UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended June 30, 2008
¨
|
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 001-31555
Interactive Data Corporation
(Exact
name of registrant as specified in its charter)
|
|
|
Delaware
|
|
13-3668779
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification Number)
|
32 Crosby Drive, Bedford, Massachusetts 01730-1402
(Address of principal executive offices)
Registrants telephone number, including area code:
(781) 687-8500
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 by check mark whether the registrant is
a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
|
|
|
|
|
|
|
Large Accelerated Filer
|
|
x
|
|
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
x
The number of shares of common stock, par value $.01 per share, of the registrant outstanding as of July 29, 2008 was 93,874,077.
Table of Contents
2
PART I FINANCIAL INFORMATION
Item 1.
|
Financial Statements
|
INTERACTIVE DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except
per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
REVENUE
|
|
$
|
186,149
|
|
$
|
169,968
|
|
$
|
367,860
|
|
$
|
332,503
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
61,319
|
|
|
55,883
|
|
|
121,510
|
|
|
110,377
|
Selling, general and administrative
|
|
|
61,153
|
|
|
58,368
|
|
|
120,374
|
|
|
115,427
|
Depreciation
|
|
|
6,805
|
|
|
5,263
|
|
|
13,310
|
|
|
10,966
|
Amortization
|
|
|
6,901
|
|
|
6,474
|
|
|
13,755
|
|
|
12,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
136,178
|
|
|
125,988
|
|
|
268,949
|
|
|
249,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS
|
|
|
49,971
|
|
|
43,980
|
|
|
98,911
|
|
|
82,792
|
Interest income
|
|
|
1,966
|
|
|
2,062
|
|
|
4,315
|
|
|
3,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
51,937
|
|
|
46,042
|
|
|
103,226
|
|
|
86,719
|
Income tax expense
|
|
|
18,410
|
|
|
16,901
|
|
|
37,401
|
|
|
31,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
33,527
|
|
$
|
29,141
|
|
$
|
65,825
|
|
$
|
54,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.36
|
|
$
|
0.31
|
|
$
|
0.70
|
|
$
|
0.58
|
Diluted
|
|
$
|
0.35
|
|
$
|
0.30
|
|
$
|
0.68
|
|
$
|
0.57
|
Cash dividends declared per common share
|
|
$
|
0.15
|
|
$
|
0.125
|
|
$
|
0.15
|
|
$
|
0.25
|
WEIGHTED AVERAGE SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
94,011
|
|
|
94,134
|
|
|
94,140
|
|
|
93,828
|
Diluted
|
|
|
96,954
|
|
|
97,217
|
|
|
97,153
|
|
|
96,735
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
INTERACTIVE DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)
|
|
|
|
|
|
|
|
|
|
|
June 30,
2008
|
|
|
December 31,
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
223,462
|
|
|
$
|
205,470
|
|
Marketable securities
|
|
|
31,335
|
|
|
|
73,465
|
|
Accounts receivable, net of allowance for doubtful accounts and sales credits of $7,460 and $6,819 at June 30, 2008 and December 31,
2007, respectively
|
|
|
114,585
|
|
|
|
112,432
|
|
Prepaid expenses and other current assets
|
|
|
17,800
|
|
|
|
18,523
|
|
Deferred income taxes
|
|
|
5,252
|
|
|
|
5,276
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
392,434
|
|
|
|
415,166
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
95,362
|
|
|
|
93,832
|
|
Goodwill
|
|
|
558,103
|
|
|
|
554,842
|
|
Intangible assets, net
|
|
|
148,792
|
|
|
|
159,869
|
|
Other assets
|
|
|
4,438
|
|
|
|
4,517
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,199,129
|
|
|
$
|
1,228,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable, trade
|
|
$
|
15,212
|
|
|
$
|
24,405
|
|
Accrued liabilities
|
|
|
73,216
|
|
|
|
84,706
|
|
Payables to affiliates
|
|
|
2,730
|
|
|
|
732
|
|
Income taxes payable
|
|
|
10,804
|
|
|
|
16,065
|
|
Deferred revenue
|
|
|
37,005
|
|
|
|
30,524
|
|
Dividends payable
|
|
|
|
|
|
|
61,331
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
138,967
|
|
|
|
217,763
|
|
|
|
|
|
|
|
|
|
|
Income taxes payable
|
|
|
8,416
|
|
|
|
7,667
|
|
Deferred tax liabilities
|
|
|
29,220
|
|
|
|
29,785
|
|
Other liabilities
|
|
|
10,607
|
|
|
|
9,487
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
187,210
|
|
|
|
264,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 6)
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value, 5,000,000 shares authorized; no shares issued or outstanding at June 30, 2008 and December 31, 2007
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 200,000,000 shares authorized, 102,085,192 shares issued and 93,888,092 shares outstanding at June 30,
2008, and 101,572,558 shares issued and 94,343,458 shares outstanding at December 31, 2007
|
|
|
1,020
|
|
|
|
1,015
|
|
Additional paid-in-capital
|
|
|
958,536
|
|
|
|
941,265
|
|
Treasury stock, at cost, 8,197,100 and 7,229,100 shares, at June 30, 2008 and December 31, 2007 respectively
|
|
|
(164,923
|
)
|
|
|
(137,506
|
)
|
Accumulated earnings
|
|
|
164,942
|
|
|
|
113,595
|
|
Accumulated other comprehensive income
|
|
|
52,344
|
|
|
|
45,155
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
1,011,919
|
|
|
|
963,524
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
1,199,129
|
|
|
$
|
1,228,226
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
INTERACTIVE DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
Number
of
Shares
|
|
Par
Value
|
|
Additional
Paid-
In-Capital
|
|
Treasury
Stock
Number
of
Shares
|
|
Treasury
Stock
Cost
|
|
Balance, December 31, 2007 (Audited)
|
|
101,573
|
|
$
|
1,015
|
|
$
|
941,265
|
|
7,229
|
|
$
|
(137,506
|
)
|
Exercise of stock options and issuance of deferred and restricted stock units
|
|
408
|
|
|
4
|
|
|
6,186
|
|
|
|
|
|
|
Issuance of stock in connection with employee stock purchase plan
|
|
104
|
|
|
1
|
|
|
2,278
|
|
|
|
|
|
|
Tax benefit from exercise of stock options and employee stock purchase plan
|
|
|
|
|
|
|
|
1,531
|
|
|
|
|
|
|
Stock-based compensation (Note 2)
|
|
|
|
|
|
|
|
6,898
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
968
|
|
|
(27,417
|
)
|
Other comprehensive income (Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock dividends awarded to holders of restricted stock units
|
|
|
|
|
|
|
|
378
|
|
|
|
|
|
|
Common stock cash dividends declared to stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2008
|
|
102,085
|
|
$
|
1,020
|
|
$
|
958,536
|
|
8,197
|
|
$
|
(164,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
Accumulated
Earnings
|
|
|
Total
Stockholders
Equity
|
|
|
Total
Comprehensive
Income
|
Balance, December 31, 2007 (Audited)
|
|
$
|
45,155
|
|
$
|
113,595
|
|
|
$
|
963,524
|
|
|
|
|
Exercise of stock options and issuance of deferred and restricted stock units
|
|
|
|
|
|
|
|
|
|
6,190
|
|
|
|
|
Issuance of stock in connection with employee stock purchase plan
|
|
|
|
|
|
|
|
|
|
2,279
|
|
|
|
|
Tax benefit from exercise of stock options and employee stock purchase plan
|
|
|
|
|
|
|
|
|
|
1,531
|
|
|
|
|
Stock-based compensation (Note 2)
|
|
|
|
|
|
|
|
|
|
6,898
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
(27,417
|
)
|
|
|
|
Other comprehensive income (Note 12)
|
|
|
7,189
|
|
|
|
|
|
|
7,189
|
|
|
|
7,189
|
Common stock dividends awarded to holders of restricted stock units
|
|
|
|
|
|
(378
|
)
|
|
|
|
|
|
|
|
Common stock cash dividends declared to stockholders
|
|
|
|
|
|
(14,100
|
)
|
|
|
(14,100
|
)
|
|
|
|
Net income
|
|
|
|
|
|
65,825
|
|
|
|
65,825
|
|
|
|
65,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2008
|
|
$
|
52,344
|
|
$
|
164,942
|
|
|
$
|
1,011,919
|
|
|
$
|
73,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
INTERACTIVE DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
Cash flows provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
65,825
|
|
|
$
|
54,760
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
27,065
|
|
|
|
23,907
|
|
Amortization of discounts and premiums on marketable securities, net
|
|
|
279
|
|
|
|
290
|
|
Deferred income taxes
|
|
|
(1,139
|
)
|
|
|
(999
|
)
|
Excess tax benefits from stock-based compensation
|
|
|
(906
|
)
|
|
|
(2,802
|
)
|
Stock-based compensation
|
|
|
6,898
|
|
|
|
6,462
|
|
Provision for doubtful accounts and sales credits
|
|
|
641
|
|
|
|
1,384
|
|
Loss on dispositions of fixed assets
|
|
|
181
|
|
|
|
2,011
|
|
Changes in operating assets and liabilities, net
|
|
|
(17,620
|
)
|
|
|
(16,860
|
)
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
81,224
|
|
|
|
68,153
|
|
Cash flows provided by (used in) investing activities:
|
|
|
|
|
|
|
|
|
Purchase of fixed assets
|
|
|
(14,674
|
)
|
|
|
(13,533
|
)
|
Purchase of marketable securities
|
|
|
(70,567
|
)
|
|
|
(89,395
|
)
|
Proceeds from maturities of marketable securities
|
|
|
112,397
|
|
|
|
81,516
|
|
Acquisition of business
|
|
|
|
|
|
|
(25,123
|
)
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
|
|
27,156
|
|
|
|
(46,535
|
)
|
Cash flows provided by (used in) financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options and employee stock purchase plan
|
|
|
8,469
|
|
|
|
20,269
|
|
Purchase of treasury stock
|
|
|
(27,417
|
)
|
|
|
(12,005
|
)
|
Common stock cash dividends paid
|
|
|
(75,425
|
)
|
|
|
(23,499
|
)
|
Excess tax benefits from stock-based compensation
|
|
|
906
|
|
|
|
2,802
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN FINANCING ACTIVITIES
|
|
|
(93,467
|
)
|
|
|
(12,433
|
)
|
Effect of change in exchange rates on cash and cash equivalents
|
|
|
3,079
|
|
|
|
2,363
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
17,992
|
|
|
|
11,548
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
205,470
|
|
|
|
152,449
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
223,462
|
|
|
$
|
163,997
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
INTERACTIVE DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Interim Condensed Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared by us in accordance with generally accepted accounting
principles for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under generally accepted
accounting principles for complete periods have been condensed or omitted pursuant to such regulations. In the opinion of management, all adjustments considered necessary for a fair presentation of our financial position, results of operations and
cash flows have been included. All such adjustments are of a normal recurring nature. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended
December 31, 2007 filed with the Securities and Exchange Commission (SEC) in our Annual Report on Form 10-K filed on February 27, 2008. The results for interim periods are not necessarily indicative of the results to be
expected for the full year.
As of June 30, 2008, a wholly owned indirect subsidiary of Pearson plc (or Pearson) owned approximately
61% of our issued and outstanding shares of common stock.
Our common stock trades on the New York Stock Exchange under the trading symbol
IDC.
Reclassifications:
Certain prior year amounts in the Consolidated Statements of Operations have been reclassified to conform to the current years presentation. These reclassifications had no effect on the Companys previously
reported consolidated operating income, net income or shareholders equity.
2. Stock-Based Compensation
Stock-based Compensation Plans:
Employee
Stock Option Plan
In 2000, we adopted our 2000 Long-Term Incentive Plan (as amended, the 2000 LTIP). Under the 2000
LTIP, the Compensation Committee of our Board of Directors can grant stock-based awards representing in the aggregate up to 20% of the total number of shares of common stock outstanding at the date of grant. As originally approved by stockholders,
the 2000 LTIP had no termination date. On February 24, 2004, the 2000 LTIP was amended to include a termination date of February 22, 2010. On May 21, 2008, the 2000 LTIP was amended in order to provide greater flexibility in
structuring performance-based equity awards under the 2000 LTIP in the future by including a more comprehensive list of eligible performance measures under the 2000 LTIP. In addition, the May amendment modified certain provisions regarding approval
and administration of awards granted under the 2000 LTIP that are intended to constitute performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code. The 2000 LTIP provides for the discretionary
issuance of stock-based awards to directors, officers, and employees, as well as persons who provide consulting or other services to us. The Board of Directors has the authority to administer the 2000 LTIP. The Board may appoint a committee to
administer the 2000 LTIP on its behalf. Our Board has designated the Compensation Committee as the administrator of the 2000 LTIP. Except with respect to eligible directors (with regard to whom, pursuant to the terms of the 2000 LTIP, such decisions
made by the full Board of Directors), as administrator of the 2000 LTIP, the Compensation Committee has the authority to select grantees, determine the type and number of awards to be granted, and to determine the other the terms and conditions of
any equity-based award (including, but not limited to, exercise price).
With respect to executive officers, certain members of senior
management and persons required to file reports under Section 16 of the Securities Exchange Act of 1934, as amended, the Compensation Committee has delegated its authority to make equity-based awards to such persons to the Compensation Subcommittee.
The Compensation Subcommittee is a subcommittee of the Compensation Committee comprised solely of independent directors.
The exercise
price for all stock options granted to date has been equal to the market price of the underlying common shares at the date of grant. In this regard, when making stock option awards, the practice has been to determine the applicable grant date and to
specify that the exercise price shall be the closing price of the Companys common stock on the date of grant. Stock options granted to date have had a term of ten years from the date of grant and have generally vested over a four-year period.
Restricted Stock and Deferred Stock Units
We have awarded restricted and deferred stock units to certain key employees, executive officers and members of the board of directors under the 2000 LTIP. Each of these units represents the contingent right to
receive one share of our common stock. An aggregate of 711,036 deferred and restricted stock units have been granted as of June 30, 2008. Pursuant to the terms of the applicable grant certificates, the underlying shares of common stock are
available for distribution, at no cost, to grantees at the end of a three-year vesting period, with the exception of restricted stock units awarded to directors in May 2008 which have a one-year vesting period. We charge the cost of the awards,
which we determined to be the fair market value of the shares at the date of the grant, to compensation expense on a straight-line basis, ratably, over the vesting periods. During the six months ended June 30, 2008, we issued a total of 2,329
shares of common stock in connection with the settlement of deferred stock units.
Employee Stock Purchase Plan
In 2001, we adopted our 2001 Employee Stock Purchase Plan for all eligible employees worldwide (the 2001 ESPP). The 2001 ESPP allows our
employees to purchase stock at a 15% discount price at specific times. During the six months ended June 30, 2008, our employees purchased an aggregate of 104,037 shares at an average share price of $21.90. At June 30, 2008, 1,033,732
shares were reserved for future issuance under the 2001 ESPP.
