1,105
............. .............
Net income 1,962 1,464
============= =============
Net income per share 0.18 0.14
============= =============
Weighted average number of common shares 10,827 10,776
outstanding ============= =============
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The accompanying notes are an integral part of these
consolidated financial statements.
4
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<TABLE>
<CAPTION>
FactSet Research Systems Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Three Months Ended
November 30,
1996 1995
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Cash flows from operating activities:
Net income 1,962 1,464
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 935 716
Deferred tax expense (22) 0
Changes in assets and liabilities:
Receivable from clients and clearing brokers 323 (269)
Receivable from employees 14 30
Other assets 49 (759)
Accounts payable and accrued expenses 602 1,225
Accrued compensation payable 508 789
Deferred fees and commissions (324) (100)
Current taxes payable 139 (270)
Deferred rent 43 (36)
............. ............
Net cash provided by operating activities 4,229 2,790
............. ............
Cash flows from investing activities:
Purchases of property, equipment, and leasehold (1,535) (1,670)
improvements
............. ............
Net cash used in investing activities (1,535) (1,670)
............. ............
Cash flows from financing activities:
Repurchase of common stock from employees (95) (2)
............. ............
Net cash used in financing activities (95) (2)
............. ............
Increase in cash and cash equivalents 2,599 1,118
Cash and cash equivalents, beginning of period 15,700 11,588
............. ............
Cash and cash equivalents, end of period 18,299 12,706
============= ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
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FactSet Research Systems Inc.
Notes To The Consolidated Financial Statements
November 30, 1996
1. Summary of Accounting Principles
The accompanying consolidated financial statements include the accounts of
FactSet Research Systems Inc. ("the Company") and its subsidiaries. All
significant intercompany activity and balances have been eliminated from the
consolidated financial statements.
The consolidated financial statements of the Company presented herein have been
prepared pursuant to the rules of the Securities and Exchange Commission for
quarterly reports on Form 10-Q and do not include all of the information and
note disclosures required by generally accepted accounting principles. These
financial statements should be read in conjunction with the Company's Annual
Report and notes thereto for the year ended August 31, 1996. In the opinion of
management, the accompanying unaudited consolidated financial statements include
all adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the consolidated financial position, results of operations and
cash flows of the Company and its subsidiaries. Quarterly operating results are
not necessarily indicative of the results which would be expected for the full
year.
The Company adopted SFAS No. 123 -- Accounting for Stock-Based Compensation in
the first quarter of fiscal 1997. SFAS No. 123 encourages (but does not require)
compensation cost to be measured based on the fair value of the stock instrument
awarded. Companies are permitted, however, to continue to apply Accounting
Principles Board Opinion ("APB") No. 25 -- Accounting for Stock Issued to
Employees which recognizes compensation cost based on the intrinsic value of the
equity instrument awarded. The Company will continue accounting for stock-based
compensation under APB No. 25 and will disclose the required pro forma effect on
net income and earnings per share from measuring compensation cost based on the
fair value of the stock instruments awarded.
2. Initial Public Offering
On June 28, 1996, the Company completed an initial public offering of 3,593,750
shares of its common stock, which included 468,750 shares granted to the
underwriters upon exercise of their over-allotment option. The shares were sold
by certain stockholders of the Company for gross proceeds of $61,093,750. The
Company did not receive any of the proceeds from the offering. The Company has
agreed to pay certain expenses of the Offering in the amount of $299,059 which
has been recorded against Stockholders' Equity.
6
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ITEM 2
Management's Discussion and Analysis of Results of
Operations and Financial Condition
Overview
FactSet Research Systems Inc. ("FactSet" or "the Company") is a leading provider
of online integrated database services to the financial community. The Company
combines multiple large-scale databases into a single, coherent mainframe
computer information system accessible from clients' personnel computer
workstations. Simultaneous access to some 70 databases provides clients with a
comprehensive, "one stop" source for financial information, news, and commentary
on more than 20,000 companies worldwide. The Company's advanced, proprietary
software tools enable clients to easily download, manipulate, and analyze data
in a wide array of formats, including custom reports designed by the user.
FactSet markets its services to investment managers, investment banks, and other
financial institutions throughout the United States, Europe, and the Pacific
Rim. At November 30, 1996, 448 clients subscribed to the Company's services and
more than 7,400 individual passwords were in use.
Business Environment
The Company competes in a dynamic and changing industry. Both the content of
online information and the number of channels by which such information is
communicated are growing at a significant rate. The growth of pension assets,
mutual funds, hedge funds, and the proliferation of data-intensive financial
instruments such as derivatives has increased the demand for financial
information. The online industry is highly competitive and such competition is
likely to intensify in the future.
The Company believes that significant ongoing investment has been and will
continue to be critical to the success of FactSet's growth strategy and the
improvement of the Company's already strong competitive industry position.
Specifically, the Company plans to continue to devote significant resources to
the funding of product development, the expansion of its sales and marketing
infrastructure especially internationally, and to the broadening of its customer
support capabilities. Further, high levels of capital spending remain necessary
to maintain FactSet's state-of-the-art computer and communication facilities.
FactSet believes that it has the product offerings, facilities, personnel, and
competitive and financial resources for continued business success. However, as
a result of the foregoing factors, operating income and revenue are likely, in
some future quarters, to be subject to fluctuations. The Company believes,
therefore, that quarter-to-quarter comparisons of its results of operations or
of a single quarter's financial results may not prove meaningful and should not
necessarily be relied upon as an indication of future performance.
