Form 10-Q
United States 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 fiscal quarter ended November 30, 2000
|_| 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 Identification No.)
incorporation or organization)
One Greenwich Plaza, Greenwich, Connecticut 06830
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (203) 863-1500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No|_|
Indicate 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, 2000
................... ................................
Common Stock, par value $.01 32,879,000
<PAGE>
FactSet Research Systems Inc.
Form 10-Q
Table of Contents
Part I FINANCIAL INFORMATION
Page
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income
for the three months ended November 30, 2000 and 1999............ 3
Consolidated Statements of Comprehensive Income
for the three months ended November 30, 2000 and 1999............ 4
Consolidated Statements of Financial Condition
at November 30, 2000 and at August 31, 2000...................... 5
Consolidated Statements of Cash Flows
for the three months ended November 30, 2000 and 1999............ 6
Notes to the Consolidated Financial Statements.................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 11
Part II OTHER INFORMATION
Item 1. Legal Proceedings................................................. 13
Item 2. Changes in Securities............................................. 13
Item 3. Defaults Upon Senior Securities................................... 13
Item 4. Submission of Matters to a Vote of Security Holders............... 13
Item 5. Other Information................................................. 13
Item 6. Exhibits and Reports on Form 8-K.................................. 14
Signatures.................................................................. 15
<PAGE>
<TABLE>
FactSet Research Systems Inc.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Ended
November 30,
In Thousands, except per share data, and unaudited 2000 1999
................................................................................
<S> <C> <C>
Subscription Revenues
Commissions $12,957 $10,896
Cash fees 27,954 19,388
------ ------
Total subscription revenues 40,911 30,284
------ ------
................................................................................
Operating Expenses
Cost of services 14,129 10,560
Selling, general, and administrative 14,999 11,042
------ ------
Total operating expenses 29,128 21,602
------ ------
................................................................................
Income from operations 11,783 8,682
Other income 931 687
------ -----
Income before income taxes 12,714 9,369
Provision for income taxes 4,962 3,843
------ ------
Net income $7,752 $5,526
====== ======
................................................................................
Weighted average common shares (Basic) 32,879 31,608
Weighted average common shares (Diluted) 34,811 34,580
................................................................................
Basic earnings per common share $0.24 $0.17
Diluted earnings per common share $0.22 $0.16
................................................................................
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
FactSet Research Systems Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<CAPTION>
Three Months Ended
November 30,
In Thousands and unaudited 2000 1999
................................................................................
<S> <C> <C>
Net income $7,752 $5,526
Unrealized gain (loss) on investments,
net of taxes 2 (22)
----- -----
Comprehensive income $7,754 $5,504
====== ======
................................................................................
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
FactSet Research Systems Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
ASSETS
November 30, August 31,
In Thousands and unaudited 2000 2000
...............................................................................
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 45,524 $ 39,629
Investments 23,994 22,704
Receivables from clients and clearing brokers 27,029 28,449
Receivables from employees 428 789
Deferred taxes 6,522 7,365
Other current assets 1,314 937
------- ------
Total current assets 104,811 99,873
...............................................................................
LONG-TERM ASSETS
Property, equipment, and leasehold improvements, at cost 71,513 66,637
Less accumulated depreciation and amortization (49,340) (45,749)
------ ------
Property, equipment, and leasehold improvements, net 22,173 20,888
...............................................................................
OTHER LONG-TERM ASSETS
Intangible assets, net 10,518 10,734
Deferred taxes 2,908 2,232
Other assets 1,870 1,841
-------- --------
TOTAL ASSETS $142,280 $135,568
======== ========
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
November 30, August 31,
In Thousands, except per share data and unaudited 2000 2000
...............................................................................
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 8,161 $ 9,874
Accrued compensation 4,815 9,576
Deferred revenues 10,162 9,656
Dividends payable 987 985
Current taxes payable 5,867 1,854
------ ------
Total current liabilities 29,992 31,945
------ ------
...............................................................................
NON-CURRENT LIABILITIES
Deferred rent 631 621
------ ------
Total liabilities 30,623 32,566
------ ------
...............................................................................
