UNITEDSECURITIES AND EXCHANGE COMMISSION
| | | | | |
| ☒ | Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For 15(d) of the Securities Exchange Act of 1934
|
For the fiscal yearended August 31, 2018☐ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
2020
| | | | | |
| ☐ | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to Commission File Number: 1-11869
FACTSET
RESEARCHRESEARCH SYSTEMS INC.(Exact name of Registrant as specified in its charter)
| | | | | | | | |
| Delaware | | 13-3362547 |
| (State or other jurisdiction of incorporation or organization) | | 13-3362547
(I.R.S. Employer Identification No.) |
601 Merritt 7,
45 Glover Avenue,Norwalk, Connecticut 0685106850
(Address of principal executive office, including zip code)
Registrant’s telephone number, including area code: (203) 810-1000 Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $0.01 per shareName of each exchange on which registered: New York Stock Exchange and The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
| | | | | | | | |
| Title of each class | Trading Symbols(s) | Name of each exchange on which registered |
| Common Stock, $0.01 Par Value | FDS | New York Stock Exchange |
| NASDAQ Global Select Market |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
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 ☐o Indicate by check mark whether the registrant has submitted electronically, and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒x No ☐o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of
“large"large accelerated filer,
” “accelerated filer”, “smaller" "accelerated filer," "smaller reporting
company”company" and
“emerging"emerging growth
company”company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large accelerated filer ☒ | ☒ | | Accelerated filer | ☐ |
Non-accelerated filer ☐ (Do not check if a smaller reporting company) | ☐ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
o Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐o No ☒
x
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant based upon the closing price of a share of the registrant’s common stock on February 28, 2018,2020, the last business day of the registrant’s most recently completed second fiscal quarter, as reported by the New York Stock Exchange on that date, was $7,767,417,390.The numberw
as $9,934,201,702. As of October 22, 2020, there were 37,991,892 shares outstanding of the registrant’sregistrant's common stock asoutstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions
Certain information required by Part III of the registrant’sthis annual report on Form 10-K is incorporated by reference to our definitive Proxy Statement dated October 30, 2018, for the 2018our 2020 Annual Meeting of Stockholders, towhich will be held on December 18, 2018, are incorporated by reference into Part IIIfiled with the Securities and Exchange Commission not later than 120 days after August 31, 2020.
For The Fiscal Year Ended August 31,
2018PART I
2020 | | | Page
| | | | | |
ITEM 1.
| Business
| | 4
Page |
| | | |
| Risk Factors
| | 13
|
| | | |
| | | 18
|
| | |
| Properties
| | 18
|
| | |
ITEM 3.
| Legal Proceedings
| | 19
|
| | |
| | | 19
|
| | |
PART II
|
| | |
| | | 20
|
| | |
| | | 22
|
| | |
| | | 24
|
| | |
| | | |
| | |
| | | |
| | |
| | | 90
|
| | |
| | | 90
|
| | |
ITEM 9B.
| Other Information
| | 90
|
|
PART III
|
| | |
| | | 91
|
| | |
ITEM 11.
| Executive Compensation
| | 91
|
| | |
| | | 91
|
| | |
| | | 92
|
| | |
| | | 92
|
| | |
PART IV
|
| | |
| | | 93
|
| | |
Signatures
| | 95
|
Special Note Regarding Forward-Looking Statements
FactSet Research Systems Inc. has made statements under the captions Item 1. Business, Item 1A. Risk Factors, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and in other sections of this Annual Report on Form 10-K that are forward-looking statements. In some cases, you can identify these statements by words such as "may," "might," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "intends," "projects," "indicates," "predicts," "potential," or "continue," and similar expressions.
These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance and anticipated trends in our business. These statements are only predictions based on our current expectations, estimates, forecasts and projections about future events. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions. There are many important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including the numerous factors discussed under Item 1A. Risk Factors in this Annual Report on Form 10-K, that should be specifically considered.
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Forward-looking statements speak only as of the date they are made, and actual results could differ materially from those anticipated in forward-looking statements. We do not intend, and are under no duty, to update any of these forward-looking statements after the date of this Annual Report on Form 10-K to reflect actual results, future events or circumstances, or revised expectations.
We intend that all forward-looking statements we make will be subject to safe harbor protection of the federal securities laws as found in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
FactSet Research Systems Inc. (the “Company”and its wholly-owned subsidiaries (collectively, the "Company" or “FactSet”"FactSet") is a global provider of integrated financial information, analytical applications and industry-leading serviceservices for the investment community.and corporate communities. For over 40 years, global financial professionals have utilized our content and multi-asset class solutions across each stage of the investment process. Our missiongoal is to solveprovide a seamless user experience spanning idea generation, research, portfolio construction and analysis, trade execution, performance measurement, risk management, and reporting, in which we serve the front, middle, and back offices to drive productivity and improved performance. Our flexible, open data and technology solutions can be implemented both across the investment portfolio lifecycle or as standalone components serving different workflows in an organization. We are focused on growing our clients’ greatest challengesbusiness through three segments: the powerAmericas (formerly known as U.S.), EMEA (Europe and Africa, formerly known as Europe), and Asia Pacific. Within each of collaboration. Weour segments, we primarily deliver insight and information to investment professionals through our analytics, service, content,four workflow solutions of Research, Analytics and technology. TheseTrading, Content and Technology Solutions ("CTS") and Wealth.
We currently serve a wide range of financial professionals,
which include
but are not limited to portfolio managers, investment research professionals, investment bankers, risk and performance analysts,
wealth advisors, and
wealth advisors. From streaming real-timecorporate clients. We provide both insights on global market trends and intelligence on companies and industries, as well as capabilities to monitor portfolio risk and performance and execute trades. We combine dedicated client service with open and flexible technology offerings, such as a configurable desktop and mobile platform, comprehensive data
to historical information, including quotes, estimates, newsfeeds, an open marketplace, digital portals and
commentary, we offer proprietary and third-party content through desktop, web, mobile and off-platform solutions.application programming interfaces ("APIs"). Our
broad application suite offers tools and resources including company and industry analyses, full screening tools, portfolio analysis, risk profiles, alpha-testing, portfolio optimization and research management solutions. Our revenues arerevenue is primarily derived from subscriptions to products and services such as workstations,
portfolio analytics, enterprise data,
and research
management, and trade execution.management.
FactSet was founded in 1978 and has been publicly held since 1996. We are dual listed on the New York Stock Exchange
(“NYSE”("NYSE") and the NASDAQ Stock Market
(“NASDAQ”("NASDAQ") under the symbol
“FDS.”"FDS". Fiscal
20182020 marked our
40th42nd year of
operationoperations and while much has changed in
our marketboth markets and
technologies,technology, our focus has always been to provide
the best in classbest-in-class products and exceptional client service.
The following timeline depicts the Company’s history since our founding in 1978:
Business Strategy
Current technology trends are leading to a greater demand to deliver a fully digital and integrated client experience. To take advantage of these developments we have focused our innovations and strategic investments in cloud computing, data lakes, APIs and our hosted proprietary data and analytics platform to provide real-time, predictive business intelligence for a seamless client experience. We
continue to expand our broad financial content to provide
support for our
clients withclients' most sophisticated investment strategies, including enhanced data in private markets, industry specific deep sector and environmental, social and governance ("ESG"). As a premier financial solutions provider for the global
standard for delivery, integrationfinancial community, we provide workflow solutions and
consumption of our financial dataleading analytical applications, powered by
cognitive capabilities and robust technology, across the
global investment
community.portfolio lifecycle. We
maintain flexible, open data and software solutions to bring the front, middle and back
officeoffices together to drive productivity and performance
throughoutat every step of the
portfolio lifecycle.investment process using our open and scalable solutions. Our strategy is focused on growing our business
throughout each ofin our three
segments which includesegments: the
U.S., Europe,Americas, EMEA and Asia Pacific. We believe this geographical
strategystrategic alignment helps us better manage our resources,
direct our solutions and
concentrate on markets that demandinteract with our
products. The U.S. segment services investment professionals, including financial institutions throughout the Americas. The European and Asia Pacific segments service investment professionals located throughout Europe and the Asia Pacific segment, respectively.clients. To execute on our business strategy of broad-based growth,
across each geographical segment, we continue to look at ways to create value for our clients by offering data, products, and analytical applications within our
key workflowsfour workflow solutions of Research, Analytics
Wealth, and
ContentTrading, CTS and
Technology Solutions.Wealth.
Research
Research
SolutionsOurfocuses on company analysis, idea generation, and research management. The tools within Research Solutions (“Research”) workflow offers a powerful data solution that provide solutions to analyze public and private companies, generate ideas and discover opportunities. Research also allows users to monitor the global markets, to gain industry and market insights, and to collaborate on and share information across teams. FactSet
combines global coverage, deep history, and transparency with thousands of FactSet-sourced and third-party databases integrated in one flexible platform. Our Research workflow has a strong focus on growing the number of users
Analytics and client types including investment banking, sell-side research, buy-side research, private equity, capital markets, investor relations,Trading
Analytics and
media. This workflow offering is comprised of Core Applications, including Universal Screening, Company & Security Analytics, Industry and Markets, Filings, Ownership, Research, News and our Research Management Solutions (“RMS”).Analytics Solutions
Our Analytics Solutions (“Analytics”) workflowTrading addresses processes around portfolio analytics, risk management and performance measurement and reporting. Ourattribution. Analytics workflow provides investment professionals with in-depth insight, powerful analytics, and comprehensive datasets integrated seamlessly into their portfolios.Trading also focuses on client reporting, portfolio construction, trade execution and order management. The applications within Analytics workflow is driven by FactSet Portfolio Analysis (“PA”) and FactSet’s Multi-Asset Class (“MAC”) risk models. PA is a multi-asset class interactive global solution that includes a flexible, multi-tile interface of reportsTrading are modularized and chartsdeployed to enable a user to make smarter decisions. MAC risk models analyze risk factors across different asset typesfulfill both targeted and classes. We have enhanced our Analytics workflow offering by leveraging client-requested functionality such as fixed income optimization and the Duration Times Spread attribution model.
Additionally, includedholistic needs in the front and middle offices. Analytics workflow isand Trading integrates our clients’ proprietary data along with FactSet and third-party content to bring actionable insights to the portfolio management process. Analytics and trading solutions which focusTrading tools are accessible through a variety of mediums, including the FactSet workstation and application programming interfaces.
Wealth
Wealth is focused on
workflows that are specific for the front office serving traders and portfolio managers. This offering includes a multi-asset execution management system (“EMS”) platform, as well as compliance and order management functionality. These products are aimed at large asset managers, hedge funds and mid-market customers to provide a combination of automated and intelligent trading workflows.Wealth Solutions
Our Wealth Solutions (“Wealth”) workflow creates solutions that are specific to the wealth management industry and helpscreates offerings that enable wealth professionals across an entire enterprise, including home office, advisory, and client engagement. Wealth empowers wealth managers to demonstrate value to clients and prospects while growing and protecting their assets with investmentFactSet’s combined solution set of portfolio analytics, market monitoring tools, multi-asset class research and customized client facing digital solutions. Our research management solutions products enable our wealth management clients to increase collaboration and communication between home office and advisory services, financial planningfunctions within the firm and other financial services. Our Wealth workflow offerings include providing end-to-end solutions, focusing on non-equity contentdeliver consistent and single security analytics, portfolio and risk analytics, and digital strategy.
Content and Technology Solutions
Our Content and Technology Solutions (“CTS”) workflow is focusedscalable messaging to the clients of the advisor.
CTS
CTS focuses on delivering
valuecontent directly to our
clients in the way they want to consume it. Our goal is to reduce the number of customizations by standardizingclients. Clients seamlessly discover, explore, and
bundling our proprietary data into data feeds.access organized and connected content via multiple delivery channels. Whether a client needs market, company, or alternative data, our data delivery services provide normalized data through
a variety of technologies, such as APIs,
cloud infrastructure, database loaders and
a direct deliveryformats that meet the needs of
local copies of standard data feeds.our clients’ workflows. Our symbology links and aggregates a
varietydiverse set of content sources to ensure consistency, transparency, and data integrity across
youra client’s business.
The CTS workflow also includes direct access By enabling our clients to insightutilize their preferred choice of industry standard databases, programming languages, and information outside of the workstation through cloud-based application program interfaces and white label solutions. More specifically, our recent launch of Open:FactSet data marketplace provides accessvisualization tools, we empower them to 25 specialty datasets from FactSet and other data providers in flexible delivery formats.
FactSet Clients
Buy-side
We focus on the buy-sidecore competencies needed to drive their business.
FactSet Clients
Buy-side
Buy-side clients continue to shift increasingly towards multi-asset class investment strategies and FactSet is well-positioned to be a partner of choice in this space. Our ability to provide enterprise-wide solutions to our clients across their entire workflow
across all firm and user types. Thesecovering virtually every asset class enables us to compete for greater market share. Buy-side clients
primarily include portfolio managers, analysts, traders, wealth managers, performance teams and risk and compliance teams at a variety of firms, such as traditional asset managers, wealth advisors, corporations, hedge funds, insurance companies, plan sponsors and fund of funds.
As buy-side clients continue to shift towards multi-asset class investment strategies, we are positioned to be a partner in the space, given They access our ability to provide enterprise-wide solutions across their entire workflow. We provide solutions across asset classes and at nearly every stage of the investment processmulti-asset-class tools by utilizing our workstations, powerful analytics and trading tools, proprietary content, data feeds, APIs and portfolio services.
The buy-side annual subscription value
(“ASV”("ASV") growth rate for fiscal
20182020 was 5.4%. Buy-side clients accounted for
83.9%approximately 84% of
our ASV as of August 31,
2018.Sell-side
We are a market leader on the sell-side and we are continuing to expand beyond investment banking into various other parts of banking institutions. Our clients represent banking & advisory, broker-dealers, consulting, independent research, institutional asset management, private equity, and venture capital firms. We believe that future growth may be derived from the breadth of solutions we provide to the sell-side across our geographic segments and workflow solutions.
Though historically we have focused on selling workstations to banks, over the last few years our emphasis has shifted to focus on selling more differentiated product offerings outside the workstation. We are also expanding our banking user base to commercial banking, equity and fixed income research teams, quantitative analysis groups, compliance and regulatory divisions and sales and trading teams.
The sell-side ASV growth rate for fiscal 2018 was 7.3%. Sell-side clients accounted for 16.1% of ASV as of August 31, 2018.
Client Subscription Growth
2020. ASV at any given point in time represents the forward-looking revenuesrevenue for the next twelve12 months from all subscription services currently being supplied to clients and excludes professional servicesservice fees, billedwhich are not subscription-based.
Sell-side
FactSet delivers comprehensive solutions to sell-side clients including workstation, proprietary and third-party content, productivity tools for Microsoft® Office, web and mobile, and research management solutions for research authoring and publishing. Our focus remains on expanding the depth of content offered and increasing workflow efficiency for our sell-side clients, primarily including investment bankers and private equity and research analysts.
The sell-side ASV growth rate for fiscal 2020 was 4.6%. Sell-side clients accounted for approximately 16% of our ASV as of August 31, 2020.
Client and User Additions
Our total client count as of August 31, 2020 was 5,875, representing a net increase of 301 or 5.4% in the last twelve12 months. The net increase was primarily due to an increase in corporate and wealth management clients, partially offset by a decrease in institutional asset management clients. As of August 31, 2020 there were 133,051 professionals using FactSet, representing a net increase of 6,229 or 4.9% in the last 12 months, which are not subscription-based. driven primarily by wealth management and corporate professionals.
Annual client retention was greater than 95% of ASV for the period ended August 31, 2020 and August 31, 2019. When expressed as a percentage of clients, annual retention increased to approximately 90% for the period ended August 31, 2020, compared to approximately 89% for the period ended August 31, 2019.
Organic ASV Growth
Organic ASV growth at any given point in time represents the forward-looking revenue for the next 12 months from all subscription services currently being supplied to clients and excludes ASV from acquisitions and dispositions completed within the last 12 months,
and the effects of foreign currency
movements on the current year period and professional services. With proper notice provided to us, our clients can add to, delete portions of, or terminate service, subject to certain contractual limitations.
As of August 31,
2018,2020, our organic ASV
was $1.39totaled $1.53 billion, up
$74.4 million or 5.7% organically5.2% over the prior year comparable period. The majority of the ASV increase was in the Americas, followed by increased sales in EMEA and Asia Pacific, as well as the benefit from
a year ago. Thisour annual price increase, partially offset by cancellations. The increase in ASV was driven by growth
amongst our geographic segments and achievements across each ofin all our workflow solutions,
which include Research,mainly driven by an increase in Analytics
and Trading, followed by CTS and Wealth.
During fiscal 2018, we added 398 new clients, increasing the number of clients by 8.4% over the prior year. We added 3,051 new users during fiscal 2018, leading to a healthy progression in the number of users in both our buy-side and sell-side clients.
The following chart provides a snapshot of FactSet’s historic organic ASV growth:
Financial Information on Geographic Areas
Operating segments are defined as (i) components of an enterprise that engagehave the following characteristics: (i) it engages in business activities from which theyit may earn revenues and incur expenses, (ii) withits operating results that are regularly reviewed by the enterprise’scompany’s chief operating decision maker to make("CODM") for resource allocation decisions about resources to be allocated to the segment and assess its performance assessment, and (iii) for whichits discrete financial information is available. FactSet's Chief Executive management, along with the CEO, constituteOfficer functions as our chief operating decision making group (“CODMG”). Executive management consistsCODM.
Our operating segments are aligned with how the Company, including
its CODMG,our CODM, manages the business and the
demographicgeographic markets
in which we
serve.serve, with a primary focus on providing integrated global financial and economic information. Our internal financial reporting structure is based on three
segments:reportable segments, the
U.S., EuropeAmericas, EMEA and Asia Pacific.
We believe this alignment helps us better manage the businessWithin each of our segments, we primarily deliver insight and
focus on markets that demandinformation through our
products. Our primary functional groups within the U.S., Europe,four workflow solutions of Research, Analytics and
Asia Pacific segments include sales, consulting, data collection, product developmentTrading, CTS and
software engineering, whichWealth. These workflow solutions provide global financial and economic information to investment managers, investment banks and other financial services professionals.
The
U.S.Americas segment
services investment professionals, including financial institutionsserves our clients throughout
the Americas. The EuropeanNorth, Central, and
Asia Pacific segments service investment professionals located throughout Europe and the Asia Pacific segment, respectively. Financial information, including revenues, operating income and long-lived assets related to our operations in each geographic area are presented in Note 7, Segment Information, and in the Notes to the Company’s Consolidated Financial Statements included in Item 8.The U.S. segment hasSouth America, with offices in fourteen12 states throughout the United States ("U.S."), including our corporate headquarters in Norwalk, Connecticut, as well as two additional offices locatedand an office in both Brazil and Canada. The EuropeanEMEA segment serves our clients in countries in Europe and Africa and maintains office locations in Bulgaria, Dubai, England, Finland, France, Germany, Italy, Latvia, Luxembourg, the Netherlands, South Africa, Spain, and Switzerland. The Asia Pacific segment hasserves our clients in countries in Asia and Australia and includes office locations in Australia, UAE (Dubai), China, Hong Kong, India, Japan, the Philippines, and Singapore. Segment revenues reflect directrevenue reflects sales to our clients based inon their respective geographic locations.
Each segment records compensation expense including(including stock-based compensation, amortization of intangible assets,compensation), depreciation of furniture and fixtures, amortization of lease right-of-use ("ROU") assets, leasehold improvements and intangible assets, as well as communication costs, professional fees, rent expense, travel, marketing, office and other direct expenses.Expenditures associated with our data centers, third-party data costs and corporate headquarters charges are recorded by the U.S.Americas segment and are not allocated to the other segments. The centers of excellence, which focus primarily on content collection and arecenters, located in India, and the Philippines, and Latvia, benefit all our operating segments, and thus the expenses incurred at these locations are allocated to each segment based on a percentage of revenues.
revenue. Refer to Note 18,
Segment Information in the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for financial information, including revenues, operating income and long-lived assets for each of our segments. The following charts depict
revenuesrevenue related to our reportable segments.
Talent
Since our founding, we
We have built a collaborative culture that recognizes and rewards innovation and offers employees a variety of opportunities and experiences. Our employees are critical to our success and
are the reason we continue to execute at a high level. We believe our continued focus on making employee engagement a top priority will help us provide high quality insights and information to clients globally.
We continuously cultivate a diverse and inclusive environment that promotes empowerment and engagement, which is key to our ability to attract, retain, and develop talent. We strive to achieve this successfully with various activities, including an annual global employee engagement survey. We share survey results with all employees to highlight areas that employees believe are strengths of the Company and reflect on areas where employees feel improvement may be needed. Each year, executive leadership focuses on key areas for improvement based upon the survey results and compiles initiatives to actively resolve or invest in improvements in a transparent manner. Progress on these initiatives is tracked and we survey employees again, to ensure that the actions taken addressed the underlying issues and to promote an environment of continuous improvement.
FactSet works diligently to create and nourish a culture which engages employees through direct responsibility, by distributing leadership decision-making and providing opportunities for employees to help shape the Company’s strategic vision. We challenge our employees to make an impact regarding position responsibilities and their career growth by providing them multiple opportunities to make a positive impact.
As of August 31, 2020, our employee headcount was 10,484, an increase of 8.3% in the last twelve months. Our employee workforce is located globally in 48 office locations in 22 countries. Of our total employees, 6,643 (63%) were located in Asia Pacific, 2,477 (24%) in the Americas and 1,364 (13%) in EMEA. In order to optimize productivity, we have invested in expanding our footprint and talent pool in India and the Philippines, where we now have a combined workforce of
over 5,500 people.approximately 6,400 employees. Functionally, 22% of our employees are in Sales and Client Solutions; 31% are in Technology & Product Development; 43% are in Content Operations; and 4% are in Corporate Support.
As of August 31,
2018, our employee headcount was 9,571, an increase of 5.5% in the last twelve months. Of our total employees, 2,471 are in the U.S., 1,246 in Europe2020 and
5,854 in the Asia Pacific segment.In fiscal 2018, approximatelyAugust 31, 2019, 420 and 430 FactSet employees, within certain French and German subsidiariesrespectively, were represented by mandatory works councils an amount consistent with fiscal 2017.within certain French and German subsidiaries. No other employees are represented by collective bargaining agreements.
In May 2018, we announced that Maurizio Nicolelli, the Company’s Chief Financial Officer, would depart FactSet as of December 31, 2018. In July 2018, we announced that Helen L. Shan would join FactSet as the new Chief Financial Officer beginning in September 2018. Additionally, in July 2018, we announced that Edward Baker-Greene, the Company’s Chief Human Resources Officer would depart FactSet as of November 30, 2018.
We aggregate content from thousands of third-party data suppliers, news sources, exchanges, brokers and contributors into our
own dedicated
online service,managed database, which
our clients access
through our flexible delivery platforms to perform their
analyses.analysis. We
carrylicense content from premier providers of major global exchanges and data providers. We seek to maintain contractual relationships with a minimum of two content providers for each major type of financial data, though certain data sets on which we rely have a limited number of suppliers. We make every effort
whento assure that, where reasonable,
to locate alternative sources
to ensure that weare available. We are not dependent on any one
third- partythird-party data
supplier.supplier in order to meet the needs of our clients. We have entered into third-party content agreements
atof varying lengths, which in some cases can be terminated on one year’s notice, at predefined dates, and in other cases on shorter notice. No single vendor or data supplier represented
more than 10%
or more of
ourFactSet's total data
expensescosts during fiscal 2020, with the exception for one vendor, which is a supplier of risk models and portfolio optimizer data to FactSet and represented 11% of FactSet’s data costs in
any fiscal
year presented.2020.Data Centers
Our business is dependent on our ability to process substantial volumes of data and transactions rapidly and efficiently on our networks and systems. Our global technology infrastructure supports our operations and is designed to facilitate the reliable and efficient processing and delivery of data and analytics to our clients. Our data centers contain multiple layers of redundancy to enhance system performance, including maintaining, processing and storing data at multiple data centers. User connections are load balanced between data centers. In the event of a site failure, equipment problem or localized disaster, the remaining centers have the capacity to handle the additional load. We continue to be focused on maintaining a global technological infrastructure that allows us to support our growing business.
Several years ago, we launched Project NextGen
We continue to
evolve away from large mainframe computers to a more distributed environment powered by a vast array of smaller, faster and more cost-effective machines. We operate fully redundant data centers in both Virginia and New Jersey in the U.S. that can handle our entire client capacity. In addition, we
maintain a vast private wide area network that provides a high-speed direct link between the client’s local networkare migrating select systems and
the data content and powerful applications
found on our mainframe machines.to diverse cloud computing regions utilizing premier, market-leading cloud providers.
The Competitive Landscape
We are a part of the financial information services industry, providing
accurate financial
informationdata and
softwareworkflow solutions to the global investment community. This
extremely competitive market is comprised of both large, well-capitalized companies and smaller, niche firms including market data suppliers, news and information providers and many
of thethird party content providers that supply us with financial information included in
the FactSet workstation.FactSet's products. Our largest competitors are Bloomberg L.P., Refinitiv (formerly part of Thomson Reuters), and S&P Global Market Intelligence. Other competitors and competitive products include online database suppliers and integrators and their applications, such as
MSCI Inc., Morningstar Inc., BlackRock Solutions,
Morningstar Inc. and
RIMES Technologies Corporation.MSCI Inc. Many of these firms
offerprovide products or services
which are similar to
those we sell. Our development of our own
robust sets of proprietary content combined with our news and quotes offering have resulted in more direct competition with the largest financial data providers.Despite competing products and services, we enjoyofferings.
We believe there are high barriers to entry and believewe expect it would be difficult for another vendor to quickly replicate the extensive databasesdata we currently offer. Through our in-depth analytics and client service, we believe we can offer clients a more completecomprehensive solution with one of the broadest sets of functionalities delivered through a desktop or mobile user interface or through a standardized or bespoke data feed.feed as well as an API. In addition, our applications, including our client support and service offerings, are entrenched in the workflow of many financial professionals given the downloading functionsdownloadable functionality, instant data refresh and portfolio analysis/screening capabilities offered. We are entrusted with significant amounts of our clients' own
proprietary data, including portfolio holdings. As a result,
we believe our products
have becomeare central to our clients’ investment analysis and decision-making.
We have registered trademarks and copyrights for many of our products and services and will continue to evaluate the registration of additional trademarks and copyrights as appropriate. We enter into confidentiality agreements with our employees, clients, data suppliers and vendors. We seek to protect our
software,workflow solutions, documentation and other written materials under trade secret, copyright and patent laws. While we do not believe we are dependent on any one of our intellectual property rights, we do rely on the combination of intellectual property rights and other measures to protect our proprietary rights. Despite these efforts, existing intellectual property laws may afford only limited protection.
Research and Product Development Costs
A key aspect of our growth strategy is to
offer new solutions and enhance our existing products and applications by making them faster with more reliable data. We strive to rapidly
to adopt new technology that can improve our products and services. At FactSet we do not have a separate research and product development department, but rather our
Product Developmentproduct development and
Engineeringengineering departments work closely with our strategists, product managers, sales and other client-facing specialists to identify areas of improvement to provide increased value to our clients. Research and product development costs
relate toinclude the salary and benefits for our product development, software engineering and technical support
staff.staff working on these initiatives. These costs are expensed as incurred within our cost of services as employee compensation. We
expect to appropriate a similar percentage of our workforce and associated expenses in future yearsintend to continue to
developinvest in the development of new products and enhancements
that will allow us to respond quickly to market changes and
efficiently meet the needs of our
clients efficiently. In fiscal 2018, weclients. We incurred
$217.1 million of research and product development costs
which was comparable to our spend on similar developmentof $224.0 million, $214.7 million and $217.1 million during fiscal years
20172020, 2019 and
2016,2018, respectively.
FactSet is subject to reporting requirements, disclosure obligations and other recordkeeping requirements of the Securities and Exchange Commission
(“SEC”("SEC") and the various local authorities that regulate each location in which we operate. The Company’s P.A.N. Securities, LP, is a member of the Financial Industry Regulatory Authority, Inc. and is a registered broker-dealer under Section 15 of the Securities Exchange Act of 1934. P.A.N. Securities, LP, as a registered broker-dealer, is subject to Rule 15c3-1 under the Securities Exchange Act of 1934, which requires that the Company maintain minimum net capital requirements. The Company claims exemption under Rule 15c3-3(k)(2)(i).
Corporate Contact Information
FactSet was founded as a Delaware corporation in 1978, and its principal executive office is in Norwalk, Connecticut.
Mailing address of the Company’s headquarters:
601 Merritt 7,45 Glover Avenue Norwalk,
Connecticut 06851 USACT 06850
Telephone number: +1 (203) 810-1000
Website address: www.factset.com
Through the Investor Relations section of FactSet’s website (https://investor.factset.com), we make available the following filings as soon as practicable after they are electronically filed with, or furnished to, the SEC: the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements for the annual stockholder meetings, Reports on Forms 3, 4 and 5, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. All such filings are available free of charge.
Additionally, we broadcast live our quarterly earnings calls via the investor relations section of our website. We also provide notifications of news or announcements regarding our financial performance, including SEC filings, investor events, press and earnings releases, and blogs as part of our investor relations website. The contents of this website section are not intended to be incorporated by reference into this
Annual Report on Form 10-K or in any other report or document the Company files
with the SEC and any reference to this section of our website is intended to be inactive textual references only.
In addition, the FactSet Code of Business Conduct and Ethics is posted in the Investor Relations section of the Company’s website. The same information is available in print to any stockholder who submits a written request to the Company’s Investor Relations department. Any amendments to or waivers of such code that are required to be publicly disclosed by the applicable
exchange rules or the SEC will be posted on our website. The Corporate Governance Guidelines and the charters of each of the committees of the Company’s Board of Directors, including the Audit Committee, Compensation and Talent Committee, and Nominating and Corporate Governance Committee, are available on the Investor Relations section of our website. The same information is available in print, free of charge, to any stockholder who submits a written request to our Investor Relations department.
Executive Officers of the Registrant
The following table shows FactSet’s current executive officers:
Name of Officer | Age | Office Held with the Company | Officer Since |
F. Philip Snow | 54 | Chief Executive Officer | 2014 |
Helen L. Shan | 50 | Executive Vice President and Chief Financial Officer | 2018 |
Edward Baker-Greene | 55 | Senior Vice President, Chief Human Resources Officer | 2015 |
Gene D. Fernandez | 51 | Executive Vice President, Chief Technology and Product Officer | 2017 |
Robert J. Robie | 39 | Executive Vice President, Head of Analytics and Trading Analytics Solutions | 2018 |
Rachel R. Stern | 53 | Executive Vice President, General Counsel and Secretary | 2009 |
John W. Wiseman | 50 | Executive Vice President, Global Head of Sales and Client Solutions | 2017 |
| | | | | | | | | | | |
| Name of Officer | Age | Office Held with the Company | Officer Since |
| F. Philip Snow | 56 | Chief Executive Officer | 2014 |
| Helen L. Shan | 53 | Executive Vice President and Chief Financial Officer | 2018 |
| Goran Skoko | 59 | Executive Vice President, Managing Director EMEA and Asia Pacific, Head of Wealth Solutions | 2019 |
| Gene D. Fernandez | 53 | Executive Vice President, Chief Technology and Product Officer | 2017 |
| Rachel R. Stern | 55 | Executive Vice President, Chief Legal Officer, Global Head of Strategic Resources and Secretary | 2009 |
| Robert J. Robie | 42 | Executive Vice President, Head of Analytics and Trading Solutions | 2018 |
| Daniel Viens | 63 | Senior Vice President, Chief Human Resources Officer | 2018 |
F.Philip Snow–Chief Executive Officer. Mr. Snow was named Chief Executive Officer effective July 1, 2015. Prior to that, Mr. Snow held the title of President. He began his career at FactSet in 1996 as a Consultant, before moving to Asia to hold positions in the Tokyo and Sydney offices. After movingFollowing his move back to the U.S. in 2000, Mr. Snow held various sales leadership roles beforeprior to assuming the role of Senior Vice President, Director of U.S. Investment Management Sales in 2013. Mr. Snow received a B.A.Bachelor of Arts in Chemistry from the University of California at Berkeley and a Master of International Management from the Thunderbird School of Global Management. He holdshas earned the right to use the Chartered Financial Analyst designation and is a member of the CFA Institute.designation.
HelenL.Shan –Executive Vice President and Chief Financial Officer.Ms. Shan joined FactSet in September 2018 from Marsh and McLennan Companies, where she was CFO for Mercer, one of the world’s leadinga professional services firms. Duringfirm. In her time atcurrent role, she is responsible for activities related to accounting, finance, corporate development and strategy. Preceding her tenure as the CFO for Mercer, Ms. Shan was responsible for global financial reporting and performance, operational finance, investments, and corporate strategy, leading a team of finance professionals supporting clients in over 130 countries. Prior to Mercer, Ms. Shan was aserved as the Vice President and Treasurer for both Marsh and McLennan Companies, andwith additional prior experience in the same position with Pitney Bowes Inc. and was alsoserved as a Managing Director in investment banking at J.P. Morgan. In September 2018, Ms. Shan joined the Board of Directors of EPAM Systems Inc., a leading global provider of digital platform engineering and software development services. Ms. Shan earned B.S.holds dual degrees with a Bachelor of Science and a Bachelor of Applied Science from the University of Pennsylvania’s Wharton School of Business and School of Engineering and Applied Science and Engineering. Ms. Shan also has a Master of Business Administration from Cornell University’s SC Johnson College of Business. Edward Baker-GreeneGoran Skoko – SeniorExecutive Vice President, Chief Human Resources Officer. Managing Director EMEA and Asia Pacific, Head of Wealth Solutions. Mr. Baker-GreeneSkoko joined FactSet in June 2015 from Voya Financial, formerly ING, U.S., where he was Head of Human Resources for Retirement Solutions, Operations, and Information Technology. Previously, Mr. Baker-Greene worked at Fidelity Investments for 13 years. At Fidelity, he was a part of the Personal and Workplace Investing division, where he held roles in business and human resources capacities, including Senior Vice President/Managing Director, Relationship Management. Mr. Baker-Greene began his professional career2004 as a lawyerSenior Product developer and has held a number of positions of increased responsibility. In his current role, Mr. Skoko is responsible for providing direction to address the product and content needs for EMEA and Asia Pacific clients while also focusing on employment law, recruiting, talentincreased deployment and building community within the wealth management space. Prior to FactSet, he spent 16 years in various engineering and human capital management.product management roles at Thomson Financial. Mr. Baker-Greene received a B.A.Skoko earned his B.S. in Physics and Computer Science from Tufts University and a J.D. from the University of Virginia School of Law.
On July 5, 2018, the Company entered into a separation of employment and general release agreement with Edward Baker-Greene, pursuant to which Mr. Baker-Greene will remain in his current position as Chief Human Resources Officer until his successor is appointed and will remain an employee of FactSet until his separation date of November 30, 2018.
Fordham University.Gene D. Fernandez– Executive Vice President, Chief Technology and Product Officer.Mr. Fernandez joined FactSet in November 2017 from J.P. Morgan, where he served as the Chief Technology Officer, New Product Development. In this role, he developed the strategy and built the engineering function responsible for new product innovation. During a decade at J.P. Morgan, Mr. Fernandez held various other roles, including Chief Technology Officer for Client Technology and Research and Banking Information Technology. Prior to J.P. Morgan, he worked at Credit Suisse and Merrill Lynch. Mr. Fernandez received a B.S.Bachelor of Science in Computer Science and Economics from Rutgers University.
Rachel R. Stern–Executive Vice President, Chief Legal Officer, Global Head of Strategic Resources and Secretary. Ms. Stern joined FactSet in January 2001 as General Counsel. In addition to her role in the Legal Department, Ms. Stern is also responsible for Compliance, Facilities Management and Real Estate Planning and the administration of our offices in Hyderabad, Manila and Riga. Ms. Stern is admitted to practice in New York, Washington D.C., and as House Counsel in Connecticut. Ms. Stern received a Bachelor of Arts from Yale University, a Master of Arts from the University of London and a Juris Doctor from the University of Pennsylvania Law School.
RobertJ.Robie – Executive Vice President, Head of Analytics and Trading Analytics Solutions.Mr. Robie joined FactSet in July 2000 as a Product Sales Specialist. In his current role, he oversees strategy, research, development and engineering for Analytics and Trading platforms. During his tenure at FactSet, Mr. Robie has held several positions of increasingincreased responsibility, including Senior Director of Analytics and Director of Global Fixed Income and Analytics where he led sales and support efforts for FactSet’s fixed income product offering. Between 2004 and 2005,Income. Although Mr. Robie workedjoined FactSet in 2000, he did work at BTN Partners where he workedfrom 2004 through 2005 in their quantitative portfolio management and performance division, as an analyst.before returning to continue his career with FactSet. Mr. Robie holds a B.A.Bachelor of Arts in Economics and Fine Arts from Beloit College.Rachel R. Stern
Daniel Viens – Executive Senior Vice President, General Counsel and Secretary. Ms. SternChief Human Resources Officer. Mr. Viens joined FactSet in 2001 as General Counsel. In addition to the Legal Department at FactSet, she is responsible for Facilities and Real Estate Planning; Third-Party Content and Strategic Partnerships; and the administration of our offices in Hyderabad and Manila. Ms. Stern is admitted to practice in New York, and Washington D.C., and as House Counsel in Connecticut. Ms. Stern received a B.A. from Yale University, an M.A. from the University of London and a J.D. from the University of Pennsylvania Law School.John W. Wiseman– Executive Vice President, Global Head of Sales and Client Solutions. Mr. Wiseman joined FactSet in 2004September 1998 as a Vice President, in the sales department. During his tenure at FactSet, Mr. WisemanDirector of Human Resources and has held several leadership positions of increased responsibility including Senior Vice President, Global Head of Strategic Partnerships & Alliances.in Human Resources. Prior to his experience withjoining FactSet, Mr. WisemanViens was a Senior Managing Director at Bear Stearnsof Human Resources for First Data Solutions and Donnelly Marketing (a former company of Dun & Co. Inc.Bradstreet), where he developed significant Human Resources acumen. Mr. Wiseman receivedViens graduated from Boston University, and holds both a B.A.Master's Degree from Eastern Illinois University in Political Science and Management Science from Duke UniversityClinical Psychology and a Master of Business Administration from the University of Edinburgh.
Columbia University. Additional Information
Additional information with respect to FactSet’s business is included in the following pages and is incorporated herein by reference:
| | Page(s)
| | | |
| Page(s) |
| | 22
|
| | 24-44
|
| | |
Note 1
| | 56
|
Note 7 to Consolidated Financial Statements entitled Segment Information
| | 67
|
The following risks could materially and adversely affect our business, financial condition, cash flows, and results of operations and, as a result, the trading price of our common stock could decline. These risk factors do not identify all risks that we face; our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. Investors should also refer to the other information set forth in this Annual Report on Form 10-K, including “Management’sItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations and our financial statementsthe Company’s Consolidated Financial Statements including the related notes.Notes. Investors should carefully consider all risks, including those disclosed here, before making an investment decision. Technology & Data Security Risks
Loss, corruption and misappropriation of data and information relating to clients and others
Many of our products, as well as our internal systems and processes, involve the storage and transmission of our own, as well as supplier and customer, proprietary information and sensitive or confidential data. This includes data includingfrom client portfolios and strategies. Breaches of this confidentiality, should they occur, could result in the loss of clients and termination of arrangements with suppliers for the use of their data. We rely on a complex network of internal controls to protect the privacy of data. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improveddata controls, unauthorized access or misappropriation of client or supplier data by an employee or an external third-party could occur. Additionally, the maintenance and enhancement of our systems may not be completely effective in preventing loss, unauthorized access or misappropriation. Data misappropriation, unauthorized access or data loss could instill a lack of confidence in our products and systems and damage our brand, reputation and business. Breaches of security measures could expose us, our clients or the individuals affected to a risk of loss or misuse of this information, potentially resulting in litigation and liability for us, as well as the loss of existing or potential clients. Many jurisdictions in which we operate have laws and regulations relating to data privacy and protection of personal information, including the European Union General Data Protection Regulation, (“GDPR”)which became effective
May 25, 2018, and California's Consumer Privacy Act, which became effective
May 25, 2018. GDPR requiresJanuary 1, 2020. Both require companies to satisfy
new requirements regarding the handling of personal and sensitive data, including our use, protection and
certain abilitiesthe ability of persons whose data is stored to correct or delete such data about themselves.
Failure to comply with GDPR requirements could result in penalties of up to 4% of worldwide revenues. The law in this area continues to develop and the changing nature of privacy laws
in the European Union and elsewhere could impact our processing of personal and sensitive information related to our content, operations, employees, clients, and suppliers, and may expose us to claims of violations.
Successful cyber-attacks and the failure of cyber-security systems and procedures
In providing our
software-enableddigital-enabled services to clients, we rely on information technology infrastructure that is
primarily managed internally along with
someplacing reliance
placed on third-party service providers. We and these third-party service providers are subject to the risks of system failures and security breaches, including cyber-attacks, such as phishing scams, viruses and denials of service attacks, as well as employee errors or malfeasance. Our
and our vendors' use of mobile and cloud technologies may increase our risk for such threats. Our protective systems and procedures and those of third parties to which we are connected, such as cloud computing providers, may not be effective against these threats.
Our information technology systems must be constantly updated and patched to protect against known vulnerabilities and to optimize performance. Our contracts with service providers typically require them to implement and maintain adequate security controls, but we may not have the ability to effectively monitor these security measures. As a result, inadequacies of the third party security technologies and practices may not be detected until after a security breach has occurred. We could suffer significant damage to our brand and
reputationreputation: if a cyber-attack or other security incident were to allow unauthorized access to, or modification of, clients’ or suppliers’ data, other external data, internal data or information technology systems; if the services provided to clients were disrupted; or if products or services were perceived as having security vulnerabilities. The costs we would incur to address and resolve these security incidents would increase our expenses. These types of security incidents could also lead to lawsuits, regulatory investigations and claims, loss of business and increased legal liability. We also make acquisitions periodically. While significant effort is placed on addressing information technology security issues with respect to the acquired companies, we may inherit such risks when these acquisitions are integrated into our infrastructure.
A prolonged or recurring outage at our data centers and other business continuity disruptions at facilities could result in reduced service and the loss of clients
Our clients rely on us for the delivery of time-sensitive, up-to-date data and applications. Our business is dependent on our ability to process substantial volumes of data and transactions rapidly and efficiently on our computer-based networks and systems.
If we experience significant growth of our customer base or increases in the number of products or services or in the speed at which we are required to provide products and services, it may strain our systems. Additionally, our systems and networks may become strained due to aging or end-of-life technology that we have not yet updated or replaced. Our computer operations, as well as our other business centers, and those of our suppliers and clients, are vulnerable to interruption by fire, natural disaster, power loss, telecommunications failures, terrorist attacks, acts of war, civil unrest, Internet failures, computer viruses,
and security breaches, and other events beyond our reasonable control. We maintain back-up facilities and certain other redundancies for each of our major data centers to minimize the risk that any such event will disrupt those operations. However, a loss of our services involving our significant facilities may materially disrupt our business and may induce our clients to seek alternative data suppliers. Any such losses or damages we incur could have a material adverse effect on our business. Although we seek to minimize these risks through security measures, controls, back-up data centers and emergency planning, there can be no assurance that such efforts will be successful or effective.
Additionally, we may also face significant increases in our use of power and data storage and may experience a shortage of capacity and increased costs associated with such usage.Transition to new technologies, applications and processes could expose us to unanticipated disruptions
The technology landscape is constantly evolving. To remain competitive, we must adapt and migrate to new technologies, applications and processes. Use of more advanced technologies and infrastructure is critical to the development of our products and services, the scaling of our business for future growth, and the accurate maintenance of our data and operations. The implementation of new technologies and infrastructure, such as migration to new cloud-based systems, is complex and can involve substantial expenditures as well as risks inherent in the conversion to any new system, including potential loss of information and disruption to operations. We may experience unanticipated interruption and delay in the performance and delivery of certain of our products and services. Certain of our technologies are also dependent upon third party providers to maintain adequate systems to protect the security of our confidential information and data. Failure by our providers to maintain appropriate security could result in unauthorized access to our systems or a network disruption that could further lead to improper disclosure of confidential information or data, regulatory penalties and remedial costs. Any disruption to either the provider’s systems or the communication links between us and the provider could negatively affect our ability to operate our data systems and could impair our ability to provide services to our clients. If the services to our clients are disrupted, or if there is unauthorized access to the confidential information of our clients or our vendors, we could suffer significant damage to our brand and reputation and lose clients. As we increase our reliance on third party systems, our exposure to damages from services disruptions may increase, and we may incur additional costs to remedy damages caused by these disruptions.
Use of open source software could introduce security vulnerabilities, impose unanticipated restrictions on our ability to commercialize our products and services, and subject us to increased costs
We use open source code in our software development and incorporate it into our products and internal systems. The use of open source code may entail greater risks than the use of third-party commercial software. Open source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality or security of the code. Some open source licenses provide that if we combine our proprietary applications with the open source software in a certain manner, we could be required to release the source code of our proprietary applications to the public. This would allow our competitors to create similar products with less development effort and time and ultimately put us at a competitive disadvantage. We have implemented procedures to control the use of source code so was to mitigate this risk; however, the terms of many open source licenses are also ambiguous and have not been interpreted by U.S. or other courts. Therefore, there is a risk that our internal procedures controlling the use of open source code could fail, or that the licenses could be construed in a manner that imposes unanticipated conditions or restrictions on us. If any of this were to occur, we could be required to seek alternative third-party licenses at increased costs or reduced scope, to re-engineer products or systems, or potentially to discontinue the licensing of certain products. Any remedial actions could divert resources away from our development efforts, be time intensive and have a significant cost.
Strategy & Market Demand Risks
Competition in our industry may cause price reductions or loss of market share
We continue to experience intense competition across all markets for our products, with competitors ranging in size from smaller, highly specialized, single-product businesses to multi-billion-dollar companies. While we believe the breadth and depth of our suite of products and applications offer benefits to our clients that are a competitive advantage, our competitors may offer price incentives to attract new business. Future competitive pricing pressures may result in decreased sales volumes and price reductions, resulting in lower
revenues.revenue. Weak economic conditions may also result in clients seeking to utilize lower-cost information that is available from alternative sources. The impact of cost-cutting pressures across the industries we serve could lower demand for our products. Clients within the financial services industry that strive to reduce their operating costs may seek to reduce their spending on financial market data and related services, such as ours. If our clients consolidate their spending with fewer suppliers, by selecting suppliers with lower-cost offerings or by self-sourcing their needs for financial market data, our business could be negatively affected.
The continued shift from active to passive investing could negatively impact user count growth and
revenuesrevenue
The predominant investment strategy today is still active investing, which attempts to outperform the market. The main advantage of active management is the expectation that the investment managers will be able to outperform market indices. They make informed investment decisions based on their experiences, insights, knowledge and ability to identify opportunities that can translate into superior performance. The main advantage of passive investing is that it closely matches the performance of market indices. Passive investing requires little decision-making by investment managers and low operating costs which result in lower fees for the investor.
While the majority of assets under management are still actively managed, outflows to passively managed index funds have increased in recent years. A continued shift to passive investing,
resulting in an increased outflow to passively managed index funds, could reduce demand for the services of active investment managers and consequently, the demand of our clients for our services.
A decline in equity and/or fixed income returns may impact the buying power of investment management clients
Approximately
83.9%84% of our ASV is derived from our investment management clients. The profitability and management fees of these clients are tied to assets under management. An equity market decline not only depresses the value of assets under management but
also could cause a significant increase in redemption requests from our clients’ customers, further reducing their assets under management. Reduced client profits and management fees may cause our clients to cut costs. Moreover, extended declines in the equity and fixed income markets may reduce new fund or client creation. Each of these developments may result in lower demand
from investment managers for our services and workstations,
from investment managers thatwhich could
negatively affect our business.
Uncertainty in the global economy and consolidation in the financial services industry may cause us to lose clients and users
Many of our clients are investment banks, asset managers, wealth advisors, and other financial services entities. Uncertainty in the global economy or a lack of confidence in the global financial system could negatively impact our clients, which could cause a corresponding negative impact on our business results. Mergers, consolidation or contraction of our clients in the financial services industry also could directly impact the number of clients and prospective clients and users of our products and services. If our clients merge with or are acquired by other entities that are not our clients, or that use fewer of our products and services, they may discontinue or reduce their use of our products and services. Thus, economic uncertainty, lack of confidence
in the global financial system, and consolidation in this sector could adversely affect our business, financial results and future growth.
Volatility in the financial markets may delay the spending pattern of clients and reduce future ASV growth
The decision on the part of large institutional clients to purchase our services often requires management-level sponsorship and typically depends upon the size of the client, with larger clients having more complex and time-consuming purchasing processes. The process is also influenced by market volatility. These characteristics often lead us to engage in relatively lengthy sales efforts. Purchases (and incremental ASV) may therefore be delayed as uncertainties in the financial markets may cause clients to remain cautious about capital and data content expenditures, particularly in uncertain economic environments. The COVID-19 pandemic may increase this risk as it may curtail our client's spending and lead them to delay or defer purchasing decisions or product service implementations, or cause them to cancel or reduce their spending with us, which could negatively impact our revenues and future growth.
Failure to develop and market new products and enhancements that maintain our technological and competitive position and failure to anticipate and respond to changes in the marketplace for our products
and customer demands
The market for our products is characterized by rapid technological change, including methods and speed of delivery, changes in client demands, development of new investment instruments and evolving industry
standards, whichstandards. The direction of these trends can render our existing products less competitive, obsolete or unmarketable. As a result, our future success will continue to depend upon our ability to identify and develop new products and enhancements that address the future needs of our target markets and to respond to their changing standards and practices. We may not be successful in developing, introducing, marketing, licensing and implementing new products and enhancements on a timely and cost-effective basis or without impacting the stability and efficiency of existing products and customer systems. Further, any new products and enhancements may not adequately meet the requirements of the marketplace or achieve market acceptance.
We must make long-term investments and commit significant resources before knowing whether these investments will eventually result in products and services that satisfy our clients' needs and generate revenues required to provide the desired results. Our failure or inability to anticipate and respond to changes in the marketplace, including competitor and supplier developments, may also adversely affect our business, operations and growth.
Uncertainty, consolidation
Errors or defects can exist at any point in a product's life cycle, but are more frequently found after the introduction of new products or enhancements to existing products. Despite internal testing and business failurestesting by clients, our products may contain errors. We may also experience delays while developing and introducing new products for various reasons, such as difficulties in licensing data inputs. Defects, errors, or delays in our products that are significant, or are perceived to be significant, could result in rejection or delay in market acceptance, damage to our reputation, loss of revenue, lower rate of license renewals or upgrades, diversion of development resources, product liability claims or regulatory actions, or increases in service and support costs.
We have provisions in our client contracts to limit our exposure to potential liability claims brought by clients based on the
global investment banking industry may cause us to lose clients and usersOur investment banking clients that perform Mergers and Acquisitions (“M&A”) advisory work, capital markets services and equity research, account for approximately 16.1%use of our ASV. A significant portionproducts or services or our delay or failure to provide services. Contracts with customers also increasingly include service level requirements and audits rights to review our security. Many of these revenues relate to services deployed by the largest banks. Consolidation or contraction in this industry directly impacts the number of prospective clients and users within the sector. Thus, economic uncertainty for our global investment banking clients, consolidation and business failures in this sector could adversely affect our financial results and future growth.
Volatilitycustomers in the financial marketsservices sector are also subject to regulations and requirements to adopt risk management processes commensurate with the level of risk and complexity of their third-party relationships, and provide rigorous oversight of relationships that involve certain "critical activities," some of which may delaybe deemed to be provided by us. Any failure on our part to comply with the spending pattern of clients and reduce future ASV growth
The decision on the part of large institutional clients to purchase our services often requires management-level sponsorship and typically depends upon the size of the client, with larger clients having more complex and time-consuming purchasing processes. The process is also influenced by market volatility. These characteristics often lead us to engagespecific provisions in relatively lengthy sales efforts. Purchases (and incremental ASV) may therefore be delayed as uncertaintiescustomer contracts could result in the financial marketsimposition of various penalties, which may cause clients to remain cautious about capitalinclude termination of contracts, service credits, suspension of payments, contractual penalties, adverse monetary judgments, and, data content expenditures, particularly in uncertain economic environments.
Additional cost due to tax assessments resultingthe case of government contracts, suspension from ongoingfuture government contracting. Even if the outcome of any claims brought against us were ultimately favorable, such a claim would require the time and future audits by tax authoritiesattention of our management, personnel, as well as changes in tax laws
In the ordinary course of business, we are subject to tax examinations by various governmental tax authorities. The global and diverse nature of our business means that there could be additional examinations by governmental tax authorities and the resolution of ongoingfinancial and other probable audits which could imposeresources and potentially pose a future risksignificant disruption to the results of our business. In the third quarter of fiscal 2018, we received a letter from the Massachusetts Department of Revenue relating to prior tax periods. The letter requested additional information in order to determine if we should have collected sales and use taxes on our sales to Massachusetts-based clients. Based upon a preliminary review of their request, it is possible that the State may assess sales and use taxes, underpayment penalties and interest, on previously recorded sales transactions. We have not recorded a liability as of August 31, 2018. While we believe that we will ultimately prevail, if we are required to pay an assessment, the amount could have a material impact on our consolidated financial position, cash flows and results ofnormal business operations.
Changes in tax laws or the terms of tax treaties, in a jurisdiction where we are subject to tax could increase our taxes payable. On December 22, 2017, the Tax Cuts and Jobs Act, (the "Act") was signed into law. The Act enacts broad changes to the existing U.S. Internal Revenue code, including reducing the federal corporate income tax rate from 35% to 21%, amongst many other complex provisions. The ultimate impact of such tax reform may differ from our current estimate due to changes in interpretations and assumptions made by us as well as the issuance of further regulations or guidance.
Failure to identify, integrate, or realize anticipated benefits of acquisitions and strains on resources as a result of growth
There can be no assurance that we will be able to identify suitable candidates for successful acquisition at acceptable prices. Additionally, there may be integration risks or other risks resulting from acquired businesses.
As we continue to pursue selective acquisitions to support our business strategy, we seek to be a disciplined acquirer. Our ability to achieve the expected returns and synergies from past and future acquisitions and alliances depends in part upon our ability to integrate the offerings, technology, sales, administrative functions and personnel of these businesses effectively into our core business. We cannot guarantee that our acquired businesses will perform at the levels anticipated. In addition, past and future acquisitions may subject us to unanticipated risks or liabilities or disrupt operations.
Growth, such as the addition of new clients and acquisitions, puts demands on our resources, including our internal systems and infrastructure. These may require improvements or replacement to meet the additional demands of a larger organization. Further, the addition of new clients and the implementation of such improvements would require additional management time
and resources. These needs may result in increased costs that could negatively impact results of operations. Failure to implement needed improvements, such as improved scalability, could result in a deterioration in the performance of our internal systems and negatively impact the performance of our business.
Failure to maintain reputation
We enjoy a positive reputation in the marketplace. Our ability to attract and retain clients and employees is affected by external perceptions of our brand and reputation. Reputational damage from negative perceptions or publicity could affect our ability to attract and retain clients and employees and our ability to maintain our pricing for our products. Although we monitor developments for areas of potential risk to our reputation and brand, negative perceptions or publicity could have a material adverse effect on our business and financial results.
Operational Risks
Failure to enter into,
renew or
renewcomply with contracts supplying new and existing data sets or products on competitive terms
We collect and aggregate third-party content from thousands of data suppliers, news sources, exchanges, brokers and contributors into our own dedicated online service, which clients access to perform their analyses.
We combine the data from these sources into our own dedicated databases. Clients have access to the data and content found within our databases. These databases are important to our operations as they provide clients with key information. We have entered into third-party content agreements
withof varying lengths, which in some cases can be terminated on one year’s notice at predefined dates, and in other cases on shorter notice. Some of our content provider agreements are with competitors, who may attempt to make renewals difficult or expensive. We seek to maintain favorable contractual relationships with our data suppliers, including those that are also competitors.
We alsoHowever, we cannot control the actions and policies of our data suppliers and we may have data suppliers who provide us with notice of termination, or exclude or restrict us from use of their content, or only license such content at prohibitive cost. Additionally, despite our efforts to comply with our third-party data supplier agreements, there can be no assurances that third parties may not challenge our use of their content, which could result in increased licensing costs, loss of rights, and costly legal actions. Certain data sets that we rely on have a limited number of suppliers, although we make
efforts, whenevery effort to assure that, where reasonable,
to locate alternative sources
to ensure weare available. We are not dependent on any one third-party data
supplier. We believe we are not dependent on anysupplier in order to meet the needs of our clients. No single vendor or data supplier represented more than 10% of our total data costs during fiscal 2020, except for one
significant third-partyvendor, which is a supplier of risk models and portfolio optimizer data
supplier.to FactSet and represented 11% of our data costs in fiscal 2020. Our failure to be able to maintain these relationships, or the failure of our suppliers to deliver accurate data or in a timely manner,
or the occurrence of a dispute with a vendor over use of their content, could
increase our costs and reduce the type of content and products available to our clients, which could harm our reputation in the marketplace and adversely affect our business.
Inability to hire and retain key qualified personnel
Our business is based on successfully attracting, motivating and retaining talented employees. Competition for talent, especially engineering personnel, is strong. We need technical resources such as engineers to help develop new products and enhance existing services. We rely upon sales personnel to sell our products and services and maintain healthy business relationships. If we are unsuccessful in our recruiting efforts, or if we are unable to retain key employees, our ability to develop and deliver successful products and services may be adversely affected and could have a material, adverse effect on our business.
Increased accessibility to free or relatively inexpensive information sources may reduce demand for our products
Each year, an increasing amount of free or relatively inexpensive information becomes available, particularly through the Internet, and this trend may continue. The availability of free or relatively inexpensive information may reduce demand for our products. While we believe our service offering is distinguished by such factors as customization, timeliness, accuracy, ease-of-use, completeness and other value-added factors, if users choose to obtain the information they need from public or other sources,
then our business and results of operations could be adversely affected.
Inability to hire and retain key qualified personnel
Our business is based on successfully attracting, motivating and retaining talented and diverse employees. Creating a diverse and inclusive environment that promotes empowerment and engagement is key to our ability to attract, retain, and develop talent. Competition for talent, especially engineering personnel, is strong. We need technical resources such as engineers to help develop new products and enhance existing services. We rely upon sales personnel to sell our products and services and maintain healthy business relationships. Our future success also is dependent on the continued service and performance of the members of our senior leadership team. All of these personnel possess business and technical capabilities that are difficult to replace. If we are unsuccessful in our recruiting efforts, or if we are unable to retain key employees, our ability to develop and deliver successful products and services may be adversely affected and could have a material, adverse effect on our business.
Operations outside the United States involve additional requirements and burdens that we may not be able to control or manage successfully
In fiscal 2020, approximately 41% of our revenue related to operations located outside the U.S. In addition, a significant number of our employees, approximately 76%, are located in offices outside the U.S. We expect our growth to continue outside the U.S., with non-U.S. revenues accounting for an increased portion of our total revenue in the future. Our non-U.S. operations involve risks that differ from or are in addition to those faced by our U.S. operations. These risks include difficulties in
developing products, services and technology tailored to the needs of non-U.S. clients, including in emerging markets; different employment laws and rules; rising labor costs in lower-wage countries; difficulties in staffing and managing personnel that are located outside the U.S.; different regulatory, legal and compliance requirements, including in the areas of privacy and data protection, anti-bribery and anti-corruption, trade sanctions and currency controls, marketing and sales and other barriers to conducting business; social and cultural differences, such as language; diverse or less stable political, operating and economic environments and market fluctuations; civil disturbances or other catastrophic events that reduce business activity; limited recognition of our brand and intellectual property protection; differing accounting principles and standards; restrictions on or adverse tax consequences from entity management efforts; and changes in U.S. or foreign tax laws. If we are not able to adapt efficiently or manage the business effectively in markets outside the U.S., our business prospects and operating results could be materially and adversely affected.