7
Shares of common stock that are issued in respect of the exercise of options or other equity awards
granted under the 2000 LTIP and 2001 ESPP are issued from authorized, but unissued common stock.
Stock-based Compensation Expense and
Valuation Assumptions
Stock-based compensation expense recognized under Statement of Financial Accounting Standards No. 123
(revised 2004), Share-Based Payment (SFAS 123(R)) and related interpretations, which requires us to measure the cost of employee services received in exchange for equity awards based on the fair value of the award as of the
grant date, is based on the value of the portion of stock-based payment awards that are ultimately expected to vest. Accordingly, stock-based compensation expense recognized in the statement of income for the three and six months ended June 30,
2008 and 2007 reflects estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We estimate forfeiture rates
based on our historical forfeitures of stock options.
SFAS 123(R) supersedes Statement of Financial Accounting Standards No. 123
(SFAS 123), Accounting for Stock-Based Compensation and Accounting Principles Board Opinion No. 25, Accounting for Stock Issues to Employees (APB 25). We adopted SFAS 123(R), as of January 1,
2006, using the modified prospective application transition method of adoption which required us to record compensation cost related to unvested stock awards as of December 31, 2005 by recognizing the unamortized grant date fair value of these
awards over their remaining requisite service periods. We will continue to recognize the unamortized grant date fair value of these awards on a straight-line basis. With respect to awards granted after December 31, 2005, we have recorded
compensation cost based on the grant date fair value and recognized the fair value on a straight-line basis over the requisite service period of each award.
For the three and six months ended June 30, 2008 and 2007, we recognized stock-based compensation expense under SFAS 123(R) as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
June 30, 2008
|
|
Three Months
Ended
June 30, 2007
|
|
Six Months
Ended
June 30, 2008
|
|
Six Months
Ended
June 30, 2007
|
Cost of services
|
|
$
|
903
|
|
$
|
1,020
|
|
$
|
1,893
|
|
$
|
2,090
|
Selling, general and administrative
|
|
|
2,522
|
|
|
1,885
|
|
|
5,005
|
|
|
4,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense before income taxes
|
|
$
|
3,425
|
|
$
|
2,905
|
|
$
|
6,898
|
|
$
|
6,462
|
Income tax benefit
|
|
|
1,187
|
|
|
1,059
|
|
|
2,454
|
|
|
2,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense after income taxes
|
|
$
|
2,238
|
|
$
|
1,846
|
|
$
|
4,444
|
|
$
|
4,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated fair value of the options granted during 2008 and in prior years was calculated
using a Black-Scholes Merton option-pricing model (Black-Scholes model). The Black-Scholes model incorporates assumptions to value stock-based awards. The risk-free interest rate is based on the implied yield currently available on
zero-coupon U.S. Treasury issues, in effect at the time of the grant, whose remaining maturity period equals the stock awards expected term assumption. Expected volatility of our common stock is based on the historical volatility of our stock
price over the expected term of the option. Our expected term is based on an analysis of historical exercise behavior and post-vesting termination data. The expected dividend yield reflects our historical dividend yield, excluding special dividends,
and is calculated by annualizing the quarterly cash dividends declared by our Board of Directors divided by the closing price of our common stock on the declaration date of each dividend. The actual declaration of future dividends, and the
establishment of record and payment dates are subject to final determination by our Board of Directors.
8
The fair value of stock options granted under the 2000 LTIP was estimated as of the date of grant using a
Black-Scholes option-pricing model with the following assumptions:
|
|
|
|
|
|
|
Six Months
Ended
June 30, 2008
|
|
Six Months
Ended
June 30, 2007
|
Risk free interest rate
|
|
2.2%-2.8%
|
|
4.5%-4.7%
|
Weighted average expected term (in years)
|
|
5.3
|
|
4.9
|
Weighted average expected volatility
|
|
23.3%
|
|
24.2%
|
Expected dividend yield
|
|
2.0%
|
|
2.0%
|
|
|
|
|
|
Three Months
Ended
June 30, 2008
|
|
Three Months
Ended
June 30, 2007
|
Risk free interest rate
|
|
2.8%
|
|
4.5%
|
Weighted average expected term (in years)
|
|
5.7
|
|
5.0
|
Weighted average expected volatility
|
|
24.0%
|
|
24.4%
|
Expected dividend yield
|
|
2.1%
|
|
2.0%
|
The weighted average grant-date fair value of options granted during the three months ended
June 30, 2008 and 2007 was $6.37 and $7.11, respectively. The weighted average grant-date fair value of options granted during the six months ended June 30, 2008 and 2007 was $5.74 and $6.42, respectively.
The fair value of stock issued under the 2001 ESPP was estimated as of the beginning date of the offering period using a Black-Scholes model with the
following assumptions:
|
|
|
|
|
|
|
|
|
For the three and
six months ended
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
Risk free interest rate
|
|
2.4
|
%
|
|
5.1
|
%
|
Expected term (in years)
|
|
0.5
|
|
|
0.5
|
|
Weighted average expected volatility
|
|
29.9
|
%
|
|
16.7
|
%
|
Expected dividend yield
|
|
1.9
|
%
|
|
2.1
|
%
|
The weighted average grant-date fair value of stock issued under the 2001 ESPP for the three and
six months ended June 30, 2008 and 2007 was $6.07 and $4.22, respectively.
Stock-based Award Activity
A summary of the status and activity for stock option awards under our 2000 LTIP for the six months ended June 30, 2008, is presented below:
|
|
|
|
|
|
|
|
|
|
Number
of Options
|
|
|
Weighted
Average
Exercise Price
(Per Share)
|
|
|
|
(in thousands, except per share data)
|
|
Outstanding at January 1, 2008
|
|
9,827
|
|
|
$
|
18.21
|
|
Granted
|
|
20
|
|
|
|
28.35
|
|
Exercised
|
|
(403
|
)
|
|
|
(15.34
|
)
|
Forfeited
|
|
(71
|
)
|
|
|
(20.55
|
)
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008
|
|
9,373
|
|
|
$
|
18.34
|
|
|
|
|
|
|
|
|
|
Vested and unvested expected to vest at June 30, 2008
|
|
9,073
|
|
|
$
|
18.16
|
|
Exercisable at June 30, 2008
|
|
6,393
|
|
|
$
|
15.73
|
|
9
A summary of the status and activity for restricted and deferred stock units under our 2000 LTIP for the
six months ended June 30, 2008, is presented below:
|
|
|
|
|
|
|
|
|
|
Number
of Units
|
|
|
Weighted
Average
Grant Date
Fair Value
(per share)
|
|
Unvested Restricted and Deferred Stock Units
|
|
|
|
|
|
|
|
Unvested at January 1, 2008
|
|
464,978
|
|
|
$
|
23.36
|
|
Granted
|
|
36,998
|
|
|
|
28.02
|
|
Vested
|
|
(5,319
|
)
|
|
|
(21.73
|
)
|
Forfeited
|
|
(5,263
|
)
|
|
|
(24.01
|
)
|
|
|
|
|
|
|
|
|
Unvested at June 30, 2008
|
|
491,394
|
|
|
$
|
23.73
|
|
|
|
|
|
|
|
|
|
A summary of the unrecognized compensation expense, net of estimated forfeitures and the weighted
average period remaining at June 30, 2008 related to our non-vested employee stock purchase plan, stock options and deferred and restricted stock unit awards is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Employee
Stock Purchase
Plan
|
|
Stock Options
|
|
Deferred and
Restricted Stock Unit
Awards
|
Unrecognized compensation expense (net of forfeitures)
|
|
$
|
402,000
|
|
$
|
13,603,000
|
|
$
|
5,088,000
|
Weighted average period remaining (in years)
|
|
|
1.5
|
|
|
2.4
|
|
|
1.7
|
3. Marketable Securities
The Company follows Statement of Financial Accounting Standard No. 115, Accounting for Certain Investments in Debt and Equity Securities in accounting for our marketable securities. Investments
consist of high-grade municipal obligations with original maturities of greater than 90 days and remaining maturities of less than one year. All marketable securities have been classified as available-for-sale and are carried at fair value.
Unrealized gains or losses on our available-for-sale securities are included in accumulated other comprehensive income as a component of stockholders equity.
Marketable securities by security type at June 30, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
Municipal Obligations
|
|
$
|
31,324
|
|
$
|
14
|
|
$
|
(3
|
)
|
|
$
|
31,335
|
Marketable securities by security type at December 31, 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
Municipal Obligations
|
|
$
|
73,439
|
|
$
|
41
|
|
$
|
(15
|
)
|
|
$
|
73,465
|
There were no sales of our marketable securities for the three and six months ended June 30, 2008 and 2007.
4. Segment Information
We operate in
two reportable operating segments by providing financial market data, analytics and related services to financial institutions and active traders, individual investors and investment community professionals worldwide.
10
Institutional Services
Our Institutional Services segment primarily targets financial institutions such as banks, brokerage firms, mutual fund companies, hedge funds, insurance companies and money management firms. In addition, our
Institutional Services segment markets its offerings to financial information providers, information media companies, third-party redistributors and outsourcing organizations, such as service bureaus and custodian banks. The Institutional Services
segment is composed of the following three businesses, each of which was renamed in February 2007 as part of a global marketing initiative to reinforce our value proposition and emphasize the Interactive Data brand to institutional customers:
|
|
|
Interactive Data Pricing and Reference Data.
Our Pricing and Reference Data business provides financial institutions, third-party redistributors and
outsourcing organizations with historical, intraday and end-of-day pricing, evaluations and reference data for an extensive range of securities, commodities, and derivative instruments that are traded around the world.
|
|
|
|
Interactive Data Real-Time Services.
Our Real-Time Services business provides financial institutions, financial information providers and information media
companies with global real-time and delayed financial market information covering equities, derivative instruments, futures, fixed income securities and foreign exchange. Our Real-Time Services business also includes Interactive Data Managed
Solutions business which offers customized financial information portals and terminals.
|
|
|
|
Interactive Data Fixed Income Analytics.
Our Fixed Income Analytics business provides financial institutions with sophisticated fixed income analytics.
|
Active Trader Services
Our Active Trader Services segment targets active traders, individual investors and investment community professionals. We consider active traders to be investors who typically make their own investment decisions, trade frequently through
online brokerage accounts and seek to earn a substantial portion of their income from trading. The Active Trader Services segment is composed of the following business:
|
|
|
eSignal.
Our eSignal business provides active traders, individual investors and investment community professionals with real-time financial market
information and access to decision-support tools to assist in their analysis of securities traded on all major markets worldwide. eSignal also operates financial websites that provide investors with free financial information and news about global
equities, options, futures and other securities.
|
The Company evaluates its segments on the basis of revenue and income
(loss) from operations. For comparative purposes, we have provided the information for the three months and six months ended June 30, 2008 and 2007.
Reportable segment financial information is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenue (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional Services
|
|
$
|
163,800
|
|
|
$
|
147,876
|
|
|
$
|
323,688
|
|
|
$
|
288,421
|
|
Active Trader Services
|
|
|
22,349
|
|
|
|
22,092
|
|
|
|
44,172
|
|
|
|
44,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
186,149
|
|
|
$
|
169,968
|
|
|
$
|
367,860
|
|
|
$
|
332,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations (b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional Services
|
|
$
|
69,588
|
|
|
$
|
62,208
|
|
|
$
|
137,413
|
|
|
$
|
119,631
|
|
Active Trader Services
|
|
|
7,198
|
|
|
|
6,721
|
|
|
|
13,817
|
|
|
|
12,962
|
|
Corporate and unallocated (c)
|
|
|
(26,815
|
)
|
|
|
(24,949
|
)
|
|
|
(52,319
|
)
|
|
|
(49,801
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
49,971
|
|
|
$
|
43,980
|
|
|
$
|
98,911
|
|
|
$
|
82,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable segment financial information for identifiable assets by reportable segment is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
As of
June 30,
2008
|
|
As of
December 31,
2007
|
Identifiable assets by reportable segment (in thousands):
|
|
|
|
|
|
|
Institutional Services
|
|
$
|
949,230
|
|
$
|
982,381
|
Active Trader Services
|
|
|
197,179
|
|
|
197,750
|
11
|
|
|
|
|
|
|
|
|
As of
June 30,
2008
|
|
As of
December 31,
2007
|
Corporate and unallocated (d)
|
|
|
52,720
|
|
|
48,095
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,199,129
|
|
$
|
1,228,226
|
|
|
|
|
|
|
|
The following table reconciles income (loss) from operations to income before income taxes as of
June 30 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
Income (loss) from operations (b):
|
|
$
|
49,971
|
|
$
|
43,980
|
|
$
|
98,911
|
|
$
|
82,792
|
Interest Income
|
|
|
1,966
|
|
|
2,062
|
|
|
4,315
|
|
|
3,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
51,937
|
|
$
|
46,042
|
|
$
|
103,226
|
|
$
|
86,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Revenue is net of any inter-segment revenue and therefore represents only revenue from external customers.
|
(b)
|
Income (loss) from operations or the Segment profit (loss) measure reviewed by the chief operating decision maker equals income from continuing operations before interest income and
income taxes.
|
(c)
|
Corporate and unallocated loss from operations includes costs and expenses related to corporate, general and administrative activities in the U.S. and the U.K., stock-based
compensation, costs associated with our Boxborough data center and all intangible asset amortization for the Company.
|
(d)
|
All Goodwill and Intangible assets have been allocated to the two reportable segments.
|
5. Earnings Per Share
We calculate earnings per share in accordance with Statement of Financial
Accounting Standard No. 128, Earnings per Share (EPS) and apply the treasury stock method in computing the weighted-average shares outstanding used in the diluted earnings per share calculation. Under the treasury stock
method, the assumed proceeds calculation includes the actual proceeds to be received from the employee upon exercise, the average unrecognized compensation cost during the period and any tax benefits credited upon exercise to additional
paid-in-capital. The treasury stock method assumes that a company uses the proceeds from the exercise of awards to repurchase common stock at the average market price for the period. Windfall tax benefits created upon the exercise of an award would
be added to assumed proceeds, while shortfalls charged to additional paid in capital would be deducted from assumed proceeds. Any shortfalls not covered by the windfall tax pool would be charged to the income statement and would be excluded from the
calculation of assumed proceeds, if any.
Stock options representing the right to acquire 1,506,025 and 35,000 shares of common stock
during the three months ended June 30, 2008 and 2007, respectively, were outstanding but were not included in the calculation of diluted net income per share because the effect would have been antidilutive. Stock options representing the right
to acquire 1,511,275 and 152,224 shares of common stock during the six months ended June 30, 2008 and 2007, respectively, were outstanding but were not included in the calculation of diluted net income per share because the effect would have
been antidilutive. Although these share based awards were antidilutive during the three and six months ended June 30, 2008 and 2007, they may be dilutive in future quarters calculations. All outstanding deferred or restricted stock units
were included in the calculation of diluted net income per share for the three and six months ended June 30, 2008 and 2007 because all such units were dilutive.