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 10,000,000 shares
authorized, none issued -- --
Common stock 329 328
Capital in excess of par value 20,969 19,015
Retained earnings 92,776 86,011
Unrealized gain on investments, net of tax 7 5
-------- --------
114,081 105,359
Less treasury stock, at cost (2,424) (2,357)
-------- --------
Total stockholders' equity 111,657 103,002
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $142,280 $135,568
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
FactSet Research Systems Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended
November 30,
In Thousands and unaudited 2000 1999
................................................................................
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 7,752 $ 5,526
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 3,811 2,884
Deferred tax provision (benefit) 167 (210)
Accrued ESOP contribution 425 313
------ ------
Net income adjusted for non-cash operating items 12,155 8,513
Changes in assets and liabilities
Receivables from clients and clearing brokers 1,420 (1,491)
Receivables from employees 361 (159)
Accounts payable and accrued expenses (1,713) 2,613
Accrued compensation (3,886) 616
Deferred revenues 506 (1,303)
Current taxes payable 4,013 3,128
Other working capital accounts, net (396) 137
Income tax benefits from stock option exercises 219 710
------ ------
Net cash provided by operating activities 12,679 12,764
...............................................................................
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investments, net (1,290) (4,871)
Purchases of property, equipment, and
leasehold improvements, net of retirements (4,876) (3,415)
------ ------
Net cash used in investing activities (6,166) (8,286)
...............................................................................
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend payments (920) (728)
Repurchase of common stock from employees (67) (456)
Proceeds from exercise of stock options 369 280
---- ----
Net cash used in financing activities (618) (904)
...............................................................................
Net increase in cash and cash equivalents 5,895 3,574
Cash and cash equivalents at beginning of period 39,629 31,837
------- -------
Cash and cash equivalents at end of period $45,524 $35,411
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FactSet Research Systems Inc.
November 30, 2000
(Unaudited)
1. ORGANIZATION AND NATURE OF BUSINESS
FactSet Research Systems Inc. (the "Company") provides online integrated
database services to the investment community. The Company's revenues are
derived from subscription charges. Solely at the option of each client, these
charges may be paid either in commissions on securities transactions (in which
case subscription revenues are recorded as commissions) or in cash (in which
case subscription revenues are recorded as cash fees).
To facilitate the receipt of subscription revenues on a commission basis, the
Company's wholly-owned subsidiary, FactSet Data Systems, Inc. ("FDS"), is a
member of the National Association of Securities Dealers, Inc. and is a
registered broker-dealer under Section 15 of the Securities and Exchange Act of
1934.
Subscription revenues paid in commissions are derived from securities
transactions introduced and cleared on a fully disclosed basis primarily through
two clearing brokers. That is, a client paying subscription charges on a
commission basis directs the clearing broker, at the time the client executes a
securities transaction, to credit the commission on the transaction to FDS.
FactSet Limited and FactSet Pacific Inc. are wholly-owned subsidiaries of the
Company and are U.S. corporations with foreign branch operations in London,
Frankfurt, Tokyo, Hong Kong, and Sydney.
2. ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements of the
Company have been prepared in conformity with generally accepted accounting
principles, consistent in all material respects with those applied in the Annual
Report on Form 10-K for the fiscal year ended August 31, 2000. Interim financial
information is unaudited, but reflects all normal adjustments which are, in the
opinion of management, necessary to present fairly the results for the interim
periods presented. The interim financial statements should be read in connection
with the audited financial statements (including the footnotes thereto) in the
Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2000.
The significant accounting policies of the Company and its subsidiaries are
summarized below.
Financial Statement Presentation
The accompanying unaudited consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
activity and balances have been eliminated from the consolidated financial
statements. Certain prior year amounts have been reclassified to conform to
current year presentation.
Cost of services is composed of employee compensation and benefits for the
applications engineering and consulting groups, clearing fees, data costs,
amortization of acquired technology, computer maintenance and depreciation
expenses and communication costs. Selling, general, and administrative expenses
include employee compensation and benefits for the sales, product development
and various other support departments, promotional expenses, rent, amortization
of goodwill and leasehold improvements, depreciation of furniture and fixtures,
office expenses, professional fees and other expenses.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Significant estimates have been made in areas including deferred tax assets,
depreciable lives of fixed assets, accrued liabilities, income tax provision,
allowances for doubtful accounts and allocation of purchase price to assets and
liabilities acquired. Actual results could differ from those estimates.