The current COVID-19 pandemic and other global public health epidemics may adversely impact our business, our future results of operations and our overall financial performance
Our business could be materially and adversely affected by the risk, or the public perception of risk, related to a pandemic or widespread health crisis, such as the current COVID-19 pandemic. A significant outbreak, epidemic or pandemic of contagious diseases in the human population could result in a widespread health crisis adversely affecting the broader economies, financial markets and overall demand for our products. In addition, any preventative or protective actions that governments implement or that we take in respect of a global health crisis such as COVID-19, such as travel restrictions, quarantines or site closures, may interfere with the ability of our employees, vendors, and data suppliers to perform their respective responsibilities and obligations relative to the conduct of our business, including our ability to gather content. Such results could have a material adverse effect on our operations, business, financial condition, results of operations, or cash flows.
Our operations have been affected by a range of external factors related to the COVID-19 pandemic that are not within our control. For example, many jurisdictions have imposed a wide range of restrictions on the physical movement of our employees and vendors to limit the spread of COVID-19. If the COVID-19 pandemic has a substantial impact on our employees' or vendors' attendance or productivity, our operations, including our ability to gather content, may suffer, and in turn our results of operations and overall financial performance may be impacted. Furthermore, if our employees incur substantial medical expenses due to COVID-19, our expenses may increase due to our self-funded employee medical insurance model. Our management is focused on mitigating the effects of COVID-19 on our business, which has required and will continue to require a substantial investment of their time and may delay their other efforts. The impact of COVID-19, and the volatile regional and global economic conditions stemming from the pandemic, may also increase the severity or likelihood of the other risks described in this Item, any of which could have a material effect on us.
We closely monitor the impact of the COVID-19 pandemic and continually assess its potential effects on our business. Given the dynamic nature of these circumstances, the full impact of the COVID-19 pandemic cannot be reasonably estimated at this time. The extent to which our business, financial condition, results of operations, or cash flows are affected by COVID-19 will depend in part on future developments which cannot be accurately predicted and are uncertain, as there are no comparable recent events that provide guidance as to the potential effect of the spread of a global pandemic. The impact of the COVID-19 pandemic depends upon various uncertainties, including the ultimate geographic spread of the virus, the severity of the virus, the duration of the outbreak, and actions that may be taken by governmental authorities to contain the virus. This situation is changing continually, and additional effects may arise that we are not presently aware of or that we currently do not consider to be significant risks to our operations. If we are not able to respond to and manage the impact of such events effectively, our business and financial condition could be negatively impacted. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations - COVID-19 Update for additional information.
Legal & Regulatory Risks
Legislative and regulatory changes in the environments in which we and our clients operate
As a business, we are subject to numerous laws and regulations in the U.S. and in the other countries in which we operate. These laws, rules, and regulations, and their interpretations, may change in the future or conflict, and compliance with these changes may increase our costs or cause us to make changes in or otherwise limit our business practices. In addition, the global nature and scope of our business operations make it more difficult to monitor areas that may be subject to regulatory and compliance risk. If we fail to comply with any applicable law, rule, or regulation, we could be subject to claims and fines and suffer reputational damage. Uncertainty caused by political change globally, and complex relationships across countries, including the U.S. and nations in Europe and Asia, heightens the risk of regulatory uncertainty.
Many of our clients operate within a highly regulated environment and must comply with governmental legislation and regulations. The U.S. regulators have increased their focus on the regulation of the financial services industry. Increased regulation of our clients may increase their expenses, causing them to seek to limit or reduce their costs from outside services
such as ours. Additionally, if our clients are subjected to investigations or legal proceedings they may be adversely impacted, possibly leading to their liquidation, bankruptcy, receivership, reduction in assets under management, or diminished operations, which would adversely affect our revenue. Recent regulatory changes that we believe might materially impact us and our clients include:
MiFID
In the European Union, the new version of the Markets in Financial Instruments Directive (recast), also known as "MiFID II" became effective in January 2018. MiFID II built upon many of the initiatives introduced through MiFID and is intended to help improve the functioning of the European Union single market by achieving a greater consistency of regulatory standards. MiFID originally became effective in 2007. We believe that compliance with MiFID II requirements is time-consuming and costly for the investment managers who are subject to it and will cause clients to adapt their pricing models and business practices significantly. These increased costs may impact our clients’ spending and may cause some investment managers to lose business or withdraw from the market, which may adversely affect demand for our services. However, MiFID II may also present us with new business opportunities for new service offerings. We continue to monitor the impact of MiFID II on the investment process and trade lifecycle. We also continue to review the application of key MiFID II requirements and plan to work with our clients to navigate through them.
Brexit
On January 31, 2020, the United Kingdom formally left the European Union when the UK-EU Withdrawal Agreement became effective. Under the Withdrawal Agreement, a transition period began and will run until December 31, 2020 (but could be extended). The UK and the EU are currently in the process of negotiating a UK-EU free trade deal and the terms of their future relationship, but have so far not been able to finalize their future arrangement. The deadline for these negotiations is the expiry of the transition period and the UK government has made it clear that it will not ask to extend the transition period. At this time, we cannot predict the impact that the future UK-EU arrangements will have on our business and our clients, as it will depend on the longer-term outcome of tariff, trade, regulatory and other negotiations. Although the results of these negotiations are currently unknown, it is possible that new terms may adversely affect our operations and financial results. While we evaluate our own risks and uncertainty related to Brexit, we continue to partner with our clients to help them navigate the fluctuating international markets. This uncertainty may have an impact on our clients’ expansion or spending plans, which may in turn negatively impact our revenue or growth.
Adverse resolution of litigation or governmental investigations
We are party to lawsuits in the normal course of our business. Litigation and governmental investigations can be expensive, lengthy and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. Unfavorable resolution of lawsuits could have a material adverse effect on our business, operating results or financial condition. For additional information regarding legal matters, see Item 3. Legal Proceedings, of this Annual Report on Form 10-K.
Third parties may claim we infringe upon their intellectual property rights or may infringe upon our intellectual property rights
We may receive notice from others claiming that we have infringed upon their intellectual property rights. Responding to these claims may require us to enter into royalty and licensing agreements on
favorableunfavorable terms, incur litigation costs, enter into settlements, stop selling or redesign affected products,
or pay damages and satisfy indemnification commitments with our clients or suppliers under contractual provisions of various license arrangements. Additionally, third parties may copy, infringe or otherwise profit from
the unauthorized use of our
intellectuallyintellectual property rights, requiring us to litigate to protect our rights. Certain countries may not offer adequate protection of proprietary rights. If we are required to defend ourselves or assert our rights or take such actions mentioned, our operating margins may decline as a result. We have incurred, and expect to continue to incur, expenditures to acquire the use of technology and intellectual property rights as part of our strategy to manage this risk.
Operations outside
Additional cost due to tax assessments resulting from ongoing and future audits by tax authorities as well as changes in tax laws
In the ordinary course of business, we are subject to changes in tax laws as well as tax examinations by various governmental tax authorities. The global and diverse nature of our business means that there could be additional examinations by governmental tax authorities and the resolution of ongoing and other probable audits which could impose a future risk to the results of our business. In August 2019, we received a Notice of Intent to Assess (the "Notice") additional sales taxes, interest and underpayment penalties from the Commonwealth of Massachusetts Department of Revenue relating to prior tax periods. The Notice follows FactSet’s previously disclosed response to a letter from the Commonwealth requesting additional sales
information. Based upon a preliminary review of the Notice, we believe the Commonwealth may assess sales tax, interest and underpayment penalties on previously recorded sales transactions. We intend to contest any such assessment, if assessed, and continue to cooperate with the Commonwealth’s inquiry. Due to uncertainty surrounding the assessment process, we are unable to reasonably estimate the ultimate outcome of this matter and, as such, have not recorded a liability as of August 31, 2020. We believe that we ultimately will prevail if we are presented with a formal assessment; however, if we do not prevail, the amount could have a material impact on our consolidated financial position, cash flows and results of operations.
Changes in tax laws or the terms of tax treaties in a jurisdiction where we are subject to tax could increase our taxes payable. On December 22, 2017, the U.S.
involve additional requirementsTax Cuts and
burdens that we may not be ableJobs Act, ("TCJA") was signed into law. The TCJA enacted broad changes to
control or manage successfullyIn fiscal 2018, approximately 38% of our revenues related to operations located outside the U.S. In addition, a significant numberInternal Revenue code, including reducing the federal corporate income tax rate from 35% to 21%, among many other complex provisions. The ultimate impact of such tax reform may differ from our employees, approximately 74%, are locatedcurrent estimate due to changes in offices outsideinterpretations and assumptions made by us, as well as the issuance of further regulations or guidance, or further legislative changes to the U.S. We expect our growth to continue outside the U.S., with non-U.S. revenues accounting for an increased portion of total revenues in the future. Our non-U.S. operations involve risks that differ from or are in addition to those faced by our U.S. operations. These risks include: difficulties in developing products, services and technology tailored to the needs of non-U.S. clients, including in emerging markets; different employment laws and rules; rising labor costs in low-wage countries; difficulties in staffing and managing personnel that are located outside the U.S.; different regulatory, legal and compliance requirements, including in the areas of privacy and data protection, anti-bribery and anti-corruption, trade sanctions and currency controls, marketing and sales and other barriers to conducting business; social and cultural differences, such as languages; diverse or less stable political, operating and economic environments and market fluctuations; civil disturbances or other catastrophic events that reduce business activity; limited recognition of our brand and intellectual property protection; differing accounting principles and standards; restrictions on or adverse tax consequences from entity management efforts; and changes in U.S. or foreign tax laws. If we are not able to adapt efficiently to or manage the business effectively in markets outside the U.S., our business prospects and operating results could be materially and adversely affected.
Internal Revenue code.
Financial Market Risks
Exposure to fluctuations in currency exchange rates and the failure of hedging arrangements
Due to the global nature of our operations, we conduct business outsideoutside the U.S. in severalseveral currencies including the British Pound Sterling, Euro, Indian Rupee, Japanese Yen, and Philippine Peso.Peso. To the extent that our international activities increase in the future, our exposure to fluctuations in currency exchange rates may increase as well. To manage this exposure, we utilize derivative instruments (such as foreign currency forward contracts). By their nature, all derivative instruments involve elements of market and credit risk. The market risk associated with these instruments resulting from currency exchange movements is expected to offset the market risk of the underlying transactions, assets and liabilities being hedged. Credit risk is managed through the continuous monitoring of exposure to the counterparties associated with these instruments. Our primary objective in holding derivatives is to reduce the volatility of earnings with changes in foreign currency. Although we believe that our foreign exchange hedging policies are reasonable and prudent under the circumstances, our attempt to hedge against these risks may not be successful, which could cause an adverse impact on our results of operations. Business performance may not be sufficient to meet financial guidance or publicly disclosed long-term targets
Legislative and regulatory changes in the environments in which we andWe provide public, full-year financial guidance based upon assumptions regarding our clients operate
Many of our clients operate within a highly regulated environment and must comply with governmental legislation and regulations. The U.S. regulators have increased their focus on the regulation of theexpected financial services industry. Increased regulation of our clients may increase their expenses, causing them to seek to limit or reduce their costs from outside services such as ours. Additionally, if our clients are subjected to investigations or legal proceedings they may be adversely impacted, possibly leading to their liquidation, bankruptcy, receivership, reduction in assets under management, or diminished operations, which would adversely affect our revenues. In the European Union, the new version of the Markets in Financial Instruments Directive, also known as “MiFID II” became effective in January 2018. We believe that compliance with MiFID II requirements is time-consuming and costly for the investment managers who are subject to it and will cause clients to adapt their pricing models and business practices significantly. These increased costs may impact our clients’ spending and may cause some investment managers to lose business or withdraw from the market, which may adversely affect demand for our services. However, MiFID II may also present us with new business opportunities for new service offerings. In addition to the MiFID II requirements, we further believe the proposed withdrawal of the U.K. from the European Union (also known as Brexit) on terms still being negotiated, has created economic uncertainty among our client base. This uncertainty may have an impact on our clients’ expansion or spending plans, which may in turn negatively impact our revenues or growth.
As a business, we are also subject to numerous laws and regulations in the U.S. and in the other countries in which we operate. These laws, rules, and regulations, and their interpretations, may change in the future, and compliance with these changes may increase our costs or cause us to make changes in or otherwise limit our business practices. In addition, the global nature and scope of our business operations make it more difficult to monitor areas that may be subject to regulatory and compliance risk. If we fail to comply with any applicable law, rule, or regulation, we could be subject to claims and fines and suffer reputational damage.
Adverse resolution of litigation or governmental investigations
We are party to lawsuits in the normal course of business. Litigation and governmental investigations can be expensive, lengthy and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. Unfavorable resolution of lawsuits could have a material adverse effect on our business, operating results or financial condition. For additional information regarding legal matters, see Item 3, Legal Proceedings, contained in Part I of this Report on Form 10-K.
Failure to maintain reputation
We enjoy a positive reputation in the marketplace. Our ability to attract and retain clients and employees is affected by external perceptions of our brand and reputation. Reputational damage from negative perceptions or publicity could affectperformance, including our ability to attractgrow revenue and retain clientsorganic ASV plus professional services, to meet our planned expenses and employeesmaintain a certain tax rate, and our ability to achieve our profitability targets. We can provide no assurances that we will be able to maintain the levels of growth and profitability that we have experienced in the past, or that our pricing for our products. Althoughgrowth strategies will be successful. If we monitor developments for areas of potential riskare unable to our reputation and brand, negative perceptions or publicity could have a material adverse effectsuccessfully execute on our businessstrategies to achieve our growth objectives and retain our existing clients, or if we experience higher than expected operating costs or taxes, we risk not meeting our full-year financial results.
guidance or may find it necessary to revise such guidance during the year.ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
As of August 31, 2018, we leased approximately 202,000 square feet of office space at our headquarters in Norwalk, Connecticut. On February 14, 2018, we entered into a new lease agreement to relocate our
Our corporate headquarters
tois located at 45 Glover Avenue in Norwalk, Connecticut.
The newWe lease our headquarters location,
will comprise approximately 173,000which is 173,164 square feet,
of office space. We expect to take possession ofand also lease the
newly leased property on or around January 1, 2019, for fit-out purposes. We will continue to occupy our existing headquarters space until the new headquarters is ready for occupancy, currently estimated to beother locations listed in the
second quarter of fiscal 2020.Including new lease agreements executed during fiscal 2018, our Company’s worldwide leased space increased to approximately 1,750,000 square feet as of August 31, 2018, up 607,000 square feet, or 53.1%, from August 31, 2017 and includes properties at the following locations:
Segment
| Leased Location
|
| |
United States
| Atlanta, Georgia
|
| Austin, Texas
|
| Boston, Massachusetts
|
| Chicago, Illinois
|
| Jackson, Wyoming
|
| Los Angeles, California
|
| Manchester, New Hampshire
|
| Minneapolis, Minnesota
|
| New York, New York
|
| Norwalk, Connecticut
|
| Piscataway, New Jersey
|
| Reston, Virginia
|
| San Francisco, California
|
| Sao Paulo, Brazil
|
| Toronto, Canada
|
| Youngstown, Ohio
|
| |
Europe
| Avon, France
|
| Amsterdam, the Netherlands
|
| Cologne, Germany
|
| Dubai, United Arab Emirates
|
| Frankfurt, Germany
|
| Gloucester, England
|
| Johannesburg, South Africa
|
| London, England
|
| Luxembourg City, Luxembourg
|
| Madrid, Spain
|
| Milan, Italy
|
| Paris, France
|
| Riga, Latvia
|
| Sofia, Bulgaria
|
| Zurich, Switzerland
|
| |
Asia Pacific
| Chennai, India
|
| Hong Kong, China
|
| Hyderabad, India
|
| Manila, the Philippines
|
| Melbourne, Australia
|
| Mumbai, India
|
| Shanghai, China
|
| Singapore
|
| Sydney, Australia
|
| Tokyo, Japan
|
table below. We have data content collection offices located in Hyderabad, India, and Manila, the Philippines which benefit all our operating segments.and Latvia. Additionally, we have data centers that support our technological infrastructure located in Manchester, New Hampshire, Piscataway, New Jersey and Reston, Virginia. The other locations listed in the table above are leased office space. The leases expire on various dates through 2031.
We believe the amount of leased space as of August 31, 20182020 is adequate for our current needs and that additional space iscan be available for lease to meet any future needs.
| | | | | |
| Segment | LeasedLocation |
| |
| Americas | Austin, Texas |
| Boston, Massachusetts |
| Chicago, Illinois |
| Jackson, Wyoming |
| Los Angeles, California |
| Manchester, New Hampshire |
| Minneapolis, Minnesota |
| New York, New York |
| Norwalk, Connecticut |
| Piscataway, New Jersey |
| Reston, Virginia |
| San Francisco, California |
| Sao Paulo, Brazil |
| Toronto, Canada |
| Youngstown, Ohio |
| |
| |
| EMEA | Amsterdam, the Netherlands |
| Avon, France |
| Cologne, Germany |
| Dubai, United Arab Emirates |
| Frankfurt, Germany |
| Gloucester, England |
| Johannesburg, South Africa |
| London, England |
| Luxembourg City, Luxembourg |
| Madrid, Spain |
| Milan, Italy |
| Paris, France |
| Riga, Latvia |
| Sofia, Bulgaria |
| Zurich, Switzerland |
| |
| Asia Pacific | Chennai, India |
| Hong Kong, China |
| Hyderabad, India |
| Manila, the Philippines |
| Melbourne, Australia |
| Mumbai, India |
| Shanghai, China |
| Singapore |
| Sydney, Australia |
| Tokyo, Japan |
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company iswe are subject to legal proceedings, claims and litigation arising in the ordinary course of business, including intellectual property litigation. Based on currently available information, the Company’sour management does not believe that the ultimate outcome of these unresolved matters against FactSet, individually or in the aggregate, is likely to have a material adverse effect on the Company'sour consolidated financial position, its annual results of operations or its annual cash flows. However, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.
ITEM 4. MINE SAFETY DISCLOSURES
Part II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(a)
| Market Information, Holders and Dividends
|
(a)Market Information, Holders and Dividends
Market Information – Our common stock is listed on the New York Stock Exchange (“NYSE”)NYSE and the NASDAQ Stock Market under the symbol FDS. The following table sets forth, for each fiscal period indicated, the high and low sales prices per share of our common stock as reported on the NYSE:| | | First | | | Second | | | Third | | | Fourth | |
2018 | | | | | | | | | | | | | | | | |
High | | $ | 200.31 | | | $ | 209.02 | | | $ | 217.36 | | | $ | 229.98 | |
Low | | $ | 155.88 | | | $ | 183.89 | | | $ | 184.48 | | | $ | 195.69 | |
| | | | | | | | | | | | | | | | | |
2017 | | | | | | | | | | | | | | | | |
High | | $ | 183.17 | | | $ | 183.64 | | | $ | 182.56 | | | $ | 172.22 | |
Low | | $ | 150.95 | | | $ | 157.56 | | | $ | 156.92 | | | $ | 155.09 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | First | | Second | | Third | | Fourth |
| 2020 | | | | | | | |
| High | $ | 289.98 | | | $ | 310.25 | | | $ | 307.97 | | | $ | 363.64 | |
| Low | $ | 233.09 | | | $ | 275.12 | | | $ | 195.22 | | | $ | 279.01 | |
| | | | | | | |
| 2019 | | | | | | | |
| High | $ | 237.29 | | | $ | 237.95 | | | $ | 284.32 | | | $ | 305.38 | |
| Low | $ | 210.11 | | | $ | 188.31 | | | $ | 228.43 | | | $ | 266.06 | |
Holdersof Record– As of October 24, 2018,22, 2020, we had approximately 177,7772,604 holders of record of our common stock. However, because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders. The closing price of our common stock on October 24, 2018,22, 2020, was $215.30$327.97 per share as reported on the NYSE.
Dividends - During fiscal years 20182020 and 2017,2019, our Board of Directors declared the following dividends on our common stock:Year Ended | | Dividends per Share of Common Stock | | Record Date | | Total $ Amount (in thousands) | | Payment Date |
Fiscal 2018 | | | | | | | | | | |
First Quarter | | $ | 0.56 | | November 30, 2017 | | $ | 21,902 | | December 19, 2017 |
Second Quarter | | $ | 0.56 | | February 28, 2018 | | $ | 21,799 | | March 20, 2018 |
Third Quarter | | $ | 0.64 | | May 31, 2018 | | $ | 24,566 | | June 19, 2018 |
Fourth Quarter | | $ | 0.64 | | August 31, 2018 | | $ | 24,443 | | September 18, 2018 |
| | | | | | | | | | | |
Fiscal 2017 | | | | | | | | | | |
First Quarter | | $ | 0.50 | | November 30, 2016 | | $ | 19,852 | | December 20, 2016 |
Second Quarter | | $ | 0.50 | | February 28, 2017 | | $ | 19,709 | | March 21, 2017 |
Third Quarter | | $ | 0.56 | | May 31, 2017 | | $ | 21,951 | | June 20, 2017 |
Fourth Quarter | | $ | 0.56 | | August 31, 2017 | | $ | 21,853 | | September 19, 2017 |
All the above cash dividends were paid from existing cash resources on a quarterly basis.
| | | | | | | | | | | | | | | | | |
| Year Ended | Dividends per
Share of
Common Stock | Record Date | | Total $ Amount (in thousands) | Payment Date |
| Fiscal 2020 | | | | | |
| First Quarter | $ | 0.72 | | November 29, 2019 | | $ | 27,291 | | December 19, 2019 |
| Second Quarter | $ | 0.72 | | February 28, 2020 | | $ | 27,251 | | March 19, 2020 |
| Third Quarter | $ | 0.77 | | May 29, 2020 | | $ | 29,189 | | June 18, 2020 |
| Fourth Quarter | $ | 0.77 | | August 31, 2020 | | $ | 29,283 | | September 17, 2020 |
| | | | | |
| Fiscal 2019 | | | | | |
| First Quarter | $ | 0.64 | | November 30, 2018 | | $ | 24,372 | | December 18, 2018 |
| Second Quarter | $ | 0.64 | | February 28, 2019 | | $ | 24,385 | | March 19, 2019 |
| Third Quarter | $ | 0.72 | | May 31, 2019 | | $ | 27,506 | | June 18, 2019 |
| Fourth Quarter | $ | 0.72 | | August 30, 2019 | | $ | 27,445 | | September 19, 2019 |
Future dividend payments will depend on our earnings, capital requirements, financial condition and other factors considered relevant by us, and is subject to final determination by our Board of Directors.
(b)
| Recent Sales of Unregistered Securities
|
(b) Recent Sales of Unregistered Securities
There were no sales of unregistered equity securities during fiscal
2018.2020.(c)Issuer Purchases of Equity Securities
(c)
| Issuer Purchases of Equity Securities
|
The following table provides a month-to-month summary of the share repurchase activity under theour current stockshare repurchase program during the three months ended August 31, 2018 (in2020:
(in thousands, except per share data)
:Period | | Total number
of shares
purchased | | | Average
price paid per
share | | | Total number of shares purchased as part of publicly announced plans or programs | | | Maximum number of shares (or approximate dollar value) that may yet be purchased under the plans or programs (1) | |
June 2018 | | | 49,975 | | | $ | 199.10 | | | | 49,975 | | | $ | 299,325 | |
July 2018 | | | 214,503 | | | $ | 204.09 | | | | 214,503 | | | $ | 255,548 | |
August 2018 | | | 65,000 | | | $ | 212.27 | | | | 65,000 | | | $ | 241,750 | |
| | | | 329,478 | | | | | | | | 329,478 | | | | | |
(1)
| Repurchases may be made from time to time in the open market and privately negotiated transactions, subject to market conditions.No minimum number of shares to be repurchased has been fixed. There is no timeframe to complete the repurchase program and it is expected that share repurchases will be paid using existing and future cash generated by operations.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | Total number of shares purchased(1) | | Average
price paid per
share | | Total number of shares purchased as part of
publicly announced plans or programs | | Maximum number of shares (or approximate dollar value) that may yet be purchased under the plans or programs(2) | |
| June 2020 | 2,940 | | | $ | 328.47 | | | — | | | $ | 287,616 | |
|
| July 2020 | 47,428 | | | $ | 344.03 | | | 46,480 | | | $ | 271,616 | | |
| August 2020 | 37,295 | | | $ | 355.76 | | | 35,468 | | | $ | 258,995 | | |
| | 87,663 | | | | | 81,948 | | | | |
(1)Includes 81,948 shares purchased under the existing share repurchase program, as well as 5,715 shares repurchased from employees to cover their cost of taxes due upon the vesting or exercise of stock-based awards.
(2)Repurchasesmay be made from time to time in the open market and privately negotiated transactions, subject to market conditions.No minimum number of shares to be repurchased has been fixed. There is no timeframe to complete the share repurchase program and it is expected that share repurchases will be paid using existing and future cash generated by operations.
Securities Authorized for Issuance underunder Equity Compensation Plans– see Part IIIrefer to Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters of this Annual Report on Form 10-K10-K.
StockPerformance GraphPerformanceGraph The annual changes for the five-year period shown in the graph below are based on the assumption thatassume $100 had been invested in our common stock, the Standard & Poor’s 500 Index, the NYSE Composite Index, and the Dow Jones U.S. Financial Services Index, and the S&P 500 Financial Exchange and Data Index on August 31, 2013. 2015, or the origination date of each respective index. We are adding the S&P 500 Financial Exchange and Data Index as a comparison peer group this year, in lieu of the NYSE Composite Index, as we believe it is reflective of the stock performance of other companies that provide services similar to ours and will provide a more meaningful comparison of our stock performance to investors. The NYSE Composite Index is shown below for comparison purposes in the transitional year.
The total cumulative dollar returns shown on the graph represent the value that such investments would have had on August 31,
2018.2020. Stockholder returns over the indicated period are based on historical data and should not be considered indicative of future stockholder returns.
| | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | | | 2018 | |
FactSet Research Systems Inc. | | $ | 100 | | | $ | 124 | | | $ | 154 | | | $ | 174 | | | $ | 154 | | | $ | 224 | |
S&P 500 Index | | $ | 100 | | | $ | 123 | | | $ | 121 | | | $ | 133 | | | $ | 151 | | | $ | 178 | |
NYSE Composite Index | | $ | 100 | | | $ | 119 | | | $ | 110 | | | $ | 116 | | | $ | 128 | | | $ | 140 | |
Dow Jones U.S. Financial Services Index | | $ | 100 | | | $ | 119 | | | $ | 124 | | | $ | 125 | | | $ | 157 | | | $ | 191 | |
| | | | | | | | | | | | | | | | | | | | |
| | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 |
| FactSet Research Systems Inc. | $ | 100 | | $ | 113 | | $ | 100 | | $ | 145 | | $ | 172 | | $ | 222 | |
| S&P 500 Index | $ | 100 | | $ | 110 | | $ | 125 | | $ | 147 | | $ | 148 | | $ | 177 | |
| NYSE Composite Index | $ | 100 | | $ | 106 | | $ | 117 | | $ | 128 | | $ | 125 | | $ | 128 | |
| Dow Jones U.S. Financial Services Index | $ | 100 | | $ | 101 | | $ | 127 | | $ | 154 | | $ | 148 | | $ | 143 | |
| S&P 500 Financial Exchanges and Data | | $ | 100 | | $ | 119 | | $ | 155 | | $ | 191 | | $ | 222 | |
The information contained in the above graph shall not be deemed to be soliciting material or filed or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, except to the extent that FactSet specificallyincorporates it by reference into a document filedfiled under the Securities Actof 1933 or the Securities Exchange Act of 1934. ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data has been derived from our consolidated financial statements.Consolidated Financial Statements. This financial data should be read in conjunction with Item 7, 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8, 8. Financial Statements and Supplementary Data,Data, of this Annual Report on Form 10-K. Consolidated Statements of Income Data
| | | For the year ended August 31, | |
(in thousands, except per share data) | | 2018 | | | 2017 | | | 2016 | | | 2015 | | | 2014 | |
Revenues | | $ | 1,350,145 | | | $ | 1,221,179 | | | $ | 1,127,092 | | | $ | 1,006,768 | | | $ | 920,335 | |
Operating income | | $ | 366,204 | (1) | | $ | 352,135 | (4) | | $ | 349,676 | (7) | | $ | 331,918 | (10) | | $ | 302,219 | (13) |
Provision for income taxes | | $ | 84,753 | | | $ | 86,053 | | | $ | 122,178 | | | $ | 92,703 | | | $ | 91,921 | |
Net income | | $ | 267,085 | (2) | | $ | 258,259 | (5) | | $ | 338,815 | (8) | | $ | 241,051 | (11) | | $ | 211,543 | (14) |
Diluted earnings per common share | | $ | 6.78 | (3) | | $ | 6.51 | (6) | | $ | 8.19 | (9) | | $ | 5.71 | (12) | | $ | 4.92 | (15) |
Weighted average common shares (diluted) | | | 39,377 | | | | 39,642 | | | | 41,365 | | | | 42,235 | | | | 42,970 | |
Cash dividends declared per common share | | $ | 2.40 | | | $ | 2.12 | | | $ | 1.88 | | | $ | 1.66 | | | $ | 1.48 | |
| | | | | | | | | | | | | | | | | |
| For the year ended August 31, |
| (in thousands, except per share data) | 2020 | 2019 | 2018 | 2017 | 2016 |
| Revenue | $ | 1,494,111 | | $ | 1,435,351 | | $ | 1,350,145 | | $ | 1,221,179 | | $ | 1,127,092 | |
| Operating income | $ | 439,660 | | $ | 438,035 | | $ | 366,204 | | $ | 352,135 | | $ | 349,676 | |
| Provision for income taxes | $ | 54,196 | | $ | 69,175 | | $ | 84,753 | | $ | 86,053 | | $ | 122,178 | |
| Net income | $ | 372,938 | | $ | 352,790 | | $ | 267,085 | | $ | 258,259 | | $ | 338,815 | |
| Diluted earnings per common share | $ | 9.65 | | $ | 9.08 | | $ | 6.78 | | $ | 6.51 | | $ | 8.19 | |
| Diluted weighted average common shares | 38,646 | | 38,873 | | 39,377 | | 39,642 | | 41,365 | |
| Cash dividends declared per common share | $ | 2.98 | | $ | 2.72 | | $ | 2.40 | | $ | 2.12 | | $ | 1.88 | |
Consolidated Balance
SheetSheets Data
| | | As of August 31, | |
(in thousands) | | 2018 | | | 2017 | | | 2016 | | | 2015 | | | 2014 | |
Cash and cash equivalents | | $ | 208,623 | | | $ | 194,731 | | | $ | 228,407 | | | $ | 158,914 | | | $ | 116,378 | |
Accounts receivable, net of reserves | | $ | 156,639 | | | $ | 148,331 | | | $ | 97,797 | | | $ | 95,064 | | | $ | 90,354 | |
Goodwill and intangible assets, net | | $ | 850,768 | | | $ | 881,103 | | | $ | 546,076 | | | $ | 348,339 | | | $ | 327,463 | |
Total assets | | $ | 1,419,447 | | | $ | 1,413,315 | | | $ | 1,019,161 | | | $ | 736,671 | | | $ | 663,212 | |
Non-current liabilities | | $ | 672,413 | | | $ | 652,485 | | | $ | 343,570 | | | $ | 65,307 | | | $ | 24,839 | |
Total stockholders’ equity | | $ | 525,900 | | | $ | 559,691 | | | $ | 517,381 | | | $ | 531,584 | | | $ | 511,082 | |
(1)
| Operating income in fiscal 2018 included pre-tax charges of $17.4 million from restructuring actions, $4.7 million related to other corporate actions including stock-based compensation acceleration and $4.9 million in legal matters.
|
| |
(2)
| Net income in fiscal 2018 included $13.8 million (after-tax) expense related to restructuring actions, $3.8 million (after-tax) expense related to other corporate actions including stock-based compensation acceleration, $3.4 million (after-tax) expense related to legal matters and $21.3 million of tax charges primarily related to the one-time deemed repatriation tax on foreign earnings.
|
| |
(3)
| Diluted earnings per share (“EPS”) in fiscal 2018 included a $0.35 decrease in diluted EPS from restructuring actions, a $0.10 detriment due to other corporate actions including stock-based compensation, a $0.09 decrease from legal matters and a $0.53 decrease from tax charges primarily related to the one-time deemed repatriation tax on foreign earnings.
|
| |
(4)
| Operating income in fiscal 2017 included pre-tax charges of $5.6 million related to modifications of certain share-based compensation grants, $5.0 million related to restructuring actions and $7.4 million in acquisition-related expenses.
|
| |
(5)
| Net income in fiscal 2017 included $4.2 million (after-tax) related to modifications of certain share-based compensation grants, $3.7 million (after-tax) related to restructuring actions and $5.5 million (after-tax) of acquisition-related expenses. Fiscal 2017 net income also included a loss of $0.9 million (after-tax) from a final working capital adjustment related to the sale of FactSet’s Market Metrics business in the fourth quarter of fiscal 2016. These charges were offset by income tax benefits of $1.9 million related primarily to finalizing prior year tax returns and other discrete items.
|
| |
(6)
| Diluted EPS in fiscal 2017 included a $0.11 decrease in diluted EPS from the modifications of certain share-based compensation grants, a $0.09 decrease from the restructuring actions, a $0.13 decrease from acquisition-related expenses and $0.02 decrease from the working capital adjustment, partially offset by a $0.05 increase in diluted EPS from the income tax benefits.
|
| |
(7)
| Operating income in fiscal 2016 included pre-tax charges of $4.6 million related primarily to legal matters, $2.8 million from restructuring actions and $1.8 million related to a change in the vesting of performance-based equity options.
|
| |
(8)
| Net income in fiscal 2016 included $3.3 million (after-tax) related primarily to legal matters, $2.0 million (after-tax) from restructuring actions, $1.2 million (after-tax) related to a change in the vesting of performance-based equity instruments, partially offset by $10.5 million of income tax benefits primarily from the permanent reenactment of the U.S. Federal R&D tax credit (“R&D Tax Credit”), finalizing the fiscal 2015 tax returns and other discrete items and a gain of $81.7 million (after-tax) related to the sale of FactSet’s Market Metrics business in July 2016.
|
| |
(9)
| Diluted EPS in fiscal 2016 included the net effect of a $2.01 increase in diluted EPS from the gain on sale and a $0.25 increase in diluted EPS from the income tax benefits, partially offset by a $0.08 decrease related primarily to legal matters, a $0.05 decrease from the restructuring actions and a $0.03 decrease from a change in the vesting of performance-based equity instruments.
|
| | | | | | | | | | | | | | | | | |
| As of August 31, |
| (in thousands) | 2020 | 2019 | 2018 | 2017 | 2016 |
| Cash and cash equivalents | $ | 585,605 | | $ | 359,799 | | $ | 208,623 | | $ | 194,731 | | $ | 228,407 | |
| Accounts receivable, net of reserves | $ | 155,011 | | $ | 146,309 | | $ | 156,639 | | $ | 148,331 | | $ | 97,797 | |
| Goodwill and intangible assets, net | $ | 830,798 | | $ | 810,177 | | $ | 850,768 | | $ | 881,103 | | $ | 546,076 | |
| Total assets | $ | 2,083,388 | | $ | 1,560,130 | | $ | 1,419,447 | | $ | 1,413,315 | | $ | 1,019,161 | |
| Non-current liabilities | $ | 910,720 | | $ | 668,951 | | $ | 672,413 | | $ | 652,485 | | $ | 343,570 | |
| Total stockholders’ equity | $ | 896,375 | | $ | 672,256 | | $ | 525,900 | | $ | 559,691 | | $ | 517,381 | |
The items described below (pre-tax) represent a significant impact to the presentation and comparability of our selected financial data.
•During fiscal 2020, the Company recorded a $16.5 million impairment charge to reflect the estimated fair value of an investment in a company, expenses of $14.8 million related to professional fees associated with infrastructure upgrades and our ongoing multi-year investment plan, and $4.3 million of facilities costs. The facilities costs related to duplicate rent associated with the build-out of the new Norwalk, Connecticut headquarters while we still occupied our then-current Norwalk, Connecticut headquarters.
•During fiscal 2019, the Company recorded $5.0 million in non-core transaction related revenue. The Company also recorded expenses of $4.3 million in severance costs and $8.7 million related to other corporate actions including stock-based compensation acceleration, professional fees related to infrastructure upgrade activities, and a one-time adjustment related to data costs and occupancy costs.
(10)
| Operating income in fiscal 2015 included pre-tax charges of $3.0 million related to the vesting of performance-based equity instruments and $3.2 million related primarily to changes in the senior leadership responsible for the Company’s sales force.
|
| |
(11)
| Net income in fiscal 2015 included $2.1 million (after-tax) of incremental expenses related to the vesting of performance-based equity instruments, $2.2 million (after-tax) related to the changes in the senior leadership responsible for the Company’s sales force and income tax benefits of $8.8 million primarily from the reenactment of the R&D Tax Credit in December 2014, and finalizing the fiscal 2014 tax returns and other discrete items.
|
| |
(12)
| Diluted EPS in fiscal 2015 included the net effect of a $0.21 increase in diluted EPS from the income tax benefits, partially offset by a $0.05 decrease from the vesting of performance-based equity instruments and a $0.05 decrease from the changes in the senior leadership responsible for the Company’s sales force.
|
| |
(13)
| Operating income in fiscal 2014 included pre-tax charges of $1.6 million related primarily to legal matters and $1.4 million related to a change in the vesting of performance-based equity options.
|
| |
(14)
| Net income in fiscal 2014 included $1.1 million (after-tax) primarily related to legal matters, $1.0 million (after-tax) of incremental expenses related to the vesting of performance-based equity instruments and income tax benefits of $0.6 million finalizing the fiscal 2013 tax returns and other discrete items.
|
| |
(15)
| Diluted EPS in fiscal 2014 included the net effect of a $0.03 decrease in diluted EPS from the income tax benefits and $0.02 decrease from a change in the vesting of performance-based equity.
|
•During fiscal 2018, the Company recorded expenses of $17.4 million in restructuring actions, $4.7 million related to other corporate actions, including stock-based compensation acceleration, and $4.9 million in legal matters.
•During fiscal 2017, the Company recorded expenses of $5.6 million related to modifications of certain share-based compensation grants, $5.0 million related to restructuring actions and $7.4 million in acquisition-related expenses.
•During fiscal 2016, the Company recorded expenses of $4.6 million related primarily to legal matters, $2.8 million from restructuring actions and $1.8 million related to a change in the vesting of performance-based equity options.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8. Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. For a similar detailed discussion comparing fiscal 2019 and 2018, refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations within the Company's Annual Report on Form 10-K for the year ended August 31, 2019. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause such differences include, but are not limited to, those identified below and those discussed in Item 1A. Risk Factors of this Annual Report on Form 10-K.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD
&A”&A") is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in the following sections:
| ●
| Off-Balance Sheet Arrangements
|
| ●
| Share Repurchase Program
|
| ●
| Contractual Obligations
|
| ●
| Significant Accounting Policies and Critical Accounting Estimates
|
| ●
| New Accounting Pronouncements
|
| ●
| Forward-Looking Factors
|
•Executive Overview
•Key Metrics
•Results of Operations
•Liquidity and Capital Resources
•Off-Balance Sheet Arrangements
•Foreign Currency
•Critical Accounting Policies and Estimates
•New Accounting Pronouncements
Executive Overview
FactSet is a global provider of integrated financial information, analytical applications and industry-leading services for the investment and corporate communities. For over 40 years, global financial professionals have utilized our content and multi-asset class solutions across each stage of the investment process. Our goal is to provide a seamless user experience spanning idea generation, research, portfolio construction and analysis, trade execution, performance measurement, risk management, and reporting, in which we serve the front, middle, and back offices to drive productivity and improved performance. Our flexible, open data and technology solutions can be implemented both across the investment portfolio lifecycle or as standalone components serving different workflows in the organization. We are focused on growing our business through three segments: the Americas, EMEA and Asia Pacific. Within each of our segments, we primarily deliver insight and information through our four workflow solutions of Research, Analytics and Trading, CTS and Wealth.
We currently serve a wide range of financial professionals, which include but are not limited to, portfolio managers, investment research professionals, investment bankers, risk and performance analysts, wealth advisors, and corporate clients. We provide both insights on global market trends and intelligence on companies and industries, as well as capabilities to monitor portfolio risk and performance and execute trades. We combine dedicated client service with open and flexible technology offerings, such as a configurable desktop and mobile platform, comprehensive data feeds, an open marketplace, digital portals and APIs. Our revenue is primarily derived from subscriptions to products and services such as workstations, portfolio analytics, enterprise data, and research management.
Business Strategy
Current technology trends are leading to a greater demand to deliver a fully digital and integrated client experience. To take advantage of these developments we have focused our innovations and strategic investments in cloud computing, data lakes, APIs and our hosted proprietary data and analytics platform to provide real-time, predictive business intelligence for a seamless client experience. We continue to expand our broad financial content to provide support for our clients' most sophisticated investment strategies including enhanced data in private markets, industry specific deep sector and ESG. As a premier financial solutions provider for the global financial community, we provide workflow solutions and leading analytical applications, powered by cognitive capabilities and robust technology, across the investment portfolio lifecycle. We bring the front, middle and back offices together to drive productivity and performance at every step of the investment process using our open and scalable solutions. Our strategy is focused on growing our business in each of our three segments: the Americas, EMEA, and
Asia Pacific. We believe this geographical strategic alignment helps us better manage our resources. To execute on our business strategy of broad-based growth across each geographical segment, we continue to look at ways to create value for our clients by offering data, products and analytical applications within our four workflow solutions of Research, Analytics and Trading, CTS and Wealth.
Fiscal 2020 Year in Review
Revenue for the fiscal year 2020 was $1.49 billion, an increase of 4.1% from the prior year. This increase was due to growth across all our operating segments, primarily in the Americas, followed by EMEA and Asia Pacific, supported by increased revenue from each of our workflow solutions, mainly in Analytics and Trading, followed by CTS and Wealth. Revenue also increased due to the benefit from our annual price increase. The revenue growth of 4.1% was fully attributed to organic revenue growth, which excludes the effects of acquisitions and dispositions completed in the last 12 months, changes in foreign currency rates in all periods presented and the deferred revenue fair value adjustments from purchase accounting (Refer to Results of Operations, Non-GAAP Financial Measures in this MD&A for further discussion on organic revenue). As of August 31, 2020, organic annual subscription value ("organic ASV") plus professional services totaled $1.56 billion, an increase of 5.3% over the prior year.
Operating income increased by 0.4% and diluted earnings per share ("EPS") increased 6.3% compared to the prior year. This increase in operating income and EPS was primarily driven by revenue growth of 4.1%, a decrease in non-compensatory employee related expenses and a reduction in bad debt expense. This increase was partially offset by higher spend in employee compensation, including stock-based compensation, increased computer-related expenses, the impairment of an investment and increased professional fees on a year-over-year basis. Additionally, EPS benefited from a reduction in the income tax provision, interest expense and diluted weighted average shares outstanding, compared to the prior year period.
Our clients and users reached new highs of 5,875 and 133,051, respectively, in fiscal 2020. Over the last 12 months, we returned $310.1 million to stockholders in the form of share repurchases and dividends.
As of August 31, 2020, our employee count was 10,484, up 8.3% in the past 12 months, due primarily to an increase in net new employees of 9.8% in Asia Pacific, 6.4% in EMEA, and 5.4% in the Americas. Of our total employees, as of August 31, 2020, 6,643 were located in Asia Pacific, 2,477 were located in the Americas and 1,364 were located in EMEA. Our centers of excellence, located in India and the Philippines, primarily focus on content collection that benefit all our segments.
FactSet garnered many awards in 2020, with honors covering every aspect of the Company's business. Highlights include: Buy-Side Market Risk Management Product of the Year from the Risk.net Markets Technology Awards; Best EMS from the Markets Media Markets Choice Awards; Best Client Reporting Solution from the FTF News Technology Innovation Awards; Best Technology Provider, Client Portals, from the Wealthmanagement.com Awards; and various awards including Best Data Provider to the Buy-Side, Best Data Provider to the Sell-Side, and Best Buy-Side Data Analytics Tool organized by Waters Technology.
Client Service / Customer Success
An important part of our comprehensive value to clients is our Customer Success team, a versatile group of business-people with knowledge of financial markets and FactSet's solutions. Customer Success Managers work closely with our clients, advising them on how FactSet's solutions can best be leveraged to enhance efficiency across workflows. Additionally, our information and analytical applications are supported by a team of financial data and modeling experts, who take a consultative approach to fully understand our clients’ challenges and advise them on how FactSet solutions can best be tailored and leveraged to meet each client's unique objectives and strategies.
A client-centric approach is foundational to the Company's ongoing achievements. Client satisfaction is therefore critical to how we measure the success our success. According to our global client satisfaction survey, greater than 93% of respondents were satisfied or very satisfied with FactSet’s support. We believe that these strong relationships help ensure continued high rates of retention and account expansion.
COVID-19 Update
A novel strain of coronavirus, now known as COVID-19 ("COVID-19"), was first reported in December 2019, and it has since extensively impacted the global health and economic environment, with the World Health Organization characterizing COVID-19 as a pandemic on March 11, 2020. The COVID-19 virus has spread to nearly all regions in the world, creating significant uncertainties and disruption in the global economy.
We closely monitor pandemic-related developments, and our highest priority is the health and safety of our employees, clients, vendors and stakeholders. We have taken, and continue to take, numerous steps to address the COVID-19 pandemic. We have implemented a business continuity plan with a dedicated incident management team to respond quickly and effectively to changes in our environment to continue offering our clients uninterrupted products, services and support while also protecting our employees. We will continue to coordinate our COVID-19 response based on guidance from global health organizations, relevant governments and pandemic response best practices.
We have required the vast majority of our employees at our offices across the globe (including our corporate headquarters) to work remotely on a temporary basis and have implemented global travel restrictions for our employees. Nearly all our employees are currently working remotely. We believe our transition to remote working has been successful and has not significantly affected our financial results for the fiscal year ended August 31, 2020.
We are planning to re-open many of our offices during fiscal 2021, utilizing a three-phased approach to provide flexibility for employees with a focus on social distancing and safety. Our offices will not re-open until local authorities permit us to do so and our own criteria and conditions to ensure employee health and safety are satisfied. There can be no assurances as to when we re-open our offices or that there will be no negative impacts arising from the return to the office environment.
As of August 31, 2020, there have been minimal interruptions in our ability to provide our products, services and support to our clients. Working remotely has had relatively little impact on the productivity of our employees, including our ability to gather content. We continue to work closely with our clients to provide consistent access to our products and services and have remained flexible to achieve client priorities as many implement their own contingency plans. We have increased our support desk resources to manage increased volumes and have extended additional web IDs to our clients in need of immediate remote access to financial data.
We have not observed any significant client loss, deterioration in the collectability of receivables, reduction in liquidity, or decline in subscription renewal rates as a result of the COVID-19 pandemic. Our revenue, earnings, and ASV are relatively stable and predictable as a result of our subscription-based business model. To date, we have not seen the COVID-19 pandemic having a material impact on our revenue or ASV, although we anticipate that there may be some level of revenue and ASV weakness going forward due to longer sales cycles and lower incremental client billings. The COVID-19 pandemic could curtail our clients’ spending and lead them to delay or defer purchasing decisions or product and service implementations or may cause them to cancel or reduce their spending with us. In determining the possible revenue and ASV impact from the COVID-19 pandemic, we consider the potential delay in decision making causing longer sales cycles (or conversely delayed cancellations from clients); implementation risk due to restrictions on being able to work onsite at our clients' facilities; and possible reduced seasonal hiring at investment banks, which are some of our largest clients, over the summer months.
We have incurred, and expect to continue to incur, additional expenses in response to the COVID-19 pandemic, including costs to enable our employees to support our clients while working remotely. These additional expenses were not material to our fiscal 2020 results, and reductions in discretionary spending, particularly travel and entertainment, have more than offset these increased expenses. We believe that implementing additional cost reduction efforts will help us mitigate the impact that any reduced revenues may have on our future operating income. We may consider reducing expenses further through such methods as reduction of discretionary spending, including travel and entertainment; tighter management of headcount spending; and reduction in variable third-party content costs in a manner consistent with client demand.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was signed into law to address the economic impact of the COVID-19 pandemic. We continue to monitor any effects that may result from the CARES Act and other similar legislation or actions in geographies in which our business operates.
Refer to Item 1A. Risk Factors of this Annual Report on Form 10-K for further discussion of the potential impact of the COVID-19 pandemic on our business.
Key Metrics
The table below provides a reconciliation of ASV to organic ASV:
| | | | | | | | | | | | | | |
| As of August 31, |
| (in millions) | 2020 | | 2019 | Change |
ASV(1) | $ | 1,539.2 | | | $ | 1,458.0 | | |
| Currency impact to ASV | (4.7) | | | — | | |
| Organic ASV | $ | 1,534.5 | | | $ | 1,458.0 | | 5.2 | % |
(1)ASV at any given point in time represents the forward-looking revenue for the next 12 months from all subscription services currently being supplied to clients and excludes professional service fees, which are not subscription-based.
Organic ASV Growth
As of August 31, 2020, our organic ASV totaled $1.53 billion, up 5.2% over the prior year comparable period. With proper notice provided to us, our clients can add to, delete portions of, or terminate service, subject to certain contractual limitations.
The increase in year-over-year organic ASV was due to growth across all of our geographic segments from increased sales of products and solutions to new and existing clients. The majority of the organic ASV increase related to increased sales in the Americas, followed by increased sales in EMEA and Asia Pacific, as well as the benefit from our annual price increase, partially offset by cancellations. The increase in organic ASV was due to growth in all our workflow solutions, driven mainly by an increase in Analytics and Trading, followed by CTS and Wealth. The organic ASV increase in Analytics and Trading was mainly due to increased sales for our risk management and portfolio reporting solutions. The increase in organic ASV from CTS was primarily driven by increased sales in premium and core data feeds, while the organic ASV increase in Wealth was mainly due to increased traditional and web-based workstation sales.
As of August 31, 2020, organic ASV plus professional services was $1.56 billion, an increase of 5.3% compared to the prior year period. The professional service fees were $25.0 million and $22.9 million as of August 31, 2020 and 2019, respectively.
Segment ASV
As of August 31, 2020, ASV from the Americas was $956.6 million, an increase of 5.2% from the prior year period. This increase was primarily due to increased sales from Analytics and Trading and CTS, as well as the benefit from our annual price increase, partially offset by cancellations.
ASV from EMEA was $426.0 million as of August 31, 2020, an increase of 5.7% compared to the prior year period. The ASV increase in EMEA was primarily driven by Analytics and Trading and CTS and the benefit from our annual price increase, partially offset by cancellations.
Asia Pacific ASV was $156.5 million as of August 31, 2020, an increase of 7.6% compared to the prior year period. ASV increased in Asia Pacific mainly due to Analytics and Trading and CTS, as well as the benefit from our annual price increase, partially offset by cancellations.
Combined EMEA and Asia Pacific ASV represented 37.8% of total ASV as of August 31, 2020, up from 37.6% in the prior year period.
Buy-side and Sell-side ASV Growth
Buy-side and sell-side ASV growth rates for the last 12 months were 5.4% and 4.6%, respectively. Buy-side clients account for approximately 84% of organic ASV, and primarily include portfolio managers, analysts, traders, wealth managers, performance teams and risk and compliance teams at a variety of firms, such as traditional asset managers, wealth advisors, corporations, hedge funds, insurance companies, plan sponsors and fund of funds. The remaining portion of our organic ASV is derived from sell-side clients, primarily including investment bankers, private equity and research analysts.
Client and User Additions
| | | | | | | | | | | |
| As of and for the
Year Ended August 31, |
| 2020 | 2019 | Change |
| Clients | 5,875 | | 5,574 | | 5.4 | % |
| Users | 133,051 | | 126,822 | | 4.9 | % |
Our total client count was 5,875 as of August 31, 2020, representing a net increase of 301 or 5.4% in the last 12 months. The net increase was primarily driven by an increase in corporate and wealth management clients, partially offset by institutional asset management clients. As part of our long-term growth strategy, we continue to focus on expanding and cultivating relationships with our existing client base through sales of workstations, applications, services and content.
As of August 31, 2020, there were 133,051 professionals using FactSet, representing a net increase of 6,229 or 4.9% in the last 12 months, primarily driven by wealth management and corporate professionals.
Annual client retention was greater than 95% of ASV for the period ended August 31, 2020 and August 31, 2019. When expressed as a percentage of clients, annual retention increased to approximately 90% for the period ended August 31, 2020, compared to approximately 89% for the period ended August 31, 2019. As of August 31, 2020, our largest individual client accounted for approximately 3% of our total subscriptions, and annual subscriptions from our ten largest clients did not surpass 15% of our total client subscriptions.
Returning Value to Stockholders
On August 14, 2020, our Board of Directors approved a regular quarterly dividend of $0.77 per share. The cash dividend of $29.1 million was paid on September 17, 2020 to common stockholders of record at the close of business on August 31, 2020. We repurchased 0.7 million shares of common stock for $199.6 million during fiscal 2020 under our existing share repurchase program. Over the last 12 months, we returned $310.1 million to stockholders in the form of share repurchases and dividends.
On March 24, 2020, our Board of Directors approved a $220.0 million increase to the existing share repurchase program. As a result of this expansion, $259.0 million is available for future share repurchases as of August 31, 2020.
Capital Expenditures
Capital expenditures as of August 31, 2020 were $77.6 million, compared to $59.4 million a year ago. Capital expenditures of $43.6 million, or 56% of our total capital expenditures, were related to facilities investments, primarily for the build-out of our new corporate headquarters in Norwalk, Connecticut, as well as new office space in India and the Philippines. The remainder of our capital expenditures included $17.0 million of investments in technology primarily in Norwalk, Connecticut, as well as in India and the Philippines and $17.0 million in development costs related to internal-use software.
Results of Operations
For an understanding of the significant factors that influenced our performance during fiscal 2020 and 2019, the following discussion should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item
8, Financial Statements and Supplementary Data,8. of this
Annual Report on Form 10-K.
Executive Overview
We are a global provider
The following table summarizes the results of operations for the
global investment community. We deliver insight and information to investment professionals through our analytics, service, content, and technology. These professionals include portfolio managers, investment research professionals, investment bankers, risk and performance analysts, and wealth advisors. From streaming real-time data to historical information, including quotes, estimates, news and commentary, we offer proprietary and third-party content through desktop, web, mobile and off-platform solutions. Our broad application suite offers tools and resources including company and industry analyses, full screening tools, portfolio analysis, risk profiles, alpha-testing, portfolio optimization and research management solutions. With recent acquisitions, we have continued to expand our solutions across the investment lifecycle from idea generation to performance and client reporting. Our revenues are derived from subscriptions to products and services such as workstations, analytics, enterprise data, research management, and trade execution.2018 Yearperiods described:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Years ended August 31, | | | | |
| (in thousands, except per share data) | | 2020 | | 2019 | | $ Change | | % Change |
| Revenue | | $ | 1,494,111 | | | $ | 1,435,351 | | | $ | 58,760 | | | 4.1 | % |
| Cost of services | | $ | 695,446 | | | $ | 663,446 | | | $ | 32,000 | | | 4.8 | % |
| Selling, general and administrative | | $ | 359,005 | | | $ | 333,870 | | | $ | 25,135 | | | 7.5 | % |
| Operating income | | $ | 439,660 | | | $ | 438,035 | | | $ | 1,625 | | | 0.4 | % |
| Net income | | $ | 372,938 | | | $ | 352,790 | | | $ | 20,148 | | | 5.7 | % |
| Diluted earnings per common share | | $ | 9.65 | | | $ | 9.08 | | | $ | 0.57 | | | 6.3 | % |
| Diluted weighted average common shares | | 38,646 | | | 38,873 | | | | | |
Revenue
Revenue in ReviewFiscal 2018 revenue growth can be attributed to achievements in the delivery, integration and consumption of our financial data and analytical applications by the global investment community. As of August 31, 2018, annual subscription value (“ASV”) totaled $1.39fiscal 2020 was $1.49 billion, an increase of 5.8% over the prior year and 5.7% organically. Revenues increased 10.6% year over year, of which, 5.6% of the increase can be attributed4.1% compared to organic revenue growth. In addition, clients and users reached new highs of 5,142 and 91,897, respectively, in fiscal 2018. We returned $393.4 million to stockholders in the form of share repurchases and dividends during the fiscal year.
We continued to diversity our suite of solutions through the integration of our acquisitions and new product investments. We enhanced our Multi-Asset Class (“MAC”) risk models, leading to several global client wins and strengthening our position in the analytics market. We expanded our Content and Technology Solutions (“CTS”) workflow and launched Open:FactSet Marketplace, a new platform to address the demand for integrating both financial and alternative data. We recently added Data Exploration, a platform for financial professionals to evaluate quickly alternative and financial datasets and build investment applications in a fully hosted environment.
FactSet released its first annual Corporate Social Responsibility Report (“CSR”), highlighting the Company’s commitments to our clients, employees, stockholders, and communities. The report covered the fiscal year ending August 31, 2017, highlighting our recent achievements and setting a trajectory for our future CSR goals.
Client Service / Consultants
A client-centric approach has always been a key foundation of our success at FactSet. We support our powerful information and analytical applications with a team of financial data and modeling experts. Client satisfaction is a key metric by which we measure the success of our service. According to our global client satisfaction survey, greater than 95% of respondents were satisfied or very satisfied with FactSet’s support. The depth of our knowledge, the data behind the models and the complex mathematics substantiating the answers each create an opportunity for us to forge close working relationships with our user community.
Our industry-leading customer care is largely due to the talent of our employee population. As of August 31, 2018, employee headcount was 9,571, up 5.5% from a year ago. This increase in headcount was primarily in client-focused positions with dedication to client loyalty, supporting our recent global client retention rate of greater than 95% of ASV as of August 31, 2018. Our consulting teams have been trained to listen to our clients’ needs and transfer this knowledge directly to the product development teams, helping us transform suggestions into new or enhanced product offerings.
Educating our clients is also an important component of our service. Not only do we teach our users the nuances of our software and content offerings, but also FactSet personnel are often thought-leaders in a particular area of financial modeling in our rapidly evolving industry. As a result, clients look to FactSet as a trusted partner to stay on the forefront of financial modeling and analysis.
Key Metrics
The following is a review of our key metrics:
| | | As of and for the Year ended August 31, | | |
| (in millions, except per share data, client and user counts) | | 2018 | | | 2017 | | | Change | | |
Revenues | | $ | 1,350.1 | | | $ | 1,221.2 | | | | 10.6 | % | |
Operating Income | | $ | 366.2 | | | $ | 352.1 | | | | 4.0 | % | |
Net Income | | $ | 267.1 | | | $ | 258.3 | | | | 3.4 | % | |
Diluted EPS | | $ | 6.78 | | | $ | 6.51 | | | | 4.1 | % | |
ASV(1) | | $ | 1,393.1 | | | $ | 1,316.6 | | | | 5.8 | % | (2) |
Clients(3) | | | 5,142 | | | | 4,744 | | | | 8.4 | % | |
Users(4) | | | 91,897 | | | | 88,846 | | | | 3.4 | % | |
| (1)
| During the third quarter of fiscal 2017, FactSet excluded professional services fees billed within the last 12 months, which are not subscription based. As such, ASV excludedprofessional service fees of $21.6 million and $17.2 million as of August 31, 2018 and 2017, respectively.
|
| (2)
| ASV grew 5.8% year over year, of which, 5.7%represents organic ASV growth. Organic ASV excludes ASV from acquisitions and dispositions completed within the last 12 months and the effects of foreign currency.
|
| (3)
| In the second quarter of fiscal 2017, wechanged ourclient count definition to capture clients with ASV greater than $10,000 versus the previous metric of clients with ASV greater than $24,000. The prior year client count was restated to reflect this change for comparison purposes.
|
| (4)
| In the second quarter of fiscal 2017, wechanged ouruser count definition to include users from workstations previously not captured due to certain product bundling and users of the StreetAccount web product. The prior year user count was restated to reflect this change for comparison purposes.
|
Annual Subscription Value Growth
ASV at any given point in time represents the forward-looking revenues for the next twelve months from all subscription services currently being supplied to clients, and excludes professional services fees billed in the last twelve months, which are not subscription-based. With proper notice to us, our clients can add to, delete portions of, or terminate service at any time, subject to certain contractual limitations. As of August 31, 2018, our ASV totaled $1.39 billion, up 5.7% organically over the prior year. Organic ASV excludes ASV from acquisitions and dispositions completed within the last 12 months and the effects of foreign currency. The increase in ASV was driven by growth in our geographic segments and achievements across each of our workflow solutions which include Research, Analytics, CTS, and Wealth. Additionally, we have leveraged relationships with existing clients to increase year over year sales through cross-selling and upselling of our diversified product suite.