Below is a reconciliation of the weighted average number of common shares outstanding (in thousands, except per share information):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
33,527
|
|
$
|
29,141
|
|
$
|
65,825
|
|
$
|
54,760
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to compute basic EPS
|
|
|
94,011
|
|
|
94,134
|
|
|
94,140
|
|
|
93,828
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
2,663
|
|
|
2,882
|
|
|
2,748
|
|
|
2,709
|
Deferred and restricted stock units
|
|
|
280
|
|
|
201
|
|
|
265
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to compute diluted EPS
|
|
|
96,954
|
|
|
97,217
|
|
|
97,153
|
|
|
96,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
0.36
|
|
$
|
0.31
|
|
$
|
0.70
|
|
$
|
0.58
|
Diluted EPS
|
|
$
|
0.35
|
|
$
|
0.30
|
|
$
|
0.68
|
|
$
|
0.57
|
6. Commitments and Contingencies
On February 25, 2008, we entered into a new property lease agreement for our London, UK office, which effectively extends our current lease agreement
from the current expiration date in April 2010 to an expiration date of April 2025. The total incremental minimum lease obligation over this additional fifteen year term will be approximately $60,746,000, as measured at the current foreign currency
exchange rate between the UK pound sterling and the US dollar, none of which is payable until beginning in September 2011. The lease agreement includes open market rent reviews on April 12, 2015 and April 12, 2020, which could increase the
total minimum lease obligation. The Company will follow the guidance in Statement of Financial Accounting Standard No. 13 Accounting for Leases and Statement of Financial Accounting Standard No. 29 Determining Contingent
Rentals to account for this contingency at the time of each open market review.
There have been no other material changes to our
commitments and contingencies since December 31, 2007. (See Note 9 in the Notes to the Consolidated Financial Statements in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2007.)
The Company is involved in litigation and is the subject of claims made from time to time in the ordinary course of business with a portion of the
defense and/or settlement costs in some such cases being covered by various commercial liability insurance policies. In addition, the Companys third-party data suppliers audit the Company from time to time in the ordinary course of business to
determine if data the Company licenses for redistribution has been properly accounted for. In view of the Companys financial condition and the accruals established for related matters, management does not believe that the ultimate liability,
if any, related to these matters will have a material adverse effect on the Companys financial condition, results of operations or cash flows.
In connection with the provision of services in the ordinary course of business, the Company often makes representations affirming, among other things, that its services do not infringe on the intellectual property
rights of others and agrees to indemnify customers against third-party claims for such infringement. The Company has not been required to make material payments under such provisions.
7. Income Taxes
For the six months ended June 30, 2008, the Companys effective tax rate
was 36.2% as compared to 36.9% for the six months ended June 30, 2007. The Companys estimated annual effective tax rate for the six months ended June 30, 2008 was 35.6% before a discrete tax expense of $281,000 recorded in the first
quarter and a discrete tax expense of $392,000 recorded in the second quarter of 2008. The discrete tax expense in the second quarter was attributable to realized tax benefits related to stock-based compensation expense, an interest expense charge
on tax reserves for unrecognized tax benefits, and additional income expense tax resulting from a tax provision to tax return adjustment in connection with our 2007 Australian tax filing. The decrease in the second quarter 2008 estimated annual
effective tax rate in relation to the prior year second quarter estimated annual effective tax rate of 37.5% is attributable to (i) an increase in income generated in lower rate jurisdictions, (ii) an increase in the Domestic Production
Activities Deduction, (iii) a reduction in stock-based compensation expense recorded for incentive stock options under SFAS 123(R), and (iv) an increase in the Foreign Tax Credit offset by (v) a decrease in tax exempt interest income.
An incentive stock option does not ordinarily result in a tax benefit for the company unless there is a disqualifying disposition of the stock. Therefore, no deferred tax asset has been recognized by the Company for compensation expense recorded for
incentive stock options. The Company has not recorded a tax benefit for Research and Development tax credits in 2008 as the laws allowing the credit have not been extended.
The Company recognizes future tax benefits or expenses attributable to our taxable temporary differences and net operating loss carry forwards.
Recognition of deferred tax assets is subject to our determination that realization is more likely than not. Based on taxable income projections, we believe that our recorded deferred tax assets will be realized.
The Company adopted the provisions of Financial Standards Accounting Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes,
an interpretation of FASB Statement No. 109, on January 1, 2007. There were no material changes to the Companys unrecognized tax benefits in the second quarter. As of June 30, 2008, we had approximately $16,212,000 of
unrecognized tax benefits, of which $15,553,000 would affect our effective tax rate if recognized and $659,000 would result in a decrease to goodwill. It is anticipated that we will release approximately $474,000 in tax reserves within the next
twelve months for
13
uncertain tax positions due to the expiration of the statute of limitations in various tax jurisdictions. The Company recognizes interest and penalties
related to uncertain tax positions in income tax expense. As of June 30, 2008, we have approximately $1,983,000 of accrued interest related to unrecognized tax benefits.
The tax years 2002 through 2007 remain open to examination by the major taxing jurisdictions to which we are subject.
8. Goodwill and Intangible Assets
Intangible assets
consist of the following (in thousands, except weighted average amortization period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
Amortization
Period
|
|
June 30, 2008
|
|
December 31, 2007
|
|
|
Gross
Carrying
Value
|
|
Accumulated
Amortization
|
|
|
Net Book
Value
|
|
Gross
Carrying
Value
|
|
Accumulated
Amortization
|
|
|
Net Book
Value
|
Non-compete agreements
|
|
2.9 years
|
|
$
|
87,500
|
|
$
|
(87,500
|
)
|
|
$
|
|
|
$
|
87,500
|
|
$
|
(87,500
|
)
|
|
$
|
|
Securities databases
|
|
4.2 years
|
|
|
12,692
|
|
|
(11,100
|
)
|
|
|
1,592
|
|
|
12,692
|
|
|
(10,980
|
)
|
|
|
1,712
|
Computer software
|
|
7.8 years
|
|
|
101,886
|
|
|
(69,915
|
)
|
|
|
31,971
|
|
|
100,005
|
|
|
(66,256
|
)
|
|
|
33,749
|
Customer lists
|
|
11.2 years
|
|
|
246,465
|
|
|
(146,075
|
)
|
|
|
100,390
|
|
|
245,125
|
|
|
(135,829
|
)
|
|
|
109,296
|
Service contracts
|
|
23.6 years
|
|
|
17,690
|
|
|
(4,442
|
)
|
|
|
13,248
|
|
|
17,490
|
|
|
(4,099
|
)
|
|
|
13,391
|
Trademarks
|
|
12.4 years
|
|
|
2,600
|
|
|
(1,009
|
)
|
|
|
1,591
|
|
|
2,600
|
|
|
(879
|
)
|
|
|
1,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
468,833
|
|
$
|
(320,041
|
)
|
|
$
|
148,792
|
|
$
|
465,412
|
|
$
|
(305,543
|
)
|
|
$
|
159,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated amortization expense of intangible assets is as follows (in thousands):
|
|
|
|
For year ending 12/31/09
|
|
$
|
27,589
|
For year ending 12/31/10
|
|
$
|
27,613
|
For year ending 12/31/11
|
|
$
|
21,060
|
For year ending 12/31/12
|
|
$
|
18,469
|
For year ending 12/31/13
|
|
$
|
13,075
|
For years thereafter
|
|
$
|
27,136
|
The estimated amortization expense of intangible assets during the remainder of the fiscal year
2008 is $13,850,000.
The changes in the carrying amount of goodwill for the six months ended June 30, 2008 by reportable segment are
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional
Services
|
|
|
Active Trader
Services
|
|
Total
|
|
Balance as of December 31, 2007
|
|
$
|
401,234
|
|
|
$
|
153,608
|
|
$
|
554,842
|
|
Purchase accounting adjustments
|
|
|
(a) (207
|
)
|
|
|
|
|
|
(207
|
)
|
Impact of change in foreign exchange rates
|
|
|
3,468
|
|
|
|
|
|
|
(b) 3,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2008
|
|
$
|
404,495
|
|
|
$
|
153,608
|
|
$
|
558,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Consists of a reduction to goodwill pertaining to our acquisition of the net assets comprising the market data division of Xcitek LLC, as well as the market data assets of its
affiliate Xcitax LLC, primarily related to adjustments to accrued acquisition costs of $207,000.
|
(b)
|
Foreign currency translation adjustments totaling $3,468,000 primarily reflecting the weakening of the US Dollar against the Euro during the six months ended June 30,
2008.
|
9. Retirement Plans
Pearson Inc., a Pearson US subsidiary, sponsors a defined benefit plan (the Pension Plan) for Pearsons US employees which Pension Plan also includes certain of our US employees. Pension costs are actuarially determined. We
fund pension costs attributable to our employees to the extent allowable under IRS regulations. In 2001, we froze the benefits associated with this Pension Plan and no gain or loss was recorded as a result of the curtailment.
14
In September 2006, the FASB issued Statement of Financial Accounting Standard No. 158,
Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS 158). On December 31, 2006, we adopted the recognition and
disclosure provisions of SFAS 158. The adoption of SFAS 158 did not have a material impact on our financial position, results of operations and cash flows. SFAS 158 required us to recognize the funded status (i.e., the difference between the fair
value of plan assets and the projected benefit obligations) of our benefit plans in our December 31, 2006 Consolidated Balance Sheet, with a corresponding adjustment to accumulated other comprehensive income. The initial impact of the standard
due to unrecognized net actuarial gains and losses is recognized as a component of accumulated other comprehensive income. Additional minimum pension liabilities were also derecognized upon adoption of the standard. The adoption of SFAS 158 resulted
in a net adjustment to accumulated other comprehensive income of $759,000 at December 31, 2006.
The components of net periodic
benefit cost were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended
June 30,
|
|
|
Six Months ended
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Service cost
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Interest cost
|
|
|
139
|
|
|
|
128
|
|
|
|
272
|
|
|
|
256
|
|
Expected return on plan assets
|
|
|
(186
|
)
|
|
|
(148
|
)
|
|
|
(349
|
)
|
|
|
(303
|
)
|
Amortization of unrecognized prior service costs
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Amortization of unrecognized loss
|
|
|
15
|
|
|
|
24
|
|
|
|
33
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
(31
|
)
|
|
$
|
5
|
|
|
$
|
(43
|
)
|
|
$
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2008, we expect to contribute $477,000 to fund our obligations under the Pension Plan. As of
June 30, 2008, we have not made any contributions under the Pension Plan.
10. Stockholders Equity
In addition to our common stock, we are authorized to issue up to 5,000,000 preferred shares, $0.01 par value per share, with terms determined by our
Board of Directors, without any further action by our stockholders. At June 30, 2008, no preferred shares have been issued.
In
October 2006, our Board of Directors authorized the repurchase of up to 2,000,000 shares of our outstanding shares of common stock. On December 11, 2007, our Board of Directors authorized an additional 2,000,000 shares under the stock buyback
program. In the second quarter of 2008, we repurchased 512,000 shares of outstanding common stock under the stock buyback program. As of June 30, 2008, 1,802,900 shares remained available for purchase under the stock buyback program.
In February 2007, we announced that our Board of Directors authorized the initiation of a quarterly cash dividend.
The following table summarizes the dividend activity during the first six months of 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declaration Date
|
|
|
|
Dividend
Per Share
|
|
Type
|
|
Record Date
|
|
Payment Date
|
|
Total Amount
(in thousands)
|
December 11, 2007
(1)
|
|
$
|
0.50
|
|
Special (cash)
|
|
January 4, 2008
|
|
January 24, 2008
|
|
$
|
47,184
|
December 11, 2007
(2)
|
|
$
|
0.15
|
|
Regular (cash)
|
|
March 3, 2008
|
|
March 31, 2008
|
|
$
|
14,141
|
May 21, 2008
|
|
$
|
0.15
|
|
Regular (cash)
|
|
June 6, 2008
|
|
June 27, 2008
|
|
$
|
14,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
$
|
75,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Unpaid dividends declared in the amount of $47,184,000 were included in dividends payable as of December 31, 2007.
|
(2)
|
On December 11, 2007, our Board of Directors (i) approved increasing the Companys regular quarterly dividend by 20%, raising it from $0.125 per share to $0.15 per share of
common stock and (ii) declared the first quarter 2008 dividend (payment date: March 31, 2008 and record date March 3, 2008). The March 2008 total dividend paid amount of $14,141,000 was included in dividends payable as of December 31, 2007.
|
The actual declaration of future dividends, and the establishment of record and payment dates, is subject to final
determination of the Board of Directors.
11. Recent Accounting Pronouncements
Fair Value Measurements
In September 2006, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157). SFAS 157 establishes a framework for how companies should measure the fair value of assets and liabilities and expands disclosure about
fair value measurements. Additionally, SFAS 157 formally defines fair value as the amount that would be received if an asset was sold or a liability transferred in an orderly transaction between market participants at the measurement date. SFAS 157
is effective for the company in 2008. The adoption of SFAS 157, effective January 1, 2008, did not have a material impact on our financial position, results of operations or cash flows.
15
In February 2008, the FASB issued FASB Staff Position (FSP) SFAS No. 157-1,
Application of FASB Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive Accounting Pronouncements That Address Leasing Transactions, (FSP SFAS 157-1) and FSP SFAS No. 157-2, Effective
Date of FASB Statement No. 157 (FSP SFAS 157-2). FSP SFAS No. 157-1 removes leasing from the scope of SFAS No. 157, Fair Value Measurements. FSP SFAS No. 157-2 delays the effective date of SFAS
No. 157 from 2008 to 2009 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of FSP SFAS
157-1, effective January 1, 2008, did not significantly impact our financial position, results of operations or cash flows. The Company does not expect its adoption of the provisions of FSP SFAS 157-2 to have a material effect on its financial
condition, results of operations or cash flows.
The Fair Value Option for Financial Assets and Financial Liabilities (as amended)
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilitiesincluding an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 provides entities with an option to choose to measure eligible items at fair value at specified election dates. If elected, an entity must
report unrealized gains and losses on the item in earnings at each subsequent reporting date. The fair value option may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method, is
irrevocable (unless a new election date occurs); and is applied only to entire instruments and not to portions of instruments. SFAS 159 is effective for the company in 2008. The Company did not elect the fair value option for any of our eligible
financial instruments and other items, therefore, the adoption of SFAS 159, effective January 1, 2008, did not materially impact our financial position, results of operations or cash flows.
Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards
In June 2007, the FASB ratified the consensus reached by the Emerging Issues Task Force (EITF) on Issue No. 06-11, Accounting for Income Tax Benefits of Dividends on Share-Based Payment
Awards (EITF 06-11). EITF 06-11 addresses the issue of the manner in which income tax benefits received on dividends paid to employees holding equity-classified non-vested shares (units or options) should be accounted for when such
dividends are charged to retained earnings pursuant to SFAS 123(R). EITF 06-11 concludes that a realized income tax benefit should be recognized as a credit to additional paid-in capital and should be included in the pool of excess tax benefits
available to absorb future tax deficiencies on share-based payment awards. In addition, the amount of any tax benefits from dividends reclassified in subsequent periods from additional paid-in capital to a reduction of income tax expense or an
increase in income tax benefit should increase or decrease, but, be limited to the pool of excess tax benefits available on the reclassification date. EITF 06-11 is effective for the Company in 2008. The adoption of EITF 06-11, effective
January 1, 2008, did not materially impact our financial position, results of operations or cash flows.
Business Combinations
In December 2007, the FASB issued SFAS No. 141 (revised), Business Combinations (SFAS 141(R)). SFAS
141(R) changes the accounting for business combinations including the measurement of acquirer shares issued in consideration for a business combination, the recognition of contingent consideration, the accounting for pre-acquisition gain and loss
contingencies, the recognition of capitalized in-process research and development, the accounting for acquisition-related restructuring cost accruals, the treatment of acquisition related transaction costs and the recognition of changes in the
acquirers income tax valuation allowance. SFAS 141(R) is effective for the Company in 2009, with early adoption prohibited. We are currently evaluating the potential impact of adopting SFAS 141(R).
Accounting and Reporting of Noncontrolling Interests
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS 160). SFAS 160 changes the accounting for noncontrolling
(minority) interests in consolidated financial statements including the requirements to classify noncontrolling interests as a component of consolidated stockholders equity, and the elimination of minority interest accounting in
results of operations with earnings attributable to noncontrolling interests reported as part of consolidated earnings. Additionally, SFAS 160 revises the accounting for both increases and decreases in a parents controlling ownership interest.
SFAS 160 is effective for the Company in 2009, with early adoption prohibited. The Company does not anticipate that SFAS 160 will have a material impact on the Companys financial statements.
Determination of the Useful Life of Intangible Assets
In April 2008, the FASB issued an FSP on SFAS No. 142-3,
Determination of the Useful Life of Intangible Assets
(FSP SFAS 142-3). FSP SFAS 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142,
Goodwill and Other Intangible Assets
. The intent of this FSP is to improve the consistency
between the useful life of a recognized intangible asset under Statement 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141 (revised 2007),
Business Combinations,
and
other U.S. generally accepted accounting principles. FSP SFAS 142-3 is effective for the Company, prospectively only in 2009, with early adoption prohibited. The Company is currently evaluating the potential impact of this statement.
16
Hierarchy of Generally Accepted Accounting Principles
In May 2008, the FASB issued SFAS No. 162 The Hierarchy of Generally Accepted Accounting Principles (SFAS 162). SFAS 162
identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting
principles in the U. S. SFAS 162 is effective 60 days following the SEC approval of Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles. The Company does not anticipate that SFAS 162 will have a material impact on the Companys financial statements.
Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities
In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, (FSP EITF 03-6-1). This FSP addresses
whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in computing earnings per share under the two-class method described in SFAS No. 128,
Earnings Per Share (EPS). Unvested share-based payment awards that contain a non-forfeitable right to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the
computation of EPS pursuant to the two class method, as the rights to dividends or dividend equivalents provide a non-contingent transfer of value to the holder of the share-based payment award. In contrast, the right to receive dividends or
dividend equivalents that the holder will forfeit if the award does not vest does not constitute a participation right. Under the terms of the Companys restricted stock unit awards, if the award is forfeited prior to vesting, holders are not
entitled to receive dividends or dividend equivalents. FSP EITF 03-6-1 is effective for the Company in 2009, with early adoption prohibited. All prior period EPS data must be adjusted retrospectively to reflect the provisions of the FSP, if
applicable. The Company does not anticipate that FSP EITF 03-6-1 will have a material impact on the Companys financial statements.
12.
Comprehensive Income
The components of accumulated other comprehensive income were as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2008
|
|
|
December 31,
2007
|
|
|
|
(In thousands)
|
|
Unrealized gain on securities (net of tax, $501 as of June 30, 2008 and $901 as of December 31, 2007)
|
|
$
|
785
|
|
|
$
|
1,320
|
|
Foreign currency translation adjustment
|
|
|
53,380
|
|
|
|
45,656
|
|
Minimum pension liability/unrecognized losses
|
|
|
(1,821
|
)
|
|
|
(1,821
|
)
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income
|
|
$
|
52,344
|
|
|
$
|
45,155
|
|
|
|
|
|
|
|
|
|
|
The components of comprehensive income were as follows:
|
|
|
|
|
|
|
|
|
|
Six Months
Ended
June 30,
2008
|
|
|
Six Months
Ended
June 30,
2007
|
|
|
(In thousands)
|
Net Income
|
|
$
|
65,825
|
|
|
$
|
54,760
|
Unrealized (loss)/gain on securities (net of tax, ($341) and $268 as of June 30, 2008 and 2007, respectively)
|
|
|
(535
|
)
|
|
|
425
|
Foreign currency translation adjustment
|
|
|
7,724
|
|
|
|
7,386
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
73,014
|
|
|
$
|
62,571
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
June 30,
2008
|
|
|
Three Months
Ended
June 30,
2007
|
|
|
(In thousands)
|
Net Income
|
|
$
|
33,527
|
|
|
$
|
29,141
|
Unrealized (loss)/gain on securities (net of tax, ($84) and $187 as of June 30, 2008 and 2007, respectively)
|
|
|
(132
|
)
|
|
|
296
|
Foreign currency translation adjustment
|
|
|
525
|
|
|
|
6,189
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
33,920
|
|
|
$
|
35,626
|
|
|
|
|
|
|
|
|
13. Fair Value Measurements
Effective January 1, 2008, the Company adopted SFAS 157. This statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. As defined
in SFAS 157, fair value is the amount that would be received if an asset was sold or a liability transferred in an orderly transaction between market participants at the measurement date. The adoption of SFAS 157 did not have a material impact
on our financial position, results of operations or cash flows. As discussed in Note 11 above, the Company has only adopted the provisions of SFAS 157 with respect to its financial assets and liabilities that are measured at fair value
within the condensed consolidated financial statements. The Company has deferred the application of the provisions of this statement to its non-financial assets and liabilities in accordance with FSP SFAS 157-2.
SFAS 157 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value that maximizes the use of observable inputs and
minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company.
Unobservable inputs are inputs that reflect the Companys assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
The three levels of the fair value hierarchy established by SFAS 157 in order of priority are as follows:
|
|
|
Level 1
|
|
Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date. Active markets are those in which
transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
|
|
|
Level 2
|
|
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. These include quoted prices
for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
|
|
|
Level 3
|
|
Unobservable inputs that reflect the Companys assumptions about the assumptions that market participants would use in pricing the asset or liability. Unobservable inputs shall be used
to measure fair value to the extent that observable inputs are not available.
|
The following table provides a summary of the fair values of the Companys assets and liabilities required
under SFAS 157:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
|
Fair Value Measurements Using
|
|
Assets at
Fair Value
|
(in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents (1)
|
|
$
|
|
|
$
|
9,472
|
|
$
|
|
|
$
|
9,472
|
Marketable Securities Available for Sale (2)
|
|
|
|
|
|
31,335
|
|
|
|
|
|
31,335
|
Other (3)
|
|
|
5,709
|
|
|
|
|
|
|
|
|
5,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
5,709
|
|
$
|
40,807
|
|
$
|
|
|
$
|
46,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
|
Fair Value Measurements Using
|
|
Assets at
Fair Value
|
(in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (3)
|
|
$
|
5,709
|
|
|
|
|
|
|
|
$
|
5,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
5,709
|
|
$
|
|
|
$
|
|
|
$
|
5,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Consist of high-grade municipal obligations with original and remaining maturities of less than 90 days.
|
(2)
|
Refer to Note 3, Marketable Securities, in the Notes to the Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for further
discussion.
|
(3)
|
Consists of mutual fund assets held in a rabbi trust and a corresponding non-qualified deferred compensation plan liability. The fair value of the mutual fund assets and related
liability are based on each funds quoted market price at the reporting date.
|
14. Acquisition of Xcitek
On May 1, 2007, Interactive Data acquired the net assets comprising the market data division of Xcitek LLC (Xcitek), as well as the
market data net assets of its affiliate Xcitax LLC (Xcitax), for $25,123,000. This acquisition was funded from operating cash. In addition, we accrued estimated transaction and acquisition costs of $1,840,000, consisting of legal
services, accounting services, severance and lease termination costs. As of June 30, 2008, $860,000 of these accrued costs remain unpaid. We expect the majority of the remaining costs to be paid by December 31, 2008.
The acquisition was accounted for using the purchase method of accounting in accordance with Statement of Financial Accounting Standard No. 141,
Business Combinations (SFAS 141). The purchase price has been assigned to the assets acquired and liabilities assumed based on their estimated fair values. The intangible assets are being amortized over periods ranging from
two to eleven years. The weighted average amortization period in total is 10.6 years. The weighted average amortization period by major asset class is: customer list 11.0 years; securities database 8.0 years and trademark 2.0 years. In connection
with the acquisition, we recorded $12,093,000 of goodwill, which has been allocated to our Institutional Services segment. Of that total amount, $11,006,000 is expected to be deductible for tax purposes. Our financial statements include the results
of operations of Xcitek and Xcitax subsequent to the acquisition date.
Xciteks market data business provides a broad range of North
American corporate actions data, including reorganization information, as well as cost basis and class action data. This business has been integrated into our Interactive Data Pricing and Reference Data business.
The acquisition was accounted for as follows (in thousands):
|
|
|
|
Assets:
|
|
|
|
Accounts receivable, net
|
|
$
|
1,861
|
Prepaid expenses and other current assets
|
|
|
10
|
Customer list
|
|
|
12,200
|
Securities database
|
|
|
1,600
|
Trademark
|
|
|
100
|
Deferred tax assets, net
|
|
|
754
|
Other assets
|
|
|
12
|
Goodwill
|
|
|
12,093
|
|
|
|
|
|
|
$
|
28,630
|
|
|
Liabilities:
|
|
|
|
Accounts payable
|
|
$
|
19
|
Accrued liabilities
|
|
|
44
|
Deferred revenue
|
|
|
1,604
|
Accrued acquisition costs
|
|
|
1,840
|
|
|
|
|
|
|
$
|
3,507
|
|
|
|
|
Total Purchase Price
|
|
$
|
25,123
|
|
|
|
|
19
15. Subsequent Events
On August 1, 2008, we completed the acquisition of Klers Financial Data Service S.r.l., a leading provider of reference data to the Italian financial industry, for a purchase price of 19,000,000 in cash
(or approximately $29,600,000 at the current exchange rate). The purchase price is subject to a post closing working capital adjustment. The acquisition was funded from existing cash resources.
Item 2
.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
The following discussion should be read in conjunction with our condensed consolidated financial statements for the period ended June 30, 2008
included herein in Item 1, and for the year ended December 31, 2007, included in our Annual Report on Form 10-K for the year ended December 31, 2007.
Amounts in the tables, including footnotes to the tables, are shown in thousands, except per share data.
Overview
We are a leading global provider of financial market data, analytics and related services to financial institutions, active traders and
individual investors. Our customers use our offerings to support their portfolio management and valuation, research and analysis, trading, sales and marketing, and client service activities. We market and sell our services either by direct
subscriptions or through third-party business alliances.
Our offerings are developed and delivered to customers through four businesses
that comprise our two reportable operating segments: Institutional Services and Active Trader Services.
Institutional Services
Our Institutional Services segment primarily targets financial institutions such as banks, brokerage firms, mutual fund companies, hedge funds, insurance
companies and money management firms. In addition, our Institutional Services segment markets its offerings to financial information providers, information media companies, third-party redistributors and outsourcing organizations. The Institutional
Services segment is composed of three businesses, each of which was renamed in February 2007 as part of a global marketing initiative to reinforce our value proposition and emphasize the Interactive Data brand to institutional customers:
|
|
|
Interactive Data Pricing and Reference Data.
Our Pricing and Reference Data business provides financial institutions, third-party redistributors and
outsourcing organizations with historical, intraday and end-of-day pricing, evaluations and reference data for an extensive range of securities, commodities, and derivative instruments that are traded around the world.
|
|
|
|
Interactive Data Real-Time Services.
Our Real-Time Services business provides financial institutions, financial information providers and information media
companies with global real-time and delayed financial market information covering equities, derivative instruments, futures, fixed income securities and foreign exchange. Our Real-Time Services business also includes our Interactive Data Managed
Solutions business which offers customized financial information portals and terminals.
|
|
|
|
Interactive Data Fixed Income Analytics.
Our Fixed Income Analytics business provides financial institutions with sophisticated fixed income analytics.
|
Active Trader Services
Our Active Trader Services segment targets active traders, individual investors and investment community professionals. We consider active traders to be investors who typically make their own investment decisions, trade frequently through
online brokerage accounts and seek to earn a substantial portion of their income from trading. The Active Trader Services segment is composed of the following business:
|
|
|
eSignal.
Our eSignal business provides active traders, individual investors and investment community professionals with real-time financial market
information and access to decision-support tools to assist in their analysis of securities traded on all major markets worldwide. eSignal also operates financial websites that provide investors with free financial information and news about global
equities, options, futures and other securities.
|
Corporate and Unallocated
Our Corporate and Unallocated costs include expenses related to corporate, general and administrative activities in the US and the UK, stock-based
compensation, costs associated with our Boxborough data center, and intangible asset amortization.
20
Business Strategy
We are focused on expanding our position as a leading provider of financial market data, analytics and related services to financial institutions, active traders and individual investors. A key element of our strategy
involves working closely with our largest customers and redistributors to better understand and address their current and future financial market data needs. By better understanding customer needs, we believe we can develop enhancements to existing
services and introduce new capabilities which offer new or improved features, content or capabilities that appeal to current and prospective customers. As part of our efforts to build strong customer relationships, we continue to invest significant
resources to provide high-quality, responsive customer support and service. We believe that our combination of strong account management and responsive customer support has contributed to our historically high customer retention rates within our
Institutional Services segment, as well as enhanced our ability to attract new customers.
In 2007, we aligned our Pricing and Reference
Data, and Real-Time Services business under a single management structure from a business and product strategy, sales management and operational perspective. We believe this action has enabled us to build upon the progress made during the past
several years in presenting our business more effectively to the marketplace and to move faster in addressing client needs spanning four core product areas: evaluations, reference data, real-time datafeed services and managed solutions.
