UNITED STATES
SECURITIES AND EXCHANG E COMMISSION
Washington, D.C. 20549
Form 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended May 31, 2015
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 incorporation or organization) | (I.R.S. Employer Identification No.) |
601 Merritt 7, Norwalk, Connecticut | 06851 |
(Address of principal executive office) | (Zip Code) |
Registrant's telephone number, including area code: (203) 810-1000
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
The number of shares outstanding of the registrant's common stock, $.01 par value, as of June 30, 2015 was 41,415,629.
FactSet Research Systems Inc.
Form 10-Q
For the Quarter Ended May 31, 2015
Index
|
| Page | |
Part I | FINANCIAL INFORMATION |
| |
Item 1. | Financial Statements | ||
| Consolidated Statements of Income for the three and nine months ended May 31, 2015 and 2014 | 3 | |
Consolidated Statements of Comprehensive Income for the three and nine months ended May 31, 2015 and 2014 | 4 | ||
| Consolidated Balance Sheets at May 31, 2015 and August 31, 2014 | 5 | |
| Consolidated Statements of Cash Flows for the nine months ended May 31, 2015 and 2014 | 6 | |
| Notes to the Consolidated Financial Statements | 7 | |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 30 | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 44 | |
Item 4. | Controls and Procedures | 45 | |
Part II | OTHER INFORMATION | ||
Item 1. | Legal Proceedings | 46 | |
Item 1A. | Risk Factors | 46 | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 46 | |
Item 3. | Defaults Upon Senior Securities | 46 | |
Item 4. | Mine Safety Disclosures | 46 | |
Item 5. | Other Information | 46 | |
Item 6. | Exhibits | 47 | |
Signatures | 47 | ||
For additional information about FactSet Research Systems Inc. and access to its Annual Reports to Stockholders and Securities and Exchange Commission filings, free of charge, please visit the website at http://investor.factset.com . Any information on or linked from the website is not incorporated by reference into this Form 10-Q.
2
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FactSet Research Systems Inc.
CONSOLIDATED STATEMENTS OF INCOME – Unaudited
Three Months Ended May 31, | Nine Months Ended May 31, | |||||||||||||||
| (In thousands, except per share data) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Revenues | $ | 254,522 | $ | 231,761 | $ | 744,990 | $ | 681,671 | ||||||||
Operating expenses | ||||||||||||||||
Cost of services | 100,686 | 90,661 | 297,745 | 261,165 | ||||||||||||
Selling, general and administrative | 68,480 | 68,063 | 200,980 | 197,673 | ||||||||||||
Total operating expenses | 169,166 | 158,724 | 498,725 | 458,838 | ||||||||||||
Operating income | 85,356 | 73,037 | 246,265 | 222,833 | ||||||||||||
Other income | 482 | 334 | 1,445 | 1,018 | ||||||||||||
Income before income taxes | 85,838 | 73,371 | 247,710 | 223,851 | ||||||||||||
Provision for income taxes | 24,429 | 21,839 | 68,843 | 67,715 | ||||||||||||
Net income | $ | 61,409 | $ | 51,532 | $ | 178,867 | $ | 156,136 | ||||||||
Basic earnings per common share | $ | 1.48 | $ | 1.22 | $ | 4.29 | $ | 3.66 | ||||||||
Diluted earnings per common share | $ | 1.45 | $ | 1.21 | $ | 4.23 | $ | 3.62 | ||||||||
Basic weighted average common shares | 41,628 | 42,166 | 41,648 | 42,615 | ||||||||||||
Diluted weighted average common shares | 42,297 | 42,615 | 42,317 | 43,170 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
FactSet Research Systems Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – Unaudited
Three Months Ended May 31, |
Nine Months Ended May 31, | |||||||||||||||
| (In thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Net income | $ | 61,409 | $ | 51,532 | $ | 178,867 | $ | 156,136 | ||||||||
Other comprehensive (loss) income, net of tax | ||||||||||||||||
Net unrealized (loss) gain on cash flow hedges* | (1,020 | ) | 2,341 | (289 | ) | 5,625 | ||||||||||
Foreign currency translation adjustments | (4,187 | ) | 545 | (25,753 | ) | 12,199 | ||||||||||
Other comprehensive (loss) income | (5,207 | ) | 2,886 | (26,042 | ) | 17,824 | ||||||||||
Comprehensive income | $ | 56,202 | $ | 54,418 | $ | 152,825 | $ | 173,960 | ||||||||
* For the three and nine months ended May 31, 2015, the unrealized loss on cash flow hedges were net of tax benefits of $606 and $172, respectively. The unrealized gain on cash flow hedges disclosed above for the three and nine months ended May 31, 2014, was net of tax expense of $1,391 and $3,352, respectively.