Buy-side and sell-side ASV growth rates for the last 12 months were 5.4% and 7.3% respectively. Buy-side clients account for 83.9% of ASV, while the remainder is derived from sell-side firms that perform mergers and acquisitions advisory work, capital markets services and equity research.
As of August 31, 2018, ASV from our U.S. operations was $868.7 million, an increase of 5.3% organically from a year ago. ASV from international operations was $524.4 million, an increase of 6.3% organically from a year ago. The growth in ASV in both the U.S. operations and international operationsrevenue was driven primarily by higher salesthe Americas, followed by EMEA and Asia Pacific. This increase in segment revenue was supported by increased revenue across all our workflow solutions, most notably by Analytics and new business additions across the operations, primarily in the U.S segment.
ClientTrading, followed by CTS and User Additions
Our total client count was 5,142 as of August 31, 2018, representing a net increase of 398 clients in the last twelve months. In the second quarter of fiscal 2017, we changed our client count definition to capture clients with ASV greater than $10,000 versus the previous metric of clients with ASV greater than $24,000. The prior year client count was restated to reflect this change for comparison purposes. Client count has increased by 398 or 8.4% in the last twelve months primarily from wealth managers, corporate firms and institutional asset managers. These firm types contributed to over 60% of the net user additions during the fiscal 2018 year. We continue to focus on expanding and cultivating relationships with our current client base as it is essential to our long-term growth strategy and assists in our upsell of workstations, applications and content at our existing clients.
As of August 31, 2018, there were 91,897 professionals using FactSet. In the second quarter of fiscal 2017, FactSet changed its user count definition to include users from workstations previously not captured due to certain product bundling and users of the StreetAccount web product. The prior year user count was restated to reflect this change for comparison purposes. User count increased by 3,051 users in the past twelve months primarily driven by an increase in workstation sales.
Annual client retention as of August 31, 2018, was greater than 95% of ASV and 91% when expressed as a percentage of clients. Our successful client retention demonstrates that a majority of our clients maintain their subscriptions to FactSet year over year, highlighting the strength of our business strategy. As of August 31, 2018, our largest individual client accounted for approximately 2% of total subscriptions, and annual subscriptions from our ten largest clients did not surpass 15% of total client subscriptions.
Returning Value to Stockholders
On August 10, 2018, our Board of Directors approved a regular quarterly dividend of $0.64 per share. The cash dividend of $24.4 million was paid on September 18, 2018 to common stockholders of record at the close of business on August 31, 2018. We repurchased 1.5 million shares for $302.4 million during fiscal 2018 under our existing share repurchase program.
On March 26, 2018, our Board of Directors, approved a $300.0 million expansion of the existing share repurchase program. Including this expansion, $241.7 million is available for future share repurchases as of August 31, 2018.
Capital Expenditures
Capital expenditures were $33.5 million during fiscal 2018, compared to $36.9 million a year ago. Capital expenditures of $24.2 million or 72% of our capital expenditures during fiscal 2018 related to upgrades of existing computer systems in Norwalk, additional server equipment for our data centers located in New Jersey and Virginia,Wealth, as well as laptop computersthe benefit from our annual price increase and peripherals for new and existing employees. The remainder of our capital expenditures was primarily for the build out of office space including $2.8 million at our Hong Kong location, $2.2 million at our India locations, and $1.5 million at our Netherlands location.
Results of Operations
For an understanding of the significant factors that influenced our performance during the past three fiscal years, the following discussion should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements presented in this Report on Form 10-K.
| | | Years ended August 31, | |
| (in thousands, except per share data) | | 2018 | | | 2017 | | | Change | | | 2017 | | | 2016 | | | Change | |
Revenues | | $ | 1,350,145 | | | $ | 1,221,179 | | | | 10.6 | % | | $ | 1,221,179 | | | $ | 1,127,092 | | | | 8.3 | % |
Cost of services | | $ | 659,296 | | | $ | 566,580 | | | | 16.4 | % | | $ | 566,580 | | | $ | 487,409 | | | | 16.2 | % |
Selling, general and administrative | | $ | 324,645 | | | $ | 302,464 | | | | 7.3 | % | | $ | 302,464 | | | $ | 290,007 | | | | 4.3 | % |
Operating income | | $ | 366,204 | | | $ | 352,135 | | | | 4.0 | % | | $ | 352,135 | | | $ | 349,676 | | | | 0.7 | % |
Net income | | $ | 267,085 | | | $ | 258,259 | | | | 3.4 | % | | $ | 258,259 | | | $ | 338,815 | | | | (23.8 | )% |
Diluted earnings per common share | | $ | 6.78 | | | $ | 6.51 | | | | 4.1 | % | | $ | 6.51 | | | $ | 8.19 | | | | (20.5 | )% |
Diluted weighted average common shares | | | 39,377 | | | | 39,642 | | | | | | | | 39,642 | | | | 41,365 | | | | | |
Revenues
Fiscal 2018lower cancellations as compared to Fiscal 2017
Revenues in fiscal 2018 were $1.35 billion, increasing 10.6% compared to fiscal 2017. Our organicthe prior year. The revenue growth rateof 4.1% for fiscal 2018 was 5.6%2020 compared to the prior year period withwas reflective of organic revenue growth of 4.0% and a 10 basis point increase from deferred revenue fair value adjustments from purchase accounting. (Refer to Item 7.
Results of Operations, Non-GAAP Financial Measures in the MD&A of this Annual Report on Form 10-K for further discussion on organic revenue). Revenue by Operating Segment
| | | | | | | | | | | | | | |
| (in thousands) | | Years ended August 31, |
| | 2020 | | 2019 |
| Americas | | $ | 929,444 | | | $ | 894,554 | |
| % of revenue | | 62.2 | % | | 62.3 | % |
| EMEA | | $ | 422,203 | | | $ | 408,084 | |
| % of revenue | | 28.3 | % | | 28.5 | % |
| Asia Pacific | | $ | 142,464 | | | $ | 132,713 | |
| % of revenue | | 9.5 | % | | 9.2 | % |
| Consolidated Revenue | | $ | 1,494,111 | | | $ | 1,435,351 | |
Revenues from our Americas segment increased 3.9% to $929.4 million in fiscal 2020 compared to $894.6 million in fiscal 2019. This increase was primarily due to increased sales of products and solutions, particularly in Analytics and Trading and CTS, the benefit from our annual price increase for the majority of our Americas segment clients and a reduction in cancellations remaining relatively flaton a year-over-year basis. The revenue growth of 3.9% is fully attributed to organic revenue growth. Revenues from our Americas operations accounted for 62% of our consolidated revenue during fiscal 2018. Organic2020, which is consistent with the prior year period.
EMEA revenues
excludeincreased 3.5% to $422.2 million in fiscal 2020 compared to $408.1 million in fiscal 2019. This increase was primarily driven by increased sales of products and solutions, particularly in Analytics and Trading, the
effectsbenefit from our annual price increase for the majority of
acquisitionsour EMEA clients and
dispositions completeda reduction in
the last 12 months and foreign currency in all periods.cancellations on a year-over-year basis. The
increase in revenues was throughout our geographical segments and workflow solutions. The U.S. segment revenue
was up 7.4%growth of 3.5% for fiscal 2020 compared to the prior year period
primarily driven by additional clients, expansion from within our existing client base and an annual price increase, while holding client cancellations steady. Our international operations also grew as demonstrated by our 17.3% growth in Europe and a 13.1% increase in Asia Pacific. In addition to revenue growth amongst the geographic segments, achievements were also made across each workflow solution which include Research, Analytics, CTS, and Wealth. The Research workflow growth was
driven by additional users due to banking new hires. The growth in the Analytics workflow was primarily attributed to increased sales in the portfolio analytics, reporting, and risk platforms, coupled with the enhancementreflective of
our multi-asset class risk model offerings, which strengthened our position in the analytics market. The CTS workflow growth was driven by increased demand for our proprietary content data feeds while new business sales drove the Wealth workflow growth.Fiscal 2017 compared to Fiscal 2016
Revenues in fiscal 2017 were $1.22 billion, up 8.3% compared to fiscal 2016. Our organic revenue growth rate for fiscal 2017 increased 6.9% compared to fiscal 2016. Theof 3.2%, a 10 basis point increase in revenues was primarily driven by organic ASV growth, continued momentum for our multi-asset class analytic solutions, workstations, data feeds products and the additions to our product offerings from our fiscal 2017 acquisitions. Offsetting these positive factors, we experienced cancellations due to firm consolidations and failures.
Revenues by Geographic Segment
| | | Years ended August 31, | |
(in thousands) | | 2018 | | | 2017 | | | 2016 | |
U.S. | | $ | 841,908 | | | $ | 784,146 | | | $ | 755,492 | |
% of revenues | | | 62.4 | % | | | 64.2 | % | | | 67.0 | % |
Europe | | $ | 387,589 | | | $ | 330,332 | | | $ | 277,682 | |
Asia Pacific | | $ | 120,648 | | | $ | 106,701 | | | $ | 93,918 | |
International | | $ | 508,237 | | | $ | 437,033 | | | $ | 371,600 | |
% of revenues | | | 37.6 | % | | | 35.8 | % | | | 33.0 | % |
Consolidated | | $ | 1,350,145 | | | $ | 1,221,179 | | | $ | 1,127,092 | |
Fiscal 2018 compared to Fiscal 2017
Revenue from our U.S. segment increased 7.4% to $841.9 million in fiscal 2018 compared to $784.1 million in fiscal 2017, due to organic ASV growth across our workflow solutions and strong performance executing new business sales. Cancellations remained relatively flat for fiscal 2018 showing signs of stability. Excluding the effects of acquisitions and dispositions, organic revenue in the U.S. was up 5.1% compared to fiscal 2017. Revenue from our U.S. operations accounted for 62.4% of our consolidated revenues during fiscal 2018, a decrease from 64.2% in fiscal 2017.
Revenue from our international operations increased 16.3% in fiscal 2018 compared to fiscal 2017, due to growth across our workflow solutions, partially offset by higher cancellations compared to the prior year.
European revenue increased 17.3% to $387.6 million in fiscal 2018 compared to $330.3 in fiscal 2017. Excluding the effects of acquisitions and dispositions completed in the last 12 months and foreign currency, European organic revenue grew 9.4% in fiscal 2018 compared to fiscal 2017. Foreign currency exchange rate fluctuations increased our European growth rate by 150 basis points.
Asia Pacific revenue increased 13.1% during fiscal 2018, compared with fiscal 2017. Excluding the effects of acquisitions and dispositions completed in the last 12 months and foreign currency, Asia Pacific organic revenue grew 12.9% during fiscal 2018 compared to fiscal 2017, with foreign currency exchange rate fluctuations remaining flatand a 20 basis point increase from deferred revenue fair value adjustments from purchase accounting.
Asia Pacific revenues increased 7.3% to $142.5 million during fiscal 2020, compared
to prior year.Fiscal 2017 compared to Fiscal 2016
Revenue from our U.S. segment increased 3.8% to $784.1with $132.7 million in fiscal 20172019. This increase was due mainly to increased sales of products and solutions, primarily in Analytics and Trading, the benefit from our annual price increase for the majority of our Asia Pacific clients and a reduction in cancellations on a year-over-year basis. The revenue growth of 7.3% for fiscal 2020 compared to $755.5 million in fiscal 2016. Our U.S.the prior year period was reflective of organic revenue growth reflectedof 7.2% and a 10 basis point increase from foreign currency exchange rate fluctuations.
Revenue by Workflow Solution
The revenue growth of 4.1% across our operating segments for fiscal 2020 compared to the
performance from both ourprior year period was primarily driven by Analytics and
Trading, followed by CTS
workflows,and Wealth, as well as
revenue from acquisitions completed in fiscal 2017. Excluding the
effects of acquisitions and dispositions completed in the last 12 months, organic revenue in the U.S. increased 6.2% compared to fiscal 2016. Revenuebenefit from our
U.S. operations accounted for 64.2% of our consolidated revenues during fiscal 2017,annual price increase and a
decreasereduction in cancellations on a year-over-year basis. Revenue growth from
67.0% in fiscal 2016 due to the acquisitions completed in fiscal 2017 which primarily increased international revenue.European revenue increased 19.0% in fiscal 2017 compared to fiscal 2016 due to solid growth in both our CTSAnalytics and Analytics workflows as well as, client price increases, and acquisitions completed in 2017, partially offset by the impact of foreign currency translation. Foreign currency exchange rate fluctuations reduced our European growth rate by 40 basis points. Excluding the effects of acquisitions and dispositions completed in the last 12 months and foreign currency, European revenue grew 8.3% compared to fiscal 2016.
The Asia Pacific revenue growth rate of 13.6%Trading was primarily due to increased subscriptionsdemand for our risk management, portfolio analytics and reporting solutions. The growth in CTS was driven mainly by increased sales of core and premium data feeds. Revenue growth from Wealth was driven mainly by to higher sales of our content, analytic solutionstraditional and coreweb-based workstation product offerings. Additionally, foreign currency exchange rate fluctuations increased our Asia Pacificproduct. Offsetting these positive growth rate by 46 basis points. Excluding the effects of acquisitionsfactors were cancellations resulting from continued industry-wide cost pressures and dispositions completed in the last 12 months and foreign currency, Asia Pacific revenue grew 12.7% compared to fiscal 2016.
firm consolidations.
Operating Expenses
| | | Years ended August 31, | |
(in thousands) | | 2018 | | | 2017 | | | 2016 | |
Cost of services | | $ | 659,296 | | | $ | 566,580 | | | $ | 487,409 | |
Selling, general and administrative (“SG&A”) | | | 324,645 | | | | 302,464 | | | | 290,007 | |
Total operating expenses | | $ | 983,941 | | | $ | 869,044 | | | $ | 777,416 | |
| | | | | | | | | | | | | |
Operating income | | $ | 366,204 | | | $ | 352,135 | | | $ | 349,676 | |
Operating Margin | | | 27.1 | % | | | 28.8 | % | | | 31.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | Years ended August 31, | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
| Cost of services | | $ | 695,446 | | | $ | 663,446 | | | $ | 32,000 | | | 4.8 | % |
| Selling, general and administrative ("SG&A") | | 359,005 | | | 333,870 | | | $ | 25,135 | | | 7.5 | % |
| Total operating expenses | | $ | 1,054,451 | | | $ | 997,316 | | | $ | 57,135 | | | 5.7 | % |
| | | | | | | | |
| Operating income | | $ | 439,660 | | | $ | 438,035 | | | $ | 1,625 | | | 0.4 | % |
| Operating Margin | | 29.4 | % | | 30.5 | % | | | | |
Cost of Services
Fiscal 2018 compared to Fiscal 2017
Cost of services increased 16.4%4.8% to $659.3$695.4 million in fiscal 2020 compared to the prior$663.4 in fiscal year. 2019. This increase was primarily due to an increase in computer-related expenses and employee compensation costs, including stock-based compensation.
Cost of services, expressed as a percentage of
revenues,revenue, was
48.8%46.5% during fiscal
2018,2020, an increase of
24030 basis points over the prior year period. This
cost of service increase was primarily due to higher
employee compensation costs driven by increased employee headcount and restructuring actions, incremental data costs from recent acquisitions and additional users as well as amortization of intangible assets associated with our recent acquisitions. This increase wascomputer-related expenses, partially offset by a reduction in
stock-basedemployee compensation
expenses from accelerated vesting in the prior year.Employee compensation, including stock-based compensation, when expressed as a percentage of revenues increased 100 basis points in fiscal 2018, compared to fiscal 2017. The increase is primarily due to the hiring of 497 net new employees over the last 12 months, with the majority of their compensation recorded in cost of services due to their involvement with content collection, engineeringcosts and product development. Employee compensation expense further increased due to headcount expansion from prior year acquisitions that were included for a full year in fiscal 2018, while fiscal 2017 only included a partial year amount. In addition, during fiscal 2018 we incurred $17.4 million of restructuring charges primarily related to severance of which $8.5 million was recorded within cost of services. Datadata costs, when expressed as a percentage of revenues,revenue. Computer-related expenses increased 150 basis points, primarily driven by increased technology investments, including cloud-based hosting and licensed software arrangements. Employee compensation costs decreased 60 basis points due primarily frommainly to higher capitalization of compensation costs related to development of our recent acquisitions and higher variable data costs associated with additional users. Amortization of acquired intangible assets, when expressed as a percentage of revenues, increased 20 basis points in fiscal 2018 compared to the same period a year ago, primarily due to recent acquisitions, which added $93.2 million of intangible assets to be amortized over a weighted-average life of 11.5 years. These intangible assets were amortized for the full fiscal 2018, while, fiscal 2017 did not include a similar amount of acquisition amortization due to the dates of each acquisition.
Fiscal 2017 compared to Fiscal 2016
Cost of services increased 16.2% to $566.6 million in fiscal 2017, compared to fiscal 2016. Cost of services, expressed as a percentage of revenues, was 46.4% in fiscal 2017, an increase of 320 basis points compared to fiscal 2016. The increase was primarily driven by higher employee compensation, including stock-based compensation, computer related expenses, amortization of intangibles and acquisition-related costs.
Employee compensation, including stock-based compensation, when expressed as a percentage of revenues, increased 200 basis points in fiscal 2017 compared to fiscal 2016. In fiscal 2017, 699 new employees were added, which included head count expansion from acquisitions of 498 new employees (primarily in the European segment),internal-use software projects, as well as a shift in headcount distribution from higher to lower cost locations. This employee compensation expense decrease was partially offset by higher annual base salary changessalaries, a net increase in employee headcount of 803 employees, with the majority of the compensation from new employee headcount included in cost of services, and incremental hires in our centers of excellence located in India and the Philippines. The increase was also due to new employees hired, of which a significant number were involved with content collection, engineering and product development. As of August 31, 2017, approximately 70% of our employees performed operational roles. Employee compensation also increased due to a charge of $5.9 million related to restructuring actions and a change in the vesting of performance-based stock options.
Computer-related expenses, which include depreciation, maintenance, software and other fees increased 30higher vacation accrual expense. Data costs decreased 40 basis points when expressed as a percentage of revenues in fiscal 2017 compared to fiscal 2016. The increase was due to added computer-related expenses, depreciation associated with the additional laptop computers and peripherals for new and existing employees, upgrades to existing computer systems, and improvements to our telecommunication equipment. Amortization of intangible assets increased 30 basis points, when expressed as a percentage of revenues, in fiscal 2017 compared to fiscal 2016 primarily due to our fiscal 2017 acquisitions, which added approximately $93.2 million of intangible assetsefforts to be amortized over a weighted-average life of 11.5 years. Additionally, acquisition-related costs increasedcontrol our data cost of sales by approximately 40 basis points when expressed as a percentage of revenues year over year.
spend.
Selling, General and Administrative
Fiscal 2018 compared to Fiscal 2017
Selling, general and administrative ("SG&A&A") expenses increased 7.3%7.5% to $324.6$359.0 million during fiscal 20182020 compared to $302.5$333.9 million in fiscal 2017. 2019. This increase was primarily due to an impairment on an investment in a company, an increase in employee compensation costs, and professional fees, partially offset by a decrease in non-compensatory employee related expenses and bad debt expense.
SG&A expenses, expressed as a percentage of revenues,revenue, were 24.0% in fiscal 2018, a decrease2020, an increase of 7080 basis points over the prior year period. This decreaseSG&A increase was primarily due to an impairment on an investment in a company, an increase in professional fees and higher employee compensation costs, partially offset by a reduction in non-compensatory employee related expenses and bad debt expense. The investment impairment recorded to reflect the estimated fair value of an investment in a company resulted in a 110 basis point increase. Professional fees increased 60 basis points primarily to support our technology plan and business transformation activities. Employee compensation costs increased 40 basis point primarily driven by higher annual base salaries, a net increase in employee headcount, higher variable compensation accrual and higher vacation accrual expense. Non-compensatory employee related expenses, inclusive of travel, entertainment and office expenses,
decreased 110 basis points, mainly due to restrictions and impacts related to the COVID-19 pandemic, partially offset by increased technology investments to support remote work arrangements. Bad debt expense decreased 70 basis points.
Operating Income and Operating Margin
Operating income increased 0.4% to $439.7 million in fiscal 2020 compared to $438.0 million in fiscal 2019. Operating income increased primarily due to revenue growth,
outpacing the growthinclusive of
SG&Aour annual price increase, a reduction in non-compensatory employee related expenses
on a year over year basis, foreign currency exchange gains on hedging activities of our Indian Rupee and
lower overall employee compensation including stock-based compensation expense. This decrease was partially offset primarily by higher legal costs, restructuring actions and new employee additions.Employee compensation, including stock-based compensation, when expressed as a percentage of revenues decreased 50 basis points compared to fiscal 2017. The decrease is primarily related to a higher percentage of our employees working in a cost of services capacity compared to an SG&A role. Compensation for our employees within the content collection, consulting, product development, software and systems engineering groups is recorded within cost of services while employees within our sales and various other support and administrative departments are reflected in SG&A. In fiscal 2018, the majority of our hiring has been in departments within cost of services, thus driving a higher percentage of our employee compensation in this area. Partially offsetting these decreases were higher legal expenses primarily from the settlement of a legal matter in the fourth quarter of fiscal 2018, a full year of employee compensation from recent acquisitions and $8.9 million of severance charges.
Fiscal 2017 compared to Fiscal 2016
SG&A expenses increased 4.3% to $302.5 million during fiscal 2017 compared to $290.0 million in fiscal 2016. SG&A expenses, expressed as a percentage of revenues, was 24.8% in fiscal 2017, a decrease of 90 basis points compared to fiscal 2016 due to lower employee compensationin bad debt expense, partially offset by higher professional fees and occupancyan increase in computer-related expenses, an impairment of an investment in a company, employee compensation costs, including rent expense and depreciation of furniture and fixtures. Additionally, fiscal 2016 included a charge of $3.3 million related primarily to legal matters.
Employee compensation, including stock-based compensation, when expressed asand professional fees. Operating income was positively impacted by movements in foreign currency exchange rates on a percentage of revenues,year-over-year basis. Our operating margin decreased 160 basis points in fiscal 20172020 to 29.4%, compared to 30.5% for fiscal 20162019. Operating margin decreased primarily due to a continued shiftthe impact from an investment impairment, higher computer-related expenses and an increase in our employee base from SG&A to cost of service related roles. This decrease in employee compensation wasprofessional fees, partially offset by a charge of $4.4 milliondecrease in non-compensatory employee related to restructuring actionsexpenses, a reduction in bad debt expense and a change in the vesting of performance-based stock options. Professional fees, expressed as a percentage of revenues, increased 30 basis points from costs associated with acquisitions in fiscal 2017. Occupancylower data costs, when expressed as a percentage of revenues, increased 30 basis points due to the increase in the worldwide-leased office space of 71,000 square feet, which included expanded offices in Germany, Switzerland, Bulgaria, India and the Netherlands.
Operating Income and Operating Margin
Fiscal 2018 compared to Fiscal 2017
Operating income increased 4.0% to $366.2 million in fiscal 2018 compared to $352.1 million in fiscal 2017. Our operating margin decreased in fiscal 2018 to 27.1%, compared to 28.8% for fiscal 2017. Operating income increased due to incremental revenue that outpaced the growth of SG&A expenses year over year partially offset by higher cost of services. The reduction in operating margin year over year was due to an increase in employee compensation costs, including restructuring actions, data costs from acquisitions and additional users, amortization of intangible assets associated with our recent acquisitions, and incremental legal fees partially offset by foreign currency exchange gains on hedging activities and lower stock-based compensation.
Fiscal 2017 compared to Fiscal 2016
Operating income increased 0.7% to $352.1 million in fiscal 2017 compared to fiscal 2016. Our operating margin for fiscal 2017 was 28.8%, down from 31.0% in fiscal 2016. Expenses related to employee compensation, professional fees, computer related costs, amortization of intangibles and acquisition-related costs all increased in fiscal 2017, which resulted in our total operating expenses increasing to 11.8% year over year. We also recognized charges of approximately $18.0 million related to restructuring actions, a change in the vesting of performance-based stock options and other acquisition-related costs, compared to $7.0 million in fiscal 2016. The higher expenses were offset partially by a year over year increase in revenues of 8.3%, driven partially by our recent acquisitions.
Operating Income by revenue.
Segment
| | | Years ended August 31, | |
(in thousands) | | 2018 | | | 2017 | | | 2016 | |
U.S. | | $ | 148,095 | | | $ | 137,105 | | | $ | 165,251 | |
Europe | | | 148,977 | | | | 153,676 | | | | 131,410 | |
Asia Pacific | | | 69,132 | | | | 61,354 | | | | 53,015 | |
| | | | | | | | | | | | | |
Consolidated | | $ | 366,204 | | | $ | 352,135 | | | $ | 349,676 | |
Information
Reportable Segments
Our operating segments are aligned with how we manage the business, the demographicgeographic markets we serve, and how our CODM, the CODMGCompany's Chief Executive Officer, assesses performance. Our internal financial reporting structure is based on three reportable segments, the U.S., EuropeAmericas, EMEA and Asia Pacific, whichPacific. Within each of our segments, we believe helps us better manage the businessprimarily deliver insight and view the markets we serve. Sales, consulting, data collection, product developmentinformation through our four workflow solutions of Research, Analytics and software engineering are the primary functional groups within each segment. Trading, CTS and Wealth.
Each segment records compensation expense including(including stock-based compensation, amortization of intangible assets,compensation), depreciation of furniture and fixtures, amortization of lease ROU assets, leasehold improvements and intangible assets, as well as communication costs, professional fees, rent expense, travel, office and other direct expenses. Expenditures associated with our data centers, third-party data costs and corporate headquarterheadquarters charges are recorded by the U.S.Americas segment and are not allocated to the other segments. The content collection centers, of excellence, located in India, and the Philippines, primarily focus on content collection thatand Latvia, benefit all our segments. Theoperating segments, and thus the expenses incurred at these locations are allocated to each segment based on a percentage of revenues.Fiscal 2018revenue. Refer to Note 18,
Segment Information in the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for financial information, including revenues, operating income and long-lived assets for each of our segments. Operating Income by Segment
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Years ended August 31, | | | | |
| (in thousands) | | 2020 | | 2019 | | $ Change | | % Change |
| Americas | | $ | 168,909 | | | $ | 179,374 | | | $ | (10,465) | | | (5.8) | % |
| EMEA | | 179,831 | | | 179,258 | | | $ | 573 | | | 0.3 | % |
| Asia Pacific | | 90,920 | | | 79,403 | | | $ | 11,517 | | | 14.5 | % |
| Total Operating Income | | $ | 439,660 | | | $ | 438,035 | | | $ | 1,625 | | | 0.4 | % |
Americas operating income decreased 5.8% to $168.9 million during fiscal 2020 compared to
Fiscal 2017U.S.$179.4 million a year ago. The decrease in Americas operating income was primarily due to an increase in computer-related expenses, an impairment of an investment in a company and higher professional fees, partially offset by revenue growth of 3.9%, inclusive of our annual price increase, a decrease in bad debt expense and a reduction in non-compensatory employee related expenses.
Computer-related expenses increased primarily due to increased technology investments including cloud-based hosting and licensed software arrangements. An investment impairment was recorded to reflect the estimated fair value of an investment in a company. Professional fees increased primarily to support our technology plan and business transformation activities. Non-compensatory employee related expenses, inclusive of travel, entertainment and office expenses, decreased mainly due to restrictions and impacts related to the COVID-19 pandemic, partially offset by increased technology investments to support remote work arrangements.
EMEA operating income increased
8.0%0.3% to
$148.1$179.8 million during fiscal
20182020, compared to
$137.1$179.3 million a year ago. The increase in
U.S.EMEA operating income was primarily due to revenue growth of
7.4%3.5%,
inclusive of our annual price increase, a decrease in bad debt expense and a reduction in non-compensatory employee related expenses, partially offset by
increasedan increase in employee compensation costs. Operating income was positively impacted by movements in foreign currency exchange rates on a year-over-year basis. Non-compensatory employee related expenses,
inclusive of travel, entertainment and office expenses, decreased, mainly due to restrictions and impacts related to
employee compensation, computer equipment and data costs.the COVID-19 pandemic, partially offset by investment in technology to allow employees to work from home. Employee compensation increased primarily due to
a net increase in employee headcount of 6.4% over the past 12 months, annual base salary increases
restructuring actions,year-over-year, higher variable compensation accrual and higher
employee benefit costs including medical expenditures. Computer related expenses, which include depreciation, maintenance, software and other fees, increased year over year due to expenses associated with upgrades to existing computer systems in Norwalk, additional server equipment in our data centers located in New Jersey and Virginia, as well as laptop computers and peripherals for new and existing employees. Data costs increased due to higher third-party data costs from our recent acquisitions and additional users.vacation accrual expense. European operating income decreased 3.1% to $149.0 million during fiscal 2018 compared to $153.7 million a year ago. The impact of foreign currency decreased European operating income by $4.9 million year over year. Additionally, the decrease in European operating income was due to a full year impact of fiscal 2017 acquisitions, contributing to higher employee compensation, amortization of intangible assets, and data costs, partially offset by revenue growth of 17.3%.
Asia Pacific operating income increased 12.7%14.5% to $69.1$90.9 million during fiscal 20182020, compared to $61.4$79.4 million a year ago. The increase in Asia Pacific operating income was mainly due to revenue growth of 13.1%7.3%, inclusive of our annual price increase, and benefits from a stronger U.S. dollar,reduction in non-compensatory employee related expenses, partially offset by increasesan increase in employee compensation costs and occupancy costs. Employee compensationOperating income was higher year over year as result of a 9.2% increasenegatively impacted by movements in our Asia Pacific workforce. Occupancy costs increased due primarily to an increase in rent expense for additional office space in our Philippines location. The impact of foreign currency increased Asia Pacific operating income by $3.6 million year over year.
Fiscal 2017 compared to Fiscal 2016
U.S. operating incomeexchange rates on a year-over-year basis. Non-compensatory employee related expenses, inclusive of travel, entertainment and office expenses, decreased, 17.0% to $137.1 million during fiscal 2017 compared to $165.3 million in fiscal 2016. The decrease in U.S. operating income was primarilymainly due to increases in expensesrestrictions and impacts related to employee compensation, and occupancy costs,the COVID-19 pandemic, partially offset by revenue growth of 3.8%.investment in technology to allow employees to work from home. Employee compensation increased primarilymainly due to a 3.6% increase in U.S. employee headcount year over year and a change in the vesting of performance-based stock options. Occupancy costs including rent expense and depreciation of furniture and fixtures increased due primarily to an increase in rent expense at our New York location.
European operating income increased 16.9% to $153.7 million during fiscal 2017 compared to $131.4 million in fiscal 2016. The increase in European operating income was due to revenue growth of 19.0% and benefits from a stronger U.S. dollar, offset by higher employee compensation, occupancy costs, and amortization of intangibles. European revenue grew due to acquisitions completed in 2017, which had a significant sales presence in European markets. The impact of foreign currency increased European operating income by $6.2 million year over year. Employee compensation was higher in fiscal 2017 compared to fiscal 2016 due to an increase of 473 net new employees in our European offices. These employees were primarily from acquisitions completed in 2017. Occupancy costs including rent expense and depreciation of furniture and fixtures increased due primarily to an increase in rent expense in Germany associated with the 2017 acquisitions. Amortization of intangibles increased due to the addition of $93.2 million of intangibles, the majority of which resided in our European segment.
Asia Pacific operating income increased 15.7% to $61.4 million during fiscal 2017 compared to $53.0 million in fiscal 2016. The increase in Asia Pacific operating income was due to revenue growth of 13.6% and benefits from a stronger U.S. dollar, partially offset by increases in employee compensation and occupancy costs. Employee compensation was higher year over year as a result of a 2.7%9.8% increase in our Asia Pacific workforce in fiscal 2017.the last 12 months and annual base salary increases year-over-year. Occupancy costs increased mainly due to an increase in rent expense at our India locations. The impact of foreign currency increased Asia Pacific operating income by $1.4 million year over year.
facility costs in the Philippines.
Income Taxes, Net Income and Diluted Earnings per Share | | | Years ended August 31, | |
(in thousands) | | 2018 | | | 2017 | | | 2016 | |
Provision for income taxes | | $ | 84,753 | | | $ | 86,053 | | | $ | 122,178 | |
Net income | | $ | 267,085 | | | $ | 258,259 | | | $ | 338,815 | |
Diluted earnings per common share | | $ | 6.78 | | | $ | 6.51 | | | $ | 8.19 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Years ended August 31, | | | | |
| (in thousands) | | 2020 | | 2019 | | $ Change | | % Change |
| Provision for income taxes | | $ | 54,196 | | | $ | 69,175 | | | $ | (14,979) | | | (21.7) | % |
| Net income | | $ | 372,938 | | | $ | 352,790 | | | $ | 20,148 | | | 5.7 | % |
| Diluted earnings per common share | | $ | 9.65 | | | $ | 9.08 | | | $ | 0.57 | | | 6.3 | % |
Income Taxes
Fiscal 2018 compared to Fiscal 2017
The fiscal 20182020 provision for income taxes was $84.8$54.2 million, compared to $69.2 million in fiscal 2019, a decrease of 1.5% from the same period a year ago. The decrease was primarily attributable to the impacts associated with the U.S. tax reform under the Tax Cuts and Jobs Act (“TCJA”)21.7%. On December 22, 2017, the U.S. government enacted comprehensive tax legislation through the TCJA. The TCJA, among other things, lowered the statutory U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018. Due to our August 31 fiscal year-end, the lower tax rate was phased in, resulting in a blended U.S. statutory federal rate of 25.7% for fiscal 2018. The TCJA also implemented a modified territorial tax system and imposed a mandatory one-time transition tax on accumulated earnings and profits (“E&P”) of foreign subsidiaries that were previously deferred from U.S. income taxes.Our effective tax rate was 24.1% for the full fiscal 2018 year compared to 25.0% a year ago due to higher foreign income taxed at rates lower than U.S. rates, incremental income tax benefits from R&D tax credits and increased excess tax benefits from stock option exercises. These benefits were partially offset by the one-time transition tax of $23.2 million and a $2.3 million tax expense associated with the remeasurement of our net U.S. deferred tax position, both of which related to the TCJA. We had approximately $250 million in undistributed foreign E&P generated prior to December 31, 2017, which resulted in the provisional amount for the one-time transition tax expense of $23.2 million, payable over an eight-year period. This amount may change as we finalize the calculation of foreign E&P previously deferred from U.S. federal taxation, as well as the analysis of available foreign tax credits. Due to the changes in taxation of undistributed foreign earnings under the TCJA, we will continue to analyze foreign subsidiary earnings, as well as global working capital requirements, and may repatriate earnings when the amounts are remitted substantially free of additional tax. In addition, the estimates may also be affected by changes in interpretations at the federal and state levels, and any additional regulatory guidance that may be issued.
Fiscal 2017 compared to Fiscal 2016
The fiscal 2017 provision for income taxes was $86.1 million, down 29.6% compared to fiscal 2016. The decrease was primarily due to a lower effective tax expense of $30.8 million relatedrate in fiscal 2020 compared to the gain on saleprior year period, driven mainly by higher research and development ("R&D") tax credits and a higher Foreign Derived Intangible Income ("FDII") deduction. The decrease was also driven by a reduction from finalizing prior year tax returns, which resulted in a benefit of our Market Metrics business that occurred$3.7 million in fiscal 2016. Excluding
2020 compared to an increase to the provision of $7.7 million in fiscal 2019. Additionally, the decrease in the provision was attributed to $1.9 million in higher windfall tax impactbenefits from stock-based compensation for fiscal 2020 compared to fiscal 2019, partially offset by a $3.4 million income tax benefit from the revision of the gain,one-time transition tax permitted by the provision for income taxes decreased by 5.9% year over year related primarily to our organizational realignment. As of September 1, 2016, we realigned certain aspects of our global operations from FactSet Research Systems Inc., our U.S. parent company, to FactSet UK Limited, a U.K. operating company, to better serve our growing client base outside the U.S. Due to the realignment weTCJA recognized a 200 basis point benefit in our annual tax rate. Additionally, excluding the gain on sale induring fiscal 2016, our provision for income taxes decreased due to a decrease in taxable income year over year. This decrease was due primarily to higher interest expense incurred as a result of an increase in our outstanding debt borrowings by approximately $300 million.2019.
Net Income and
Diluted Earnings per ShareFiscal 2018compared to Fiscal 2017
Net income increased
3.4%5.7% to
$267.1$372.9 million
while dilutedduring fiscal 2020 compared to $352.8 million in fiscal 2019. Diluted earnings per share increased
4.1%6.3% to
$6.78 during$9.65 in fiscal
20182020 compared to
$9.08 in fiscal
2017.2019. Net income and diluted EPS
grewincreased primarily due to
higher revenues from strong performances across our segments and workflow solutions, gains earned from our foreign currency hedges, and a
decreaselower income tax provision, a reduction in
our effective tax rate due to the TCJA. These benefits were partially offset by an increase in employee compensation expenses, data costs, amortization of intangible assets from acquisitions, occupancy costs, and interest expense associated with our outstanding
debt.debt and higher operating income, partially offset by foreign currency losses. Interest expense decreased compared to the prior year period, primarily due to a reduction in the LIBOR rate. Diluted EPS also benefited from a
0.30.2 million
share reduction in our
diluted weighted average shares outstanding,
compared to the same period a year ago, mainly due to share repurchases, partially offset by
the impact from stock
option exercises during fiscal 2018.Fiscal 2017 compared to Fiscal 2016
Net income decreased 23.8% to $258.3 million and diluted earnings per share decreased 20.5% to $6.51 during fiscal 2017 compared to fiscal 2016. A large component of the decrease year over year was related to the after-tax gain of $81.7 million from the sale of the Market Metrics business in fiscal 2016. This gain increased diluted earnings per share by $2.01. Excluding the fiscal 2016 after-tax gain on sale, net income increased 0.4% year over year, while diluted EPS increased by 5.3%. During fiscal 2017, net income and diluted earnings per share increased due to revenue growth of 8.3% year over year, coupled with a reduction to the income tax provision of 29.6% primarily related to the gain from the sale of our Market Metrics business along with an organizational realignment. Additionally, during fiscal 2017, foreign currency movements increased operating income by $7.1 million compared to a benefit of $11.6 million in the same period of fiscal 2016. These increases were partially offset by incremental employee compensation expense due to the hiring of 699 net new employees (including 498 employees from acquisitions completed in the last 12 months), an increase in professional fees, occupancy costs, computer related expenses, amortization of intangibles and acquisition-related costs. The increase in diluted earnings per share was also driven by a decrease in diluted shares outstanding as a result of continued share repurchases in fiscal 2017.
options issued.
Non-GAAP Financial Measures
To supplement the financial measures prepared in accordance with GAAP,generally accepted accounting principles in the United States ("GAAP"), we use non-GAAP financial measures including organic revenue, adjusted operating margin, adjusted net
income and adjusted diluted earnings per share. The reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are
shownshow in
the tables below. These non-GAAP financial measures should not be considered in isolation from,
or as a substitute for, or superior to, financial measures reported in accordance with GAAP. Moreover, these non-GAAP financial measures have limitations in that they do not reflect all the items associated with the operations of the business as determined in accordance with GAAP. Other companies may calculate similarly titled non-GAAP financial measures differently
thanthat we do, limiting the usefulness of those measures for comparative purposes.
Despite the limitations of these non-GAAP financial measures, we believe these adjusted financial measures and the information they provide are useful in viewing our performance using the same tools that management uses to gauge progress in achieving our goals. Adjusted measures may also facilitate comparisons to our historical performance.
The table below provides an unauditeda reconciliation of revenuesrevenue to organic revenues.
| | | Twelve Months Ended August 31, | |
(In thousands) | | 2018 | | | 2017 | | | Change | |
Revenues | | $ | 1,350,145 | | | $ | 1,221,179 | | | | 10.6 | % |
Deferred revenue fair value adjustment(1) | | | 7,691 | | | | 5,486 | | | | | |
Acquisitions and divestitures completed(2) | | | (58,624 | ) | | | (1,222 | ) | | | | |
Currency impact (foreign currency movements)(3) | | | (4,952 | ) | | | — | | | | | |
Organic revenues | | $ | 1,294,260 | | | $ | 1,225,443 | | | | 5.6 | % |
| (1)
| Deferred revenue fair value adjustments from purchase accounting.
|
| (2)
| Acquired revenues from acquisitions and divestitures completed within the last 12 months.
|
| (3)
| The impact from foreign currency movements over the past 12 months.
|
revenue.
| | | | | | | | | | | | | | | | | |
| | Twelve Months Ended
August 31, |
| (In thousands) | 2020 | | 2019 | | Change |
| Revenue | $ | 1,494,111 | | | $ | 1,435,351 | | | 4.1 | % |
Deferred revenue fair value adjustment(1) | 4,192 | | | 5,185 | | | |
| Currency impact | (705) | | | — | | | |
| Organic revenue | $ | 1,497,598 | | | $ | 1,440,536 | | | 4.0 | % |
(1)Deferred revenue fair value adjustments from purchase accounting.
The table below provides
an unauditeda reconciliation of operating income, operating margin, net income and diluted EPS to adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted EPS.
| | | Twelve Months Ended August 31, | |
(In thousands, except per share data) | | 2018(1) | | | 2017(2) | | | Change | |
Operating income | | $ | 366,204 | | | $ | 352,135 | | | | 4.0 | % |
Intangible asset amortization | | | 24,665 | | | | 19,924 | | | | | |
Deferred revenue fair value adjustment | | | 7,691 | | | | 5,486 | | | | | |
Other items | | | 26,950 | | | | 17,969 | | | | | |
Adjusted operating income | | $ | 425,510 | | | $ | 395,514 | | | | 7.6 | % |
Adjusted operating margin | | | 31.3 | % | | | 32.2 | % | | | | |
| | | | | | | | | | | | | |
Net income | | $ | 267,085 | | | $ | 258,259 | | | | 3.4 | % |
Intangible asset amortization(3) | | | 19,723 | | | | 14,845 | | | | | |
Deferred revenue fair value adjustment(4) | | | 6,084 | | | | 4,093 | | | | | |
Other items(5) | | | 21,614 | | | | 14,308 | | | | | |
Income tax items | | | 21,310 | | | | (1,918 | ) | | | | |
Adjusted net income | | $ | 335,816 | | | $ | 289,587 | | | | 16.0 | % |
| | | | | | | | | | | | | |
Diluted earnings per common share | | $ | 6.78 | | | $ | 6.51 | | | | 4.1 | % |
Intangible asset amortization | | | 0.50 | | | | 0.37 | | | | | |
Deferred revenue fair value adjustment | | | 0.15 | | | | 0.10 | | | | | |
Other items | | | 0.56 | | | | 0.35 | | | | | |
Income tax items | | | 0.53 | | | | (0.05 | ) | | | | |
Adjusted diluted earnings per common share(6) | | $ | 8.53 | | | $ | 7.31 | | | | 16.7 | % |
Weighted average common shares (Diluted) | | | 39,377 | | | | 39,642 | | | | | |
| (1)
| Operating income, net income and diluted EPS in fiscal 2018 were adjusted to exclude (i) intangible asset amortization(ii)deferred revenue fair value adjustments from purchase accounting,and (iii) other items including restructuring, legal matters and other corporate actions. Net income and diluted EPS in fiscal 2018 were also adjusted to excludea one-time deemed repatriation tax on foreign earnings.
|
| (2)
| Operating income, net income and diluted EPS in fiscal 2017 were adjusted to exclude (i) intangible asset amortization (ii) deferred revenue fair value adjustments from purchase accounting, and (iii) other items including modifications of certain share-based compensation grants, restructuring actions and acquisition-related costs. Net income and diluted EPS in fiscal 2017 were also adjusted to excludebenefits related to finalizing fiscal 2016 tax returns and other discrete items.
|
| (3)
| The intangible asset amortization was recorded net of a tax impact of $4.9 million in fiscal 2018 compared with $5.1 million for fiscal 2017.
|
| (4)
| The deferred revenue fair value adjustment was recorded net of a tax impact of $1.6 million in fiscal 2018 compared with $1.4 million for fiscal 2017.
|
| (5)
| The other items were recorded net of a tax impact of $5.3 million in fiscal 2018 compared with $3.7 million for fiscal 2017.
|
| (6)
| Details may not sum to total due to rounding
|
| | | | | | | | | | | | | | | | | |
| | Twelve Months Ended
August 31, |
| (In thousands, except per share data) | 2020(1) | | 2019(2) | | Change |
| Operating income | $ | 439,660 | | | $ | 438,035 | | | 0.4 | % |
| Intangible asset amortization | 22,269 | | | 24,920 | | | |
| Deferred revenue fair value adjustment | 4,192 | | | 5,185 | | | |
| Impairment of investment | 16,500 | | | — | | | |
| Other items | 20,782 | | | 8,045 | | | |
| Adjusted operating income | $ | 503,403 | | | $ | 476,185 | | | 5.7 | % |
| Adjusted operating margin | 33.6 | % | | 33.2 | % | | |
| | | | | |
| Net income | $ | 372,938 | | | $ | 352,790 | | | 5.7 | % |
Intangible asset amortization(3) | 17,773 | | | 20,262 | | | |
Deferred revenue fair value adjustment(4) | 3,385 | | | 4,215 | | | |
Impairment of investment(5) | 16,500 | | | — | | | |
Other items(6) | 16,611 | | | 6,315 | | | |
| Income tax items | (7,085) | | | 5,274 | | | |
| Adjusted net income | $ | 420,122 | | | $ | 388,856 | | | 8.0 | % |
| | | | | |
| Diluted earnings per common share | $ | 9.65 | | | $ | 9.08 | | | 6.3 | % |
| Intangible asset amortization | 0.46 | | | 0.52 | | | |
| Deferred revenue fair value adjustment | 0.10 | | | 0.11 | | | |
| Impairment of investment | 0.42 | | | — | | | |
| Other items | 0.42 | | | 0.15 | | | |
| Income tax items | (0.18) | | | 0.14 | | | |
| Adjusted diluted earnings per common share | $ | 10.87 | | | $ | 10.00 | | | 8.7 | % |
| Weighted average common shares (diluted) | 38,646 | | | 38,873 | | | |
(1)Operating income, net income and diluted EPS in fiscal 2020 were adjusted to exclude (i) intangible asset amortization, (ii) deferred revenue fair value adjustments from purchase accounting, (iii) an impairment charge to reflect the estimated fair value of an investment in a company, and (iv) professional fees associated with infrastructure upgrades and our ongoing multi-year investment plan and facilities costs.
(2)Operating income, net income and diluted EPS in fiscal 2019 were adjusted to exclude (i) intangible asset amortization, (ii) deferred revenue fair value adjustments from purchase accounting, and (iii) other items including severance, stock-based compensation acceleration, professional fees for infrastructure upgrade activities, a one-time adjustment related to data costs and occupancy costs, partially offset by non-core transaction related revenue. Net income and diluted EPS in fiscal 2019 were also adjusted to exclude amounts primarily related to finalizing prior year tax returns and other discrete items.
Liquidity
(3)The table below, for the periods indicated, provides selected cash flow information:| | | Years ended August 31, | |
(in thousands) | | 2018 | | | 2017 | | | 2016 | |
Net cash provided by operating activities | | $ | 385,668 | | | $ | 320,527 | | | $ | 331,140 | |
Capital expenditures (1) | | | (33,520 | ) | | | (36,862 | ) | | | (47,740 | ) |
Free cash flow (2) | | $ | 352,148 | | | $ | 283,665 | | | $ | 283,400 | |
Net cash used in investing activities | | $ | (48,531 | ) | | $ | (347,306 | ) | | $ | (158,408 | ) |
Net cash used in financing activities | | $ | (320,037 | ) | | $ | (8,161 | ) | | $ | (91,002 | ) |
Cash and cash equivalents at end of year | | $ | 208,623 | | | $ | 194,731 | | | $ | 228,407 | |
| (1)
| Included in net cash used in investing activities during each fiscal year reported.
|
| (2)
| Free cash flow is defined as cash provided by operating activities, which includes the cash cost for taxes and changes in working capital, less capital expenditures.
|
Fiscal 2018 compared to Fiscal 2017
Cash and cash equivalents aggregated to $208.6intangible asset amortization was recorded net of a tax impact of $4.5 million or 14.7% of our total assets at August 31, 2018,in fiscal 2020 compared with $194.7$4.7 million or 13.8%for fiscal 2019.
(4)The deferred revenue fair value adjustment was recorded net of a tax impact of $0.8 million in fiscal 2020 compared with $1.0 million for fiscal 2019.
(5)There was no tax impact during fiscal 2020 resulting from the impairment of an investment in a company.
(6)The other items were recorded net of a tax impact of $4.2 million in fiscal 2020 compared with $1.7 million for fiscal 2019.
Liquidity and Capital Resources
Our primary sources of liquidity have been our
total assets at August 31, 2017. Ourcash flows generated from our operations, existing cash and cash equivalents
increased $13.9 million during fiscal 2018 dueand, when needed, our credit capacity under our existing credit facility. We have primarily used these sources of liquidity to,
net cash provided by operating activities of $385.7 millionamong other things, service our existing and
$71.6 million in proceeds from the exercise of employee stock options. These cash inflows were partially offset by $89.4 million infuture debt obligations, fund our working capital requirements for operations and capital expenditures, investments, acquisitions, dividend payments
$33.5 million of capital expenditures, $15.0 million related to a business investment, $3.2 million from the effects of foreign currency translations and
$303.9 million in share repurchases, which included $302.4 million under the existing share repurchase program and $1.5 million in shares repurchased from employees to cover their cost of taxes upon vesting of restricted stock.Net cash used in investing activities was $48.5 million in fiscal 2018, representing a $298.8 million decrease from fiscal 2017. This reduction was primarily due to decreased acquisition activity with $15.0 million invested in fiscal 2018 compared to $303.1 million largely related to the BI-SAM Technologies (“BISAM”) and Vermilion Holdings Limited (“Vermilion”) acquisitions in fiscal 2017. Additionally, cash used in investing activities decreased year over year due to lower capital expenditures of $3.3 million and a decrease in the purchase of investments (net of proceeds) of $7.4 million year over year
During fiscal 2018, net cash used in financing activities was $320.0 million, representing a $311.9 million increase from fiscal 2017. This increase was due to $275.0 million in proceeds (net of repayment) from the issuance of long-term debt in fiscal 2017 that did not occur in fiscal 2018. In addition, the decrease was due to higher dividend payments of $8.5 million, an increase in share repurchases of $43.0 million,our common stock. Based on past performance and a change in the presentation of tax benefits from share-based payment arrangements due to the adoption of the accounting standard update, which required us to disclose benefits from stock option exercises as an operating cash inflow instead of a financing activity. This presentation change was adopted prospectively beginning with fiscal 2018. These cash outflows were partially offset by an increase in proceeds from employee stock plans of $21.6 million.
We expect that for at least the next 12 months, our operating expenses will continue to constitute a significant use of our cash. As of August 31, 2018, our total cash and cash equivalents worldwide was $208.6 million, with $574.8 million in outstanding borrowings (net of $0.2 million of unamortized debt issuance costs). Approximately $30.9 million of our total available cash and cash equivalents is held in bank accounts located within the U.S., $134.3 million in Europe (predominantly within the UK, France, and Germany) and the remaining $43.4 million is held in the Asia Pacific segment. Wecurrent expectations, we believe our liquidity, (including cash on hand, cash from operating activities and other cash flows that we expect to generate) within each geographic segment will be sufficient to meet our short-term and long-term operating requirements, as they occur, including working capital needs, capital expenditures, dividend payments, stock repurchases, growth objectives andalong with other financing activities. In addition, we expect existing foreign cash, cash equivalents and cash flows from operations to continue to be sufficientalternatives, will provide us the necessary capital to fund these transactions and achieve our foreign operating activities and cash commitmentsplanned growth for investing activities, such as capital expenditures, for at least the next 12 months and thereafter for the foreseeable future.
Free cash flow generated in fiscal 2018 was $352.1 million, an increase
Sources of
24.1% compared to $283.7 million in fiscal 2017. Free cash flow was attributable to $267.1 million of net income, $87.0 million of non-cash items, $31.6 million of working capital changes, less $33.5 million in capital expenditures. The year over year free cash flow growth was driven by positive working capital changes totaling $47.6 million and lower capital expenditures of $3.3 million. Working capital improved year over year due to timing of supplier payments and payroll, stabilization of our days sales outstanding (“DSO”) at 41 days and the adoption of an accounting standard update for share-based payments, which required the presentation of benefits from stock options exercised to be reported as an operating activity, when in prior periods it was reported as a financing activity.Liquidity Long-Term Debt
Fiscal 2017 compared to Fiscal 2016
Cash and cash equivalents aggregated to $194.7 million, or 13.8% of our total assets at August 31, 2017, compared with $228.4 million, or 22.4% of our total assets at August 31, 2016. Our cash and cash equivalents decreased $33.7 million during fiscal 2017 due primarily to $303.1 million in cash paid for acquisitions (net of cash acquired), $252.8 million in share repurchases under the existing share repurchase program, dividend payments of $80.9 million, capital expenditures of $36.9 million and $7.4 million from the purchase of investments (net of proceeds). These cash outflows were partially offset by cash provided by operations of $320.5 million, $275.0 million in net proceeds from long-term debt, $50.0 million in proceeds from the exercise of employee stock options, $10.3 million in tax benefits from share-based payment arrangements and $1.3 million from the effects of foreign currency translations.
Net cash used in investing activities was $347.3 million in fiscal 2017, which represented a $188.9 million increase from fiscal 2016 due primarily to an increase in the cash used in acquisitions and the purchases of investments (net of proceeds), partially offset by a decrease in capital expenditures. Additionally, in fiscal 2016 we recognized proceeds from the sale of our Market Metrics business of $153.1 million. Acquisitions during fiscal 2017, largely related to BISAM and Vermilion, resulted in a cash outflow of $303.1 million compared to a net cash outflow of $262.9 million for the Portware acquisition during fiscal 2016. Purchase of investments (net of proceeds) resulted in an increased cash outflow of $6.5 million in fiscal 2017 compared to fiscal 2016. The decrease in capital expenditures of $10.9 million was due from the fit-out of new space in New York, Chicago and at our corporate headquarters in Norwalk in fiscal 2016.Fiscal 2017 capital expenditures related primarily to computer equipment for our U.S. locations and additional expenses at our Chicago, New York, and India locations.
During fiscal 2017, net cash used in financing activities was $8.2 million compared to $91.0 million in fiscal 2016. This decrease was due primarily to FactSet entering into an accelerated share repurchase agreement (the “ASR Agreement”) to repurchase $120.0 million of our common stock in July 2016. We received 595,607 shares of common stock on July 5, 2016, which was approximately 80% of the total number of shares of common stock expected to be repurchased under the ASR Agreement. The final settlement of the ASR Agreement occurred in the first quarter of fiscal 2017 with our receiving an additional 102,916 shares of our common stock. Excluding cash used in the ASR Agreement, cash provided by financing activities in fiscal 2016 was $29.0 million, resulting in a fluctuation of $37.2 million in the current year. This fluctuation was due to an increase in cash used to repurchase common stock under our existing share repurchase program of $24.2 million, an increase in payments of regular quarterly dividends of $6.7 million, lower proceeds from employee stock plans of $6.8 million and lower tax benefits from share-based payment arrangements of $7.9 million. Cash used in share repurchases increased year over year as we repurchased 1.6 million shares for $252.8 million under the existing share repurchase program compared to 1.5 million shares for $232.3 million in fiscal 2016. Dividend payments increased as our Board of Directors approved a 12.0% increase in the regular quarterly dividend to $0.56 per share, or $2.24 per share per annum, beginning with the dividend payment in June 2017. The year over year fluctuation was also due to additional borrowings under our 20172019 Credit Agreement (defined in Capital Needs) of $575.0 million, used to fund our acquisition of BISAM on March 17, 2017 and retire our existing debt of $365.0 million. In fiscal 2016 we borrowed $265.0 million under our previous credit agreement to fund our acquisition of Portware on October 16, 2015. Refer to the Capital Resources section of the MD&A for a discussion of our long-term debt borrowings.
Free cash flow for fiscal 2017 was $283.7 million compared to $283.4 million in fiscal 2016. Free cash flow generated during fiscal 2017 was attributable to $258.3 million of net income adjusted for $78.3 million of non-cash items partially offset by $36.9 million in capital expenditures and $16.0 million of negative working capital changes. Free cash flow increased slightly from the comparable year ago period, due primarily to a reduction in capital expenditures partially offset by a decrease in net cash provided by operating activities. The decrease in net cash provided by operating activities was the result of higher client receivables and the timing of taxes payments. Our DSO was 41 days as of August 31, 2017, representing an increase from 31 days at August 31, 2016. The increase in DSO was primarily related to the acquisitions made in the year.
Capital Resources
Capital Expenditures
Capital expenditures were $33.5 million during fiscal 2018, down from $36.9 million a year ago. Capital expenditures of $24.2 million, or 72% of our capital expenditures during fiscal 2018 related to upgrades to existing computer systems in Norwalk, additional server equipment in our data centers located in New Jersey and Virginia, as well as laptop computers and peripherals for new and existing employees. The remainder of our capital expenditures was primarily for the build out of office space including $2.2 million at our India location, $2.8 million at our Hong Kong location and $1.5 million at our Netherlands location.
Capital expenditures were $36.9 million during fiscal 2017, down from $47.7 million in fiscal 2016. Approximately $21.4 million, or 58%, of our capital expenditures was primarily for purchases of more servers for our existing data centers, additional laptop computers and peripherals for new employees, upgrades to existing computer systems and improvements to our telecommunication equipment. The remainder of our capital expenditures was primarily for the build out of office space including $4.4 million at our Chicago location, $4.4 million at our New York locations and $2.7 million at our India locations.
Capital Needs
Long-Term Debt
On March 17, 2017,29, 2019, we entered into a Credit Agreement (the “2017 Credit Agreement”) between FactSet, as the borrower, andcredit agreement with PNC Bank, National Association (“PNC”("PNC") (the "2019 Credit Agreement"), as the administrative agent and lender. The 2017 Credit Agreementwhich provides for an unsecured $575.0a $750.0 million revolving credit facility (the “2017"2019 Revolving Credit Facility”Facility"). We may request borrowings under the 20172019 Revolving Credit Facility until its maturity date of March 17, 2020.29, 2024. The 20172019 Credit Agreement also allows us, subject to certain requirements, to arrange for additional borrowings with PNC for an aggregate amount of up to $225.0$500.0 million, provided that any such request for additional borrowings must be in a minimum amount of $25.0 million. At our option,
As of August 31, 2020, we have borrowed $575.0 million of the available $750.0 million provided by the 2019 Revolving Credit Facility, resulting in $175.0 million available to be withdrawn. We are required to pay a borrowing may becommitment fee using a pricing grid which was 0.10% as of August 31, 2020. This fee is based on the daily amount by which the available balance in the form2019 Revolving Credit Facility exceeds the borrowed amount. All outstanding loan amounts are reported as Long-term debt within the Consolidated Balance Sheets at August 31, 2020 and August 31, 2019. The principal balance is payable in full on the maturity date.
