8K-2q2007

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


Form 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of report (Date of earliest event reported):   March 20, 2007


FactSet Research Systems Inc.

(Exact name of Registrant as specified in its charter)



Delaware 1-11869 13-3362547
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification Number)
     
     
601 Merritt 7
Norwalk, Connecticut   06851
(Address of principal executive offices)
     
     
(203) 810-1000
(Registrant’s telephone number, including area code)
     
     
     

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

|_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Item 2.02    Results of Operations and Financial Condition

On March 20, 2007, FactSet Research Systems Inc. issued a press release announcing its results for the three and six months ended February 28, 2007. The press release is attached as Exhibit 99.1 to this report on Form 8-K. This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

 

Item 9.01    Financial Statements and Exhibits 


                 (d)         Exhibits


 
Exhibit    
 No.   Description
 –––––   ––––––––––––––––––––––––––––––
 99.1    Press Release of FactSet Research Systems Inc., dated March 20, 2007

 

 

SIGNATURE

 

       Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

 
FACTSET RESEARCH SYSTEMS INC.
      (Registrant)
       By:
     
Date: March 20, 2007         /s/ Peter G. Walsh
        ––––––––––––––––––––––––––––––––––
        Peter G. Walsh
        Senior Vice President,
        Chief Financial Officer and Treasurer

 

 

EXHIBIT 99.1

EXHIBIT INDEX


 
Exhibit    
 No.   Description of Document
 –––––   ––––––––––––––––––––––––––––––––––––––––––––––––––––––––
 99.1    Press Release of Registrant, dated March 20, 2007 reporting the results of
      operations for the Registrant’s second fiscal quarter ended February 28, 2007.

 

 

   
FactSet Research Systems Inc. Contact:
601 Merritt 7 Peter Walsh
Norwalk, Connecticut   06851 FactSet Research Systems Inc.
203.810.1000 / 203.810.1001 Fax 203.810.1000


News Release


FOR IMMEDIATE RELEASE

FactSet Research Systems Reports Record Second Quarter Results, Doubles its Dividend and Increases its Share Repurchase Program by $100 Million

Norwalk, Connecticut – March 20, 2007 – FactSet Research Systems Inc. (NYSE: FDS), a leading provider of integrated financial information and analytical applications to the global investment community, today announced its results for the second quarter of fiscal 2007.

For the quarter ended February 28, 2007, revenues increased to $116.3 million, up 24% compared to the prior year. Operating income for the second quarter rose to $37.8 million from $29.6 million in the same period of fiscal 2006. Net income advanced 38% to $26.5 million as compared to $19.2 million a year ago. Diluted earnings per share increased to $0.52, up from $0.38 in the same period of fiscal 2006. The effective tax rate for the quarter was 33.1%, down from 36.3% a year ago. Included in the second quarter was an income tax benefit of $1.1 million, resulting in an increase in diluted earnings of $0.03 per share. The tax benefit was caused by the reenactment of the U.S. Federal R&D tax credit in December 2006, retroactive to January 1, 2006.

To aid an investor’s ability to make more precise interpretations of FactSet’s financial results, a supplementary schedule is presented on page 7 of this press release to summarize revenues related to services that are not included in the calculation of FactSet’s subscription value.

The Company also announced today that its Board of Directors approved increasing the quarterly cash dividend by 100% to $0.12 per share, or $0.48 per share per annum, beginning with the Company’s next dividend payment in June 2007. The Board also approved an expansion of the existing share repurchase program by an additional $100 million. There is no timeframe to complete the repurchase program and it is expected that share repurchases and cash dividends will be paid using existing and future cash generated by operations.

                       
Consolidated Statements of Income
(Condensed and Unaudited) Three Months Ended Six Months Ended
  February 28,
February 28,
(In thousands, except per share data) 2007   2006   Change   2007   2006   Change
Revenues $116,313   $93,665       24.2 %   $225,194   $183,319       22.8 %
Total operating expenses 78,528   64,021       22.7   151,988   126,272       20.4
Income from operations 37,785   29,644       27.5   73,206   57,047       28.3
Net Income 26,481   19,242       37.6   50,276   38,437       30.8
Diluted earnings per common share $0.52   $0.38       36.8   $0.98   $0.76       28.9
Diluted weighted average common shares 51,314   50,767       51,230   50,308    

Philip A. Hadley, Chairman and CEO said, “We’re pleased with our second quarter results and our record of delivering strong performance over the last ten years. The dividend increase and additional share repurchase authorization reflect the consistency of our subscription business model, our historical free cash flow and our continued focus to enhance long-term shareholder value.”

Second Quarter Financial Highlights
Subscriptions increased $23.3 million during the quarter and up $23.4 million excluding currency. On a constant currency basis, subscriptions advanced $79.5 million over the last twelve months, up 21%. As of February 28, 2007, subscriptions totaled $462.8 million. Of this total, subscriptions from FactSet’s domestic operations were $324.4 million, while overseas operations were $138.4 million. Demand for FactSet’s services continued to rise. Users rose to 32,000, up from 31,000 at the beginning of the quarter. Client count was 1,872 as of February 28, a net increase of 42 clients during the quarter.

