Index to Consolidated Financial Statements Consolidated Financial Statements: Statements | | Page | | | | | | 48
| | | 48
| | | 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’sour Board of Directors, has established and maintains a strong ethical climate so that itsour 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, 20182021 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;FactSet; (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 CompanyFactSet are being made only in accordance with authorizations of management and directors of the Company;FactSet; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’sour 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, 2018.2021. 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 L. ShanLINDA S. HUBER | | | | F. Philip Snow | Helen L. Shan
| Linda S. Huber | Chief Executive Officer | | Executive Vice President, and Chief Financial Officer | October 30, 2018 22, 2021 | | October 30, 201822, 2021 |
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, 2021 and 2020, 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, 2021, and the related notes and financial statement schedule listed in the Index at Item 8 (collectively referred to as the “Consolidated Financial Statements”). In our opinion, the Consolidated Financial Statements present fairly, in all material respects, the financial position of the Company at August 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 2021, 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, 2021, 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 22, 2021 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). Basis for Opinion 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 11, 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, 2021, the Company recognized a consolidated provision for income taxes of $68 million with $41 million related to its U.S. operations and $27 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 11, Income Taxes, of the Consolidated Financial Statements in relation to these matters. | | |
/s/ Ernst & Young LLP We have served as the Company’s auditor since 2013. Stamford, CT October 22, 2021
Report of Independent Registered Public Accounting Firm 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, 2018,2021, 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, 2018,2021, 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 statements2021 Consolidated Financial Statements of the Company and our report dated October 30, 2018,22, 2021, 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
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, 2018 and 2017, 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, and the related notes and financial statement schedule listed in the Index at Item 8 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at August 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 2018, 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, 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, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
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.
/s/ ERNST & YOUNG LLP
We have served as the Company’s auditor since 2013.
Stamford, CT
October 30, 2018
FactSet Research Systems Inc.
Consolidated Statements of Income | | | | | | | | | | | | | | | | | | | (in thousands, except per share data) | For the years ended August 31, | | 2021 | | 2020 | | 2019 | | Revenues | $ | 1,591,445 | | | $ | 1,494,111 | | | $ | 1,435,351 | | | Operating expenses | | | | | | | Cost of services | 786,400 | | | 695,446 | | | 663,446 | | | Selling, general and administrative | 331,004 | | | 359,005 | | | 333,870 | | | Total operating expenses | 1,117,404 | | | 1,054,451 | | | 997,316 | | | | | | | | | Operating income | 474,041 | | | 439,660 | | | 438,035 | | | | | | | | | Other income (expense) | | | | | | | Interest expense, net | (6,394) | | | (9,829) | | | (16,624) | | | Other income (expense), net | (30) | | | (2,697) | | | 554 | | | Total other expense, net | (6,424) | | | (12,526) | | | (16,070) | | | | | | | | | Income before income taxes | 467,617 | | | 427,134 | | | 421,965 | | | | | | | | | Provision for income taxes | 68,027 | | | 54,196 | | | 69,175 | | | Net income | $ | 399,590 | | | $ | 372,938 | | | $ | 352,790 | | | | | | | | | Basic earnings per common share | $ | 10.56 | | | $ | 9.83 | | | $ | 9.25 | | | Diluted earnings per common share | $ | 10.36 | | | $ | 9.65 | | | $ | 9.08 | | | | | | | | | Basic weighted average common shares | 37,856 | | | 37,936 | | | 38,144 | | | Diluted weighted average common shares | 38,570 | | | 38,646 | | | 38,873 | |
| | Years ended August 31, | | | (in thousands, except per share data) | | 2018 | | | 2017 | | | 2016 | | Revenues | | $ | 1,350,145 | | | $ | 1,221,179 | | | $ | 1,127,092 | | Operating expenses | | | | | | | | | | | | | Cost of services | | | 659,296 | | | | 566,580 | | | | 487,409 | | Selling, general and administrative | | | 324,645 | | | | 302,464 | | | | 290,007 | | Total operating expenses | | | 983,941 | | | | 869,044 | | | | 777,416 | | | | | | | | | | | | | | | | Operating income | | | 366,204 | | | | 352,135 | | | | 349,676 | | | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | | | Income before income taxes | | | 351,838 | | | | 344,312 | | | | 460,993 | | | | | | | | | | | | | | | | Provision for income taxes | | | 84,753 | | | | 86,053 | | | | 122,178 | | Net income | | $ | 267,085 | | | $ | 258,259 | | | $ | 338,815 | | | | | | | | | | | | | | | | Basic earnings per common share | | $ | 6.90 | | | $ | 6.55 | | | $ | 8.29 | | Diluted earnings per common share | | $ | 6.78 | | | $ | 6.51 | | | $ | 8.19 | | | | | | | | | | | | | | | | Basic weighted average common shares | | | 38,733 | | | | 39,444 | | | | 40,880 | | Diluted weighted average common shares | | | 39,377 | | | | 39,642 | | | | 41,365 | |
The accompanying notes are an integral part of these consolidated financial statements. Consolidated Financial Statements.
FactSet Research Systems Inc. Consolidated Statements of Comprehensive Income | | | | | | | | | | | | | | | | | | | (in thousands) | For the years ended August 31, | | 2021 | | 2020 | | 2019 | | Net income | $ | 399,590 | | | $ | 372,938 | | | $ | 352,790 | | | Other comprehensive income, net of tax: | | | | | | | Net unrealized (loss) gain on cash flow hedges* | (504) | | | 674 | | | 504 | | | Foreign currency translation adjustments | 835 | | | 34,577 | | | (24,325) | | | Other comprehensive income (loss) | 331 | | | 35,251 | | | (23,821) | | | Comprehensive income | $ | 399,921 | | | $ | 408,189 | | | $ | 328,969 | |
| | Years ended August 31, | | | (in thousands) | | 2018 | | | 2017 | | | 2016 | | Net income | | $ | 267,085 | | | $ | 258,259 | | | $ | 338,815 | | | | | | | | | | | | | | | | Other comprehensive income (loss), net of tax | | | | | | | | | | | | | Net unrealized (loss) gain on cash flow hedges* | | | (7,288 | ) | | | 5,017 | | | | (857 | ) | Foreign currency translation adjustments | | | (9,431 | ) | | | 28,816 | | | | (23,644 | ) | Other comprehensive (loss) income | | | (16,719 | ) | | | 33,833 | | | | (24,501 | ) | Comprehensive income | | $ | 250,366 | | | $ | 292,092 | | | $ | 314,314 | |
* TheFor the fiscal years ended August 31, 2021, 2020 and 2019, the net unrealized (loss) gain (loss) on cash flow hedges disclosed above waswere net of a tax benefit (expense) of $3,518, ($3,049)$162 thousand, tax expense of $251 thousand, and $498 for the fiscal years ended August 31, 2018, 2017 and 2016,a tax expense of $387 thousand, respectively.
The accompanying notes are an integral part of these consolidated financial statements.Consolidated Financial Statements.
FactSet Research Systems Inc. Consolidated Balance Sheets | | | | | | | | | | | | | (in thousands, except share data) | August 31, | | 2021 | | 2020 | | ASSETS | | | | | Cash and cash equivalents | $ | 681,865 | | | $ | 585,605 | | | Investments | 35,984 | | | 19,572 | | | Accounts receivable, net of reserves of $6,431 at August 31, 2021 and $7,987 at August 31, 2020 | 151,187 | | | 155,011 | | | Prepaid taxes | 13,917 | | | 38,067 | | | Prepaid expenses and other current assets | 50,625 | | | 43,675 | | | Total current assets | 933,578 | | | 841,930 | | | | | | | Property, equipment and leasehold improvements, net | 131,377 | | | 133,102 | | | Goodwill | 754,205 | | | 709,703 | | | Intangible assets, net | 134,986 | | | 121,095 | | | Deferred taxes | 2,250 | | | — | | | Lease right-of-use assets, net | 239,064 | | | 248,929 | | | Other assets | 29,480 | | | 28,629 | | | TOTAL ASSETS | $ | 2,224,940 | | | $ | 2,083,388 | | | | | | | LIABILITIES | | | | | Accounts payable and accrued expenses | $ | 85,777 | | | $ | 82,094 | | | Current lease liabilities | 31,576 | | | 29,056 | | | Accrued compensation | 104,403 | | | 81,873 | | | Deferred revenue | 63,104 | | | 53,987 | | | Dividends payable | 30,845 | | | 29,283 | | | Total current liabilities | 315,705 | | | 276,293 | | | | | | | Long-term debt | 574,535 | | | 574,354 | | | Deferred taxes | 14,752 | | | 19,713 | | | Deferred revenue, non-current | 8,394 | | | 9,319 | | | Taxes payable | 30,279 | | | 27,739 | | | Long-term lease liabilities | 259,980 | | | 272,269 | | | Other liabilities | 4,942 | | | 7,326 | | | TOTAL LIABILITIES | $ | 1,208,587 | | | $ | 1,187,013 | | | Commitments and contingencies (see Note 14) | 0 | | 0 | | | | | | STOCKHOLDERS’ EQUITY | | | | | Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued | $ | — | | | $ | — | | | Common stock, $0.01 par value, 150,000,000 shares authorized, 41,163,192 and 40,767,708 shares issued, 37,615,419 and 38,030,252 shares outstanding at August 31, 2021 and 2020, respectively | 412 | | | 408 | | | Additional paid-in capital | 1,048,305 | | | 939,067 | | | Treasury stock, at cost: 3,547,773 and 2,737,456 shares at August 31, 2021 and 2020, respectively | (905,917) | | | (636,956) | | | Retained earnings | 912,515 | | | 633,149 | | | Accumulated other comprehensive loss | (38,962) | | | (39,293) | | | TOTAL STOCKHOLDERS’ EQUITY | $ | 1,016,353 | | | $ | 896,375 | | | | | | | TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 2,224,940 | | | $ | 2,083,388 | |
| | | August 31, | | (in thousands, except share data) | | 2018 | | | 2017 | | ASSETS | | | | | | | | | Cash and cash equivalents | | $ | 208,623 | | | $ | 194,731 | | Investments | | | 29,259 | | | | 32,444 | | Accounts receivable, net of reserves of $3,490 and $2,738 at August 31, 2018 and 2017, respectively | | | 156,639 | | | | 148,331 | | Prepaid taxes | | | 6,274 | | | | 7,076 | | Deferred taxes | | | — | | | | 2,668 | | Prepaid expenses and other current assets | | | 30,121 | | | | 24,127 | | Total current assets | | | 430,916 | | | | 409,376 | | | | | | | | | | | | Property, equipment and leasehold improvements, net | | | 100,545 | | | | 100,454 | | | | | | | | | | | | Goodwill | | | 701,833 | | | | 707,560 | | Intangible assets, net | | | 148,935 | | | | 173,543 | | Deferred taxes | | | 9,716 | | | | 7,412 | | Other assets | | | 27,502 | | | | 14,970 | | TOTAL ASSETS | | $ | 1,419,447 | | | $ | 1,413,315 | | | | | | | | | | | | LIABILITIES | | | | | | | | | Accounts payable and accrued expenses | | $ | 72,059 | | | $ | 59,214 | | Accrued compensation | | | 66,479 | | | | 61,083 | | Deferred fees | | | 49,700 | | | | 47,495 | | Deferred taxes | | | — | | | | 2,382 | | Taxes payable | | | 8,453 | | | | 9,112 | | Dividends payable | | | 24,443 | | | | 21,853 | | Total current liabilities | | | 221,134 | | | | 201,139 | | | | | | | | | | | | Long-term debt | | | 574,775 | | | | 575,000 | | Deferred taxes | | | 21,190 | | | | 24,892 | | Deferred fees | | | 7,833 | | | | 3,921 | | Taxes payable | | | 29,626 | | | | 11,484 | | Deferred rent and other non-current liabilities | | | 38,989 | | | | 37,188 | | TOTAL LIABILITIES | | $ | 893,547 | | | $ | 853,624 | | Commitments and contingencies (See Note 19) | | | | | | | | | | | | | | | | | | | 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 | | Additional paid-in capital | | | 667,531 | | | | 741,748 | | Treasury stock, at cost: 1,072,263 and 12,822,100 shares at August 31, 2018 and 2017, respectively | | | (213,428 | ) | | | (1,606,678 | ) | Retained earnings | | | 122,843 | | | | 1,458,823 | | Accumulated other comprehensive loss | | | (51,439 | ) | | | (34,720 | ) | TOTAL STOCKHOLDERS’ EQUITY | | $ | 525,900 | | | $ | 559,691 | | | | | | | | | | | | TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 1,419,447 | | | $ | 1,413,315 | |
The accompanying notes are an integral part of these consolidated financial statements. Consolidated Financial Statements.
