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 May 31, 1998
|_| 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 May 31, 1998
................... ................................
Common Stock, par value $.01 9,660,268
FactSet Research Systems Inc.
Form 10-Q
Table of Contents
Part I FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Consolidated Statements of Income
for the three and nine months ended May 31, 1998 and 1997..........3
Consolidated Statements of Financial Condition
at May 31, 1998 and at August 31, 1997.............................4
Consolidated Statements of Cash Flows
for the nine months ended May 31, 1998 and 1997....................5
Notes to the Consolidated Financial Statements......................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................8
Part II OTHER INFORMATION
Item 1. Legal Proceedings...................................................12
Item 2. Changes in Securities...............................................12
Item 3. Defaults Upon Senior Securities.....................................12
Item 4. Submission of Matters to a Vote of Security Holders.................12
Item 5. Other Information...................................................12
Item 6. Exhibits and Reports on Form 8-K....................................12
Signatures....................................................................12
FactSet Research Systems Inc.
CONSOLIDATED STATEMENTS OF INCOME Three Months Ended Nine Months Ended
In thousands, except per share data and unaudited May 31, May 31,
1998 1997 1998 1997
.......................................................................................................
Subscription Revenues
Commissions $8,459 $7,067 $24,438 $19,770
Fees 11,737 8,030 32,309 22,136
------ ------ ------ ------
Total subscription revenues 20,196 15,097 56,747 41,906
------ ------ ------ ------
.......................................................................................................
Expenses
Cost of services 7,727 6,039 22,228 16,829
Selling, general, and administrative 6,387 4,588 17,504 12,761
Other expenses 669 568 2,148 1,573
------ ----- ------ -----
Total operating expenses 14,783 11,195 41,880 31,163
------ ------ ------ ------
.......................................................................................................
Income from operations 5,413 3,902 14,867 10,743
Other income 380 235 1,131 558
----- ----- ----- -----
Income before income taxes and extraordinary gain 5,793 4,137 15,998 11,301
Income taxes 2,526 1,779 7,027 4,889
------ ------ ------ ------
Net income before extraordinary gain 3,267 2,358 8,971 6,412
Extraordinary gain, net of income taxes - - 242 -
------ ------ ----- -----
Net income $3,267 $2,358 $9,213 $6,412
====== ====== ====== ======
.......................................................................................................
Basic earnings per common share $0.34 $0.25 $0.96 $0.67
.......................................................................................................
Diluted earnings per common share $0.30 $0.22 $0.84 $0.59
.......................................................................................................
Weighted average common shares (Basic) 9,647 9,545 9,619 9,546
.......................................................................................................
Weighted average common shares (Diluted) 11,041 10,813 10,952 10,833
.......................................................................................................
The accompanying notes are an integral part of these consolidated statements.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
FactSet Research Systems Inc.
ASSETS
May 31, August 31,
In thousands and unaudited 1998 1997
...............................................................................
CURRENT ASSETS
Cash and cash equivalents $31,049 $26,816
Investments - 1,375
Receivable from clients and clearing brokers 10,322 7,335
Receivable from employees 535 549
Deferred taxes 3,327 3,149
Other current assets 420 731
------ ------
Total current assets 45,653 39,955
...............................................................................
PROPERTY, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
Property, equipment, and leasehold improvements, at cost 37,223 26,880
Less accumulated depreciation (22,222) (17,658)
------ ------
Property, equipment, and leasehold improvements, net 15,001 9,222
...............................................................................
OTHER NON-CURRENT ASSETS
Deferred taxes 856 927
Other assets 552 731
------- -------
TOTAL ASSETS $62,062 $50,835
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
May 31, August 31,
In thousands and unaudited 1998 1997
...............................................................................
CURRENT LIABILITIES
Accounts payable and accrued expenses $3,878 $2,216
Accrued compensation 4,227 3,676
Deferred fees and commissions 4,347 4,499
Current taxes payable 1,829 2,426
Deferred rent 88 68
------ ------
Total current liabilities 14,369 12,885
------ ------
...............................................................................
NON-CURRENT LIABILITIES
Deferred taxes - 180
Deferred rent 347 143
------ ------
Total liabilities 14,716 13,208
------ ------
...............................................................................
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 10,000,000 shares
authorized, none issued - -
Common stock 97 96
Capital in excess of par value 2,884 1,995
Retained earnings 44,801 35,588
Unrealized gain on investment, net of taxes - 239
Less treasury stock (436) (291)
------ ------
Total stockholders' equity 47,346 37,627
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $62,062 $50,835
======= =======
The accompanying notes are an integral part of these consolidated statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FactSet Research Systems Inc.