The fair value of
a baseour long-term debt was $575.0 million as of August 31, 2020, which we believe approximates the carrying amount as the terms and interest rate
loan or a LIBORapproximate market rates given its floating interest rate
loan.basis. Borrowings under the loan bear interest on the outstanding principal amount at a rate equal to
the daily LIBOR
rate plus a spread using a debt leverage pricing grid,
currently at 1.00%. Interestwhich was 0.875% as of August 31, 2020. The variable rate of interest on
our long-term debt can expose us to interest rate volatility due to changes in LIBOR. To mitigate this exposure, on March 5, 2020, we entered into an interest rate swap agreement with a notional amount of $287.5 million to hedge the
loanvariable interest rate obligation on a portion of our outstanding
is payable quarterly in arrears and on the maturity date. There are no prepayment penalties if we elect to prepay the outstanding loan amounts prior to the scheduled maturity date. The principal balance
is payable in full on the maturity date.In conjunction with our entrance into the 2017 Credit Agreement, we borrowed $575.0 million in the form of a LIBOR rate loan under the 20172019 Revolving Credit Facility. ProceedsUnder the terms of the interest rate swap agreement, we will pay interest at a fixed rate of 0.7995% and receive variable interest payments based on the same one-month LIBOR utilized to calculate the interest expense from the 20172019 Revolving Credit Facility were also used to fund our acquisition of BISAM.
All outstanding loan amounts are reported as Long-term debt within the Consolidated Balance Sheet, presented net of related loan origination fees at August 31, 2018.Facility. The loan origination fees are amortized into interest expense over the term of the loan using the effective interest method. rate swap agreement matures on March 29, 2024.
During fiscal
years 2018, 2017 and 2016,2019, we
recorded interest expense of $15.9 million, $8.4 million and $3.0 million, respectively, on our outstanding debt amounts. As of August 31, 2018, no commitment fee was owed by us since we borrowed the full amount under the 2017 Credit Agreement.In fiscal 2017, FactSet incurred approximately $0.4$0.9 million in legaldebt issuance costs related to draft and review the 20172019 Credit Agreement. These costs were capitalized as loan origination fees and are amortized into interest expense ratably over the term of the 2019 Credit Agreement.
During fiscal 2020, we recorded interest expense on our outstanding debt, including the amortization of debt issuance costs, net of the effects of the interest rate swap agreement of $12.9 million. During fiscal 2019, we recorded interest expense on our outstanding debt, including the amortization of debt issuance costs, of $19.8 million. Including the effects of the interest rate swap agreement, the weighted average interest rate on amounts outstanding under our credit facilities was 2.20% for the twelve months ended August 31, 2020. The weighted average interest rate for fiscal 2019 was 3.35%. Interest on the loan usingoutstanding is payable quarterly, in arrears, and on the effective interest method.maturity date.
The 20172019 Credit Agreement containedcontains covenants and requirements restricting certain FactSet activities, which are usual and customary for this type of loan. In addition, the 20172019 Credit Agreement requiredrequires that FactSetwe maintain a consolidated net leverage ratio, as measured by total net funded debt/EBITDA (as defined in the 2019 Credit Agreement) below a specified level as of the end of each fiscal quarter. We were in compliance with all of the covenants ofand requirements within the 20172019 Credit Agreement as of August 31, 20182020.
The borrowings under the 2019 Credit Agreement were used to retire all outstanding debt under the previous 2017 Credit Agreement between FactSet, as the borrower, and
2017.AsPNC, as the lender, on March 29, 2019. The total principal amount of August 31, 2018, the fair valuedebt outstanding at the time of our long-term debtretirement was $575.0 million which we believe approximatedand there were no prepayment penalties.
2017 Credit Agreement
On March 17, 2017, the
carrying amountCompany entered into a Credit Agreement (the "2017 Credit Agreement") between FactSet, as the
termsborrower, and
PNC, as the administrative agent and lender. The 2017 Credit Agreement provided for a $575.0 million revolving credit facility "). Borrowings under the loan were subject to interest
rates approximate market rates given its floating intereston the outstanding principal amount at a rate
basis.equal to the daily LIBOR plus 1.00%. Interest on the loan outstanding was payable quarterly in arrears and on the maturity date. There were no prepayment penalties if we elected to prepay the outstanding loan amounts prior to the scheduled maturity date. The principal balance was repaid in full on March 29, 2019.
From time to time, we are required to obtain letters of credit in the ordinary course of business. Approximately $2.0$2.9 million of standby letters of credit have been issued in connection with our leased office spaces as of August 31, 2018.2020. These standby letters of credit containutilize the same covenants that, among other things, require us to maintain minimum levels of consolidated net worth and certain leverage and fixed charge ratios. As of August 31, 2018 and 2017, we were in compliance with all covenants containedincluded in the standby letters2019 Credit Agreement. Refer to Note 12, Debt of credit.Foreign Currency
Foreign Currency Exposure
Certain wholly owned subsidiaries within the European and Asia Pacific segments operate under a functional currency different fromNotes to the U.S. dollar. The financial statementsCompany's Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for more information on these foreign subsidiaries are translated into U.S. dollars using period-end ratescovenants.
Uses of exchange for assets and liabilities and average rates for the period for revenues and expenses. Translation gains and losses that arise from translating assets, liabilities, revenues and expensesLiquidity
Share Repurchase Program
Repurchases of foreign operations are recorded in accumulated other comprehensive (loss) income as a component of stockholders’ equity.Over the next 12 months, our non-U.S. dollar denominated revenues expected to be recognized are estimated to be $92.8 million while our non-U.S. dollar denominated expenses are estimated to be $324.5 million, which translates into a net foreign currency exposure of $231.7 million. Our foreign currency exchange exposure is related to our operating expense base in countries outside the U.S., where 74%shares of our employees were located as of August 31, 2018. During fiscal 2018, foreign currency movements decreased operating income by $1.3 million, compared to a $7.1 million increase to operating income for fiscal 2017.
Foreign Currency Hedges
As of August 31, 2018, we maintained the following foreign currency forward contracts to hedge our exposures:
| ●
| Philippine Peso – foreign currency forward contracts to hedge approximately 75% of our Philippine Peso exposure through the fourth quarter of fiscal 2020.
|
| ●
| Indian Rupee – foreign currency forward contracts to hedge approximately 75% of our Indian Rupee exposure through the third quarter of fiscal 2019 and 50% of its exposure from the fourth quarter of fiscal 2019 through the end of the second quarter of fiscal 2020.
|
| ●
| Euro – foreign currency forward contracts to hedge approximately 50% of our Euro exposure through the third quarter of fiscal 2019.
|
| ●
| British Pound Sterling – foreign currency forward contracts to hedge approximately 50% of our British Pound Sterling exposure through the third quarter of fiscal 2019.
|
As of August 31, 2018, the gross notional value of foreign currency forward contracts to purchase Philippine Pesos with U.S. dollars was PHP 2.8 billion, to purchase Indian Rupees with U.S. dollars was Rs. 3.6 billion, to purchase Euros with U.S. dollars was € 22.0 million and to purchase British Pound Sterling with U.S. dollars was £14.0 million.
There were no other outstanding foreign currency forward contracts as of August 31, 2018. A gain on derivatives of $3.1 million was recorded into operating income during fiscal 2018, compared to a loss of $2.9 million in fiscal 2017.
Off-Balance Sheet Arrangements
At August 31, 2018 and 2017, we had no off-balance sheet financing or other arrangements with unconsolidated entities or financial partnerships (such as entities often referred to as structured finance or special purpose entities) established for purposes of facilitating off-balance sheet financing or other debt arrangements or for other contractually limited purposes.
Share Repurchase Program
Repurchases will becommon stock are made from time to time in the open market and privately negotiated transactions, subject to market conditions. In fiscal 2018,2020, we repurchased 1.50.7 million shares for $302.4$199.6 million under our existing share repurchase program compared to 1.60.9 million shares for $252.8$213.1 million in fiscal 2017 under2019.
A total of $259.0 million remains authorized for future share repurchases as of August 31, 2020. There is no defined number of shares to be repurchased over a specified timeframe through the existinglife of the share repurchase program. It is expected that share repurchases will be paid using existing and future cash generated by operations. Dividends
On August 14, 2020, our Board of Directors approved a regular quarterly dividend of $0.77 to be paid on September 17, 2020. During fiscal 2020, the dividend increased $0.05 per share or 6.9%, which marked the 15th consecutive year we have increased dividends, highlighting our continued commitment to returning value to stockholders. Over the last 12 months, we have returned $393.4paid $110.4 million in cash dividends. Future cash dividends will depend on our earnings, capital requirements, financial condition and other factors considered relevant by us and is subject to stockholders in the form of share repurchases and dividends. On March 26, 2018,final determination by our Board of Directors approved a $300.0Directors.
Summary of Cash Flows
The table below, for the periods indicated, provides selected cash flow information:
| | | | | | | | | | | |
| Years ended August 31, |
| (in thousands) | 2020 | | 2019 |
| Net cash provided by operating activities | $ | 505,840 | | | $ | 427,136 | |
| Net cash used in investing activities | $ | (73,632) | | | $ | (56,100) | |
| Net cash used in financing activities | $ | (218,075) | | | $ | (214,274) | |
| Effect of exchange rate changes on cash and cash equivalents | 11,673 | | | (5,586) | |
| Net increase in cash and cash equivalents | 225,806 | | | 151,176 | |
Cash and cash equivalents aggregated to $585.6 million expansionat August 31, 2020, compared with $359.8 million at August 31, 2019, an increase of $225.8 million. This increase was primarily due to $505.8 million of net cash provided by operating activities, $95.5 million in proceeds primarily from the existingexercise of employee stock options and purchases under the FactSet Research Systems Inc. Employee Stock Purchase Plan, as Amended and Restated (the "ESPP"), and $11.7 million from the effects of foreign currency translations. These cash inflows were partially offset by $199.6 million in share repurchase program. Subsequent to this expansion, $431.2repurchases, $110.4 million is available for future share repurchases. Asin dividend payments and $77.6 million of capital expenditures.
Our cash and cash equivalents are held in numerous locations throughout the world, with $303.0 million within the Americas, $222.3 million within EMEA (predominantly within the UK, France, and Germany) and the remaining $60.3 million within Asia Pacific (predominantly within the Philippines and India) as of August 31, 2018, $241.72020. The Company intends to reinvest substantially all of its accumulated undistributed foreign earnings, except in instances where repatriation would result in
minimal additional tax. As a result of the TCJA, we believe that the income tax impact if such earnings were repatriated would be minimal.
Operating
For fiscal 2020, net cash provided by operating was $505.8 million is available for futurecompared to $427.1 million in fiscal 2019, an increase of $78.7 million. This increase was primarily driven by higher net income and timing of other operating cash flows, partially offset by the timing of income tax payments.
Investing
For fiscal 2020, net cash used in investing activities was $73.6 million compared to $56.1 million in fiscal 2019, an increase in cash used from investing activities of $17.5 million. This increase was mainly due to higher capital expenditures of $18.3 million, driven primarily by increased development costs related to internal-use software.
Financing
For fiscal 2020, net cash used in financing activities was $218.1 million compared to $214.3 million in fiscal 2019, representing a $3.8 million increase in cash used in financing activities. This increase was due primarily to a $11.5 million decrease in proceeds from the exercise of employee stock options and ESPP purchases and a $10.4 million increase in dividend payments, partially offset by a $20.7 million decrease in share repurchases underrepurchases.
Free Cash Flow
We define free cash flow, a non-GAAP financial measure, as cash provided by operating activities less purchases of property, equipment, leasehold improvements and intangible assets. We present free cash flow solely as a supplemental disclosure to provide useful information to investors about the
existing share repurchase program.amount of cash generated by the business after necessary capital expenditures. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after necessary capital expenditures. The following table reconciles our net cash provided by operating activities to free cash flow:
| | | | | | | | | | | |
| Years ended August 31, |
| (in thousands) | 2020 | | 2019 |
| Net cash provided by operating activities | $ | 505,840 | | | $ | 427,136 | |
Capital expenditures(1) | (77,642) | | | (59,370) | |
| Free cash flow | $ | 428,198 | | | $ | 367,766 | |
(1)Capital expenditures are included in net cash used in investing activities during each fiscal period reported.
For fiscal 2020, we generated free cash flow of $428.2 million compared to $367.8 million in fiscal 2019 , an increase of $60.4 million. This increase reflects an increase of $78.7 million in cash provided by operating activities, partially offset by an increase in capital expenditures of $18.3 million.
Fluctuations in our operating results, the degree of success of our accounts receivable collection efforts, the timing of tax and other payments, as well as necessary capital expenditures to support growth of our operations, will impact our liquidity and cash flows in future periods. The effect of our contractual obligations on our liquidity and capital resources in future periods should be considered in conjunction with the factors mentioned here. AsWith the exception of August 31, 2018, we had totalthe new leases entered in the ordinary course of business and purchase commitments of $79.0 million, which was comparableassociated with our technology investment plan and business transformation activities, there were no other significant changes to the prior year commitments of $81.0 million, reflecting no material changes with suppliersour contractual obligations during fiscal 2018.2020.
The following table summarizes our significant contractual obligations as of August 31,
20182020 and the corresponding effect that these obligations will have on our liquidity and cash flows in future periods:
| | | Payments due by period | | |
(in millions) | | 2019 | | | | 2020-2021 | | | | 2022-2023 | | | 2024 and thereafter | | | Total | | |
Operating lease obligations(1) | | $ | 41.1 | | | $ | 73.4 | | | $ | 63.3 | | | $ | 230.0 | | | $ | 407.8 | | |
Purchase commitments(2) | | | 75.8 | | | | 3.2 | | | | — | | | | — | | | | 79.0 | | |
Long-term debt obligations(3) | | | — | | | | 575.0 | | | | — | | | | — | | | | 575.0 | | |
Total contractual obligations by period(4) | | $ | 116.9 | | | $ | 651.6 | | | $ | 63.3 | | | $ | 230.0 | | | $ | 1,061.8 | | |
| (1)
| Operating lease amounts include future minimum lease payments under all our non-cancelable operating leases with an initial term in excess of one year. For more information on our operating leases, see Note 19, Commitments and Contingencies, in the Notes to the Company’s Consolidated Financial Statements included in Item 8 of this Report on Form 10-K.
|
| (2)
| Purchase commitments represent payments due in future periods in respect of obligations to our various data vendors as well as commitments to purchase goods and services such as telecommunication, computer maintenance and consulting services.
|
| (3)
| Represents the amount due under the Company’s 2017 Credit Agreement.
|
| (4)
| Non-current income taxes payable of $11.5million and non-current deferred tax liabilities of $24.9 million have been excluded in the table above due to uncertainty regarding the timing of future payments.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Payments due by fiscal year |
| (in millions) | | 2021 | | 2022-2023 | | 2024-2025 | | 2026 and thereafter | | Total |
Operating lease obligations(1) | | $ | 40.8 | | | $ | 76.4 | | | $ | 68.3 | | | $ | 186.7 | | | $ | 372.2 | |
Purchase commitments(2) | | 77.7 | | | 84.7 | | | 63.6 | | | — | | | 226.0 | |
Long-term debt obligations(3) | | — | | | — | | | 575.0 | | | — | | | 575.0 | |
Total contractual obligations by period(4) | | $ | 118.5 | | | $ | 161.1 | | | $ | 706.9 | | | $ | 186.7 | | | $ | 1,173.2 | |
(1)Operating lease amounts include future minimum lease payments under all our non-cancelable operating leases with an initial term in excess of one year. Operating lease amounts also include renewal options that are reasonably certain to be exercised and are included in the measurement of the lease liability. Amounts above do not include future lease payments under leases that have not commenced. For more information on our operating leases, refer to Note 11, Leases, in the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K.
(2)Purchase commitments represent payments due in future periods in respect of obligations to our various data vendors as well as commitments to purchase goods and services such as telecommunication services, computer software and maintenance support and consulting services. As of August 31, 2020 and 2019, we had total purchase commitments of $226.0 million and $69.9 million, respectively.
(3)Represents the amount due under the 2019 Credit Agreement.
(4)Non-current income taxes payable of $27.7 million and non-current deferred tax liabilities of $19.7 million have been excluded in the table above due to uncertainty regarding the timing of future payments.
Purchase orders do not necessarily reflect a binding commitment but are merely indicative of authorizationsauthorizations and intention to conclude purchases in the future. For the purpose of this tabular disclosure, purchase obligations for goods and services are defined as agreements that are enforceable and legally binding on us and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. It is expected that all the contractual obligations noted in the table will be funded from existing cash and cash flows from operations. Expected timing pertaining to the contractual obligations included in the table above has been estimated based on information currently available. The amounts paid, and the timing of those payments, may differ based on when the goods and services provided by our vendors to whom we are contractually obligated are received, as well as due to changes to agreed-upon amounts for any of our obligations.On February 14, 2018, we entered into a new lease to relocate our corporate headquarters to 45 Glover Avenue in Norwalk, Connecticut. The new location will comprise approximately 173,000 square feet of office space.
We expect to take possession of the newly leased property on or around January 1, 2019 for fit-out purposes. We will continue to occupy our existing headquarters space until the new headquarters property is ready for occupancy, currently estimated to be in the second quarter of fiscal 2020.Including new lease agreements executed during fiscal 2018, our worldwide leased office space increased to approximately 1,750,000 square feet at August 31, 2018, up 607,000 square feet, or 54.0% from August 31, 2017. This increase was primarily related to additional office space in the Philippines and the new headquarters lease signed in February 2018. Future minimum requirements for our operating leases in place as of August 31, 2018 totaled $407.8 million, an increase from $281.7 million as of August 31, 2017, primarily due to the additional office space in the Philippines and new leased space for headquarters in Norwalk, Connecticut mentioned above.
As disclosed earlier in the Capital Resources section of this MD&A, we entered into the 20172019 Credit Agreement on March 17, 201729, 2019 and borrowed $575.0 million. In conjunction with the 2019 Credit Agreement, we retired the loan outstanding under the 2017 Credit Agreement FactSet retired its outstanding loanin the amount of $365.0 million under the previous credit agreement.
With the exception of the new leases entered $575.0 million. Refer to Note 12,
Debtin the ordinary courseNotes to the Company’s Consolidated Financial Statements included in Item 8. of business, there werethis Annual Report on Form 10-K for more information on the 2019 Credit Agreement. Off-Balance Sheet Arrangements
At August 31, 2020 and 2019, we had no off-balance sheet financing or other significant changesarrangements with unconsolidated entities or financial partnerships (such as entities often referred to as structured finance or special purpose entities) established for purposes of facilitating off-balance sheet financing other debt arrangements, or other contractually limited purposes.
Foreign Currency
Foreign Currency Exposure
Certain wholly-owned subsidiaries within the EMEA and Asia Pacific segments operate under a functional currency different from the U.S. dollar. The financial statements of these foreign subsidiaries are translated into U.S. dollars using period-end rates of exchange for assets and liabilities and average exchange rates for revenue and expenses. Translation gains and losses that arise from translating assets, liabilities, revenue and expenses of foreign operations are recorded in accumulated other comprehensive loss ("AOCL")as a component of stockholders’ equity.
Our foreign currency exchange exposure is related to our
contractual obligations duringoperating expenses in countries outside the Americas, where approximately 76% of our employees were located as of August 31, 2020. During fiscal
2018.Dividends
On May 7, 2018, our Board2020, foreign currency movements
increased operating income by $5.0 million, compared to a 14.3%$10.1 million increaseto operating income in the regular quarterly dividend beginningsame period a year earlier.
As of August 31, 2020, we maintained foreign currency forward contracts to hedge a portion of our British Pound Sterling, Euro, Indian Rupee, and Philippine Peso exposures. We entered into a series of forward contracts to mitigate our currency exposure ranging from 25% to 75% over their respective hedged periods. The current foreign currency forward contracts are set to mature at various points between the first quarter of fiscal 2021 through the fourth quarter of fiscal 2021.
As of August 31, 2020, the gross notional value of foreign currency forward contracts to purchase Philippine Pesos and Indian Rupees with U.S. dollars was ₱1.3 billion and Rs1.4 billion, respectively. The gross notional value of foreign currency forward contracts to purchase U.S. dollars with Euros and British Pound Sterling was €31.8 million and £36.4 million, respectively.
A loss on derivatives of $2.0 million was recorded in operating income during fiscal 2020, compared to a loss of $1.8 million in fiscal 2019.
Critical Accounting Policies and Estimates
We prepare the
dividend paymentConsolidated Financial Statements in conformity with generally accepted accounting principles, which requires us to make certain estimates and apply judgements that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. We base our estimates on
June 19, 2018, which was $0.64 per share. With our dividends and our share repurchases, in the aggregate, we have returned $393.4 million to stockholders over the past 12 months. Future cash dividends will depend on our earnings, capital requirements, financial conditionhistorical experience and other
factorsassumptions that we
consider relevant. Dividends mustbelieve to be
authorized by our Board of Directors.During fiscal years 2018reasonable at the time the Consolidated Financial Statements are prepared and, 2017, our Board of Directors declared the following dividends on our common stock:
Year Ended | | Dividends per Share of Common Stock | | Record Date | | Total $ Amount (in thousands) | | Payment Date |
Fiscal 2018 | | | | | | | | | | |
First Quarter | | $ | 0.56 | | November 30, 2017 | | $ | 21,902 | | December 19, 2017 |
Second Quarter | | $ | 0.56 | | February 28, 2018 | | $ | 21,799 | | March 20, 2018 |
Third Quarter | | $ | 0.64 | | May 31, 2018 | | $ | 24,566 | | June 19, 2018 |
Fourth Quarter | | $ | 0.64 | | August 31, 2018 | | $ | 24,443 | | September 18, 2018 |
| | | | | | | | | | | |
Fiscal 2017 | | | | | | | | | | |
First Quarter | | $ | 0.50 | | November 30, 2016 | | $ | 19,852 | | December 20, 2016 |
Second Quarter | | $ | 0.50 | | February 28, 2017 | | $ | 19,709 | | March 21, 2017 |
Third Quarter | | $ | 0.56 | | May 31, 2017 | | $ | 21,951 | | June 20, 2017 |
Fourth Quarter | | $ | 0.56 | | August 31, 2017 | | $ | 21,853 | | September 19, 2017 |
All the above cash dividends were paidas such, they may ultimately differ materially from existing cash resources on a quarterly basis.
Significant Accounting Policies
actual results.
We describe our significant accounting policies in Note 3, Summary of Significant Accounting Policies, of in the Notes to ourthe Company’s Consolidated Financial Statements included in Item 8 below.Critical Accounting Estimates
We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period, or use8. of different estimates that we reasonably could have used in the current period, would have a material impactthis Annual Report on our financial condition or results of operations.Form 10-K. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors. In addition, thereThe critical accounting policies, estimates, and judgments that we believe to have the most significant impacts to our Consolidated Financial Statements are other items withindescribed below.
Revenue Recognition
The majority of our consolidated financial statementsrevenue is derived from client access to our hosted proprietary data and analytics platform, which can include various combinations of products and services available over the contractual term. The hosted platform is a subscription-based service that require estimation butconsists primarily of providing access to products and services including workstations, analytics, enterprise data, research management, and trade execution. We have determined that the subscription-based service represents a single performance obligation covering a series of distinct products and services that are not deemed criticalsubstantially the same and that have the same pattern of transfer to the client. Based on the nature of the services and products offered by us, we apply an input time-based measure of progress as defined above. Changes in estimates used in thesethe client is simultaneously receiving and other items could have a material impact on our financial statements.Business Combinations
consuming the benefits of the platform. We record acquisitionsrevenue for our contracts using the purchase methodover-time revenue recognition model as a client is invoiced or performance is satisfied. A provision for billing adjustments and cancellation of accounting. All the assets acquired, liabilities assumed, contractual contingenciesservices is estimated and contingent consideration are recognized at their fair value on the acquisition date. The application of the purchase method of accountingaccounted for business combinations requires managementas a reduction to make significant estimates and assumptionsrevenue, with a corresponding reduction to accounts receivable. Refer to Note 4,
Revenue Recognition in the determination of the fair value of assets acquired and liabilities assumed in order to properly allocate purchase price consideration between assets that are depreciated and amortized from goodwill. Our estimates are based on historical experience, information obtained from the management of the acquired companies, and when appropriate, include assistance from independent third-party appraisal firms. Our significant assumptions and estimates can include, but are not limitedNotes to the cash flows that an asset is expected to generateCompany’s Consolidated Financial Statements included in the future, the appropriate weighted-average costItem 8. of capital, and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and unpredictable. In addition, unanticipated events and circumstances may occur which may affect the accuracy or validity of such estimates.Performance-based Equity Awards
Performance-based stock options require management to make assumptions regarding the likelihood of achieving our performance targets. The number of performance-based options that vest will be predicatedthis Annual Report on us achieving performance levels during the measurement period subsequent to the date of grant. Depending on the financial performance levels we achieve, a percentage of the performance-based stock options will vest to the grantees of those stock options. However, there is no current guarantee that such options will vest in whole or in part.
February 2015 Performance-based Option Grant Review
In connection with the acquisition of Code Red, we granted 68,761 performance-based stock options during the second quarter of fiscal 2015 that are eligible to cliff vest based on a four-year measurement period ending February 28, 2019. In the second quarter of fiscal 2018, we modified the vesting criteria of the grant, which resulted in 40% of the options being deemed eligible to vest, with the remaining options forfeited. No cumulative catch-up adjustment was required because we had expected the 40% level to be achieved. The option holders must remain employed by FactSet through February 28, 2019 Form 10-K
for the options to vest. As of August 31, 2018, total unamortized stock-based compensation of $0.4 million will be recognized as expense over the remaining vesting period of 0.4 years.further details. January 2017 Performance-based Option Grant Review
In connection with the acquisition of Vermilion, we granted 61,744 performance-based stock options in January 2017. These performance-based options will vest 40% on the second anniversary date of the grant and 20% on each subsequent anniversary date if certain Vermilion revenue and operating income targets are achieved by November 30, 2018. The option holders must also remain employed by FactSet for the options to be eligible to vest. As of August 31, 2018, we do not believe these growth targets are probable of being achieved, and as such, no stock-based compensation expense is expected to be recognized in connection with these performance-based options. A change in the actual financial performance levels achieved by Vermilion in future periods could result in the following changes to the current estimate of the vesting percentage and related expense:
(in thousands, except vesting percentage data) Vesting Percentage | | Cumulative Catch-up Adjustment(1) | | | Remaining Expense to be Recognized | |
0% (current expectation) | | $ | — | | | $ | — | |
100% | | $ | 613 | | | $ | 1,272 | |
| (1)
| Amount represents the cumulative catch-up adjustment to be recorded if there was a change in the vesting percentage as of August 31, 2018.
|
June 2017 Performance-based Option Grant Review
In connection with the acquisition of BISAM, we granted 206,417 performance-based stock options in June 2017. These performance-based options will vest 40% on the second anniversary date of the grant and 20% on each subsequent anniversary date if certain BISAM revenue and operating income targets are achieved by March 31, 2019. The option holders must also remain employed by FactSet for the options to be eligible to vest. As of August 31, 2018, we do not believe these growth targets are probable of being achieved, and as such, no stock-based compensation expense is expected to be recognized in connection with these performance-based options. A change in the actual financial performance levels achieved by BISAM in future fiscal years could result in the following changes to the current estimate of the vesting percentage and related expense:
(in thousands, except vesting percentage data) Vesting Percentage | | Cumulative Catch-up Adjustment(1) | | | Remaining Expense to be Recognized | |
0%(current expectation) | | $ | — | | | $ | — | |
80% | | $ | 1,658 | | | $ | 5,449 | |
90% | | $ | 1,866 | | | $ | 6,130 | |
100% | | $ | 2,073 | | | $ | 6,811 | |
| (1)
| Amount represents the cumulative catch-up adjustment to be recorded if there was a change in the vesting percentage as of August 31, 2018.
|
Accrued Compensation
We make significant estimates in determining our accrued compensation. Annual cash-based awards that are variable and discretionary in nature represent approximately 10% of our Company’s employee incentive compensation program. We conduct a final review of Company, departmental and individual performance each year end to determine the amount of discretionary employee compensation. We also review compensation throughout the year to determine how overall performance tracks against management’s expectations. Management takes these and other factors, including historical performance, into account in reviewing accrued compensation estimates on a quarterly basis and adjusts accrual rates as appropriate. As of August 31, 2018, and 2017, the amount of the variable employee compensation recorded within accrued compensation was $43.6 million and $39.2 million, respectively.
Goodwill and Intangible Assets
Goodwill is not amortized as it is estimated to have an indefinite life. At least annually, we are required to test goodwill at the reporting unit level for potential impairment, and, if impaired, write down to fair value based on the present value of discounted cash flows. Our reporting units evaluated for potential impairment were the U.S., Europe and Asia Pacific, which is aligned with how the chief operating decision making group (“CODMG”), composed of the CEO and executive management, manages the business and the demographic markets we serve. The three reporting units are consistent with the operating segments reported as there is no discrete financial information available for the subsidiaries or business units within each operating segment. The impairment test requires management to make judgments in connection with these reporting units, including assigning assets, liabilities, goodwill and other indefinite-lived intangible assets to reporting units and determining the fair value of each reporting unit.
Our impairment analysis contains uncertainties as it requires management to make assumptions and apply judgment to estimate industry and economic factors including market conditions, legal and technological factors and the profitability of our business strategies. It is our policy to conduct impairment testing based on our current business strategies taking into consideration present industry and economic conditions, as well as future expectations. We have not made any material changes in our impairment analysis methodology during the past three fiscal years. While we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to test for goodwill impairment losses, we may be exposed to an impairment charge that could be material if actual results are not consistent with our estimates and assumptions. Future events could cause us to conclude that indicators of impairment do exist, and that goodwill associated with our previous acquisitions is impaired, which could result in an impairment loss in our Consolidated Statements of Income and a write-down of the related asset.
We performed our annual goodwill impairment test during the fourth quarter of fiscal 2018, consistent with the timing of previous years. It was determined that there was no impairment, with the fair value of each of the Company’s reporting units significantly exceeding carrying value. The carrying value of goodwill as of August 31, 2018 and 2017, was $701.8 million and $707.6 million, respectively.
Our identifiable intangible assets consist of acquired content databases, client relationships, software technology, non-compete agreements and trade names resulting from acquisitions, which have been fully integrated into our operations. We amortize intangible assets over their estimated useful lives, which are evaluated quarterly to determine whether events and circumstances warrant a revision to the remaining period of amortization. The weighted average useful life of our acquired identifiable intangible assets at August 31, 2018 was 11.5 years. If the estimate of the remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over that revised remaining useful life. There were no adjustments to the useful lives of intangible assets subject to amortization during any of the periods presented. These intangible assets had no assigned residual values as of August 31, 2018 and 2017.
Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of any impairment loss for intangible assets that management expects to hold, and use is based on the amount the carrying value exceeds the fair value of the asset. No indicators of impairment of intangible assets has been identified during any of the periods presented. Our ongoing consideration of the recoverability could result in impairment charges in the future, which could adversely affect our results of operations. The carrying value of intangible assets as of August 31, 2018 and 2017, was $148.9 million and $173.5 million, respectively.
Long-lived Assets
Long-lived assets, comprised of property, equipment and leasehold improvements are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that may cause an impairment review include significant changes in technology that make current computer-related assets that we use in our operations obsolete or less useful, and significant changes in the way we use these assets in our operations. When evaluating long-lived assets for potential impairment if impairment indicators are present, we first compare the carrying value of the asset to the asset’s estimated future cash flows (undiscounted and without interest charges). If the estimated future cash flows are less than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to the asset’s estimated fair value, which may be based on estimated future cash flows (discounted and with interest charges). We recognize an impairment loss if the amount of the asset’s carrying value exceeds the asset’s estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. The new cost basis will be depreciated (amortized) over the remaining useful life of that asset. Using the impairment evaluation methodology described here, there have been no long-lived asset impairment charges for each of the last three years. The carrying value of long-lived assets was $100.5 million in both years ended August 31, 2018 and 2017.
Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows. We have not made any material changes in our impairment loss assessment methodology during the past three fiscal years. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material.
Estimated Tax Provision and Tax Contingencies
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Our tax provision is an estimate based on our understanding of laws in Federal, state and foreign tax jurisdictions. These laws can be complicated and are difficult to apply to any
business, including ours.business. The tax laws also require us to allocate our taxable income to many jurisdictions based on subjective allocation methodologies and information collection processes. Our effective tax rates differ from the statutory rate primarily due to the impact of state taxes, foreign operations, R&D and other tax credits, tax audit settlements, incentive-stock options and
domestic production activities deductions.the FDII deduction. Our annual effective tax rate was
24.1%12.7%,
25.0%16.4% and
26.5%24.1% in fiscal
2020, 2019 and 2018,
2017 and 2016, respectively.
We recognize the benefit of an income tax position only if it is more likely than not that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position as of the reporting date. Otherwise, no benefit can be recognized. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. We will classify the liability for unrecognized tax benefits as current to the extent that we anticipate payment of cash within one year. Additionally, we accrue interest on all tax exposures for which reserves have been established consistent with jurisdictional tax laws. Interest is classified as income tax expense in the financial statements.
As of August 31, 2018, we had gross unrecognized tax benefits totaling $9.2 million, including $1.1 million of accrued interest, recorded as Taxes Payable (non-current) within the Consolidated Balance Sheet. Unrecognized tax benefits represent tax positions taken on tax returns but not yet recognized in the consolidated financial statements. When applicable, we adjust the previously recorded tax expense to reflect examination results when the position is effectively settled. If recognized, the unrecognized tax benefits and related interest would be recorded as a benefit to tax expense on the Consolidated Statements of Income. Audits by multiple tax authorities are currently ongoing. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. For this reason, we regularly engage in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. Although we believe our reserves are reasonable, no assurance can be given that the final outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the effect of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest.
Our provision for income taxes is subject to volatility and could be adversely impacted by numerous factors such as changes in tax laws, regulations, or accounting principles, including accounting for uncertain tax positions or interpretations of them. Significant judgment is required to determine recognition and measurement. Further, as a result of certain ongoing employment and capital investment actions and commitments, our income in certain countries is subject to reduced tax rates and in some cases is wholly exempt from tax. Our failure to meet these commitments could adversely affect our provision for income taxes. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the
adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse impact on our operating results and financial condition.
New Accounting Pronouncements
See
To account for unrecognized tax benefits, we first determine whether it is more-likely-than-not (defined as a likelihood of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date. A tax position that meets this more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority. The determination of liabilities related to unrecognized tax benefits, including associated interest and penalties, requires significant estimates. There can be no assurance that we will accurately predict the outcomes of these audits, however, we have no reason to believe that such audits will result in the payment of additional taxes and/or penalties that would have a material adverse effect on our results of operations or financial position, beyond current estimates. For this reason and due to ongoing audits by multiple tax authorities, we regularly engage in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made. We do not currently anticipate that the total amounts of unrecognized tax benefits will significantly change within the next 12 months.
We classify the liability for unrecognized tax benefits as Taxes Payable (non-current) and to the extent that we anticipate payment of cash within one year, the benefit will be classified as Taxes Payable (current). Additionally, we accrue interest on all tax exposures for which reserves have been established consistent with jurisdictional tax laws. This interest is classified as income tax expense in the financial statements. As of August 31, 2020, we had gross unrecognized tax benefits totaling $12.3 million, including $0.9 million of accrued interest, recorded as Taxes Payable (non-current) within the Consolidated Balance Sheets. Refer to Note 3, Summary of Significant Accounting Policies,10, Income Taxes in the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for further information
Business Combinations
We account for business combinations using the purchase method of accounting. The acquisition purchase price is allocated to the underlying identified, tangible and intangible assets and liabilities assumed, based on their respective estimated fair values on the acquisition date. The excess of the purchase consideration over the fair values of the identified assets and liabilities is recorded as goodwill and assigned to one or more reporting units. The amounts and useful lives assigned to acquisition-related tangible and intangible assets impact the amount and timing of future amortization expense. Determining the fair value of assets acquired and liabilities assumed and the expected useful life, requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items. Acquisition-related expenses and restructuring costs are recognized separately from the business combination and are expensed as incurred.
Goodwill and Intangible Assets
Goodwill is assigned to one or more reporting units on the date of acquisition. Our reporting units are the same as our reportable segments. Goodwill is not amortized as it is estimated to have an indefinite life. We review our goodwill for impairment annually during the fourth quarter of each fiscal year and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of any one of our reporting units below its respective carrying amount.
In performing the goodwill impairment test, we first perform a qualitative assessment, which requires that we consider factors such as macro-economic conditions, industry and market conditions in which FactSet operates, including the competitive environment and significant changes in demand for our services. We also consider our share price both in absolute terms and in relation to our peers. If, after assessing the totality of events or circumstances, we determine that it is more likely than not that the fair values of our reporting units are greater than the carrying amounts, then the quantitative goodwill impairment test is not performed.
If the qualitative assessment indicates that the quantitative analysis should be performed, we then evaluate goodwill for impairment by comparing the fair value of each of our reporting units to its carrying value, including the associated goodwill. To determine the fair values, we use an income approach, along with other relevant market information, derived from a discounted cash flow model to estimate fair value of our reporting units. An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any, would be recognized. The loss recognized would not exceed total amount of goodwill allocated to that reporting unit.
We completed our annual goodwill impairment test during the fourth quarter of fiscal 2020. We determined, after performing a qualitative review of each reporting unit, that it is more likely than not that the fair value of each reporting unit substantially exceeds their respective carrying amounts. Accordingly, there was no indication of impairment and the quantitative goodwill impairment test was not performed.
Our identifiable intangible assets consist of acquired content databases, client relationships, software technology, internal-use software, non-compete agreements and trade names resulting from acquisitions, which have been fully integrated into our operations. We amortize intangible assets over their estimated useful lives, which are evaluated quarterly to determine whether events and circumstances warrant a revision to the remaining period of amortization. The weighted average useful life of our identifiable intangible assets at August 31, 2020 was 11.9 years. If the estimate of the remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over that revised remaining useful life. There were no material adjustments to the useful lives of intangible assets subject to amortization during any of the periods presented. These intangible assets had no assigned residual values as of August 31, 2020 and 2019.
Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of any impairment loss for intangible assets that management expects to hold, and use is based on the amount the carrying value exceeds the fair value of the asset, which may be based on estimated future cash flows (discounted). No indicators of impairment of intangible assets has been identified during any of the periods presented. Our ongoing consideration of the recoverability could result in impairment charges in the future, which could adversely affect our results of operations. The carrying value of intangible assets as of August 31, 2020 and 2019 was $121.1 million and $124.4 million, respectively. Refer to Note 8,Goodwill and Note 9, Intangible Assetsin the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for further details.
Long-lived Assets
Long-lived assets, comprised of property, equipment and leasehold improvements are evaluated for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Factors that may cause an impairment review include significant changes in technology that make current computer-related assets that we use in our operations obsolete or less useful, and significant changes in the way we use these assets in our operations. When evaluating long-lived assets for potential impairment, if impairment indicators are present, we first compare the carrying value of the asset to the asset’s estimated future cash flows (undiscounted and excluding interest charges). If the estimated future cash flows are less than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to the asset’s estimated fair value, which may be based on estimated future cash flows (discounted). We recognize an impairment loss if the amount of the asset’s carrying value exceeds the asset’s estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. The new cost basis will be depreciated (amortized) over the remaining useful life of that asset. Using the impairment evaluation methodology described here, there have been no long-lived asset impairment charges for each of the last three years. The carrying value of long-lived assets was $133.1 million as of August 31, 2020 and $119.4 million as of August 31, 2019.
Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows. We have not made any material changes in our impairment loss assessment methodology during the past three fiscal years. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material. Refer to Note 7, Property, Equipment and Leasehold Improvements in the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for further information.
Performance-based Equity Awards
Performance-based equity awards, whether in the form of performance-based stock options or performance share units, require management to make assumptions regarding the likelihood of achieving performance targets. The number of performance-based awards that vest will be predicated on achieving performance levels during the measurement period subsequent to the date of grant. Dependent on the financial performance levels attained, a percentage of the performance-based awards will vest to the grantees. However, there is no current guarantee that such awards will vest in whole or in part. Refer to Note 16, Stock-Based Compensation in the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for further information.
New Accounting Pronouncements
See Note 3, Summary of Significant Accounting Policies in the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for a full description of recent accounting pronouncements, including the expected dates of adoption, which we include here by reference.Market Trends
In the ordinary course of business, we are exposed to financial risks involving the volatility of equity markets as well as foreign currency and interest rate fluctuations.
Shift from Active to Passive Investment Management
Approximately 83.9% of our ASV is derived from our investment management clients. The prosperity of these clients is tied to equity assets under management. An equity market decline not only depresses assets under management but also could cause a significant increase in redemption requests to move money out of equities and into other asset classes. Moreover, a shift from active investment management to passive investment management can result in lower demand for our services. Our investment banking clients that provide M&A advisory work, capital markets services and equity research, account for approximately 16.1% of our ASV. A significant portion of these revenues relate to services deployed by large, bulge-bracket banks. Credit continues to impact many of the large banking clients due to the amount of leverage deployed in past operations. Our clients could also encounter similar issues. A lack of confidence in the global banking system could cause declines in M&A funded by debt. Additional uncertainty, consolidation and business failures in the global investment banking sector could adversely affect our financial results and future growth. Regardless, the size of banks in general is shrinking as they deleverage their balance sheets and adjust their expense bases to future revenue opportunities. Our revenues may decline if banks, including those involved in merger activity, significantly reduce headcount in the areas of corporate M&A, capital markets and equity research to compensate for the challenges faced by other departments.
Brexit
Volatility is expected to continue in the short term as the UK negotiates its exit from the European Union. The initial UK economic performance has been stronger than originally expected as the timeframe from the initial vote increases. Additionally, increased European confidence and UK consumer spending has contributed to the recovery of the economic outlook. The negotiation process is continuing, including the latest milestone of the UK and European Union developing a draft of the legal text for the transition deal. Any impact from Brexit on us will depend, in part, on the longer-term outcome of tariff, trade, regulatory and other negotiations. Although it is unknown what the result of those negotiations will be, it is possible that new terms may adversely affect our operations and financial results. While we evaluate our own risks and uncertainty related to Brexit, we will continue to partner with our clients to help them navigate the fluctuating international markets.
MiFID II
In the European Union, the new version of the Markets in Financial Instruments Directive, also known as "MiFID II", became effective in January 2018. The main purpose of this initiative was to ensure fairer, safe and more efficient markets and facilitate greater transparency for all participants. The Research workflow is one area where both buy-side and sell-side clients have seen and will continue to see significant change requirements as a result of the MiFID II inducement rules. The goal of the new legislative framework is to strengthen investor protection and improve the functioning of financial markets, making them more efficient, resilient and transparent. New reporting requirements and tests will increase the amount of information available and reduce the use of dark pools and OTC trading. MiFID II requirements have meant pricing models and business practices have had to adapt significantly. We will continue to evaluate our own risks and uncertainty related to MiFID II and partner with our clients to help them navigate these new rules. However, recently we have noticed a substantial interest in our Research workflow, which is part of the opportunity for us, but more importantly, allows our clients to leverage our technology solutions for MiFID II compliance.
Forward-Looking Factors
Forward-Looking Statements
In addition to current and historical information, this Report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements based on management’s current expectations, estimates, forecasts and projections about industries in which we operate and the beliefs and assumptions of management. All statements that address expectations, guidance, outlook or projections about the future, including statements about our strategy for growth, product development, revenues, future financial results, anticipated growth, market position, subscriptions, expected expenditures, trends in our business and financial results, are forward-looking statements. Forward-looking statements may be identified by words like “expects,” “believes,” “anticipates,” “plans,” “intends,” “estimates,” “projects,” “should,” “indicates,” “continues,” “may” and similar expressions. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions. Many factors, including those discussed more fully elsewhere in this Report on Form 10-K or in any of our other filings with the Securities and Exchange Commission, could cause results to differ materially from those stated. These factors include, but are not limited to: the ability to integrate newly acquired companies, clients and businesses; strains on resources as a result of growth, the volatility and stability of global securities markets, including declines in equity or fixed income returns impacting the buying power of investment management clients; the ability to hire and retain qualified personnel; the maintenance of our leading technological position and reputation; failure to maintain or improve our competitive position in the marketplace; fraudulent, misappropriation or unauthorized data access, including cyber-security and privacy breaches; failures or disruptions of telecommunications, data centers, network systems, facilities, or the Internet; uncertainty, consolidation and business failures in the global investment banking industry; the continued shift from active to passive investing, the negotiation of contract terms with vendors, data suppliers and landlords; the retention of clients and the attraction of new ones; the absence of U.S. or foreign governmental regulation restricting international business; the unfavorable resolution of tax assessments and legal proceedings; and legislative and regulatory changes in the environments in which we and our clients operate. Forward-looking statements speak only as of the date they are made, and we assume no duty to and do not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.
We intend that all forward-looking statements we make will be subject to safe harbor protection of the federal securities laws as found in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These statements involve certain known and unknown risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those listed in Part 1 Item 1A, Risk Factors, of this Report on Form 10-K. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this Report on Form 10-K to reflect actual results or future events or circumstances.
Business Outlook
The following forward-looking statements reflect our expectations as of September 25, 2018. Given the number of risk factors, uncertainties and assumptions discussed in this MD&A above and Part 1 Item 1A, Risk Factors, of this Report on Form 10-K, actual results may differ materially. We do not intend to update our forward-looking statements until our next quarterly results announcement, other than in publicly available statements.
Fiscal 2019 Expectations
| ●
| Organic ASV plus professional services is expected to increase in the range of $75.0 million and $90.0 million over fiscal 2018.
|
| ●
| GAAP Revenues are expected to be in the range of $1.41 billion and $1.45 billion.
|
| ●
| GAAP operating margin is expected to be in the range of 29% and 30%. Adjusted operating margin is expected to be in the range of 31.5% and 32.5%.
|
| ●
| FactSet’s annual effective tax rate is expected to be in the range of 17.5% and 18.5%, primarily as a result of the TCJA.
|
| ●
| GAAP diluted EPS is expected to be in the range of $8.70 and $8.90. Adjusted diluted EPS is expected to be in the range of $9.45 and $9.65. The midpoint of this guidance represents a 12% growth over the prior year.
|
Both GAAP operating margin and GAAP diluted EPS guidance do not include certain effects of any non-recurring benefits or charges that may arise in fiscal 2019.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Risk
In the normal course of business, we are exposed to foreign currency exchange risk
that could impact our financial position and results of operations.Foreign Currency Exchange Risk
Weas we conduct business outside the U.S. in several currencies including the British Pound Sterling, Euro, Indian Rupee, Japanese Yen and Philippine Peso. The financial statements of these foreign subsidiaries are translatedChanges in the exchange rates for such currencies into U.S. dollars using period-end ratescan affect our revenues, earnings, and the carrying values of exchange forour assets and liabilities and average rates for the period for revenues and expenses. Over the next 12 months,in our non-U.S. dollar denominated revenues expected to be recognized are estimated to be $92.8 million while our non-U.S. dollar denominated expenses are estimated to be $324.5 million, which translates into a net foreign currency exposure of $231.7 million. To the extent that our international activities recorded in local currencies increase in the future, our exposure to fluctuations in currency exchange rates will correspondingly increase. consolidated balance sheet, either positively or negatively.
To manage the exposures related to the effects of foreign exchange rate fluctuations,
the we utilize derivative instruments (foreign currency forward contracts).
By their nature, all derivative instruments involve, to varying degrees, elements of market and credit risk. The market risk associated with these instruments resulting from currency exchange movements is expected to offset the market risk of the underlying transactions, assets and liabilities being hedged. We do not believe there is significant risk of loss in the event of non-performance by the counterparties associated with these instruments because these transactions are executed with a major financial institution. Further, our policy is to deal with counterparties having a minimum investment grade or better credit rating. Credit risk is managed through the continuous monitoring of exposures to such counterparties. Our primary objective in holding derivatives is to reduce the volatility of earnings associated with changes in foreign currency.Foreign Currency Hedges
As of August 31, 2018, we maintained the following foreign currency forward contracts to hedge our exposures:
| ●
| Philippine Peso – foreign currency forward contracts to hedge approximately 75% of our Philippine Peso exposure through the fourth quarter of fiscal 2020.
|
| ●
| Indian Rupee – foreign currency forward contracts to hedge approximately 75% of our Indian Rupee exposure through the third quarter of fiscal 2019 and 50% of its exposure from the fourth quarter of fiscal 2019 through the end of the second quarter of fiscal 2020.
|
| ●
| Euro – foreign currency forward contracts to hedge approximately 50% of our Euro exposure through the third quarter of fiscal 2019.
|
| ●
| British Pound Sterling – foreign currency forward contracts to hedge approximately 50% of our British Pound sterling exposure through the third quarter of fiscal 2019.
|
As of August 31, 2018, the gross notional value of foreign currency forward contracts to purchase Philippine Pesos with U.S. dollars was PHP 2.8 billion, to purchase Indian Rupees with U.S. dollars was Rs. 3.6 billion, to purchase Euros with U.S. dollars was € 22.0 million and to purchase British Pound Sterling with U.S. dollars was £14.0 million.
There were no other outstanding foreign currency forward contracts as of August 31, 2018. A gain on derivatives of $3.1 million was recorded into operating income during fiscal 2018, compared to a loss of $2.9 million in fiscal 2017.The gains and losses on foreign currency forward contracts mitigate the variability in operating expenses associated with currency movements. These transactions are designated and accounted for as cash flow hedges in accordance with applicable accounting guidance. The changes in fair value for these foreign currency forward contracts are initially reported as a component of accumulated other comprehensive lossAOCL and subsequently reclassified into operating expenses when the hedged exposure affects earnings. The related cash flow impacts of all our derivative activities are reflected as cash flows from operating activities.
A sensitivity analysis was performed based on the estimated fair value of all foreign currency forward contracts outstanding at August 31,
2018.2020. If the U.S. dollar had been 10% weaker, the fair value of outstanding foreign currency forward contracts would have increased by
$7.3$13.0 million, which would have had an immaterial impact on our Consolidated Balance Sheet. Such a change in fair value of our financial instruments would be substantially offset by changes in our expense base. If we had no hedges in place as of August 31,
2018,2020, a hypothetical 10% weaker U.S. dollar against all foreign currencies from the quoted foreign currency exchange rates at August 31,
2018,2020, with operating results held constant in local currencies, would result in a decrease in operating income by
$28.8$35.4 million over the next 12 months. A hypothetical 10% weaker U.S. dollar against all foreign currencies at August 31,
20182020 would
increasehave increased the fair value of total assets by
$65.3$66.3 million and equity by
$61.2$41.6 million.
Volatility in the British Pound Sterling exchange rate is expected to continueremains a possibility in the short term as the UK negotiatescontinues the transition resulting from its exit from the European Union. In the longer term, any impact from Brexit will depend on, in part, on the outcome of tariff, regulatory, and other negotiations.
Refer to Item 1A. Risk Factors of this Annual Report on Form 10-K for further discussion on Brexit.
Refer to Note 6, Derivative Instruments in the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for more information on our foreign currency exposures and our foreign currency forward contracts.
Cash and Cash Equivalents
and Investments
The fair market value of our cash and cash equivalents and investments at August 31, 2018,2020 was $237.9$605.2 million. Our cash and cash equivalents consist of demand deposits and money market funds with original maturities of three months or less and are reported at fair value. Our investments consistWe are exposed to interest rate risk through fluctuations of both mutual funds and certificates of deposits as both are part of our investment strategy. These mutual funds and certificates of deposits are included as Investments (short-term)interest rates on our Consolidated Balance Sheet as the mutual funds can be liquidated at our discretion and the certificates of deposit have original maturities greater than three months, but less than one year. The mutual funds and certificates are held for investment and are not considered debt securities. It is anticipated that the fair market value of our cash and investments will continue to be immaterially affected by fluctuations in interest rates. Preservation of principal is the primary goal of our cash and investment policy. Pursuant to our established investment guidelines, we try to achieve high levels of credit quality, liquidity and diversification. Our investment guidelines do not permit us to invest in puts, calls, strips, short sales, straddles, options, commodities, precious metals, futures or investments on margin. Becauseinvestments. As we have a restrictive investment policy, our financial exposure to fluctuations in interest rates is expected to remain low. We do not believe thatRefer to Note 3, Summary of Significant Accounting Policies in the value or liquidityNotes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for more information on our cash and cash equivalents and investments have been significantly impacted by current market events.policies.
As of August 31, 2018,2020, we had long term debt outstanding under the fair value of our long-term debt was $575.0 million, which approximated its carrying amount and was determined based on quoted market prices for debt2019 Revolving Credit Facility with a similar maturity. It is anticipated that the fair market valueprincipal balance of our debt will continue to be immaterially affected by fluctuations in interest rates and we do not believe that the value of our debt has been significantly impacted by current market events.$575.0 million. The debt bears interest on the outstanding principal amountprinciple at a rate equal to the daily LIBOR rate plus a spread, using a debt leverage pricing grid currently at 1.00%. During fiscal years 2018, 2017 and 2016, we recordedgrid. The variable rate of interest expense of $15.9 million, $8.4 million and $3.0 million, respectively, on our long-term debt can expose us to interest rate volatility due to changes in LIBOR. To mitigate this exposure, on March 5, 2020, we entered into an interest rate swap agreement with a notional amount of $287.5 million to hedge the variable interest rate obligation, effectively converting the floating interest rate to fixed for the hedged portion. Thus, we are only exposed to base interest rate risk on floating rate borrowings in excess of any amounts that are not hedged, or $287.5 million of our outstanding debt amounts.principal balance. Assuming all terms of our outstanding long-term debt remained the same, a hypothetical 25 basis point change (up or down) in the one-month LIBOR rate would result in a $1.4 $0.7
million change into our annual interest expense.expense for the portion of the long-term debt not hedged by the interest rate swap agreement. Refer to Note 12, Debt in the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for additional information regarding our outstanding debt obligations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Consolidated Financial Statements:
| | Page
| | | |
| | Page |
| |
| | |
| | |
| | 49-50
|
Consolidated Financial Statements: | |
| | 51
|
| | 52
|
| | 53
|
| | 54
|
| | 55
|
| | 56
|
| | |
Financial Statement Schedule: | | |
| | |
| | 93
|
Management’s Statement of Responsibility for Financial Statements FactSet’s
consolidated financial statementsConsolidated Financial Statements are prepared by management, which is responsible for their fairness, integrity and objectivity. The accompanying
consolidated financial statementsConsolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America and include amounts based on management’s estimates and judgments. All financial information in this Report on Form 10-K has been presented on a basis consistent with the information included in the accompanying financial statements.
FactSet’s policies and practices reflect corporate governance initiatives that are compliant with the listing requirements of the New York Stock Exchange, the NASDAQ Stock Market and the corporate governance requirements of the Sarbanes-Oxley Act of 2002. Management, with oversight by the Company’s Board of Directors, has established and maintains a strong ethical climate so that its affairs are conducted to the highest standards of personal and corporate conduct.
FactSet maintains accounting systems, including internal accounting controls, designed to provide reasonable assurance of the reliability of financial records and the protection of assets. The concept of reasonable assurance is based on recognition that the cost of a system should not exceed the related benefits. The effectiveness of those systems depends primarily upon the careful selection of financial and other managers, clear delegation of authority and assignment of accountability, inculcation of high business ethics and conflict-of-interest standards, policies and procedures for coordinating the management of corporate resources, and the leadership and commitment of top management. In compliance with the Sarbanes-Oxley Act of 2002, FactSet assessed its internal control over financial reporting as of August 31,
20182020 and issued a report (see below).
The Audit Committee of the Board of Directors, which consists solely of independent non-employee directors, is responsible for overseeing the functioning of the accounting system and related controls and the preparation of annual financial statements. The Audit Committee periodically meets with management and the independent accountants to review and evaluate their accounting, auditing and financial reporting activities and responsibilities, including management’s assessment of internal control over financial reporting. The independent registered public accounting firm has full and free access to the Audit Committee and has met with the committee, with and without management present.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for FactSet. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management (with the participation of the
principal executive officerChief Executive Officer and
principal financial officer)Chief Financial Officer) conducted an evaluation of the effectiveness of FactSet’s internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that FactSet’s internal control over financial reporting was effective as of August 31,
2018.2020. Ernst & Young LLP, an independent registered public accounting firm, has audited the effectiveness of FactSet’s internal control over financial reporting and has issued a report on FactSet’s internal control over financial reporting, which is included in their report on the subsequent page.
| | | | | | | | |
/s/ F. PHILIP SNOW |
| /s/ Helen HELEN L. ShanSHAN |
| | |
F. Philip Snow | | Helen L. Shan |
Chief Executive Officer | | Executive Vice President and Chief Financial Officer |
October 30, 2018 29, 2020 | | October 30, 201829, 2020 |
Report of Independent Registered Public Accounting Firm
The
To the Board of Directors and Stockholders of FactSet Research Systems Inc.
Opinion on Internal Control over Financial Reporting
We have audited FactSet Research System Inc.’s (the Company) internal control over financial reporting as of August 31,
2018,2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 31,
2018,2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
2018 consolidated financial statements2020 Consolidated Financial Statements of the Company and our report dated October
30, 2018,29, 2020, expressed an unqualified opinion thereon.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/
ERNSTErnst &
YOUNGYoung LLP
Report of Independent Registered Public Accounting Firm
The
To the Board of Directors and Stockholders of FactSet Research Systems Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of FactSet Research Systems Inc. (the Company) as of August 31,
20182020 and
2017,2019, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended August 31,
2018,2020, and the related notes and financial statement schedule listed in the Index at Item
88. (collectively referred to as the
“consolidated financial statements”“Consolidated Financial Statements”). In our opinion, the
consolidated financial statementsConsolidated Financial Statements present fairly, in all material respects, the financial position of the Company at August 31,
20182020 and
2017,2019, and the results of its operations and its cash flows for each of the three years in the period ended August 31,
2018,2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of August 31,
2018,2020, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated October
30, 201829, 2020 expressed an unqualified opinion thereon.
Adoption of Accounting Standards Update (ASU) No. 2016-02
As discussed in Note 3, Summary of Significant Accounting Policies, to the Consolidated Financial Statements, the Company changed its method of accounting for leases in 2020 due to the adoption of ASU No. 2016-02, Leases (Topic 842).
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the Consolidated Financial Statements, taken as a whole, and we are not, by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
| | | | | |
| |
| Measurement of income tax provision |
| Description of the Matter | As discussed in Note 3, Summary of Significant Accounting Policies, and 10, Income Taxes, of the Consolidated Financial Statements, the Company serves international markets and is subject to income taxes in the U.S. and numerous foreign jurisdictions, which affect the Company’s provision for income taxes. The tax provision is an estimate based on management’s understanding of current enacted tax laws and tax rates of each tax jurisdiction and the use of subjective allocation methodologies to allocate taxable income to tax jurisdictions based upon the structure of the Company’s operations and customer arrangements. For the year-ended August 31, 2020, the Company recognized a consolidated provision for income taxes of $54.2 million with $31.9 million related to its U.S. operations and $22.3 million related to its non-U.S. operations.
Management’s calculation of the provision for income taxes was significant to our audit because the provision for income taxes involved subjective estimation and complex audit judgement related to the evaluation of tax laws, including the methods used to allocate taxable income, and the amounts and disclosures are material to the financial statements.
|
| |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over management’s calculation of its provision for income taxes. For example, we tested controls over management’s evaluation of the allocation methodologies and management’s review of the assumptions and data utilized in determining the allocation of income to applicable tax jurisdictions. |
| Among other audit procedures performed, we evaluated the reasonableness of management’s allocation methodologies by analyzing the methodology based on the Company’s structure, operations and current tax law. We recalculated income tax expense using management’s methodology and agreed the data used in the calculations to the Company’s underlying books and records. We involved our tax professionals to evaluate the application of tax law to management’s allocation methodologies and tax positions. This included assessing the Company’s correspondence with the relevant tax authorities and evaluating third-party reports and advice obtained by the Company. We also performed a sensitivity analysis to evaluate the effect from changes in management’s allocation methodologies and assumptions. We have evaluated the Company’s income tax disclosures included in Note 10, Income Taxes, of the Consolidated Financial Statements in relation to these matters. |
| |
/s/
ERNSTErnst &
YOUNGYoung LLP
We have served as the Company’s auditor since 2013.
FactSet Research Systems Inc.
