Financial Models Announces Fiscal 2005 Third Quarter Results

Financial Models Announces Fiscal 2005 Third Quarter Results

TORONTO, Jan. 6 /PRNewswire/ -- Financial Models Company Inc. (FMC), a leading provider of technology solutions and services to the investment world, today announced its results of operations for the fiscal 2005 third quarter ended November 30, 2004. All results are in accordance with Canadian generally accepted accounting principles, except EBITDA which is defined below, and are reported in Canadian dollars.

Financial Highlights

Revenue for the third quarter decreased 2.9% to $17.9 million from $18.5 million in the third quarter of the prior year. Third quarter cost of revenue and operating expenses declined 4.8% to $15.1 million from $15.9 million as a result of continued cost control and the benefit of $0.6 million of investment tax credits recorded in the third quarter.

Third quarter EBITDA(1) increased 8.9% to $2.8 million from $2.6 million. Third quarter net earnings increased to $1.0 million, or $0.09 per share, from $0.9 million, or $0.08 per share, in the third quarter of the prior year.

Year-to-date revenue increased 0.9% to $54.0 million from $53.5 million in the comparable period of the prior year. Year-to-date cost of revenue and operating expenses declined 5.0% to $45.8 million from $48.2 million.

Year-to-date EBITDA increased 54.8% to $8.2 million from $5.3 million. Year-to date net earnings increased to $3.3 million, or $0.30 per share, from $1.1 million, or $0.10 per share.

"We are pleased with the increase in EBITDA and net earnings in the first three quarters of the year," said Stamos D. Katotakis, President and Chief Executive Officer of FMC. "We continue to focus on increasing our recurring revenue base from application services and licence maintenance, which now represents approximately 80% of our total revenue. The significant appreciation of the Canadian currency against the United States and British currencies in the third quarter had a negative effect on third quarter revenues of approximately $0.6 million as compared to the revenue levels of the first and second quarter of 2005."

Third quarter cash flow from operations was $1.4 million before changes in non-cash operating working capital and $3.8 million after such changes. Cash of $31.8 million, or $2.90 per share, increased from $28.5 million at the end of the second quarter and compares to $28.7 million at the end of the prior year.

Subsequent Events - Corporate Developments

On December 20, 2004, FMC announced that Linedata Services S.A. ("Linedata") had made an offer to purchase all of FMC's outstanding common shares and Class C shares (the "FMC Shares") for $9.10 in cash and approximately 0.1523 Linedata shares for each FMC Share. At the time of the announcement the value of Linedata's bid was $12.76 per FMC Share. The Linedata offer is subject to a number of conditions, including the requirement that more than 50% of the FMC Shares on a partially diluted basis are tendered into its bid. For more details see Linedata's Offer and Offering Circular dated December 23, 2004 at www.sedar.com.

Pursuant to a shareholder's agreement among Mr. Katotakis and other significant shareholders of FMC, Mr. Katotakis and 1066821 Ontario Inc. ("1066821"), a company he controls, have the right to purchase up to approximately 42.3% of the FMC Shares at $12.20 in cash for each FMC Share. Mr. Katotakis currently owns, directly and indirectly, approximately 40.4% of the FMC Shares. On December 29, 2004, 1066821 announced that it had made an offer to purchase all of the FMC Shares at a price of $12.20 in cash for each FMC Share. The 1066821 offer is subject to a number of conditions. For more details see 1066821's Offer and Offering Circular dated December 29, 2004 at www.sedar.com.

As announced on December 29, 2004, an Independent Committee of the Board of Directors of FMC will meet to consider the two offers and expects that FMC's Board of Directors will be in a position to comment on the offers by Monday, January 10, 2005.

Outlook

For the fourth quarter of 2005, we expect that the corporate developments discussed above may impact revenue and expect total revenue to be in the range of $17.0 million to $18.0 million. Fourth quarter cost of revenue and operating expenses are expected in the range of $15.5 million to $16.0 million.

The above range of cost of revenue and operating expenses are exclusive of the one-time expenses related to FMC's activities in considering the offers to purchase FMC's Shares by either 1066821 or Linedata. Approximately $0.3 million of such expenses were included in administration expenses in the third quarter and it is expected that approximately $1.5 million of such expenses will be recorded in the fourth quarter.

Further, the acquisition agreement between Linedata and FMC provides that FMC will pay Linedata a fee of $4.25 million if the acquisition agreement is terminated in certain circumstances, provided, however, that this fee will be $3.0 million if Mr. Katotakis, or companies controlled by him, including 1066821, exercises his rights to purchase FMC Shares under the above mentioned shareholder's agreement. In the event that the 1066821 offer is successful and the Linedata offer is not successful and based on the expected timing of the acquisition in 1066821's offer to purchase the FMC Shares, it is likely the $3.0 million expense would be recorded in the fourth quarter.

Additionally, the Board of Directors has amended FMC's stock option plan, subject to regulatory approval, to provide that if, but only if, a takeover bid is made for all of the FMC Shares, the conditions to such bid are either waived or satisfied and the FMC Shares are taken up and paid for pursuant to the bid, then all unvested options immediately become vested. Holders of all options would then have the right to surrender their options to FMC for cancellation and receive a cash payment for each option in an amount at least equal to the excess, if any, of the value of the consideration offered for each FMC Share over the exercise price of each option. In the event that either offer is successful and based on the expected acquisition dates in either Linedata's or 1066821's offer to purchase the FMC Shares it is expected that stock compensation expense would be recorded in the fourth quarter in the range of $4.0 million to $5.0 million if all of the approximately 1.0 million options are surrendered.