We plan to continue investing in organic growth initiatives and pursuing strategic acquisitions that will enable us to expand our business in one or
more of the following areas:
|
1.
|
Focus on High-Value Services.
Our efforts to develop new and enhanced offerings that we believe will deliver
increased value to customers are based, in part, on an active dialogue with customers, prospects, business partners, industry organizations and other key parties. For example, in September 2007, we launched the Basket Calculation Service
SM
. This is a new web-based offering that calculates intra-day indicative valuations for equity and fixed income Exchange Traded Funds (ETFs). This service
utilizes intra-day fixed income valuations from Interactive Data Pricing and Reference Data, and real-time equity pricing data to calculate and deliver updated indicative optimized portfolio values (IOPVs) every 15 seconds of the trading day. This
is accomplished through a fully-hosted web-based application powered by PlusFeed
SM
, Interactive Data Real-Time Services consolidated low
latency digital datafeed. In June 2008, we expanded the capabilities of this service to calculate IOPVs for exchange traded notes and index values that include equities, fixed income securities, currencies and commodities. In addition, we believe
that there are opportunities for our businesses to bring significant value to customers by:
|
|
|
|
developing new tools to assist customers with their regulatory challenges;
|
|
|
|
expanding our coverage to include a broader range of complex securities including over the counter (OTC) derivatives;
|
|
|
|
adding new content or technical capabilities to existing services; and
|
|
|
|
improving service delivery and increasing the frequency of service delivery.
|
|
2.
|
Expand into Adjacent Markets.
We continue to explore entering new market segments in which we can leverage our institutional customer relationships as well as take advantage
of the breadth and depth of our existing content and capabilities. For example, the 2003 acquisition of ComStock (now Interactive Data Real-Time Services) enabled us to complement our historical and end-of-day pricing data services by delivering
real-time information regarding securities traded around the world to our institutional customers. Our December 2005 acquisition of IS.Teledata AG and the subsequent formation of Interactive Data Managed Solutions enabled us to provide managed
market data solutions that are used to build customized financial information systems and further complement our existing market data services. Our March 2006 acquisition of the net assets of Quote.com and certain other related assets including the
Quote.com and RagingBull.com financial websites, enabled eSignal to generate a revenue stream via online advertising across an expanded number of financial websites.
|
|
3.
|
Extend Our Reach Geographically.
We continue to invest in growing our business outside of North America both organically and through acquisitions. In addition, since a
significant portion of our international revenue has been historically concentrated with customers based in the United Kingdom, we believe that continental Europe represents an attractive opportunity for expansion. On June 26, 2008, we
announced an agreement to acquire Klers Financial Data Service S.r.l., a leading provider of reference data to the Italian financial industry, for a purchase price of EUR 19.0 million (or approximately $29.9 million based on current
exchange rates) in cash. We believe that the addition of Klers, which is based in Rome, will significantly increase our presence in Italy and enhance our ability to continue growing in this region.
|
In addition, optimizing our technical infrastructure represents another key element in our strategy. Our technology infrastructure and operations support
both the Institutional Services and Active Trader Services segments of our business and are designed to facilitate the reliable and efficient processing and delivery of data to our customers. We have implemented, and will continue to
21
implement, initiatives aimed at optimizing our technical infrastructure by taking advantage of existing resources residing across our global organization.
For example, in July 2008, our Real-Time Services business launched its new-generation high-speed data distribution network which is designed to manage the anticipated rapid growth of data volumes. By continuing to optimize our technical
infrastructure, we believe we can enhance our ability to meet the data delivery needs of our customers while improving our operational efficiency.
Our business has historically generated a high level of recurring revenue and cash flow from operations. We seek to invest our financial resources in organic growth initiatives and strategic acquisitions while maintaining a conservative
capital structure. We also have returned cash to stockholders through stock buyback programs and dividends at levels and junctures as our Board of Directors believes appropriate. In February 2007, we announced that our Board of Directors authorized
the initiation of a quarterly cash dividend of $0.125 per common share. In December 2007, we announced that our Board of Directors approved a 20% increase in the quarterly cash dividend to $0.15 per common share, commencing with the dividend paid on
March 31, 2008 to all stockholders of record at the close of business on March 3, 2008. In addition, the Board of Directors declared a special dividend of $0.50 per common share, which was paid on January 24, 2008 to stockholders of
record on January 4, 2008. On May 21, 2008, Interactive Datas Board of Directors declared a quarterly cash dividend of $0.15 per common share, which was paid on June 27, 2008 to stockholders of record as of June 6, 2008. On
July 16, 2008, Interactive Datas Board of Directors declared a quarterly cash dividend of $0.15 per common share, which will be payable on September 26, 2008 to stockholders of record on September 5, 2008.
Business and Market Trends
In recent years, modest
increases in spending by institutional customers for financial market data services were partially offset by the continuing impact of our customers ongoing cost containment initiatives during such period. During 2008, many large banks and
other significant-sized firms in the financial services industry have experienced more challenging market conditions as significant weakness and volatility within the global credit markets during the second half of 2007 spread to the broader
financial markets. We are again seeing customers focus on cost containment as a result of the more challenging market conditions, however they continue to spend prudently on market data services. It remains unclear at this time what impact the
recent conditions of the financial markets will have on the overall financial market data services spending of financial institutions in 2009 or subsequent years. If current conditions lead to an increased focus on containing or reducing market data
spending, our revenue growth could be impacted.
Institutional Services
Within the Institutional Services segment, overall annual renewal rates for customer contracts remained at approximately 95% during the second quarter of
2008, consistent with our experience in each quarter for the past three years.
We believe that much of the data we supply is mission
critical to our customers operations regardless of market conditions; however, we are affected, at least in part, by the continuing cost containment focus within our institutional customer base. If the data we provide were not mission
critical, we believe a decline in market conditions would affect us more adversely.
The following are among the major trends influencing
our institutional businesses:
|
|
|
There has been and continues to be a trend in North America for major financial institutions to outsource their back-office operations to service bureaus and
custodian banks. We have established relationships with, and are a major data supplier to, many service bureaus and custodian banks. If an existing customer elects to terminate services with us because of a decision to outsource its back-office
operations to a service bureau or custodian bank, we often continue to supply our data indirectly through our relationships with these institutions. In such cases, the revenue we earn per customer may be less than what we would earn if the customer
obtained the data from us directly, although the costs associated with delivering the data indirectly may also be less.
|
|
|
|
Over the past decade, there has been a consolidation of financial institutions both within and across the financial services industry. When financial institutions
merge, they frequently look to gain synergies by combining their operations, including the elimination of redundant data sources. If our services are eliminated as a result of consolidation, there is generally a lag between the completion of the
customers consolidation activity and its impact on our revenue. Additional consolidation activity has the potential to adversely impact our revenue in the future.
|
|
|
|
Increased regulation within the global financial services industry continues to influence the ways in which financial institutions utilize financial market data. We
believe that the use of real-time, intraday, end-of-day and historical financial market data from independent third-party providers like us will be increasingly important as firms seek to modify existing practices to effectively and efficiently
address their regulatory compliance obligations.
|
|
|
|
The complexity of financial instruments continues to increase. Determining the fair value of highly complex instruments requires specialized expertise, and the
firms trading these instruments seek to leverage efficiencies by working with third-party providers like us who can assist them in their valuation of these instruments.
|
22
|
|
|
Financial institutions are creating automated algorithmic and electronic trading applications to efficiently execute their trading strategies. In order to rapidly
execute their trading strategies, these applications require real-time market data with minimal latency. In addition, the trend toward algorithmic and other electronic trading programs is contributing to significant growth in market data volumes,
thereby requiring both market data suppliers like us and the financial institutions themselves to increase network capacity to address these volume issues.
|
Interactive Data Pricing and Reference Datas growth continues to be driven by new sales to existing customers and, to a lesser extent, new sales to
new customers. Growth in the Interactive Data Pricing and Reference Data business is dependent, in large part, on our ability to continue the expansion of our data content offerings in order to meet the current and evolving needs of our customers,
particularly as regulatory changes occur and as financial instruments become more numerous and complex. For example, we believe that we have further expanded the potential market for our Basket Calculation Service with the previously mentioned
expansion of its capabilities to calculate IOPVs for exchange traded notes and index values that include equities, fixed income securities, currencies and commodities.
Interactive Data Real-Time Services continues to generate growth for its real-time business both by sales to new customers and new sales to existing customers. In particular, financial institutions such as hedge funds
are seeking to subscribe to our low latency data services in order to support their algorithmic and electronic trading applications. This business also continues to expand its Interactive Data Managed Solutions business globally with both existing
and new clients. Interactive Data Real-Time Services continues to invest in enhancing and expanding its offerings and technical infrastructure. For example, we believe that the July 2008 launch by our Real-Time Services business of its
new-generation high-speed data distribution network represents an important capability for managing the anticipated rapid growth of data volumes.
Growth in our Interactive Data Fixed Income Analytics business continues to be largely offset by
cancellations, the majority of which are resulting from client consolidation activities. We continue to invest in product and business development activities that we believe will help expand our Fixed Income Analytics business with existing and
prospective customers in the United States, Europe and Australia. For example, in addition to focusing on sales of our BondEdge® offering, we are also focusing on expanding customer adoption of our fixed income analytic datafeed service,
Analytix Direct
SM
, which was introduced in 2007 and offers various risk measures in a datafeed format that is designed to address the needs of large
financial institutions that operate centralized data warehouses to support multiple departments and various applications.
Active Trader Services
eSignals growth continues to be constrained by challenging conditions in the active trader market. Expansion of the eSignal business
is partly dependent on the growth in online trading accounts managed by active traders. In addition, stock market volatility is another important trend that can influence active trader subscriptions. When the major stock markets are less volatile,
active traders tend to trade less frequently and cancellations of eSignals services by active traders typically increase and new subscriptions slow. Other factors that may affect eSignals growth include the contribution of its
redistribution partners who resell its data and analytics, and online advertising on its financial websites, price increases and mix shifts within its suite of real-time market data terminals.
We believe that eSignals future growth is dependent on a combination of expanding its direct subscriber base for real-time financial market
information and decision-support tools, and attracting increased online advertising on eSignals financial websites. To address the evolving needs of active traders worldwide, eSignal continues to invest in adding new features to its various
services, establishing strategic alliances, developing new offerings, and building traffic to and advertising on its financial websites. For example, in June 2008, eSignal introduced significant enhancements across its eSignal®, eSignal Pro®
and eSignal, Advanced GET® edition offerings.
23
Results of Operations
Selected Financial Data
(In thousands, except per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
% Change
|
|
|
2008
|
|
2007
|
|
% Change
|
|
REVENUE
|
|
$
|
186,149
|
|
$
|
169,968
|
|
9.5
|
%
|
|
$
|
367,860
|
|
$
|
332,503
|
|
10.6
|
%
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
61,319
|
|
|
55,883
|
|
9.7
|
%
|
|
|
121,510
|
|
|
110,377
|
|
10.1
|
%
|
Selling, general and administrative
|
|
|
61,153
|
|
|
58,368
|
|
4.8
|
%
|
|
|
120,374
|
|
|
115,427
|
|
4.3
|
%
|
Depreciation
|
|
|
6,805
|
|
|
5,263
|
|
29.3
|
%
|
|
|
13,310
|
|
|
10,966
|
|
21.4
|
%
|
Amortization
|
|
|
6,901
|
|
|
6,474
|
|
6.6
|
%
|
|
|
13,755
|
|
|
12,941
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
136,178
|
|
|
125,988
|
|
8.1
|
%
|
|
|
268,949
|
|
|
249,711
|
|
7.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS
|
|
|
49,971
|
|
|
43,980
|
|
13.6
|
%
|
|
|
98,911
|
|
|
82,792
|
|
19.5
|
%
|
Interest income, net
|
|
|
1,966
|
|
|
2,062
|
|
(4.7
|
)%
|
|
|
4,315
|
|
|
3,927
|
|
9.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
51,937
|
|
|
46,042
|
|
12.8
|
%
|
|
|
103,226
|
|
|
86,719
|
|
19.0
|
%
|
Income tax expense
|
|
|
18,410
|
|
|
16,901
|
|
8.9
|
%
|
|
|
37,401
|
|
|
31,959
|
|
17.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
33,527
|
|
$
|
29,141
|
|
15.1
|
%
|
|
$
|
65,825
|
|
$
|
54,760
|
|
20.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.36
|
|
$
|
0.31
|
|
16.1
|
%
|
|
$
|
0.70
|
|
$
|
0.58
|
|
20.7
|
%
|
Diluted
|
|
$
|
0.35
|
|
$
|
0.30
|
|
16.7
|
%
|
|
$
|
0.68
|
|
$
|
0.57
|
|
19.3
|
%
|
Cash dividends declared per common share
|
|
$
|
0.15
|
|
$
|
0.125
|
|
20.0
|
%
|
|
$
|
0.15
|
|
$
|
0.25
|
|
(40.0
|
)%
|
WEIGHTED AVERAGE SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
94,011
|
|
|
94,134
|
|
(0.1
|
)%
|
|
|
94,140
|
|
|
93,828
|
|
0.3
|
%
|
Diluted
|
|
|
96,954
|
|
|
97,217
|
|
(0.3
|
)%
|
|
|
97,153
|
|
|
96,735
|
|
0.4
|
%
|
Three Months Ended June 30, 2008 versus Three Months Ended June 30, 2007
Revenue
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2008
|
|
2007
|
|
% Change
|
|
Institutional Services:
|
|
|
|
|
|
|
|
|
|
Pricing and Reference Data
|
|
$
|
117,466
|
|
$
|
105,638
|
|
11.2
|
%
|
Real-Time Services
|
|
|
36,002
|
|
|
34,042
|
|
5.8
|
%
|
Fixed Income Analytics
|
|
|
8,095
|
|
|
8,196
|
|
(1.2
|
)%
|
Foreign Exchange
|
|
|
2,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Institutional Services
|
|
$
|
163,800
|
|
$
|
147,876
|
|
10.8
|
%
|
|
|
|
|
Active Trader Services:
|
|
|
|
|
|
|
|
|
|
eSignal
|
|
|
22,299
|
|
|
22,092
|
|
0.9
|
%
|
Foreign Exchange
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Active Trader Services
|
|
|
22,349
|
|
|
22,092
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
TOTAL REVENUE
|
|
$
|
186,149
|
|
$
|
169,968
|
|
9.5
|
%
|
|
|
|
|
|
|
|
|
|
|
24
Total revenue increased by $16,181,000, or 9.5%, to $186,149,000 in the second quarter of 2008. The
Xcitek business, which was acquired in May 2007, contributed incremental revenue of $785,000 in the second quarter of 2008. Other factors which contributed to the increase in total revenue included strong revenue growth at both our Pricing and
Reference Data business of $11,043,000 and at our Real-Time Services business, which produced a revenue increase of $1,960,000. In addition, revenue at our eSignal business increased $207,000. These factors were partially offset by a decrease in our
Fixed Income Analytics business of $101,000. The change in foreign exchange rates in the second quarter of 2008 compared with the second quarter of 2007 had a favorable impact on revenue of $2,287,000 in the second quarter of 2008, mainly due to the
weakness of the US dollar against the Euro.