FactSet Research Systems Inc. Consolidated Statements of Cash Flows | | | | | | | | | | | | | | | | | | | (in thousands) | Years ended August 31, | | 2021 | | 2020 | | 2019 | | CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | Net income | $ | 399,590 | | | $ | 372,938 | | | $ | 352,790 | | | Adjustments to reconcile net income to net cash provided by operating activities | | | | | | | Depreciation and amortization | 64,476 | | | 57,614 | | | 60,463 | | | Amortization of lease right-of-use assets | 42,846 | | | 43,185 | | | — | | | Stock-based compensation expense | 45,065 | | | 36,579 | | | 32,400 | | | Deferred income taxes | (4,602) | | | 10,626 | | | (2,278) | | | Impairment Charge | — | | | 16,500 | | | — | | | | | | | | | Changes in assets and liabilities, net of effects of acquisitions | | | | | | | Accounts receivable, net of reserves | 3,646 | | | (8,608) | | | 10,205 | | | Accounts payable and accrued expenses | 2,068 | | | 12,427 | | | (2,290) | | | Accrued compensation | 21,815 | | | 16,446 | | | (1,743) | | | Deferred fees | 5,078 | | | 5,571 | | | 458 | | | Taxes payable, net of prepaid taxes | 26,298 | | | (24,224) | | | (19,238) | | | Lease liabilities, net | (42,750) | | | (33,340) | | | — | | | Other, net | (8,304) | | | 126 | | | (3,631) | | | Net cash provided by operating activities | 555,226 | | | 505,840 | | | 427,136 | | | CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | Purchases of property, equipment, leasehold improvements and internal-use software | (61,325) | | | (77,642) | | | (59,370) | | | Acquisition of businesses, net of cash and cash equivalents acquired | (58,056) | | | — | | | — | | | Purchases of investments | (18,787) | | | (2,736) | | | (11,135) | | | Proceeds from maturity or sale of investments | 2,176 | | | 6,746 | | | 14,405 | | | Net cash used in investing activities | (135,992) | | | (73,632) | | | (56,100) | | | CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | Repurchases of common stock | (264,702) | | | (199,625) | | | (220,372) | | | Dividend payments | (117,927) | | | (110,439) | | | (100,052) | | | Repayment of debt | — | | | — | | | (575,000) | | | Proceeds from debt | — | | | — | | | 575,000 | | | Proceeds from employee stock plans | 64,177 | | | 95,520 | | | 107,051 | | | Other financing activities | (4,259) | | | (3,531) | | | (901) | | | Net cash used by financing activities | (322,711) | | | (218,075) | | | (214,274) | | | Effect of exchange rate changes on cash and cash equivalents | (263) | | | 11,673 | | | (5,586) | | | Net increase in cash and cash equivalents | 96,260 | | | 225,806 | | | 151,176 | | | Cash and cash equivalents at beginning of period | 585,605 | | | 359,799 | | | 208,623 | | | Cash and cash equivalents at end of period | $ | 681,865 | | | $ | 585,605 | | | $ | 359,799 | | | | | | | | | Supplemental Disclosure of Cash Flow Information | | | | | | | Cash paid during the year for interest | $ | 8,021 | | | $ | 12,876 | | | $ | 19,509 | | | Cash paid during the year for income taxes, net of refunds | $ | 46,588 | | | $ | 69,092 | | | $ | 89,997 | | | | | | | | | Supplemental Disclosure of Non-Cash Transactions | | | | | | | Dividends declared, not paid | $ | 30,845 | | | $ | 29,283 | | | $ | 27,445 | |
| | | Years ended August 31, | | (in thousands) | | 2018 | | | 2017 | | | 2016 | | CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | | | | | | Net income | | $ | 267,085 | | | $ | 258,259 | | | $ | 338,815 | | Adjustments to reconcile net income to net cash provided by operating activities | | | | | | | | | | | | | Depreciation and amortization | | | 57,285 | | | | 48,294 | | | | 38,052 | | Stock-based compensation expense | | | 31,516 | | | | 34,183 | | | | 29,793 | | Loss (gain) on sale of business | | | — | | | | 1,223 | | | | (112,453 | ) | Deferred income taxes | | | (1,910 | ) | | | 4,879 | | | | 4,528 | | Loss (gain) on sale of assets | | | 140 | | | | 59 | | | | 8 | | Tax benefits from share-based payment arrangements | | | — | | | | (10,331 | ) | | | (18,205 | ) | Changes in assets and liabilities, net of effects of acquisitions | | | | | | | | | | | | | Accounts receivable, net of reserves | | | (8,417 | ) | | | (29,503 | ) | | | (3,541 | ) | Accounts payable and accrued expenses | | | 12,077 | | | | (2,226 | ) | | | 5,525 | | Accrued compensation | | | 5,735 | | | | 6,427 | | | | 3,961 | | Deferred fees | | | 6,035 | | | | (229 | ) | | | 700 | | Taxes payable, net of prepaid taxes | | | 27,659 | | | | 7,877 | | | | 30,270 | | 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 | | Net cash provided by operating activities | | | 385,668 | | | | 320,527 | | | | 331,140 | | | | | | | | | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | Acquisition of businesses and investments, net of cash and cash equivalents acquired | | | (15,000 | ) | | | (303,086 | ) | | | (262,909 | ) | 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 | ) | | | | | | | | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | | Dividend payments | | | (89,408 | ) | | | (80,898 | ) | | | (74,218 | ) | Repurchase of common stock | | | (303,955 | ) | | | (260,978 | ) | | | (356,828 | ) | Proceeds from debt | | | — | | | | 640,000 | | | | 265,000 | | Repayment of debt | | | — | | | | (365,000 | ) | | | — | | Debt issuance costs | | | — | | | | (438 | ) | | | (12 | ) | Proceeds from employee stock plans | | | 71,610 | | | | 50,045 | | | | 56,851 | | Tax benefits from share-based payment arrangements | | | — | | | | 10,331 | | | | 18,205 | | Other financing activities | | | 1,716 | | | | (1,223 | ) | | | — | | Net cash used in financing activities | | | (320,037 | ) | | | (8,161 | ) | | | (91,002 | ) | | | | | | | | | | | | | | | Effect of exchange rate changes on cash and cash equivalents | | | (3,208 | ) | | | 1,264 | | | | (12,237 | ) | Net increase (decrease) in cash and cash equivalents | | | 13,892 | | | | (33,676 | ) | | | 69,493 | | Cash and cash equivalents at beginning of period | | | 194,731 | | | | 228,407 | | | | 158,914 | | Cash and cash equivalents at end of period | | $ | 208,623 | | | $ | 194,731 | | | $ | 228,407 | | | | | | | | | | | | | | | | 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 income taxes, net of refunds | | $ | 68,707 | | | $ | 74,788 | | | $ | 87,513 | | | | | | | | | | | | | | | | Supplemental Disclosure of Non-Cash Transactions | | | | | | | | | | | | | Dividends declared, not paid | | $ | 24,443 | | | $ | 21,853 | | | $ | 20,019 | |
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, 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 loss | | | | | | | | | | | | | 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 | | | Net income | | | | | | | | | | | 399,590 | | | | | 399,590 | | | Other comprehensive income | | | | | | | | | | | | | 331 | | | 331 | | | Common stock issued for employee stock plans | 360,877 | | | 4 | | | 64,173 | | | 318 | | (104) | | | | | | | 64,073 | | | Vesting of restricted stock | 34,607 | | | — | | | | | 12,614 | | | (4,155) | | | | | | | (4,155) | | | Repurchases of common stock | | | | | | | 797,385 | | | (264,702) | | | | | | | (264,702) | | | Stock-based compensation | | | | | 45,065 | | | | | | | | | | | 45,065 | | | Dividends declared | | | | | | | | | | | (120,224) | | | | | (120,224) | | | Balance as of August 31, 2021 | 41,163,192 | | | $ | 412 | | | $ | 1,048,305 | | | 3,547,773 | | | $ | (905,917) | | | $ | 912,515 | | | $ | (38,962) | | | $ | 1,016,353 | |
*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. 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, "we," "our," "us," the "Company" or “FactSet”"FactSet") is a global provider of integrated financial information, analytical applicationsdata and industry-leading service foranalytics company with open and flexible technology and a purpose to drive the global investment community. The Company delivers insightcommunity to see more, think bigger, and informationdo their best work. Our strategy is to investment professionals through its analytics, service,become the leading open content and technology. Thesefinancial analytics platform in the industry that delivers differentiated advantage for our clients’ success. For over 40 years, the FactSet platform has delivered expansive data, sophisticated analytics, and flexible technology that global financial professionals include portfolioneed to power their critical investment workflows. Over 160,000 asset managers and owners, bankers, wealth managers, corporate firms, including private equity and venture capital firms, and others, use our personalized solutions to identify opportunities, explore ideas, and gain a competitive advantage, in areas spanning investment research, professionals, investment bankers,portfolio construction and analysis, trade execution, performance measurement, risk management, and performance analysts, and wealth advisors. From streaming real-time data to historical information, including quotes, estimates, news 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 solutionsreporting across the investment lifecycle from idea generationlifecycle. We provide financial data and market intelligence on securities, companies and industries to performanceenable our clients to research investment ideas, as well as offering them the capabilities to analyze, monitor and manage their portfolios. We combine dedicated client reporting. The Company’s revenues areservice with open and flexible technology offerings, such as a configurable desktop and mobile platform, comprehensive data feeds, cloud-based digital solutions, and application programming interfaces ("APIs"). Our revenue is primarily derived from subscriptions to our products and services such as workstations, portfolio analytics, enterpriseand market data. We advance our industry by comprehensively understanding our clients’ workflows, solving their most complex challenges, and helping them achieve their goals. By providing them with the leading open content and analytics platform, an expansive universe of concorded data research management,they can trust, next-generation workflow support designed to help them grow and trade execution. see their next best action, and the industry’s most committed service specialists, FactSet puts our clients in a position to outperform. We are focused on growing our business through 3 reportable segments ("segments"): the Americas, EMEA and Asia Pacific. Refer to Note 19, Segment Information, in the Notes to the Consolidated Financial Statements included in Part II, Item 8. of this Annual Report on Form 10-K for further discussion. Within each of our segments, we primarily deliver insight and
information through our three workflow solutions: Research & Advisory; Analytics & Trading; and Content & Technology ("CTS"). 2. BASIS OF PRESENTATION FactSet conducts
We conduct business globally and is managedmanage our business on a geographic basis. The accompanying consolidatedConsolidated Financial Statements and Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K are prepared in accordance with generally accepted accounting principles in the United States ("GAAP") for annual financial statementsinformation and the instructions to Form 10-K and Article 10 of Regulation S-X. The accompanying Consolidated Financial Statements include theour accounts and those of the Company and its wholly owned subsidiaries. Allour wholly-owned subsidiaries; all intercompany activity and balances have been eliminated from the consolidated financial statements.The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). eliminated.
