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: May 31, 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 May 31, 1996
- ------------------- ---------------------------
Common Stock, par value $.01 9,526,300
FACTSET RESEARCH SYSTEMS INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Statement of
Financial Condition
May 31, 1996 and August 31, 1995............................... 3
Consolidated Statements of Income
for the three months ended and
the nine months ended May 31, 1996 and 1995.................... 4
Condensed Consolidated Statements of Cash Flows
for the nine months ended May 31, 1996 and 1995................ 5
Notes to the Condensed Consolidated Financial Statements....... 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 7
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings................................................ 11
ITEM 2 - Changes In Securities............................................ 11
ITEM 3 - Submission of Matters to a vote of Security Holders.............. 11
ITEM 4 - Other Information................................................ 11
ITEM 5 - Reports on Form 8-K.............................................. 11
Signatures................................................................ 12
ITEM 6 - Exhibits......................................................... 13
ITEM 1
FactSet Research Systems Inc.
Consolidated Statement of Financial Condition
(in thousands)
(Unaudited)
May 31, August 31,
1996 1995
------- ----------
ASSETS
Cash and cash equivalents $11,906 $11,588
Investments 1,364 1,137
Receivable from clients and
clearing brokers 5,023 4,102
Receivable from officers and
employees 4,302 4,182
Prepaid expenses 210 132
Prepaid taxes 251 0
Deferred taxes 1,864 1,600
-------- ---------
Total current assets 24,920 22,741
Furniture, equipment, and
leasehold improvements, net 6,751 4,946
Deferred taxes 353 379
Other assets 873 597
------- -------
Total assets $32,897 $28,663
======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts payable and accrued
expenses $ 1,080 $ 1,629
Accrued compensation payable 790 980
Accrued ESOP contribution 435 480
Deferred fees and commissions 3,611 2,851
Current taxes payable 0 768
Deferred rent 118 118
------- -------
Total current liabilities 6,034 6,826
Deferred Rent 367 464
------- -------
Total liabilities 6,401 7,290
------- -------
Stockholders' Equity:
Common stock 96 95
Capital in excess of par
value 1,537 1,235
Retained earnings 24,885 20,188
Treasury stock (164) (162)
Unrealized gain on
investments, net of taxes 142 17
------- -------
Total stockholders'
equity 26,496 21,373
------- -------
Total liabilities and
stockholders' equity $32,897 $28,663
======= =======
The accompanying notes are an integral part of these
condensed consolidated financial statements.
FactSet Research Systems Inc.
Consolidated Statement of Income
(unaudited)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
May 31, May 31,
1996 1995 1996 1995
------- ------- ------- -------
Commission 6,022 5,317 17,262 16,016
Fee income 5,414 3,752 14,872 10,651
------- ------- ------- -------
Total revenues 11,436 9,069 32,134 26,667
Employee compensation costs 3,407 2,787 9,869 8,164
Clearing costs 1,131 1,101 3,242 3,199
Data costs 872 784 2,477 2,295
Communication costs 677 534 2,106 1,761
Computer equipment 793 564 2,083 1,649
Promotion 668 475 1,668 1,299
Occupancy 609 539 1,729 1,516
Other expenses 470 337 1,294 823
------- ------- ------- -------
Total costs and expenses 8,627 7,121 24,468 20,706
------- ------- ------- -------
Income from operations 2,809 1,948 7,666 5,961
Other income 145 175 576 416
------- ------- ------- -------
Income before provision
for income taxes 2,954 2,123 8,242 6,377
Provision for income taxes 1,279 913 3,545 2,723
------- ------- ------- -------
Net income 1,675 1,210 4,697 3,654
======= ======= ======= =======
Net income per share 0.16 0.11 0.44 0.36
======= ======= ======= =======
Weighted average number of
common shares outstanding 10,750 10,679 10,761 10,125
======= ======= ======= =======
FactSet Research Systems Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Nine Months Ended
May 31,
1996 1995
------ ------
Cash flows from operating
activities:
Net Income 4,697 3,654
Adjustments to reconcile net
income to net cash provided
by operating activities 2,181 1,823
Depreciation and amortization
(Gain) loss on disposal of
equipment (104) 42
Changes in assets and liabilities:
Receivable from clients and
clearing brokers (921) (288)
Receivable from officers and