The accompanying notes are an integral part of these consolidated financial statements.
4
FactSet Research Systems Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) | May 31, 2015 | August 31, 2014 | ||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 157,895 | $ | 116,378 | ||||
Investments | 25,020 | 20,008 | ||||||
Accounts receivable, net of reserves of $1,665 at May 31, 2015 and $1,662 at August 31, 2014 | 91,860 | 90,354 | ||||||
Prepaid taxes | 12,190 | 6,532 | ||||||
Deferred taxes | 1,770 | 1,841 | ||||||
Prepaid expenses and other current assets | 15,479 | 14,662 | ||||||
Total current assets | 304,214 | 249,775 | ||||||
Property, equipment and leasehold improvements, at cost | 206,063 | 201,713 | ||||||
Less accumulated depreciation and amortization | (151,605 | ) | (144,072 | ) | ||||
Property, equipment and leasehold improvements, net | 54,458 | 57,641 | ||||||
Goodwill | 307,231 | 285,608 | ||||||
Intangible assets, net | 41,561 | 41,855 | ||||||
Deferred taxes | 16,531 | 22,377 | ||||||
Other assets | 4,081 | 5,956 | ||||||
TOTAL ASSETS | $ | 728,076 | $ | 663,212 | ||||
LIABILITIES | ||||||||
Accounts payable and accrued expenses | $ | 31,445 | $ | 26,971 | ||||
Accrued compensation | 36,780 | 42,481 | ||||||
Deferred fees | 44,323 | 36,504 | ||||||
Taxes payable | 2,959 | 5,036 | ||||||
Deferred taxes | 1,071 | 0 | ||||||
Dividends payable | 18,274 | 16,299 | ||||||
Total current liabilities | 134,852 | 127,291 | ||||||
Deferred taxes | 1,711 | 2,921 | ||||||
Taxes payable | 6,381 | 5,501 | ||||||
Long-term debt | 35,000 | 0 | ||||||
Deferred rent and other non-current liabilities | 17,757 | 16,417 | ||||||
TOTAL LIABILITIES | $ | 195,701 | $ | 152,130 | ||||
Commitments and contingencies (See Note 17) | ||||||||
STOCKHOLDERS' EQUITY | ||||||||
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued | $ | 0 | $ | 0 | ||||
Common stock, $.01 par value, 150,000,000 shares authorized, 50,062,210 and 49,110,218 shares issued; 41,531,220 and 41,792,802 shares outstanding at May 31, 2015 and August 31, 2014, respectively | 501 | 491 | ||||||
Additional paid-in capital | 508,402 | 413,754 | ||||||
Treasury stock, at cost: 8,530,990 and 7,317,416 shares at May 31, 2015 and August 31, 2014, respectively | (910,210 | ) | (734,746 | ) | ||||
Retained earnings | 977,645 | 849,504 | ||||||
Accumulated other comprehensive loss | (43,963 | ) | (17,921 | ) | ||||
TOTAL STOCKHOLDERS' EQUITY | $ | 532,375 | $ | 511,082 | ||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 728,076 | $ | 663,212 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
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FactSet Research Systems Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS – Unaudited
Nine Months Ended May 31, | ||||||||
(In thousands) | 2015 | 2014 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income | $ | 178,867 | $ | 156,136 | ||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
Depreciation and amortization | 24,229 | 25,852 | ||||||
Stock-based compensation expense | 17,112 | 17,425 | ||||||
Deferred income taxes | 3,041 | (2,038 | ) | |||||
Gain on sale of assets | (17 | ) | (62 | ) | ||||
Tax benefits from share-based payment arrangements | (23,926 | ) | (6,815 | ) | ||||
Changes in assets and liabilities, net of effects of acquisitions | ||||||||
Accounts receivable, net of reserves | (1,159 | ) | (9,001 | ) | ||||
Accounts payable and accrued expenses | 5,973 | (2,260 | ) | |||||
Accrued compensation | (5,496 | ) | (7,368 | ) | ||||
Deferred fees | 5,951 | 4,709 | ||||||
Taxes payable, net of prepaid taxes | 16,213 | 20,777 | ||||||
Prepaid expenses and other assets | 78 | (1,931 | ) | |||||
Deferred rent and other non-current liabilities | 1,873 | (1,241 | ) | |||||
Other working capital accounts, net | 103 | (461 | ) | |||||
Net cash provided by operating activities | 222,842 | 193,722 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Acquisition of businesses, net of cash acquired | (33,556 | ) | (46,873 | ) | ||||
Purchases of investments | (12,437 | ) | (7,818 | ) | ||||
Proceeds from sales of investments | 7,535 | 6,871 | ||||||
Purchases of property, equipment and leasehold improvements, net of proceeds from dispositions | (15,391 | ) | (11,704 | ) | ||||
Net cash used in investing activities | (53,849 | ) | (59,524 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Dividend payments | (48,404 | ) | (44,736 | ) | ||||
Repurchase of common stock | (177,556 | ) | (205,154 | ) | ||||
Proceeds from debt | 35,000 | 0 | ||||||
Debt issuance costs | (32 | ) | 0 | |||||
Proceeds from employee stock plans | 51,852 | 26,799 | ||||||
Tax benefits from share-based payment arrangements | 23,926 | 6,815 | ||||||
Net cash used in financing activities | (115,214 | ) | (216,276 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (12,262 | ) | 4,309 | |||||
Net increase (decrease) in cash and cash equivalents | 41,517 | (77,769 | ) | |||||
Cash and cash equivalents at beginning of period | 116,378 | 196,627 | ||||||
Cash and cash equivalents at end of period | $ | 157,895 | $ | 118,858 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FactSet Research Systems Inc.