Institutional Services
Revenue within the Institutional Services segment increased by $15,924,000, or 10.8%, to $163,800,000 in the second quarter of 2008. The change in foreign exchange rates, as noted above, had a favorable impact on
revenue of $2,237,000 in the second quarter of 2008.
Revenue for the Pricing and Reference Data business increased by $11,828,000, or
11.2%, to $117,466,000 in the second quarter of 2008. The Xcitek business contributed incremental revenue of $785,000 in the second quarter of 2008. The revenue increase for the Pricing and Reference Data business was attributable primarily to
growth in both North America and Europe resulting from higher demand for our evaluated pricing and reference data content and increased levels of usage-related revenue.
Revenue for the Real-Time Services business increased by $1,960,000, or 5.8%, to $36,002,000 in the second quarter of 2008 primarily due to the continued expansion of the real-time datafeed business and the Managed
Solutions business in North America. Revenue for this business in the second quarter of 2008 also included $1,017,000 of foreign exchange loss mainly related to the revaluation of accounts receivable in Europe.
Revenue for the Fixed Income Analytics business decreased by $101,000, or 1.2%, to $8,095,000 in the second quarter of 2008. This decrease in revenue is
mainly due to lower new business and nonrecurring revenue in the second quarter of 2008.
Active Trader Services
Within the Active Trader Services segment, revenue increased by $257,000, or 1.2%, to $22,349,000 in the second quarter of 2008. The change in foreign
exchange rates, as noted above, had a favorable impact on revenue of $50,000 in the second quarter of 2008. This revenue increase was primarily related to higher average subscription fees, partially offset by lower advertising revenue and a slight
decline in the number of core eSignal direct subscription terminals which decreased 0.4% to 61,935 in the second quarter of 2008.
Cost of Services
Cost of services expenses are composed mainly of personnel-related expenses, communication, data acquisition, and consulting costs and
expenditures associated with software and hardware maintenance agreements.
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
June 30,
|
|
(In thousands)
|
|
2008
|
|
2007
|
|
% Change
|
|
COST OF SERVICES
|
|
$
|
61,319
|
|
$
|
55,883
|
|
9.7
|
%
|
Cost of services expenses increased by $5,436,000, or 9.7%, to $61,319,000 in the second quarter
of 2008. The Xcitek business contributed incremental cost of services expense of $210,000 in the second quarter of 2008.
The increase in
cost of services expenses is mainly due to higher personnel-related costs of $2,225,000 associated with increased headcount levels and the effect of annual merit increases, coupled with higher communications expense of $1,281,000. Also contributing
to the increase in cost of services expense in the second quarter of 2008 were increased expenditures associated with hardware and software maintenance agreements of $713,000, and higher consulting expenses of $522,000. This is partially offset by
lower premises expense of $369,000, decreased data acquisition costs of $340,000, and a decrease in supplies and shipping expense of $116,000. The change in foreign exchange rates, as noted above, increased cost of services expense by $1,413,000 in
the second quarter of 2008. Cost of services expense as a percentage of revenue was 32.9% in the second quarter of 2008 which is unchanged from the second quarter of 2007.
25
Selling, General and Administrative Expenses
Selling, general and administrative expenses are composed mainly of personnel-related expense, outside professional services, advertising and marketing
expenses, occupancy-related expenses, and commissions paid to third parties for distribution of our data to customers.
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
June 30,
|
|
(In thousands)
|
|
2008
|
|
2007
|
|
% Change
|
|
SELLING, GENERAL and ADMINISTRATIVE
|
|
$
|
61,153
|
|
$
|
58,368
|
|
4.8
|
%
|
Selling, general and administrative expenses increased by $2,785,000, or 4.8%, to $61,153,000 in
the second quarter of 2008. The Xcitek business contributed incremental selling, general, and administrative expenses of $121,000 in the second quarter of 2008. The increase in selling, general and administrative expenses is mainly due to higher
premises expense of $1,244,000 primarily related to higher rent in our London office. This is coupled with higher personnel-related costs of $815,000 associated with increased headcount levels, the effect of annual merit increases, and higher
incentive compensation-related costs. Also contributing to the increase in selling, general and administrative expenses in the second quarter of 2008 is higher bad debt expense of $609,000 primarily associated with a reversal of bad debt expense in
the second quarter of 2007, higher travel expenditures of $466,000, and increased consulting costs of $303,000. Additionally, higher marketing costs of $229,000 and higher legal expense of $188,000 contributed to the increase in selling, general,
and administrative expense in the second quarter of 2008. This is partially offset by a foreign exchange gain primarily due to the revaluation of Euro bank balances and inter-company balances of $1,557,000, coupled with decreased communications
costs of $280,000, and lower commissions paid to third parties for distribution of data of $161,000. The change in foreign exchange rates, as noted above, increased selling, general, and administrative expenses by $882,000 in the second quarter of
2008. Selling, general, and administrative expenses as a percentage of revenue was 32.9% in the second quarter of 2008 compared with 34.3% in the second quarter of 2007.
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
June 30,
|
|
(In thousands)
|
|
2008
|
|
2007
|
|
% Change
|
|
DEPRECIATION
|
|
$
|
6,805
|
|
$
|
5,263
|
|
29.3
|
%
|
Depreciation expense increased by $1,542,000, or 29.3%, to $6,805,000 in the second quarter of
2008. The increase in depreciation expense was mainly associated with an adjustment in the second quarter of 2007 of $695,000 associated with the reversal of previously depreciated capitalized development costs. This is coupled with higher capital
spending in the second half of 2007 and first half of 2008, partially offset by the normal expiration of asset lives. The change in foreign exchange rates, as noted above, increased depreciation expense by $59,000 in the second quarter of 2008.
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
June 30,
|
|
(In thousands)
|
|
2008
|
|
2007
|
|
% Change
|
|
AMORTIZATION
|
|
$
|
6,901
|
|
$
|
6,474
|
|
6.6
|
%
|
Amortization expense increased by $427,000, or 6.6%, to $6,901,000 in the second quarter of 2008
primarily due to an incremental $217,000 of amortization expense associated with the acquisition of the Xcitek business, coupled with an adjustment in the second quarter of 2007 related to expiration of certain intangible asset lives.
Other Consolidated Financial Information
Income from
operations increased by $5,991,000, or 13.6%, to $49,971,000 in the second quarter of 2008 due to the factors discussed above.
Interest
income decreased by $96,000, or 4.7%, to $1,966,000 in the second quarter of 2008.
Income before income taxes increased by $5,895,000, or
12.8%, to $51,937,000 in the second quarter of 2008 mainly due to higher income from operations discussed above.
26
Net income increased by $4,386,000, or 15.1%, to $33,527,000 in the second quarter of 2008. The increase
in net income is primarily due to higher income before income taxes coupled with a lower effective tax rate of 35.4% for the second quarter of 2008 compared to 36.7% for the second quarter of 2007.
We generated basic net income per share of $0.36 and diluted net income per share of $0.35 in the second quarter of 2008, compared with basic net income
per share of $0.31 and diluted net income per share of $0.30 in the second quarter of 2007.
Weighted average basic shares outstanding
decreased 0.1% and weighted average diluted shares outstanding decreased 0.3% in the second quarter of 2008 compared to the second quarter of 2007. Repurchases of shares of outstanding common stock under our publicly announced stock buyback program
were mostly offset by options exercised by employees and the issuance of shares under the 2001 Employee Stock Purchase Plan.
Six Months Ended
June 30, 2008 versus Six Months Ended June 30, 2007
Revenue
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2008
|
|
2007
|
|
% Change
|
|
Institutional Services:
|
|
|
|
|
|
|
|
|
|
Pricing and Reference Data
|
|
$
|
230,424
|
|
$
|
205,678
|
|
12.0
|
%
|
Real-Time Services
|
|
|
72,116
|
|
|
66,465
|
|
8.5
|
%
|
Fixed Income Analytics
|
|
|
16,199
|
|
|
16,278
|
|
(0.5
|
)%
|
Foreign Exchange
|
|
|
4,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Institutional Services
|
|
$
|
323,688
|
|
$
|
288,421
|
|
12.2
|
%
|
|
|
|
|
(In thousands)
|
|
2008
|
|
2007
|
|
% Change
|
|
Active Trader Services:
|
|
|
|
|
|
|
|
|
|
eSignal
|
|
|
44,034
|
|
|
44,082
|
|
(0.1
|
)%
|
Foreign Exchange
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Active Trader Services
|
|
|
44,172
|
|
|
44,082
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
TOTAL REVENUE
|
|
$
|
367,860
|
|
$
|
332,503
|
|
10.6
|
%
|
|
|
|
|
|
|
|
|
|
|
Total revenue increased by $35,357,000, or 10.6%, to $367,860,000 in the first six months of 2008.
The Xcitek business, which was acquired in May 2007, contributed incremental revenue of $3,058,000 in the first six months of 2008. Other factors driving the increase in total revenue included strong revenue growth at both our Pricing and Reference
Data business of $21,688,000 and at our Real-Time Services business, which produced a revenue increase of $5,651,000. These factors were partially offset by a slight decrease at our eSignal business of $48,000. The change in foreign exchange rates
in the first six months of 2008 compared with the first six months of 2007 had a favorable impact on revenue of $5,087,000 in the first six months of 2008, mainly due to the weakness of the US dollar against the Euro.
Institutional Services
Revenue within the
Institutional Services segment increased by $35,267,000, or 12.2%, to $323,688,000 in the first six months of 2008. The change in foreign exchange rates, as noted above, had a favorable impact on revenue of $4,949,000 in the first six months of
2008.
Revenue for the Pricing and Reference Data business increased by $24,746,000, or 12.0%, to $230,424,000 in the first six months of
2008. The Xcitek business contributed incremental revenue of $3,058,000 in the first six months of 2008. The revenue increase for the Pricing and Reference Data business was attributable primarily to growth in North America and Europe resulting from
higher demand for our evaluated pricing and reference data content, and increased levels of usage-related revenue.
Revenue for the
Real-Time Services business increased by $5,651,000, or 8.5%, to $72,116,000 in the first six months of 2008 primarily due to the continued expansion of the real-time datafeed business and the Managed Solutions business in North America. Revenue for
this business in the first six months of 2008 also included $246,000 of foreign exchange loss from the revaluation of accounts receivable in Europe.
Revenue for the Fixed Income Analytics business decreased by $79,000, or 0.5%, to $16,199,000 in the first six months of 2008. This decrease in revenue is mainly due to lower new business and once-off revenue in the
first six months of 2008.
27
Active Trader Services
Within the Active Trader Services segment, revenue increased by $90,000, or 0.2%, to $44,172,000 in the first six months of 2008. The change in foreign exchange rates, as noted above, had a favorable impact on revenue
of $138,000 in the first six months of 2008. This revenue decrease was primarily related to lower advertising, and seminar revenue, and a decline in the number of core eSignal direct subscription terminals which decreased 0.4% to 61,935 in the first
six months of 2008. This decrease is partially offset by higher average subscription fees.
Cost of Services
Cost of services expenses are composed mainly of personnel-related expenses, communication, data acquisition, and consulting costs and expenditures
associated with software and hardware maintenance agreements.
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
June 30,
|
|
(In thousands)
|
|
2008
|
|
2007
|
|
% Change
|
|
COST OF SERVICES
|
|
$
|
121,510
|
|
$
|
110,377
|
|
10.1
|
%
|
Cost of services expenses increased by $11,133,000, or 10.1%, to $121,510,000 in the first six
months of 2008. The Xcitek business contributed incremental cost of services expense of $932,000 in the first six months of 2008. The increase in cost of services expenses is mainly due to higher personnel-related costs of $5,198,000 associated with
increased headcount levels and the effect of annual merit increases, coupled with higher communications expense of $1,609,000. Also contributing to the increase in cost of services expense in the first six months of 2008 were increased expenditures
associated with hardware and software maintenance agreements of $1,285,000, and higher consulting expenses of $1,190,000. This is partially offset by lower data acquisition expense of $937,000, lower premises expense of $387,000, and a decrease in
supplies and shipping expense of $97,000. The change in foreign exchange rates, as noted above, increased cost of services expense by $2,853,000 in the first six months of 2008. Cost of services expense as a percentage of revenue was 33.0% in the
first six months of 2008 compared with 33.2% in the first six months of 2007.
Selling, General and Administrative Expenses
Selling, general and administrative expenses are composed mainly of personnel-related expense, outside professional services, advertising and marketing
expenses, occupancy-related expenses, and commissions paid to third parties for distribution of our data to customers.
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
June 30,
|
|
(In thousands)
|
|
2008
|
|
2007
|
|
% Change
|
|
SELLING, GENERAL and ADMINISTRATIVE
|
|
$
|
120,374
|
|
$
|
115,427
|
|
4.3
|
%
|
Selling, general and administrative expenses increased by $4,947,000, or 4.3%, to $120,374,000 in
the first six months of 2008. The Xcitek business contributed incremental selling, general, and administrative expenses of $414,000 in the first six months of 2008. The increase in selling, general and administrative expenses is mainly due to higher
personnel-related costs of $2,581,000 associated with increased headcount levels, the effect of annual merit increases, and higher incentive compensation-related costs. This is coupled with higher premises expense of $1,967,000 primarily related to
higher rent in our London office, and higher commissions paid to third parties for distribution of data of $847,000. Also contributing to the increase in selling, general and administrative expenses in the first six months of 2008 is higher travel
expenditures of $802,000, higher legal costs of $475,000, and increased marketing expense of $457,000. Additionally, increased bad debt expense of $143,000 and higher consulting costs of $86,000 contributed to the increase in selling, general, and
administrative expenses in the first six months of 2008. This is partially offset by a foreign exchange gain primarily due to the revaluation of Euro bank balances and inter-company balances of $4,005,000, coupled with lower communications expense
of $425,000, and lower audit fees of $289,000. The change in foreign exchange rates, as noted above, increased selling, general, and administrative expenses by $1,844,000 in the first six months of 2008. Selling, general, and administrative expenses
as a percentage of revenue was 32.7% in the first six months of 2008 compared with 34.7% in the first six months of 2007.
28
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
June 30,
|
|
(In thousands)
|
|
2008
|
|
2007
|
|
% Change
|
|
DEPRECIATION
|
|
$
|
13,310
|
|
$
|
10,966
|
|
21.4
|
%
|
Depreciation expense increased by $2,344,000, or 21.4%, to $13,310,000 in the first six months of
2008. The increase in depreciation expense was mainly associated with an adjustment in the second quarter of 2007 of $695,000 associated with the reversal of previously depreciated capitalized development costs. This is coupled with higher capital
spending in the second half of 2007 and the first six months of 2008, partially offset by the normal expiration of asset lives. The change in foreign exchange rates, as noted above, increased depreciation expense by $115,000 in the first six months
of 2008.