In thousands and unaudited Nine Months Ended May 31, 1998 1997
..............................................................................
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $9,213 $6,412
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 4,564 3,463
Deferred tax expense (benefit) (107) (779)
Gain on sale of investment (433) -
Accrued ESOP contribution 563 405
----- -----
Net income adjusted for non-cash items 13,800 9,501
Changes in working capital
Receivable from clients and clearing brokers (2,987) (958)
Accounts payable and accrued expenses 1,662 985
Accrued compensation 588 161
Deferred fees and commissions (152) 1,049
Current taxes payable (597) 789
Other working capital accounts, net 729 531
----- -----
Net cash provided by operating activities 13,043 12,058
..............................................................................
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, equipment, and
leasehold improvements (10,343) (5,576)
Proceeds from sale of investments 1,389 -
----- ------
Net cash used in investing activities (8,954) (5,576)
..............................................................................
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of common stock from employees (5) (113)
Proceeds from exercise of stock options 149 -
-- ---
Net cash provided by (used in) financing activities 144 (113)
..............................................................................
Net increase in cash and cash equivalents 4,233 6,369
Cash and cash equivalents at beginning of period 26,816 15,700
------- -------
Cash and cash equivalents at end of period $31,049 $22,069
======= =======
The accompanying notes are an integral part of these consolidated statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FactSet Research Systems Inc.
May 31, 1998
(Unaudited)
1. ORGANIZATION AND NATURE OF BUSINESS
FactSet Research Systems Inc. (the "Company") provides online integrated
database services to the financial 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 on a cash basis (in
which case subscription revenues are recorded as "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 Exchange Act of
1934. FDS's only function is to facilitate the receipt of payments with respect
to subscription charges and it does not otherwise engage in the securities
business.
Subscription revenues paid in commissions are based on securities transactions
introduced and cleared on a fully disclosed basis through one of two designated
clearing brokers. 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's account.
FactSet Pacific, Inc. and FactSet Limited are wholly owned subsidiaries of the
Company and are U.S. corporations with branch operations in the Far East and
Europe, respectively.
2. ACCOUNTING POLICIES
The accompanying interim consolidated financial statements of FactSet Research
Systems Inc. ("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,
1997. 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 financial statements in the Company's
Annual Report on Form 10-K for the fiscal year ended August 31, 1997.
The significant accounting policies of the Company and its subsidiaries are
summarized below.
Financial Statement Presentation
The accompanying 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.
The financial reporting format of the Consolidated Statements of Income has been
revised to enhance comparability with other companies in the online information
services industry and to improve understanding of the Company's results of
operations. The Consolidated Statements of Income have been reclassified in all
prior periods presented to conform to the current year presentation.
Cost of services is composed of compensation and benefits for the employees of
the software engineering and consulting departments, clearing fees, data costs,
computer maintenance and depreciation expenses, and communication costs.
Selling, general, and administrative expenses include compensation and benefits
for employees involved with sales, product development and various support
functions, promotional expenses, rent, amortization of leasehold improvements,
depreciation of furniture and fixtures, and office expenses. The components of
other expenses are professional fees and miscellaneous 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.
Actual results could differ from those estimates.
Revenue Recognition
Subscription charges are quoted to clients on an annual basis, but are earned as
services are provided on a month-to-month basis. Subscription revenues, whether
commissions or fees, are 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
Statements 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 earned subscription revenues are reflected on the
Consolidated Statements of Financial Condition as deferred fees and commissions.
Clearing Fees
When subscription charges are recorded on a commission basis, the Company incurs
clearing fees, which are the charges imposed by the clearing brokers used to
execute and settle clients' securities transactions.
Cash and Cash Equivalents
Cash and cash equivalents consist of demand deposits and money market
investments.
Investments
Investment securities are classified as available-for-sale securities and are
reported at market value or fair value as determined by management. Unrealized
gains and losses on available-for-sale securities are recognized as a separate
component of stockholders' equity, net of tax until sold.
Property, Equipment, and Leasehold Improvements
Depreciation of computers and related equipment acquired before September 1,
1994 is recognized using the double declining balance method over estimated
useful lives of five years. Computers and related equipment acquired after
September 1, 1994 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.
Deferred Taxes
Deferred taxes are determined in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes." The
deferred tax provision is derived from changes in deferred taxes on the balance
sheet. Under SFAS No. 109 consideration is given to 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 are recognized immediately upon enactment. The Company records deferred
taxes for such items as accrued compensation, deferred fees and commissions, and
property, equipment, and leasehold improvements.
Stock-Based Compensation
The Company follows the disclosure-only provisions of SFAS No. 123, Accounting
for Stock-Based Compensation.