Revenue Recognition
Subscription charges are quoted to clients on an annual basis, but are earned
and recorded monthly as services are provided. Subscription revenues are earned
each month, based on one-twelfth of the annual subscription charge quoted to
each client. Amounts that have been earned but not yet paid through the receipt
of commissions on securities transactions or through cash payments are reflected
on the Consolidated Statements of Financial Condition as receivables from
clients and clearing brokers. Amounts that have been received through
commissions on securities transactions or through cash payments that are in
excess of earned subscription revenues are reflected on the Consolidated
Statements of Financial Condition as deferred revenues.
Clearing Fees
When subscription charges are paid on a commission basis, the Company incurs
clearing fees, which are the charges imposed by clearing brokers to execute and
settle clients' securities transactions. Clearing fees are recorded when the
related subscription revenues recorded as commissions are earned.
<PAGE>
Cash and Cash Equivalents
Cash and cash equivalents consist of demand deposits and money market
investments with maturities of 90 days or less.
Investments
Investments that have original maturities greater than 90 days are classified as
available-for-sale securities and are reported at fair value. Fair value is
determined for most investments from readily available quoted market prices.
Unrealized gains and losses on available-for-sale securities are recognized as a
separate component of stockholders' equity, net of income taxes.
Property, Equipment, and Leasehold Improvements
Computers and related equipment are depreciated on a straight-line basis over
estimated useful lives of three years. Depreciation of furniture and fixtures is
recognized using the double declining balance method over estimated useful lives
of five years. Leasehold improvements are amortized on a straight-line basis
over the terms of the related leases or estimated useful lives of the
improvements, whichever period is shorter.
Intangibles
Intangible assets consist of goodwill and acquired technology. Amortization of
goodwill and acquired technology is calculated on a straight-line basis using
estimated useful lives of fifteen and seven years, respectively.
Income and Deferred Taxes
Deferred taxes are determined by calculating the future tax consequences
associated with differences between financial accounting and tax bases of assets
and liabilities. A valuation allowance is established to the extent management
considers it more likely than not that some portion or all of the deferred tax
assets will not be realized. The effect on deferred taxes from income tax law
changes is recognized immediately upon enactment. The deferred tax provision is
derived from changes in deferred taxes on the balance sheet and reflected on the
Consolidated Statements of Income as a component of income taxes.
Income tax benefits derived from the exercise of non-qualified stock options or
the disqualifying disposition of incentive stock options are recorded directly
to capital in excess of par value.
Included in accounts payable and accrued expenses are accrued taxes other than
income taxes of $1.9 million at November 30, 2000 and August 31, 2000,
respectively.
Earnings Per Share
The computation of basic earnings per share in each year is based on the
weighted average number of common shares outstanding. The weighted average
number of common shares outstanding includes shares issued to the Company's
employee stock ownership plan at the date authorized by the Board of Directors.
Earnings per share and number of shares outstanding give retroactive effect for
all years presented for the 2-for-1 stock split that occurred on February 4,
2000 and for the 3-for-2 stock split that occurred on February 5, 1999. Diluted
earnings per share are based on the weighted average number of common shares and
potentially dilutive common shares outstanding. Shares available pursuant to
grants made under the Company's stock option plans are included as common share
equivalents using the treasury stock method.
Stock-Based Compensation
The Company follows the disclosure-only provisions of SFAS No. 123, Accounting
for Stock-Based Compensation. The Company accounts for stock-based compensation
plans in accordance with APB Opinion No. 25, under which no compensation costs
are recorded when the exercise price of a stock option and fair market value of
the underlying stock are identical on the date of grant.
New Accounting Pronouncements
In December 1999, Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition
in Financial Statements, was issued. The Company is evaluating SAB No. 101 but
does not expect the impact of adopting SAB No. 101 to be material to the
Company's financial condition or results of operations.
3. COMMON STOCK AND EARNINGS PER SHARE
Shares of common stock and related per share amounts give retroactive effect for
a 2-for-1 stock split, effected as a stock dividend, that occurred on February
4, 2000.