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
June 30,
|
|
(In thousands)
|
|
2008
|
|
2007
|
|
% Change
|
|
AMORTIZATION
|
|
$
|
13,755
|
|
$
|
12,941
|
|
6.3
|
%
|
Amortization expense increased by $814,000, or 6.3%, to $13,755,000 in the first six months of
2008 primarily due to an incremental $471,000 of amortization expense associated with the acquisition of the Xcitek business.
Other Consolidated
Financial Information
Income from operations increased by $16,119,000, or 19.5%, to $98,911,000 in the first six months of 2008 due to
the factors discussed above.
Interest income increased by $388,000, or 9.9%, to $4,315,000 in the first six months of 2008. The increase
in interest income is primarily due to higher average cash balances.
Income before income taxes increased by $16,507,000, or 19.0%, to
$103,226,000 in the first six months of 2008 due to higher income from operations coupled with higher interest income discussed above.
Net
income increased by $11,065,000, or 20.2%, to $65,825,000 in the first six months of 2008. The increase in net income is primarily due to higher income before income taxes. The annual effective tax rate of 36.2% for the first six months of 2008 is
slightly lower than the annual effective tax rate of 36.9% for the first six months of 2007.
We generated basic net income per share of
$0.70 and diluted net income per share of $0.68 in the first six months of 2008, compared with basic net income per share of $0.58 and diluted net income per share of $0.57 in the first six months of 2007.
Weighted average basic shares outstanding increased 0.3% and weighted average diluted shares outstanding increased 0.4% in the first six months of 2008
compared to the first six months of 2007. Options exercised by employees and the issuance of shares under the 2001 Employee Stock Purchase Plan were mostly offset by repurchases of shares of outstanding common stock under our publicly announced
stock buyback program.
Income Taxes
We determine our periodic income tax expense based on the current forecast of income in the respective countries in which we operate and our estimated annual effective tax rate in each tax jurisdiction. The rate is revised, if necessary, at
the end of each successive interim period during the fiscal year to the Companys best current estimate of its annual effective tax rate. For the six months ended June 30, 2008, our effective tax rate was 36.2% as compared to 36.9% for the
six months ended June 30, 2007. The estimated annual effective tax rate for the six months ended June 30, 2008 was 35.6% before a discrete tax expense of $281,000 recorded in the first quarter and a discrete tax expense of $392,000
recorded in the second quarter of 2008. The discrete amounts are attributable to realized tax benefits related to stock-based compensation expense, an interest expense charge on tax reserves for unrecognized tax benefits, and additional income tax
expense resulting from a tax provision to tax return adjustment in connection with our 2007 Australian tax filing.
The decrease in the
second quarter 2008 estimated annual effective tax rate in relation to the prior year second quarter estimated annual effective tax rate of 37.5% is attributable to (i) an increase in income generated in lower rate jurisdictions, (ii) an
increase in the Domestic Production Activities Deduction, (iii) a reduction in stock-based compensation expense recorded for incentive stock options under SFAS 123(R), and (iv) an increase in the Foreign Tax Credit offset by (v) a
decrease in tax exempt interest income. An
29
incentive stock option does not ordinarily result in a tax benefit for us unless there is a disqualifying disposition of the stock. Therefore, no deferred
tax asset has been recognized by us for compensation expense recorded for incentive stock options. We have not recorded a tax benefit for Research and Development tax credits in 2008 as the laws allowing the credit has not been extended.
We adopted the provisions of Financial Standards Accounting Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109, on January 1, 2007. There were no material changes to our unrecognized tax benefits in the first quarter. As of June 30, 2008, we had approximately $16,212,000 of unrecognized tax
benefits, of which $15,553,000 would affect our effective tax rate if recognized and $659,000 would result in a decrease to goodwill. It is anticipated that we will release approximately $474,000 in tax reserves within the next twelve months for
uncertain tax positions due to the expiration of the statute of limitations in various tax jurisdictions.
We recognize interest and
penalties related to uncertain tax positions in income tax expense. As of the June 30, 2008, we have approximately $1,983,000 of accrued interest related to unrecognized tax benefits.
The tax years 2002 through 2007 remain open to examination by the major taxing jurisdictions to which we are subject.
We recognize future tax benefits or expenses attributable to our taxable temporary differences and net operating loss carry forwards. Recognition of
deferred tax assets is subject to our determination that realization is more likely than not. Based on taxable income projections, we believe that the recorded deferred tax assets will be realized.
Liquidity and Capital Resources
Our cash needs arise
primarily from the purchase of equipment and the improvement of facilities, including investments in our underlying infrastructure to expand the capacity of our data centers. We also use cash to fund working capital requirements and acquisitions, to
support business growth initiatives, to pay dividends to stockholders, and to repurchase shares of our common stock under our stock repurchase program. We continue to generate cash from operations and believe we remain in a strong financial
position. Management believes that our cash, cash equivalents and marketable securities, combined with expected cash flows generated by operating activities, will be sufficient to meet our cash needs for at least the next 12 months. We currently
have no long-term debt.
The following table summarizes our cash flow activities for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
(in thousands)
|
|
2008
|
|
|
2007
|
|
Cash flow provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
81,224
|
|
|
$
|
68,153
|
|
Investing activities
|
|
|
27,156
|
|
|
|
(46,535
|
)
|
Financing activities
|
|
|
(93,467
|
)
|
|
|
(12,433
|
)
|
Effect of exchange rates on cash balances
|
|
|
3,079
|
|
|
|
2,363
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
$
|
17,992
|
|
|
$
|
11,548
|
|
|
|
|
|
|
|
|
|
|
Operating Activities
Net cash provided by operating activities increased by $13,071,000, or 19.2%, to $81,224,000 in the first six months of 2008. The increase in net cash provided by operating activities was primarily due to higher net
income of $11,065,000 in the first six months of 2008 compared with the first six months of 2007. This is coupled with a decrease in outflows in operating activities associated with the excess tax benefits from stock-based compensation of $1,896,000
in the first six months of 2008 compared with the first six months of 2007, due to a larger number of stock option exercises in 2007 during the first six months.
Investing Activities
Capital expenditures increased by $1,141,000, or 8.4%, to $14,674,000 in the first six months of 2008
mainly due to higher capital spending associated with infrastructure investments at our Real-Time Services business partially offset by lower capital spending at our Pricing and Reference Data business.
In 2008, we expect to spend approximately $49,000,000 in capital expenditures focusing mainly on scaling our real-time datafeed and managed solutions
infrastructures.
30
In the first six months of 2008, we purchased marketable securities of $70,567,000 with original
maturities greater than 90 days but remaining maturities of less than one year and had matured $112,397,000 of marketable securities with original maturities greater than 90 days but remaining maturities of less than one year.
In the first six months of 2007, we purchased marketable securities of $89,395,000 with original maturities greater than 90 days but remaining maturities
of less than one year and had matured $81,516,000 of marketable securities with original maturities greater than 90 days but remaining maturities of less than one year.
We engage third-party investment advisers to advise us in connection with our investments.
Financing Activities
In the first six months of 2008, we utilized $27,417,000 to repurchase 968,000 outstanding shares of common stock under our publicly
announced stock buyback program. Also in the first six months of 2008, we received $8,469,000 from the exercise of options and settlement of deferred and restricted stock units to purchase 408,000 shares of common stock issued pursuant to our 2000
Long-Term Incentive Plan and the purchase of 104,000 shares of common stock by employees under our 2001 Employee Stock Purchase Plan.
On
January 24, 2008, we paid a special dividend of $0.50 per common share. The dividend was declared by the Board of Directors on December 11, 2007 and was payable to stockholders of record as of January 4, 2008. This declared dividend
was unpaid and included in dividends payable as of December 31, 2007. The aggregate dividend totaled $47,184,000 and was paid from existing cash resources.
On March 31, 2008, we paid a quarterly dividend of $0.15 per common share. The dividend was declared by the Board of Directors on December 11, 2007 and was payable to stock holders of record as of
March 3, 2008. This declared dividend was unpaid and included in dividends payable as of December 31, 2007. The aggregate dividend totaled $14,141,000 and was paid from existing cash resources.
On June 27, 2008, we paid a quarterly dividend of $0.15 per share of common share. The dividend was declared by the Board of Directors on
May 21, 2008 and was payable to stockholders of record as of June 6, 2008. The aggregate dividend totaled $14,100,000 and was paid from existing cash resources.
The actual declaration of any future dividends, and the establishment of record and payment dates, is subject to final determination by our Board of Directors.
In the first three months of 2007, we utilized $12,005,000 to repurchase 466,000 outstanding shares of common stock under our publicly announced stock
buyback program. Also in the first six months of 2007, we received $20,269,000 from the exercise of options and settlement of deferred and restricted stock units to purchase 1,351,000 shares of common stock issued pursuant to our 2000 Long-Term
Incentive Plan and the purchase of 104,000 shares of common stock by employees under our 2001 Employee Stock Purchase Plan.
On
March 30, 2007, we paid a quarterly dividend of $0.125 per common share. The dividend was declared by the Board of Directors on February 16, 2007 and was payable to stock holders of record as of March 1, 2007. The aggregate dividend
totaled $11,706,000 and was paid from existing cash resources.
On June 27, 2007, we paid a quarterly dividend of $0.125 per common
share. The dividend was declared by the Board of Directors on February 16, 2007 and was payable to stockholders of record as of June 7, 2007. The aggregate dividend totaled $11,793,000 and was paid from existing cash resources.
Off-Balance Sheet Arrangements
As of June 30, 2008, we did
not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
There have been no material changes to our Critical Accounting Policies and Estimates since December 31, 2007.
Commitments and Contingencies
On February 25,
2008, we entered into a new property lease agreement for our London, UK office, which effectively extends our current lease agreement from the current expiration date in April 2010 to an expiration date of April 2025. The total incremental minimum
lease obligation over this additional fifteen year term will be approximately $60,746,000, as measured at the current foreign currency exchange rate between the UK pound sterling and the US dollar, none of which is payable until beginning in
September
31
2011. The lease agreement includes open market rent reviews on April 12, 2015 and April 12, 2020, which could increase the total minimum lease
obligation. The Company will follow the guidance in Statement of Financial Accounting Standard No. 13 Accounting for Leases and Statement of Financial Accounting Standard No. 29 Determining Contingent Rentals to
account for this contingency at the time of each open market review.
There have been no other material changes to our commitments and
contingencies since December 31, 2007. (See Note 9 in the Notes to the Consolidated Financial Statements in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2007.)
The Company is involved in litigation and is the subject of claims made from time to time in the ordinary course of business with a portion of the
defense and/or settlement costs in some such cases being covered by various commercial liability insurance policies. In addition, the Companys third party data suppliers audit the Company from time to time in the ordinary course of business to
determine if data the Company licenses for redistribution has been properly accounted for. In view of the Companys financial condition and the accruals established for related matters, management does not believe that the ultimate liability,
if any, related to these matters will have a material adverse effect on the Companys financial condition, results of operations or cash flows.
In connection with the provision of services in the ordinary course of business, the Company often makes representations affirming, among other things, that its services do not infringe on the intellectual property
rights of others and agrees to indemnify customers against third-party claims for such infringement. The Company has not been required to make material payments under such provisions.
Seasonality and Market Activity
Historically, we have not experienced any material seasonal
fluctuations in our business and we do not expect to experience seasonal fluctuations in the future. However, financial information market demand is largely dependent upon activity levels in the securities markets. In the event that the US or
international financial markets were to suffer a prolonged downturn that results in a significant decline in investor activity in trading securities, our sales and revenue could be adversely affected. The degree of such consequences is uncertain.
Our exposure in the United States in this area could be mitigated in part by our service offerings in non-US markets.
Recently Issued Accounting
Pronouncements
Fair Value Measurements
In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157). SFAS 157 establishes a framework
for how companies should measure the fair value of assets and liabilities and expands disclosure about fair value measurements. Additionally, SFAS 157 formally defines fair value as the amount that would be received if an asset was sold or a
liability transferred in an orderly transaction between market participants at the measurement date. SFAS 157 is effective for the company in 2008. The adoption of SFAS 157, effective January 1, 2008, did not have a material impact on our
financial position, results of operations or cash flows.
In February 2008, the FASB issued FASB Staff Position (FSP) SFAS
No. 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive Accounting Pronouncements That Address Leasing Transactions, (FSP SFAS 157-1) and FSP SFAS No. 157-2,
Effective Date of FASB Statement No. 157 (FSP SFAS 157-2). FSP SFAS No. 157-1 removes leasing from the scope of SFAS No. 157, Fair Value Measurements. FSP SFAS No. 157-2 delays the effective
date of SFAS No. 157 from 2008 to 2009 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of
FSP SFAS 157-1, effective January 1, 2008, did not significantly impact our financial position, results of operations or cash flows. The Company does not expect its adoption of the provisions of FSP SFAS 157-2 to have a material effect on its
financial condition, results of operations or cash flows.
The Fair Value Option for Financial Assets and Financial Liabilities (as amended)
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilitiesincluding an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 provides entities with an option to choose to measure eligible items at fair value at specified election dates. If elected, an entity must
report unrealized gains and losses on the item in earnings at each subsequent reporting date. The fair value option may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method, is
irrevocable (unless a new election date occurs); and is applied only to entire instruments and not to portions of instruments. SFAS 159 is effective for the company in 2008. The Company did not elect the fair value option for any of our eligible
financial instruments and other items, therefore, the adoption of SFAS 159, effective January 1, 2008, did not materially impact our financial position, results of operations or cash flows.
32
Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards
In June 2007, the FASB ratified the consensus reached by the Emerging Issues Task Force (EITF) on Issue No. 06-11, Accounting for
Income Tax Benefits of Dividends on Share-Based Payment Awards (EITF 06-11). EITF 06-11 addresses the issue of the manner in which income tax benefits received on dividends paid to employees holding equity-classified non-vested
shares (units or options) should be accounted for when such dividends are charged to retained earnings pursuant to SFAS 123(R). EITF 06-11 concludes that a realized income tax benefit should be recognized as a credit to additional paid-in capital
and should be included in the pool of excess tax benefits available to absorb future tax deficiencies on share-based payment awards. In addition, the amount of any tax benefits from dividends reclassified in subsequent periods from additional
paid-in capital to a reduction of income tax expense or an increase in income tax benefit should increase or decrease, but, be limited to the pool of excess tax benefits available on the reclassification date. EITF 06-11 is effective for the Company
in 2008. The adoption of EITF 06-11, effective January 1, 2008, did not materially impact our financial position, results of operations or cash flows.