Use of Estimates The preparation of consolidated financial statementsour Consolidated 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 may have been made in areas that include income taxes, stock-based compensation, the valuation of goodwill and allocation of purchase price to acquired assets and liabilities, stock-based compensation, income taxes, accrued compensation, valuation of goodwill, and useful lives and valuationimpairments of fixedlong-lived tangible and intangible assets. The Company bases itsassets and reserves for litigation and other contingencies. We base our 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. The Company has evaluated subsequent events through the date that the financial statements were issued.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The
Our significant accounting policies of the Company and its subsidiaries are summarized below. The majority of the Company’s revenues areour revenue is derived from subscriptionsclient access to our 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. We 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 us, we apply an output 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. We record revenue for our 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 servicescurrent expected credit losses is estimated and accounted for as a reduction to revenue, with a corresponding reduction to accounts receivable. Cost of Services Cost of services is comprised of compensation for our 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, rent, professional fees, depreciation of furniture and fixtures, amortization of lease right-of-use ("ROU") assets and leasehold improvements, as well as marketing costs, office expenses,, travel and entertainment expenses, and other miscellaneous expenses. Stock-Based Compensation 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 units, 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. We use 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 us 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. Windfall tax benefits, defined as tax deductions that exceed recorded stock-based compensation, are classified as cash inflows from operations. Performance-based equity awards require management to make assumptions regarding the likelihood of achieving company performance targets on a quarterly basis. The number of performance share units that vest will be predicated on us achieving certain performance levels. A change in the financial performance levels we achieve could result in changes to our current estimate of the vesting percentage and related stock-based compensation. Research and Product Development Costs Research and product development ("R&D") costs are expensed as incurred, unless they qualify as internal-use software development costs and are then capitalized and amortized over the estimated useful life. These costs primarily consist of personnel-related expenses, such as salaries and related benefits for our product development, software engineering and technical support departments and, if not capitalized, are included in employee compensation (found within of Cost of services expense and SG&A in the Consolidated Statements of Income). We also utilize certain third parties to develop internal-use software. These costs are capitalized and amortized over the estimated useful life. If not capitalized, these costs are included in SG&A in the Consolidated Statements of Income. We do not have a separate research and product development department, but rather rely on these departments to work closely with our strategists, product managers, sales and other client-facing specialists to develop new products and process innovations and enhance existing products. We incurred research and product development costs of $250.1 million and $224.0 million during fiscal years 2021 and 2020, respectively. 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 current enacted tax rates. We 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 as of the reporting date. Otherwise, no benefit or expense can be recognized in the 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, 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, 2021, we had gross unrecognized tax benefits totaling $14.9 million, including $1.3 million of accrued interest, recorded as Taxes payable (non-current) on the Consolidated Balance Sheets. Earnings per Share Basic earnings per share ("EPS") is computed by dividing net income by the number of weighted average common shares outstanding during the period. Diluted EPS is computed, using the treasury stock method, by dividing net income by the number of weighted average common shares outstanding and issuable upon the exercise of outstanding share-based compensation awards (including stock options and awards of restricted stock units) during the period. 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. Comprehensive Income We disclose comprehensive income in accordance with applicable standards for the reporting and display of comprehensive income in a set of financial statements. Comprehensive income 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. Cash and Cash Equivalents Cash and cash equivalents consist of cash and highly liquid investments with original maturities of three months or less. Our cash equivalents consist of money market funds that are available for withdrawal without restriction and are carried at cost, which approximates fair value.
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, 2018,2021, the amount of accounts receivable that was unbilled totaled $6.4$18.3 million, which was subsequentlywill be billed in fiscal 2019.The Company calculates its2022. As of August 31, 2020, the amount of accounts receivable reserve through analyzing aged client receivables, reviewing the recent historythat was unbilled totaled $17.1 million, which were billed in fiscal 2021.
Accounts receivable are recorded net of client receivable write-offsan allowance for credit losses based on a variety of factors, including our historical write-off activity, current economic environment, customer-specific information and understanding general market andexpectations of future economic conditions. We write-off account balances against our reserve when we have exhausted our collection efforts. In accordance with this policy, aour receivable reserve of $3.5reserves were $6.4 million and $2.7$8.0 million was recorded as of August 31, 20182021 and 2017,2020, respectively, within the Consolidated Balance Sheetsrecorded as a reduction to Accounts receivable.Cost of Services
Cost of services is comprised of compensation for Company employeesreceivable, 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, 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 when incurred within cost 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 development during fiscal years 2017 and 2016 respectively.
Earnings per Share
Basic earnings per share (“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 restricted stock. Under the treasury stock method, the exercise price paid by the optionee 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 Measures
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”) 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, 2018 or 2017.
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 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 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. The mutual funds and certificates of deposit are held for investment and are not considered debt securities. Interest income earned from these investments during fiscal 2018, 2017 and 2016 were $1.3 million, $1.6 million and $1.6 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 2018 and 2017.
Sheets. Property, Equipment and Leasehold Improvements Property, equipment and leasehold improvements are stated at cost, less accumulated depreciation and amortization. ComputersProperty and related equipment areis depreciated based on athe straight-line basismethod over the estimated useful lives of the assets, ranging from three years. Furniture to five years for computers and fixtures are depreciated on a straight-line basis over their estimated useful lives ofrelated equipment and seven years.years for furniture and fixtures. Leasehold improvements are amortized on a straight-line basis over the termsshorter of their respective useful lives or the related leases or estimated useful lives of the improvements, whichever period is shorter.lease term. 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
We perform 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
If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. The Company is required to test goodwillnew cost basis will be depreciated (amortized) over the remaining useful life of that asset. 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,the reporting unit exceeds its fair value. We have 3 reporting units, Americas, EMEA and if impaired, written down to fair value based on discounted cash flows. FactSet has three reporting units,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. We 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, we consider such factors as macro-economic conditions, industry and market conditions in which we operate, including the competitive environment and significant changes in demand for our services. We also consider the 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 we elect 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 the U.S., Europefair 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 the fair value of our reporting units. The annual review of carrying value of goodwill requires us to 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 our 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 our 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. The Companythat reporting unit. We performed itsour annual goodwill impairment test during the fourth quarter of fiscal 2018, consistent with the timing of previous years,2021 utilizing a qualitative analysis and concluded that thereit was no impairment, withmore likely than not the fair value of each reporting unit was greater than its respective carrying value and no impairment charge was required.
Intangible Assets FactSet’s
Acquired Intangible Assets Our 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’sour operations. The Company amortizesWe 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. 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. No 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 We capitalize 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. Leases We adopted the standard, ASC 842-10, Leases ("ASC 842") as of September 1, 2019, using a modified retrospective approach. Refer to Note 12, Leases, for further details. We review new arrangements at inception to evaluate whether we obtain substantially all the economic benefits of and have the right to control the use of an asset. If we determine that an arrangement qualifies as a lease, with a lease term of greater than one year, we assess whether the leased asset is an operating or financing lease. Our lease portfolio is primarily related to our office space, under various operating lease agreements. We record a lease ROU asset and lease liability as the present value of the future minimum lease payments (including fixed lease payments and certain qualifying index-based variable payments) over the reasonably certain lease term, beginning at the lease commencement date. As there is no rate implicit in our operating lease arrangements, these balances are initially recorded using our incremental borrowing rate ("IBR") within the geography where the leased asset is located. As we do not have any outstanding public debt, we estimate the IBR based on our estimated credit rating and available market information. The IBR is determined at lease commencement and subsequently reassessed upon a modification to the lease arrangement. Certain adjustments to our lease ROU assets may be required for items such as initial direct costs paid or incentives received. We elected to not record operating lease right-of-use assets or operating lease liabilities for leases with an initial term of 12 months or less. We elected the practical expedient not to separate lease components from non-lease components but, rather, to combine them into one single lease component, which we recognize over the expected term on a straight-line expense basis in occupancy costs (a component of SG&A expense). As of August 31, 2021, our leases have remaining terms of less than one year to just over 14 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. 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 conductswe conduct a final review of both the performance of the Company and individual performance within each department to determine the amount of discretionary employee compensation. The CompanyWe also reviewsreview 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 $75.1 million and $54.4 million as of August 31, 20182021 and 2017, was $43.6 million and $39.2 million,2020, respectively. During fiscal 2018 the Company incurred $17.4 million
Table 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 FactSet conducts
Foreign Currency Forward Contracts We conduct business outside the U.S. in several currencies including the British Pound Sterling, Euro, Indian Rupee, Japanese Yen and Philippine Peso. As such, the Company iswe are exposed to movements in foreign currency exchange rates comparedrelative to the U.S. dollar. The Company utilizesWe utilize 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 doesWe do not enter into foreign exchange forward contracts for trading or speculative purposes. In designing a specific hedging approach, FactSet considerswe consider 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, we 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 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 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. 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, revenues and expenses of foreign operations are recorded in AOCL as a component of stockholders’ equity. The accumulated foreign currency translation loss totaled $48.0 million and $38.5 million at August 31, 2018 and 2017, 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. 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, the Company had gross unrecognized tax benefits totaling $9.2 million, including $1.1 million of accrued interest, recorded as Taxes payable (non-current) on the Consolidated Balance Sheet.
Stock-Based Compensation
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 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. Windfall tax benefits, defined as tax deductions that exceed recorded stock-based compensation, are classified as cash inflows from financing activities.
Performance-based stock options require management to make assumptions regarding the likelihood of achieving Company performance targets on a quarterly basis. The number of performance-based options 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.
Treasury Stock The Company accounts
We account for repurchased common stock under the cost method and includes such treasury stock as a component of its stockholders’our Stockholders’ equity. The Company accountsWe account 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 Leases
The Company conducts all of its operations in leased facilities which have minimum lease obligations under non-cancelable operating leases. Certain of these leases contain rent escalations based on specified percentages. Most of the leases contain renewal options and require payments for taxes, insurance and maintenance. Rent expense is charged to operations as incurred except for escalating rents, which are charged to operations on a straight-line basis over the life of the lease. Lease incentives, relating 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.
Business Combinations
The Company records acquisitions using the purchase method of accounting. All of the assets acquired, liabilities assumed, contractual contingencies and contingent consideration are recognized at their fair value on the acquisition date. The application of the purchase method of accounting for business combinations requires management to make significant estimates and assumptions 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. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Acquisition-related expenses and restructuring costs are recognized separately from the business combination and are expensed as incurred.
Concentrations of Risk
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, FactSet implemented all applicable new accounting standards and updates issued by the Financial Accounting Standards Board (“FASB”) that were in effect. There were no new standards or updates adopted during the last three fiscal years that had a material impact on the consolidated financial statements.
Balance Sheet Classification of Deferred Taxes
During the first quarter of fiscal 2018, FactSet adopted the accounting standard update issued by the FASB in November 2015, 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 accounting 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.
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. The guidance introduces a lessee model that requires most leases to be reported on the balance sheet. The accounting standard update aligns many of the underlying principles of the new lessor model with those in the FASB’s new revenue recognition standard. The guidance also eliminates the requirement in current GAAP for an entity to use bright-line tests in determining lease classification. This accounting standard update will be effective for FactSet beginning in the first quarter of fiscal 2020, with early adoption in fiscal 2019 permitted. The Company is currently evaluating the impact of this accounting standard update, including the transition method, but does expect the adoption to have a material impact to its balance sheet. However, it does 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.
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 FactSet beginning in the first quarter of fiscal 2021, with early adoption permitted for any impairment tests performed after January 1, 2017 and is not expected to have a material impact on the Company.
Hedge Accounting Simplification
In August 2017, the FASB issued an accounting standard update to reduce the complexity of and simplify the application of hedging 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. This guidance will be effective for FactSet beginning in the first quarter of fiscal 2020, with early adoption permitted. The Company is currently evaluating the impact of this accounting standard update but 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.
No other new accounting pronouncements issued or effective as of August 31, 2018, have had or are expected to have an impact on the Company’s consolidated financial statements.
Fair Value Measurements 4. FAIR VALUE MEASURES
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 considersWe consider the principal or most advantageous market in which itwe would transact and considersconsider assumptions that market participants would use when pricing the asset or liability. Fair Value Hierarchy
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. Our cash equivalents are classified as Level 1 while our derivative instruments (foreign exchange forward contracts and interest rate swap) and certificates of deposit are classified as Level 2. There were no Level 3 assets or liabilities held by us as of August 31, 2021 or 2020. Refer to Note 5, Fair Value Measures for the definition of the fair value hierarchy. Foreign Currency Translation Certain wholly-owned subsidiaries operate under a functional currency different from the U.S. dollar, such as the British Pound Sterling, Euro, Indian Rupee, and Philippine 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, revenue and expenses of foreign operations are recorded in AOCL as a component of stockholders’ equity. The accumulated foreign currency translation loss totaled $36.9 million and $37.7 million at August 31, 2021 and 2020, respectively.