<TABLE>
Shares of common stock outstanding were as follows:
<CAPTION>
In Thousands and unaudited Three months ended November 30, 2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Balance at September 1, 32,821 31,539
Additional stock issued for ESOP 38 46
Exercise of stock options 39 59
Repurchase of common stock (6) (16)
------ ------
Balance at November 30, 32,892 31,628
====== ======
--------------------------------------------------------------------------------
</TABLE>
<PAGE>
A reconciliation between the weighted average shares outstanding used in the
basic and diluted EPS computations is as follows:
<TABLE>
<CAPTION>
In Thousands, except per share
data and unaudited (Net Income) (Shares) (Per Share)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Three Months Ended November 30, 2000
Basic EPS
Net income available to common stockholders $7,752 32,879 $0.24
Diluted EPS
Dilutive effect of stock options -- 1,932
------ ------
Net income available to common stockholders $7,752 34,811 $0.22
====== ======
--------------------------------------------------------------------------------
For the Three Months Ended November 30, 1999
Basic EPS
Net income available to common stockholders $5,526 31,608 $0.17
Diluted EPS
Dilutive effect of stock options -- 2,972
------ ------
Net income available to common stockholders $5,526 34,580 $0.16
====== ======
--------------------------------------------------------------------------------
</TABLE>
4. SEGMENTS
The Company has three reportable segments based on geographic operations: the
United States, Europe and Asia Pacific. Each segment markets online integrated
database services to investment managers, investment banks and other financial
services professionals. The U.S. segment services financial institutions
throughout North America while the European and Asia Pacific segments serve
investment professional located in Europe and other non-U.S. regions. The
European segment is headquartered in London, United Kingdom and maintains an
office presence in Frankfurt, Germany. The Asia Pacific segment is headquartered
in Tokyo, Japan with office locations in Hong Kong and Sydney, Australia. Mainly
sales and consulting personnel staff each of these foreign branch operations.
The Europe and Asia Pacific segments have similar market characteristics and
each offers identical products and services through a common distribution method
to financial services institutions. Segment revenues reflect direct sales of
products and services to clients based in their geographic location. There are
no intersegment or intercompany sales. Each segment records compensation,
travel, office and other direct expenses related to its employees. Expenses for
software development, expenditures related to the Company's computing centers,
data costs, clearing fees, income taxes and corporate headquarters charges are
recorded by the U.S. segment and are not allocated to the European and Asia
Pacific segments. The accounting policies of the segments are the same as those
described in Note 2, "Accounting Policies."
<TABLE>
<CAPTION>
Segment Information
In Thousands and unaudited U.S. Europe Asia Pacific Total
................................................................................
Three Months Ended November 30, 2000
<S> <C> <C> <C> <C>
Revenues from external clients $33,400 $5,399 $2,112 $40,911
Segment operating profit* 7,746 2,889 1,148 11,783
Total assets as of November 30, 2000 132,836 7,235 2,209 142,280
Capital expenditures 4,418 428 30 4,876
................................................................................
Three Months Ended November 30, 1999
Revenues from external clients $25,512 $3,309 $1,463 $30,284
Segment operating profit* 6,554 1,377 751 8,682
Total assets as of November 30, 1999 105,365 5,030 1,896 112,291
Capital expenditures 3,186 224 5 3,415
................................................................................
</TABLE>
* Expenses are not allocated or charged between segments. Expenditures
associated with the Company's computer centers, software development costs,
clearing fees, data fees, income taxes, and corporate headquarters charges are
recorded by the U.S. segment.
During the first quarter of Fiscal 2000 and 1999 no individual client accounted
for more than 3% of revenues. Revenues from the ten largest clients also did not
exceed 20% of total revenues.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
<TABLE>
RESULTS OF OPERATIONS
<CAPTION>
Three Months Ending
November 30,
In Thousands, except per share data and unaudited 2000 1999 Change
................................................................................
<S> <C> <C> <C>
Revenues $40,911 $30,284 35.1%
Operating expenses 29,128 21,602 34.8
Operating income 11,783 8,682 35.7
Net income 7,752 5,526 40.3
Diluted earnings per common share* $0.22 $0.16 37.5%
................................................................................
</TABLE>
* Diluted earnings per share give retroactive effect to the 2-for-1 stock split
that occurred on February 4, 2000.