employees (119) (526)
Prepaid expenses (78) (88)
Prepaid taxes (251) 131
Other assets (513) (311)
Accounts payable and accrued
expenses (314) 113
Accrued compensation payable (190) 175
Deferred fees and commissions 761 (657)
Taxes payable (768) 231
Deferred rent (98) 17
------ ------
Net cash provided by
operating activities 4,283 4,316
------ ------
Cash flows from investing activities:
Net (Increase) Decrease In Investments (96) 814
Purchase of furniture, equipment,
and leasehold improvements (4,123) (1,382)
Proceeds from disposal of equipment 240 170
------ ------
Net cash used in investing
activities (3,979) (398)
Cash flows from financing activities:
Repurchase of common stock from
employees (2) (12)
Proceeds from exercise of stock
options 16 0
------ ------
Net cash provided by (used) in
financing activities 14 (12)
------ ------
Increase in cash and case equivalents 318 3,906
Cash and cash equivalents, beginning of
period 11,588 5,265
------ ------
Cash and cash equivalents, end of
period 11,906 9,171
====== ======
The accompanying notes are an integral part of these
condensed consolidated financial statements.
FactSet Research Systems Inc.
Notes To The Consolidated Financial Statements
May 31, 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 consolidated financial statements and notes thereto for
the year ended August 31, 1995 and the six months ended February
29, 1996 included in the Company's prospectus dated June 27,
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.
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 an amount estimated at $290,000 of which $193,000 has
been recorded against Stockholders' Equity.
ITEM 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
The Company's revenue is derived from subscription
charges. Solely at the option of each client, these charges may
be paid either in the form of commissions on securities
transactions (in which case subscription revenue is recorded as
Commissions) or on a cash basis (in which case subscription
revenue is recorded as Fees).
Subscription revenue paid in commissions is based on
securities transactions introduced and cleared on a fully
disclosed basis through two clearing brokers, Bear, Stearns & Co.
and Broadcort Capital Corp. (an affiliate of Merrill Lynch &
Co.). Clearance is performed by these two brokers pursuant to
annually renewable contracts at volume discounted rates.
Over the last several years, there has been a trend by
both existing and new clients toward payment of subscription
charges on a cash rather than commission basis. As a percentage
of total revenue, commissions represented 66.8%, 61.1%, 59.6% and
53.7%, respectively, for the three fiscal years ended August 31,
1993, 1994 and 1995, and the nine month period ended May 31,
1996.
Subscription charges are quoted to clients on an annual
basis, but are earned as services are provided on a month to
month basis. Subscription revenue recorded as Commissions and
subscription revenue recorded as Fees are each recorded as 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 statement of financial condition as receivable from
clients. Amounts that have been received through commissions on
securities transactions or through cash payments that are in
excess of a client's earned subscription revenue are reflected on
the consolidated statement of financial condition as deferred
fees and commissions.
Operating expenses included employee compensation and
benefits, clearing fees, data costs, communication costs,
computer equipment expenses, occupancy expenses, promotional
costs and other expenses.
Employee compensation and benefits expenses include, in
addition to employee salaries and bonuses, payroll taxes, the
Company's ESOP contributions, health insurance costs and costs
associated with the Company's key-man life insurance policies.
Clearing fees are directly related to commission
revenue. Clearing fees for executed transactions are recorded on
trade date basis as securities transactions occur, with clearing
fees related to commissions receivable recorded simultaneously
with the related receivable.
Data costs consist of fees and royalties paid by the
Company to database suppliers. Under agreements with certain
database suppliers, the Company collects database fees from
clients and pays those fees to the database supplier on the
clients' behalf. In many cases, however, clients pay database
suppliers directly for access to databases. Such payments are not
reflected on the Company's financial statements.