Concentrations of Risk Refer to Note 20, Risks and Concentrations of Credit Risk for areas that potentially subject us to a significant concentration of risk and credit risk. New Accounting Standards or Updates Recently Adopted As of the beginning of fiscal 2021, we implemented all applicable new accounting standards and updates issued by the Financial Accounting Standards Board ("FASB") that were in effect. There were no new standards or updates adopted during the last three fiscal years that had a material impact on our Consolidated Financial Statements other than the adoption of ASC 842. Goodwill Impairment Test In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350); Simplifying the Test for Goodwill Impairment, 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. We have adopted this standard effective September 1, 2020. The adoption of this accounting standard update had no impact on our Consolidated Financial Statements. Credit Losses on Financial Instruments In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326); Measurement of Credit Losses on Financial Instruments, which 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 replaces the "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost. Subsequent to the adoption, the allowance for doubtful accounts is made when the financial asset is first recorded to the balance sheet (and periodically thereafter) and is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. We have adopted this standard effective September 1, 2020. The adoption of this accounting standard update did not have a material impact on our Consolidated Financial Statements. Leases In February 2016, the FASB issued an accounting standard update related to accounting for leases, ASC 842. 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. The guidance also eliminates the requirement for an entity to use bright-line tests in determining lease classification. We adopted the new accounting standard effective 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. As such, our historical Consolidated Financial Statements were not restated and follow our previous policy under ASC 840, Leases. Refer to our 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. We have elected the package of practical expedients permitted under the transition guidance, which permits us to not reassess the prior conclusions about lease identification, lease classification, and initial direct costs. We did not elect the use-of-hindsight practical expedient in determining the lease term and in assessing impairment. We elected the practical expedient not to separate lease components from non-lease components but, rather, to combine them into one single lease component. We have 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. We 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 12, Leases for more information regarding the Company's lease accounting. Hedge Accounting Simplification During the first quarter of fiscal 2020, we 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 non-financial 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 our Consolidated Financial Statements. Recent Accounting Standards or Updates Not Yet Effective Facilitation of the Effects of Reference Rate Reform on Financial Reporting In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848); Facilitation of the Effects of Reference Rate Reform on Financial Reporting, 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. We are currently evaluating the impact of this accounting standard, but it is not expected to have a material impact on our Consolidated Financial Statements. Income Tax Simplification In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740); Simplifying the Accounting for Income Taxes, to simplify various aspects related to accounting for income 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 clarifying certain aspects of the current guidance to promote consistent application. The guidance will be effective for us in the first quarter of fiscal 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. We have evaluated the impact of adopting this accounting standard and have determined that adoption will not have a material impact on our Consolidated Financial Statements. No other new accounting pronouncements issued or effective as of August 31, 2021 have had or are expected to have a material impact on our Consolidated Financial Statements. 4. REVENUE RECOGNITION We derive most of our revenue by providing 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 consists primarily of providing access to products and services including workstations, portfolio analytics, enterprise data and research management. We 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. We 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 information, analytical applications and industry-leading service for the investment community. Based on the nature of the services and products offered by us, we apply an output time-based measure of progress as the client is simultaneously receiving and consuming the benefits of the platform. We record revenue for our contracts using the over-time revenue recognition model as a client is invoiced or performance is satisfied. We do not consider payment terms as a performance obligation for clients with contractual terms that are one year or less and we have 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 we are entitled to receive corresponds directly with the value of performance obligations completed to date, and therefore, we do not disclose the value of the remaining unsatisfied performance obligations. Disaggregated Revenue We disaggregate revenue from contracts with clients by our reportable segments ("segments"), which consist of the Americas, EMEA and Asia Pacific. We believe these segments are reflective of how we manage our business and the markets in which we serve and best depict the nature, amount, timing and uncertainty of revenue and cash flows related to contracts with clients. Refer to Note 19, Segment Information for further information.
The following table presents this disaggregation by segment: | | | | | | | | | | | | | | | | | | | | August 31, | | (in thousands) | 2021 | | 2020 | | 2019 | | Americas | $ | 1,008,046 | | | $ | 943,649 | | | $ | 885,854 | | | EMEA | $ | 427,700 | | | $ | 406,498 | | | $ | 420,884 | | | Asia Pacific | $ | 155,699 | | | $ | 143,964 | | | $ | 128,613 | | | Total Revenue | $ | 1,591,445 | | | $ | 1,494,111 | | | $ | 1,435,351 | |
5. FAIR VALUE MEASURES 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") 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. We consider the principal or most advantageous market in which we would transact and considers assumptions that market participants would use when pricing the asset or liability. Fair Value Hierarchy 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. Our 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 hasWe have categorized itsour 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’sour 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’sOur 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 wereWe held no Level 3 assets or liabilities held by FactSet as of August 31, 20182021 or 2017.2020.
(a) Assets and Liabilities Measured at Fair Value on a Recurring Basis The following tables showsshow, by level within the fair value hierarchy, the Company’sour assets and liabilities that are measured at fair value on a recurring basis at August 31, 20182021 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.
|
The Company2020. We did not have any transfers between Level 1 and Level 2levels of fair value measurementsmeasurement during the periods presented.
(b)
| | | | | | | | | | | | | | | | | | | (in thousands) | Fair Value Measurements at August 31, 2021 | | Level 1 | | Level 2 | | Total | | Assets | | | | | | Corporate money market funds(1) | $ | 232,519 | | | $ | — | | | $ | 232,519 | | Mutual Funds(2) | — | | | 35,984 | | | 35,984 | | | | | | | | Derivative instruments(4) | — | | | 1,384 | | | 1,384 | | | Total assets measured at fair value | $ | 232,519 | | | $ | 37,368 | | | $ | 269,887 | | | | | | | | | Liabilities | | | | | | Derivative instruments(4) | $ | — | | | $ | 4,181 | | | $ | 4,181 | | | Total liabilities measured at fair value | $ | — | | | $ | 4,181 | | | $ | 4,181 | |
| | | | | | | | | | | | | | | | | | | (in thousands) | Fair Value Measurements at August 31, 2020 | | Level 1 | | Level 2 | | Total | | Assets | | | | | | Corporate money market funds(1) | $ | 276,852 | | | $ | — | | | $ | 276,852 | | Mutual funds(2) | — | | | 17,257 | | | 17,257 | | Certificates of deposit(3) | — | | | 2,315 | | | 2,315 | | Derivative instruments(4) | — | | | 3,644 | | | 3,644 | | | Total assets measured at fair value | $ | 276,852 | | | $ | 23,216 | | | $ | 300,068 | | | | | | | | | Liabilities | | | | | | Derivative instruments(4) | $ | — | | | $ | 5,773 | | | $ | 5,773 | | | Total liabilities measured at fair value | $ | — | | | $ | 5,773 | | | $ | 5,773 | |
(1)Our 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. Our corporate money market funds are classified as Level 1 assets and are included in Cash and cash equivalents withinthe Consolidated BalanceSheets. (2)Our 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. Our mutual funds are classified as Level 2 and are included inInvestments (short-term) within the Consolidated Balance Sheets. (3)Our certificates of deposit held for investment are classified as Level 2 assets. These certificates of deposit have original maturities greater than three months but less than one year and are included in Investments (short-term) withintheConsolidated Balance Sheets. (4)We utilize the income approach to measure fair value for our 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, we utilize 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 our derivative instruments designed as cash flow hedges and their classification within the Consolidated Balance Sheets. (b) 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 right-of-use ("ROU") 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. AnWe review 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. We monitor 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 20182021 and 2017,2020, no fair value adjustments or material fair value measurements were required for the Company’sour non-financial assets or liabilities. (c) Assets and Liabilities Measured at Fair Value for Disclosure Purposes onlyOnly As of August 31, 2018,2021 and 2017,2020, the fair value of our 2019 Revolving Credit Facility (as defined below in Note 13, Debt), included in Long-term debt within the Company’s long-term debtConsolidated Balance Sheets, 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
Cash Flow Hedges FactSet conducts
Foreign Currency Forward Contracts We conduct business outside the U.S. in several currencies including the British Pound Sterling, Euro, Indian Rupee, Japanese Yen and Philippine Peso. As such, it iswe are exposed to movements in foreign currency exchange rates compared towith the U.S. dollar. The Company utilizesWe utilize 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 doesWe do not enter into foreign currency forward contracts for trading or speculative purposes. purposes and limit counterparties to credit-worthy financial institutions. Refer to Note 20, Risks and Concentrations of Credit Risk, for further discussion on counterparty credit risk. In designing a specific hedging approach, FactSetwe 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 AOCLAccumulated other comprehensive loss ("AOCL") and subsequently reclassified into operatingOperating expenses when the hedged exposure affects earnings.hedge is settled. There was no discontinuance of cash flow hedges during fiscal 20182021 or 2017,fiscal 2020, and as such, no corresponding gains or losses related to changes in the value of the Company’sour contracts were reclassified into earnings prior to settlement. As of August 31, 2018, FactSet2021, we maintained the following foreign currency forward contracts to hedge 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.
|
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 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 2022 through the fourth quarter of fiscal 2022. | | | 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, 2018,2021, 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.₱1.4 billion and Rs2.6 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 €33.8 million and £37.7 million, respectively. Interest Rate Swap Agreement On March 5, 2020, we 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 our outstanding debt under our 2019 Revolving Credit Risk
Facility (as defined below in Note 13, Debt). As a resultof August 31, 2021, we have 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, 2021. Refer to Note 13, Debt, for further discussion on the Company is exposed2019 Revolving Credit Facility The variable interest rate on our long-term debt can expose us 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. 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 debtinterest rate swap agreement, we will 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 averagethe 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.
As the terms for peer companies. To mitigate counterparty credit risk, FactSet enters into contractsthe interest rate swap agreement align with large financial institutions and regularly reviews its credit exposure balances as well as the creditworthiness of the counterparties. The Company does2019 Revolving Credit Facility, we do not expect any losseshedge ineffectiveness. We have 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. Realized gains or losses are subsequently reclassified into Interest expense, net in the Consolidated Statement of defaultIncome when settled. The following is a summary of its counterparties.the gross notional values of the derivative instruments: | | | | | | | | | | | |
(in thousands, in U.S. dollars) | Gross Notional Value | | August 31, 2021 | | August 31, 2020 | | Foreign currency forward contracts | $ | 154,728 | | | $ | 129,649 | | | Interest rate swap agreement | 287,500 | | | 287,500 | | | Total cash flow hedges | $ | 442,228 | | | $ | 417,149 | |
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: | | | | | | | | | | | | | | | | | | | | | | | | | Fair Value of Derivative Instruments | | Derivative Assets | | Derivative Liabilities | | Derivatives designated as hedging instruments | Balance Sheet Classification | August 31, 2021 | August 31, 2020 | | Balance Sheet Classification | August 31, 2021 | August 31, 2020 | | Foreign currency forward contracts | Prepaid expenses and other current assets | $ | 1,384 | | $ | 3,644 | | | Accounts payable and accrued expenses | $ | 1,201 | | $ | 93 | | | Interest rate swap agreement | Prepaid expenses and other current assets | — | | — | | | Accounts payable and accrued expenses | 1,934 | | 1,861 | | | Other assets | — | | — | | | Other liabilities | 1,045 | | 3,819 | | | Total cash flow hedges | | $ | 1,384 | | $ | 3,644 | | | | $ | 4,181 | | $ | 5,773 | |
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 | | | | | | | | | | | | | | | Liabilities: Foreign Currency Forward Contracts | | | | | | | | | | | Accounts payable and accrued expenses | | $ | 1,731 | | | $ | — | | | | Deferred rent and other non-current liabilities | | $ | 2,305 | | | $ | — | |
All derivatives were designated as hedging instruments as of August 31, 20182021 and 2017,2020, 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, 20172021, 2020 and 2016:2019: | (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) | | (in thousands) | Gain (Loss) Recognized in AOCL on Derivatives | Location of Gain (Loss) Reclassified from AOCL into Income | Gain (Loss) Reclassified from AOCL into Income | Derivatives in Cash Flow Hedging Relationships | | 2018 | | | 2017 | | | 2016 | | into Income (Effective Portion) | | 2018 | | | 2017 | | | 2016 | | Derivatives in Cash Flow Hedging Relationships | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | Foreign currency forward contracts | | $ | (7,700 | ) | | $ | 5,183 | | | $ | (1,806 | ) | SG&A | | $ | 3,106 | | | $ | (2,883 | ) | | $ | (451 | ) | Foreign currency forward contracts | $ | 1,660 | | $ | 5,049 | | $ | (187) | | SG&A | $ | 5,027 | | $ | (1,556) | | $ | (1,794) | | | Interest rate swap agreement | | Interest rate swap agreement | 745 | | (6,138) | | — | | Interest expense, net | (1,956) | | (458) | | — | | | Total cash flow hedges | | Total cash flow hedges | $ | 2,405 | | $ | (1,089) | | $ | (187) | | | $ | 3,071 | | $ | (2,014) | | $ | (1,794) | |
As of August 31, 2021, we estimate that net pre-tax derivative losses of $1.8 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.