Revenues
Revenues in the first quarter of fiscal 2001 increased 35.1% to $40.9 million.
Excluding the July 2000 acquisition of Insyte, revenues grew by 32.1%. Revenues
were $30.3 million in the first quarter of fiscal 2000. International
expansions, new subscriptions to applications and databases by existing clients,
additional workstations as well as the net addition of 96 clients over the past
twelve months were the drivers of revenue growth.
Revenues from international operations increased 57% to $7.5 million for the
three months ended November 30, 2000. Revenues from European operations grew
63%; Asia Pacific revenues increased 44%. Revenues from non-U.S. segments
accounted for 18% of the Company's consolidated revenues, an increase from 16% a
year ago. More than 95% of the Company's revenues are received in U.S. dollars.
Net monetary assets held by the Company's overseas offices during the quarter
ended November 30, 2000 were also immaterial. Accordingly, FactSet's exposure to
changes in foreign currency markets was not material.
Demand for Portfolio Analytics applications continued to be strong. Nearly 190
clients representing approximately 1,500 users subscribed to these services at
quarter end. This compares with approximately 120 clients and 800 users at
November 30, 1999. User count for all products and services among the 764 client
firms grew to 25,500 passwords at November 30, 2000, an increase of 20% from the
year ago period.
Commitments at November 30, 2000, were $165.8 million, an increase of 33.7% over
the past twelve months. ("Commitments" at a given point in time represent the
forward-looking revenues for the next twelve months from all services being
currently supplied to clients.) The average commitment per client was $217,000
at quarter end, up 17% from the end of the first quarter of fiscal 2000.
Commitments from international clients total $31.5 million, representing
approximately 19% of total commitments.
As of November 30, 2000, no individual client accounted for more than 3% of
total commitments and commitments from the ten largest clients did not exceed
20% of total commitments. Client retention continued in excess of 95%. As a
matter of policy, the Company does not seek to enter into written contracts with
its clients and clients are capable of adding, deleting or terminating services
at any time. Historically, commitments have increased in virtually every month.
Operating Expenses
Cost of Services
Cost of services was $14.1 million during the quarter ended November 30, 2000,
an increase of 33.8% from $10.6 million in the year earlier period. Higher
employee compensation, clearing fees and depreciation on computer equipment
caused this increase.
Employee Compensation and Benefits. Employee compensation and benefits for the
applications engineering and consulting groups rose $1.2 million in the first
quarter of fiscal 2001. New employees and increases in merit compensation caused
this growth. In aggregate, the applications engineering and consulting groups
increased employee headcount by 35% over the past year.
Clearing Fees. Clients who elect to pay for FactSet services via commissions on
securities transactions are charged a greater amount than cash-paying clients to
compensate for clearing broker fees paid by the Company. Cash fees result in
greater margin percentages than commission revenues, however, revenues net of
clearing fees are approximately the same under both of these payment methods.
Although commission revenues as a percentage of total revenues has declined to
32% for the first quarter of fiscal year 2001 from 36% a year ago, clearing fees
increased $864,000 from the comparable period in fiscal 2000. This increase was
the result of higher commission revenues as well as additional commissions
related to services subscribed to by international clients. Commission revenues
from international clients are subject to a higher clearing rate than commission
revenues from U.S. based clients.
Depreciation Expense. Depreciation expense on computer related equipment
increased $672,000 for the quarter ended November 30, 2000. This increase was
caused by higher levels of capital expenditures and accelerated depreciation on
computer equipment caused by the purchase of a Compaq GS320, Compaq's new
generation mainframe machine.
Selling, General and Administrative
For the three months ended November 30, 2000, selling, general and
administrative ("SG&A") expenses were $15.0 million, up 36% from $11.0 million
in the first quarter of fiscal 2000. Higher SG&A was a product of increases in
employee compensation and benefits, travel expenses, office related expenses.
Employee Compensation and Benefits. Employee compensation and benefits for the
sales, product development and other support departments increased $1.9 million
for the quarter ended November 30, 2000. Employee headcount for these
departments grew 32% during the past year.
Travel and Entertainment Expense. Travel and entertainment ("T&E") rose $1.1
million for the first quarter of fiscal year 2001. Additional T&E was the result
of employee travel required to service an expanding global client base.