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“Subscriptions” at any given point in time represent the forward-looking revenues for the next 12 months from all subscription services currently being supplied to clients.

Other financial and operational highlights of the second quarter of fiscal 2007 include:  
  •   Client retention rate remained above 95%.
  •   500 clients, consisting of 4,200 users, subscribed to the PA 2.0 application at quarter-end.
  •   Revenues from U.S. business produced revenues of $81.9 million for the three months ended February 28, 2007, up 22% over the prior year.
  •   Revenues from non-U.S. operations increased 30% to $34.4 million. On a constant currency basis and excluding non-subscription revenues, revenues from non-U.S. operations advanced 21%.
  •   Cash provided by operating activities of $25.1 million less capital expenditures of $7.3 million resulted in $17.8 million of free cash flow.
  •   New lease agreements were executed to support operations in New York and London. New space will accommodate approximately 315 professionals. In New York, five office locations will be consolidated into one.
  •   Shares repurchased totaled 271,900 shares. Including the increase in the share repurchase program, $115.2 million is authorized for future repurchases.
  •   Joseph R. Zimmel, a private investor and retired Managing Director of Goldman, Sachs & Co., was elected to the FactSet Board of Directors.
  •   Employee count as of February 28, 2007 was 1,486, up 17% from a year ago and up 10% since the beginning of the fiscal year.

Year-to-Date Results of Operations
For the six months ended February 28, 2007, revenues increased 23% to $225.2 million and operating income rose 28% to $73.2 million. Net income grew 31% to $50.3 million, while diluted earnings per share increased 29% to $0.98.

Recent Events and Business Outlook
The following forward-looking statements reflect FactSet’s expectations as of March 20, 2007. 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.

Third Quarter Fiscal 2007 Expectations      
  •   Revenues are expected to range between $118 million and $121 million. Included in this amount is a $1.0 million reduction in non-subscription revenues compared to the just completed second quarter.
  •   Operating margins are expected to range between 31.5% and 33.5%.
  •   The effective tax rate is expected to range between 35.0% and 36.0%.

Full Year Fiscal 2007      
  •   Capital expenditures are expected to range between $35 million to $39 million. The increase in capital expenditures is a result of accelerating our plan to expand and consolidate New York office space from the first quarter of fiscal 2008 to the fourth quarter of fiscal 2007.

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Dividend Declaration
FactSet’s Board of Directors approved an increase in the regular quarterly dividend to $0.12 per share. The cash dividend will be paid on June 19, 2007 to holders of record of FactSet’s common stock on May 31, 2007.

Forward looking statements
This news release 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, subscriptions, 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,” “continues,” “subscriptions” and similar expressions. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions. Many factors, including those discussed more fully elsewhere in this release and in FactSet’s filings with the Securities and Exchange Commission, particularly its latest annual report on Form 10-K and quarterly reports on Form 10-Q, as well as others, could cause results to differ materially from those stated. These factors include, but are not limited to, the ability to integrate newly acquired companies; the ability to hire qualified personnel; the 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 with corporate vendors, data suppliers and potential landlords; the 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.

Conference Call
The Company will host a conference call today, March 20, 2007 at 11:00 a.m. (EST) to review the second quarter fiscal 2007 earnings release. To listen, please visit the investor relations section of the Company’s website at www.factset.com.

About FactSet
FactSet Research Systems Inc. combines integrated financial information, analytical applications, and client service to enhance the workflow and productivity of the global investment community. The Company, headquartered in Norwalk, Connecticut, was formed in 1978 and now conducts operations along with its affiliates from more than twenty-two locations worldwide, including Boston, New York, Chicago, San Mateo, London, Frankfurt, Paris, Milan, Tokyo, Hong Kong, and Sydney.


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FactSet Research Systems Inc.
Consolidated Statements of Financial Condition
       
       
(In thousands and unaudited) February 28,    August 31,   
  2007    2006   
ASSETS
Cash and cash equivalents $139,142     $126,549  
Investments 16,902     16,641  
Receivables from clients and clearing broker, net 69,787     59,190  
Deferred taxes 1,557     1,600  
Other current assets     4,325         3,000  
       Total current assets 231,713     206,980  
Property, equipment and leasehold improvements, net 65,773     59,812  
Goodwill 143,763     141,354  
Intangible assets, net 39,948     43,074  
Deferred taxes 5,378     3,554  
Other assets       2,569           2,454  
          Total assets $489,144     $457,228  
  =======     =======  
LIABILITIES AND STOCKHOLDERS’ EQUITY    
Accounts payable and accrued expenses $  19,009     $  18,110  
Accrued compensation 15,631     21,407  
Deferred fees 25,550     25,322  
Dividends payable 2,931     2,933  
Taxes payable  6,909        9,689  
Note payable       – –        1,840  
       Total current liabilities 70,030     79,301  
Deferred taxes 7,980     8,536  
Deferred rent and other non-current liabilities  12,576      10,703  
          Total liabilities 90,586   98,540
       