Offsetting of Derivative Instruments We enter into master netting arrangements designed to permit net settlement of derivative transactions among the respective counterparties, settled on the same date and in the same currency. 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 netting2021 and other similar arrangements with its respective counterparties allow for net settlement under certain conditions. As of August 31, 2018 and 2017,2020, there were no material amounts recorded net settlements recorded on the Consolidated Balance Sheets.
6. OTHER COMPREHENSIVE (LOSS) INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of other comprehensive (loss) income during the fiscal years ended August 31, 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. ACQUISITION 7. SEGMENT INFORMATION
Operating segments are defined as (i) components 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, consistingTruvalue Labs, Inc.
On November 2, 2020, we acquired all of the Chief Financial Officer, Chief Technology and Product Officer, Global Headoutstanding shares 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”Truvalue Labs, Inc. ("TVL") for a total purchase price of $217.6 million. BISAM$41.9 million, subject to working capital and other adjustments. TVL is a globalleading provider of portfolio performanceenvironmental, social, and attribution, multi-asset risk, GIPS composites managementgovernance ("ESG") information. TVL applies artificial intelligence driven technology to over 100,000 unstructured text sources in multiple languages, including news, trade journals, and reporting. BISAM’s product offerings include B-One, BISAM’s cross-asset solution, which will serve as a complementnon-governmental organizations and industry reports, to both FactSet’s portfolio analytics suiteprovide daily signals that identify positive and client reporting solutions, and Cognity, whichnegative ESG behavior. The acquisition of TVL further enhances FactSet’s risk analysis for derivatives and quantitative portfolio construction. These factors contributedour commitment to aproviding industry leading access to ESG data across our platforms. The TVL purchase price was in excess of the fair value of BISAM’s net tangible and intangible assets leading toacquired, resulting in the recognition of goodwill. AtWe finalized the timepurchase accounting for the TVL acquisition during the third quarter of acquisition, BISAM employed over 160 employees based primarily in its New York, Boston, Paris, Londonfiscal 2021 and Sofia offices. Total transaction costs of $3.2 million were recorded within Selling, General and Administrative (“SG&A”) expenses indid not record any material changes to the Consolidated Statements of Income during fiscal 2017.
The totalpreliminary purchase price was allocated to BISAM’s net tangibleallocation.
The acquisition date fair values of major classes of assets acquired and intangible assets based upon their estimated fair valueliabilities assumed are 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 | |
| | | | | | | | | | | | | | | | | | | | | | | Acquisition Date Fair Value | | Acquisition Date Useful Life | | Amortization Method | | | (in thousands) | | (in years) | | | | Current assets | | $ | 812 | | | | | | | | | | | | | | Amortizable intangible assets | | | | | | | | Software technology | | 8,100 | | | 7 years | | Straight-line | | Client relationships | | 900 | | | 12 years | | Straight-line | | | | | | | | | Trade names | | 2,800 | | | 15 years | | Straight-line | | Goodwill | | 30,058 | | | | | | | Other assets | | 5,299 | | | | | | | Current liabilities | | (3,069) | | | | | | | Other liabilities | | (2,984) | | | | | | | Total purchase price | | $ | 41,916 | | | | | |
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$30.1 million represents the excess of the TVL purchase price over the fair value of net assets acquired and is included in the net tangible and intangible assets acquired.Americas segment. Goodwill generated from the BISAMTVL acquisition is included in the US and European segments and is not deductible for income tax purposes. The results of TVL's operations of BISAM have been included in our Consolidated Financial Statements, within the Company’s Consolidated Statements of Income since the completion of theAmericas segment, beginning with its acquisition on March 17, 2017.November 2, 2020. Pro forma information has not been presented because the effect of the BISAMTVL 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 reportingour Consolidated Financial Statements.
8. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Property, equipment and communications software and services to the financial services industry. Client reporting is a growing arealeasehold improvements consist of the market as regulatory requirements risefollowing: | | | | | | | | | | | | | (in thousands) | August 31, | | 2021 | | 2020 | | Leasehold improvements | $ | 197,719 | | | $ | 182,899 | | | Computers and related equipment | 136,213 | | | 127,794 | | | Furniture and fixtures | 58,212 | | | 56,269 | | | Subtotal | $ | 392,144 | | | $ | 366,962 | | | Less accumulated depreciation and amortization | (260,767) | | | (233,860) | | | Property, equipment and leasehold improvements, net | $ | 131,377 | | | $ | 133,102 | |
Depreciation expense was $30.4 million, $32.2 million 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$35.4 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 tangiblefiscal years 2021, 2020 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.
2019, respectively. 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).
Changes in the carrying amount of goodwill by segment for fiscal years ended August 31, 20182021 and 20172020 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | (in thousands) | Americas | | EMEA | | Asia Pacific | | Total | | Balance at August 31, 2019 | $ | 386,195 | | | $ | 296,459 | | | $ | 3,075 | | | $ | 685,729 | | | Foreign currency translations | — | | | 23,968 | | | 6 | | | 23,974 | | | Balance at August 31, 2020 | $ | 386,195 | | | $ | 320,427 | | | $ | 3,081 | | | $ | 709,703 | | | Acquisitions | 43,893 | | | — | | | — | | | 43,893 | | | Foreign currency translations | — | | | 723 | | | (114) | | | 609 | | | Balance at August 31, 2021 | $ | 430,088 | | | $ | 321,150 | | | $ | 2,967 | | | $ | 754,205 | |
(in thousands) | | U.S. | | | Europe | | | 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 | | Foreign currency translations | | | — | | | | 19,432 | | | | (189 | ) | | | 19,243 | | Balance at August 31, 2017 | | $ | 386,835 | | | $ | 317,759 | | | $ | 2,966 | | | $ | 707,560 | | Acquisitions and other adjustments | | | (640 | ) | | | (1,562 | ) | | | — | | | | (2,202 | ) | Foreign currency translations | | | — | | | | (3,503 | ) | | | (22 | ) | | | (3,525 | ) | Balance at August 31, 2018 | | $ | 386,195 | | | $ | 312,694 | | | $ | 2,944 | | | $ | 701,833 | |
Goodwill is not amortized as it is estimated to have an indefinite life. At least annually, the Company iswe are required to test goodwill at the reporting unit level, which is consistent with our segments, 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., Europe and Asia Pacific, which reflect the level of internal reporting the Company uses to manage its business and operations. The three 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 CompanyWe performed itsour annual goodwill impairment test during the fourth quarter of fiscal 2018,2021 utilizing a qualitative analysis, consistent with the timing of previous years. ItWe concluded it was determinedmore likely than not that there was no impairment, with the fair value of each of the Company’s reporting units significantly exceedingour segments 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. 10. INTANGIBLE ASSETS FactSet’s
Our 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’sour operations. We amortize intangible assets on a straight line basis over their estimated useful lives. The estimated useful life, gross carrying amounts and accumulated amortization totals related to our identifiable intangible assets are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | August 31, 2021 | | August 31, 2020 | | (in thousands, except useful lives) | Estimated Useful Life (years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | | Data content | 4 to 20 | $ | 36,681 | | $ | 26,835 | | $ | 9,846 | | | $ | 35,872 | | $ | 24,847 | | $ | 11,025 | | | Client relationships | 8 to 18 | 101,077 | | 49,139 | | 51,938 | | | 100,316 | | 43,026 | | 57,290 | | | Software technology | 3 to 9 | 121,556 | | 87,207 | | 34,349 | | | 108,384 | | 72,396 | | 35,988 | | | Developed technology | 3 to 5 | 57,666 | | 21,278 | | 36,388 | | | 30,276 | | 13,689 | | 16,587 | | | Non-compete agreements | 2 to 4 | — | | — | | — | | | 1,388 | | 1,355 | | 33 | | | Trade names | 15 to 15 | 6,900 | | 4,435 | | 2,465 | | | 4,106 | | 3,934 | | 172 | | | Total | | $ | 323,880 | | $ | 188,894 | | $ | 134,986 | | | $ | 280,342 | | $ | 159,247 | | $ | 121,095 | |
The weighted average useful life of the Company’s acquiredour intangible assets at August 31, 20182021 was 11.59.1 years. The Company amortizesWe assess intangible assets over their estimatedfor indicators of impairment on a quarterly basis, including an evaluation of our useful lives which are evaluated quarterly to determine whetherif events and circumstances warrant a revision to the remaining period of amortization. There have been no changes to the estimateIf indicators of the remaining useful lives during fiscal years 2018, 2017 and 2016. Amortizableimpairment 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. NoWe have not identified a material impairment, nor a material change to the estimated remaining useful lives of our intangible assets has been identified during any of the periods presented.fiscal years 2021 and 2020. 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 | | Data content | | $ | 33,992 | | | $ | 20,990 | | | $ | 13,002 | | Client relationships | | | 98,882 | | | | 29,387 | | | | 69,495 | | Software technology | | | 106,505 | | | | 44,231 | | | | 62,274 | | Non-compete agreements | | | 4,840 | | | | 2,381 | | | | 2,459 | | Trade names | | | 4,070 | | | | 2,365 | | | | 1,705 | | Total | | $ | 248,289 | | | $ | 99,354 | | | $ | 148,935 | |
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 | |
Amortization expense recorded for intangible assets was $31.5 million, $25.4 million, and $25.1 million during fiscal years 2018, 20172021, 2020, and 2016 was $24.7 million, $19.9 million and $14.8 million,2019 , respectively.