Office Expenses. For the first quarter of fiscal year 2001, rent, amortization
of leasehold improvements and depreciation of furniture and fixtures increased
$778,000 over the comparable period in fiscal year 2000. These increases
resulted from office expansions in Stamford, Connecticut and Boston,
Massachusetts and an office opening in Frankfurt, Germany.
Operating Margin. For the quarter ended November 30, 2000, operating margin was
28.8% compared to 28.7% for the same period a year ago.
Income Taxes. Income taxes increased $1.1 million during the quarter ended
November 30, 2000. Pretax income expanded $3.3 million in the first quarter of
fiscal 2001 compared to fiscal 2000. The effect of the increase in pretax income
was partially offset by a 2% decline in effective tax rate from 41% to 39%. This
decline was the result of various tax-planning strategies implemented during the
past year.
Liquidity
Cash generated from operating activities was $12.8 million and $12.7 million for
the three months ended November 30, 2000 and 1999 respectively. Declining
accounts receivable and increases in net income, depreciation, current taxes
payable and deferred commissions were offset by decreases in accounts payable
and accrued expenses, accrued compensation payable and income tax benefits from
stock option exercises.
Capital Expenditures. Capital expenditures by the Company in the three months
ended November 30, 2000 totaled $4.9 million. Expenditures primarily related to
computer and communications equipment including the initial purchase of
Wildfire, Compaq's new generation mainframe systems.
Financing Operations and Capital Needs. At November 30, 2000, cash, cash
equivalents and investments amounted to $69.5 million or 49% of the Company's
total assets. The Company financed its capital and operating expense
requirements entirely with cash generated from operations. The Company has no
outstanding debt.
Credit Facilities. The Company is a party to two credit facilities totaling $25
million for working capital and general corporate purposes. The Company has not
drawn on either facility and has no present plans to utilize any portion of the
available credit.
Forward-Looking Statements
Business Outlook. The following forward-looking statements reflect FactSet's
expectations as of January 12, 2001. Given the number of risk factors,
uncertainties and assumptions discussed below, actual results may differ
materially. The Company does not intend to update its forward-looking statements
until its next quarterly results announcement, other than in publicly available
statements.
As previously mentioned, commitments were $165.8 million at November 30, 2000, a
33.7% increase over the year ago period. As discussed on pages 4 and 6 of the
1998 and 1999 Annual Reports, respectively, historically, total commitments at
the end of the second quarter have been a reliable forecaster of revenues for
the fiscal year ending six months after quarter end.
Second Quarter Fiscal 2001 Expectations
o Revenues are expected to range between $42 million and $43 million.
o Operating margins should be comparable with the first quarter of fiscal
2001.
Capital Spending. The Company continues to invest significantly in technology.
In fiscal year 2000, capital expenditures were $11.3 million. Capital spending
in fiscal year 2001 is expected to exceed levels incurred in the prior year. The
Company expects to fund all of these capital expenditures from internally
generated cash flow.
Recent Market Trends. In the ordinary course of business, the Company is exposed
to financial risks involving equity, foreign currency and interest rate
fluctuations.
Since March 2000 major equity indices (Dow Jones 30 Industrials, Russell 2000,
NASDAQ Composite, MSCI European Index) have experienced significant declines.
Historically, there has been little correlation between the Company's operations
and performance of the global equity markets. Nonetheless, a persistent decline
in the global equity markets could adversely affect a large number of the
Company's clients (investment management firms and investment banks) and
increase the likelihood of personnel reductions among FactSet's existing and
potential clients.
The fair market value of the Company's investment portfolio at November 30, 2000
was $24 million. It is expected that the fair market value of the portfolio will
continue to be minimally affected by fluctuations in interest rates. The
Company's portfolio of fixed income investments is managed to preserve
principal. Under the investment guidelines established by the Company,
third-party managers construct portfolios to achieve high levels of credit
quality, liquidity and diversification. The Company's investment policy dictates
that the weighted average duration of short-term investments is not to be
greater than eighteen months. Investments such as puts, calls, strips, short
sales, straddles, options, futures or investments on margin are not permitted by
the Company's investment guidelines. For these reasons, in addition to the fact
that the Company has no outstanding debt, financial exposure to fluctuations in
interest rates is expected to continue at a low level.