Business Combinations
In December 2007, the FASB issued SFAS No. 141 (revised), Business
Combinations (SFAS 141(R)). SFAS 141(R) changes the accounting for business combinations including the measurement of acquirer shares issued in consideration for a business combination, the recognition of contingent consideration,
the accounting for pre-acquisition gain and loss contingencies, the recognition of capitalized in-process research and development, the accounting for acquisition-related restructuring cost accruals, the treatment of acquisition related transaction
costs and the recognition of changes in the acquirers income tax valuation allowance. SFAS 141(R) is effective for the Company in 2009, with early adoption prohibited. We are currently evaluating the potential impact of adopting
SFAS 141(R).
Accounting and Reporting of Noncontrolling Interests
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB
No. 51 (SFAS 160). SFAS 160 changes the accounting for noncontrolling (minority) interests in consolidated financial statements including the requirements to classify noncontrolling interests as a component of consolidated
stockholders equity, and the elimination of minority interest accounting in results of operations with earnings attributable to noncontrolling interests reported as part of consolidated earnings. Additionally, SFAS 160 revises the
accounting for both increases and decreases in a parents controlling ownership interest. SFAS 160 is effective for the Company in 2009, with early adoption prohibited. The Company does not anticipate that SFAS 160 will have a material
impact on the Companys financial statements.
Determination of the Useful Life of Intangible Assets
In April 2008, the FASB issued an FSP on SFAS No. 142-3,
Determination of the Useful Life of Intangible Assets
(FSP
SFAS 142-3). FSP SFAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142,
Goodwill and Other
Intangible Assets
. The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under Statement 142 and the period of expected cash flows used to measure the fair value of the asset under
SFAS No. 141 (revised 2007),
Business Combinations,
and other U.S. generally accepted accounting principles. FSP SFAS 142-3 is effective for the Company, prospectively only in 2009, with early adoption prohibited. The Company
is currently evaluating the potential impact of this statement.
Hierarchy of Generally Accepted Accounting Principles
In May 2008, the FASB issued SFAS No. 162 The Hierarchy of Generally Accepted Accounting Principles (SFAS 162). SFAS 162
identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting
principles in the U. S. SFAS 162 is effective 60 days following the SEC approval of Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles. The Company does not anticipate that SFAS 162 will have a material impact on the Companys financial statements.
Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities
In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, (FSP EITF 03-6-1). This FSP addresses
whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in computing earnings per share under the two-class method described in SFAS No. 128,
Earnings Per Share (EPS). Unvested share-based payment awards that contain a non-forfeitable right to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the
computation of EPS pursuant to the two class method, as the rights to dividends or dividend equivalents provide a non-contingent transfer of value to the holder of the share-based payment award. In contrast, the right to receive dividends or
dividend
33
equivalents that the holder will forfeit if the award does not vest does not constitute a participation right. Under the terms of the Companys
restricted stock unit awards, if the award is forfeited prior to vesting, holders are not entitled to receive dividends or dividend equivalents. FSP EITF 03-6-1 is effective for the Company in 2009, with early adoption prohibited. All prior period
EPS data must be adjusted retrospectively to reflect the provisions of the FSP, if applicable. The Company does not anticipate that FSP EITF 03-6-1 will have a material impact on the Companys financial statements.
Information Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and federal securities laws, and is subject to the safe-harbor created by such Act and
laws. Forward-looking statements include all statements that are not historical statements and include our statements discussing our goals, beliefs, strategies, objectives, plans, future financial conditions, results of operations, cash flows, or
projections as well as our statements about expected market conditions, our expected growth and profitability, and planned product and service developments, and acquisitions; our statements related to any potential future stock repurchase
transactions, including our intention to repurchase shares of our common stock from time to time under the stock repurchase program, the source of funding for the stock repurchase program, as well as the timing, nature and financial impact of any
such transactions related to the stock buyback program; and statements related to dividends, including the timing, nature and financial impact of issuing any dividends. These statements are subject to known and unknown risks, uncertainties,
assumptions and other factors that may cause actual results to be materially different from those contemplated by the forward-looking statements. Such factors include, but are not limited to: (i) the presence of competitors with greater
financial resources than ours and their strategic response to our services and offerings; (ii) the possibility of a prolonged outage or other major unexpected operational difficulty at any of our key facilities; (iii) our ability to
maintain relationships with our key suppliers and providers of market data; (iv) our ability to maintain our relationships with service bureaus and custodian banks; (v) a decline in activity levels in the securities markets;
(vi) consolidation of financial services companies, both within an industry and across industries; (vii) the continuing impact of cost-cutting pressures across the industries we serve; (viii) new offerings by competitors or new
technologies that could cause our offerings or services to become less competitive or obsolete or we may not be able to develop new or enhanced services or offerings; (ix) our ability to negotiate and enter into strategic acquisitions or
alliances on favorable terms, if at all; (x) our ability to realize the anticipated benefits from any strategic acquisitions or alliances that we enter into; (xi) we are subject to regulatory oversight and we provide services to financial
institutions that are subject to significant regulatory oversight, and any investigation of us or our customers relating to our services could be expensive, time consuming and harm our reputation; (xii) new legislation of changes in government
or quasi-government rules, regulations, directives or standards may reduce demand for our services or increase our expenses; (xiii) certain of our subsidiaries are subject to complex regulations and licensing requirements; (xiv) the risks
of doing business internationally; (xv) our ability to attract and retain key personnel; and (xvi) the ability of our majority shareholder to exert influence over our affairs, including the ability to approve or disapprove any corporate
actions submitted to a vote of our stockholders. Further information on potential factors that could affect our business is described under the heading Information Regarding Forward-Looking Statements in Part II, Item 7,
Managements Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk
|
A portion of our business is conducted outside the United States through our foreign subsidiaries and branches. We have foreign currency exposure related to operations in international markets where we transact
business in foreign currencies and, accordingly, we are subject to exposure from adverse movements in foreign currency exchange rates. Our foreign subsidiaries maintain their accounting records in their respective local currencies. Consequently,
changes in currency exchange rates may impact the translation of foreign statements of operations into US dollars, which may in turn affect our consolidated statements of operations. Currently, our primary exposure to foreign currency exchange rate
risk rests with the UK pound sterling and the Euro to US dollar exchange rates due to the significant size of our operations in Europe. The effect of foreign exchange on our business historically has varied from quarter to quarter and may continue
to do so.
Please refer to Part I, Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations for further discussion of the impact of foreign exchange on our financial position, results of operations and cash flows.
34
Total revenue for the three months and six months ended June 30, 2008 and 2007 and long lived assets
as of June 30, 2008 and December 31, 2007 by geographic region outside the United States, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
2008
|
|
2007
|
Revenue:
|
|
|
|
|
|
|
United Kingdom
|
|
$
|
20,053
|
|
$
|
17,985
|
All other European countries
|
|
|
29,880
|
|
|
27,055
|
Asia Pacific
|
|
|
4,671
|
|
|
3,677
|
|
|
|
|
|
|
|
Total
|
|
$
|
54,604
|
|
$
|
48,717
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
2008
|
|
2007
|
Revenue:
|
|
|
|
|
|
|
United Kingdom
|
|
$
|
41,918
|
|
$
|
34,540
|
All other European countries
|
|
|
58,787
|
|
|
53,336
|
Asia Pacific
|
|
|
8,926
|
|
|
7,271
|
|
|
|
|
|
|
|
Total
|
|
$
|
109,631
|
|
$
|
95,147
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
June 30,
2008
|
|
As of
December 31,
2007
|
Long-Lived Assets:
|
|
|
|
|
|
|
United Kingdom
|
|
$
|
138,123
|
|
$
|
139,162
|
All other European countries
|
|
|
81,936
|
|
|
76,517
|
Asia Pacific
|
|
|
5,650
|
|
|
5,192
|
|
|
|
|
|
|
|
Total
|
|
$
|
225,709
|
|
$
|
220,871
|
|
|
|
|
|
|
|
We do not currently enter into any hedging or derivative arrangements and we do not currently hold
any market risk sensitive instruments for investment or other purposes.
We currently invest excess cash balances primarily in cash
deposits held at major banks, money market fund accounts, and marketable securities. The money market fund accounts and marketable securities largely consist of US Government obligations, investment grade commercial paper and high credit quality
municipal obligations; accordingly, we are exposed to market risk related to changes in interest rates. We believe that the effect, if any, of reasonable near-term changes in interest rates on our financial position, results of operations and cash
flows will not be material.
Item 4.
|
Controls and Procedures
|
Evaluation of
Disclosure Controls and Procedures.
Our management, with the participation of our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of June 30, 2008. Based on this evaluation, our CEO and CFO concluded that, as of June 30, 2008, our disclosure controls and procedures
were (1) designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to our management including our CEO and CFO to allow timely decisions
regarding required disclosure and (2) effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SECs rules and forms. Our CEO and CFO have concluded that our disclosure controls and procedures were effective as of June 30, 2008 to ensure that the information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting.
No change in our internal control over financial reporting occurred during the fiscal quarter ended
June 30, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
35
PART II OTHER INFORMATION
Item 1.
|
Legal Proceedings
|
We are not
party to any material legal proceedings.
Information
regarding risk factors appears under Item 1A Risk Factors and in Information Regarding Forward-Looking Statements, in Part II Item 7 of our Report on Form 10-K for the fiscal year ended December 31,
2007. There have been no material changes from the risk factors previously disclosed in our Report on Form 10-K.
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds (1)
|
ISSUER PURCHASES OF EQUITY SECURITIES
In October 2006, our Board of Directors
authorized the repurchase of up to 2,000,000 shares of our outstanding shares of common stock. On December 11, 2007, our Board of Directors authorized an additional 2,000,000 shares under the stock buyback program. Repurchases may be made in
the open market or in privately negotiated transactions from time to time, subject to market conditions and other factors and in compliance with applicable legal requirements. We use cash on hand to fund repurchases under the stock buyback program.
We are not obligated to acquire any particular amount of common stock as a result of the stock buyback program, which may be suspended at any time at our discretion.
|
|
|
|
|
|
|
|
|
|
Period
|
|
(a)
Total Number of
Shares (or
Units)
Purchased (1)
|
|
(b)
Average Price
Paid per
Share (or
Unit)
|
|
(c)
Total Number of
Shares (or Units)
Purchased as Part
of
Publicly
Announced Plans or
Programs
|
|
(d)
Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the
Plans or
Programs
|
April 1, 2008April 30, 2008
|
|
176,000
|
|
$
|
28.60
|
|
176,000
|
|
2,138,900
|
May 1, 2008May 31, 2008
|
|
168,000
|
|
$
|
27.73
|
|
168,000
|
|
1,970,900
|
June 1, 2008June 30, 2008
|
|
168,000
|
|
$
|
26.84
|
|
168,000
|
|
1,802,900
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
512,000
|
|
$
|
27.74
|
|
512,000
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
No shares have been purchased in the second quarter of 2008 other than through our publicly announced stock buyback program.
|
Item 3.
|
Defaults upon Senior Securities
|
None.
Item 4.
|
Submission of Matters to a Vote of Security Holders
|
On
May 21, 2008, we held our Annual Meeting of Stockholders. At the meeting the following matters were approved by the votes specified below:
|
1.
|
Nine directors were elected to serve until our next annual meeting and until their successors have been duly elected and qualified or upon their earlier death, resignation or
removal.
|
36
The nine nominees for directors were elected based upon the following votes:
|
|
|
|
|
Stuart J. Clark
|
|
For
|
|
85,340,903
|
|
|
Withheld
|
|
12,397,217
|
|
|
|
Myra R. Drucker
|
|
For
|
|
96,806,595
|
|
|
Withheld
|
|
931,525
|
|
|
|
William T. Ethridge
|
|
For
|
|
88,206,093
|
|
|
Withheld
|
|
9,532,027
|
|
|
|
Rona A. Fairhead
|
|
For
|
|
85,028,208
|
|
|
Withheld
|
|
12,709,912
|
|
|
|
Donald P. Greenberg
|
|
For
|
|
95,885,592
|
|
|
Withheld
|
|
1,852,528
|
|
|
|
Casper J. A. Hobbs
|
|
For
|
|
88,206,470
|
|
|
Withheld
|
|
9,531,650
|
|
|
|
Philip J. Hoffman
|
|
For
|
|
85,186,781
|
|
|
Withheld
|
|
12,551,339
|
|
|
|
Robert C. Lamb, Jr.
|
|
For
|
|
96,804,810
|
|
|
Withheld
|
|
933,310
|
|
|
|
Carl Spielvogel
|
|
For
|
|
96,837,819
|
|
|
Withheld
|
|
900,301
|
|
2.
|
The ratification of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2008 was approved. The votes were
cast as follows:
|
|
|
|
For
|
|
97,689,043
|
Against
|
|
39,388
|
Abstain
|
|
9,687
|
|
3.
|
The amendments to our 2000 Long-Term Incentive Plan were approved. The votes were cast as follows:
|
|
|
|
For
|
|
91,225,160
|
Against
|
|
3,279,143
|
Abstain
|
|
3,233,808
|
|
4.
|
Our Executive Incentive Plan was approved. The votes were cast as follows:
|
|
|
|
For
|
|
92,440,060
|
Against
|
|
2,065,908
|
Abstain
|
|
3,232,143
|
37
Item 5.
|
Other Information
|
None.
The following
exhibits are filed or furnished as part of this report:
|
|
|
Exhibits*
|
|
|
10.1
|
|
Amended and Restated 2000 Long-Term Incentive Plan.
|
|
|
10.2
|
|
Executive Incentive Plan.
|
|
|
31.1
|
|
Rule 13(a)-14(a)/15d-14(a) Certification of Chief Executive Officer.
|
|
|
31.2
|
|
Rule 13(a)-14(a)/15d-14(a) Certification of Chief Financial Officer.
|
|
|
32.1
|
|
18 U.S.C. Section 1350 Certification of Chief Executive Officer.
|
|
|
32.2
|
|
18 U.S.C. Section 1350 Certification of Chief Financial Officer.
|
*
|
Any Exhibits followed by a parenthetical reference are previously filed and incorporated by reference from the document described.
|
38
SIGNATURES
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, thereunto duly authorized.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTERACTIVE DATA CORPORATION
|
|
|
|
|
|
|
|
|
(Registrant)
|
|
|
|
|
Dated: August 4, 2008
|
|
|
|
By:
|
|
/s/ STUART J. CLARK
|
|
|
|
|
|
|
Name:
|
|
Stuart J. Clark
|
|
|
|
|
|
|
|
|
President and Chief Executive Officer
|
|
|
|
|
Dated: August 4, 2008
|
|
|
|
By:
|
|
/s/ ANDREW J. HAJDUCKY III
|
|
|
|
|
|
|
Name:
|
|
Andrew J. Hajducky III
|
|
|
|
|
|
|
|
|
Executive Vice President, Chief Financial Officer and Treasurer
|
39
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