Communication costs are charges paid by the Company for
clients' communication with the FactSet system, including long
distance telephone charges, charges associated with the Company's
WAN and Internet access charges.
Computer equipment expenses consist of non-capitalized
equipment acquisition costs and depreciation expense relating to
the Company's mainframe computers and other related equipment,
including communications equipment. The cost of communications
equipment provided to clients for use at client sites is
classified as an expense.
Occupancy expense includes costs related to the
Company's leased facilities in Greenwich, Connecticut, New York,
New York, San Mateo, California, London, England and Tokyo,
Japan, as well as amortization expense relating to leasehold
improvements at those facilities.
Promotional expenses consist primarily of the cost of
travel for the Company's marketing personnel and consultants,
costs associated with the printing of operations manuals and
promotional literature and expenses relating to Company
participation at industry trade shows and conventions.
Other expenses include professional expenses, office
expenses and other miscellaneous expenses.
Other income consists primarily of interest income.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
Results of Operations
Subscription revenue. Subscription revenue for the
third quarter and nine months ending May 31, 1996 were $11.4
million and $32.1 million, respectively. These represent 26.1%
and 20.5% increases over the same periods in fiscal 1995.
FactSet's revenue growth resulted from an increase in the number
of new clients as well as increased penetration among existing
clients. The number of clients increased 13.4% from 374 at May
31, 1995 to 424 at May 31, 1996. New clients consist of new
international clients, United States investment managers and
United States investment banks. Revenue growth from existing
clients was attributable to an increase in the number of
authorized workstations and the addition of new applications,
databases and service offerings.
Employee compensation and benefits. Employee
compensation and benefits for the third quarter 1996 were $3.4
million (29.8% of revenues) and $2.8 million (30.7% of revenues)
in the third quarter ending May 31, 1995. On a year-to-date basis
for 1996, employee compensation and benefits were $9.9 million
(30.7% of revenues) compared to $8.2 million (30.6% of revenues)
in 1995. This increase was primarily due to the addition of new
employees to support FactSet's continued growth and expansion in
existing as well as new industry segments and regions, such as
Europe and the Pacific Rim, which are in the early stages of
business development. To a lesser extent, the increases were due
to increases in compensation and benefit costs for existing
personnel.
Clearing fees. Clearing fees for the third quarter 1996
and 1995 remained relatively constant at $1.1 million. On a
year-to-date basis, clearing fees also remained constant at $3.2
million for fiscal 1996 and 1995. Clearing fees, as a percentage
of revenue, decreased from 12.1% in the third quarter 1995 period
to 9.9% in the third quarter 1996 period. This decrease reflects
a decrease in clearing fees per transaction as well as a shift in
payment form by clients from a commission basis to a fee basis.
Data costs. Data costs for the third quarter 1996
increased to $0.9 million from $0.8 millions in the same period
last year. On a year-to-date basis, data costs were $2.5 million
in 1996 and $2.3 million in 1995. As a percentage of revenue,
data costs decreased from 8.6% in the third quarter 1995 period
to 7.7% in the third quarter 1996 period. This decrease reflects
improved terms from certain database providers and economies of
scale achieved from a larger client base, partially offset by the
higher data costs associated with additional databases.
Communication costs. Communication costs for the third
quarter 1996 increased to $0.7 million from $0.5 million in the
same period last year. On a year-to-date basis, communications
costs were $2.1 million in 1996 and $1.8 million in 1995. This
increase is primarily due to increased usage by new and existing
clients, partially offset by the implementation of the WAN at an
increasing number of clients. Communication costs, as a
percentage of revenue, remained constant at 5.9% in the third
quarter 1995 period and in the 1996 period.
Computer equipment. Computer equipment costs for the
third quarter 1996 increased to $0.8 million from $0.6 million in
the same period last year. Year-to-date, computer equipment costs
have increased to $2.1 million in 1996 compared with $1.6 million
in 1995. As a percentage of revenue, computer equipment costs for
the third quarter increased from 6.2% in the 1995 period to 6.9%
in the 1996 period. The increase was primarily due to the higher
depreciation expense associated with increased capital
expenditures as well as a greater proportion of computer assets
with shorter depreciable lives.