Consolidated Statements of Income
| | Years ended August 31, | | | | | | | | | | | | | | | | |
| (in thousands, except per share data) | | 2018 | | | 2017 | | | 2016 | | |
Revenues | | $ | 1,350,145 | | | $ | 1,221,179 | | | $ | 1,127,092 | | |
| (in thousands, except per share data) | | (in thousands, except per share data) | Years ended August 31, |
| 2020 | | 2019 | | 2018 |
| Revenue | | Revenue | $ | 1,494,111 | | | $ | 1,435,351 | | | $ | 1,350,145 | |
Operating expenses | | | | | | | | | | | | | Operating expenses | |
Cost of services | | | 659,296 | | | | 566,580 | | | | 487,409 | | Cost of services | 695,446 | | | 663,446 | | | 659,296 | |
Selling, general and administrative | | | 324,645 | | | | 302,464 | | | | 290,007 | | Selling, general and administrative | 359,005 | | | 333,870 | | | 324,645 | |
Total operating expenses | | | 983,941 | | | | 869,044 | | | | 777,416 | | Total operating expenses | 1,054,451 | | | 997,316 | | | 983,941 | |
| | | | | | | | | | | | | | |
Operating income | | | 366,204 | | | | 352,135 | | | | 349,676 | | Operating income | 439,660 | | | 438,035 | | | 366,204 | |
| | | | | | | | | | | | | | |
Other (expense) income | | | | | | | | | | | | | |
(Loss) gain on sale of business | | | — | | | | (1,223 | ) | | | 112,453 | | |
Interest (expense), net of interest income | | | (14,366 | ) | | | (6,600 | ) | | | (1,136 | ) | |
Total other (expense) income | | | (14,366 | ) | | | (7,823 | ) | | | 111,317 | | |
| Other expenses | | Other expenses | |
| Interest expense, net | | Interest expense, net | (9,829) | | | (16,624) | | | (16,286) | |
| Other (expense) income, net | | Other (expense) income, net | (2,697) | | | 554 | | | 1,920 | |
| Total other expense | | Total other expense | (12,526) | | | (16,070) | | | (14,366) | |
| | | | | | | | | | | | | | |
Income before income taxes | | | 351,838 | | | | 344,312 | | | | 460,993 | | Income before income taxes | 427,134 | | | 421,965 | | | 351,838 | |
| | | | | | | | | | | | | | |
Provision for income taxes | | | 84,753 | | | | 86,053 | | | | 122,178 | | Provision for income taxes | 54,196 | | | 69,175 | | | 84,753 | |
Net income | | $ | 267,085 | | | $ | 258,259 | | | $ | 338,815 | | Net income | $ | 372,938 | | | $ | 352,790 | | | $ | 267,085 | |
| | | | | | | | | | | | | | | | | | | |
Basic earnings per common share | | $ | 6.90 | | | $ | 6.55 | | | $ | 8.29 | | Basic earnings per common share | $ | 9.83 | | | $ | 9.25 | | | $ | 6.90 | |
Diluted earnings per common share | | $ | 6.78 | | | $ | 6.51 | | | $ | 8.19 | | Diluted earnings per common share | $ | 9.65 | | | $ | 9.08 | | | $ | 6.78 | |
| | | | | | | | | | | | | | |
Basic weighted average common shares | | | 38,733 | | | | 39,444 | | | | 40,880 | | Basic weighted average common shares | 37,936 | | | 38,144 | | | 38,733 | |
Diluted weighted average common shares | | | 39,377 | | | | 39,642 | | | | 41,365 | | Diluted weighted average common shares | 38,646 | | | 38,873 | | | 39,377 | |
The accompanying notes are an integral part of these
consolidated financial statements.Consolidated Financial Statements.
FactSet Research Systems Inc.
Consolidated Statements of Comprehensive Income
| | Years ended August 31, | | | | | | | | | | | | | | | | |
| (in thousands) | | 2018 | | | 2017 | | | 2016 | | |
| (in thousands) | | (in thousands) | Years ended August 31, |
| 2020 | | 2019 | | 2018 |
Net income | | $ | 267,085 | | | $ | 258,259 | | | $ | 338,815 | | Net income | $ | 372,938 | | | $ | 352,790 | | | $ | 267,085 | |
| | | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax | | | | | | | | | | | | | |
Net unrealized (loss) gain on cash flow hedges* | | | (7,288 | ) | | | 5,017 | | | | (857 | ) | |
| Other comprehensive income, net of tax: | | Other comprehensive income, net of tax: | |
Net unrealized gain (loss) on cash flow hedges(1) | | Net unrealized gain (loss) on cash flow hedges(1) | 674 | | | 504 | | | (7,288) | |
Foreign currency translation adjustments | | | (9,431 | ) | | | 28,816 | | | | (23,644 | ) | Foreign currency translation adjustments | 34,577 | | | (24,325) | | | (9,431) | |
Other comprehensive (loss) income | | | (16,719 | ) | | | 33,833 | | | | (24,501 | ) | |
| Other comprehensive income (loss) | | Other comprehensive income (loss) | 35,251 | | | (23,821) | | | (16,719) | |
Comprehensive income | | $ | 250,366 | | | $ | 292,092 | | | $ | 314,314 | | Comprehensive income | $ | 408,189 | | | $ | 328,969 | | | $ | 250,366 | |
*
(1)The unrealized gain (loss) on cash flow hedges disclosed above was net of tax (expense) benefit (expense) of $3,518, ($3,049)251), ($387), and $498$3,518 for the fiscal years ended August 31, 2020, 2019 and 2018, 2017 and 2016, respectively.
The accompanying notes are an integral part of these
consolidated financial statements.Consolidated Financial Statements.
FactSet Research Systems Inc.
Consolidated Balance Sheets
| | | August 31, | | | | | | | | | | | |
(in thousands, except share data) | | 2018 | | | 2017 | | |
| (in thousands, except share data) | | (in thousands, except share data) | August 31, |
| 2020 | | 2019 |
ASSETS | | | | | | | | | ASSETS | | | |
Cash and cash equivalents | | $ | 208,623 | | | $ | 194,731 | | Cash and cash equivalents | $ | 585,605 | | | $ | 359,799 | |
Investments | | | 29,259 | | | | 32,444 | | Investments | 19,572 | | | 25,813 | |
Accounts receivable, net of reserves of $3,490 and $2,738 at August 31, 2018 and 2017, respectively | | | 156,639 | | | | 148,331 | | |
| Accounts receivable, net of reserves of $7,987 at August 31, 2020 and $10,511 at August 31, 2019 | | Accounts receivable, net of reserves of $7,987 at August 31, 2020 and $10,511 at August 31, 2019 | 155,011 | | | 146,309 | |
Prepaid taxes | | | 6,274 | | | | 7,076 | | Prepaid taxes | 38,067 | | | 15,033 | |
Deferred taxes | | | — | | | | 2,668 | | |
Prepaid expenses and other current assets | | | 30,121 | | | | 24,127 | | Prepaid expenses and other current assets | 43,675 | | | 36,858 | |
Total current assets | | | 430,916 | | | | 409,376 | | Total current assets | 841,930 | | | 583,812 | |
| | | | | | | | | | |
Property, equipment and leasehold improvements, net | | | 100,545 | | | | 100,454 | | Property, equipment and leasehold improvements, net | 133,102 | | | 119,384 | |
| | | | | | | | | | |
Goodwill | | | 701,833 | | | | 707,560 | | Goodwill | 709,703 | | | 685,729 | |
Intangible assets, net | | | 148,935 | | | | 173,543 | | Intangible assets, net | 121,095 | | | 124,448 | |
Deferred taxes | | | 9,716 | | | | 7,412 | | Deferred taxes | 0 | | | 7,571 | |
| Lease right-of-use assets, net | | Lease right-of-use assets, net | 248,929 | | | 0 | |
Other assets | | | 27,502 | | | | 14,970 | | Other assets | 28,629 | | | 39,186 | |
TOTAL ASSETS | | $ | 1,419,447 | | | $ | 1,413,315 | | TOTAL ASSETS | $ | 2,083,388 | | | $ | 1,560,130 | |
| | | | | | | | | | | | | |
LIABILITIES | | | | | | | | | LIABILITIES | |
Accounts payable and accrued expenses | | $ | 72,059 | | | $ | 59,214 | | Accounts payable and accrued expenses | $ | 82,094 | | | $ | 79,620 | |
| Current lease liabilities | | Current lease liabilities | 29,056 | | | 0 | |
Accrued compensation | | | 66,479 | | | | 61,083 | | Accrued compensation | 81,873 | | | 64,202 | |
Deferred fees | | | 49,700 | | | | 47,495 | | Deferred fees | 53,987 | | | 47,656 | |
Deferred taxes | | | — | | | | 2,382 | | |
Taxes payable | | | 8,453 | | | | 9,112 | | |
Dividends payable | | | 24,443 | | | | 21,853 | | Dividends payable | 29,283 | | | 27,445 | |
Total current liabilities | | | 221,134 | | | | 201,139 | | Total current liabilities | 276,293 | | | 218,923 | |
| | | | | | | | | | |
Long-term debt | | | 574,775 | | | | 575,000 | | Long-term debt | 574,354 | | | 574,174 | |
Deferred taxes | | | 21,190 | | | | 24,892 | | Deferred taxes | 19,713 | | | 16,391 | |
Deferred fees | | | 7,833 | | | | 3,921 | | Deferred fees | 9,319 | | | 10,088 | |
Taxes payable | | | 29,626 | | | | 11,484 | | Taxes payable | 27,739 | | | 26,292 | |
Deferred rent and other non-current liabilities | | | 38,989 | | | | 37,188 | | |
| Long-term lease liabilities | | Long-term lease liabilities | 272,269 | | | 0 | |
| Other non-current liabilities | | Other non-current liabilities | 7,326 | | | 42,006 | |
TOTAL LIABILITIES | | $ | 893,547 | | | $ | 853,624 | | TOTAL LIABILITIES | $ | 1,187,013 | | | $ | 887,874 | |
Commitments and contingencies (See Note 19) | | | | | | | | | |
| Commitments and contingencies (See Note 13) | | Commitments and contingencies (See Note 13) | | | |
| | | | | | | | | | |
STOCKHOLDERS’ EQUITY | | | | | | | | | STOCKHOLDERS’ EQUITY | |
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued | | $ | — | | | $ | — | | |
Common stock, $.01 par value, 150,000,000 shares authorized, 39,264,849 and 51,845,132 shares issued; 38,192,586 and 39,023,032 shares outstanding at August 31, 2018 and 2017, respectively | | | 393 | | | | 518 | | |
| Preferred stock, $0.01 par value, 10,000,000 shares authorized, NaN issued | | Preferred stock, $0.01 par value, 10,000,000 shares authorized, NaN issued | $ | 0 | | | $ | 0 | |
Common stock, $0.01 par value, 150,000,000 shares authorized, 40,767,708 and 40,104,192 shares issued, 38,030,252 and 38,117,840 shares outstanding at August 31, 2020 and 2019, respectively | | Common stock, $0.01 par value, 150,000,000 shares authorized, 40,767,708 and 40,104,192 shares issued, 38,030,252 and 38,117,840 shares outstanding at August 31, 2020 and 2019, respectively | 408 | | | 401 | |
Additional paid-in capital | | | 667,531 | | | | 741,748 | | Additional paid-in capital | 939,067 | | | 806,973 | |
Treasury stock, at cost: 1,072,263 and 12,822,100 shares at August 31, 2018 and 2017, respectively | | | (213,428 | ) | | | (1,606,678 | ) | |
| Treasury stock, at cost: 2,737,456 and 1,986,352 shares at August 31, 2020 and 2019, respectively | | Treasury stock, at cost: 2,737,456 and 1,986,352 shares at August 31, 2020 and 2019, respectively | (636,956) | | | (433,799) | |
Retained earnings | | | 122,843 | | | | 1,458,823 | | Retained earnings | 633,149 | | | 373,225 | |
Accumulated other comprehensive loss | | | (51,439 | ) | | | (34,720 | ) | Accumulated other comprehensive loss | (39,293) | | | (74,544) | |
TOTAL STOCKHOLDERS’ EQUITY | | $ | 525,900 | | | $ | 559,691 | | TOTAL STOCKHOLDERS’ EQUITY | $ | 896,375 | | | $ | 672,256 | |
| | | | | | | | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 1,419,447 | | | $ | 1,413,315 | | TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 2,083,388 | | | $ | 1,560,130 | |
The accompanying notes are an integral part of these
consolidated financial statements.Consolidated Financial Statements.
FactSet Research Systems Inc.
Consolidated Statements of Cash Flows
| | | Years ended August 31, | | | | | | | | | | | | | | | | |
(in thousands) | | 2018 | | | 2017 | | | 2016 | | |
| (in thousands) | | (in thousands) | Years ended August 31, |
| 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | | | | | | CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | | $ | 267,085 | | | $ | 258,259 | | | $ | 338,815 | | Net income | $ | 372,938 | | | $ | 352,790 | | | $ | 267,085 | |
Adjustments to reconcile net income to net cash provided by operating activities | | | | | | | | | | | | | Adjustments to reconcile net income to net cash provided by operating activities | |
Depreciation and amortization | | | 57,285 | | | | 48,294 | | | | 38,052 | | Depreciation and amortization | 57,614 | | | 60,463 | | | 57,285 | |
| Amortization of lease right-of-use assets | | Amortization of lease right-of-use assets | 43,185 | | | 0 | | | 0 | |
Stock-based compensation expense | | | 31,516 | | | | 34,183 | | | | 29,793 | | Stock-based compensation expense | 36,579 | | | 32,400 | | | 31,516 | |
Loss (gain) on sale of business | | | — | | | | 1,223 | | | | (112,453 | ) | |
Deferred income taxes | | | (1,910 | ) | | | 4,879 | | | | 4,528 | | Deferred income taxes | 10,626 | | | (2,278) | | | (1,910) | |
Loss (gain) on sale of assets | | | 140 | | | | 59 | | | | 8 | | |
Tax benefits from share-based payment arrangements | | | — | | | | (10,331 | ) | | | (18,205 | ) | |
| Impairment charge | | Impairment charge | 16,500 | | | 0 | | | 0 | |
| Loss on sale of assets | | Loss on sale of assets | 172 | | | 196 | | | 140 | |
Changes in assets and liabilities, net of effects of acquisitions | | | | | | | | | | | | | Changes in assets and liabilities, net of effects of acquisitions | |
Accounts receivable, net of reserves | | | (8,417 | ) | | | (29,503 | ) | | | (3,541 | ) | Accounts receivable, net of reserves | (8,608) | | | 10,205 | | | (8,417) | |
Accounts payable and accrued expenses | | | 12,077 | | | | (2,226 | ) | | | 5,525 | | Accounts payable and accrued expenses | 12,427 | | | (2,290) | | | 12,077 | |
Accrued compensation | | | 5,735 | | | | 6,427 | | | | 3,961 | | Accrued compensation | 16,446 | | | (1,743) | | | 5,735 | |
Deferred fees | | | 6,035 | | | | (229 | ) | | | 700 | | Deferred fees | 5,571 | | | 458 | | | 6,035 | |
Taxes payable, net of prepaid taxes | | | 27,659 | | | | 7,877 | | | | 30,270 | | Taxes payable, net of prepaid taxes | (24,224) | | | (19,238) | | | 27,659 | |
Prepaid expenses and other assets | | | (11,224 | ) | | | (850 | ) | | | 7 | | |
Deferred rent and other non-current liabilities | | | (465 | ) | | | 2,331 | | | | 13,674 | | |
Other working capital accounts, net | | | 152 | | | | 132 | | | | 6 | | |
| Lease liabilities, net | | Lease liabilities, net | (33,340) | | | 0 | | | 0 | |
| Other, net | | Other, net | (46) | | | (3,827) | | | (11,537) | |
Net cash provided by operating activities | | | 385,668 | | | | 320,527 | | | | 331,140 | | Net cash provided by operating activities | 505,840 | | | 427,136 | | | 385,668 | |
| | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES: | |
| Purchases of property, equipment, leasehold improvements and intangible assets | | Purchases of property, equipment, leasehold improvements and intangible assets | (77,642) | | | (59,370) | | | (33,520) | |
| Purchases of investments | | Purchases of investments | (2,736) | | | (11,135) | | | (12,470) | |
| Proceeds from maturity or sale of investments | | Proceeds from maturity or sale of investments | 6,746 | | | 14,405 | | | 12,459 | |
Acquisition of businesses and investments, net of cash and cash equivalents acquired | | | (15,000 | ) | | | (303,086 | ) | | | (262,909 | ) | Acquisition of businesses and investments, net of cash and cash equivalents acquired | 0 | | | 0 | | | (15,000) | |
Proceeds from sale of business, net | | | — | | | | — | | | | 153,137 | | |
Purchases of investments | | | (12,470 | ) | | | (30,757 | ) | | | (18,137 | ) | |
Proceeds from sales of investments | | | 12,459 | | | | 23,399 | | | | 17,241 | | |
Purchases of property, equipment and leasehold improvements, net of proceeds from dispositions | | | (33,520 | ) | | | (36,862 | ) | | | (47,740 | ) | |
Net cash used in investing activities | | | (48,531 | ) | | | (347,306 | ) | | | (158,408 | ) | Net cash used in investing activities | (73,632) | | | (56,100) | | | (48,531) | |
| | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES | |
| Repurchase of common stock | | Repurchase of common stock | (199,625) | | | (220,372) | | | (303,955) | |
Dividend payments | | | (89,408 | ) | | | (80,898 | ) | | | (74,218 | ) | Dividend payments | (110,439) | | | (100,052) | | | (89,408) | |
Repurchase of common stock | | | (303,955 | ) | | | (260,978 | ) | | | (356,828 | ) | |
| Repayment of debt | | Repayment of debt | 0 | | | (575,000) | | | 0 | |
Proceeds from debt | | | — | | | | 640,000 | | | | 265,000 | | Proceeds from debt | 0 | | | 575,000 | | | 0 | |
Repayment of debt | | | — | | | | (365,000 | ) | | | — | | |
Debt issuance costs | | | — | | | | (438 | ) | | | (12 | ) | |
Proceeds from employee stock plans | | | 71,610 | | | | 50,045 | | | | 56,851 | | Proceeds from employee stock plans | 95,520 | | | 107,051 | | | 71,610 | |
Tax benefits from share-based payment arrangements | | | — | | | | 10,331 | | | | 18,205 | | Tax benefits from share-based payment arrangements | 0 | | | 0 | | | 0 | |
Other financing activities | | | 1,716 | | | | (1,223 | ) | | | — | | |
| Other financing activities, net | | Other financing activities, net | (3,531) | | | (901) | | | 1,716 | |
Net cash used in financing activities | | | (320,037 | ) | | | (8,161 | ) | | | (91,002 | ) | Net cash used in financing activities | (218,075) | | | (214,274) | | | (320,037) | |
| | | | | | | | | | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | (3,208 | ) | | | 1,264 | | | | (12,237 | ) | Effect of exchange rate changes on cash and cash equivalents | 11,673 | | | (5,586) | | | (3,208) | |
Net increase (decrease) in cash and cash equivalents | | | 13,892 | | | | (33,676 | ) | | | 69,493 | | |
| Net increase in cash and cash equivalents | | Net increase in cash and cash equivalents | 225,806 | | | 151,176 | | | 13,892 | |
Cash and cash equivalents at beginning of period | | | 194,731 | | | | 228,407 | | | | 158,914 | | Cash and cash equivalents at beginning of period | 359,799 | | | 208,623 | | | 194,731 | |
Cash and cash equivalents at end of period | | $ | 208,623 | | | $ | 194,731 | | | $ | 228,407 | | Cash and cash equivalents at end of period | $ | 585,605 | | | $ | 359,799 | | | $ | 208,623 | |
| | | | | | | | | | | | | | | | | | | |
Supplemental Disclosure of Cash Flow Information | | | | | | | | | | | | | Supplemental Disclosure of Cash Flow Information | |
Cash paid during the year for interest | | $ | 15,676 | | | $ | 8,466 | | | $ | 3,010 | | Cash paid during the year for interest | $ | 12,876 | | | $ | 19,509 | | | $ | 15,676 | |
Cash paid during the year for income taxes, net of refunds | | $ | 68,707 | | | $ | 74,788 | | | $ | 87,513 | | Cash paid during the year for income taxes, net of refunds | $ | 69,092 | | | $ | 89,997 | | | $ | 68,707 | |
| | | | | | | | | | | | | | |
Supplemental Disclosure of Non-Cash Transactions | | | | | | | | | | | | | Supplemental Disclosure of Non-Cash Transactions | |
Dividends declared, not paid | | $ | 24,443 | | | $ | 21,853 | | | $ | 20,019 | | Dividends declared, not paid | $ | 29,283 | | | $ | 27,445 | | | $ | 24,443 | |
The accompanying notes are an integral part of these consolidated financial statements.
FactSet Research Systems Inc.
Consolidated Statements of Changes in Stockholders’ Equity
| | | Years ended August 31, | |
(in thousands) | | 2018 | | | 2017 | | | 2016 | |
COMMON STOCK | | | | | | | | | | | | |
Balance, beginning of year | | $ | 518 | | | $ | 512 | | | $ | 503 | |
Common stock issued for employee stock plans | | | 8 | | | | 6 | | | | 9 | |
Retirement of Treasury shares | | | (133 | ) | | | — | | | | — | |
Balance, end of year | | $ | 393 | | | $ | 518 | | | $ | 512 | |
| | | | | | | | | | | | | |
ADDITIONAL PAID-IN CAPITAL | | | | | | | | | | | | |
Balance, beginning of year | | $ | 741,748 | | | $ | 623,195 | | | $ | 542,355 | |
Common stock issued for employee stock plans | | | 80,983 | | | | 50,039 | | | | 57,784 | |
Retirement of Treasury shares | | | (186,717 | ) | | | — | | | | — | |
Stock-based compensation expense | | | 31,517 | | | | 34,183 | | | | 29,793 | |
Tax benefits from share-based payment arrangements | | | — | | | | 10,331 | | | | 18,205 | |
Accelerated share repurchase | | | — | | | | 24,000 | | | | (24,000 | ) |
Stock-based compensation adjustment associated with disposition | | | — | | | | — | | | | (942 | ) |
Balance, end of year | | $ | 667,531 | | | $ | 741,748 | | | $ | 623,195 | |
| | | | | | | | | | | | | |
TREASURY STOCK | | | | | | | | | | | | |
Balance, beginning of year | | $ | (1,606,678 | ) | | $ | (1,321,700 | ) | | $ | (988,873 | ) |
Repurchases of common stock | | | (302,441 | ) | | | (253,131 | ) | | | (328,283 | ) |
Retirement of Treasury shares | | | 1,697,205 | | | | — | | | | — | |
Accelerated share repurchase | | | — | | | | (24,000 | ) | | | — | |
Purchases of common stock upon restricted stock vesting | | | (1,514 | ) | | | (7,847 | ) | | | (4,544 | ) |
Balance, end of year | | $ | (213,428 | ) | | $ | (1,606,678 | ) | | $ | (1,321,700 | ) |
| | | | | | | | | | | | | |
RETAINED EARNINGS | | | | | | | | | | | | |
Balance, beginning of year | | $ | 1,458,823 | | | $ | 1,283,927 | | | $ | 1,021,651 | |
Net income | | | 267,085 | | | | 258,259 | | | | 338,815 | |
Dividends | | | (92,710 | ) | | | (83,363 | ) | | | (76,539 | ) |
Retirement of Treasury Stock | | | (1,510,355 | ) | | | — | | | | — | |
Balance, end of year | | $ | 122,843 | | | $ | 1,458,823 | | | $ | 1,283,927 | |
| | | | | | | | | | | | | |
ACCUMULATED OTHER COMPREHENSIVE LOSS | | | | | | | | | | | | |
Balance, beginning of year | | $ | (34,720 | ) | | $ | (68,553 | ) | | $ | (44,052 | ) |
Foreign currency translation adjustments | | | (9,431 | ) | | | 28,816 | | | | (23,644 | ) |
Net unrealized (loss) gain on cash flow hedges, net of tax | | | (7,288 | ) | | | 5,017 | | | | (857 | ) |
Balance, end of year | | $ | (51,439 | ) | | $ | (34,720 | ) | | $ | (68,553 | ) |
| | | | | | | | | | | | | |
TOTAL STOCKHOLDERS’ EQUITY | | | | | | | | | | | | |
Balance, beginning of year | | $ | 559,691 | | | $ | 517,381 | | | $ | 531,584 | |
Net income | | | 267,085 | | | | 258,259 | | | | 338,815 | |
Common stock issued for employee stock plans | | | 80,992 | | | | 50,045 | | | | 57,793 | |
Purchases of common stock upon restricted stock vesting | | | (1,514 | ) | | | (7,847 | ) | | | (4,544 | ) |
Stock-based compensation expense | | | 31,516 | | | | 34,183 | | | | 29,793 | |
Tax benefits from share-based payment arrangements | | | — | | | | 10,331 | | | | 18,205 | |
Repurchases of common stock | | | (302,441 | ) | | | (253,131 | ) | | | (352,283 | ) |
Foreign currency translation adjustments | | | (9,431 | ) | | | 28,816 | | | | (23,644 | ) |
Stock-based compensation adjustment associated with disposition | | | — | | | | — | | | | (942 | ) |
Net unrealized (loss) gain on cash flow hedges, net of tax | | | (7,288 | ) | | | 5,017 | | | | (857 | ) |
Dividends | | | (92,710 | ) | | | (83,363 | ) | | | (76,539 | ) |
Balance, end of year | | $ | 525,900 | | | $ | 559,691 | | | $ | 517,381 | |
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Financial Statements.
FactSet Research Systems Inc.
Consolidated Statements of Changes in Stockholders’ Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except share data) | Common Stock | | Additional
Paid-in
Capital | | Treasury Stock | | Retained
Earnings | | Accumulated
Other
Comprehensive
Loss | | Total
Stockholders’
Equity |
| Shares | | Par Value | | | Shares | | Amount | |
| Balance as of September 1, 2017 | 51,845,132 | | | $ | 518 | | | $ | 741,748 | | | 12,822,100 | | | $ | (1,606,678) | | | $ | 1,458,823 | | | $ | (34,720) | | | $ | 559,691 | |
| Net income | | | | | | | | | | | 267,085 | | | | | 267,085 | |
| Other comprehensive loss | | | | | | | | | | | | | (16,719) | | | (16,719) | |
| Common stock issued for employee stock plans | 685,807 | | | 8 | | | 80,983 | | | | | | | | | | | 80,991 | |
| Vesting of restricted stock | 26,599 | | | | | | | 8,070 | | | (1,514) | | | | | | | (1,514) | |
| Repurchases of common stock | | | | | | | 1,534,782 | | | (302,441) | | | | | | | (302,441) | |
| Stock-based compensation | | | | | 31,517 | | | | | | | | | | | 31,517 | |
| Dividends declared | | | | | | | | | | | (92,710) | | | | | (92,710) | |
| Retirement of Treasury Shares | (13,292,689) | | | $ | (133) | | | (186,717) | | | (13,292,689) | | | 1,697,205 | | | (1,510,355) | | | | | 0 | |
| Balance as of August 31, 2018 | 39,264,849 | | | $ | 393 | | | $ | 667,531 | | | 1,072,263 | | | $ | (213,428) | | | $ | 122,843 | | | $ | (51,439) | | | $ | 525,900 | |
| Net income | | | | | | | | | | | 352,790 | | | | | 352,790 | |
| Other comprehensive loss | | | | | | | | | | | | | (23,821) | | | (23,821) | |
| Common stock issued for employee stock plans | 753,942 | | | 7 | | | 107,043 | | | | | | | | | | | 107,050 | |
| Vesting of restricted stock | 85,401 | | | 1 | | | (1) | | | 31,644 | | | (7,241) | | | | | | | (7,241) | |
| Repurchases of common stock | | | | | | | 882,445 | | | (213,130) | | | | | | | (213,130) | |
| Stock-based compensation | | | | | 32,400 | | | | | | | | | | | 32,400 | |
| Dividends declared | | | | | | | | | | | (103,710) | | | | | (103,710) | |
| Cumulative effect of adoption of accounting standards* | | | | | | | | | | | 1,302 | | | 716 | | | 2,018 | |
| Balance as of August 31, 2019 | 40,104,192 | | | $ | 401 | | | $ | 806,973 | | | 1,986,352 | | | $ | (433,799) | | | $ | 373,225 | | | $ | (74,544) | | | $ | 672,256 | |
| Net income | | | | | | | | | | | 372,938 | | | | | 372,938 | |
| Other comprehensive income | | | | | | | | | | | | | 35,251 | | | 35,251 | |
| Common stock issued for employee stock plans | 630,520 | | | 7 | | | 95,515 | | | 75 | | (21) | | | | | | | 95,501 | |
| Vesting of restricted stock | 32,996 | | | | | | | 11,945 | | | (3,511) | | | | | | | (3,511) | |
| Repurchases of common stock | | | | | | | 739,084 | | | (199,625) | | | | | | | (199,625) | |
| Stock-based compensation | | | | | 36,579 | | | | | | | | | | | 36,579 | |
| Dividends declared | | | | | | | | | | | (113,014) | | | | | (113,014) | |
| Balance as of August 31, 2020 | 40,767,708 | | | $ | 408 | | | $ | 939,067 | | | 2,737,456 | | | $ | (636,956) | | | $ | 633,149 | | | $ | (39,293) | | | $ | 896,375 | |
*Includes the cumulative effect of adoption of accounting standards primarily due to both the adoption of the new revenue recognition standard (ASC 606) resulting in a cumulative increase to retained earnings related to certain fulfillment costs and the accounting standard update related to the U.S. Tax Cuts and Jobs Act ("TCJA") providing for the reclassification from accumulated other comprehensive loss to retained earnings for stranded tax effects. Refer to Note 3, Basis of Presentation and Note 4, Revenue Recognition in the Notes to the Company's Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for additional information.
The accompanying notes are an integral part of these Consolidated Financial Statements.
Notes to the Consolidated Financial Statements
1.
ORGANIZATION AND NATUREDESCRIPTION OF BUSINESS
FactSet Research Systems Inc. (the “Company”and its wholly-owned subsidiaries (collectively, the "Company" or “FactSet”"FactSet") is a global provider of integrated financial information, analytical applications and industry-leading serviceservices for the investment and corporate communities. For over 40 years, global financial professionals have utilized the Company’s content and multi-asset class solutions across each stage of the investment community. Theprocess. FactSet’s goal is to provide a seamless user experience spanning idea generation, research, portfolio construction and analysis, trade execution, performance measurement, risk management, and reporting, in which the Company serves the front, middle, and back offices to drive productivity and improved performance. FactSet’s flexible, open data and technology solutions can be implemented both across the investment portfolio lifecycle or as standalone components serving different workflows in an organization. FactSet is focused on growing the business through 3 segments: the Americas (formerly known as U.S.), EMEA (Europe and Africa, formerly known as Europe), and Asia Pacific. Within each of the segments, the Company primarily delivers insight and information to investmentthrough the four workflow solutions of Research, Analytics and Trading, Content and Technology Solutions ("CTS"), and Wealth.
FactSet currently serves a wide range of financial professionals, through its analytics, service, content, and technology. These professionalswhich include but are not limited to portfolio managers, investment research professionals, investment bankers, risk and performance analysts, wealth advisors, and wealth advisors. From streaming real-time datacorporate clients. FactSet provides both insights on global market trends and intelligence on companies and industries, as well as capabilities to historical information, including quotes, estimates, newsmonitor portfolio risk and commentary, FactSet offers proprietary and third-party content through desktop, web, mobile, and off-platform solutions. The Company’s broad application suite offers tools and resources including company and industry analyses, full screening tools, portfolio analysis, risk profiles, alpha-testing, portfolio optimization and research management solutions. With recent acquisitions, FactSet has continued to expand its solutions across the investment lifecycle from idea generation to performance and execute trades. The Company combines dedicated client reporting.service with open and flexible technology offerings, such as a configurable desktop and mobile platform, comprehensive data feeds, and open marketplace and digital portals and application programming interface ("APIs"). The Company’s revenues areCompany's revenue is primarily derived from subscriptions to products and services such as workstations, portfolio analytics, enterprise data, and research management, and trade execution.
management.
FactSet conducts business globally and is managed on a geographic basis. The accompanying consolidated financial statements includeConsolidated Financial Statements and Notes to the accounts of the Company and its wholly owned subsidiaries. All intercompany activity and balances have been eliminated from the consolidated financial statements.The Company’s consolidated financial statements Company's Consolidated Financial Statements
are preparedprepared in accordance with U.S. generally accepted accounting principles (“GAAP”in the United States ("GAAP"). All intercompany balances, transactions, and profits have been eliminated. The preparation of consolidated financial statementsConsolidated Financial Statements and related disclosures in conformity with accounting principles generally accepted in the U.S.GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenuesrevenue and expenses during the reporting period. Significant estimates have been made in areas that include allocation of purchase price to acquired assets and liabilities, stock-based compensation, income taxes, accrued compensation, valuation of goodwill, and useful lives and valuation of fixed and intangible assets.assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates. Reclassification
The Company reclassified certain prior year comparative figures from Interest expense, net, to Other expense, net including non-operational foreign exchange gains and losses in the Consolidated Statement of Income to conform to the current year's presentation.
The Company reclassified certain capitalized software from Property, equipment and leasehold improvements, net to Intangible assets, net, except for capitalized develop costs associated with hosted solutions, which were reclassified to Other assets, in the prior year comparative figures in the Consolidated Balance Sheets to conform to the current year's presentation.
COVID-19
A novel strain of coronavirus, now known as COVID-19 ("COVID-19"), was first reported in December 2019, and it has evaluated subsequent events throughsince extensively impacted the date thatglobal health and economic environment, with the World Health Organization characterizing COVID-19 as a pandemic on March 11, 2020. FactSet is closely monitoring pandemic-related developments and has taken, and continues to take, numerous steps to address them. FactSet has required nearly all its employees to work remotely on a temporary basis and has implemented global travel restrictions for employees. The Company believes the transition to remote working has been successful and has not significantly affected financial statements were issued.
results for the fiscal year ended August 31, 2020. Since the situation surrounding the COVID-19 pandemic remains fluid, FactSet is actively managing its response and has assessed potential impacts to its financial position and operating results for fiscal 2020 as of August 31, 2020. The extent of the effect on the Company’s future operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, and governmental, regulatory and private sector responses, all of which are uncertain and difficult to predict.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Company and its subsidiaries are summarized below.
The majority of the Company’s
revenues arerevenue is derived from
subscriptionsclient access to
its hosted proprietary data and analytics platform, which can include various combinations of products and services
such asavailable over the contractual term. The hosted platform is a subscription-based service that consists primarily of providing access to products and services including workstations,
(also referredanalytics, enterprise data, research management, and trade execution. The Company determined that the subscription-based service represents a single performance obligation covering a series of distinct products and services that are substantially the same and that have the same pattern of transfer to
as users), contentthe client. Based on the nature of the services and
applications. The majorityproducts offered by FactSet, the Company applies an input time-based measure of
clients are invoiced monthly to reflect the actual services provided. The remaining clients are invoiced quarterly, annually or biannually in advance. Subscription revenue is earned each monthprogress as the
serviceclient is
rendered to clients on a monthly basis. FactSet recognizes revenue whensimultaneously receiving and consuming the
client subscribes to FactSet services, the service has been rendered and earned during the month, the amountbenefits of the
subscriptionplatform. The Company records revenue for its contracts using the over-time revenue recognition model as a client is
fixedinvoiced or
determinable based on established rates quoted on an annualized basis and collectabilityperformance is
reasonably assured.satisfied. A provision for billing adjustments and cancellation of services is estimated and accounted for as a reduction to revenue, with a corresponding reduction to accounts receivable.
Accounts Receivable and Deferred Fees
Amounts that have been earned but not yet paid are reflected on the Consolidated Balance Sheets as Accounts receivable, net of reserves. Amounts invoiced in advance of client payments that are in excess of earned subscription revenue are reflected on the
Consolidated Balance
SheetSheets as Deferred fees. As of August 31,
2018,2020, the amount of accounts receivable that was unbilled totaled
$6.4$17.1 million,
which was subsequentlyand will be billed in fiscal
2019.2021. As of August 31, 2019, the amount of accounts receivable that was unbilled totaled $15.8 million, and was billed in fiscal 2020.
The Company calculates its receivable reserve through analyzing aged client receivables, reviewing the recent history of client receivable write-offs and understanding general market and economic conditions. In accordance with this policy, a receivable reserve of
$3.5$8.0 million and
$2.7$10.5 million was recorded as of August 31,
20182020 and
2017,2019, respectively, within the Consolidated Balance Sheets as a reduction to Accounts receivable.
Cost of Services
Cost of services is comprised of compensation for Company employees within the content collection, consulting, product development, software and systems engineering groups in addition to data costs, computer maintenance and depreciation expenses, amortization of identifiable intangible assets, and client-related communication costs.
Selling, General and Administrative
Selling, general and administrative expenses include compensation for the sales and various other support and administrative departments in addition to travel and entertainment expenses, marketing costs, rent,
amortization of leasehold improvements, depreciation of furniture and fixtures,
amortization of lease right-of-use ("ROU") assets and leasehold improvements, as well as office expenses, professional fees and other miscellaneous expenses.
Research and Product Development Costs
FactSet does not have a separate research and product development department, but rather the Product Development and Engineering departments work closely with our strategists, product managers, sales and other client-facing specialists to identify areas of improvement with the goal of providing increased value to clients. As such, research and product development costs relate to the salary and benefits for the Company’s product development, software engineering and technical support staff and
as such, these costs are expensed
whenas incurred
and primarily included within
costCost of services as employee compensation. The Company expects to allocate a similar percentage of its workforce in future years in
order to continue to develop new products and enhancements, respond quickly to market changes and meet the needs of its clients efficiently. FactSet incurred
$217.1 million of research and product development costs
during fiscal 2018, which was comparable to its spend on similar developmentof $224.0 million, $214.7 million and $217.1 million during fiscal years
20172020, 2019 and
20162018, respectively.
Basic earnings per share
(“EPS”("EPS") is computed by dividing net income by the number of weighted average common shares outstanding during the period. Diluted EPS is computed by dividing net income by the number of weighted average common shares outstanding during the period increased by the dilutive effect of potential common shares outstanding during the period. The number of potential common shares outstanding has been determined in accordance with the treasury stock method to the extent they are dilutive. For the purpose of calculating EPS, common shares outstanding include common shares issuable upon the exercise of outstanding share-based compensation awards, including employee stock options and
grants of restricted
stock.stock and restricted stock units. Performance-based awards are omitted from the calculation of diluted EPS until it is determined that the performance criteria has been met at the end of the reporting period. Under the treasury stock method, the exercise price paid by the
optioneeoption holder and future stock-based compensation expense that the Company has not yet recognized are assumed to be used to repurchase shares.
Comprehensive Income
(Loss)The Company discloses comprehensive income
(loss) in accordance with applicable standards for the reporting and display of comprehensive income
(loss) in a set of financial statements. Comprehensive income
(loss) is defined as the change in net assets of a business enterprise during a period from transactions generated from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.
Fair Value
MeasuresMeasurements
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability (i.e., the “exit price”"exit price") in an orderly transaction between market participants at the measurement date. In determining fair value, the use of various valuation methodologies, including market, income and cost approaches is permissible. The Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. The accounting guidance for fair value measurements establishes a fair value hierarchy that
requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value based on the reliability of inputs. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s cash equivalents are classified as Level 1 while the Company’s derivative instruments (foreign exchange forward contracts) and certificates of deposit are classified as Level 2. There were no Level 3 assets or liabilities held by FactSet as of August 31, 20182020 or 2017.2019. Refer to Note 5,
Fair Value Measures for the definition of the fair value hierarchy. Cash and Cash Equivalents
Cash and cash equivalents consist of demand deposits and money market funds with original maturities of three months or less and are reported at fair value. The Company’s corporate money market funds are readily convertible into cash and the net asset value of each fund on the last day of the quarter is used to determine its fair value.
Investments
Investments
Investments consist of both mutual funds and certificates of deposit as both are part of the Company’s investment strategy. These mutual funds and certificates of deposit are included as Investments (short-term) on the Company’s Consolidated Balance Sheets as the mutual funds can be liquidated at the Company’s discretion and the certificates of deposit have original maturities greater than three months, but less than one year and the mutual funds can be liquidated at that Company’s discretion.months. The mutual funds and certificates of deposit are held for investment and are not considered debt securities. Preservation of principal is the primary goal of our cash and investment policy. Pursuant to our established investment guidelines, we try to achieve high levels of credit quality, liquidity and diversification. Our investment guidelines do not permit us to invest in puts, calls, strips, short sales, straddles, options, commodities, precious metals, futures or investments on margin. Interest income earned from these investments during fiscal 2020, 2019 and 2018 2017 and 2016 were $1.3was $1.1 million, $1.6$1.5 million and $1.6$1.3 million, respectively. The Company’s cash, cash equivalents and investments portfolio did not experience any realized or unrealized losses as a result of counterparty credit risk or ratings change during fiscal 20182020 and 2017.
2019.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Computers and related equipment are depreciated on a straight-line basis over an estimated useful lives of life ranging from three to five years. Furniture and fixtures are depreciated on a straight-line basis over their estimated useful lives of seven years. Leasehold improvements are amortized on a straight-line basis over the terms of the related leases or estimated useful lives of the improvements, whichever period is shorter. Repairs and maintenance expenditures, which are not considered leasehold improvements and do not extend the useful life of the property and equipment, are expensed as incurred. The Company performs a test for impairment whenever events or changes in circumstances indicate that the carrying amount of an individual asset or asset group may not be recoverable. Should projected undiscounted future cash flows be less than the carrying amount of the asset or asset group, an impairment charge reducing the carrying amount to fair value is required. Fair value is determined based on the most appropriate valuation technique, including discounted cash flows.
Goodwill
The Company is required to test goodwill
Goodwill at the reporting unit level is reviewed for potential impairment annually, orand more frequently if impairment indicators occur.exist. Goodwill is tested for impairment based ondeemed to be impaired and written-down in the presentperiod in which the carrying value of discounted cash flows, and, if impaired, written down tothe reporting unit exceeds its fair value based on discounted cash flows.value. FactSet has three3 reporting units, Americas, EMEA and Asia Pacific, which are consistent with the operating segments reported, as there is no discrete financial information is not available for the subsidiaries within eachthe operating segment. Thesegments.
FactSet may elect to perform a qualitative analysis for the reporting units evaluatedto determine whether it is more likely than not the fair value of the reporting unit is greater than its carrying value. In performing a qualitative assessment, FactSet considers such factors as macro-economic conditions, industry and market conditions in which FactSet operates including the competitive environment and significant changes in demand for the Company’s services. The Company also considers its share price both in absolute terms and in relation to peer companies. If the qualitative analysis indicates that it is more likely than not the fair value of a reporting unit is less than its carrying amount or if FactSet elects not to perform a qualitative analysis, a quantitative analysis is performed to determine whether a goodwill impairment exists.
The quantitative goodwill impairment analysis is used to identify potential impairment wereby comparing fair value of a reporting unit with its carrying amount using an income approach, along with other relevant market information, derived from a discounted cash flow model to estimate fair value of FactSet’s reporting units. The annual review of carrying value of goodwill requires the U.S., EuropeCompany develop estimates of future business performance. These estimates are used to derive expected cash
flows and Asia Pacific, which reflectinclude assumptions regarding future sales levels and the level of internalworking capital needed to support a given business. The discounted cash flow model also includes a determination of FactSet’s weighted average cost of capital by reporting unit. Cost of capital is based on assumptions about interest rates, as well as a risk-adjusted rate of return required by FactSet’s equity investors. Changes in these estimates can impact present value of expected cash flows used in determining fair value of a reporting unit. An impairment charge for the Company usesamount by which the carrying amount exceeds the reporting unit’s fair value, if any, would be recognized. The loss recognized would not exceed total amount of goodwill allocated to manage its business and operations. that reporting unit.
The Company performed its annual goodwill impairment test during the fourth quarter of fiscal
2018, consistent with the timing of previous years,2020 utilizing a qualitative analysis and concluded
that thereit was
no impairment, withmore likely than not the fair value of each
of the Company’s reporting
units significantly exceedingunit was greater than its respective carrying
value.value and 0 impairment charge was required.
Acquired Intangible Assets
FactSet’s identifiable intangible assets consist of acquired content databases, client relationships, software technology, non-compete agreements and trade names resulting from previous acquisitions, which have been fully integrated into the Company’s operations. The Company amortizes intangible assets over their estimated useful lives, which are evaluated quarterly to determine whether events and circumstances warrant a revision to the remaining period of amortization. If the estimate of the remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over that revised remaining useful life. Amortizable Intangible assets are tested for impairment, if indicators of impairment are present, based on undiscounted cash flows, and, if impaired, written down to fair value based on discounted cash flows.
NoNaN impairment of intangible assets has been identified during any of the fiscal years presented. The intangible assets have no assigned residual values.
Internally Developed Software
FactSet capitalizes internal and external costs related to developing, modifying or obtaining software for internal use, incurred during the application development stage in accordance with ASC 350-40, Internal-Use Software. Costs related to software upgrades and enhancements are capitalized if it is determined that these upgrades or enhancements provide additional functionality to the software. The capitalized software is amortized using the straight-line method over the estimated useful life of the software, generally three to five years. These assets are subject to the impairment test guidance specified in the acquired intangible assets above.
Accrued liabilities include estimates relating to employee compensation, operating expenses and tax liabilities.
Annual cash-based awards that are variable and discretionary in nature represent approximately 10% of our Company’s employee incentive compensation program. At the end of each fiscal year, FactSet conducts a
final review of both Company and individual performance within each department to determine the amount of discretionary employee compensation. The Company also reviews compensation throughout the year to determine how overall performance tracks against management’s expectations. Management takes these and other factors, including historical performance, into account in reviewing accrued compensation estimates quarterly and adjusting accrual rates as appropriate. The
amountmajority of
the variable employee compensation recorded within accrued compensation
related to the annual performance bonus, which was $54.4 million and $49.4 million as of August 31,
20182020 and
2017, was $43.6 million and $39.2 million,2019, respectively.
During fiscal 2018 the Company incurred $17.4 million of restructuring charges primarily related to employee compensation and severance of which $5.6 million was recorded as Accrued compensation as of August 31, 2018 which will be paid during fiscal 2019.Derivative Instruments
Foreign Currency Forward Contracts
FactSet conducts business outside the U.S. in several currencies including the British Pound Sterling, Euro, Indian Rupee, Japanese Yen and Philippine Peso.Peso. As such, the Company is exposed to movements in foreign currency exchange rates comparedrelative to the U.S. dollar. The Company utilizes derivative instruments (foreign currency forward contracts) to manage the exposures related to the effects of foreign exchange rate fluctuations and reduce the volatility of earnings and cash flows associated with changes in foreign currency. The Company does not enter into foreign exchange forward contracts for trading or speculative purposes. In designing a specific hedging approach, FactSet considers several factors, including offsetting exposures, significance of exposures, forecasting risk and potential effectiveness of the hedge. These transactions are designated and accounted for as cash flow hedges in accordance with applicable accounting guidance. The changes in fair value for these foreign currency forward contracts are initially reported as a component of accumulated other comprehensive loss (“AOCL”) and subsequently reclassified into operating expenses when the hedged exposure affects earnings. The gains and losses on foreign currency forward contracts mitigate the variability in operating expenses associated with currency movements.
Interest Rate Swap Agreement
On March 29, 2019, FactSet entered into a credit agreement with PNC Bank, National Association ("PNC") (the "2019 Credit Agreement"), which provides for a $750.0 million revolving credit facility (the "2019 Revolving Credit Facility"). The outstanding principal balance of $575.0 million bears interest at a rate equal to LIBOR plus a spread, using a debt leverage pricing grid. The variable rate of interest on the Company's long-term debt can expose FactSet to interest rate volatility due to changes in LIBOR. To mitigate this exposure, on March 5, 2020, FactSet entered into an interest rate swap agreement with a notional amount of $287.5 million to hedge the variable interest rate obligation, effectively converting the floating interest rate to fixed for the hedged portion. Thus, FactSet is only exposed to base interest rate risk on floating rate borrowings in excess of any amounts that are not hedged, or $287.5 million of the outstanding principal balance.
Derivative Instrument Classification
The changes in fair value for these cash flow hedges are initially reported as a component of accumulated other comprehensive loss ("AOCL") and subsequently reclassified into operating expenses when the hedged exposure affects earnings. All derivatives are assessed for effectiveness at each reporting period.
Foreign Currency Translation
Certain wholly-owned subsidiaries within the European and Asia Pacific segments operate under a functional currency different from the U.S. dollar, such as the British Pound Sterling, Euro, Indian Rupee, Japanese Yen and Philippine Peso.Peso. The financial statements of these foreign subsidiaries are translated into U.S. dollars using period-end rates of exchange for assets and liabilities, and average rates for the period for revenues and expenses. Translation gains and losses that arise from translating assets, liabilities, revenuesrevenue and expenses of foreign operations are recorded in AOCL as a component of stockholders’ equity. The accumulated foreign currency translation loss totaled $48.0$37.7 million and $38.5$72.3 million at August 31, 20182020 and 2017,2019, respectively. Income and Deferred Taxes
Income tax expense is based on taxable income determined in accordance with current enacted laws and tax rates. Deferred income taxes are recorded for the temporary differences between the financial statement and tax bases of assets and liabilities using current enacted tax rates. FactSet recognizes the financial effect of an income tax position only if it is more likely than not (greater than 50%) that the tax position will prevail upon tax examination, based solely on the technical merits of the tax position as of the reporting date. Otherwise, no benefit or expense can be recognized in the
consolidated financial statements.Consolidated Financial Statements. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Additionally, FactSet accrues interest on all tax exposures for which reserves have been established consistent with jurisdictional tax laws. Interest is classified as income tax expense in the financial statements. As of August 31,
2018,2020, the Company had gross unrecognized tax benefits totaling
$9.2$12.3 million, including
$1.1$0.9 million of accrued interest, recorded as Taxes payable (non-current) on the Consolidated Balance
Sheet.Sheets.
Accounting guidance requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including stock options, restricted stock,
performance share units, and common shares acquired under employee stock purchases based on estimated fair values of the share awards that are scheduled to vest during the period. FactSet uses the straight-line attribution method for all awards with graded vesting features and service conditions only. Under this method, the amount of compensation expense that is recognized on any date is at least equal to the vested portion of the award on that date. For all stock-based awards with performance conditions, the graded vesting attribution method is used by the Company to determine the monthly stock-based compensation expense over the applicable vesting periods.
As stock-based compensation expense recognized is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based primarily on historical experience.experience. Windfall tax benefits, defined as tax deductions that exceed recorded stock-based compensation, are classified as cash inflows from financing activities.operations.
Performance-based
stock options
and performance share units require management to make assumptions regarding the likelihood of achieving Company performance targets on a quarterly basis. The number of performance-based options
and performance share units that vest will be predicated on the Company achieving certain performance levels. A change in the financial performance levels the Company achieves could result in changes to FactSet’s current estimate of the vesting percentage and related stock-based compensation.
The Company accounts for repurchased common stock under the cost method and includes such treasury stock as a component of its
stockholders’Stockholders’ equity. The Company accounts for the formal retirement of treasury stock by deducting its par value from common stock, reducing additional paid-in capital
(“APIC”("APIC") by the average amount recorded in APIC when the stock was originally issued and any remaining excess of cost deducted from retained earnings.
Operating
FactSet adopted the standard, ASC 842-10, Leases ("ASC 842") as of September 1, 2019, using a modified retrospective approach. The adoption of the lease standard primarily related to the Company’s real estate operating leases. FactSet reviews new arrangements at inception to evaluate whether the Company conductsobtains substantially all the economic benefits of its operationsand has the right to control the use of an asset. If FactSet determines that an arrangement qualifies as a lease, with a lease term of greater than one year, the Company records a lease ROU asset and lease liability at the lease commencement date. As there is no rate implicit in leased facilities which havethe Company’s operating lease arrangements, these balances are initially recorded as the present value of the future minimum lease obligations under non-cancelable operating leases. Certain of these leases contain rent escalationspayments, (including fixed lease payments and certain qualifying index-based variable payments) over the lease term, using FactSet’s incremental borrowing rate ("IBR") within the geography where the leased asset is located. As FactSet does not have any outstanding public debt, the Company estimates the IBR based on specified percentages. Most ofFactSet’s estimated credit rating and available market information. The IBR is determined at lease commencement and subsequently reassessed upon a modification to the leases contain renewal options and require paymentslease arrangement. Certain adjustments to our lease ROU assets may be required for taxes, insurance and maintenance. Rent expense is chargeditems such as initial direct costs paid or incentives received.
FactSet elected the practical expedient not to operations as incurred except for escalating rents,separate lease components from non-lease components but, rather, to combine them into one single lease component, which are charged to operationswe recognize over the expected term on a straight-line expense basis in occupancy costs (a component of SG&A expense).
As of August 31, 2020, the Company’s leases have remaining terms of less than one year to just over
the life of the lease. Lease incentives, relating15 years. The lease ROU assets and lease liabilities recognized did not include any renewal or termination options that were not yet reasonably certain to
allowances provided by landlords, are amortized over the term of the lease as a reduction of rent expense. Costs associated with acquiring a subtenant, including broker commissions and tenant allowances, are amortized over the sublease term as a reduction of sublease income.be exercised.
The Company
records acquisitionsaccounts for its business combinations using the purchase method of accounting.
All ofThe acquisition purchase price is allocated to the
underlying identified tangible and intangible assets
acquired,and liabilities assumed,
contractual contingencies and contingent consideration are recognized atbased on their
respective estimated fair
valuevalues on the acquisition date. The
applicationexcess of the purchase
methodconsideration over the fair values of
accounting for business combinations requires managementthe identified assets and liabilities is recorded as goodwill and assigned to
make significant estimatesone or more reporting units. The amounts and
assumptions inuseful lives assigned to acquisition-related tangible and intangible assets impact the
determinationamount and timing of
future amortization expense. Determining the fair value of assets acquired and liabilities assumed
in orderand the expected useful life requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to
properly allocate purchase price consideration between assets that are depreciatedfuture cash inflows and
amortized from goodwill. The excess of the fair value of purchase consideration over the fair values of these identifiable assetsoutflows, discount rates, asset lives and
liabilities is recorded as goodwill.market multiples, among other items. Acquisition-related expenses and restructuring costs are recognized separately from the business combination and are expensed as incurred.
Cash and cash equivalents are maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit and therefore bear minimal credit risk. The Company seeks to mitigate its credit risks by spreading such risks across multiple counterparties and monitoring the risk profiles of these counterparties.
New Accounting Standards or Updates Recently Adopted
As of the beginning of fiscal 2018,2020, FactSet implemented all applicable new accounting standards and updates issued by the Financial Accounting Standards Board (“FASB”("FASB") that were in effect. There were no new standards or updates adopted during the last three fiscal years that had a material impact on the consolidated financial statements.Balance Sheet Classification of Deferred Taxes
DuringCompany's Consolidated Financial Statements, other than the first quarter of fiscal 2018, FactSet adopted thenew lease accounting standard update issued by the FASB in November 2015,discussed below. Refer to simplify the presentation of deferred taxes on the balance sheet. This accounting standard update required an entity to present all deferred tax assets and deferred tax liabilities as non-current on the balance sheet. Under the previous guidance, entities were required to separately present deferred taxes as current or non-current. Netting deferred tax assets and deferred tax liabilities by tax jurisdiction is still required under the new guidance. This accounting standard update is a change to the balance sheet presentation only. The changes have been applied prospectively as permitted by the standard and prior periods have not been restated.
Share-Based Payments
During the first quarter of fiscal 2018, FactSet adopted the accounting standard update issued by the FASB in March 2016, which simplifies several aspects of the accountingNote 11,
Leases for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. This accounting standard update increases the volatility within the Company’s provision for income taxes, as all excess tax benefits or deficiencies related to share-based payments that were previously reported within equity will now be recognized in the consolidated statement of income. The adoption of this standard resulted in the recognition of $9.5 million of excess tax benefits to FactSet’s provision for income taxes during fiscal 2018. In addition, this standard changed the classification of excess tax benefits presented in the Company’s consolidated statements of cash flows from a financing activity to an operating activity, which was applied on a prospective basis as permitted by the standard. Prior periods were not restated. Share-based payment expense continues to reflect estimated forfeitures of share-based payment awards. The remaining provisions of this standard did not have a material impact on the Company’s consolidated financial statements.additional information. Leases
Income Taxes
During the third quarter of fiscal 2018, FactSet adopted the accounting standard update issued by the FASB in March 2018, which provides guidance related to income tax accounting implications under the Tax Cuts and Jobs Act (“TCJA”) enacted on December 22, 2017, effective January 1, 2018. Areas of clarification under the update are the measurement period timeframe, changes in subsequent reporting periods, and reporting requirements as they relate to the TCJA. Due to the complexity of the TCJA, the standard update allows companies to record provisional amounts, or reasonable estimates of the tax effects of the TCJA during a measurement period not to exceed one year from the enactment date. As a result of the TCJA, FactSet recorded a one-time transition tax expense of $23.2 million and a $2.3 million tax expense related to the remeasurement of the net U.S. deferred tax position. The Company will continue to analyze the TCJA and related accounting guidance and interpretation in order to finalize any impacts within the one-year measurement period from the TCJA enactment date.
Recent Accounting Standards or Updates Not Yet Effective
Revenue Recognition
In May 2014 and July 2015, the FASB issued accounting standard updates which clarified principles for recognizing revenue arising from contracts with clients and superseded most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to clients in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also requires increased disclosures including the nature, amount, timing, and uncertainty of revenues and cash flows related to contracts with clients.
The standard allows two methods of adoption: i) retrospectively to each prior period presented (“full retrospective method”), or ii) retrospectively with the cumulative effect recognized in retained earnings as of the date of adoption (“modified retrospective method”). FactSet will adopt the new standard using the modified retrospective method at the beginning of its first quarter of fiscal 2019.
FactSet’s implementation efforts include the identification of revenue within the scope of the standard and an evaluation of contract revenue under the new guidance. Additionally, an assessment of the qualitative and quantitative impacts of pricing changes during the contractual term and fulfillment costs was made.
Services and products offered by FactSet mostly result in the customer simultaneously receiving and consuming the benefits. Thus, FactSet will be required to record revenue for its contracts using the over-time revenue recognition model which is comparable with how revenue is recognized today. The Company anticipates the new standard will impact the Company's accounting for certain fulfillment costs, which include up-front costs to allow for the delivery of services and products that are expected to be recovered. Under the new standard, such up-front costs would be recognized as an asset and amortized consistent with the associated revenue for providing the services. Currently, these costs are expensed as incurred. The Company does not expect the adoption of the new revenue recognition standard to result in a material change to its consolidated financial statements.
Recognition and Measurement of Financial Assets and Financial Liabilities
In January 2016, the FASB issued an accounting standard update to amend its current guidance on the classification and measurement of certain financial instruments. The accounting standard update significantly revises an entity’s accounting related to the presentation of certain fair value changes for financial liabilities measured at fair value. This guidance also amends certain disclosure requirements associated with the fair value of financial instruments. This guidance will be effective for FactSet beginning in the first quarter of fiscal 2019. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
Leases
In February 2016, the FASB issued an accounting standard update related to accounting for leases. leases, ASC 842. The guidance introduces a lessee model thatupdate requires most leases to be reportedthe recognition of lease ROU assets and lease liabilities on the balance sheet. The accounting standard update aligns manysheet and the disclosure of the underlying principles of the new lessor model with those in the FASB’s new revenue recognition standard.qualitative and quantitative information about leasing arrangements. The guidance also eliminates the requirement in current GAAP for an entity to use bright-linebright-
line tests in determining lease classification. ThisFactSet adopted the new accounting standard updateeffective September 1, 2019, using a modified retrospective approach to record the required cumulative effect adjustments to the opening balance sheet in the period of adoption, rather than in the earliest comparative period presented. As such, the Company's historical Consolidated Financial Statements were not restated and follow the Company's previous policy under ASC 840, Leases. Refer to FactSet’s Annual Report on Form 10-K for the fiscal year ended August 31, 2019 for further details of the Company’s policy prior to adoption of ASC 842.