May 31, 2015
(Unaudited)
1. ORGANIZATION AND NATURE OF BUSINESS
FactSet Research Systems Inc. (the "Company" or "FactSet") is a provider of integrated financial information and analytical applications to the global investment community. FactSet combines content regarding companies and securities from major markets all over the globe into a single online platform of information and analytics. By consolidating content from hundreds of databases with powerful analytics, FactSet supports the investment process from initial research to published results for buy- and sell-side professionals. These professionals include portfolio managers, research and performance analysts, risk managers, marketing professionals, sell-side equity research professionals, investment bankers and fixed income professionals. The Company's applications provide users access to company and industry analyses, multicompany comparisons, company screening, portfolio analysis, predictive risk measurements, alphatesting, portfolio optimization and simulation, real-time news and quotes and tools to value and analyze fixed income securities and portfolios. With Microsoft Office integration, wireless access and customizable options, FactSet offers a complete financial workflow solution. The Company's revenues are derived from subscriptions to services such as workstations, content and applications.
2. BASIS OF PRESENTATION
FactSet conducts business globally and is managed on a geographic basis. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany activity and balances have been eliminated from the consolidated financial statements.
The accompanying financial data as of May 31, 2015 and for the three and nine months ended May 31, 2015 and 2014 has been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States ("GAAP") have been condensed or omitted pursuant to such rules and regulations. The August 31, 2014 Consolidated Balance Sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The information in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2014.
In the opinion of management, the accompanying balance sheets and related interim statements of income, comprehensive income and cash flows include all normal adjustments in order to present fairly the results of the Company's operations for the periods presented in conformity with accounting principles generally accepted in the United States.
3 . RECENT ACCOUNTING PRONOUNCEMENTS
New Accounting Standards or Updates Recently Adopted
As of the beginning of fiscal 2015, FactSet implemented all applicable new accounting standards and updates issued by the Financial Accounting Standards Board ("FASB") that were in effect. There were no new standards or updates adopted during the first nine months of fiscal 2015 that had a material impact on the consolidated financial statements.
Recent Accounting Standards or Updates Not Yet Effective
Reporting Discontinued Operations
In April 2014, the FASB issued an accounting standard update that changes the criteria for reporting discontinued operations. Under the accounting standard update, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has, or will have, a major effect on an entity's operations and financial results when either it qualifies as held for sale, disposed of by sale, or disposed of other than by sale. This accounting standard update will be effective for FactSet beginning in the first quarter of fiscal 2016. The Company does not believe this new accounting standard update will have a material impact on its consolidated financial statements.
7
Revenue Recognition
In May 2014, the FASB issued an accounting standard update which provides clarified principles for recognizing revenue arising from contracts with clients and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to clients in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the revenue model to contracts within its scope, an entity will identify the contract with a client, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when (or as) the entity satisfies a performance obligation. This accounting standard update will be effective for FactSet beginning in the first quarter of fiscal 2019. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
Going Concern
In August 2014, the FASB issued an accounting standard update that requires management to evaluate and disclose whether there are conditions and events that raise substantial doubt about an entity's ability to continue as a going concern within one year after financial statements are issued. The evaluation and disclosure will be required to be made for both annual and interim reporting periods, if applicable, along with an evaluation as to whether management's plans alleviate that doubt. This accounting standard update will be effective for FactSet beginning in the first quarter of fiscal 2017. The Company does not believe this new accounting standard update will have a material impact on its consolidated financial statements.