Earnings Per Share
In fiscal 1998, the Company adopted SFAS No. 128, Earnings Per Share ("EPS").
Basic EPS excludes dilution and is computed by dividing net income by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if common stock equivalents
were converted into common stock and then shared in the earnings of the Company.
Diluted EPS is computed by dividing net income by the weighted average number of
both common shares and common share equivalents 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. In the diluted EPS calculation, shares available pursuant to grants
made under the Company's stock option plans are included as common stock
equivalents using the treasury stock method.
New Accounting Pronouncements
In June 1997, SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information, were
issued. Disclosures required by these statements will be effective for the
Company's 1999 fiscal year.
In March 1998, Statement of Position 98-1, Accounting for The Costs of Computer
Software Developed or Obtained for Internal Use was issued. This statement is
effective for the Company's fiscal year ending in 2000. The impact from adoption
of this new accounting pronouncement has not yet been determined.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company
FactSet Research Systems Inc. is the leading provider of online integrated
database services to the financial community. The Company's software technology
combines multiple large-scale databases into a single mainframe information
system accessible from clients' personal computers. Simultaneous access to over
100 databases creates a comprehensive, "one stop" source for financial and
economic information, news, and commentary on tens of thousands of companies and
securities worldwide. The Company's proprietary software tools enable clients to
easily download, screen, manipulate, and analyze data in a virtually infinite
array of formats, principally custom reports designed by and for the user.
FactSet markets its services to investment managers, investment banks, and other
financial services institutions throughout the world.
Business Environment
The strength of global financial markets has some influence on the demand for
the Company's products and services.
The demand for FactSet's services has been positively impacted by the overall
strength of the financial markets worldwide. While there is no reason to believe
future demand for the Company's products and services will diminish, a prolonged
decline in the global financial markets could adversely impact the Company's
results of operations, cash flows and financial position.
Although the Asian and Pacific Rim financial markets have experienced
significant volatility during the past year, the Company's revenues for the nine
months ending May 31, 1998 grew by over 30% versus the comparable period a year
earlier. Revenues over the first nine months of fiscal 1997 more than doubled
compared to fiscal 1996. Less than 5% of total consolidated revenue is generated
from the Company's Asian operations. Accordingly, should volatility in the Asian
and Pacific Rim stock markets persist, the impact on the Company's future
results of operations, cash flows and financial position is not expected to be
material.
Investments
The Company continues to make significant investments in technology and people
in order to expand in the global marketplace. Among its major capital
expenditures during the first nine months of fiscal 1998, the Company purchased
four Digital Equipment ("DEC") Alpha 8480/625 mainframe machines for its data
centers. Six existing DEC Alpha mainframe machines were also upgraded to run on
eight 625mhz CPU's and 10 gigabytes of RAM. The number of DEC Alpha machines
owned by the Company currently totals ten.
Expansion of the Company's workforce also continues. At May 31, 1998, the
Company employed 239 individuals, an increase of 45% from the end of the third
quarter of fiscal 1997. To facilitate the growth of the organization, the
Company has signed leases in fiscal 1998 to expand its office space in New York
City, San Mateo (California), Tokyo and Connecticut.
The projected level of the Company's total capital spending for these
investments in technology and infrastructure will likely exceed $13.0 million in
fiscal 1998.
The Company is actively developing programs to adjust mainframe applications and
data provided by third parties to be fully year 2000 compliant. All year 2000
changes take place at the Company's mainframe centers and will not require a
separate program installation on each user personal computer or network. While
there can be no absolute assurance of completion by year 2000, the Company does
not believe this transition will have a material adverse impact on its future
results of operations, cash flows, or financial position.
RESULTS OF OPERATIONS
Three Months Ending Nine Months Ending
May 31, May 31,
Unaudited and in thousands, except per share data 1998 1997 Change 1998 1997 Change
...............................................................................................................
Revenues $20,196 $15,097 33.8% $56,747 $41,906 35.4%
Operating expenses 14,783 11,195 32.1 41,880 31,163 34.4
Operating income 5,413 3,902 38.7 14,867 10,743 38.4
Income before income taxes and extraordinary gain 5,793 4,137 40.0 15,998 11,301 41.6
Net income before extraordinary gain 3,267 2,358 38.5 8,971 6,412 39.9
Extraordinary gain, net of income taxes - - 242 -
Net income 3,267 2,358 38.5 9,213 6,412 43.7
Diluted earnings per common share $0.30 $0.22 36.4% $0.84 $0.59 42.4%
...............................................................................................................