Occupancy. Occupancy costs for the third quarter 1996
increased to $0.6 million from $0.5 in the 1995 period. On a
year-to-date basis, occupancy expense was $1.7 million in 1996
and $1.5 million in 1995. As a percentage of revenue, occupancy
costs decreased from 5.9% in the third quarter 1995 to 5.3% in
the 1996 period. This decrease reflects improved operating
leverage from FactSet's revenue growth, partially offset by the
costs associated with the expansion of its Greenwich, Connecticut
facilities to accommodate the growth in its business and
personnel.
Promotional costs. Promotional costs for the third
quarter 1996 increased to $0.7 million from $0.5 million in the
same period in 1995. Year-to-date, promotional costs have
increased to $1.7 million in 1996 from $1.3 million in 1995. In
the third quarter promotional costs, as a percentage of revenue,
increased to 5.8% in the 1996 period from 5.2% in the 1995
period. This increase was due to increased travel expenses
associated with marketing to new industry segments and geographic
regions as well as increased promotional expenses.
Other expenses. Other expenses for the third quarter
1996 increased to $0.5 million from $0.3 million in the 1995
period. On a year-to-date basis, other expenses have increased to
$1.3 million in 1996 from $0.8 million in 1995. As a percentage
of revenue, other expenses increased to 4.1% in the third quarter
1996 from 3.7% in the 1995 period. The increase was primarily due
to increases in expenses for professional services as well as
increases in office expense. To a lesser extent the increase was
due to higher miscellaneous taxes and other miscellaneous
expenses.
Operating income. Operating income for the third
quarter increased to $2.8 million from $1.9 million in the 1995
period. On a year-to-date basis, operating income increased to
$7.7 million in 1996 from $6.0 million in 1995. As a percentage
of revenue, operating income increased to 24.6% in the third
quarter 1996 from 21.5% in the 1995 period.
Other income. Other income decreased to $0.1 million in
the third quarter 1996 from $0.2 million in 1995. The decrease in
other income was due to a timing difference in the accrual of
certain interest income. Year-to-date, other income has increased
to $0.6 million in 1996 from $0.4 in 1995.
Income taxes. Income taxes for the third quarter 1996
increased to $1.3 million from $0.9 million in the same period
last year. Year-to-date, income taxes increased to $3.5 million
in 1996 from $2.7 million in 1995. This increase is due to higher
income before taxes.
Net income. Net income for the third quarter and nine
months ending May 31, 1996 was $1.7 million and $4.7 million
respectively. These represent 38.4% and 28.5% increases over the
same periods in fiscal 1995. As a percentage of revenue, net
income increased to 14.6% in the third quarter 1996 from 13.3% in
the 1995 period.
Liquidity and Capital Resources
The Company's cash, cash equivalents and investments
balance was $13.3 million at May 31, 1996, as compared to $12.7
million at August 31, 1995, an increase of $600,000. Net cash
provided by operating activities remained constant at roughly
$4.3 million for the nine months ended May 31,1996 and May 31,
1995, due primarily to an increase in accounts receivable
associated with revenue growth as well as the timing of tax
payments. Net cash used for investing activities for the nine
months ended May 31, 1996 was $4.0 million, due primarily to the
increased purchases of equipment and leasehold improvements.
The Company believes that its current cash balances and
funds anticipated to be generated from operations, will be
sufficient to satisfy working capital and capital expenditure
requirements for the next twelve months.
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:
10.1 Registration Rights Agreements among the Company,
Howard E. Wille and Charles J. Snyder
10.2 Employment Agreement between the Company and Howard E. Wille
10.3 Employment Agreement between the Company and Charles J. Snyder
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: July 29, 1996 /s/ Ernest S. Wong
----------------------
Ernest S. Wong
Senior Vice President
Chief Financial Officer