FactSet elected the package of practical expedients permitted under the transition guidance, which permits the Company not to reassess the prior conclusions about lease identification, lease classification, and initial direct costs. FactSet did not elect the use-of-hindsight practical expedient in determining the lease term and in assessing impairment. FactSet elected the practical expedient not to separate lease components from non-lease components but, rather, to combine them into one single lease component. The Company has also elected to apply the short-term lease exception not to recognize lease ROU assets and lease liabilities for leases with a term of 12 months or less. FactSet will recognize lease payments on a straight-line basis over the lease term.
As of November 30, 2019, the Company recognized Lease ROU assets, net of amortization of $217.0 million and corresponding Current and Long-term lease liabilities of $266.4 million, related primarily to the Company’s real estate leases. There was no material impact to the Company’s Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, Consolidated Statements of Cash Flows and Consolidated Statement of Changes in Stockholders' Equity. Refer to Note 11, Leases for more information regarding the Company's lease accounting.
Hedge Accounting Simplification
During the first quarter of fiscal 2020, FactSet adopted the accounting standard updated issued by the FASB in August 2017, which focused on reducing the complexity of and simplifying the application of hedge accounting. The guidance refines and expands hedge accounting for both financial and nonfinancial risk components, eliminates the need to separately measure and report hedge ineffectiveness, and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The adoption of this standard had no impact on the Company's Consolidated Financial Statements.
Recent Accounting Standards or Updates Not Yet Effective
Credit Losses on Financial Instruments
In June 2016, the FASB issued an accounting standard that significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today’s "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost. The guidance will be effective for
FactSetthe Company beginning in the first quarter of fiscal
2020, with early adoption in fiscal 2019 permitted.2021. The Company
is currently evaluatinghas evaluated the impact of this accounting standard update
including the transition method, but does expect theand has determined that its adoption
to have a material impact to its balance sheet. However, it doeswill not
expect the adoption to have a material impact on the
statements of income, comprehensive income or cash flows. See Note 19 for information regarding our undiscounted future lease commitments.Company's Consolidated Financial Statements. Cash Flow Simplification
In August 2016, the FASB issued an accounting standard update which simplifies how certain transactions are classified in the statement of cash flows. This includes revised guidance on the cash flow classification of debt prepayments and debt extinguishment costs, contingent consideration payments made after a business combination and distributions received from equity method investments. The guidance is intended to reduce diversity in practice across all industries. This accounting standard update will be effective for FactSet beginning in the first quarter of fiscal 2019. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
Income Taxes on Intra-Entity Transfers of Assets
In October 2016, the FASB issued an accounting standard update, which removes the prohibition against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. The guidance is intended to reduce diversity in practice related to the tax consequences of certain types of intra-entity asset transfers, particularly those involving intellectual property. This accounting standard update will be effective for FactSet beginning in the first quarter of fiscal 2019. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
Goodwill Impairment Test
In January 2017, the FASB issued an accounting standard update which removes the requirement for companies to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This accounting standard update will be effective for
FactSetthe Company beginning in the first quarter of fiscal 2021, with early adoption permitted for any impairment tests performed after January 1,
20172017. The Company has evaluated the impact of this accounting standard update and
ishas determined that its adoption will not
expected to have a material impact on the
Company.Hedge AccountingCompany's Consolidated Financial Statements.
Income Tax Simplification
In August 2017,December 2019, the FASB issued an accounting standard update to reduce the complexity of and simplify the application of hedging accounting. The guidance refines and expands hedgevarious aspects related to accounting for both financialincome taxes, eliminating certain exceptions to the general principles in accounting for income taxes related to intraperiod tax allocation, simplifying when companies recognize deferred taxes in an interim period, and nonfinancial risk components, eliminates the need to separately measure and report hedge ineffectiveness, and aligns the recognition and presentationclarifying certain aspects of the effects of the hedging instrument and the hedged item in the financial statements. Thiscurrent guidance to promote consistent application. The guidance will be effective for FactSet beginningthe Company in the first quarter of fiscal 2020,2022, with early adoption permitted. Most amendments are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company is currently evaluating the potential impact of adopting the guidance on its Consolidated Financial Statements.
Facilitation of the Effects of Reference Rate Reform on Financial Reporting
In March 2020, the FASB issued an accounting standard to provide optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships, and other transactions affected by the anticipated transition from LIBOR. As a result of the reference rate reform initiative, certain widely used reference rates such as LIBOR are expected to be discontinued. The guidance is designed to simplify how entities account for contracts, such as receivables, debt, leases, derivative instruments and hedging, that are modified to replace LIBOR or other benchmark interest rates with new rates. The guidance is effective upon issuance and may be applied through December 31, 2022. The Company is currently evaluating the impact of this accounting standard, update but it is not expected to have a material impact on the consolidated financial statements.Share-Based Payments
In May 2017, the FASB issued an accounting standard update, which amends the scope of modification accounting for share-based payment arrangements. The guidance focuses on changes to the terms or conditions of share-based payment awards that would require the application of modification accounting and specifies that an entity would not apply modification accounting if the fair value, vesting conditions and classification of the awards are the same immediately before and after the modification. This accounting standard update will be effective for FactSet beginning in the first quarter of fiscal 2019, with early adoption permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
In February 2018, the FASB issued an accounting standard update, which allows companies to reclassify certain stranded income tax effects resulting from the enactment of the Tax Cuts and Jobs Act (the "TCJA") from accumulated other comprehensive income to retained earnings. This accounting standard update will be effective for FactSet beginning in the first quarter of fiscal 2019, with early adoption permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
Implementation Costs in a Cloud Computing Arrangement
In August 2018, the FASB issued an accounting standard update related to a client’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This guidance aligns the requirements for capitalizing implementation costs in a cloud computing service contract with the guidance for capitalizing implementation costs to develop or obtain internal-use software. Capitalized implementation costs will be expensed over the term of the arrangement. This accounting standard update will be effective for FactSet beginning in the first quarter of fiscal 2021, with early adoption permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
Company’s Consolidated Financial Statements.
No other new accounting pronouncements issued or effective as of August 31, 2018,2020 have had or are expected to have ana material impact on the Company’s consolidatedConsolidated Financial Statements.
4. REVENUE RECOGNITION
The Company derives most of its revenue by providing client access to its hosted proprietary data and analytics platform which can include various combinations of products and services available over the contractual term. The hosted platform is a subscription-based service that consists primarily of providing access to products and services including workstations, portfolio analytics, enterprise data and research management. The Company determined that the subscription-based service represents a single performance obligation covering a series of distinct products and services that are substantially the same and that have the same pattern of transfer to the client. The Company also determined the nature of the promise to the client is to provide daily access to one overall data and analytics platform. This platform provides integrated financial
statements.information, analytical applications and industry-leading service for the investment community. Based on the nature of the services and products offered by FactSet, the Company applies an input time-based measure of progress as the client is simultaneously receiving and consuming the benefits of the platform. The Company records revenue for its contracts using the over-time revenue recognition model as a client is invoiced or performance is satisfied. FactSet does not consider payment terms as a performance obligation for clients with contractual terms that are one year or less and the Company has elected the practical expedient. Contracts with clients can include certain fulfillment costs, comprised of up-front costs to allow for the delivery of services and products, which are recoverable. In connection with the adoption of the revenue recognition standard, fulfillment costs are recognized as an asset, recorded in the Prepaid expenses and other current assets account for the current portion and Other assets for the non-current portion, based on the term of the license period, and amortized consistent with the associated revenue for providing the services. There are no significant judgments that would impact the timing of revenue recognition. The majority of client contracts have a duration of one year or less, or the amount FactSet is entitled to receive corresponds directly with the value of performance obligations completed to date, and therefore, the Company does not disclose the value of the remaining unsatisfied performance obligations.
Disaggregated Revenue
The Company disaggregates revenue from contracts with clients by geographic region, which includes the Americas , EMEA and Asia Pacific. FactSet believes these regions are reflective of how the Company manages the business and the markets in which it serves. These regions best depict the nature, amount, timing and uncertainty of revenue and cash flows related to contracts with clients. Refer to Note 18, Segment Information for further information on revenue by geographic region.
The following table presents this disaggregation of revenue by geography:
| | | | | | | | | | | | | | | | | |
| | August 31, |
| (in thousands) | 2020 | | 2019 | | 2018 |
| Americas | $ | 929,444 | | | $ | 894,554 | | | $ | 841,908 | |
| EMEA | $ | 422,203 | | | $ | 408,084 | | | $ | 387,589 | |
| Asia Pacific | $ | 142,464 | | | $ | 132,713 | | | $ | 120,648 | |
| Total Revenue | $ | 1,494,111 | | | $ | 1,435,351 | | | $ | 1,350,145 | |
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability (i.e., the
“exit price”"exit price") in an orderly transaction between market participants at the measurement date. In determining fair value, the use of various valuation methodologies, including market, income and cost approaches is permissible. The Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability.
The accounting guidance for fair value measurements establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value based on the reliability of inputs. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect
theirits placement within the fair value hierarchy levels. FactSet has categorized its cash equivalents, investments and derivatives within the fair value hierarchy as follows:
Level 1 - applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. These Level 1 assets and liabilities include FactSet’sthe Company's corporate money market funds that are classified as cash equivalents.
Level 2 - applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. The Company’s certificates of deposit, mutual funds and derivative instruments are classified as Level 2.
Level 3 - applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. There were no Level 3 assets or liabilities held by FactSetthe Company as of August 31, 20182020 or 2017.2019.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables
showsshow, by level within the fair value hierarchy, the Company’s assets and liabilities that are measured at fair value on a recurring basis at August 31,
20182020 and
2017:| | | Fair Value Measurements at August 31, 2018 | |
(in thousands) | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Assets | | | | | | | | | | | | | | | | |
Corporate money market funds(1) | | $ | 75 | | | $ | — | | | $ | — | | | $ | 75 | |
Mutual Funds(2) | | | — | | | | 18,668 | | | | — | | | | 18,668 | |
Certificates of deposit(3) | | | — | | | | 10,591 | | | | — | | | | 10,591 | |
Derivative instruments(4) | | | — | | | | 90 | | | | — | | | | 90 | |
Total assets measured at fair value | | $ | 75 | | | $ | 29,349 | | | $ | — | | | $ | 29,424 | |
| | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | |
Derivative instruments(4) | | $ | — | | | $ | 4,036 | | | $ | — | | | $ | 4,036 | |
Total liabilities measured at fair value | | $ | — | | | $ | 4,036 | | | $ | — | | | $ | 4,036 | |
| | | Fair Value Measurements at August 31, 2017 | |
(in thousands) | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Assets | | | | | | | | | | | | | | | | |
Corporate money market funds(1) | | $ | 26,677 | | | $ | — | | | $ | — | | | $ | 26,677 | |
Mutual Funds(2) | | | — | | | | 18,364 | | | | — | | | | 18,364 | |
Certificates of deposit(3) | | | — | | | | 14,080 | | | | — | | | | 14,080 | |
Derivative instruments(4) | | | — | | | | 6,142 | | | | — | | | | 6,142 | |
Total assets measured at fair value | | $ | 26,677 | | | $ | 38,586 | | | $ | — | | | $ | 65,263 | |
| | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | |
Derivative instruments(4) | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Total liabilities measured at fair value | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| (1)
| The Company’s corporate money market funds are readily convertible into cash and the net asset value of each fund on the last day of the quarter is used to determine its fair value. As such, the Company’s corporate money market funds are classified as Level 1 and included in Cash and cash equivalents within the Consolidated Balance Sheets.
|
| (2)
| The Company’s mutual funds have a fair value based on the fair value of the underlying investments held by the mutual funds allocated to each share of the mutual fund using a net asset value approach. The fair value of the underlying investments is based on observable inputs. As such, the Company’s mutual funds are classified as Level 2 and are classified as Investments (short-term) on the Consolidated Balance Sheets.
|
| (3)
| The Company’s certificates of deposit held for investment are not debt securities and are classified as Level 2. These certificates of deposit have original maturities greater than three months, but less than one year and, as such, are classified as Investments (short-term) within the Consolidated Balance Sheets.
|
| (4)
| The Company utilizes the income approach to measure fair value for its derivative instruments (foreign exchange forward contracts). The income approach uses pricing models that rely on market observable inputs such as spot, forward and interest rates, as well as credit default swap spreads and therefore are classified as Level 2.
|
2019. The Company did not have any transfers between Level 1 and Level 2 fair value measurements during the periods presented.
(b)
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | Fair Value Measurements at August 31, 2020 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | |
Corporate money market funds(1) | $ | 276,852 | | | $ | 0 | | | $ | 0 | | | $ | 276,852 | |
Mutual Funds(2) | 0 | | | 17,257 | | | 0 | | | 17,257 | |
Certificates of deposit(3) | 0 | | | 2,315 | | | 0 | | | 2,315 | |
Derivative instruments(4) | 0 | | | 3,644 | | | 0 | | | 3,644 | |
| Total assets measured at fair value | $ | 276,852 | | | $ | 23,216 | | | $ | 0 | | | $ | 300,068 | |
| | | | | | | |
| Liabilities | | | | | | | |
Derivative instruments(4) | $ | 0 | | | $ | 5,773 | | | $ | 0 | | | $ | 5,773 | |
| Total liabilities measured at fair value | $ | 0 | | | $ | 5,773 | | | $ | 0 | | | $ | 5,773 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | Fair Value Measurements at August 31, 2019 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | |
Corporate money market funds(1) | $ | 75,849 | | | $ | 0 | | | $ | 0 | | | $ | 75,849 | |
Mutual Funds(2) | 0 | | | 18,583 | | | 0 | | | 18,583 | |
Certificates of deposit(3) | 0 | | | 7,090 | | | 0 | | | 7,090 | |
Derivative instruments(4) | 0 | | | 520 | | | 0 | | | 520 | |
| Total assets measured at fair value | $ | 75,849 | | | $ | 26,193 | | | $ | 0 | | | $ | 102,042 | |
| | | | | | | |
| Liabilities | | | | | | | |
Derivative instruments(4) | $ | 0 | | | $ | 3,575 | | | $ | 0 | | | $ | 3,575 | |
| Total liabilities measured at fair value | $ | 0 | | | $ | 3,575 | | | $ | 0 | | | $ | 3,575 | |
(1)The Company’s corporate money market fundsarereadily convertible into cashand the net asset value of each fund on the last day of the quarter is used to determine its fair value. As such, the Company’s corporate money market funds are classified as Level 1 assets and included in Cash and cash equivalents withinthe Consolidated BalanceSheets.
(2)The Company’s mutual funds have a fair value based on the fair value of the underlying investments held by the mutual funds, allocated to each share of the mutual fund using a net asset value approach. The fair value of the underlying investments is based on observable inputs. As such, the Company’s mutual funds are classified as Level 2 and are classified asInvestments (short-term) on the Consolidated Balance Sheets.
(3)The Company’s certificates of deposit held for investment are not debt securitiesand are classified as Level 2 assets. These certificates of deposit have original maturities greater than three months but less than one year and, as such, are classified as Investments (short-term) withintheConsolidated Balance Sheets.
(4)The Company utilizes the income approach to measure fair value for its foreign exchange forward contracts. The income approach uses pricing models that rely on market observable inputs such asspot, forward and interest rates,as well as credit default swap spreads, and are classified as Level 2 assets. To estimate fair value for the interest rate swap agreement, the Company utilizes a present value of future cash flows, leveraging a model-derived valuation that uses Level 2 observable inputs such as interest rate yield curves. Refer to Note 6, Derivative Instruments for more information on the Company's derivative instruments designed as cash flow hedges.
Assets and Liabilities Measured at Fair Value on a
Non-RecurringNon-Recurring BasisCertain assets, including goodwill and intangible assets,
Assets and liabilities
that are measured at fair value on a
non-recurring basis; that is, thenonrecurring basis relate primarily to our tangible fixed assets,
operating lease assets, goodwill and
liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances such as when they are deemed to be other-than-temporarily impaired.intangible assets. The fair values of these non-financial assets and liabilities are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparable
information, and discounted cash flow projections.
AnThe Company reviews goodwill and intangible assets for impairment
charge is recorded whenannually, during the
cost exceeds its fairfourth quarter of each fiscal year, or as circumstances indicate the possibility for impairment. The Company monitors the carrying value
based uponof long-lived assets for impairment whenever events or changes in circumstances indicate the
results of such valuations.carrying amount may not be recoverable. During fiscal
20182020 and
2017,2019, no fair value adjustments or material fair value measurements were required for the Company’s non-financial assets or liabilities.
(c)
Assets and Liabilities Measured at Fair Value for Disclosure Purposes
onlyOnly
As
of each of August 31,
2018,2020 and
2017,2019, the fair value of the Company’s long-term debt was $575.0 million, which approximated its carrying amount given
itsthe application of a floating interest rate
basis. The fair value ofequal to LIBOR plus a spread using a debt leverage pricing grid. As the
Company’sinterest rate is a variable rate, adjusted based on market conditions, it approximates the current market-rate for similar instruments available to companies with comparable credit quality and maturity, and therefore, the long-term debt
was determined based on quoted market prices for debt with a similar maturity, and thusis categorized as Level 2 in the fair value hierarchy.
5.6. DERIVATIVE INSTRUMENTS
Foreign Currency Forward Contracts
FactSet conducts business outside the U.S. in several currencies including thethe British Pound Sterling, Euro, Indian Rupee, Japanese Yen and Philippine Peso. As such, itthe Company is exposed to movements in foreign currency exchange rates compared to the U.S. dollar. The Company utilizes derivative instruments (foreign currency forward contracts) to manage the exposures related to the effects of foreign exchange rate fluctuations and reduce the volatility of earnings and cash flows associated with changes in foreign currency. The Company does not enter into foreign currency forward contracts for trading or speculative purposes. Refer to Note 19, Risks and Concentrations of Credit Risk, for further discussion on counterparty credit risk.
In designing a specific hedging approach, FactSet considered several factors, including offsetting exposures, the significance of exposures, the forecasting of risk and the potential effectiveness of the hedge. The gains and losses on foreign currency forward contracts offset the variability in operating expenses associated with currency movements. The changes in fair value for these foreign currency forward contracts are initially reported as a component of AOCL and subsequently reclassified into operating expenses when the
hedged exposure affects earnings.hedge is settled. There was no discontinuance of cash flow hedges during fiscal
20182020 or
2017,2019, and as such, no corresponding gains or losses related to changes in the value of the Company’s contracts were reclassified into earnings prior to settlement.
As of August 31, 2018,2020, FactSet maintained the following foreign currency forward contracts to hedge a portion of its exposures: | ●
| Philippine Peso – foreign currency forward contracts to hedge approximately 75% of its Philippine Peso exposure through the fourth quarter of fiscal 2020.
|
| ●
| Indian Rupee – foreign currency forward contracts to hedge approximately 75% of its Indian Rupee exposure through the third quarter of fiscal 2019 and 50% of its exposure from the fourth quarter of fiscal 2019 through the end of the second quarter of fiscal 2020.
|
| ●
| Euro – foreign currency forward contracts to hedge approximately 50% of its Euro exposure through the third quarter of fiscal 2019.
|
| ●
| British Pound Sterling – foreign currency forward contracts to hedge approximately 50% of its British Pound Sterling exposure through the third quarter of fiscal 2019.
|
British Pound Sterling, Euro, Indian Rupee, and Philippine Peso exposures. FactSet entered into a series of forward contracts to mitigate its currency exposure ranging from 25% to 75% over their respective hedged periods. The following is a summarycurrent foreign currency forward contracts are set to mature at various points between the
first quarter of all hedging positions and corresponding fair values:fiscal 2021 through the fourth quarter of fiscal 2021. | | | Gross Notional Value | | | Fair Value (Liability) Asset | |
Currency Hedged (in thousands, in U.S. dollars) | | August 31, 2018 | | | August 31, 2017 | | | August 31, 2018 | | | August 31, 2017 | |
Philippine Peso | | $ | 52,000 | | | $ | — | | | $ | (1,230 | ) | | $ | — | |
Indian Rupee | | | 50,780 | | | | 51,000 | | | | (1,490 | ) | | | 6,142 | |
Euro | | | 26,312 | | | | — | | | | (503 | ) | | | — | |
British Pound Sterling | | | 18,995 | | | | — | | | | (723 | ) | | | — | |
Total | | $ | 148,087 | | | $ | 51,000 | | | $ | (3,946 | ) | | $ | 6,142 | |
As of August 31, 2018,2020, the gross notional value of foreign currency forward contracts to purchase Philippine Pesos and Indian Rupees with U.S. dollars was PHP 2.8 billion.₱1.3 billion and Rs1.4 billion, respectively. The gross notional value of foreign currency forward contracts to purchase Indian Rupees with U.S. dollars was Rs. 3.6 billion. The gross notional value of foreign currency forward contracts to purchasewith Euros with U.S. dollars was € 22.0 million. The gross notional value of foreign currency forward contracts to purchaseand British Pound Sterling was €31.8 million and £36.4 million, respectively.
Interest Rate Swap Agreement
On March 5, 2020, FactSet entered into an interest rate swap agreement with U.S. dollars was £14.0 million.Counterpartya notional amount of $287.5 million to hedge the variable interest rate obligation on a portion of its outstanding debt under its 2019 Revolving Credit Risk
Facility (as defined in Note 12,
Debt). As a resultof August 31, 2020, FactSet has borrowed $575.0 million of the useavailable $750.0 million under the 2019 Revolving Credit Facility, which bears interest on the outstanding principal amount at a rate equal to a contractual one month LIBOR plus a spread using a debt leverage pricing grid, which was 0.875% as of derivative instruments,August 31, 2020. The variable interest rate on FactSet’s long-term debt can expose the Company is exposed to counterparty credit risk. FactSet has incorporated counterparty risk intointerest rate volatility arising from changes in LIBOR. Under the fair value of its derivative assets and its own credit risk into the valueterms of the Company’s derivative liabilities, when applicable.interest rate swap agreement, FactSet calculates credit risk from observable data related to credit default swaps (“CDS”) as quoted by publicly available information. Counterparty risk is represented by CDS spreads related to the senior secured debtwill pay interest at a fixed rate of the respective bank with whom FactSet has executed these derivative transactions. As CDS spread information is not available for FactSet, the Company’s credit risk is determined0.7995% and receive variable interest payments based on using a simple average of CDS spreadsthe same one-month LIBOR utilized to calculate the interest expense from the 2019 Revolving Credit Facility. The interest rate swap agreement matures on March 29, 2024. Refer to Note 12, Debt, for peer companies. To mitigate counterparty credit risk, FactSet enters into contractsfurther discussion on the 2019 Revolving Credit Facility. As the terms for the interest rate swap agreement align with large financial institutions and regularly reviews its credit exposure balances as well as the creditworthiness of2019 Revolving Credit Facility, the counterparties. The Company does not expect any losseshedge ineffectiveness. The Company has designated and accounted for this instrument as a resultcash flow hedge with the unrealized gains or losses on the interest rate swap agreement recorded in AOCL in the Consolidated Balance Sheets.
The following is a summary of
defaultthe gross notional values of
its counterparties.the derivative instruments:
| | | | | | | | | | | |
(in thousands, in U.S. dollars) | Gross Notional Value |
| August 31, 2020 | | August 31, 2019 |
| Foreign currency forward contracts | $ | 129,649 | | | $ | 113,700 | |
| Interest rate swap agreement | 287,500 | | | 0 | |
| Total cash flow hedges | $ | 417,149 | | | $ | 113,700 | |
Fair Value of Derivative Instruments
The following
tables provideis a summary of the fair
value amountsvalues of
derivative instruments and gains and losses onthe derivative instruments:
Designation of Derivatives (in thousands) | Balance Sheet Location | | August 31, 2018 | | | August 31, 2017 | | |
Derivatives designated as hedging instruments | Assets: Foreign Currency Forward Contracts | | | | | | | | | |
| | Prepaid expenses and other current assets | | $ | 90 | | | $ | 3,796 | | | | | | | | | | | | | | | | | | | | | |
| | Other assets | | $ | — | | | $ | 2,346 | | | Fair Value of Derivative Instruments |
| | | | | | | | | | | |
| | Liabilities: Foreign Currency Forward Contracts | | | | | | | | | |
| | Accounts payable and accrued expenses | | $ | 1,731 | | | $ | — | | |
| | Deferred rent and other non-current liabilities | | $ | 2,305 | | | $ | — | | |
| Derivatives designated as hedging instruments | | Derivatives designated as hedging instruments | | Derivative Assets | | Derivative Liabilities |
| | August 31, | | August 31, |
| | 2020 | 2019 | | 2020 | 2019 |
| Balance Sheet Classification | Fair Value | Balance Sheet Classification | Fair Value |
| Foreign currency forward contracts | | Foreign currency forward contracts | Prepaid expenses and other current assets | $ | 3,644 | | $ | 520 | | Accounts payable and accrued expenses | $ | 93 | | $ | 3,575 | |
| Interest rate swap agreement | | Interest rate swap agreement | Prepaid expenses and other current assets | 0 | | 0 | | Accounts payable and accrued expenses | 1,861 | | 0 | |
| Other assets | 0 | | 0 | | Other non-current liabilities | 3,819 | | 0 | |
| Total cash flow hedges | | Total cash flow hedges | | $ | 3,644 | | $ | 520 | | | $ | 5,773 | | $ | 3,575 | |
All derivatives were designated as hedging instruments as of August 31,
20182020 and
2017,2019, respectively.
Derivatives in Cash Flow Hedging Relationships
The following table provides the pre-tax effect of derivative instruments in cash flow hedging relationships for the each of the three fiscal years ended August 31,
2018, 20172020, 2019 and
2016:2018:(in thousands) | | (Loss) Gain Recognized in AOCL on Derivatives
(Effective Portion) | | Location of Gain (Loss) Reclassified from AOCL | | Gain (Loss) Reclassified
from AOCL into Income
(Effective Portion) | |
Derivatives in Cash Flow Hedging Relationships | | 2018 | | | 2017 | | | 2016 | | into Income (Effective Portion) | | 2018 | | | 2017 | | | 2016 | |
Foreign currency forward contracts | | $ | (7,700 | ) | | $ | 5,183 | | | $ | (1,806 | ) | SG&A | | $ | 3,106 | | | $ | (2,883 | ) | | $ | (451 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | Gain (Loss) Recognized
in AOCL on Derivatives
(Effective Portion) | Location of (Loss) Gain Reclassified
from AOCL
into Income
(Effective Portion) | (Loss) Gain Reclassified
from AOCL into Income
(Effective Portion) |
| Derivatives in Cash Flow Hedging Relationships | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 |
| Foreign currency forward contracts | $ | 5,049 | | $ | (187) | | $ | (7,700) | | SG&A | $ | (1,556) | | $ | (1,794) | | $ | 3,106 | |
| Interest rate swap agreement | $ | (6,138) | | $ | 0 | | $ | 0 | | Interest expense, net | $ | (458) | | $ | 0 | | $ | 0 | |
| Total cash flow hedges | $ | (1,089) | | $ | (187) | | $ | (7,700) | | | $ | (2,014) | | $ | (1,794) | | $ | 3,106 | |
As of August 31, 2020, the Company assessed that these cash flow hedges were effective. Foreign currency forward contract gains and losses are recorded in the Consolidated Statement of Income in Selling, general, and administrative ("SG&A"). The gain or loss from the interest rate swap agreement is recorded in the Consolidated Statement of Income in Interest expense, net.
As of August 31, 2020, the Company estimates that net pre-tax derivative gains of $1.7 million included in AOCL will be reclassified into earnings within the next 12 months. No amount of ineffectiveness was recorded in the Consolidated Statements of Income for these designated cash flow hedges and all components of each derivative’s gain or loss waswere included in the assessment of hedge effectiveness. As of August 31, 2018, FactSet estimates that $1.6 million of net derivative losses related to its cash flow hedges included in AOCL will be reclassified into earnings within the next 12 months. Offsetting of Derivative Instruments
FactSet’s master netting and other similar arrangements with its respective counterparties allow for net settlement under certain conditions. As of August 31, 20182020 and 2017,2019, there were no material amounts recorded net settlements recorded on the Consolidated Balance Sheets.
6. OTHER COMPREHENSIVE (LOSS) INCOME
7. PROPERTY, EQUIPMENT AND
ACCUMULATED OTHER COMPREHENSIVE LOSSThe componentsLEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consist of other comprehensive (loss) income during the following:
| | | | | | | | | | | |
| (in thousands) | August 31, |
| 2020 | | 2019 |
| Leasehold improvements | $ | 182,899 | | | $ | 155,520 | |
| Computers and related equipment | 127,794 | | | 129,549 | |
| Furniture and fixtures | 56,269 | | | 48,986 | |
| Subtotal | $ | 366,962 | | | $ | 334,055 | |
| Less accumulated depreciation and amortization | (233,860) | | | (214,671) | |
| Property, equipment and leasehold improvements, net | $ | 133,102 | | | $ | 119,384 | |
Depreciation expense was $32.2 million, $35.4 million and $32.6 million for fiscal years
ended August 31,2020, 2019 and 2018,
2017 and 2016 are as follows:| | | August 31, 2018 | | | August 31, 2017 | | | August 31, 2016 | |
(in thousands) | | Pre-tax | | | Net of tax | | | Pre-tax | | | Net of tax | | | Pre-tax | | | Net of tax | |
Foreign currency translation adjustments | | $ | (9,431 | ) | | $ | (9,431 | ) | | $ | 28,816 | | | $ | 28,816 | | | $ | (23,644 | ) | | $ | (23,644 | ) |
Realized (gain) loss on cash flow hedges reclassified to earnings (1) | | | (3,106 | ) | | | (2,128 | ) | | | 2,883 | | | | 1,813 | | | | 451 | | | | 284 | |
Unrealized (loss) gain on cash flow hedges recognized in AOCL | | | (7,700 | ) | | | (5,160 | ) | | | 5,183 | | | | 3,204 | | | | (1,806 | ) | | | (1,141 | ) |
Other comprehensive income (loss) | | $ | (20,237 | ) | | $ | (16,719 | ) | | $ | 36,882 | | | $ | 33,833 | | | $ | (24,999 | ) | | $ | (24,501 | ) |
| (1)
| Reclassified to Selling, General and Administrative Expenses
|
The components of AOCL are as follows:
(in thousands) | | August 31, 2018 | | | August 31, 2017 | |
Accumulated unrealized (gain) losses on cash flow hedges, net of tax | | $ | (3,486 | ) | | $ | 3,802 | |
Accumulated foreign currency translation adjustments | | | (47,953 | ) | | | (38,522 | ) |
Total accumulated other comprehensive loss | | $ | (51,439 | ) | | $ | (34,720 | ) |
7. SEGMENT INFORMATION
Operating segments are defined as (i) componentsTable of an enterprise that engage in business activities from which they may earn revenue and incur expense, (ii) with operating results are regularly reviewed by the enterprise’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and (iii) for which discrete financial information is available. Executive management, along with the CEO, constitute FactSet’s chief operating decision making group (“CODMG”). Executive management consists of certain executives who directly report to the CEO, consisting of the Chief Financial Officer, Chief Technology and Product Officer, Global Head of Sales and Client Solutions, General Counsel, Chief Human Resources Officer and Head of Analytics & Trading. The CODMG reviews financial information at the operating segment level and is responsible for making decisions about resources allocated amongst the operating segments based on actual results.
FactSet’s operating segments are aligned with how the Company, including its CODMG, manages the business and the demographic markets in which FactSet serves. The Company’s internal financial reporting structure is based on three segments; the U.S., Europe and Asia Pacific. FactSet believes this alignment helps it better manage the business and view the markets the Company serves, which are centered on providing integrated global financial and economic information. The primary functional groups within the U.S., Europe and Asia Pacific segments include sales, consulting, data collection, product development and software engineering, which provide global financial and economic information to investment managers, investment banks and other financial services professionals.
The U.S. segment services investment professionals including financial institutions throughout the Americas. The European and Asia Pacific segments service investment professionals located throughout Europe and Asia Pacific, respectively. Segment revenues reflect direct sales to clients based in their respective geographic locations. Each segment records compensation expense, including stock-based compensation, amortization of intangible assets, depreciation of furniture and fixtures, amortization of leasehold improvements, communication costs, professional fees, rent expense, travel, office and other direct expenses.
Expenditures associated with the Company’s data centers, third-party data costs and corporate headquarters charges are recorded by the U.S. segment and are not allocated to the other segments. The content collection centers located in India and the Philippines benefit all the Company’s operating segments and thus the expenses incurred at these locations are allocated to each segment based on a percentage of revenues. Of the total $701.8 million of goodwill reported by the Company at August 31, 2018, 54% was recorded in the U.S. segment, 45% in the European segment and the remaining 1% in the Asia Pacific segment.
The following reflects the results of operations of the segments consistent with the Company’s management system. These results are used, in part, by management, both in evaluating the performance of, and in allocating resources to, each of the segments.
(in thousands) Year Ended August 31, 2018 | | U.S. | | | Europe | | | Asia Pacific | | | Total | |
Revenues from clients | | $ | 841,908 | | | $ | 387,589 | | | $ | 120,648 | | | $ | 1,350,145 | |
Segment operating profit | | | 148,095 | | | | 148,977 | | | | 69,132 | | | | 366,204 | |
Total assets | | | 724,259 | | | | 585,497 | | | | 109,692 | | | | 1,419,448 | |
Depreciation and amortization | | | 37,453 | | | | 15,710 | | | | 4,122 | | | | 57,285 | |
Stock-based compensation | | | 26,014 | | | | 4,857 | | | | 645 | | | | 31,516 | |
Capital expenditures | | | 20,358 | | | | 3,140 | | | | 10,022 | | | | 33,520 | |
Year Ended August 31, 2017 | | U.S. | | | Europe | | | Asia Pacific | | | Total | |
Revenues from clients | | $ | 784,146 | | | $ | 330,332 | | | $ | 106,701 | | | $ | 1,221,179 | |
Segment operating profit | | | 137,104 | | | | 153,676 | | | | 61,355 | | | | 352,135 | |
Total assets | | | 703,941 | | | | 609,368 | | | | 100,006 | | | | 1,413,315 | |
Depreciation and amortization | | | 35,244 | | | | 9,837 | | | | 3,213 | | | | 48,294 | |
Stock-based compensation | | | 30,247 | | | | 3,320 | | | | 616 | | | | 34,183 | |
Capital expenditures | | | 29,561 | | | | 2,385 | | | | 4,916 | | | | 36,862 | |
Year Ended August 31, 2016 | | U.S. | | | Europe | | | Asia Pacific | | | Total | |
Revenues from clients | | $ | 755,492 | | | $ | 277,682 | | | $ | 93,918 | | | $ | 1,127,092 | |
Segment operating profit | | | 165,251 | | | | 131,410 | | | | 53,015 | | | | 349,676 | |
Total assets | | | 654,796 | | | | 279,864 | | | | 84,501 | | | | 1,019,161 | |
Depreciation and amortization | | | 31,529 | | | | 4,220 | | | | 2,303 | | | | 38,052 | |
Stock-based compensation | | | 25,776 | | | | 3,459 | | | | 558 | | | | 29,793 | |
Capital expenditures | | | 38,631 | | | | 4,092 | | | | 5,017 | | | | 47,740 | |
GEOGRAPHIC INFORMATION - The following table sets forth information for those countries that are 10% or more of revenues:
| | | Years ended August 31, | |
(in thousands) | | 2018 | | | 2017 | | | 2016 | |
Revenues(1) | | | | | | | | | | | | |
United States | | $ | 841,908 | | | $ | 784,146 | | | $ | 755,492 | |
United Kingdom | | | 332,006 | | | | 163,732 | | | | 154,902 | |
All other European countries | | | 55,583 | | | | 166,600 | | | | 122,780 | |
Asia Pacific | | | 120,648 | | | | 106,701 | | | | 93,918 | |
Total revenues | | $ | 1,350,145 | | | $ | 1,221,179 | | | $ | 1,127,092 | |
| (1)
| Revenues are attributed to countries based on the location of the client.
|
The following table sets forth long-lived assets by geographic area:
| | | At August 31, | |
(in thousands) | | 2018 | | | 2017 | | | 2016 | |
Long-lived Assets(1) | | | | | | | | | | | | |
United States | | $ | 74,792 | | | $ | 79,299 | | | $ | 70,646 | |
United Kingdom | | | 5,806 | | | | 6,012 | | | | 5,772 | |
All other European countries | | | 5,774 | | | | 6,306 | | | | 1,018 | |
Asia Pacific | | | 14,173 | | | | 8,837 | | | | 7,186 | |
Total long-lived assets | | $ | 100,545 | | | $ | 100,454 | �� | | $ | 84,622 | |
| (1)
| Long-lived assets consist of property, equipment and leasehold improvements, net of accumulated depreciation and amortization and exclude goodwill, intangible assets, deferred taxes and other assets.
|
8. BUSINESS COMBINATIONS
BISAM
On March 17, 2017, FactSet acquired BI-SAM Technologies (“BISAM”) for a total purchase price of $217.6 million. BISAM is a global provider of portfolio performance and attribution, multi-asset risk, GIPS composites management and reporting. BISAM’s product offerings include B-One, BISAM’s cross-asset solution, which will serve as a complement to both FactSet’s portfolio analytics suite and client reporting solutions, and Cognity, which enhances FactSet’s risk analysis for derivatives and quantitative portfolio construction. These factors contributed to a purchase price in excess of fair value of BISAM’s net tangible and intangible assets, leading to the recognition of goodwill. At the time of acquisition, BISAM employed over 160 employees based primarily in its New York, Boston, Paris, London and Sofia offices. Total transaction costs of $3.2 million were recorded within Selling, General and Administrative (“SG&A”) expenses in the Consolidated Statements of Income during fiscal 2017.
The total purchase price was allocated to BISAM’s net tangible and intangible assets based upon their estimated fair value as of the date of acquisition. Based upon the purchase price and the valuation, the allocation is as follows:
(in thousands) | |
Tangible assets acquired | | $ | 27,583 | |
Amortizable intangible assets | | | | |
Software technology | | | 18,261 | |
Client relationships | | | 37,597 | |
Trade name | | | 741 | |
Goodwill | | | 173,898 | |
Total assets acquired | | $ | 258,080 | |
Liabilities assumed | | | (40,443 | ) |
Net assets acquired | | $ | 217,637 | |
Intangible assets of $56.6 million have been allocated to amortizable intangible assets consisting of client relationships, amortized over 16 years using an accelerated amortization method; software technology, amortized over five years using a straight-line amortization method; and a trade name, amortized over four years using a straight-line amortization method.
Goodwill totaling $173.9 million represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. Goodwill generated from the BISAM acquisition is included in the US and European segments and is not deductible for income tax purposes. The results of operations of BISAM have been included in the Company’s Consolidated Statements of Income since the completion of the acquisition on March 17, 2017. Pro forma information has not been presented because the effect of the BISAM acquisition is not material to the Company’s consolidated financial results.
Vermilion
On November 8, 2016, FactSet acquired Vermilion Holdings Limited (“Vermilion”) for a total purchase price of $67.9 million. Vermilion is a global provider of client reporting and communications software and services to the financial services industry. Client reporting is a growing area of the market as regulatory requirements rise and with the acquisition of Vermilion and its Vermilion Reporting Suite (“VRS”), FactSet now offers a workflow around all elements of the client reporting process, which it expects will expand as investors grow increasingly sophisticated. This factor contributed to a purchase price in excess of fair value of Vermilion’s net tangible and intangible assets, leading to the recognition of goodwill. At the time of acquisition, Vermilion employed 59 individuals in its London, Boston and Singapore offices. Total transaction costs related to the acquisition were $0.7 million in fiscal 2017 and recorded within SG&A expenses in the Consolidated Statements of Income during fiscal 2017.
The total purchase price was allocated to Vermilion’s net tangible and intangible assets based upon their estimated fair value as of the date of acquisition. Based upon the purchase price and the valuation, the allocation is as follows:
(in thousands) | |
Tangible assets acquired | | $ | 7,916 | |
Amortizable intangible assets | | | | |
Software technology | | | 10,916 | |
Client relationships | | | 5,954 | |
Non-compete agreements | | | 806 | |
Trade name | | | 571 | |
Goodwill | | | 51,157 | |
Total assets acquired | | $ | 77,320 | |
Liabilities assumed | | | (9,434 | ) |
Net assets acquired | | $ | 67,886 | |
Intangible assets of $18.2 million have been allocated to amortizable intangible assets consisting of client relationships, amortized over 15 years using an accelerated amortization method; software technology, amortized over six years using a straight-line amortization method; non-compete agreements, amortized over three years using a straight-line amortization method; and a trade name, amortized over four years using a straight-line amortization method.
Goodwill totaling $51.2 million represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. Goodwill generated from the Vermilion acquisition is included in the European segment and is not deductible for income tax purposes. The results of operations of Vermilion have been included in the Company’s Consolidated Statements of Income since the completion of the acquisition on November 8, 2016. Pro forma information has not been presented because the effect of the Vermilion acquisition is not material to the Company’s consolidated financial results.
Portware LLC
On October 16, 2015, FactSet acquired Portware LLC (“Portware”) for a total purchase price of $263.6 million. At the time of acquisition, Portware employed 166 individuals in its New York, London, Hong Kong, and Hyderabad, India offices. Portware is a global provider of multi-asset trade automation solutions for mega and large asset managers. With the acquisition of Portware, FactSet now offers a platform that it expects will increase value to global asset managers by expanding its capabilities to include multi-asset trade automation. This factor contributed to a purchase price in excess of fair value of Portware’s net tangible and intangible assets, leading to the recognition of goodwill. Total transaction costs related to the acquisition were $0.7 million for the year ended August 31, 2016. These transaction expenses were recorded within SG&A expenses in the Consolidated Statements of Income.
The total purchase price was allocated to Portware’s net tangible and intangible assets based upon their estimated fair value as of the date of acquisition. Based upon the purchase price and the valuation, the allocation is as follows:
(in thousands) | |
Tangible assets acquired | | $ | 9,656 | |
Amortizable intangible assets | | | | |
Software technology | | | 43,000 | |
Client relationships | | | 27,000 | |
Non-compete agreements | | | 3,500 | |
Trade name | | | 2,000 | |
Goodwill | | | 187,378 | |
Total assets acquired | | $ | 272,534 | |
Liabilities assumed | | | (8,951 | ) |
Net assets acquired | | $ | 263,583 | |
Intangible assets of $75.5 million have been allocated to amortizable intangible assets consisting of client relationships, amortized over 16 years using an accelerated amortization method; software technology, amortized over eight years using a straight-line amortization method; non-compete agreements, amortized over seven years using a straight-line amortization method; and a trade name, amortized over five years using a straight-line amortization method.
Goodwill totaling $187.4 million represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and is included in the U.S. segment. Approximately 77% of the total goodwill generated from the Portware acquisition is deductible for income tax purposes. The results of operations of Portware have been included in the Company’s Consolidated Statements of Income since the completion of the acquisition on October 16, 2015. Pro forma information has not been presented because the effect of the Portware acquisition is not material to the Company’s consolidated financial results.
9. DISPOSITIONS
During the third quarter of fiscal 2016, the Company entered into a definitive stock purchase agreement (the “Purchase Agreement”) pursuant to which the Company agreed to sell its market research business, consisting of Market Metrics LLC and Matrix-Data Limited (collectively “Market Metrics” or the “disposal group”) and associated assets (the “Transaction”). On July 1, 2016, FactSet completed the Transaction and received $165.0 million in cash, less estimated working capital and certain adjustments set forth in the Purchase Agreement, including a $9.7 million bonus adjustment amount. The Company recognized a pre-tax gain on the sale of $112.5 million in fourth quarter of fiscal 2016, which is recorded within other (expense)income in the Consolidated Statements of Income. In the second quarter of fiscal 2017, the Company finalized the working capital adjustment and recognized a pre-tax loss of $1.2 million within other (expense)income in the Consolidated Statements of Income.
The Company assessed the Transaction and the disposal group and determined that the sale does not represent a strategic shift in its business that has a major effect on its consolidated results of operations, financial position or cash flows. Accordingly, the disposal group is not presented in the consolidated financial statements as a discontinued operation. The results of the disposal group through the date the Transaction closed are reported within the U.S. segment (for Market Metrics LLC) and the European segment (for Matrix-Data Limited).
8. GOODWILL
10. GOODWILL
Changes in the carrying amount of goodwill by segment for fiscal years ended August 31, 20182020 and 20172019 are as follows:
| (in thousands) | | U.S. | | | Europe | | | Asia Pacific | | | Total | | (in thousands) | Americas | | EMEA | | Asia Pacific | | Total |
Balance at August 31, 2016 | | $ | 367,480 | | | $ | 82,280 | | | $ | 3,155 | | | $ | 452,915 | | |
Acquisitions and other adjustments | | | 19,355 | | | | 216,047 | | | | — | | | | 235,402 | | |
| Balance at August 31, 2018 | | Balance at August 31, 2018 | $ | 386,195 | | | $ | 312,694 | | | $ | 2,944 | | | $ | 701,833 | |
Foreign currency translations | | | — | | | | 19,432 | | | | (189 | ) | | | 19,243 | | Foreign currency translations | 0 | | | (16,235) | | | 131 | | | (16,104) | |
Balance at August 31, 2017 | | $ | 386,835 | | | $ | 317,759 | | | $ | 2,966 | | | $ | 707,560 | | |
Acquisitions and other adjustments | | | (640 | ) | | | (1,562 | ) | | | — | | | | (2,202 | ) | |
| Balance at August 31, 2019 | | Balance at August 31, 2019 | $ | 386,195 | | | $ | 296,459 | | | $ | 3,075 | | | $ | 685,729 | |
Foreign currency translations | | | — | | | | (3,503 | ) | | | (22 | ) | | | (3,525 | ) | Foreign currency translations | 0 | | | 23,968 | | | 6 | | | 23,974 | |
Balance at August 31, 2018 | | $ | 386,195 | | | $ | 312,694 | | | $ | 2,944 | | | $ | 701,833 | | |
| Balance at August 31, 2020 | | Balance at August 31, 2020 | $ | 386,195 | | | $ | 320,427 | | | $ | 3,081 | | | $ | 709,703 | |
Goodwill is not amortized as it is estimated to have an indefinite life. At least annually, the Company is required to test goodwill at the reporting unit level for potential impairment, and, if impaired, write down to fair value based on the present value of discounted cash flows. The Company’s reporting units evaluated for potential impairment were the U.S., EuropeAmericas, EMEA and Asia Pacific, which reflect the level of internal reporting the Company uses to manage its business and operations. The three3 reporting units are consistent with the operating segments reported as there is no discrete financial information available for the subsidiaries within each operating segment. The Company performed its annual goodwill impairment test during the fourth quarter of fiscal 2018,2020, consistent with the timing of previous years. Ityears, utilizing a qualitative analysis, and concluded it was determined that there was no impairment, withmore likely than not the fair value of each of the Company’s reporting units significantly exceedingunit was greater than its respective carrying value. During fiscal 2017 the Company acquired goodwill of $235.4 million representing the excess of the purchase price over the fair value of the net tangible and intangible assets from acquisitions completed in fiscal 2017.
0 impairment charge was required.
FactSet’s identifiable intangible assets consist of acquired content databases, client relationships, acquired software technology, internally developed software, non-compete agreements and trade names resulting from previous acquisitions, which have been fully integrated into the Company’s operations. The weighted average useful life of the Company’s acquired intangible assets at August 31, 2018 was 11.5 years. The Company amortizes intangible assets over their estimated useful lives. Data content intangible assets have estimated useful lives which are evaluated quarterlyranging from five to 20 years. Client relationship intangible assets have estimated useful lives ranging from eight to 18 years. Acquired software technology intangible assets have estimated useful lives ranging from three to nine years. The majority of the developed software technology intangible assets has estimated useful lives ranging from three to five years. Non-compete agreement intangible assets have estimated useful lives ranging from two to four years. Trade name intangible assets have estimated useful lives ranging from four to seven years. The weighted average useful life of the Company’s intangible assets at August 31, 2020 was 11.9 years. The Company evaluates the intangible asset useful lives on an annual basis to determine whether events and circumstances warrant a revision to the remaining period of amortization. There have been no material changes to the estimate of the remaining useful lives during fiscal years 2018, 20172020, 2019 and 2016. Amortizable2018.
The Company assesses the intangible assets for indicators of impairment on a quarterly basis. If indicators of impairment are present, amortizable intangible assets are tested for impairment
if indicators are present, based onby comparing the carrying value to undiscounted cash flows and, if impaired, written down to fair value based on discounted cash flows.
NoNaN impairment of intangible assets has been identified during any of the periods presented. The intangible assets have no assigned residual values.
During fiscal 2017, $93.2 million of intangible assets were acquired with a weighted average useful life of 11.5 years.
The gross carrying amounts and accumulated amortization totals related to the Company’s identifiable intangible assets are as follows:
At August 31, 2018 (in thousands) | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | | |
| | At August 31, 2020 (in thousands) | | At August 31, 2020 (in thousands) | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Data content | | $ | 33,992 | | | $ | 20,990 | | | $ | 13,002 | | Data content | $ | 35,872 | | | $ | 24,847 | | | $ | 11,025 | |
Client relationships | | | 98,882 | | | | 29,387 | | | | 69,495 | | Client relationships | 100,316 | | | 43,026 | | | 57,290 | |
Software technology | | | 106,505 | | | | 44,231 | | | | 62,274 | | |
| Acquired software technology | | Acquired software technology | 108,384 | | | 72,396 | | | 35,988 | |
| Internally developed software | | Internally developed software | 30,276 | | | 13,689 | | | 16,587 | |
Non-compete agreements | | | 4,840 | | | | 2,381 | | | | 2,459 | | Non-compete agreements | 1,388 | | | 1,355 | | | 33 | |
Trade names | | | 4,070 | | | | 2,365 | | | | 1,705 | | Trade names | 4,106 | | | 3,934 | | | 172 | |
Total | | $ | 248,289 | | | $ | 99,354 | | | $ | 148,935 | | Total | $ | 280,342 | | | $ | 159,247 | | | $ | 121,095 | |
At August 31, 2017 (in thousands) | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | |
Data content | | $ | 34,116 | | | $ | 18,899 | | | $ | 15,217 | |
Client relationships | | | 99,779 | | | | 22,339 | | | | 77,440 | |
Software technology | | | 105,963 | | | | 30,889 | | | | 75,074 | |
Non-compete agreements | | | 4,833 | | | | 1,518 | | | | 3,315 | |
Trade names | | | 4,080 | | | | 1,583 | | | | 2,497 | |
Total | | $ | 248,771 | | | $ | 75,228 | | | $ | 173,543 | |
| | | | | | | | | | | | | | | | | |
| At August 31, 2019 (in thousands) | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Data content | $ | 32,200 | | | $ | 21,512 | | | $ | 10,688 | |
| Client relationships | 95,905 | | | 35,506 | | | 60,399 | |
| Acquired software technology | 105,426 | | | 56,965 | | | 48,461 | |
| Internally developed software | 14,262 | | | 10,365 | | | 3,897 | |
| Non-compete agreements | 1,311 | | | 1,228 | | | 83 | |
| Trade names | 3,994 | | | 3,074 | | | 920 | |
| Total | $ | 253,098 | | | $ | 128,650 | | | $ | 124,448 | |
Amortization expense recorded for intangible assets during fiscal years
2020, 2019 and 2018
2017 and 2016 was
$24.7$25.4 million,
$19.9$25.1 million and
$14.8$24.7 million, respectively. As of August 31,
2018,2020, estimated intangible asset amortization expense for each of the next five years and thereafter are as follows:
| Fiscal Year (in thousands) | | Estimated Amortization Expense | | Fiscal Year (in thousands) | Estimated Amortization Expense |
2019 | | $ | 23,940 | | |
2020 | | | 23,192 | | |
2021 | | | 21,284 | | 2021 | $ | 26,939 | |
2022 | | | 18,718 | | 2022 | 24,133 | |
2023 | | | 13,890 | | 2023 | 18,092 | |
| 2024 | | 2024 | 10,389 | |
| 2025 | | 2025 | 7,712 | |
Thereafter | | | 47,911 | | Thereafter | 33,830 | |
Total | | $ | 148,935 | | Total | $ | 121,095 | |
10. INCOME TAXES
Income tax expense is based on taxable income determined in accordance with current enacted laws and tax rates. Deferred income taxes are recorded for the temporary differences between the financial statement and tax bases of assets and liabilities using currently enacted tax rates.
Provision for Income Taxes
The provision for income taxes is as follows:
| | | | | | | | | | | | | | | | | |
| (in thousands) | Years ended August 31, |
| 2020 | | 2019 | | 2018 |
| U.S. operations | $ | 280,283 | | | $ | 288,860 | | | $ | 199,654 | |
| Non-U.S. operations | 146,851 | | | 133,105 | | | 152,184 | |
| Income before income taxes | $ | 427,134 | | | $ | 421,965 | | | $ | 351,838 | |
| | | | | |
| U.S. operations | $ | 31,926 | | | $ | 55,824 | | | $ | 65,778 | |
| Non-U.S. operations | 22,270 | | | 13,351 | | | 18,975 | |
| Total provision for income taxes | $ | 54,196 | | | $ | 69,175 | | | $ | 84,753 | |
| | | | | |
| Effective tax rate | 12.7 | % | | 16.4 | % | | 24.1 | % |
12. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvementsThe components of the provision for income taxes consist of the following:
| | | August 31, | |
| (in thousands) | | 2018 | | | 2017 | |
Leasehold improvements | | $ | 119,479 | | | $ | 113,760 | |
Computers and related equipment | | | 181,623 | | | | 138,195 | |
Furniture and fixtures | | | 44,699 | | | | 42,532 | |
Subtotal | | $ | 345,801 | | | $ | 294,487 | |
Less accumulated depreciation and amortization | | | (245,256 | ) | | | (194,033 | ) |
Property, equipment and leasehold improvements, net | | $ | 100,545 | | | $ | 100,454 | |
| | | | | | | | | | | | | | | | | |
| (in thousands) | Years ended August 31, |
| 2020 | | 2019 | | 2018 |
| Current | | | | | |
| U.S. federal | $ | 9,332 | | | $ | 35,688 | | | $ | 58,835 | |
| U.S. state and local | 8,034 | | | 18,389 | | | 5,159 | |
| Non-U.S. | 27,640 | | | 17,376 | | | 22,669 | |
| Total current taxes | $ | 45,006 | | | $ | 71,453 | | | $ | 86,663 | |
| | | | | |
| Deferred | | | | | |
| U.S. federal | $ | 11,896 | | | $ | 1,813 | | | $ | 2,079 | |
| U.S. state and local | 2,665 | | | (217) | | | (295) | |
| Non-U.S. | (5,371) | | | (3,874) | | | (3,694) | |
| Total deferred taxes | $ | 9,190 | | | $ | (2,278) | | | $ | (1,910) | |
| Total provision for income taxes | $ | 54,196 | | | $ | 69,175 | | | $ | 84,753 | |
Depreciation
The Company’s effective tax rate will vary based on, among other things, changes in levels of foreign income, as well as discrete and other nonrecurring events that may not be predictable. The provision for income taxes differs from the amount of income tax determined by applying the U.S. statutory federal income tax rate to income before income taxes as a result of the following recurring factors and nonrecurring events, including the taxation of foreign income:
| | | | | | | | | | | | | | | | | | | | |
| | Years ended August 31, | |
| (expressed as a percentage of income before income taxes) | 2020 | | 2019 | | 2018 | |
| Tax at U.S. Federal statutory tax rate | 21.0 | % | | 21.0 | % | | 25.7 | % | |
| Increase (decrease) in taxes resulting from: | | | | | | |
| State and local taxes, net of U.S. federal income tax benefit | 3.1 | | | 4.0 | | | 2.9 | | |
| Foreign income at other than U.S. rates | (1.4) | | | (1.4) | | | (3.2) | |
|
| Foreign derived intangible income ("FDII") deduction | (1.8) | | | (1.7) | | | 0 | | |
| Domestic production activities deduction | 0 | | | 0 | | | (1.6) | | |
| Income tax benefits from R&D tax credits | (3.8) | | | (3.5) | | | (3.7) | | |
| Share-based payments | (3.7) | | | (3.2) | | | (2.7) | | |
| One-time transition tax from TCJA | 0 | | | (0.4) | | (1) | 6.6 | | (1) |
| Other, net | (0.7) | | | 1.6 | | | 0.1 | | |
| Effective tax rate | 12.7 | % | | 16.4 | % | | 24.1 | % | |
1.The enactment of the TCJA resulted in a one-time transition tax expense of $23.2 million during fiscal 2018 and a $3.4 million net benefit revision recorded during fiscal 2019 associated with finalizing the accounting for the tax effects of the TCJA during fiscal 2019.
The fiscal 2020 provision for income taxes was $32.6$54.2 million, $28.0compared to $69.2 million in fiscal 2019, a decrease of 21.7%. The decrease was primarily due to a lower effective tax rate in fiscal 2020 compared to the prior year period, driven mainly by higher research and $23.3development ("R&D") tax credits and a higher FDII deduction. The decrease was also driven by a reduction from finalizing prior year tax returns, which resulted in a benefit of $3.7 million from finalizing prior year tax returns in fiscal 2020 compared to an increase to the provision of $7.7 million in fiscal 2019. Additionally, the decrease in the provision was attributed to $1.9 million in higher windfall tax benefits from stock-based compensation for fiscal years 2018, 20172020 compared to fiscal 2019, partially offset by a $3.4 million income tax benefit from the revision of the one-time transition tax permitted by the TCJA recognized during fiscal 2019.
Due to the changes in taxation of undistributed foreign earnings under the TCJA, FactSet will continue to analyze foreign subsidiary earnings, as well as global working capital requirements, and 2016, respectively.
may repatriate earnings when the amounts are remitted substantially free of additional tax.
13. COMMON STOCK AND EARNINGS PER SHARE
On May 7, 2018, FactSet’s BoardDeferred Tax Assets and Liabilities
The significant components of Directors approveddeferred tax assets that recorded within the Consolidated Balance Sheets were as follows:
| | | | | | | | | | | |
| (in thousands) | At August 31, |
| 2020 | | 2019 |
| Deferred tax assets: | | | |
| Depreciation on property, equipment and leasehold improvements | $ | 0 | | | $ | 2,264 | |
| Deferred rent | 0 | | | 9,479 | |
| Lease liabilities | 56,280 | | | 0 | |
| Stock-based compensation | 16,341 | | | 14,822 | |
| Unrealized tax loss on investment | 4,172 | | | 0 | |
| Other | 8,840 | | | 9,903 | |
| Total deferred tax assets | $ | 85,633 | | | $ | 36,468 | |
The significant components of deferred tax liabilities recorded within the Consolidated Balance Sheets were as follows:
| | | | | | | | | | | |
| (in thousands) | At August 31, |
| 2020 | | 2019 |
| Deferred tax liabilities: | | | |
| Depreciation on property, equipment and leasehold improvements | $ | 15,291 | | | $ | 0 | |
| Purchased intangible assets, including acquired technology | 43,088 | | | 44,304 | |
| Lease right-of-use assets | 45,344 | | | 0 | |
| Other | 1,623 | | | 984 | |
| Total deferred tax liabilities | $ | 105,346 | | | $ | 45,288 | |
Unrecognized Tax Positions
Applicable accounting guidance prescribes a 14.3% increasecomprehensive model for the financial statement recognition, measurement, classification and disclosure of uncertain tax positions that a company has taken or expects to take on a tax return. FactSet recognizes the financial effect of an income tax position only if it is more likely than not (greater than 50%) that the tax position will be sustained based on its technical merits of the tax position. Otherwise, no benefit or expense can be recognized in the regular quarterly dividendConsolidated Financial Statements. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon effective settlement with a taxing authority. Additionally, FactSet accrues interest on all tax exposures for which reserves have been established consistent with jurisdictional tax laws.
The determination of liabilities related to unrecognizedtaxbenefits, including associated interest and penalties, requires significant estimates. There can be no assurance that the Company will accurately predict the audit outcomes, however, FactSet has no reason to believe that such audits will result in the payment of additional taxes and/or penalties that would have a material adverse effect on the Company’s results of operations or financial position, beyond current estimates. For this reason and due to ongoing audits by multiple tax authorities, FactSet will regularly engage in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. The Company adjusts these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made. The Company does not currently anticipate that the total amounts of unrecognized tax benefits will significantly change within the next 12 months.