As of August 31, 2018,2021, estimated intangible asset amortization expense for each of the next five years and thereafter are as follows:Fiscal Year (in thousands) | | Estimated Amortization Expense | | 2019 | | $ | 23,940 | | 2020 | | | 23,192 | | 2021 | | | 21,284 | | 2022 | | | 18,718 | | 2023 | | | 13,890 | | Thereafter | | | 47,911 | | Total | | $ | 148,935 | |
| | | | | | Fiscal Year (in thousands) | Estimated Amortization Expense | | 2022 | $ | 34,433 | | | 2023 | 28,910 | | | 2024 | 19,375 | | | 2025 | 10,586 | | | 2026 | 9,179 | | | Thereafter | 32,503 | | | Total | $ | 134,986 | |
12. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment
11. INCOME TAXES Income tax expense is based on taxable income determined in accordance with current enacted laws and leasehold improvementstax rates. Deferred income taxes are recorded for the temporary differences between the financial statement and the 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, | | 2021 | | 2020 | | 2019 | | U.S. operations | $ | 311,767 | | | $ | 280,283 | | | $ | 288,860 | | | Non-U.S. operations | 155,850 | | | 146,851 | | | 133,105 | | | Income before income taxes | $ | 467,617 | | | $ | 427,134 | | | $ | 421,965 | | | | | | | | | U.S. operations | $ | 40,595 | | | $ | 31,926 | | | $ | 55,824 | | | Non-U.S. operations | 27,432 | | | 22,270 | | | 13,351 | | | Total provision for income taxes | $ | 68,027 | | | $ | 54,196 | | | $ | 69,175 | | | | | | | | | Effective tax rate | 14.5 | % | | 12.7 | % | | 16.4 | % |
The 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, | | 2021 | | 2020 | | 2019 | | Current | | | | | | | U.S. federal | $ | 26,734 | | | $ | 9,332 | | | $ | 35,688 | | | U.S. state and local | 13,894 | | | 8,034 | | | 18,389 | | | Non-U.S. | 32,001 | | | 27,640 | | | 17,376 | | | Total current taxes | $ | 72,629 | | | $ | 45,006 | | | $ | 71,453 | | | | | | | | | Deferred | | | | | | | U.S. federal | $ | 1,031 | | | $ | 11,896 | | | $ | 1,813 | | | U.S. state and local | (1,064) | | | 2,665 | | | (217) | | | Non-U.S. | (4,569) | | | (5,371) | | | (3,874) | | | Total deferred taxes | $ | (4,602) | | | $ | 9,190 | | | $ | (2,278) | | | Total provision for income taxes | $ | 68,027 | | | $ | 54,196 | | | $ | 69,175 | |
Depreciation
Our effective tax rate will vary based on, among other things, changes in levels of foreign income, as well as discrete and other non-recurring 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 non-recurring events, including the taxation of foreign income: | | | | | | | | | | | | | | | | | | | | | | | Years ended August 31, | | | (expressed as a percentage of income before income taxes) | 2021 | | 2020 | | 2019 | | | Tax at U.S. Federal statutory tax rate | 21.0 | % | | 21.0 | % | | 21.0 | % | | | Increase (decrease) in taxes resulting from: | | | | | | | | State and local taxes, net of U.S. federal income tax benefit | 2.1 | | | 3.1 | | | 4.0 | | | | Foreign income at other than U.S. rates | (1.0) | | | (1.4) | | | (1.4) | |
| | Foreign derived intangible income ("FDII") deduction | (1.9) | | | (1.8) | | | (1.7) | | | | | | | | | | | Income tax benefits from R&D tax credits | (3.9) | | | (3.8) | | | (3.5) | | | | Share-based payments | (2.2) | | | (3.7) | | | (3.2) | | | | One-time transition tax from TCJA | — | | | — | | | (0.4) | | (1) | | Other, net | 0.4 | | | (0.7) | | | 1.6 | | | | Effective tax rate | 14.5 | % | | 12.7 | % | | 16.4 | % | |
1.The enactment of the TCJA resulted in 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 2021 provision for income taxes was $68.0 million, compared with $54.2 million in fiscal 2020, an increase of 25.5%. The increase was primarily due to net changes in jurisdictional pre-tax book income in fiscal 2021, compared with the same period in the prior year. Additionally, the increase was driven by a $4.4 million lower windfall tax benefit from stock-based compensation for fiscal 2021, compared with fiscal 2020, changes in tax rates in certain jurisdictions, and a lower benefit from finalizing prior year tax returns of $1.2 million. The increase was partially offset by the impact of the true-up of certain foreign deferred tax balances, and higher research and development 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. Deferred Tax Assets and Liabilities The significant components of deferred tax assets recorded within the Consolidated Balance Sheets were as follows: | | | | | | | | | | | | | (in thousands) | At August 31, | | 2021 | | 2020 | | Deferred tax assets: | | | | | Lease Liabilities | $ | 55,416 | | | $ | 56,280 | | | Stock-based compensation | 22,847 | | | 16,341 | | | Unrealized tax loss on investment | 4,135 | | | 4,172 | | | Other | 11,199 | | | 8,840 | | | Total deferred tax assets | $ | 93,597 | | | $ | 85,633 | |
The significant components of deferred tax liabilities recorded within the Consolidated Balance Sheets were as follows: | | | | | | | | | | | | | (in thousands) | At August 31, | | 2021 | | 2020 | | Deferred tax liabilities: | | | | | Depreciation on property, equipment and leasehold improvements | $ | 17,133 | | | $ | 15,291 | | | Purchased intangible assets, including acquired technology | 44,773 | | | 43,088 | | | Lease right-of-use assets | 43,904 | | | 45,344 | | | Other | 289 | | | 1,623 | | | Total deferred tax liabilities | $ | 106,099 | | | $ | 105,346 | |
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. We 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 be sustained based on its technical merits of the tax position. Otherwise, no benefit or expense was $32.6can be recognized in the 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 effective settlement with a taxing authority. Additionally, we accrue 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 we will accurately predict the audit outcomes, 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 will 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, 2021, we had gross unrecognized tax benefits totaling $14.9 million, $28.0including $1.3 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, 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 | | | Additions based on tax positions related to the current year | 4,259 | | | Release for tax positions of prior years | (1,720) | | | Unrecognized income tax benefits at August 31, 2021 | $ | 14,870 | |
In the normal course of business, our tax filings are subject to audit by federal, state and foreign tax authorities. At August 31, 2021, we 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 | 2018 | through | 2020 | | State (various) | 2018 | through | 2020 | | | | | | Europe | | | | | United Kingdom | 2018 | through | 2020 | | France | 2018 | through | 2020 | | Germany | 2017 | through | 2020 |
12. LEASES On September 1, 2019, we adopted ASC 842,Leases ("ASC 842"). As part of this adoption, we elected to not record operating lease right-of-use assets or operating lease liabilities for leases with an initial term of 12 months or less. We elected the practical expedient not to separate lease components from non-lease components but, rather, to combine them into one single lease component, which we recognize over the expected term on a straight-line expense basis in occupancy costs (a component of SG&A expense).We review new arrangements at inception to evaluate whether we obtain substantially all the economic benefits of and have the right to control the use of an asset. Our lease portfolio is primarily related to our office space, under various operating lease agreements.Our lease ROU assets and lease liabilities are recognized based on the present value of future minimum lease payments at lease commencement (which includes fixed lease payments and certain qualifying index-based variable payments) over the reasonably certain lease term. leveraging an estimated IBR. Certain adjustments to our lease ROU assets may be required for items such as initial direct costs paid or incentives received. As of August 31, 2021, we recognized $239.1 million of Lease right-of-use assets, net and $291.6 million of combined Current and Long-term lease liabilities in the Consolidated Balance Sheets. Such leases have a remaining lease term ranging from less than one year to just over 14 years and did not include any renewal or termination options that were not yet reasonably certain to be exercised.
The following table reconciles our future undiscounted cash flows related to our operating leases and the reconciliation to the Current and Long-term lease liabilities as of August 31, 2021: | | | | | | | (in thousands) | Minimum Lease
Payments | | Fiscal Years Ended August 31, | | 2022 | $ | 43,177 | | | 2023 | 39,892 | | | 2024 | 38,050 | | | 2025 | 36,203 | | | 2026 | 35,541 | | | Thereafter | 161,849 | | | Total | 354,712 | | | Imputed Interest | 63,156 | | | Present Value | $ | 291,556 | |
(in thousands)The components of lease cost related to the operating leases were as follows: | | | | | | | | | | At August 31, | (in millions) | 2021 | 2020 | Operating lease cost1 | $ | 42.8 | | $ | 43.0 | | Variable lease cost2 | $ | 14.6 | | $ | 17.9 | |
1.Operating lease costs included costs associated with fixed lease payments and index-based variable payments that qualified for lease accounting under ASC 842, Leases and complied with the practical expedients and exceptions elected by us. 2.Variable lease costs were not included in the measurement of lease liabilities. These costs primarily included variable non-lease costs and leases that qualified for the short-term lease exception. Our variable non-lease costs included costs that were not fixed at the lease commencement date and are not dependent on an index or rate. These costs relate to utilities, real estate taxes, insurance and maintenance. The following table summarizes our lease term and discount rate assumptions related to the operating leases recorded on the Consolidated Balance Sheets: | | | | | | | | | | At August 31, | | 2021 | 2020 | Weighted average remaining lease term (in years) | 9.4 | 10.1 | Weighted average discount rate (IBR) | 4.3 | % | 4.2 | % |
The following table summarizes supplemental cash flow information related to our operating leases: | | | | | | | | | | At August 31, | (in millions) | 2021 | 2020 | | Cash paid for amounts included in the measurement of lease liabilities | $ | 42.1 | | $ | 39.7 | | | Lease ROU assets obtained in exchange for lease liabilities | $ | 5.7 | | $ | 43.7 | |
13. DEBT Our debt obligations consisted of the following: | | | | | | | | | | | | | (in thousands) | At August 31, | | 2021 | | 2020 | | 2019 Revolving Credit Facility | $ | 575,000 | | | $ | 575,000 | | | 2019 Revolving Credit Facility debt issuance costs | (465) | | | (646) | | | Long-term debt | $ | 574,535 | | | $ | 574,354 | |
2019 Credit Agreement On March 29, 2019, we entered into a credit agreement, as the borrower, with PNC Bank, National Association ("PNC"), as the administrative agent and lender (the "2019 Credit Agreement"). The 2019 Credit Agreement provides for a $750.0 million revolving credit facility (the "2019 Revolving Credit Facility"). We may request borrowings under the 2019 Revolving Credit Facility until its maturity date of March 29, 2024. The 2019 Credit Agreement also allows us, 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. We 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 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, 2021. The principal balance is payable in full on the maturity date. Borrowings under the 2019 Revolving Credit Facility 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 2021 and 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 $8.1 million and $23.3$12.9 million, respectively. Including the effects of the interest rate swap agreement, the year-to-date weighted average interest rate on amounts outstanding under our 2019 Revolving Credit Facility was 1.38% and 2.20% as of August 31, 2021 and August 31, 2020, respectively. Refer to Note 6, Derivative Instruments for further discussion on the interest rate swap agreement. Interest on the loan outstanding under the 2019 Revolving Credit Facility is payable quarterly, in arrears, and on the maturity date. During fiscal 2019, we incurred approximately $0.9 million in debt issuance costs related to the 2019 Credit Agreement. These costs were capitalized as debt issuance costs 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 of our activities, which are usual and customary for this type of loan. In addition, the 2019 Credit Agreement requires that we 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 covenants and requirements within the 2019 Credit Agreement as of August 31, 2021. 14. 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. We record liabilities for commitments when incurred (i.e., when the goods or services are received). Purchase Commitments with Suppliers and Vendors Purchase obligations represent payments due in future periods in respect of commitments to our various data vendors as well as commitments to purchase goods and services. These purchase commitments are agreements that are enforceable and legally binding on us, 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, 2021 and 2020, we had total purchase commitments with suppliers of $191.9 million and $226.0 million, respectively. We also have contractual obligations related to our lease liabilities and outstanding debt. Refer to Note 12, Leases and Note 13, Debt for information regarding lease commitments and outstanding debt obligations, respectively.