Revenues
Revenues for the quarter ending May 31, 1998 increased 33.8% to $20.2 million
versus $15.1 million for the third quarter of fiscal 1997. For the first nine
months of fiscal 1998, revenues increased 35.4% to $56.7 million from $41.9
million for the first nine months of fiscal 1997. Additional subscriptions to
services and passwords and new client additions drove this growth. The number of
passwords in use grew to over 13,000 at May 31, 1998, approximately a 45%
increase from the third quarter of fiscal 1997. The client count at May 31, 1998
was 548, a net increase of 74 clients over the past twelve months.
For the three months ending May 31, 1998, revenues from international operations
were $2.6 million, a 47% increase over the year ago period. International
revenues for the first nine months of fiscal 1998 increased 62% to $7.0 million,
when compared to the first nine months of fiscal 1997. International operations
accounted for approximately 13% of consolidated revenue for the third fiscal
quarter and 12% for the first nine months of fiscal 1998, up from 12% and 10%
for the comparable periods a year earlier. The majority of international clients
pay for services in U.S. dollars and the net monetary assets held by the
Company's foreign offices are insignificant. Accordingly, the Company's exposure
to foreign currency fluctuations is immaterial.
Total client commitments at May 31, 1998 were $84.0 million, up 34% from May 31,
1997 ("Commitments" represent a freeze frame of the annual revenue that the
Company would receive from a particular client based on the services currently
being supplied to that client). The average commitment per client increased 16%
to $153,000, resulting from additional subscription to services and passwords by
existing clients. Client retention continued at a rate in excess of 95% in the
third quarter of fiscal 1998. As of May 31, 1998, no individual client accounted
for more than 4% of total commitments, and commitments from the top ten clients
did not exceed 15% of the total. As a matter of policy, the Company does not
seek to enter into written contracts with its clients and clients can add or
delete services at any time. Commitments have historically grown in virtually
every month.
Operating Expenses
Cost of services includes employee compensation and benefits (for employees
engaged in software engineering and consulting), clearing fees, data costs,
computer maintenance and depreciation expenses, and communication costs. For the
quarter ended May 31, 1998, costs of services were up 28% to $7.7 million when
compared to the third quarter of fiscal 1997. In the first nine months of fiscal
1998, cost of services increased 32.1% over the year earlier period to $22.2
million. These increases are largely due to higher employee compensation and
benefit expenses and increased depreciation expense on computer equipment. For
the quarter ended May 31, 1998, employee compensation and benefits rose $900,000
versus the year ago period. During the first nine months of fiscal 1998,
employee compensation and benefits increased $2.5 million over fiscal 1997's
comparable period. These increases were attributable to employee additions and
merit raises. Employee headcount in the engineering and consulting departments
increased 57% over the past twelve months. Depreciation expense on computer
equipment in fiscal 1998's third quarter increased $600,000 versus the third
quarter of fiscal 1997. For the first nine months of fiscal 1998, depreciation
expense on computer equipment increased $1.0 million when compared to the first
nine months of fiscal 1997. Higher depreciation expense was caused by increased
computer equipment purchases. For the first nine months ending May 31, 1998,
computer equipment purchases increased $4.8 million over fiscal 1997's
comparable period.
Selling, general, and administrative ("SG&A") expenses include employee
compensation and benefits (for employees engaged in sales, product development,
and various support functions), promotional expenses, rent, amortization of
leasehold improvements, depreciation on furniture & fixtures, and office
expenses. For the third quarter of fiscal 1998, SG&A expenses were $6.4 million,
a 39.2% increase over the year ago period. For the nine months ended May 31,
1998, SG&A expenses rose to $17.5 million or 37.2% when compared to the prior
year period. These increases were attributable to higher employee compensation
and promotional expenses. During the third quarter of fiscal 1998, employee
compensation and benefits rose $1.1 million from the comparable period in fiscal
1997. For the nine months ended May 31, 1998, employee compensation and benefits
increased $3.1 million when compared to the first nine months of fiscal 1997.
These increases were due to employee additions and merit raises. At May 31, 1998
employee headcount in the sales, product development, and various other support
departments increased 31% when compared to May 31, 1997. For the three months
ended May 31, 1998, promotional expenses rose $400,000 over the prior year
period. Over the first nine months of fiscal 1998, promotional expenses
increased $800,000 when compared to the year earlier period. Promotional expense
increases were the result of higher travel costs associated with supporting a
larger client base.
Operating Margins
For the quarter ended May 31, 1998, operating margins increased 100 basis points
when compared to the three months ended May 31, 1997. Operating margins for the
nine months ended May 31, 1998 rose 60 basis points when compared to the year
ago period. The margin improvement was primarily the result of declining
clearing fees caused by an increasing number of clients selecting to pay for the
Company's services with cash versus commissions on securities transactions, and
declining data costs as a percentage of revenue. These improvements were
partially offset by higher compensation and benefits due to employee additions
in various departments.