Stockholders’ Equity  
    Common stock 557   554
    Capital in excess of par value 144,137   130,033
    Retained earnings 422,256   377,846
    Treasury stock   (174,505 )     (153,073 )
    Accumulated other comprehensive income     6,113       3,328  
       Total stockholders’ equity 398,558   358,688
          Total liabilities and stockholders’ equity $489,144   $457,228
  =======   =======


Page 4 of  7     

                 
FactSet Research Systems Inc.
Consolidated Statements of Income
Three Months Ended Six Months Ended
   February 28,    February 28,
(In thousands, except per share data and unaudited)      2007      2006        2007      2006
 
Revenues $116,313   $93,665     $225,194   $183,319  
                 
Operating expenses                  
     Cost of services 36,730   29,122     71,671   57,186  
     Selling, general and administrative  41,798    34,899        80,317      69,086  
          Total operating expenses  78,528    64,021      151,988    126,272  
                 
Income from operations 37,785   29,644     73,206   57,047  
                   
Other income    1,797        562         3,284       2,264  
                   
Income before income taxes 39,582   30,206     76,490   59,311  
                   
Provision for income taxes   13,101     10,964       26,214     20,874  
                   
Net income $26,481   $19,242     $50,276   $38,437  
  ======   ======     ======   ======  
                   
Basic earnings per common share $0.54   $0.40     $1.03   $0.79  
  ====   ====     ====   ====  
Diluted earnings per common share $0.52   $0.38     $0.98   $0.76  
  ====   ====     ====   ====  
Weighted average common shares (Basic) 48,957   48,569     48,957   48,471  
  =====   =====     =====   =====  
Weighted average common shares (Diluted) 51,314   50,767     51,230   50,308  
  =====   =====     =====   =====  

Page 5 of  7     

           
FactSet Research Systems Inc.  
Consolidated Statements of Cash Flows       Six Months Ended
              February 28,
(In thousands and unaudited) 2007     2006  
CASH FLOWS FROM OPERATING ACTIVITIES      
Net income $50,276     $38,437  
Adjustments to reconcile net income to net cash provided by operating activities        
     Depreciation and amortization 13,573     11,432  
     Stock-based compensation expense 4,604     4,413
     Deferred income taxes ( 2,549 )   ( 2,230 )
     Gain on sale of assets ( 61 )   – –  
     Gain on sale of Company-owned real estate – –     (1,342 )
Changes in assets and liabilities, net of effects of acquisitions        
     Receivables from clients and clearing broker, net ( 10,539 )   ( 3,377 )
     Accounts payable and accrued expenses 1,209     ( 1,084 )
     Accrued compensation ( 5,874 )   ( 8,806 )
     Deferred fees 28     703  
     Taxes payable ( 2,815 )   3,156  
     Landlord contributions 416     84  
     Other working capital accounts, net    ( 161 )     2,059  
Net cash provided by operating activities 48,107     43,445  
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchases of investments, net of proceeds from sales ( 271 )   ( 671 )
Acquisition of businesses, net of cash acquired – –     ( 27,873 )
Proceeds from sale of Company-owned real estate – –     2,910  
Purchases of property, equipment and leasehold improvements  ( 15,300 )    ( 7,090 )
Net cash used in investing activities ( 15,571 )   ( 32,724 )
           
CASH FLOWS FROM FINANCING ACTIVITIES  
Dividend payments  ( 5,781 )    ( 4,755 )
Repurchase of common stock ( 21,432 )   ( 687 )
Repayment of note ( 2,210 )   – –  
Proceeds from employee stock plans 6,596     6,155
Income tax benefits from stock option exercises    2,602        1,825  
Net cash (used in) provided by financing activities ( 20,225 )   2,538  
           
Effect of exchange rate changes on cash and cash equivalents       282           232  
           
Net increase in cash and cash equivalents 12,593     13,491  
           
Cash and cash equivalents at beginning of period  126,549       59,457  
Cash and cash equivalents at end of period $139,142     $72,948  
  =======     ======  


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Supplementary Schedule to the Second Quarter Earnings Press Release for the Quarter Ended February 28, 2007

To aid an investor’s ability to make more precise interpretations of FactSet’s financial results, the supplementary schedule below summarizes revenues related to services that are not included in the calculation of FactSet’s subscription value. Although the impact individually and in the aggregate has been immaterial to FactSet’s results, this table might enhance an investor’s overall understanding of quarterly revenues.

                 
Non-Subscription Revenues  (1)
(In thousands and unaudited)
Last four quarters ending February 28,        Q2            Q1            Q4            Q3    
       2007   $   2,585   $   733   $   1,704   $   1,138
       2006      620      463      791      886
          $ Change   $   1,965   $   270   $      913   $      252
    ======   =====   ======   ======

(1)   Revenues from workstations purchased for use by summer interns and for FactSet services that are not sold on a subscription basis are excluded from FactSet’s reported annual subscription value (“ASV”). The aforementioned amounts were included in FactSet’s reported revenues each quarter.



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