Letters of Credit From time to time, we are required to obtain letters of credit in the ordinary course of business. As of August 31, 2021 we had approximately $2.8 million of standby letters of credit outstanding. These standby letters of credit utilize the same covenants included in the 2019 Credit Agreement. Refer to Note 13, Debt for more information on these covenants. Contingencies Income Taxes Uncertain income tax positions are accounted for in accordance with applicable accounting guidance, refer to Note 11, Income Taxes for further details. We are currently under audit by tax authorities and have reserved for potential adjustments to our provision for income taxes that may result from examinations by, or any negotiated settlements with, these tax authorities. We believe that the final outcome of these examinations or settlements will not have a material effect on our results of operations nor our cash flows. 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 we determine the liabilities are no longer necessary. If our estimates of the federal, state, and foreign income tax liabilities are less than the ultimate assessment, additional expense would result. Legal Matters We accrue non-income-tax liabilities for contingencies when management believes that a loss is probable, and the amounts can be reasonably estimated. Contingent gains are recognized only when realized. We are 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 us are subject to future resolution, including the uncertainties of litigation. Based on information available at August 31, 2021, our management believes that the ultimate outcome of these unresolved matters against us, individually or in the aggregate, will not have a material adverse effect on our consolidated financial position, our results of operations or our cash flows. Sales Tax Matters On August 8, 2019, we received a Notice of Intent to Assess (the "First Notice") additional sales taxes, interest and underpayment penalties from the Commonwealth of Massachusetts Department of Revenue (the "Commonwealth") relating to the tax periods from January 1, 2006 through December 31, 2013. On July 20, 2021, we received a Notice of Intent to Assess (the "Second Notice", cumulatively with the First Notice, the "Notices") additional sales taxes, interest and underpayment penalties from the Commonwealth relating to the tax periods from January 1, 2014 through December 31, 2018. Based upon the Notices, it is the Commonwealth's intention to assess sales tax, interest and underpayment penalties on previously recorded sales transactions. We have filed an appeal to the Notices and intend to contest any such assessment, if assessed. We continue to cooperate with the Commonwealth's inquiry with respect to the Notices. On August 10, 2021, we received a letter (the “Letter”) from the Commonwealth relating to the tax periods from January 1, 2019 through June 30, 2021, requesting additional sales information to determine if a notice of intent to assess should be issued to FactSet with respect to these tax periods. Based upon a preliminary review of the Letter, we believe the Commonwealth might seek to assess sales tax, interest and underpayment penalties on previously recorded sales transactions. We are cooperating with the Commonwealth's inquiry with respect to the Letter. Due to the uncertainty surrounding the assessment process for both the Notices and Letter, we are unable to reasonably estimate the ultimate outcome of these matters and, as such, have not recorded a liability for any of these matters as of August 31, 2021. We believe that we will ultimately prevail if we are presented with a formal assessment for any of these matters; however, if we do not prevail, the amount of any assessment could have a material impact on our consolidated financial position, results of operations and cash flows. Indemnifications As permitted or required under Delaware law and to the maximum extent allowable under that law, we have certain obligations to indemnify our current and former officers and directors for certain events or occurrences while the officer or director is, or was serving, at our 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 FactSet, 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 we could be required to make under these indemnification obligations is unlimited; however, we have a director and officer insurance policy that we believe mitigates our exposure and may enable us
to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification obligations is immaterial. 15. STOCKHOLDERS’ EQUITY Shares of common stock outstanding were as follows: | | | | | | | | | | | | | | | | | | | (in thousands) | Years ended August 31, | | 2021 | | 2020 | | 2019 | | Balance, beginning of year at September 1, 2020, 2019 and 2018, respectively | 38,030 | | | 38,118 | | | 38,193 | | | Common stock issued for employee stock plans | 395 | | | 663 | | | 839 | | Repurchase of common stock from employees(1) | (13) | | | (12) | | | (32) | | | Repurchase of common stock under the share repurchase program | (797) | | | (739) | | | (882) | | | Balance, end of year at August 31, 2021, 2020, and 2019 respectively | 37,615 | | | 38,030 | | | 38,118 | |
(1)For fiscal years 2021, 2020 and 2019, we repurchased 12,932, 11,945 and 31,644 shares, or $4.3 million, $3.5 million and $7.2 million, of common stock, respectively, primarily to satisfy tax withholding obligations due upon the vesting of stock-based awards. Share Repurchase Program Under our share repurchase program, we may repurchase shares of our common stock from time-to-time in the open market and privately negotiated transactions, subject to market conditions. For the year ended August 31, 2021, we repurchased 0.8 million shares for $264.7 million compared with 0.7 million shares for $199.6 million for fiscal years 2018, 2017 and 2016, respectively. the year ended August 31, 2020. 13. COMMON STOCK AND EARNINGS PER SHARE
On May 7, 2018, FactSet’sMarch 23, 2021, our Board of Directors approved a 14.3%$205.6 million increase to our existing share repurchase program. As of August 31, 2021, a total of $199.9 million remained authorized for future share repurchases under this program. It is expected that share repurchases will be paid using existing and future cash generated by operations. Restricted Stock Restricted stock awards entitle the holders to receive shares of common stock as the awards vest over time. For the year ended August 31, 2021, 34,607 shares of previously granted restricted stock vested and were included in common stock outstanding as of August 31, 2021 (recorded net of 12,932 shares repurchased from employees at a cost of $4.3 million to cover their cost of taxes upon vesting of the restricted stock). For the year ended August 31, 2020, 32,996 shares of previously granted restricted stock vested and were included in common stock outstanding as of August 31, 2020 (recorded net of 11,945 shares repurchased from employees at a cost of $3.5 million to cover their cost of taxes upon vesting of the restricted stock).
Dividends Our Board of Directors declared dividends on our common stock for the full years ended August 31, 2021 and August 31, 2020 as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended | | Dividends per
Share of
Common Stock | | Record Date | | Total amount (in thousands) | | Payment Date | | Fiscal 2021 | | | | | | | | | | First Quarter | | $ | 0.77 | | | November 30, 2020 | | $ | 29,266 | | | December 17, 2020 | | Second Quarter | | $ | 0.77 | | | February 26, 2021 | | $ | 29,141 | | | March 18, 2021 | | Third Quarter | | $ | 0.82 | | | May 31, 2021 | | $ | 30,972 | | | June 17, 2021 | | Fourth Quarter | | $ | 0.82 | | | August 31, 2021 | | $ | 30,845 | | | September 16, 2021 | | | | | | | | | | | 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 | | $ | 29,188 | | | June 18, 2020 | | Fourth Quarter | | $ | 0.77 | | | August 31, 2020 | | $ | 29,283 | | | September 17, 2020 |
Future cash dividend payments will depend on our earnings, capital requirements, financial condition and other factors considered relevant by us and are subject to final determination by our Board of Directors. On May 5, 2021, our Board of Directors approved a 6.5% increase in the regular quarterly dividend from $0.56$0.77 to $0.64$0.82 per share. Shares
Accumulated Other Comprehensive Loss The components of common stock outstanding wereAOCL are as follows: | | | | | | | | | | | | | (in thousands) | August 31, 2021 | | August 31, 2020 | | Accumulated unrealized losses on cash flow hedges, net of tax | $ | (2,095) | | | $ | (1,591) | | | Accumulated foreign currency translation adjustments | (36,867) | | | (37,702) | | | Total AOCL | $ | (38,962) | | | $ | (39,293) | |
| | | 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.
|
16. EARNINGS PER SHARE
A reconciliation of the weighted average shares outstanding used in the basic and diluted earnings per share (“EPS”("EPS") computations is as follows:computations.(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 | |
| | | | | | | | | | | | | Twelve Months Ended | | August 31, | | (in thousands, except per share data)) | 2021 | 2020 | 2019 | | Numerator | | | | | Net income used for calculating basic and diluted income per share | $ | 399,590 | | $ | 372,938 | | $ | 352,790 | | | Denominator | | | | | Weighted average common shares used in the calculation of basic income per share | 37,856 | | 37,936 | | 38,144 | | | Common stock equivalents associated with stock-based compensation plan | 714 | | 710 | | 729 | | | Shares used in the calculation of diluted income per share | 38,570 | | 38,646 | | 38,873 | | | Basic income per share | $ | 10.56 | | $ | 9.83 | | $ | 9.25 | | | Diluted income per share | $ | 10.36 | | $ | 9.65 | | $ | 9.08 | |
Dilutive potential common shares consist of stock options and unvested restricted stockperformance-based awards. There were no stock options excluded from 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.As of August 31, 2018, 2017 and 2016, the number of performance-based1,750 stock options excluded from the calculation of diluted EPS was 249,443, 415,061as of August 31, 2021 and 782,843, respectively. 2020, because their inclusion would have been anti-dilutive.
Performance-based stock optionsawards are omitted from the calculation of diluted EPS until it is determined that the performance criteria is considered probable of being achieved. 14. STOCKHOLDERS’ EQUITY
Preferred Stock
At August 31, 2018 and 2017, there were 10,000,000 shares of preferred stock ($.01 par value per share) authorized, of which no shares were issued and outstanding. FactSet’s Board of Directors may from time to time authorizehas been met at the issuance of one or more series of preferred stock and, in connection with the creation of such series, determine the characteristics of each such series including, without limitation, the preference and relative, participating, optional or other special rights, and the qualifications, limitations or restrictionsend of the series.
Common Stock
At August 31, 2018 and 2017, there were 150,000,000 shares of common stock ($.01 par value per share) authorized, of which 39,264,849 and 51,845,132 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.
Treasury Stock
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), reduce additional paid-in capital (“APIC”) by the average amount recorded in APIC when stock was originally issued ($186.7 million) and any remaining excess of cost as a deduction from retained earnings ($1.5 billion).reporting period. As of August 31, 2018,2021, there were 1,072,263 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.
Share Repurchase Program
Repurchases will be made from time to time in the open market and privately negotiated transactions, subject to market conditions. During fiscal 2018, the Company repurchased 1,534,398 shares for $302.4 million compared to 1,554,822 shares for $252.8 million in fiscal 2017.
On March 26, 2018, the Board of Directors of FactSet approved a $300.0 million expansion to the existing share repurchase program. Subsequent to this expansion $241.7 million remain authorized for future share repurchases as of August 31, 2018. 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.
Restricted Stock
Restricted stock68,990 performance-based awards entitle the holder to shares of common stock as the awards vest over time. During fiscal 2018, 26,599 shares of previously granted restricted stock awards vested and were included in common stock outstanding as of August 31, 2018 (less 8,070 shares repurchased from employees at a cost of $1.5 million to cover their cost of taxes upon vesting of the restricted stock). During fiscal 2017, 132,194 shares of previously granted restricted stock awards vested and were included in common stock outstanding as of August 31, 2017 (less 49,771 shares repurchased from employees at a cost of $7.8 million to cover their cost of taxes upon vesting of the restricted stock).
Dividends
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 | 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. Future dividend payments will depend on the Company’s earnings, capital requirements, financial condition and other factors considered relevant by the Company and is subject to final determination by the Company’s Board of Directors.
15. EMPLOYEE STOCK OPTION AND RETIREMENT PLANS
Stock Options Awards
On December 19, 2017, the Company’s stockholders approved the amended and restated FactSet Research Systems Inc. 2004 Stock Option and Award Plan, as Amended and Restated, which was renamed the Stock Option and Award Plan, as Amended and Restated (the “Long Term Incentive Plan” or “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 restricted stock awards to employees of FactSet. Stock options granted under the LTIP expire not more than ten yearsexcluded from the datecalculation 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 or the laws of descent and distribution. During the grantee’s lifetime, the options may be exercised only by the grantee.
diluted EPS. As of August 31, 2018, a total2020 there were 35,666 performance-based awards excluded from the calculation of 3,143,417 stock options were outstanding at a weighted average exercise price of $153.05. Unamortized stock-based compensation of $59.7 million is expected 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.
diluted EPS. 17. STOCK-BASED COMPENSATION The Company
We recognized total stock-based compensation expense of $31.5$45.1 million, $34.2$36.6 million and $29.8$32.4 million in fiscal 2018, 20172021, 2020 and 2016,2019, respectively. As of August 31, 2018, $71.72021, $89.8 million of total unrecognized compensation expense related to non-vested awards is expected to be recognized over a weighted average period of 3.02.9 years. There was no stock-based compensation capitalized as of August 31, 20182021 and 2017,2020, respectively. Stock Option Awards 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, 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 | | | | | Granted – non-performance-based | 418 | | $ | 317.17 | | | | | | | | | | Granted – non-employee Directors grant | 12 | | $ | 318.20 | | | | | Exercised | (322) | | $ | 166.36 | | | | | Forfeited | (85) | | $ | 237.23 | | | | | Outstanding as of August 31, 2021 | 2,277 | | $ | 214.89 | | $ | 161.9 | | 6.4 | | Options vested and exercisable as of August 31, 2021 | 1,019 | | $ | 170.25 | | $ | 214.0 | | 4.9 | | Options expected to vest as of August 31, 2021 | 1,148 | | $ | 248.91 | | $ | 150.8 | | 7.6 |
The aggregate intrinsic value represents the difference between our closing stock price as of August 31, 2021 of $380.22 and the exercise price, multiplied by the number of options exercisable as of that date. The total pre-tax intrinsic value of stock options exercised during fiscal 2021, 2020 and 2019 was $54.3 million, $85.0 million and $73.0 million, respectively.