A higher margin is generated from fee (cash) revenue than from commission
revenue. Although net revenue to the Company are the same under both payment
methods, commission clients pay a higher amount than cash paying clients. This
additional fee is charged in order to cover clearing fees paid by the Company.
The continuing shift from commission to fee revenue has caused clearing fees to
decline as a percentage of revenue. During the third quarter of fiscal 1998,
cash revenue increased to 58% of total revenues compared to 53% for the
comparable year ago period. For the nine months ended May 31, 1998, cash revenue
amounted to 57% of total revenues versus 53% for the nine months ended May 31,
1997. Data costs declined as a percentage of revenues due to certain database
charges being directly assumed by the Company's clients as of January 1, 1998.
Depending on the data vendor, clients pay data fees to the Company or directly
to the data vendor. When data fees are paid by the client to the Company,
separate data charges are assessed to the Company by the data vendor.
Accordingly, a higher margin is generated by the Company when a data vendor
bills and collects the data charge directly from the client.
Net Income and Earnings Per Share
During the quarter ended May 31, 1998, net income increased 38.5% to $3.3
million when compared to the year ago period. For the nine months ended May 31,
1998, net income was $9.2 million, up 43.7% from the first nine months of fiscal
1997. A $242,000 extraordinary after tax gain was recorded during the second
quarter of fiscal 1998 resulting from the sale of the Company's investment in a
limited partnership. Excluding this sale, net income was $9.0 million for the
first nine months of fiscal 1998, an increase of 40% over the prior year period.
Basic earnings per common share was $0.34 for the third quarter of fiscal 1998
and $0.96 for the first nine months ended May 31, 1998. Diluted earnings per
common share was $0.30 for the quarter ended May 31, 1998 and $0.84 for the
first nine months of fiscal 1998. Excluding the extraordinary gain, for the
first nine months ending May 31, 1998, basic earnings per common share was
$0.93, up 38.8% from the year ago period and diluted earnings per common share
was $0.82, up 39% when compared to the first nine months of fiscal 1997.
Liquidity
Cash generated by operating activities amounted to $13.0 million for the first
nine months of fiscal 1998 compared to $12.1 million in the comparable period a
year ago. This increase was the result of higher profitability and non-cash
expenditures partially offset by added receivables from an expanded client base.
Cash used in investing activities increased to $9.0 million versus $5.6 million
a year ago primarily due to an 85% increase in capital spending offset by
proceeds from the sale of an investment in a limited partnership. As discussed
earlier in the caption "Future Investments", the Company projects that capital
spending in fiscal 1998 will likely exceed $13.0 million.
All capital and operating expense requirements have been financed by cash from
operations. Cash and cash equivalents at May 31, 1998 amounted to $31.0 million.
The Company has no outstanding indebtedness.
Accounting Pronouncements
In June 1997, SFAS No. 130, Reporting Comprehensive Income; and SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information, were
issued. In March 1998, Statement of Position 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use was issued. Refer to
Note 2, "Accounting Policies" for further information.
Forward-Looking Statements
This Management's Discussion and Analysis of the Company's results of operations
and financial condition contains forward-looking statements that are based on
management's current expectations and beliefs. The phrases "no reason to
believe," "could adversely impact," "is not expected," "continues," "projected
level," "will likely exceed," "does not believe," and "commitments" are intended
to identify such forward-looking statements. These statements are not guarantees
of future performance and involve certain risks, uncertainties, and assumptions
which are difficult to predict ("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. Future factors include the ability to hire qualified personnel,
maintenance of the Company's leading technological position; the successful
negotiation of contract terms supporting new and existing databases; the ongoing
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
(a) Exhibits
Exhibit Number
3.1....................................Restated Certificate of Incorporation (1)
3.2..................................................................By-laws (1)
4.1.....................................................Form of Common Stock (1)
10.1........................Form of Employment Agreement between the Company
and Howard E. Wille and Charles J. Snyder (1)
10.2.................Letter Agreement between the Company and Ernest S. Wong (1)
27..................................................Financial Data Schedules
(1)Incorporated by reference to the Company's Registration Statement on Form S-1
(File No.333-4238)
(b) Reports on Form 8-K: None
SIGNATURE
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.
FACTSET RESEARCH SYSTEMS INC.
Date: July 15, 1998 BY: /s/ ERNEST S. WONG
Ernest S. Wong,
Senior Vice President, Chief Financial Officer
and Secretary