All of the Company's investments are denominated in U.S. dollars and more than
95% of the Company's revenues are received in U.S. dollars. Therefore, the
Company's exposure to fluctuations in foreign currency prices is expected to
continue to be insignificant.
Income Taxes. In the normal course of business, the Company's tax filings are
subject to audit by federal and state tax authorities. Audits by four taxing
authorities are currently ongoing. There is inherent uncertainty contained in
the audit process but the Company has no reason to believe that such audits will
result in additional tax payments that would have a material adverse effect on
its results of operations or financial position.
Forward-Looking Factors
This Management's Discussion and Analysis contains forward-looking statements
based on management's current expectations, estimates and projections. All
statements that address expectations or projections about the future, including
statements about the company's strategy for growth, product development, market
position, commitments and expected expenditures and financial results are
forward-looking statements. Forward-looking statements may be identified by
words like "expected," "anticipates," "plans," "intends," "projects," "should,"
"indicates," "continue", "commitments" and similar expressions. These statements
are not guarantees of future performance and involve a number of risks,
uncertainties and assumptions ("future factors"). Therefore, actual results may
differ materially from what is expressed or forecasted in such forward-looking
statements. The Company undertakes no obligation to publicly update any
forward-looking statements as a result of new information, future events, or
otherwise.
These factors include, but are not limited to, the ability to hire qualified
personnel; maintenance of the Company's leading technological position; the
impact of global market trends on the Company's revenue growth rate and future
results of operations; the negotiation of contract terms supporting new and
existing databases; retention of key clients; the successful resolution of
ongoing audits by tax authorities; the continued employment of key personnel;
the absence of U.S. or foreign governmental regulation restricting international
business; and the sustainability of historical levels of profitability and
growth rates in cash flow generation.
Part II OTHER INFORMATION
Item 1. Legal Proceedings: None
Item 2. Changes in Securities: None
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) Exhibits
EXHIBIT NUMBER DESCRIPTION
<S> <C>
3.1.................................................................................... Restated Certificate of Incorporation (1)
3.2.................................................................................................................. By-laws (1)
4.1..................................................................................................... Form of Common Stock (1)
10.1.................................................. Form of Consulting Agreement between the Company and Charles J. Snyder (2)
10.2.............................................................. Letter of Agreement between the Company and Ernest S. Wong (1)
10.31............................................................. Amendment to 364-Day Credit Agreement, dated April 3, 2000 (3)
10.32............................................................................................ Three-Year Credit Agreement (4)
10.33........................................................... Retirement Agreement between the Company and Howard E. Wille (5)
10.4..................................... The FactSet Research Systems Inc. 1994 Stock Option Plan and 1996 Stock Option Plan (6)
10.5............................................. The FactSet Research Systems Inc. Non-Employee Directors' Stock Option Plan (7)
27....................................................................................................... Financial Data Schedule
</TABLE>
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 333-4238).
(2) Incorporated by reference to the Company's annual report on Form 10-K for
the fiscal year 1999.
(3) Incorporated by reference to the Company's quarterly report on Form 10-Q
for the second quarter of fiscal year 2000.
(4) Incorporated by reference to the Company's quarterly report on Form 10-Q
for the first quarter of fiscal year 1999.
(5) Incorporated by reference to the Company's quarterly report on Form 10-Q
for the third quarter of fiscal year 2000.
(6) Incorporated by reference to the Company's Registration Statement on Form
S-8 (File No. 333-22319).
(7) Incorporated by reference to the Company's Registration Statement on Form
S-8 (File No. 333-59839).
(b) Reports on Form 8-K
On September 22, 2000, the Company filed a report on a Form 8-K which announced
the appointment of Philip A. Hadley as Chairman and Chief Executive Officer. A
copy of the Company's press release announcing the matter was attached and
incorporated by reference therein.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Greenwich,
State of Connecticut, on November 30, 2000.
FACTSET RESEARCH SYSTEMS INC.
/s/ ERNEST S. WONG
Ernest S. Wong, Senior Vice President, Chief Financial Officer and Secretary
January 12, 2001