FactSet classifies the liability for unrecognized tax benefits as Taxes Payable (non-current) and to the extent that the Company anticipates payment of cash within one year, the benefit will be classified as Taxes Payable (current). Additionally, the Company accrues interest on all tax exposures for which reserves have been established consistent with jurisdictional tax laws. This interest is classified as income tax expense in the financial statements. As of August 31, 2020, FactSet had gross unrecognized tax benefits totaling $12.3 million, including $0.9 million of accrued interest, recorded as Taxes Payable (non-current) within the Consolidated Balance Sheets.
The following table summarizes the changes in the balance of gross unrecognized tax benefits:
| | | | | |
| (in thousands) | |
| Unrecognized income tax benefits at August 31, 2017 | $ | 11,484 | |
| Additions based on tax positions related to the current year | 2,954 | |
| Additions for tax positions of prior years | 531 | |
| Statute of limitations lapse | (3,146) | |
| Reductions from settlements with Taxing Authorities | (2,600) | |
| Unrecognized income tax benefits at August 31, 2018 | $ | 9,223 | |
| Additions based on tax positions related to the current year | 3,133 | |
| Additions for tax positions of prior years | 507 | |
| Statute of limitations lapse | (1,979) | |
| Unrecognized income tax benefits at August 31, 2019 | $ | 10,884 | |
| Additions based on tax positions related to the current year | 3,533 | |
| Release for tax positions of prior years | (2,086) | |
| Unrecognized income tax benefits at August 31, 2020 | $ | 12,331 | |
In the normal course of business, the Company’s tax filings are subject to audit by federal, state and foreign tax authorities. At August 31, 2020, the Company remained subject to examination in the following major tax jurisdictions for the tax years as indicated below:
| | | | | | | | | | | |
| Major Tax Jurisdictions | Open Tax Years |
| U.S. | | | |
| Federal | 2017 | through | 2019 |
| State (various) | 2017 | through | 2019 |
| | | |
| Europe | | | |
| United Kingdom | 2018 | through | 2019 |
| France | 2018 | through | 2019 |
| Germany | 2017 | through | 2019 |
11. LEASES
In February 2016, the FASB issued an accounting standard update related to accounting for leases. The update requires the recognition of lease ROU assets and lease liabilities on the balance sheet and the disclosure of qualitative and quantitative information about leasing arrangements. FactSet adopted the standard, ASC 842, as of September 1, 2019, using a modified retrospective approach to record the required cumulative effect adjustments to the opening balance sheet in the period of adoption.
FactSet reviews new arrangements at inception to evaluate whether the Company obtains substantially all the economic benefits of and has the right to control the use of an asset. If FactSet determines that an arrangement qualifies as a lease, a lease liability and a corresponding lease ROU asset are recognized on the lease commencement date which includes fixed lease payments and certain qualifying index-based variable payments.
In determining the amount of lease payments used in measuring each lease ROU asset and lease liability, FactSet elected the package of practical expedients permitted under the transition guidance, which permits the Company not to reassess under the new standard the prior conclusions about lease identification, lease classification, and initial direct costs. FactSet did not elect the use-of-hindsight practical expedient in determining the lease term and in assessing impairment. FactSet elected the practical expedient not to separate lease components from
$0.56non-lease components but, rather, to
$0.64 per share.Sharescombine them into one single lease component, which we recognize over the expected lease term on a straight-line expense basis in occupancy costs (a component of common stock outstanding were as follows:
SG&A expense). The Company has also elected to apply the short-term lease exception to not recognize lease ROU assets and lease liabilities for leases with a term of 12 months or less. FactSet will recognize these lease payments on a straight-line basis over the lease term in occupancy costs. | | | Years ended August 31, | |
(in thousands) | | 2018 | | | 2017 | | | 2016 | |
Balance, beginning of year (September 1) | | | 39,023 | | | | 40,038 | | | | 41,317 | |
Common stock issued for employee stock plans | | | 711 | | | | 693 | | | | 823 | |
Repurchase of common stock from employees(1) | | | (8 | ) | | | (50 | ) | | | (28 | ) |
Repurchase of common stock under the share repurchase program | | | (1,534 | ) | | | (1,555 | ) | | | (1,478 | ) |
Repurchase of common stock under accelerated share repurchase agreement | | | — | | | | (103 | ) | | | (596 | ) |
Balance, end of year (August 31) | | | 38,192 | | | | 39,023 | | | | 40,038 | |
| (1)
| For fiscal 2018, 2017 and 2016, the Company repurchased 8,070, 49,771 and 27,625 shares, or $1.5 million, $7.8 million and $4.5 million, of common stock, respectively, in settlement of employee tax withholding obligations due upon the vesting of restricted stock.
|
A reconciliationThe adoption of the weighted average shares outstanding usedlease standard primarily related to the Company’s real estate operating leases. As a result of the adoption of the standard, the Company recognized lease liabilities (initially measured at the present value of the future minimum lease payments over the remaining lease term at the commencement date) of $266.4 million as of November 30, 2019, included in Current and Long-term lease liabilities on the basicConsolidated Balance Sheet. The Company also recognized lease ROU assets, net of amortization (initially measured as the lease liabilities, adjusted for deferred rent and diluted earnings per share (“EPS”) computations islease incentives) of $217.0 million as follows:
(in thousands, except per share data) | | Net Income (Numerator) | | | Weighted Average Common Shares (Denominator) | | | Per Share Amount | |
For the year ended August 31, 2018 | | | | | | | | | | | | |
Basic EPS | | | | | | | | | | | | |
Income available to common stockholders | | $ | 267,085 | | | | 38,733 | | | $ | 6.90 | |
Diluted EPS | | | | | | | | | | | | |
Dilutive effect of stock options and restricted stock | | | | | | | 644 | | | | | |
Income available to common stockholders plus assumed conversions | | $ | 267,085 | | | | 39,377 | | | $ | 6.78 | |
For the year ended August 31, 2017 | | | | | | | | | | | | |
Basic EPS | | | | | | | | | | | | |
Income available to common stockholders | | $ | 258,259 | | | | 39,444 | | | $ | 6.55 | |
Diluted EPS | | | | | | | | | | | | |
Dilutive effect of stock options and restricted stock | | | | | | | 198 | | | | | |
Income available to common stockholders plus assumed conversions | | $ | 258,259 | | | | 39,642 | | | $ | 6.51 | |
For the year ended August 31, 2016 | | | | | | | | | | | | |
Basic EPS | | | | | | | | | | | | |
Income available to common stockholders | | $ | 338,815 | | | | 40,880 | | | $ | 8.29 | |
Diluted EPS | | | | | | | | | | | | |
Dilutive effect of stock options and restricted stock | | | | | | | 485 | | | | | |
Income available to common stockholders plus assumed conversions | | $ | 338,815 | | | | 41,365 | | | $ | 8.19 | |
Dilutive potential common shares consist of stock options and unvested restricted stock awards. There were no stock options excluded fromNovember 30, 2019, included in Lease right-of-use assets, net on the Fiscal 2018 calculation of diluted EPS. There were 704,786 and 507,658 stock options excluded from fiscal 2017 and 2016 calculations of diluted EPS, respectively, because their inclusion would have been anti-dilutive.
Consolidated Balance Sheet. As of August 31, 2020, the Lease right-of-use assets, net balance was $248.9 million and the Current and Long-term lease liabilities balance was $301.3 million, classified in the same Consolidated Balance Sheet accounts used upon adoption.
Lease liabilities are measured as the present value of the future minimum lease payments over the lease term using FactSet’s incremental borrowing rate ("IBR") within the geography where the leased asset is located, as there is no rate implicit in the Company’s operating lease arrangements. As FactSet does not have any outstanding public debt, the Company estimates the IBR based on FactSet’s estimated credit rating and available market information. The IBR is determined at lease commencement, or as of September 1, 2019 for operating leases in existence upon adoption of ASC 842. The IBR is subsequently reassessed upon a modification to the lease arrangement.
As of August 31, 2020, the Company’s leases have remaining terms of less than one year to just over 15 years. The lease ROU assets and lease liabilities recognized did not include any renewal or termination options that were not yet reasonably certain to be exercised.
For fiscal 2019 and 2018, 2017the Company followed ASC 840-10, Leases, which required the recognition of rent expense on a straight-line basis over the lease term. Rent expense for office space, as well as operating expenses associated with the leased premises, primarily related to utilities, real estate taxes, insurance and 2016,maintenance for fiscal 2019 and 2018 was $56.7 million and $54.6 million, respectively. For fiscal 2020, the numberCompany followed ASC 842, and recognized fixed lease payments and qualifying index-based variable payments on a straight-line basis over the lease term, resulting in a net operating lease expense of performance-based stock options excluded$43.0 million for fiscal 2020. FactSet recognized $17.9 million in occupancy costs that were not included in the measurement of the lease liabilities during fiscal 2020, primarily related to variable non-lease costs and leases that qualified for the short-term lease exception. These variable non-lease costs included costs that were not fixed at the lease commencement date nor dependent on an index or a rate, which primarily related to utilities, real estate taxes, insurance and maintenance.
The following table reconciles FactSet’s future undiscounted cash flows related to the Company’s operating leases and the reconciliation to the Current and Long-term lease liabilities as of August 31, 2020:
| | | | | |
(in thousands) | Minimum Lease
Payments |
| Fiscal Years Ended August 31 |
| 2021 | $ | 40,848 | |
| 2022 | 39,958 | |
| 2023 | 36,426 | |
| 2024 | 34,530 | |
| 2025 | 33,742 | |
| Thereafter | 186,658 | |
| Total | 372,162 | |
| Imputed Interest | 70,837 | |
| Present Value | $ | 301,325 | |
FactSet previously entered into a real estate lease in the Philippines, which was planned to commence in phases, providing FactSet with access to the underlying leased rental space during fiscal 2020 and the first quarter of fiscal 2021. The rental space that FactSet has not taken possession of as of August 31, 2020 is not included in the table above nor included in the Lease ROU assets, net and Current and Long-term lease liabilities on the Consolidated Balance Sheets as of August 31, 2020. The overall lease term is approximately 10 years and the undiscounted future rent payments for the lease that has not commenced as of August 31, 2020 is approximately $19 million.
The following table summarizes the Company's lease term and discount rate assumptions related to the operating leases recorded on the Consolidated Balance Sheets as of August 31, 2020:
| | | | | |
| As of August 31, 2020 |
Weighted average remaining lease term (in years) | 10.1 |
Weighted average discount rate (IBR) | 4.2% |
The following table summarizes supplemental cash flow information related to the Company's operating leases:
| | | | | |
(in thousands) | As of August 31, 2020 |
| Cash paid for amounts included in the measurement of lease liabilities | $39.7 |
| Lease ROU assets obtained in exchange for lease liabilities | $43.7 |
12. DEBT
FactSet’s debt obligations consisted of the following:
| | | | | | | | | | | |
| (in thousands) | At August 31, |
| 2020 | | 2019 |
| 2019 Revolving Credit Facility | $ | 575,000 | | | $ | 575,000 | |
| Loan origination fees | $ | (646) | | | (826) | |
| Long-term debt | $ | 574,354 | | | $ | 574,174 | |
2019 Credit Agreement
On March 29, 2019, the Company entered into a credit agreement between FactSet, as the borrower, and PNC Bank, National Association ("PNC") (the "2019 Credit Agreement"), as the administrative agent and lender. The 2019 Credit Agreement provides for a $750.0 million revolving credit facility (the "2019 Revolving Credit Facility"). FactSet may request borrowings
under the 2019 Revolving Credit Facility until its maturity date of March 29, 2024. The 2019 Credit Agreement also allows FactSet, subject to certain requirements, to arrange for additional borrowings with PNC for an aggregate amount up to $500.0 million, provided that any such request for additional borrowings must be in a minimum amount of $25.0 million.
FactSet borrowed $575.0 million of the available $750.0 million provided by the 2019 Revolving Credit Facility, resulting in $175.0 million available to be withdrawn. FactSet is required to pay a commitment fee using a pricing grid currently at 0.10% based on the daily amount by which the available balance in the 2019 Revolving Credit Facility exceeds the borrowed amount. All outstanding loan amounts are reported as Long-term debt within the consolidated balance sheets at August 31, 2020. The principal balance is payable in full on the maturity date.
The fair value of our long-term debt was $575.0 million as of August 31, 2020, which the Company believe approximates carrying amount as the terms and interest rates approximate market rates given its floating interest rate basis. Borrowings under the loan bear interest on the outstanding principal amount at a rate equal to the daily LIBOR plus a spread using a debt leverage pricing grid, currently at 0.875%. During fiscal 2020, FactSet recorded interest expense on its outstanding debt, including the amortization of debt issuance costs, net of the effects of the interest rate swap agreement of $12.9 million. During fiscal 2019 and 2018, FactSet recorded interest expense on its outstanding debt, including the amortization of debt issuance costs, of $19.8 million and $15.9 million, respectively. Including the effects of the interest rate swap agreement, the weighted average interest rate on amounts outstanding under the Company's credit facilities was 2.20%. The weighted average interest rate for fiscal 2019 was 3.35%. Interest on the loan outstanding is payable quarterly, in arrears, and on the maturity date.
During fiscal 2019, FactSet incurred approximately $0.9 million in debt issuance costs related to the 2019 Credit Agreement. These costs were capitalized as loan origination fees and are amortized into interest expense ratably over the term of the 2019 Credit Agreement.
The 2019 Credit Agreement contains covenants and requirements restricting certain FactSet activities, which are usual and customary for this type of loan. In addition, the 2019 Credit Agreement requires that FactSet maintain a consolidated net leverage ratio, as measured by total net funded debt/EBITDA below a specified level as of the end of each fiscal quarter. The Company was in compliance with all the covenants and requirements within the 2019 Credit Agreement as of August 31, 2020.
The borrowings from the calculation2019 Credit Agreement were used to retire all outstanding debt under the previous 2017 Credit Agreement between FactSet, as the borrower, and PNC as the lender on March 29, 2019. The total principal amount of diluted EPSthe debt outstanding at the time of retirement was 249,443, 415,061$575.0 million and 782,843,there were no prepayment penalties.
2017 Credit Agreement
On March 17, 2017, the Company entered into a Credit Agreement (the "2017 Credit Agreement") between FactSet, as the borrower, and PNC, as the administrative agent and lender. The 2017 Credit Agreement provided for a $575.0 million revolving credit facility. Borrowings under the loan were subject to interest on the outstanding principal amount at a rate equal to the daily LIBOR plus 1.00%. Interest on the loan outstanding was payable quarterly in arrears and on the maturity date. The principal balance was also payable in full on the maturity date. There were no prepayment penalties when the Company elected to prepay the outstanding loan amounts on March 29, 2019.
13. COMMITMENTS AND CONTINGENCIES
Commitments represent obligations, such as those for future purchases of goods or services that are not yet recorded on the balance sheet as liabilities. FactSet records liabilities for commitments when incurred (i.e., when the goods or services are received).
Purchase Commitments with Suppliers
Purchase obligations represent payments due in future periods in respect of commitments to the Company’s various data vendors as well as commitments to purchase goods and services such as telecommunication and computer maintenance services. These purchase commitments are agreements that are enforceable and legally binding on FactSet, and they specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. As of August 31, 2020 and 2019, the Company had total purchase commitments with suppliers of $226.0 million and $69.9 million, respectively. Performance-based stock optionsRefer to Note 11, Leases and Note 12, Debt for information regarding lease commitments and outstanding debt obligations, respectively.
Letters of Credit
Approximately $2.9 million of standby letters of credit have been issued during the ordinary course of business in connection with the Company’s current leased office space as of August 31, 2020. These standby letters of credit contain covenants that, among other things, require FactSet to maintain minimum levels of consolidated net worth and certain leverage and fixed charge ratios. As of August 31, 2020 and 2019, FactSet was in compliance with all covenants contained in the standby letters of credit.
Contingencies
Income Taxes
Uncertain income tax positions are omittedaccounted for in accordance with applicable accounting guidance, refer to Note 10, Income Taxes for further details. FactSet is currently under audit by tax authorities and has reserved for potential adjustments to its provision for income taxes that may result from examinations by, or any negotiated settlements with, these tax authorities. The Company believes that the final outcome of these examinations or settlements will not have a material effect on its results of operations. If events occur which indicate payment of these amounts is unnecessary, the reversal of the liabilities would result in the recognition of tax benefits in the period FactSet determines the liabilities are no longer necessary. If the Company’s estimates of the federal, state, and foreign income tax liabilities are less than the ultimate assessment, a further charge to expense would result.
Legal Matters
FactSet accrues non income-tax liabilities for contingencies when management believes that a loss is probable, and the amounts can be reasonably estimated, while contingent gains are recognized only when realized. The Company is engaged in various legal proceedings, claims and litigation that have arisen in the ordinary course of business, including employment matters, commercial and intellectual property litigation. The outcome of all the matters against the Company is subject to future resolution, including the uncertainties of litigation. Based on information available at August 31, 2020, FactSet’s management believes that the ultimate outcome of these unresolved matters against the Company, individually or in the aggregate, will not have a material adverse effect on the Company's consolidated financial position, its results of operations or its cash flows.
Sales Tax Matters
In August 2019, FactSet received a Notice of Intent to Assess (the "Notice") additional sales taxes, interest and underpayment penalties from the calculationCommonwealth of diluted EPS untilMassachusetts Department of Revenue (the "Commonwealth") relating to prior tax periods. The Notice follows FactSet’s previously disclosed response to a letter from the performance criteriaCommonwealth requesting additional sales information. Based upon the Notice, it is considered probablethe Commonwealth's intention to assess sales/use tax, interest and penalties on previously recorded sales transactions. The Company filed an appeal to the Notice and intends to contest any such assessment, if assessed, and continues to cooperate with the Commonwealth’s inquiry. Due to uncertainty surrounding the assessment process, the Company is unable to reasonably estimate the ultimate outcome of being achieved.
this matter and, as such, has not recorded a liability as of August 31, 2020. While FactSet believes that it will ultimately prevail if the Company is presented with a formal assessment; if FactSet does not prevail, the amount could have a material impact on the Company’s consolidated financial position, cash flows and results of operations.
As permitted or required under Delaware law and to the maximum extent allowable under that law, FactSet has certain obligations to indemnify its current and former officers and directors for certain events or occurrences while the officer or director is, or was serving, at FactSet’s request in such capacity. These indemnification obligations are valid as long as the director or officer acted in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of the Company, and with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The maximum potential amount of future payments FactSet could be required to make under these indemnification obligations is unlimited; however, FactSet has a director and officer insurance policy that it believes mitigates FactSet's exposure and may enable FactSet to recover a portion of any future amounts paid. The Company believes the estimated fair value of these indemnification obligations is immaterial.
At August 31,
20182020 and
2017,2019, there were 10,000,000 shares of preferred stock ($
.010.01 par value per share) authorized, of which
no0 shares were issued and outstanding. FactSet’s Board of Directors may from time to time authorize the issuance of one or more series of preferred stock and, in connection with the creation of such series, determine the characteristics of each such series including, without limitation, the preference and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions of the series.
At August 31,
20182020 and
2017,2019, there were 150,000,000 shares of common stock ($
.010.01 par value per share) authorized, of which
39,264,84940,767,708 and
51,845,13240,104,192 shares were issued, respectively. The authorized shares of common stock are issuable for any proper corporate purpose, including future stock splits, stock dividends, acquisitions, raising
equity capital or to adopt additional employee benefit plans.
Shares of common stock outstanding were as follows:
| | | | | | | | | | | | | | | | | |
| (in thousands) | Years ended August 31, |
| 2020 | | 2019 | | 2018 |
| Balance, beginning of year at September 1, 2019, 2018 and 2017, respectively | 38,118 | | | 38,193 | | | 39,023 | |
| Common stock issued for employee stock plans | 663 | | | 839 | | | 712 | |
Repurchase of common stock from employees(1) | (12) | | | (32) | | | (8) | |
| Repurchase of common stock under the share repurchase program | (739) | | | (882) | | | (1,534) | |
| Balance, end of year at August 31, 2020, 2019, and 2018 respectively | 38,030 | | | 38,118 | | | 38,193 | |
(1)For fiscal years 2020, 2019 and 2018, the Company repurchased 11,945, 31,644 and 8,070 shares, or $3.5 million, $7.2 million and $1.5 million, of common stock, respectively, in settlement of employee tax withholding obligations to cover their cost of taxes due upon the vesting and exercise of stock-based awards.
On January 31, 2018, FactSet retired 13,292,689 shares of treasury stock. These retired shares are now included in the Company’s pool of authorized but unissued shares. The retired treasury stock was initially recorded using the cost method and had a carrying value of $1.7 billion at January 31, 2018. The Company’s accounting policy upon the formal retirement of treasury stock is to deduct its par value from common stock ($0.1 million),0.1) million, reduce additional paid-in capital (“APIC”("APIC") by the average amount recorded in APIC when stock was originally issued ($186.7 million)186.7) million and any remaining excess of cost as a deduction fromreduction to retained earnings ($1.5 billion). As of1.5) billion.
At August 31,
2018,2020, and 2019, there were
1,072,2632,737,456 and 1,986,352 shares of treasury stock (at cost) outstanding,
a decrease compared to 12,822,100 as of August 31, 2017 due to the aforementioned treasury stock retirement on January 31, 2018.respectively. Share Repurchase Program
Repurchases
will beof shares of common stock are made from time to time in the open market and privately negotiated transactions, subject to market conditions. During fiscal
2018,2020, the Company repurchased
1,534,3980.7 million shares for
$302.4$199.6 million compared to
1,554,8220.9 million shares for
$252.8$213.1 million in fiscal
2017.2019.
On March
26, 2018,24, 2020, the Board of Directors of FactSet approved a
$300.0$220.0 million
expansionincrease to the existing share repurchase program. Subsequent to this expansion,
$241.7a total of $259.0 million
remainremained authorized for future share repurchases as of August 31,
2018. No minimum2020. There is no defined number of shares to be repurchased
has been fixed. There is noover a specified timeframe
to completethrough the
life of the share repurchase
program and itprogram. It is expected that share repurchases will be paid using existing and future cash generated by operations.
Restricted Stock
Restricted
Awards of restricted stock awards entitle the holder to shares of common stock as the awards vest over time. During fiscal 2018, 26,5992020, 32,996 shares of previously granted restricted stock awards vested and were included in common stock outstanding as of August 31, 2018 (less 8,0702020 (recorded net of 11,945 shares repurchased from employees at a cost of $1.5$3.5 million to cover their cost of taxes upon vesting of the restricted stock). During fiscal 2017, 132,1942019, 85,401 shares of previously granted restricted stock awards vested and were included in
common stock outstanding as of August 31,
2017 (less 49,7712019 (recorded net of 31,644 shares repurchased from employees at a cost of
$7.8$7.2 million to cover their cost of taxes upon vesting of the restricted stock).
The Company’s Board of Directors declared the following dividends on our common stock during the periods presented:
| Year Ended | | Dividends per Share of Common Stock | | Record Date | | Total amount (in thousands) | | Payment Date | Year Ended | | Dividends per
Share of
Common Stock | | Record Date | | Total amount (in thousands) | | Payment Date |
Fiscal 2018 | | | | | | | | | | | |
| Fiscal 2020 | | Fiscal 2020 | |
First Quarter | | $ | 0.56 | | November 30, 2017 | | $ | 21,902 | | December 19, 2017 | First Quarter | | $ | 0.72 | | | November 29, 2019 | | $ | 27,291 | | | December 19, 2019 |
Second Quarter | | $ | 0.56 | | February 28, 2018 | | $ | 21,799 | | March 20, 2018 | Second Quarter | | $ | 0.72 | | | February 28, 2020 | | $ | 27,251 | | | March 19, 2020 |
Third Quarter | | $ | 0.64 | | May 31, 2018 | | $ | 24,566 | | June 19, 2018 | Third Quarter | | $ | 0.77 | | | May 29, 2020 | | $ | 29,189 | | | June 18, 2020 |
Fourth Quarter | | $ | 0.64 | | August 31, 2018 | | $ | 24,443 | | September 18, 2018 | Fourth Quarter | | $ | 0.77 | | | August 31, 2020 | | $ | 29,283 | | | September 17, 2020 |
| | | | | | | | | | | | |
Fiscal 2017 | | | | | | | | | | | |
| Fiscal 2019 | | Fiscal 2019 | |
First Quarter | | $ | 0.50 | | November 30, 2016 | | $ | 19,852 | | December 20, 2016 | First Quarter | | $ | 0.64 | | | November 30, 2018 | | $ | 24,372 | | | December 18, 2018 |
Second Quarter | | $ | 0.50 | | February 28, 2017 | | $ | 19,709 | | March 21, 2017 | Second Quarter | | $ | 0.64 | | | February 28, 2019 | | $ | 24,385 | | | March 19, 2019 |
Third Quarter | | $ | 0.56 | | May 31, 2017 | | $ | 21,951 | | June 20, 2017 | Third Quarter | | $ | 0.72 | | | May 31, 2019 | | $ | 27,506 | | | June 18, 2019 |
Fourth Quarter | | $ | 0.56 | | August 31, 2017 | | $ | 21,853 | | September 19, 2017 | Fourth Quarter | | $ | 0.72 | | | August 31, 2019 | | $ | 27,445 | | | September 19, 2019 |
All the above
Future cash dividends were paid from existing cash resources. Future dividend payments will depend on the Company’s earnings, capital requirements, financial condition and other factors considered relevant by the Company and isare subject to final determination by the Company’s Board of Directors.
On May 5, 2020, FactSet's Board of Directors approved a 7% increase in the regular quarterly dividend from $0.72 to $0.77 per share.
Accumulated Other Comprehensive Loss
The components of AOCL are as follows:
| | | | | | | | | | | |
| (in thousands) | August 31, 2020 | | August 31, 2019 |
| Accumulated unrealized losses on cash flow hedges, net of tax | $ | (1,591) | | | $ | (2,266) | |
| Accumulated foreign currency translation adjustments | (37,702) | | | (72,278) | |
| Total AOCL | $ | (39,293) | | | $ | (74,544) | |
15.
EMPLOYEE STOCK OPTION AND RETIREMENT PLANSEARNINGS PER SHARE
A reconciliation of the weighted average shares outstanding used in the basic and diluted earnings per share ("EPS") computations is as follows:
| | | | | | | | | | | | | | | | | |
| (in thousands, except per share data) | Net Income
(Numerator) | | Weighted Average Common Shares
(Denominator) | | Per Share Amount |
| For the year ended August 31, 2020 | | | | | |
| Basic EPS | | | | | |
| Income available to common stockholders | $ | 372,938 | | | 37,936 | | | $ | 9.83 | |
| Diluted EPS | | | | | |
| Dilutive effect of stock options and restricted stock | | | 710 | | | |
| Income available to common stockholders plus assumed conversions | $ | 372,938 | | | 38,646 | | | $ | 9.65 | |
| For the year ended August 31, 2019 | | | | | |
| Basic EPS | | | | | |
| Income available to common stockholders | $ | 352,790 | | | 38,144 | | | $ | 9.25 | |
| Diluted EPS | | | | | |
| Dilutive effect of stock options and restricted stock | | | 729 | | | |
| Income available to common stockholders plus assumed conversions | $ | 352,790 | | | 38,873 | | | $ | 9.08 | |
| For the year ended August 31, 2018 | | | | | |
| Basic EPS | | | | | |
| Income available to common stockholders | $ | 267,085 | | | 38,733 | | | $ | 6.90 | |
| Diluted EPS | | | | | |
| Dilutive effect of stock options and restricted stock | | | 644 | | | |
| Income available to common stockholders plus assumed conversions | $ | 267,085 | | | 39,377 | | | $ | 6.78 | |
Dilutive potential common shares consist of stock options and unvested performance-based awards. There were 1,750 stock options excluded from the calculation of diluted EPS as of August 31, 2020, because their inclusion would have been anti-dilutive. There were 11,481 stock options excluded from the calculation of diluted EPS as of August 31, 2019.
Performance-based awards are omitted from the calculation of diluted EPS until it is determined that the performance criteria has been met at the end of the reporting period. As of August 31, 2020, there were 35,666 performance-based awards excluded from the calculation of diluted EPS. There were 0 performance-based awards excluded from the calculation of diluted EPS as of August 31, 2019.
16. STOCK-BASED COMPENSATION
The Company recognized total stock-based compensation expense of $36.6 million, $32.4 million and $31.5 million in fiscal 2020, 2019 and 2018, respectively. As of August 31, 2020, $81.9 million of total unrecognized compensation expense related to
non-vested awards is expected to be recognized over a weighted average period of 2.9 years. There was 0 stock-based compensation capitalized as of August 31, 2020 and 2019, respectively.
Stock
OptionsOption Awards
On December 19, 2017,
A summary of stock option activity is as follows:
| | | | | | | | | | | | | | |
| Number Outstanding | Weighted Average
Exercise Price Per Share | Aggregate Intrinsic Value | Weighted Average Remaining Contractual Life (years) |
| | | | |
| Outstanding as of August 31, 2017 | 3,366 | | $ | 139.29 | | | |
| Granted – non performance-based | 575 | | $ | 190.14 | | | |
| Granted – performance-based | 17 | | $ | 200.20 | | | |
| Granted – non-employee Directors grant | 19 | | $ | 197.75 | | | |
| Exercised | (622) | | $ | 113.73 | | | |
| Forfeited | (212) | | $ | 158.14 | | | |
| Outstanding as of August 31, 2018 | 3,143 | | $ | 153.05 | | | |
| Granted – non performance-based | 482 | | $ | 224.35 | | | |
| Granted – non-employee Directors grant | 20 | | $ | 207.88 | | | |
| Exercised | (705) | | $ | 137.61 | | | |
| Forfeited | (416) | | $ | 170.54 | | | |
| Outstanding as of August 31, 2019 | 2,524 | | $ | 168.50 | | | |
| Granted – non performance-based | 424 | | $ | 256.43 | | | |
| Granted – non-employee Directors grant | 16 | | $ | 271.51 | | | |
| Exercised | (588) | | $ | 145.54 | | | |
| Forfeited | (122) | | $ | 218.36 | | | |
| Outstanding as of August 31, 2020 | 2,254 | | $ | 189.32 | | $ | 129.6 | | 6.6 |
| Options vested and exercisable as of August 31, 2020 | 875 | | $ | 155.58 | | $ | 170.4 | | 5.1 |
| Options expected to vest as of August 31, 2020 | 1,264 | | $ | 209.33 | | $ | 178.4 | | 7.5 |
The aggregate intrinsic value represents the difference between the Company’s stockholders approvedclosing stock price as of August 31, 2020 of $350.40 and the amendedexercise price, multiplied by the number of options exercisable as of that date.
The total pre-tax intrinsic value of stock options exercised during fiscal 2020, 2019 and restated2018 was $85.0 million, $73.0 million and $50.1 million, respectively.
Employee Stock Option Awards
The FactSet Research Systems Inc.
2004 Stock Option and Award Plan, as
Amendedamended and
Restated, which was renamed the Stock Option and Award Plan, as Amended and Restatedrestated (the
“Long"Long Term Incentive
Plan”Plan" or
“LTIP”"LTIP")
. As part of the approved amendment, an additional 5,750,000 shares of common stock were added to the LTIP’s share reserve and the expiration date was extended to December 19, 2027. The LTIP provides for the grant of share-based awards, including stock options and
restrictedperformance-based stock
awardsoptions, to employees of FactSet.
The expiration date of the Long Term Incentive Plan is December 19, 2027. Stock options granted under the LTIP expire not more than ten years from the date of grant and the majority vest ratably over a period of five years. Options become vested and exercisable, provided the employee continues employment with the Company through the applicable vesting date, and remain exercisable until expiration or cancellation.
Options are not transferable or assignable other than by will orVesting of the
laws of descent and distribution. Duringshares underlying the
grantee’s lifetime, the options may be exercised only by the grantee.As of August 31, 2018, a total of 3,143,417performance-based stock options were outstanding at a weighted average exercise price of $153.05. Unamortized stock-based compensation of $59.7 million is expectedare also subject to be recognized as stock-based compensation expense over the remaining weighted average vesting period of 3.1 years.
Stock Option Activity
In fiscal years 2018, 2017 and 2016, FactSet granted 610,628, 1,026,984 and 1,195,649 stock options, respectively. These stock options have a weighted average exercise price of $190.65, $157.09 and $168.14 to existing employees of the Company, respectively. A summary of stock option activity is as follows:
(in thousands, except per share data) | | Number Outstanding | | | Weighted Average Exercise Price Per Share | |
Balance at August 31, 2015 | | | 3,117 | | | $ | 100.71 | |
Granted – non performance-based | | | 622 | | | $ | 171.18 | |
Granted – performance-based | | | 551 | | | $ | 165.59 | |
Granted – non-employee Directors grant | | | 23 | | | $ | 146.82 | |
Exercised | | | (681 | ) | | $ | 71.52 | |
Forfeited | | | (268 | ) | | $ | 113.70 | |
Balance at August 31, 2016 | | | 3,364 | | | $ | 129.54 | |
Granted – non performance-based | | | 713 | | | $ | 152.89 | |
Granted – performance-based | | | 291 | | | $ | 166.29 | |
Granted – non-employee Directors grant | | | 24 | | | $ | 170.24 | |
Exercised | | | (487 | ) | | $ | 86.17 | |
Forfeited | | | (539 | ) | | $ | 160.31 | |
Balance at August 31, 2017 | | | 3,366 | | | $ | 139.29 | |
Granted – non performance-based | | | 575 | | | $ | 190.14 | |
Granted – performance-based | | | 17 | | | $ | 200.20 | |
Granted – non-employee Directors grant | | | 19 | | | $ | 197.75 | |
Exercised | | | (622 | ) | | $ | 113.73 | |
Forfeited | | | (212 | ) | | $ | 158.14 | |
Balance at August 31, 2018 | | | 3,143 | | | $ | 153.05 | |
Stock Options Outstanding and Exercisable
The following table summarizes ranges of outstanding and exercisable options as of August 31, 2018 (in thousands, except per share data and the weighted average remaining years of contractual life):
| | | | | Outstanding | | | Exercisable | |
Range of Exercise Prices Per Share | | Number Outstanding | | | Weighted Average Remaining Years of Contractual Life | | | Weighted Average Exercise Price Per Share | | | Aggregate Intrinsic Value | | | Number Exercisable | | | Weighted Average Exercise Price Per Share | | | Aggregate Intrinsic Value | |
$87.26 | - | $92.22 | | | 333 | | | | 3.9 | | | $ | 91.75 | | | $ | 45,794 | | | | 333 | | | $ | 91.75 | | | $ | 45,794 | |
$94.84 | - | $110.31 | | | 180 | | | | 4.1 | | | $ | 99.24 | | | $ | 23,459 | | | | 137 | | | $ | 98.18 | | | $ | 17,914 | |
$131.31 | - | $148.52 | | | 403 | | | | 6.1 | | | $ | 134.93 | | | $ | 38,071 | | | | 173 | | | $ | 131.54 | | | $ | 16,889 | |
$150.81 | - | $152.28 | | | 637 | | | | 8.1 | | | $ | 152.25 | | | $ | 49,139 | | | | 124 | | | $ | 152.23 | | | $ | 9,551 | |
$159.14 | - | $170.24 | | | 627 | | | | 7.8 | | | $ | 165.23 | | | $ | 40,227 | | | | 110 | | | $ | 163.55 | | | $ | 7,262 | |
$171.22 | - | $175.20 | | | 383 | | | | 7.2 | | | $ | 175.06 | | | $ | 20,816 | | | | 145 | | | $ | 175.06 | | | $ | 7,887 | |
$189.98 | - | $200.20 | | | 580 | | | | 9.2 | | | $ | 190.68 | | | $ | 22,462 | | | | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Fiscal 2018 | | | 3,143 | | | | | | | | | | | $ | 239,9684 | | | | 1,022 | | | | | | | $ | 105,297 | |
The following table summarizes outstanding and exercisable options as of August 31, 2017 and 2016 (in thousands, except the weighted average exercise price per share):
| | | | | | | August 31, 2017 | | | | | | | August 31, 2016 | |
| | | Number of Shares | | | Weighted Average Exercise Price Per Share | | | Number of Shares | | | Weighted Average Exercise Price Per Share | |
Outstanding at fiscal year end | | | 3,366 | | | $ | 139.29 | | | | 3,364 | | | $ | 129.54 | |
Exercisable at fiscal year end | | | 918 | | | $ | 105.14 | | | | 970 | | | $ | 89.42 | |
The aggregate intrinsic value of in-the-money stock options exercisable at August 31, 2018 and 2017 was $105.3 million and $49.7 million, respectively. Aggregate intrinsic value represents the difference between the Company’s closing stock price of $229.39 at August 31, 2018 and the exercise price multiplied by the number of options exercisable as of that date. The weighted average remaining contractual life of stock options exercisable at August 31, 2018 and 2017 was 5.6 years and 5.1 years, respectively. The total pre-tax intrinsic value of stock options exercised during fiscal 2018, 2017 and 2016 was $50.1 million, $38.0 million and $60.8 million, respectively.
Performance-based Stock Options
Performance-based stock options require management to make assumptions regarding the likelihood of achieving Company performance targets. The number of performance-based options that vest will be predicated on the Company achieving performance levels during the measurement period subsequent to the date of grant. Dependent on the financial performance levels attained by FactSet, a percentage of the performance-based stock options will vest to the grantees of those stock options. However, there is no current guarantee that such options will vest in whole or in part.
February 2015 Performance-based Option Grant Review
In connection with the acquisition of Code Red, FactSet granted 68,761 performance-based stock options during the second quarter of fiscal 2015 that are eligible to cliff vest based on a four-year measurement period ending February 28, 2019. In the second quarter of fiscal 2018, FactSet modified the vesting criteria of the grant, which resulted in 40% of the options deemed eligible to vest, with the remaining options forfeited. No cumulative catch-up adjustment was required because FactSet had expected the 40% level to be achieved. The option holders must remain employed by FactSet through February 28, 2019 for the options to vest. As of August 31, 2018, total unamortized stock-based compensation of $0.4 million will be recognized as expense over the remaining vesting period of 0.4 years.
January 2017 Performance-based Option Grant Review
In connection with the acquisition of Vermilion, FactSet granted 61,744 performance-based stock options in January 2017. These performance-based options will vest 40% on the second anniversary date of the grant and 20% on each subsequent anniversary date if certain Vermilion revenue and operating income targets are achieved by November 30, 2018. The option holders must also remain employed by FactSet for the options to be eligible to vest. As of August 31, 2018, FactSet does not believe these growth targets are probable of being achieved, and as such, no stock-based compensation expense is expected to be recognized in connection with these performance-based options. A change in the actual financial performance levels achieved by Vermilion in future fiscal years could result in the following changes to the current estimate of the vesting percentage and related expense:
(in thousands, except vesting percentage data) Vesting Percentage | | Cumulative Catch-up Adjustment(1) | | | Remaining Expense to be Recognized | |
0% (current expectation) | | $ | — | | | $ | — | |
100% | | $ | 613 | | | $ | 1,272 | |
| (1)
| Amounts represent the cumulative catch-up adjustment to be recorded if there was a change in the vesting percentage as of August 31, 2018.
|
June 2017 Performance-based Option Grant Review
In connection with the acquisition of BISAM, FactSet granted 206,417 performance-based stock options in June 2017. These performance-based options will vest 40% on the second anniversary date of the grant and 20% on each subsequent anniversary date if certain BISAM revenue and operating income targets are achieved by March 31, 2019. The option holders must also remain employed by FactSet for the options to be eligible to vest. As of August 31, 2018, FactSet does not believe these growth targets are probable of being achieved, and as such, no stock-based compensation expense is expected to be recognized in connection with these performance-based options. A change in the actual financial performance levels achieved by BISAM in future fiscal years could result in the following changes to the current estimate of the vesting percentage and related expense:
(in thousands, except vesting percentage data) Vesting Percentage | | Cumulative Catch-up Adjustment(1) | | | Remaining Expense to be Recognized | |
0%(current expectation) | | $ | — | | | $ | — | |
80% | | $ | 1,658 | | | $ | 5,449 | |
90% | | $ | 1,866 | | | $ | 6,130 | |
100% | | $ | 2,073 | | | $ | 6,811 | |
| (1)
| Amounts represent the cumulative catch-up adjustment to be recorded if there was a change in the vesting percentage as of August 31, 2018.
|
Restricted Stock and Stock Unit Awards
The Company’s Option Plan plans permit the issuance of restricted stock and restricted stock units. Restricted stock awards are subject to continued employment over a specified period.
Restricted Stock and Stock Unit Awards Activity
In fiscal years 2018, 2017 and 2016, FactSet granted 3,497, 62,400 and 97,319 restricted stock awards to employees of the Company, respectively. These awards have a weighted average grant date fair value of $189.28, $158.26 and $159.64 for fiscal years 2018, 2017 and 2016, respectively.
As of August 31, 2018, a total of 143,003 shares of restricted stock and restricted stock units were unvested and outstanding, which results in unamortized stock-based compensation of $12.0 million to be recognized as stock-based compensation expense over the remaining vesting period of 3.0 years.
A summary of restricted stock award activity is as follows:
(in thousands, except per award data) | | Number Outstanding | | | Weighted Average Grant Date Fair Value Per Award | |
Balance at August 31, 2015 | | | 313 | | | $ | 103.34 | |
Granted (restricted stock and stock units) | | | 97 | | | $ | 159.64 | |
Vested(1) | | | (69 | ) | | $ | 85.04 | |
Canceled/forfeited | | | (79 | ) | | $ | 112.51 | |
Balance at August 31, 2016 | | | 262 | | | $ | 126.27 | |
Granted (restricted stock and stock units) | | | 62 | | | $ | 158.26 | |
Vested(2) | | | (132 | ) | | $ | 123.28 | |
Canceled/forfeited | | | (10 | ) | | $ | 130.32 | |
Balance at August 31, 2017 | | | 182 | | | $ | 138.62 | |
Granted (restricted stock and stock units) | | | 4 | | | $ | 189.28 | |
Vested(3) | | | (27 | ) | | $ | 155.95 | |
Canceled/forfeited | | | (16 | ) | | $ | 116.29 | |
Balance at August 31, 2018 | | | 143 | | | $ | 139.34 | |
| (1)
| The 69,244 restricted stock awards that vested during fiscal 2016 were comprised of: 37,079 of awards relating to restricted stock granted on November 8, 2010 (remaining 40%) and 14,683 restricted stock awards that were granted on April 8, 2013, which cliff vest 20% annually upon the anniversary date of the grant. Additionally, 17,482 awards vested related to other grants.
|
| (2)
| The 132,194 restricted stock awards that vested during fiscal 2017 were comprised of: 73,522 of awards relating to restricted stock granted on November 1, 2013, which cliff vested 60% after three years, 17,328 of awards relating to restricted stock granted on October 16, 2015, which vested 20% annually upon the anniversary date of the grant and 30,162 of awards relating to restricted stock granted on October 16, 2015, which were modified to accelerate vest 100% in conjunction with employee severance. Additionally, 11,182 awards vested related to other grants.
|
| (3)
| The 26,599 restricted stock awards that vested during fiscal 2018 were comprised of:9,765 of awards relating to restricted stock granted on October 16, 2015 and 8,600 of awards relating to restricted stock granted on June 30, 2017 which vest at a rate of 20% annually upon the anniversary date of the grant, respectively.Additionally, 8,234 awards vested related to other grants.
|
Share-based Awards Available for Grant
A summary of share-based awards available for grant is as follows:
(in thousands) | | Share-based Awards Available for Grant under the Employee Stock Option Plan | | | Share-based Awards Available for Grant under the Non-Employee Stock Option Plan | |
Balance at August 31, 2015 | | | 2,441 | | | | 88 | |
Granted – non performance-based options | | | (622 | ) | | | — | |
Granted – performance-based options | | | (551 | ) | | | — | |
Granted – non-employee Directors grant | | | — | | | | (22 | ) |
Restricted stock awards granted(1) | | | (243 | ) | | | — | |
Share-based awards canceled/forfeited(2) | | | 466 | | | | — | |
Balance at August 31, 2016 | | | 1,491 | | | | 66 | |
Granted – non performance-based options | | | (713 | ) | | | — | |
Granted – performance-based options | | | (291 | ) | | | — | |
Granted – non-employee Directors grant | | | — | | | | (24 | ) |
Restricted stock awards granted(1) | | | (156 | ) | | | — | |
Share-based awards canceled/forfeited(2) | | | 566 | | | | — | |
Balance at August 31, 2017 | | | 897 | | | | 42 | |
Increase in the number of shares available for issuance | | | 5,750 | | | | 250 | |
Granted – non performance-based options | | | (575 | ) | | | — | |
Granted – performance-based options | | | (17 | ) | | | — | |
Granted – non-employee Directors grant | | | — | | | | (19 | ) |
Restricted stock awards granted(1) | | | (9 | ) | | | — | |
Share-based awards canceled/forfeited(2) | | | 252 | | | | 9 | |
Balance at August 31, 2018 | | | 6,298 | | | | 282 | |
| (1)
| Each restricted stock award granted is equivalent to 2.5 shares granted under the Company’s Option Plan.
|
| (2)
| Under the Company’s Option Plan, for each restricted stock award canceled/forfeited, an equivalent of 2.5 shares is added back to the available share-based awards balance.
|
Employee Stock Purchase Plan
On December 19, 2017, the Company’s stockholders approved and amended and restated 2008 Employee Stock Purchase Plan, as Amended and Restated, which was renamed the Employee Stock Purchase Plan, as Amended and Restated (the “ESPP”). Shares of FactSet common stock may be purchased by eligible employees under ESPP in three-month intervals at a purchase price equal to at least 85% of the lesser of the fair market value of the Company’s common stock on either the first day or the last day of each three-month offering period. Employee purchases may not exceed 10% of their gross compensation and a $25,000 contribution limit during an offering period.
During fiscal 2018, employees purchased 64,230 shares at a weighted average price of $160.34 as compared to 75,372 shares at a weighted average price of $136.34 for fiscal 2017. At August 31, 2018, the ESPP had 268,942 shares reserved for future issuance.
401(k) Plan
The Company established its 401(k) Plan in fiscal 1993. The 401(k) Plan is a defined contribution plan covering all full-time, U.S. employees of the Company and is subject to the provisions of the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986 (“IRC”). Each year, participants may contribute up to 60% of their eligible annual compensation, subject to annual limitations established by the IRC. The Company matches up to 4% of employees’ earnings, capped at the Internal Revenue Service annual maximum. Company matching contributions are subject to a five-year graduated vesting schedule. All full-time, U.S. employees are eligible for the matching contribution by the Company. The Company contributed $11.6 million, $10.1 million, and $9.7 million in matching contributions to employee 401(k) accounts during fiscal 2018, 2017 and 2016, respectively.
16. STOCK-BASED COMPENSATION
The Company recognized total stock-based compensation expense of $31.5 million, $34.2 million and $29.8 million in fiscal 2018, 2017 and 2016, respectively. As of August 31, 2018, $71.7 million of total unrecognized compensation expense related to non-vested awards is expected to be recognized over a weighted average period of 3.0 years. There was no stock-based compensation capitalized as of August 31, 2018 and 2017, respectively.
Employee Stock Option Fair Value Determinations
The Company utilizes the lattice-binomial option-pricing model (“("binomial model”model") to estimate the fair value of new employee stock option grants. The Company’s determination of fair value of stock option awards on the date of grant using the binomial model is affected by the Company’s stock price, as well as, assumptions regarding a numberseveral
variables,
which include, but are not limited to the Company’s expected stock price volatility over the term of the awards, interest rates, option forfeitures and employee stock option exercise
behaviors.Q1 2018
| 553,942 non performance-based employee stock options were granted at a weighted average exercise price of $189.98 and a weighted average estimated fair value of $48.27 per share.
|
Q2 2018
| 15,363 non performance-based employee stock options were granted at a weighted average exercise price of $192.11 and a weighted average estimated fair value of $48.82 per share.
|
Q3 2018
| There were no employee stock options granted during the three-month ended May 31, 2018.
|
Q4 2018
| 5,848 non performance-based employee stock options and 16,512 performance-based employee stock options were both granted at a weighted average exercise price of $200.20 with a weighted average estimated fair value of $50.87 per share.
|
Q1 2017
| 671,263 non performance-based employee stock options and 22,460 performance-based employee stock options were both granted at a weighted average exercise price of $152.51 with a weighted average estimated fair value of $39.60 per share.
|
Q2 2017
| 61,744 performance-based employee stock options were granted at a weighted average exercise price of $169.16 and a weighted average estimated fair value of $43.81 per share.
|
Q3 2017
| 11,604 non performance-based employee stock options were granted at a weighted average exercise price of $163.05 and a weighted average estimated fair value of $42.23 per share.
|
Q4 2017
| 29,650 non performance-based employee stock options and 206,417 performance-based employee stock options were granted at a weighted average exercise price of $165.75 and a weighted average estimated fair value of $42.93 per share.
|
Q1 2016
| 513,785 non performance-based employee stock options and 530,418 performance-based employee stock options were both granted at a weighted average exercise price of $170.21 with a weighted average estimated fair value of $46.62 per share.
|
Q2 2016
| 4,073 non performance-based employee stock options were granted at an exercise price of $150.81 and an estimated fair value of $40.51 per share.
|
Q3 2016
| 103,903 non performance-based employee stock options were granted at an exercise price of $152.10 and an estimated fair value of $40.57 per share.
|
Q4 2016
| 20,911 performance-based employee stock options were granted at an exercise price of $171.22 and an estimated fair value of $47.82 per share.
|
behaviors, to determine the grant date stock option award fair value.The weighted average estimated fair value of employee stock options granted during fiscal 2018, 20172020, 2019 and 20162018 was determined using the binomial model with the following weighted average assumptions:
| | | 2018 | | | 2017 | | | 2016 | |
Term structure of risk-free interest rate | | | 1.28% | – | 2.41% | | | | 0.07% | – | 2.09% | | | | 0.07% | – | 2.1% | |
Expected life (years) | | | 7.4 | – | 7.4 | | | | 7.4 | – | 8.1 | | | | 7.3 | – | 8.1 | |
Term structure of volatility | | | 19% | – | 29% | | | | 21% | – | 30% | | | | 21% | – | 30% | |
Dividend yield | | | | 1.32% | | | | | | 1.18% | | | | | | 1.09% | | |
Weighted average estimated fair value | | | | $48.39 | | | | | | $40.68 | | | | | | $46.08 | | |
Weighted average exercise price | | | | $190.42 | | | | | | $156.77 | | | | | | $168.55 | | |
Fair value as a percentage of exercise price | | | | 25.4% | | | | | | 25.9% | | | | | | 27.3% | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | 2019 | 2018 |
| Term structure of risk-free interest rate | 0.10 | % | — | 1.79% | 1.28 | % | — | 3.14% | 1.28 | % | — | 2.41% |
| Expected life (years) | 7.2 | — | 7.2 | 7.1 | — | 7.1 | 7.4 | — | 7.4 |
| Term structure of volatility | 25 | % | — | 25% | 18 | % | — | 29% | 19 | % | — | 29% |
| Dividend yield | 1.09% | 1.15% | 1.32% |
| Weighted average estimated fair value | $60.33 | $57.12 | $48.39 |
| Weighted average exercise price | $256.43 | $224.35 | $190.42 |
| Fair value as a percentage of exercise price | 23.5% | 25.5% | 25.4% |
The risk-free interest rate assumption for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected volatility is based on a combination of historical volatility of the Company’s stock and implied volatilities of publicly traded options to buy FactSet common stock with contractual terms closest to the expected life of options granted to employees. The approach to utilize a mix of historical and implied volatility was based upon the availability of actively traded options on the Company’s stock and the Company’s assessment that a combination of implied volatility and historical volatility is best representative of future stock price trends. The Company uses historical data to estimate option exercises and employee termination within the valuation model. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts. The expected life of employee stock options represents the weighted average period the stock options are expected to remain outstanding and is a derived output of the binomial model. The binomial model estimates employees exercise behavior based on the option’s remaining vested life and the extent to which the option is in-the-money. The binomial model estimates the probability of exercise as a function of these two variables based on the entire history of exercises and cancellations of all past option grants made by the Company.
Non-Employee
DirectorDirectors' Stock Option
Fair Value DeterminationsOn December 19, 2017, the Company’s stockholders approved the Director Plan. Awards
The
DirectorFactSet Research Systems Inc. Non-Employee Directors’ Stock Option and Award Plan
as Amended and Restated (the “Director Plan”) provides for the grant of share-based awards, including stock options, to non-employee directors of FactSet.
As part of the stockholder approval, theThe expiration date of the Director Plan
was extended tois December 19,
20272027. The non-qualified stock options granted to directors vest 100% after three years on the anniversary date of the grant and
expire seven years from the
numberdate the options were granted. As of
August 31, 2020, shares
reservedavailable for
issuancefuture grant under the Director Plan was
increased by 250,000. As249,886. The expiration date of
August 31, 2018, shares available for future grant were 282,398.the Director Plan is December 19, 2027.
Non-Employee Director Stock Option Fair Value Determinations
The Company utilizes the Black-Scholes model to estimate the fair value of new non-employee Director stock option grants. The
Company’s determination of fair value of share-based payment awards on the date of grantBlack-Scholes model is affected by the Company’s stock price, as well as, assumptions regarding
a number of variables. Theseseveral variables,
which include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, interest rates, option forfeitures and employee stock option exercise
behaviors.Fiscalbehaviors, to determine the grant date stock-based payment award fair value.
On January 15, 2020, January 15, 2018On
9, and January 12, 2018, FactSet granted, 16,080, 20,576, and 18,963 stockstock options, to the Company’s non-employee Directors. All the options granted on January 12, 2018, have a weighted average estimated fair value of $38.76 per share, using the Black-Scholes option-pricing model with the following weighted average assumptions:Risk-free interest rate
| | | 2.34 | % |
Expected life (years)
| | | 5.4 | |
Expected volatility
| | | 19.7 | % |
Dividend yield
| | | 1.16 | % |
Fiscal 2017
On January 13, 2017, FactSet granted 23,846 stock optionsrespectively, to the Company’s non-employee Directors including one-time new director grants of 2,104 for both Malcolm Frank and Sheila B. Jordan, who were elected to FactSet’s Board of Directors on December 20, 2016. Allusing the options granted on January 13, 2017, have a weighted average estimated fair value of $35.65 per share, using the Black-Scholes option-pricing model withvalues, based on the following weighted average assumptions:
Risk-free interest rate
| | | 1.95 | % |
Expected life (years)
| | | 5.4 | |
Expected volatility
| | | 22.7 | % |
Dividend yield
| | | 1.24 | % |
Fiscal 2016
On January 15, 2016, FactSet granted 22,559 stock options to the Company’s non-employee Directors, including a one-time new director grant of 2,417 for Laurie Siegel, who was elected to FactSet’s Board of Directors on December 15, 2015. All the options granted on January 15, 2016, have a weighted average estimated fair value of $31.03 per share, usingassumptions used in the Black-Scholes option-pricing model with the following weightedmodel:
(Weighted average
assumptions:assumptions) Risk-free interest rate
| | | 1.62 | % |
Expected life (years)
| | | 5.4 | |
Expected volatility
| | | 23.0 | % |
Dividend yield
| | | 1.05 | % |
| | | | | | | | | | | |
| Years ended August 31, |
| 2020 | 2019 | 2018 |
| Fair value | $ | 54.74 | | $ | 42.77 | | $ | 38.76 | |
| Risk-free interest rate | 1.64 % | 2.51 | % | 2.34 | % |
| Expected life (years) | 5.4 | 5.4 | 5.4 |
| Expected volatility | 22.0 | % | 20.5 | % | 19.7 | % |
| Dividend yield | 1.11 % | 1.17 | % | 1.16 | % |
Restricted Stock
Fair Value DeterminationsRestrictedand Performance Share Unit Awards
The Company’s LTIP provides for the grant of share-based awards, including awards of restricted stock and performance share units ("PSUs"; restricted stock and PSUs, collectively, "Stock Awards"). The Stock Awards are subject to continued employment over a specified period. The Stock Awards granted to employees entitlesentitle the holderholders to shares of common stock as the award vestsStock Awards vest over time, but not to dividends declared on the underlying shares, while the restricted stock subject to the Stock Awards is unvested. Vesting of the shares underlying the PSUs are also subject to the Company achieving performance levels during the measurement period subsequent to the date of grant.
The grant date fair value of restricted stock awardsStock Awards is measured by reducing the grant date price of FactSet’s sharecommon stock by the present value of the dividends expected to be paid on the underlying stock during the requisite service period, discounted at the appropriate risk-free interest rate. Restricted stock awards areThe expense associated with Stock Awards is amortized over the vesting period.
As of August 31, 2020, a total of 145,897 shares underlying Stock Awards were unvested and outstanding, which results in unamortized stock-based compensation of $28.2 million to be recognized as stock-based compensation expense over the remaining vesting period. During fiscal 2018, there were 3,497 period of 2.7 years.
A summary of Stock Award activity is as follows:
| | | | | | | | |
| (in thousands, except per award data) | Number Outstanding | Weighted Average Grant
Date Fair Value Per Award |
| Balance at August 31, 2017 | 182 | | 138.62 |
Granted - restricted stock(1) | 3 | | 189.28 |
| Vested - restricted stock | (27) | | 155.95 |
| Forfeited | (15) | | 116.29 |
| Balance at August 31, 2018 | 143 | | 139.34 |
Granted - restricted stock(1) | 73 | | 239.03 |
| Vested - restricted stock | (85) | | 125.04 |
| Forfeited | (7) | | 181.32 |
| Balance at August 31, 2019 | 124 | | 205.47 |
Granted - restricted stock & PSUs(1)(2) | 74 | | 252.17 |
| Vested - restricted stock | (33) | | 197.37 |
| Forfeited | (19) | | 198.53 |
| Balance at August 31, 2020 | 146 | | 231.55 |
(1)Each Stock Award granted is equivalent to 2.5 shares granted under the LTIP.
(2)FactSet granted 36,709 awards of restricted stock and 36,888PSUs.
Performance-based Equity Awards
Performance-based equity awards, whether in the form of performance-based stock options or PSUs, require management to make assumptions regarding the likelihood of achieving Company performance targets. The number of performance-based
awards that vest will be predicated on the Company achieving performance levels during the measurement period subsequent to the date of grant. Dependent on the financial performance levels attained by FactSet, a percentage of the performance-based awards will vest to the grantees. However, there is no current guarantee that such awards will vest in whole or in part.
Share-based Awards Available for Grant
A summary of share-based awards available for grant is as follows:
| | | | | | | | |
| (in thousands) | Share-based Awards
Available for Grant under the
Employee Stock Option Plan | Share-based Awards
Available for Grant under the
Non-Employee Stock Option Plan |
| Balance at August 31, 2017 | 897 | | 42 | |
| Increase in the number of shares available for issuance | 5,750 | | 250 | |
| Granted – non performance-based options | (575) | | 0 | |
| Granted – performance-based options | (17) | | 0 | |
| Granted – non-employee Directors options | 0 | | (19) | |
Granted – restricted stock(1) | (9) | | 0 | |
Forfeited - Share-based awards(2) | 252 | | 9 | |
| Balance at August 31, 2018 | 6,298 | | 282 | |
| Granted – non performance-based options | (481) | | 0 | |
| Granted – non-employee Directors options | 0 | | (20) | |
Granted – restricted stock(1) | (183) | | 0 | |
Forfeited - Share-based awards(2) | 433 | | 2 | |
| Balance at August 31, 2019 | 6,067 | | 264 | |
| Granted – non performance-based options | (424) | | 0 | |
| Granted – non-employee Directors options | 0 | | (16) | |
Granted – restricted stock(1) | (93) | | 0 | |
Granted – PSUs(1) | (91) | | 0 | |
Forfeited – Share-based awards(2) | 167 | | 2 | |
| Balance at August 31, 2020 | 5,626 | | 250 | |
(1)Each Stock Award granted with a weighted average grant date fair valueis equivalent to 2.5 shares granted under the LTIP.
(2)Under the LTIP, for each Stock Award canceled/forfeited, an equivalent of $189.28 compared2.5 shares is added back to 62,400 restrictedthe available share-based awards balance.