Information for Shareholders

You are invited to listen to our conference call live on the Internet at http://www.fmco.com/ on Friday, January 7 at 9:00 a.m. ET. A replay will be available on the Internet or by telephone at 800-558-5253 (pass code 21227027) until January 21, 2005 at 11:59 p.m.

About Financial Models Company Inc.

Established in 1976, Financial Models Company Inc. is a global leader in delivering advanced technology solutions to the investment management community. FMC products and services are available either as "best of breed" solutions or as an integrated suite. From its headquarters in Toronto, and subsidiaries in the United States, Australia and Europe, FMC supports over 500 clients managing in excess of $3 trillion. FMC is a publicly traded company on the Toronto Stock Exchange (Symbol: FMC).

For more information, visit FMC's web site at http://www.fmco.com/.

This press release may contain certain forward looking statements relating, but not limited to, FMC's operations, anticipated financial performance, business prospects and strategies. Forward looking information typically contains statements with words such as "anticipate," "believe," "expect," "plan" or similar words suggesting future outcomes. Such forward looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from future results expressed, projected or implied by such forward looking statements. Such factors include, but are not limited to, economic, competitive, regulatory and business conditions. Risks and uncertainties about FMC's business are more fully discussed in the Management's Discussion and Analysis published in FMC's annual report for the year ended February 29, 2004. FMC disclaims any responsibility to update any such forward looking statements.

(1) FMC uses EBITDA to assess operating performance of its business
segments. EBITDA represents earnings before the undernoted items on
the consolidated statements of operations. The undernoted items are
other income (expenses) (which includes interest income and foreign
exchange gains and losses), depreciation and income taxes. EBITDA
does not have a standardized meaning prescribed by generally accepted
accounting principles (GAAP) and, therefore, is unlikely to be
comparable to EBITDA as reported by other publicly traded companies.


Financial Models Company Inc.
Consolidated Statements of Operations
(unaudited, in thousands, except per share amounts)

Three months ended Nine months ended
November 30 November 30
2004 2003 2004 2003
Revenue:
Application services $11,262 $11,245 $33,972 $33,238
Licence sales 1,321 1,303 3,836 3,234
Licence maintenance 3,216 2,910 9,719 8,887
Professional services &
other 2,134 3,008 6,496 8,179
17,933 18,466 54,023 53,538
Cost of revenue 7,443 7,625 22,989 24,252
10,490 10,841 31,034 29,286
Operating expenses:
Sales & marketing 2,116 2,949 6,580 7,117
Research & development 3,721 4,091 11,470 12,888
Administration 1,868 1,243 4,782 3,981
7,705 8,283 22,832 23,986
Earnings before the
undernoted 2,785 2,558 8,202 5,300

Other income (expenses) (398) (243) (641) (415)
Depreciation (772) (911) (2,500) (2,906)

Earnings before income
taxes 1,615 1,404 5,061 1,979

Income taxes 604 542 1,805 895

Net earnings $1,011 $862 $3,256 $1,084

Earnings per share
Basic $0.09 $0.08 $0.30 $0.10
Diluted $0.09 $0.08 $0.30 $0.09

Weighted average number of
common and class C shares:
Basic 10,968 11,311 10,893 11,326
Diluted 11,111 11,435 11,018 11,415


Financial Models Company Inc.
Consolidated Balance Sheets
(in thousands)

November 30 February 29
2004 2004
(Unaudited)
Current assets:
Cash & cash equivalents $31,773 $28,686
Accounts receivable 12,274 12,105
Prepaid expenses 1,272 1,788
45,319 42,579

Property & equipment 6,920 8,083
Goodwill 367 367
Investment tax credits recoverable 1,086 363
Future income taxes 800 1,091

$54,492 $52,483

Current liabilities:
Accounts payable & accrued
liabilities $6,263 $6,408
Income taxes payable 480 180
Deferred revenue 8,191 7,910
14,934 14,498

Shareholders' equity:
Capital stock 37,872 38,873
Contributed surplus 350 143
Deferred stock-based compensation (131) (54)
Retained earnings (deficit) 1,025 (1,033)
Cumulative translation adjustments 442 56
39,558 37,985

$54,492 $52,483


Financial Models Company Inc.
Consolidated Statements of Cash Flows
(unaudited, in thousands)

Three months ended Nine months ended
November 30 November 30
2004 2003 2004 2003

Cash provided by (used in):

Operations:
Net earnings $1,011 $862 $3,256 $1,084
Items not involving
cash:
Depreciation &
amortization 772 911 2,500 2,906
Future income taxes 19 291 250 516
Stock compensation
expense 32 - 130 -
Investment tax credits (474) - (723) -
1,360 2,064 5,413 4,506
Changes in non-cash
operating working
capital 2,449 (700) 1,345 1,025
3,809 1,364 6,758 5,531

Financing:
Issue of capital stock 1 235 5 256
Repurchase of common
shares for cancellation (94) (553) (2,203) (955)
(93) (318) (2,198) (699)

Investing:
Additions to property &
equipment, net (469) (581) (1,473) (2,720)

Increase in cash & cash
equivalents 3,247 465 3,087 2,112

Cash & cash equivalents,
beginning of period 28,526 24,804 28,686 23,157

Cash & cash equivalents,
end of period $31,773 $25,269 $31,773 $25,269

Supplemental cash flow
information:
Interest received $143 $131 $390 $428
Income taxes paid $136 $- $824 $811



Source: Financial Models Company Inc.

CONTACT: Stephen J. Ashbury C.A., Vice President - Finance, Financial
Models Company Inc., +1-905-629-8000, info@fmco.com

Web site: http://www.fmco.com/


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