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Results of Operations--First Quarter of Fiscal 1997 Compared with First Quarter of Fiscal 1996
- ----------------------------------------------------------------------------------------------
First Fiscal Quarter Ended November 30,
(In thousands except per share data)
(Unaudited)
1997 1996 Increase %
---- ---- -------- -
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Subscription revenue $12,824 $10,137 $2,687 27
Income before provision for income taxes 3,457 2,569 888 35
Net income 1,962 1,464 498 34
Earnings per share $ 0.18 $ 0.14 $ 0.04 29
- ------------------------------------------------------------------------------------------------
</TABLE>
FactSet achieved record quarterly net income and earnings per share in the first
quarter of fiscal 1997. Net Income increased 34% to $1.96 million from $1.46
million for the comparable quarter a year earlier. Earnings per share increased
29% to $0.18, up from $0.14 for the first quarter of fiscal 1996. This favorable
change in earnings reflects increased revenue from new and existing clients with
proportionally lower operating expenses primarily related to employee
compensation, communication costs, and clearing fees.
7
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Subscription revenue for the first quarter of fiscal 1997 totaled $12.8 million,
up 27% from $10.1 million for the comparable quarter a year ago. Client
additions, new databases, services and passwords drove this revenue growth
without price increases of any kind. The number of clients increased 16% to 448
from 387 at November 30, 1996. Databases added included several global index
benchmarks, Toyo Keizai (Japanese fundamentals), I/B/E/S Detail (individual
analysts' earnings estimates), and Russell (equity portfolio analysis). New
services provided include applications that allow investment bankers to identify
and research target companies all within a spreadsheet, applications for
quantitative analysts, and access to prices 20 minutes after U.S. exchanges
close. Over 7,400 individual passwords were in use at November 30, 1996, up
19% from August 31, 1996. Broadening the global suite of services has pushed the
average revenue commitment per client from $107,000 at November 30, 1995 to
$120,000 per client a year later. (Revenue commitments is not a forecast but
meant to indicate the total revenue to be received over the next 12 months if
all services were frozen in their current configuration.)
During the first quarter of fiscal 1997 there was a continued shift in revenue
mix from commissions on securities transactions toward cash fees. As a
percentage of total revenue, cash fees increased to 53% from 45% a year earlier.
The Company earns the same dollar profit irrespective of whether the client
elects to pay subscription charges in cash or commissions. When a client chooses
to pay in the form of commissions, the dollar amount payable is higher than the
amount payable for the same services on a cash basis to offset the associated
clearing charges paid by the Company.
International sales contributed significantly to FactSet's record quarterly
revenue. Revenue abroad increased to $1.2 million or 9% of total revenue for the
first fiscal quarter of 1997, an increase of 173% from the comparable quarter in
fiscal 1996. This performance reflects the Company's continued investments in
overseas markets through the deployment of sales and client support personnel in
London and Tokyo and database additions providing international fundamentals and
over 20 global indices. FactSet's international client count at November 30,
1996 more than doubled from a year earlier and helped sustain the Company's
annualized client retention rate at over 95%.
Operating expenses for the first quarter of fiscal 1997 totaled $9.5 million, up
21% from $7.8 million for the comparable quarter in fiscal 1996. Employee
compensation, data costs, occupancy, and other expenses were the main drivers of
this increase. Employee compensation rose to $3.8 million from $3.2 million,
primarily due to the net addition of 41 employees, a 37% increase from a year
earlier, which was partially offset by a 50% decrease in compensation to the
Chairman of the Board and to the President. Database additions caused data costs
to increase to $940,000 or 17% from $800,000. Occupancy costs totaled $795,000,
up 48% from $535,000 reflecting increases in space requirements. Other expenses
increased to $640,000 from $350,000 or 82%, primarily a result of increased
professional fees.
Operating expenses as a percentage of revenue for the first quarter of fiscal
1997 decreased to 74% from 77% for the comparable quarter a year earlier.
Employee compensation, clearing fees, and communication costs contributed
significantly to this decrease. Increased sales more than supported the
additional employee compensation. The growing trend of new clients electing to
pay in cash caused clearing fees to remain steady between the first fiscal
quarters of 1996 and 1997. Communication costs savings were realized from vendor
discounts as a result of increased system usage.
Liquidity and Capital Resources
At November 30, 1996, FactSet's portfolio of cash, cash equivalents, and
investments totaled $19.7 million, up $2.6 million or 15% from August 31, 1996.
The Company funded all of its investment needs with cash generated from
operations. Cash provided from operating activities totaled $4.2 million for the
first quarter of fiscal 1997, up 52% from $2.8 million for the comparable
quarter in fiscal 1996, reflecting improvements in earnings and working capital.
Cash used for investing activities totaled $1.5 million during the first three
months of fiscal 1997, attributable to investments in mainframe systems to
expand computing power by more than 40% and significantly increase data storage
capacity and leasehold improvements to the new, appreciably larger London
office. Higher levels of capital spending are likely to be necessary to keep
processing power and speed in line with the Company's expanding client base and
product offerings.
In June 1996, the Internal Revenue Service initiated an audit of the Company's
1993 and 1994 fiscal years. Such audit has not been concluded.
8
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Part II - Other Information
Item 1 - Legal Proceedings: None
Item 2 - Changes in Securities: None
Item 3 - Submission of Matters to a vote of Security Holders: None
Item 4 - Other Information: None
Item 5 - Exhibits and Reports on Form 8-K: None
FACTSET RESEARCH SYSTEMS INC.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
FactSet Research Systems Inc.
(Registrant)
Date: January 9, 1997 /s/ Ernest S. Wong
------------------------
Ernest S. Wong
Senior Vice President
Chief Financial Officer
9
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