Employee Stock Purchase Plan
Shares of FactSet common stock
awards granted with a weighted average grant date fair value of $158.26 in fiscal 2017.Q1 2018
| 961 shares of restricted stock were granted at a weighted average estimated fair value of $182.17 per share.
|
Q2 2018
| No restricted stock granted.
|
Q3 2018
| No restricted stock granted.
|
Q4 2018
| 2,536 shares of restricted stock were granted at a weighted average estimated fair value of $191.97 per share.
|
Q1 2017
| 5,084 shares of restricted stock were granted at a weighted average estimated fair value of $151.63 per share.
|
Q2 2017
| 7,843 shares of restricted stock were granted at a weighted average estimated fair value of $161.31 per share.
|
Q3 2017
| No restricted stock granted.
|
Q4 2017
| 49,473 shares of restricted stock were granted at a weighted average estimated fair value of $158.46 per share.
|
Q1 2016
| 93,120 shares of restricted stock were granted at a weighted average estimated fair value of $159.46 per share.
|
Q2 2016
| No restricted stock granted.
|
Q3 2016
| 255 shares of restricted stock were granted at a weighted average estimated fair value of $146.20 per share.
|
Q4 2016
| 3,944 shares of restricted stock were granted at a weighted average estimated fair value of $164.77 per share.
|
may be purchased by eligible employees under the FactSet Research Systems Inc. Employee Stock Purchase Plan, Fair Value Determinations
as Amended and Restated (the "ESPP") in three-month intervals. The purchase price is equal to 85% of the lesser of the fair market value of the Company’s common stock on the first day or the last day of each three-month offering period. Employee purchases may not exceed 10% of their gross compensation and there is a $25,000 contribution limit per employee during an offering period. Dividends paid on shares held in the ESPP are used to purchase additional ESPP shares at the market price on the dividend payment date.
During fiscal
2018,2020, employees purchased
42,606 shares at a weighted average price of $234.41 compared to 48,532 shares at a weighted average price of $205.64 in fiscal 2019 and 64,230 shares at a weighted average price of $160.34
compared to 75,372 shares at a weighted average price of $136.34 in fiscal
2017 and 73,072 shares at a weighted average price of $131.14 in fiscal 2016.2018. Stock-based compensation expense recorded during fiscal
2018, 20172020, 2019 and
20162018 relating to the employee stock purchase plan was
$2.1 million, $2.0 million and $1.6 million,
$2.1 million and $1.9 million, respectively.
At August 31, 2020, the ESPP had 177,804 shares reserved for future issuance.
The Company uses the Black-Scholes model to calculate the estimated fair value for the employee stock purchase plan. The weighted average estimated fair value of employee stock purchase plan grants during fiscal years
2020, 2019 and 2018,
2017was $50.69, $41.06 and
2016, was $31.83
$28.16 and $26.87 per share, respectively, with the following weighted average assumptions:
| | | 2018 | | | 2017 | | | 2016 | |
Risk-free interest rate | | | 1.55 | % | | | 0.69 | % | | | 0.22 | % |
Expected life (months) | | | 3 | | | | 3 | | | | 3 | |
Expected volatility | | | 10.19 | % | | | 8.6 | % | | | 10.7 | % |
Dividend yield | | | 1.27 | % | | | 1.25 | % | | | 1.18 | % |
Accuracy of Fair Value Estimates
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| Risk-free interest rate | 0.95 | % | | 2.33 | % | | 1.55 | % |
| Expected life (months) | 3 | | 3 | | 3 |
| Expected volatility | 20.04 | % | | 10.89 | % | | 10.19 | % |
| Dividend yield | 1.08 | % | | 1.12 | % | | 1.27 | % |
17. EMPLOYEE BENEFIT PLANS
Defined Contribution Plan
The Company established its 401(k) Plan in fiscal 1993. The 401(k) Plan is responsiblea defined contribution plan covering all full-time, U.S. employees of the Company and is subject to the provisions of the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986 ("IRC"). Each year, participants may contribute up to 60% of their eligible annual compensation, subject to annual limitations established by the IRC. The Company matches up to 4% of employees’ earnings, capped at the Internal Revenue Service annual maximum. Company matching contributions are subject to a five-year graduated vesting schedule. All full-time, U.S. employees are eligible for determining the assumptions usedmatching contribution by the Company. The Company contributed $11.3 million, $10.9 million, and $11.6 million in estimatingmatching contributions to employee 401(k) accounts during fiscal 2020, 2019 and 2018, respectively.
18. SEGMENT INFORMATION
Operating segments are defined as components of an enterprise that have the fair value offollowing characteristics: (i) it engages in business activities from which it may earn revenue and incur expense, (ii) its share-based payment awards.operating results are regularly reviewed by the company’s chief operating decision maker ("CODM") for resource allocation decisions and performance assessment, and (iii) its discrete financial information is available. The Company's Chief Executive Officer functions as the CODM.
The Company's operating segments are aligned with how the Company, including its CODM, manages the business and the geographic markets in which it serves, with a primary focus on providing integrated global financial and economic information. The Company’s determinationinternal financial reporting structure is based on 3 segments: the Americas, EMEA and Asia Pacific. Withing each of fair valuethe segments, the Company primarily delivers insight and information through four workflow solutions including Research, Analytics and Trading, CTS and Wealth. These workflow solutions provide global financial and economic information to investment managers, investment banks and other financial services professionals.
The Americas segment serves our clients throughout North, Central, and South America. The EMEA segment serves our clients in countries in Europe and Africa. The Asia Pacific segment serves our clients in countries in Asia and Australia. Segment revenue reflects direct sales to clients based in these respective geographic locations.
Each segment records compensation expense (including stock-based compensation), depreciation of share-based payment awards on the datefurniture and fixtures, amortization of grant using an option-pricing model is affected by the Company’s stock pricelease ROU assets, leasehold improvements and intangible assets, as well as assumptions regarding a number of highly complexcommunication costs, professional fees, rent expense, travel, office and subjective variables. These variables include butother direct expenses. Expenditures associated with the Company’s data centers, third-party data costs and corporate headquarters charges are recorded by the Americas segment and are not limitedallocated to the other segments. The content collection centers, located in India, the Philippines, and Latvia, benefit all the Company’s expected stock price volatility overoperating segments and thus the termexpenses incurred at these locations are allocated to each segment based on a percentage of revenue.
Segment Information
Segment Results of Operations
The following tables reflect the results of operations of the awards, interest rates, option forfeiture rates and actual and projected employee stock option exercise behaviors. Option-pricing models were developed for use in estimatingCompany's segments:
| | | | | | | | | | | | | | |
| (in thousands) | | | | |
| Year Ended August 31, 2020 | Americas | EMEA | Asia Pacific | Total |
| Revenue from clients | $ | 929,444 | | $ | 422,203 | | $ | 142,464 | | $ | 1,494,111 | |
| Segment operating profit | 168,909 | | 179,831 | | 90,920 | | 439,660 | |
| Depreciation and amortization | 36,128 | | 14,338 | | 7,148 | | 57,614 | |
| Stock-based compensation | 28,780 | | 6,576 | | 1,223 | | 36,579 | |
| Capital expenditures | 60,204 | | 2,079 | | 15,359 | | 77,642 | |
| | | | | | | | | | | | | | |
| Year Ended August 31, 2019 | Americas | EMEA | Asia Pacific | Total |
| Revenue from clients | $ | 894,554 | | $ | 408,084 | | $ | 132,713 | | $ | 1,435,351 | |
| Segment operating profit | 179,374 | | 179,258 | | 79,403 | | 438,035 | |
| Depreciation and amortization | 40,018 | | 14,703 | | 5,742 | | 60,463 | |
| Stock-based compensation | 26,152 | | 5,320 | | 928 | | 32,400 | |
| Capital expenditures | 43,647 | | 2,595 | | 13,128 | | 59,370 | |
| | | | | | | | | | | | | | |
| Year Ended August 31, 2018 | Americas | EMEA | Asia Pacific | Total |
| Revenue from clients | $ | 841,908 | | $ | 387,589 | | $ | 120,648 | | $ | 1,350,145 | |
| Segment operating profit | 148,095 | | 148,977 | | 69,132 | | 366,204 | |
| Depreciation and amortization | 37,453 | | 15,710 | | 4,122 | | 57,285 | |
| Stock-based compensation | 26,014 | | 4,857 | | 645 | | 31,516 | |
| Capital expenditures | 20,358 | | 3,140 | | 10,022 | | 33,520 | |
Segment Total Assets
The following table reflects the value of traded options that have no vesting or hedging restrictions and are fully transferable.
17. INCOME TAXES
Income tax expense is based on taxable income determined in accordance with current enacted laws and tax rates. Deferred income taxes are recordedtotal assets for the temporary differences betweenCompany's segments:
| | | | | | | | |
| As of August 31, |
| (in thousands) | 2020 | 2019 |
| Segment Assets | | |
| Americas | $ | 1,111,600 | | $ | 851,014 | |
| EMEA | 757,524 | | 588,911 | |
| Asia Pacific | 214,264 | | 120,205 | |
| Total assets | $ | 2,083,388 | | $ | 1,560,130 | |
Geographic Information
The following tables reflect FactSet revenues and long-lived assets, split geographically by the
financial statement and tax basesCompany's country of
assets and liabilities using currently enacted tax rates.Provision for Income Taxes
The provision for income taxes is as follows:
| | | Years ended August 31, | |
(in thousands) | | 2018 | | | 2017 | | | 2016 | |
U.S. operations | | $ | 199,654 | | | $ | 218,650 | | | $ | 353,434 | |
Non-U.S. operations | | | 152,184 | | | | 125,662 | | | | 107,559 | |
Income before income taxes | | $ | 351,838 | | | $ | 344,312 | | | $ | 460,993 | |
| | | | | | | | | | | | | |
U.S. operations | | $ | 65,778 | | | $ | 65,403 | | | $ | 106,671 | |
Non-U.S. operations | | | 18,975 | | | | 20,650 | | | | 15,507 | |
Total provision for income taxes | | $ | 84,753 | | | $ | 86,053 | | | $ | 122,178 | |
Effective tax rate | | | 24.1 | % | | | 25.0 | % | | | 26.5 | % |
The components of the provision for income taxes consist of the following:
| | | Years ended August 31, | |
(in thousands) | | 2018 | | | 2017 | | | 2016 | |
Current | | | | | | | | | | | | |
U.S. federal | | $ | 58,835 | | | $ | 58,057 | | | $ | 97,703 | |
U.S. state and local | | | 5,159 | | | | 5,659 | | | | 4,917 | |
Non-U.S. | | | 22,669 | | | | 17,458 | | | | 15,030 | |
Total current taxes | | $ | 86,663 | | | $ | 81,174 | | | $ | 117,650 | |
| | | | | | | | | | | | | |
Deferred | | | | | | | | | | | | |
U.S. federal | | $ | 2,079 | | | $ | 4,320 | | | $ | 3,915 | |
U.S. state and local | | | (295 | ) | | | (77 | ) | | | 136 | |
Non-U.S. | | | (3,694 | ) | | | 636 | | | | 477 | |
Total deferred taxes | | $ | (1,910 | ) | | $ | 4,879 | | | $ | 4,528 | |
Total provision for income taxes | | $ | 84,753 | | | $ | 86,053 | | | $ | 122,178 | |
The provision for income taxes differs from the amount of income tax determined by applying the U.S. statutory federal income tax rate to income before income taxes as a result of the following factors:
| | | Years ended August 31, | | |
(expressed as a percentage of income before income taxes) | | 2018 | | | 2017 | | | | 2016 | | |
Tax at U.S. Federal statutory tax rate | | | 25.7 | % | | | 35.0 | % | | | | 35.0 | % | |
Increase (decrease) in taxes resulting from: | | | | | | | | | | | | | | |
State and local taxes, net of U.S. federal income tax benefit | | | 2.9 | | | | 1.8 | | | | | 1.5 | | |
Foreign income at other than U.S. rates | | | (3.2 | ) | | | (7.0 | ) | (3) | | | (5.0 | ) | (4) |
Domestic production activities deduction | | | (1.6 | ) | | | (2.1 | ) | | | | (1.5 | ) | |
Income tax benefits from R&D tax credits | | | (3.7 | ) | | | (3.3 | ) | | | | (3.6 | ) | |
Income tax benefits from foreign tax credits | | | — | | | | (0.3 | ) | | | | (0.2 | ) | |
Share-Based Payments(1) | | | (2.7 | ) | | | — | | | | | — | | |
One-time transition tax from TCJA(2) | | | 6.6 | | | | — | | | | | — | | |
Other, net | | | 0.1 | | | | 0.9 | | | | | 0.3 | | |
Effective tax rate | | | 24.1 | % | | | 25.0 | % | | | | 26.5 | % | (5) |
| (1)
| During the first quarter of fiscal 2018, FactSet adopted an accounting standard that requires all excess tax benefits or deficiencies related to share-based payments to be reported within the consolidated statement of incomethat were previously reported within equity. The adoption of this standard resulted in the recognition of $9.5 million of excess tax benefits to FactSet’s provision for income taxes during fiscal 2018.
|
| (2)
| The enactment of the TCJA resulted in a one-time transition tax expense of $23.2 million during the second quarter of fiscal 2018.
|
| (3)
| Includes a 200 basis point benefit as a result of FactSet’s global realignment. Effective September 1, 2016, FactSet realigned certain aspects of its global operations from FactSet Research Systems Inc., its U.S. parent company, to FactSet UK Limited, a U.K. operating company, to better position the Company to serve its growing client base outside the U.S. This realignment allows the Company to further implement strategic corporate objectives and helps achieve operational and financial efficiencies, while complementing FactSet’s increasing global growth and reach.
|
| (4)
| Includes a portion of the gain from the sale of the Market Metrics business that was not taxable in the UK
|
| (5)
| The fiscal 2016 effective tax rate of 26.5% includes income tax benefits of $10.5 million primarily from the permanent reenactment of the U.S. Federal R&D Tax Credit (“R&D tax credit”) in December 2015, finalizing the fiscal 2015 tax returns and other discrete items.The reenactment of the R&D tax credit was retroactive to January 1, 2015, and eliminates the yearly uncertainty surrounding the extension of the credit.
|
FactSet’s effective tax rate is based on recurring factors and nonrecurring events, including the taxation of foreign income. The Company’s effective tax rate will vary based on, among other things, changes in levels of foreign income, as well as discretedomicile (the United States) and other nonrecurring events that may not be predictable. On December 22, 2017, the U.S. government enacted comprehensive tax legislation through the TCJA. countries where major subsidiaries are domiciled.
Geographic Revenue
The
TCJA significantly revises the U.S. corporate income tax including, lowering the statutory U.S. corporate income tax rate from 35%following table sets forth revenue by geography, attributed to
21%, effective January 1, 2018, implementing a modified territorial tax system and imposing a mandatory one-time transition tax on accumulated earnings and profits (“E&P”) of foreign subsidiaries that were previously deferred from U.S. income taxes. While the company has not finalized the accounting for the tax effects of the enactment of the TCJA, FactSet has made a reasonable estimate of the effects on the existing U.S. deferred tax balances and the one-time transition tax. The Company will continue to refine its calculations as additional analyses are completed. In addition, the estimates may also be affected by changes in interpretations at the federal and state levels, and any additional regulatory guidance that may be issued.FactSet had approximately $250.0 million in undistributed foreign E&P generated prior to December 31, 2017, which resulted in a one-time transition tax expense of $23.2 million recorded during the second quarter of fiscal 2018, payable over an eight-year period. This amount may change as the Company finalizes the calculation of foreign E&P previously deferred from U.S. federal taxation, as well as the analysis of available foreign tax credits. Due to the changes in taxation of undistributed foreign earnings under the TCJA, FactSet will continue to analyze foreign subsidiary earnings, as well as global working capital requirements, and may repatriate earnings when the amounts are remitted substantially free of additional tax.
Due to FactSet’s August 31st fiscal year-end, the lower tax rate was phased in, resulting in a blended U.S. statutory federal rate of 25.7% for the full fiscal 2018 year and a 21% rate for subsequent years. The reduction in the statutory federal rate also required the remeasurement of the Company’s net U.S. deferred tax position, which resulted in a non-recurring tax charge of $2.3 million. The provisional expense related to the one-time transition tax on the undistributed foreign earnings and the non-recurring tax charge from the remeasurement of deferred taxes were partially offset by the lower blended U.S. statutory rate and the recognition of excess tax benefits from the adoption of the employee share-based payment accounting standard.
Deferred Tax Assets and Liabilities
The significant components of deferred tax assets that recorded within the Consolidated Balance Sheet were as follows:
| | | At August 31, | |
(in thousands) | | 2018 | | | 2017 | |
Deferred tax assets: | | | | | | | | |
Receivable reserve | | $ | 599 | | | $ | 811 | |
Depreciation on property, equipment and leasehold improvements | | | 1,032 | | | | 2,220 | |
Deferred rent | | | 7,711 | | | | 11,615 | |
Stock-based compensation | | | 14,827 | | | | 20,117 | |
Purchased intangible assets, including acquired technology | | | (24,059 | ) | | | (32,742 | ) |
Other | | | 9,606 | | | | 8,059 | |
Total deferred tax assets | | $ | 9,716 | | | $ | 10,080 | |
The significant components of deferred tax liabilities recorded within the Consolidated Balance Sheet were as follows:
| | | At August 31, | |
(in thousands) | | 2018 | | | 2017 | |
Deferred tax liabilities: | | | | | | | | |
Stock-based compensation | | $ | (946 | ) | | $ | (815 | ) |
Purchased intangible assets, including acquired technology | | | 22,429 | | | | 26,231 | |
Other | | | (293 | ) | | | 1,858 | |
Total deferred tax liabilities | | $ | 21,190 | | | $ | 27,274 | |
Unrecognized Tax Positions
Applicable accounting guidance prescribes a comprehensive model for the financial statement recognition, measurement, classification and disclosure of uncertain tax positions that a company has taken or expects to take on a tax return. A company can recognize the financial effect of an income tax position only if it is more likely than not (greater than 50%) that the tax position will prevail upon tax examination, based solely on the technical merits of the tax position. Otherwise, no benefit or expense can be recognized in the consolidated financial statements. The tax benefits recognized are measuredcountries based on the largest benefit that has a greater than fifty percent likelihoodlocation of being realized upon ultimate settlement. Additionally, companies are required to accrue interest on all tax exposures for which reserves have been established consistent with jurisdictional tax laws.
As of August 31, 2018, the Company had gross unrecognized tax benefits totaling $9.2 million, including $1.1 million of accrued interest, recorded as Non-current taxes payable within the Consolidated Balance Sheet. Unrecognized tax benefits represent tax positions taken on tax returns but not yet recognized in the consolidated financial statements. When applicable, the Company adjusts the previously recorded tax expense to reflect examination results when the position is ultimately settled. The Company regularly engages in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. It is reasonably possible that certain federal, foreign, and state tax matters may be concluded in the next 12 months. However, FactSet has no reason to believe that such audits will result in the payment of additional taxes and/or penalties that would have a material adverse effect on the Company’s results of operations or financial position, beyond current estimates. Any changes in accounting estimates resulting from new developments with respect to uncertain tax positions will be recorded as appropriate. The Company does not currently anticipate that the total amounts of unrecognized tax benefits will significantly change within the next 12 months.
client: | | | | | | | | | | | | | | | | | |
| (in thousands) | Years ended August 31, |
| 2020 | | 2019 | | 2018 |
| Revenues | | | | | |
| United States | $ | 885,082 | | | $ | 854,675 | | | $ | 806,426 | |
| United Kingdom | 179,966 | | | 166,944 | | | 157,346 | |
| Other European Countries | 242,237 | | | 241,140 | | | 230,243 | |
| All Other Countries | 186,826 | | | 172,592 | | | 156,130 | |
| Total revenue | $ | 1,494,111 | | | $ | 1,435,351 | | | $ | 1,350,145 | |
Geographic Long-Lived Assets
The following table
summarizes the changes in the balancesets forth long-lived assets by geographic area. Long-lived assets consist of
gross unrecognized tax benefits:Property, equipment and leasehold improvements, net and Lease right-of-use assets, net and excludes goodwill, intangible assets, deferred taxes and other assets.(in thousands) | | | | |
Unrecognized income tax benefits at August 31, 2015 | | $ | 6,776 | |
Additions based on tax positions related to the current year | | | 1,779 | |
Additions for tax positions of prior years | | | 1,436 | |
Statute of limitations lapse | | | (1,209 | ) |
Unrecognized income tax benefits at August 31, 2016 | | $ | 8,782 | |
Additions based on tax positions related to the current year | | | 3,896 | |
Additions for tax positions of prior years | | | 628 | |
Statute of limitations lapse | | | (1,822 | ) |
Unrecognized income tax benefits at August 31, 2017 | | $ | 11,484 | |
Additions based on tax positions related to the current year | | | 2,954 | |
Additions for tax positions of prior years | | | 531 | |
Statute of limitations lapse | | | (3,146 | ) |
Reductions from settlements with Taxing Authorities | | | (2,600 | ) |
Unrecognized income tax benefits at August 31, 2018 | | $ | 9,223 | |
| | | | | | | | | | | |
| (in thousands) | At August 31, |
| 2020 | | 2019 |
| Long-lived Assets | | | |
| United States | $ | 205,929 | | | $ | 86,238 | |
| Philippines | 53,124 | | | 4,188 | |
| India | 42,923 | | | 15,051 | |
| United Kingdom | 32,184 | | | 5,347 | |
| All Other Countries | 47,871 | | | 8,560 | |
| Total long-lived assets | $ | 382,031 | | | $ | 119,384 | |
19. RISKS AND CONCENTRATIONS OF CREDIT RISK
Financial Risk Management
Foreign Currency Exchange Risk
In the normal course of business,
the Company’s tax filings are subject to audit by federal, state and foreign tax authorities. At August 31, 2018, the Company remained subject to examination in the following major tax jurisdictions for the tax years as indicated below:Major Tax Jurisdictions | | Open Tax Years | |
U.S. | | | | | | |
Federal | | | 2015 | through | 2018 | |
State (various) | | | 2015 | through | 2018 | |
| | | | | | | |
Europe | | | | | | |
United Kingdom | | | 2015 | through | 2018 | |
France | | | 2016 | through | 2018 | |
Germany | | | 2017 | through | 2018 | |
18. DEBT
FactSet’s debt obligations consisted of the following:
| | | At August 31, | |
(in thousands) | | 2018 | | | 2017 | |
2017 Revolving Credit Facility (maturity date of March 17, 2020) | | $ | 575,000 | | | $ | 575,000 | |
On March 17, 2017, the Company entered into a Credit Agreement (the “2017 Credit Agreement”) between FactSet, as the borrower, and PNC Bank, National Association (“PNC”), as the administrative agent and lender. The 2017 Credit Agreement provides for a $575.0 million revolving credit facility (the “2017 Revolving Credit Facility”). FactSet may request borrowings under the 2017 Revolving Credit Facility until its maturity date of March 17, 2020. The 2017 Credit Agreement also allows FactSet, subject to certain requirements, to arrange for additional borrowings with PNC for an aggregate amount of up to $225.0 million, provided that any such request for additional borrowings must be in a minimum amount of $25.0 million. Borrowings under the loan bear interest on the outstanding principal amount at a rate equal to the daily LIBOR rate plus 1.00%. Interest on the loan outstanding is payable quarterly in arrears and on the maturity date. There are no prepayment penalties if the Company elects to prepay the outstanding loan amounts prior to the scheduled maturity date. The principal balance is payable in full on the maturity date.
In conjunction with FactSet’s entrance into the 2017 Credit Agreement, the Company borrowed $575.0 million in the form of a LIBOR rate loan under the 2017 Revolving Credit Facility and retired the outstanding debt under its previous credit agreement between FactSet, as the borrower, and Bank of America, N.A., as the lender. The total principal amount of the debt outstanding at the time of retirement was $365.0 million and there were no prepayment penalties. Proceeds from the 2017 Revolving Credit Facility were also used to fund FactSet’s acquisition of BISAM.
All outstanding loan amounts are reported as Long-term debt within the Consolidated Balance Sheet at August 31, 2018. During fiscal years 2018, 2017 and 2016, FactSet recorded interest expense of $15.9 million, $8.4 million and $3.0 million, respectively, on its outstanding debt amounts. The principal balance is payable in full on the maturity date.
As of August 31, 2018, no commitment fee was owed by FactSet since it borrowed the full amount under the 2017 Credit Agreement. In fiscal 2017, FactSet incurred approximately $0.4 million in legal costs to draft and review the 2017 Credit Agreement. These costs were capitalized as loan origination fees and are amortized into interest expense over the term of the loan using the effective interest method.
The 2017 Credit Agreement contained covenants restricting certain FactSet activities, which are usual and customary for this type of loan.
In addition, the 2017 Credit Agreement required that FactSet maintain a consolidated leverage ratio, as measured by total funded debt/EBITDA below a specified level as of the end of each fiscal quarter. The Company was in compliance with all the covenants of the 2017 Credit Agreement as of August 31, 2018.
19. COMMITMENTS AND CONTINGENCIES
Commitments represent obligations, such as those for future purchases of goods or services that are not yet recorded on the balance sheet as liabilities. FactSet records liabilities for commitments when incurred (i.e., when the goods or services are received).
Lease Commitments
At August 31, 2018, FactSet was leasing approximately 202,000 square feet of existing office space for its headquarters at 601 Merritt 7, Norwalk, Connecticut. On February 14, 2018, the Company entered a new lease to relocate its corporate headquarters to 45 Glover Avenue in Norwalk, Connecticut. The new location will comprise approximately 173,000 square feet of office space. FactSet expects to take possession of the newly leased property on or around January 1, 2019, for fit-out purposes. The Company will continue to occupy its existing headquarters space until the new headquarters property is ready for occupancy, currently estimated to be in the second quarter of fiscal 2020.
Including new lease agreements executed during fiscal 2018, the Company’s worldwide leased office space increased to approximately 1,750,000 square feet of office space under various non-cancelable operating leases which expire on various dates through 2031. Total minimum rental payments associated with the leases are recorded as rent expense (a component of Selling, General & Administrative expense) on a straight-line basis over the periods of the respective non-cancelable lease terms. Future minimum commitments for the Company’s operating leases in place as of August 31, 2018, including the fully executed lease for its new headquarters in Norwalk, Connecticut are as follows:
(in thousands) Years ended August 31, | | Minimum Lease Payments | |
2019 | | $ | 41,094 | |
2020 | | | 37,846 | |
2021 | | | 35,505 | |
2022 | | | 32,819 | |
2023 | | | 30,524 | |
Thereafter | | | 229,977 | |
Total | | $ | 407,765 | |
During fiscal 2018, 2017 and 2016, rent expense (including operating costs) for all operating leases amounted to $54.6 million, $48.4 million and $43.2 million, respectively. At August 31, 2018 and 2017, deferred rent reported within the Consolidated Balance Sheets totaled $39.4 million and $37.4 million, of which $33.6 million and $33.5 million, respectively, was reported as a non-current liability within the line item Deferred Rent and Other Non-Current Liabilities.
Approximately $2.0 million of standby letters of credit have been issued during the ordinary course of business in connection with the Company’s current leased office space as of August 31, 2018. These standby letters of credit contain covenants that, among other things, require FactSet to maintain minimum levels of consolidated net worth and certain leverage and fixed charge ratios. As of August 31, 2018 and 2017, FactSet was in compliance with all covenants contained in the standby letters of credit.
Purchase Commitments with Suppliers
Purchase obligations represent payments due in future periods in respect of commitments to the Company’s various data vendors as well as commitments to purchase goods and services such as telecommunication and computer maintenance services. These purchase commitments are agreements that are enforceable and legally binding on FactSet, and they specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. As of August 31, 2018 and 2017, the Company had total purchase commitments with suppliers of $79.0 million and $81.0 million, respectively. There were no material changes in the Company’s purchase commitments with suppliers during fiscal 2018.
Contingencies
Income Taxes
Uncertain income tax positions are accounted for in accordance with applicable accounting guidance (see Note 17). FactSet is currently under audit by tax authorities and has reserved for potential adjustmentsexposed to its provision for income taxes that may result from examinations by, or any negotiated settlements with, these tax authorities. The Company believes that the final outcome of these examinations or settlements will not have a material effect on its results of operations. If events occur which indicate payment of these amounts is unnecessary, the reversal of the liabilities would result in the recognition of tax benefits in the period FactSet determines the liabilities are no longer necessary. If the Company’s estimates of the federal, state, and foreign income tax liabilities are less than the ultimate assessment, a further charge to expense would result.
Legal Matters
FactSet accrues non income-tax liabilities for contingencies when management believes that a loss is probable, and the amounts can be reasonably estimated, while contingent gains are recognized only when realized. The Company is engaged in various legal proceedings, claims and litigation that have arisen in the ordinary course of business, including employment matters, commercial and intellectual property litigation. The outcome of all the matters against the Company is subject to future resolution, including the uncertainties of litigation. Based on information available at August 31, 2018, FactSet’s management believes that the ultimate outcome of these unresolved matters against the Company, individually or in the aggregate, will not have a material adverse effect on the Company's consolidated financial position, its results of operations or its cash flows.
Sales Tax Matters
In the third quarter of fiscal 2018, FactSet received a letter from the Massachusetts Department of Revenue relating to prior tax periods. The letter requested additional sales information in order to determine if a notice of intent to assess should be issued to FactSet. Based upon a preliminary review of their request, the Company believes the state may assess sales tax, and underpayment penalties and interest, on previously recorded sales transactions. Due to the uncertainty surrounding the assessment process, the Company is unable to reasonably estimate the ultimate outcome of this matter and, as such, has not recorded a liability as of August 31, 2018. While FactSet believes that it will ultimately prevail if the Company is presented with a formal assessment and is required to pay it, the amount could have a material impact on the Company’s consolidated financial position, cash flows and results of operations.
Indemnifications
As permitted or required under Delaware law and to the maximum extent allowable under that law, FactSet has certain obligations to indemnify its current and former officers and directors for certain events or occurrences while the officer or director is, or was serving, at FactSet’s request in such capacity. These indemnification obligations are valid as longcurrency exchange risk as the director or officer acted in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of the Company, and with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The maximum potential amount of future payments FactSet could be required to make under these indemnification obligations is unlimited; however, FactSet has a director and officer insurance policy that it believes mitigates FactSet's exposure and may enable FactSet to recover a portion of any future amounts paid. The Company believes the estimated fair value of these indemnification obligations is immaterial.
20. RISKS AND CONCENTRATIONS OF CREDIT RISK
Financial Risk Management
Foreign Currency Exchange Risk
The Company conducts business outside the U.S. in several currencies including the British Pound Sterling, Euro, Indian Rupee, Japanese Yen and Philippine Peso. The financial statements of these foreign subsidiaries are translatedChanges in the exchange rates for such currencies into U.S. dollars using period-end ratescan affect our revenues, earnings, and the carrying values of exchange forour assets and liabilities and average rates for the period for revenues and expenses. in our consolidated balance sheet, either positively or negatively.
To manage the exposures related to the effects of foreign exchange rate fluctuations, the Company utilizes derivative instruments (foreign currency forward contracts). The changes in fair value for these foreign currency forward contracts are initially reported as a component of AOCL and subsequently reclassified into operating expenses when the hedged exposure affects earnings.
By their nature, all derivative instruments involve, to varying degrees, elements of market and credit risk. The market risk associated with these instruments resulting from currency exchange movements is expected to offset the market risk of the underlying transactions, assets and liabilities being hedged. FactSet does not believe there is significant risk of loss in the event of non-performance by the counterparties associated with these instruments because these transactions are executed with a major financial institution.institutions. Further, the Company’s policy is to deal with counterparties having a minimum investment grade
or better creditcredit rating. Credit risk is managed through the continuous monitoring of exposures to such counterparties. FactSet’s primary objective in holding derivatives is to reduce the volatility of earnings associated with changes in foreign currency. Refer to Note 6, Derivative Instruments for more information on our foreign currency exposures and our foreign currency forward contracts.
Interest Rate Risk
Cash and Cash Equivalents - and Investments
The fair market value of FactSet’sour cash and cash equivalents and investments at August 31, 20182020 was $237.9$605.2 million. The Company’sOur cash and cash equivalents consist of demand deposits and money market funds with original maturities of three months or less and are reported at fair value. The Company’s investments consistWe are exposed to interest rate risk through fluctuations of both mutual funds and certificates of deposit as both are part of the Company’s investment strategy. These mutual funds and certificates of deposit are included as Investments (short term)interest rates on the Company’s Consolidated Balance Sheet as the certificates of depositour investments. As we have original maturities greater than three months, but less than one year and the mutual funds can be liquidated at the Company’s discretion. The mutual funds and certificates of deposit are held for investment and are not considered debt securities. It is anticipated that the fair market value of the Company’s cash and investments will continue to be immaterially affected by fluctuations in interest rates. Preservation of principal is the primary goal of FactSet’s cash and investment policy. Pursuant to established investment guidelines, the Company tries to achieve high levels of credit quality, liquidity and diversification. Its investment guidelines do not permit FactSet to invest in puts, calls, strips, short sales, straddles, options, commodities, precious metals, futures or investments on margin. Because the Company has a restrictive investment policy, itsour financial exposure to fluctuations in interest rates is expected to remain low. The Company does not believe that the value or liquidity
Refer to Note 3, Summary of itsSignificant Accounting Policies for more information on our cash and investments have been significantly impacted by current market events.cash equivalents.
Debt-
As of August 31,
2018,2020, the
fair value of FactSet’s long-termCompany had long term debt
was $575.0 million, which approximated its carrying amount and was determined based on quoted market prices for debtoutstanding under the 2019 Revolving Credit Facility, with a
similar maturity. It is anticipated that the fair market valueprincipal balance of
FactSet’s debt will continue to be immaterially affected by fluctuations in interest rates and the Company does not believe that the value of its debt has been significantly impacted by current market events.$575.0 million. The debt bears interest on the outstanding
principal amountprinciple at a rate equal to
the daily LIBOR
rate plus a spread, using a debt leverage pricing
grid currently at 1.00%. During fiscal 2018 and fiscal 2017, the Company recorded interest expensegrid. The variable rate of
$15.9 million and $8.4 million in interest on
itsour long-term debt can expose us to interest rate volatility due to changes in LIBOR. To mitigate this exposure, on March 5, 2020, we entered into an interest rate swap agreement with a notional amount of $287.5 million to hedge the variable interest rate obligation, effectively converting the floating interest rate to fixed for the hedged portion. Thus, we are only exposed to base interest rate risk on floating rate borrowings in excess of any amounts that are not hedged, or $287.5 million of our outstanding
debt amounts, respectively.principal balance. Assuming all terms of the Company’s outstanding long-term debt remained the same, a hypothetical 25 basis point change (up or down) in the one-month LIBOR
rate would result in a
$1.4$0.7 million change in its annual interest expense.
Refer to Note 12, Debt for additional information regarding our outstanding debt obligations.
Current market events have not required the Company to modify materially or change its financial risk management strategies with respect to its exposures to foreign currency exchange risk and interest rate risk. Concentrations of Credit Risk
Cash and cash equivalents are maintained primarily with five financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. These deposits may be redeemed upon demand and are maintained with financial institutions, with reputable credit, and therefore, bear minimal credit risk. The Company seeks to mitigate its credit risks by spreading such risks across multiple counterparties and monitoring the risk profiles of these counterparties.
Accounts receivable are unsecured and are derived from
revenuesrevenue earned from clients located around the globe. FactSet does not require collateral from its clients but performs credit evaluations on an ongoing basis. The Company maintains reserves for potential write-offs and evaluates the adequacy of the reserves periodically. These losses have historically been within expectations. No single client represented 10% or more of FactSet's total
revenuesrevenue in any fiscal year presented. At August 31,
2018,2020, the Company’s largest individual client accounted for approximately
2%3% of total annual subscriptions, and subscriptions from the ten largest clients did not surpass 15% of total annual subscriptions, consistent with August 31,
2017.2019. As of August 31,
20182020 and
2017,2019, the receivable reserve was
$3.5$8.0 million and
$2.7$10.5 million, respectively.
As a result of the use of derivative instruments, the CompanyFactSet is exposed to counterparty credit risk. FactSetThe Company has incorporated counterparty credit risk into the fair value of its derivative assets and its own credit risk into the value of the Company’s derivative liabilities, when applicable. FactSetFor derivative instruments, the Company calculates credit risk from observable data related to credit default swaps (“CDS”("CDS") as quoted by publicly available information. Counterparty risk is represented by CDS spreads related to the senior secured debt of the respective bank with whom FactSetthe Company has executed these derivative transactions. As CDS spread information is not available for FactSet, the Company’s credit risk is determined based on using a simple average of CDS spreads for peer companies. To mitigate counterparty credit risk, FactSetthe Company enters into contracts with large financial institutions and
regularly reviews its credit exposure balances as well as the creditworthiness of the counterparties. For the Company's liabilities, as CDS spread information is not available for FactSet, the Company's credit risk is determined based on using a simple average of CDS spreads for peer companies. The Company does not expect any losses as a result of default of its counterparties. ConcentrationsConcentration of Other Risk
Certain data sets that FactSet relies on have a limited number of suppliers, although the Company makes every effort to assure that, where reasonable, alternative sources are available. However, FactSet is not dependent on any one third-party data supplier in order to meet the needs of its clients. FactSet combines the data from these commercial databases into its own dedicated single online service, which the client accesses to perform their analysis. No single vendor or data supplier represented more than 10% of FactSet's total data expensescosts during fiscal 2020, except for one vendor, which is a supplier of risk models and portfolio optimizer data to FactSet and represented 11% of FactSet’s data costs in any fiscal year presented.
2020.
20. UNAUDITED QUARTERLY FINANCIAL DATA
The following table presents selected unaudited financial information for each of the quarterly periods in the years ended August 31,
20182020 and
2017.2019. The results for any quarter are not necessarily indicative of future quarterly results and, accordingly, period-to-period comparisons should not be relied upon as an indication of future performance.
Fiscal 2018 (in thousands, except per share data) | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | | |
Revenues | | $ | 329,141 | | | $ | 335,231 | | | $ | 339,911 | | | $ | 345,861 | | |
| | Fiscal 2020 (in thousands, except per share data) | | Fiscal 2020 (in thousands, except per share data) | First
Quarter | Second
Quarter | Third
Quarter | Fourth
Quarter |
| Revenue | | Revenue | $ | 366,658 | | $ | 369,780 | | $ | 374,083 | | $ | 383,590 | |
Cost of services | | $ | 161,524 | | | $ | 163,232 | | | $ | 165,073 | | | $ | 169,467 | | Cost of services | $ | 164,957 | | $ | 176,218 | | $ | 170,703 | | $ | 183,568 | |
Selling, general and administrative | | $ | 78,519 | | | $ | 76,514 | | | $ | 81,573 | | | $ | 88,038 | | Selling, general and administrative | $ | 88,515 | | $ | 87,305 | | $ | 81,740 | | $ | 101,445 | |
Operating income | | $ | 89,098 | | | $ | 95,485 | | | $ | 93,265 | | | $ | 88,356 | | Operating income | $ | 113,186 | | $ | 106,257 | | $ | 121,640 | | $ | 98,577 | |
Net income | | $ | 70,379 | | | $ | 53,137 | | | $ | 74,746 | | | $ | 68,823 | | Net income | $ | 93,957 | | $ | 88,686 | | $ | 101,216 | | $ | 89,079 | |
Diluted EPS(1) | | $ | 1.77 | | | $ | 1.33 | | | $ | 1.91 | | | $ | 1.77 | | Diluted EPS(1) | $ | 2.43 | | $ | 2.30 | | $ | 2.63 | | $ | 2.29 | |
Diluted weighted average common shares | | | 39,680 | | | | 39,846 | | | | 39,104 | | | | 38,879 | | Diluted weighted average common shares | 38,587 | | 38,576 | | 38,481 | | 38,940 | |
Fiscal 2017 (in thousands, except per share data) | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | |
Revenues | | $ | 288,063 | | | $ | 294,354 | | | $ | 312,120 | | | $ | 326,642 | |
Cost of services | | $ | 127,250 | | | $ | 131,635 | | | $ | 146,426 | | | $ | 161,269 | |
Selling, general and administrative | | $ | 70,494 | | | $ | 70,973 | | | $ | 78,052 | | | $ | 82,945 | |
Operating income | | $ | 90,319 | | | $ | 91,746 | | | $ | 87,642 | | | $ | 82,428 | |
Net income | | $ | 66,583 | | | $ | 66,710 | | | $ | 65,414 | | | $ | 59,552 | |
Diluted EPS(1) | | $ | 1.66 | | | $ | 1.68 | | | $ | 1.66 | | | $ | 1.52 | |
Diluted weighted average common shares | | | 40,100 | | | | 39,700 | | | | 39,457 | | | | 39,281 | |
| (1)
| Diluted earnings per common share is calculated independently for each of the periods presented. Accordingly, the sum of the quarterly EPS amounts may not equal the total for the fiscal year.
|
| | | | | | | | | | | | | | |
| Fiscal 2019 (in thousands, except per share data) | First
Quarter | Second
Quarter | Third
Quarter | Fourth
Quarter |
| Revenue | $ | 351,640 | | $ | 354,895 | | $ | 364,533 | | $ | 364,283 | |
| Cost of services | $ | 166,776 | | $ | 165,108 | | $ | 163,832 | | $ | 167,730 | |
| Selling, general and administrative | $ | 84,325 | | $ | 81,099 | | $ | 83,461 | | $ | 84,985 | |
| Operating income | $ | 100,539 | | $ | 108,688 | | $ | 117,240 | | $ | 111,568 | |
| Net income | $ | 84,296 | | $ | 84,702 | | $ | 92,265 | | $ | 91,527 | |
Diluted EPS(1) | $ | 2.17 | | $ | 2.19 | | $ | 2.37 | | $ | 2.34 | |
| Diluted weighted average common shares | 38,809 | | 38,619 | | 38,993 | | 39,056 | |
(1)Diluted earnings per common share is calculated independently for each of the periods presented. Accordingly, the sum ofthe quarterly EPSamounts may not equal the total for thefiscalyear.
21. SUBSEQUENT EVENTS
As previously announced, effective September 21, 2020, the Company entered into an Amendment to the 2019 Credit Agreement (the “Amendment”). The Amendment provides, among other things, that the Company may make an investment in
a person that is not a subsidiary of FactSet, so long as no potential default has occurred and is continuing or would result from such an investment.
As previously announced, on October 20, 2020, FactSet entered into a definitive agreement to acquire all of the issued and outstanding shares of Truvalue Labs, Inc. ("TVL"). The acquisition of TVL further enhances FactSet's commitment to providing industry leading environmental, social, and governance ("ESG") data.
Revenue from TVL will be recognized based on geographic business activities in accordance with how the Company’s operating segments are currently aligned. The Company expects the majority of the TVL purchase price to be allocated to goodwill and acquired intangible assets. The transaction is expected to close during 2020 and is not expected to have a material impact on FactSet’s fiscal 2021 results.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our
The Company's management, including
theits principal executive officer and principal financial officer,
we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as of the end of the annual period covered by this report. Based on that evaluation, the principal executive officer and principal financial officer have concluded that 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, (the “Exchange Act”) are effective
to ensure that information required to be disclosedas of the end of the annual period covered by
us in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.this report.
Changes in Internal Control over Financial Reporting
During the first and third quarters of fiscal 2020, the Company implemented a new general ledger and financial reporting system and a new purchase to payables system, respectively, as part of a multi-year global project to design, configure and install an integrated suite of enterprise software. The implementations have involved changes to certain processes and related internal controls over financial reporting. The Company has reviewed the system and the controls affected and made appropriate changes as necessary.
There have been no
other changes in
ourthe Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
Company's fourth quarter of fiscal
20182020 that have materially affected, or are reasonably likely to materially affect,
ourthe Company's internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
See Item 8. Management’s Report on Internal Control over Financial Reporting under Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference. Report of Independent Registered Public Accounting Firm
See Item 8. Report of Independent Registered Public Accounting Firm under Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference.
ITEM 9B. OTHER INFORMATION
In the Current Report on Form 8-K filed on September 6, 2018, the Company reported in connection with her hiring that Helen L. Shan, its Executive Vice President and Chief Financial Officer, would be granted an annual equity award with a grant date value
None.
Table of $400,000 in conjunction with the Company’s fiscal 2019 equity grant and that such grant was estimated to be made in early November 2018. In fact, this grant is expected to be made in November 2019 in connection with the Company’s 2019 equity grants at the same time as all other annual option grants are made to executives in calendar year 2019. PART
Part III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required
to be furnished by this
item relating to our directors and nominees, relating to compliance with Section 16(a) of the Securities Act of 1934, and relating to our Audit Committee is included under the captions “Corporate Governance” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the definitive Proxy Statement dated October 30, 2018, and all such informationItem 10. is incorporated herein by
reference.reference to our Notice of Annual Meeting of Stockholders and Proxy Statement to be filed within 120 days of August 31, 2020 (the "Proxy Statement").
Pursuant to General Instruction G(3) of Form 10-K, the information required by this item relating to our executive officers is included under the caption “Executivein Item 1. Executive Officers of the Registrant” in Part IRegistrant of this Annual Report on Form 10-K. The Company has adopted a Code of Business Conduct and Ethics that applies to all employees, including the Company’s principal executive officer, principal financial officer and principal accounting officer, all other officers and the Company’s directors. A copy of this code is available on the Company’s website at https://investor.factset.com on the Leadership and Corporate Governance page. The Company intends to satisfy any disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of this code of ethics by posting such information on our website at the address and general location specified above.
The Corporate Governance Guidelines and the charters of the committees of our Board of Directors, including the Audit Committee, Compensation and Talent Committee and Nominating and Corporate Governance Committee, are also available on our website at https://investor.factset.com on the Leadership and Corporate Governance page. The guidelines, charters and code of ethics are also available in print free of charge to any stockholder who submits a written request to our Investor Relations department at our corporate headquarters at 601 Merritt 7,45 Glover Avenue Norwalk, Connecticut 06851.CT 06850.
ITEM 11. EXECUTIVE COMPENSATION
The information required to be furnished by this item relating to compensation is included under the captions “Executive Compensation,” “Compensation Discussion and Analysis,” “Compensation and Talent Committee Report,” “Director Compensation Program,” including “Equity Compensation,” and “Director Compensation Table” of the definitive Proxy Statement dated October 30, 2018, and all such informationItem 11. is incorporated herein by reference.reference to our Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required
to be furnished by this
item relating to security ownership of certain beneficial owners and management is included under the caption “Security Ownership of Certain Beneficial Owners and Management”, in the definitive Proxy Statement dated October 30, 2018, and such informationItem 12. is incorporated herein by
reference.reference to our Proxy Statement.
Equity Compensation Plan Information
The following table summarizes as of August 31,
2018,2020, the number of outstanding equity awards granted to employees and non-employee directors, as well as the number of equity awards remaining available for future issuance, under FactSet’s equity compensation plans:
(In thousands, except per share data) | | | | | | | | | | | | |
| | | (a) | | | | | | | (c) | |
| | | Number of securities | | | (b) | | | Number of securities remaining | |
| | | to be issued upon exercise | | | Weighted-average | | | available for future issuances under | |
| | | of outstanding options and | | | exercise price of | | | equity compensation plans (excluding | |
Plan category | | restricted stock vesting | | | outstanding options | | | securities reflected in column (a)) | |
Equity compensation plans approved by security holders | | | 3,286 | (1) | | $ | 153.05 | (2) | | | 6,850 | (3) |
| | | | | | | | | | | | | |
Equity compensation plans not approved by security holders | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
Total | | | 3,286 | (1) | | $ | 153.05 | (2) | | | 6,850 | (3) |
| (1)
| Includes shares of FactSet common stock subject to outstanding restricted stock that will entitle each holder to the issuance of one share of common stock as they vest.
|
| | | | | | | | | | | | | | | | | | | | |
| (In thousands, except per share data) |
| Plan category |
Number of securities
to be issued upon exercise
of outstanding options, warrants and rights
(a) | | Weighted-average
exercise price of
outstanding options, warrants and rights
(b) | | Number of securities remaining
available for future issuances under
equity compensation plans (excluding
securities reflected in column (a))
(c) | |
| Equity compensation plans approved by security holders | 2,400 | | (1) | $ | 189.32 | | (2) | 6,053 | | (3) |
| Equity compensation plans not approved by security holders | — | | | — | | | — | | |
| Total | 2,400 | | (1) | $ | 189.32 | | (2) | 6,053 | | (3) |
(1)Includes 2,254 shares issuable upon exercise of outstanding options, 109 shares issuable upon vesting of awards of restricted stock and 37 shares issuable upon the conversion of outstanding performance share units.
(2)Calculated without taking into account shares of FactSet common stock subject to outstanding stock awards that will become issuable as they vest, without any cash consideration or other payment required for such shares.
| (2)
| Calculated without taking into account shares of FactSet common stock subject to outstanding restricted stock that will become issuable as they vest, without any cash consideration or other payment required for such shares.
|
| (3)
| Includes 282,398 shares available for future issuance under the FactSet Research Systems Inc. Non-Employee Directors’ Stock Option and Award Plan, as Amended and Restated and 268,942 shares available for purchase under the FactSet Research Systems Inc. 2008 Employee Stock Purchase Plan, as Amended and Restated.
|
(3)Includes 5,625,791 shares available for future issuance under the FactSet Research Systems Inc. Stock Option and Award Plan, as Amended and Restated, 249,886 shares available for future issuance under the FactSet Research Systems Inc. Non-Employee Directors’ Stock Option and Award Plan, as Amended and Restated,and 177,804shares available forpurchaseunder theFactSet Research Systems Inc.2008 Employee Stock Purchase Plan,asAmended and Restated.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required to be furnished by this item relating to review, approval or ratification of transactions with related persons is included under the caption “Certain Relationships and Related Transactions” and all the information required by this item relating to director independence is included under the caption “Corporate Governance” contained in the definitive Proxy Statement dated October 30, 2018, all of which informationItem 13. is incorporated herein by reference.reference to our Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required
to be furnished by this
item is included under the caption “Proposal 2: Ratification of Independent Registered Public Accounting Firm” in the definitive Proxy Statement dated October 30, 2018, all of which informationItem 14. is incorporated herein by
reference.reference to our Proxy Statement.
Part IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
| Documents filed as part of this Report on Form 10-K:
|
| | The information required by this item is included in Item 8, Financial Statements and Supplementary Data, which is incorporated herein.
|
| 2.
| Financial Statements Schedule
|
(a)Documents filed as part of this Annual Report on Form 10-K:
1.Financial Statements
The information required by this item is included in Item 8. Financial Statements and Supplementary Data, of this Annual Report on Form 10-K which is incorporated herein.
2.Financial Statements Schedule
Schedule II – Valuation and Qualifying Accounts
Years ended August 31,
2018, 20172020, 2019 and
20162018 (in thousands):
| Receivable reserve and billing adjustments | | Balance at Beginning of Year | | | Charged to Expense/ Against Revenue(1) | | | Write-offs, Net of Recoveries | | | Balance at End of Year | | Receivable reserve
and billing adjustments | Balance at Beginning of Year | | Charged to Expense/ Against Revenue(1) | | Write-offs,
Net of Recoveries | | Balance at
End of Year |
| 2020 | | 2020 | $ | 10,511 | | | $ | 754 | | | $ | (3,278) | | | $ | 7,987 | |
| 2019 | | 2019 | $ | 3,490 | | | $ | 11,474 | | | $ | (4,453) | | | $ | 10,511 | |
2018 | | $ | 2,738 | | | $ | 4,737 | | | $ | 3,985 | | | $ | 3,490 | | 2018 | $ | 2,738 | | | $ | 4,737 | | | $ | (3,985) | | | $ | 3,490 | |
2017 | | $ | 1,521 | | | $ | 3,381 | | | $ | 2,164 | | | $ | 2,738 | | |
2016 | | $ | 1,580 | | | $ | 1,917 | | | $ | 1,976 | | | $ | 1,521 | | |
| (1) Additions to the receivable reserve for doubtful accounts are charged to bad debt expense. Additions to the receivable reserve for billing adjustments are charged against revenues.
|
(1)Additions to the receivable reserve for doubtful accounts are charged to bad debt expense. Additions to the receivable reserve for billing adjustments are charged against revenue.
Additional financial statement schedules are omitted since they are either not required, not applicable, or the information is otherwise included.
3.Exhibits
The information required by this Item is set forth below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Incorporated by Reference |
Exhibit
Number | | Exhibit
Description | | Form | | File No. | | Exhibit No. | | Filing Date | | Filed
Herewith |
| 3.1 | | Restated Certificate of Incorporation | | S-1/A | | 333-04238 | | 3.1 | | 6/26/1996 | | |
| 3.2 | | Certificate of Amendment of Certificate of Incorporation | | 10-K | | 333-22319 | | 3.12 | | 11/20/2001 | | |
| 3.3 | | Second Amendment to the Restated Certificate of Incorporation | | 8-K | | 001-11869 | | 3.1 | | 12/16/2011 | | |
| 3.4 | | Amended and Restated By-laws of FactSet Research Systems Inc. as amended September 1, 2018 | | 8-K | | 001-11869 | | 3.1 | | 9/6/2018 | | |
| 4.0 | | Form of Common Stock | | S-1/A | | 333-04238 | | 4.1 | | 6/26/1996 | | |
| | | | DEF-14A | | 001-11869 | | Exhibit A | | 11/10/2004 | | |
| | | | DEFR-14A | | 001-11869 | | Appendix A | | 12/6/2010 | | |
| | | | 8-K | | 001-11869 | | 10.1 | | 12/21/2017 | | |
| | | | DEF-14A | | 001-11869 | | Appendix A | | 10/30/2008 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 8-K | | 001-11869 | | 10.2 | | 12/21/2017 | | |
| | | | 10-Q | | 001-11869 | | 10.1 | | 4/9/2018 | | |
| | | | 8-K | | 001-11869 | | 10.1 | | 3/29/2019 | | |
| | | | 8-K | | 001-11869 | | 10.1 | | 9/25/2020 | | |
| | | | 8-K | | 001-11869 | | 10.1 | | 3/5/2020 | | |
| | | | 8-K | | 001-11869 | | 10.2 | | 3/5/2020 | | |
| | | | 8-K | | 001-11869 | | 10.1 | | 6/9/2020 | | |
| | | | | | | | | | | | X |
| | | | | | | | | | | | X |
| | | | | | | | | | | | X |
| | | | | | | | | | | | X |
| | | | | | | | | | | | X |
| | | | | | | | | | | | X |
| 101.INS | | XBRL Instance Document | | | | | | | | | | X |
| 101.SCH | | XBRL Taxonomy Extension Schema | | | | | | | | | | X |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase | | | | | | | | | | X |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | | | | X |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase | | | | | | | | | | X |
| 3.
| Exhibits
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase | | | | | | | | | | X |
| 104 | | Cover page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101 | | | | | | | | | | X |
| The information required by this Item is set forth below.
|
| | | Incorporated by Reference | |
Exhibit Number | | Exhibit Description | Form | File No. | Exhibit No. | Filing Date | Filed Herewith |
3.1 | | Restated Certificate of Incorporation | S-1/A | 333-04238 | 3.1 | 6/26/1996 | |
3.2 | | Certificate of Amendment of Certificate of Incorporation | 10-K | 333-22319 | 3.12 | 11/20/2001 | |
3.3 | | Second Amendment to the Restated Certificate of Incorporation | 8-K | 001-11869 | 3.1 | 12/16/2011 | |
3.4 | | Amended and Restated By-laws of FactSet Research Systems Inc. as amended September 1, 2018 | 8-K | 001-11869 | 3.1 | 9/06/2018 | |
4.0 | | Form of Common Stock | S-1/A | 333-04238 | 4.1 | 6/26/1996 | |
10.1 | | FactSet Research Systems Inc. 2004 Employee Stock Option and Award Plan(1) | DEF-14A | 001-11869 | Exhibit A | 11/10/2004 | |
10.2 | | FactSet Research Systems Inc. 2004 Stock Option and Award Plan, as Amended and Restated(1) | DEFR-14A | 001-11869 | Appendix A | 12/06/2010 | |
10.3 | | FactSet Research Systems Inc. Stock Option and Award Plan as Amended and Restated(1) | 8-K | 001-11869 | 10.1 | 12/21/2017 | |
10.4 | | FactSet Research Systems Inc. 2008 Non-Employee Directors’ Stock Option Plan(1) | DEF-14A | 001-11869 | Appendix A | 10/30/2008 | |
10.5 | | FactSet Research Systems Inc. Non-Employee Directors’ Stock Option and Award Plan, as Amended and Restated(1) | 8-K | 001-11869 | 10.2 | 12/21/2017 | |
10.6 | | Separation Agreement and General Release of Claims with Mark Hale as of November 13, 2017(1) | 10-Q | 001-11869 | 10.1 | 1/09/2018 | |
10.7 | | Separation Agreement and General Release of Claims with Maurizio Nicolelli as of May 8, 2018(1) | 10-Q | 001-11869 | 10.1 | 7/10/2018 | |
10.8 | | Separation Agreement and General Release of Claims with Edward Baker-Greene as of July 5, 2018(1) | 10-Q | 001-11869 | 10.2 | 7/10/2018 | |
10.9 | | Lease, dated February 14, 2018, between FactSet Research Systems Inc. and 45 Glover Partners, LLC(2) | 10-Q | 001-11869 | 10.1 | 4/09/2018 | |
(1)Indicates a management contract or compensatory plan or arrangement
(2)Confidential treatment has been granted for portions of this exhibit.
ITEM 16. FORM 10-K SUMMARY
None.
(1)
| Indicates a management contract or compensatory plan or arrangement
|
(2)
| Confidential treatment has been granted for portions of this exhibit.
|
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | |
| FACTSET RESEARCH SYSTEMS INC. |
| (Registrant) |
| |
Date: October 30, 2018 29, 2020 | /s/ F. PHILIP SNOW |
| F. Philip Snow |
| Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name
| | Title
| Date
| | | | | | | | | | | |
Name | | Title | | Date |
| /s/ F. PHILIP SNOW | | Chief Executive Officer and Director | | October 30, 2018 | 29, 2020 |
| F. Philip Snow | | (Principal Executive Officer) | | |
| | | | |
/s/ HELEN L. SHAN | | Executive Vice President and Chief Financial Officer | | October 30, 2018 | 29, 2020 |
| Helen L. Shan | | (Principal Financial Officer) | | |
| | | | |
/s/ MATTHEW J. MCNULTY GREGORY T. MOSKOFF | | Senior Vice President, Controller and Chief Accounting Officer | | October 30, 2018 | 29, 2020 |
Matthew J. McNultyGregory T. Moskoff | | (Principal Accounting Officer) | | |
| | | | |
/s/ PHILIP A. HADLEY
| | Chairman
| October 30, 2018
| |
Philip A. Hadley | | | | |
| | | | |
/s/ ROBIN A. ABRAMS | | Director
Chair | | October 30, 2018 | 29, 2020 |
| Robin A. Abrams | | | | |
| | | | |
/s/ SCOTT A. BILLEADEAU | | Director | | October 30, 2018 | 29, 2020 |
| Scott A. Billeadeau | | | | |
| | | | |
/s/ SIEW KAI CHOY | | Director | | October 29, 2020 |
| Siew Kai Choy | | | | |
| | | | |
| /s/ MALCOLM FRANK | | Director | | October 30, 2018 | 29, 2020 |
| Malcolm Frank | | | | |
| | | | |
/s/ SHEILA B. JORDAN | | Director | | October 30, 2018 | 29, 2020 |
| Sheila B. Jordan | | | | |
| | | | |
/s/ JAMES J. MCGONIGLE | | Director | | October 30, 2018 | 29, 2020 |
| James J. McGonigle | | | | |
| | | | |
/s/ LEE SHAVEL | | Director | | October 29, 2020 |
| Lee Shavel | | | | |
| | | | |
| /s/ LAURIE SIEGEL | | Director | | October 30, 2018 | 29, 2020 |
| Laurie Siegel | | | | |
| | | | |
/s/ JOSEPH R. ZIMMEL | | Director | | October 30, 2018 | 29, 2020 |
| Joseph R. Zimmel | | | | |
| | | | |
95