Employee Stock Option Awards During the twelve months ended August 31, 2021, we granted 417,546 stock options under the FactSet Research Systems Inc. Stock Option and Award Plan as Amended and Restated (the "LTIP") with a weighted average exercise price of $317.17 to existing employees of FactSet, using the lattice-binomial option-pricing model. The majority of the stock options granted during the twelve months ended August 31, 2021 are related to the annual employee grant on November 9, 2020 under the LTIP. The stock option awards granted on November 9, 2020 vest 20% annually on the anniversary date of the grant and are fully vested after five years, expiring ten years from the date of grant. Employee Stock Option Fair Value Determinations The Company utilizes
We utilize 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’sour stock price, as well as, assumptions regarding a number of variables. Theseseveral variables, includewhich nclude, but are not limited to the Company’sour 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, 20172021, 2020 and 20162019 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% | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2021 | | 2020 | | 2019 | | Term structure of risk-free interest rate | 0.04 | % | — | 1.67% | | 0.10 | % | — | 1.79% | | 1.28 | % | — | 3.14% | | Expected life (years) | 7.1 | — | 7.1 | | 7.2 | — | 7.2 | | 7.1 | — | 7.1 | | Term structure of volatility | 26 | % | — | 27% | | 25 | % | — | 25% | | 18 | % | — | 29% | | Dividend yield | 0.12% | | 1.09% | | 1.15% | | Weighted average estimated fair value | $78.31 | | $60.33 | | $57.12 | | Weighted average exercise price | $317.17 | | $256.43 | | $224.35 | | Fair value as a percentage of exercise price | 24.7% | | 23.5% | | 25.5% |
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’sour 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’sour stock and the Company’sour assessment that a combination of implied volatility and historical volatility is best representative of future stock price trends. The Company usesWe use historical data to estimate option exercises and employee termination within the valuation model. The dividend yield assumption is based on the Company’sour 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.us. 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, 2021, shares reservedavailable for issuancefuture grant under the Director Plan was increased by 250,000. As of August 31, 2018, shares available for future grant were 282,398.The Company utilizes237,749.
Non-Employee Director Stock Option Fair Value Determinations We utilize 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’sour stock price, as well as, assumptions regarding a number of variables. Theseseveral variables, which include, but are not limited to, the Company’sour expected stock price volatility over the term of the awards, interest rates, option forfeitures and employee stock option exercise behaviors.Fiscal 2018
behaviors, to determine the grant date stock-based payment award fair value.
On January 12, 2018, FactSet15, 2021, January 15, 2020 and January 15, 2019, we granted 18,963 stock12,137, 16,080, and 20,576 stock options, respectively, to the Company’sour non-employee Directors. AllDirectors using 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 withvalues, based on 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 options 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. All the options granted on January 13, 2017, have a weighted average estimated fair value of $35.65 per share, usingassumptions used in the Black-Scholes option-pricing model withmodel:
(Weighted average assumptions) | | | | | | | | | | | | | Years ended August 31, | | 2021 | 2020 | 2019 | | Fair value | $ | 82.01 | | $ | 54.74 | | $ | 42.77 | | | Risk-free interest rate | 0.77 | % | 1.64 % | 2.51 | % | | Expected life (years) | 6.9 | 5.4 | 5.4 | | Expected volatility | 27.2 | % | 22.0 | % | 20.5 | % | | Dividend yield | 0.93 | % | 1.11 % | 1.17 | % |
Restricted Stock Units Our LTIP provides for 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 Boardshare-based awards, including awards of Directors on December 15, 2015. All the options granted on January 15, 2016, have a weighted average estimated fair value of $31.03 perrestricted stock units ("RSUs") and performance share using the Black-Scholes option-pricing model with the following weighted average assumptions:
Risk-free interest rate
| | | 1.62 | % | Expected life (years)
| | | 5.4 | | Expected volatility
| | | 23.0 | % | Dividend yield
| | | 1.05 | % |
units ("PSUs"; RSUs and PSUs, collectively, "Restricted Stock Awards"). The Restricted Stock Fair Value Determinations Awards are subject to continued employment over a specified period. The Restricted stockStock Awards granted to employees entitlesentitle the holderholders to shares of common stock as the award vestsRestricted Stock Awards vest over time, but not to dividends declared on the underlying shares, while the restricted stock subject to the Restricted Stock Awards is unvested. Vesting of the shares underlying the PSUs are also subject to achieving certain specified performance levels during the measurement period subsequent to the date of grant. The grant date fair value of restricted stock awardsRestricted Stock Awards is measured by reducing the grant date price of FactSet’s shareour common 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. The expense associated with Restricted stock awards areStock Awards is amortized over the vesting period. As of August 31, 2021, a total of 196,621 shares underlying Restricted Stock Awards were unvested and outstanding, which results in unamortized stock-based compensation of $37.8 million to be recognized as stock-based compensation expense over the remaining vesting period. period of 2.6 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, 2018 | 143 | | $ | 139.34 | | Granted - RSUs(1) | 73 | | $ | 239.03 | | | Vested - RSUs | (85) | | $ | 125.04 | | | Forfeited | (7) | | $ | 181.32 | | | Balance at August 31, 2019 | 124 | | $ | 205.47 | | Granted - Restricted Stock Awards(1) (2) | 74 | | $ | 252.17 | | | Vested - RSUs | (33) | | $ | 197.37 | | | Forfeited | (19) | | $ | 198.53 | | | Balance at August 31, 2020 | 146 | | $ | 231.55 | | Granted - Restricted Stock Awards(1)(2) | 99 | | $ | 312.86 | | | Vested - Restricted Stock Awards | (35) | | $ | 208.67 | | | Forfeited | (13) | | $ | 267.23 | | | Balance at August 31, 2021 | 197 | | $ | 274.1 | |
(1)Each Restricted Stock Award granted is equivalent to 2.5 shares granted under the LTIP. (2)During the fiscal 2018,year ended August 31, 2021 we granted 62,960 RSUs and 36,424 PSUs, During the fiscal year ended August 31, 2020 we granted 36,709 RSUs and 36,888 PSUs.
Performance-based Equity Awards Performance-based equity awards require management to make assumptions regarding the likelihood of achieving our performance targets. The number of performance-based awards that vest will be predicated on us 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 were 3,497 restrictedis 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, 2018 | 6,298 | | 282 | | | | | | Granted – non-performance-based options | (481) | | — | | | | | | Granted – non-employee Directors options | — | | (20) | | Granted – RSUs(1) | (183) | | — | | Forfeited - Share-based awards(2) | 433 | | 2 | | | Balance at August 31, 2019 | 6,067 | | 264 | | | Granted – non-performance-based options | (424) | | — | | | Granted – non-employee Directors options | — | | (16) | | Granted – RSUs(1) | (93) | | — | | | Granted – PSUs(1) | (91) | | — | | Forfeited – Share-based awards(2) | 167 | | 2 | | | Balance at August 31, 2020 | 5,626 | | 250 | | | Granted – non-performance-based options | (418) | | — | | | Granted – non-employee Directors options | — | | (12) | | Granted – RSUs(1) | (157) | | — | | Granted – PSUs(1) | (91) | | — | | Forfeited – Share-based awards(2) | 120 | | — | | | Balance at August 31, 2021 | 5,080 | | 238 | |
(1)Each Restricted Stock Award granted is equivalent to 2.5 shares granted under the LTIP. (2)Under the LTIP, 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 Shares of FactSet common stock awards granted with a weighted average grant date fair value of $189.28 compared to 62,400 restricted 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 our 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 2018,2021, employees purchased 64,23038,848 shares at a weighted average price of $160.34$273.59 compared to 75,372with 42,606 shares at a weighted average price of $136.34$234.41 in fiscal 20172020 and 73,07248,532 shares at a weighted average price of $131.14$205.64 in fiscal 2016.2019. Stock-based compensation expense recorded during fiscal 2018, 20172021, 2020 and 20162019 relating to the employee stock purchase planESPP was $1.6$2.0 million, $2.1 million and $1.9$2.0 million, respectively. The Company uses At August 31, 2021, the ESPP had 138,956 shares reserved for future issuance.
We use the Black-Scholes model to calculate the estimated fair value for the employee stock purchase plan.ESPP shares. The weighted average estimated fair value of employee stock purchase plan grantsthe ESPP shares during fiscal years 2018, 20172021, 2020 and 2016,2019, was $31.83, $28.16$54.00, $50.69 and $26.87$41.06 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
| | | | | | | | | | | | | | | | | | | 2021 | | 2020 | | 2019 | | Risk-free interest rate | 0.26 | % | | 0.95 | % | | 2.33 | % | | Expected life (months) | 3 | | 3 | | 3 | | Expected volatility | 11.69 | % | | 20.04 | % | | 10.89 | % | | Dividend yield | 1.00 | % | | 1.08 | % | | 1.12 | % |
18. EMPLOYEE BENEFIT PLANS Defined Contribution Plan We established our 401(k) Plan in fiscal 1993. The 401(k) Plan is a defined contribution plan covering all full-time, U.S. employees of Fair Value EstimatesThe CompanyFactSet and is responsible for determiningsubject to the assumptions used in estimatingprovisions of the fair valueEmployee Retirement Income Security Act of its share-based payment awards. The Company’s determination1974 and the Internal Revenue Code of fair value1986 ("IRC"). Each year, participants may contribute up to 60% of share-based payment awards on the date of grant using an option-pricing model is affectedtheir eligible annual compensation, subject to annual limitations established by the Company’s stock priceIRC. We matched 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 FactSet. We contributed $11.6 million, $11.3 million, and $10.9 million in matching contributions to employee 401(k) accounts during fiscal 2021, 2020 and 2019, respectively.
19. SEGMENT INFORMATION Operating segments are defined as well as assumptions regarding a numbercomponents of highly complex and subjective variables. These variables include but are not limited to the Company’s expected stock price volatility over the term 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 estimating the value of traded optionsan enterprise that have no vesting or hedging restrictionsthe following characteristics: (i) they engage in business activities from which they may earn revenue and incur expense, (ii) their operating results are regularly reviewed by the chief operating decision maker ("CODM") for resource allocation decisions and performance assessment, and (iii) their discrete financial information is available. At FactSet, our Chief Executive Officer functions as our CODM. Our operating segments are consistent with our reportable segments and are fully transferable. 17. INCOME TAXES
Income tax expensehow we, including our CODM, manage our business and the geographic markets in which we serve. Our internal financial reporting structure is based on taxable income determined3 segments: the Americas; EMEA; and Asia Pacific. Within each of the segments, we primarily deliver insight and information through four workflow solutions: Research; Analytics & Trading; Content & Technology Solutions ("CTS"); and Wealth. Commencing with the our 2022 fiscal year, we have reorganized our workflows into three solutions: Research & Advisory; Analytics & Trading; and CTS, to better align our products and go-to-market strategy. These workflow solutions provide global financial and economic information to asset 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 accordanceEurope, the Middle East, and Africa. The Asia Pacific segment serves our clients in Asia and Australia. Segment revenue reflects sales to clients based in these respective geographic locations. Each segment records expenses related to its individual operations with current enacted lawsthe exception of expenditures associated with our data centers, third-party data costs and tax rates. Deferred income taxescorporate headquarters charges, which are recorded forby the temporary differences betweenAmericas segment and are not allocated to the financial statementother segments. The content collection centers, located in India, the Philippines, and tax bases of assetsLatvia, benefit all our segments 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 rateexpenses incurred at these locations are allocated 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 iseach segment based on recurring factorsa percentage of revenue.
The following tables reflect the results of operations of our segments: | | | | | | | | | | | | | | | | (in thousands) | | | | | | Year Ended August 31, 2021 | Americas | EMEA | Asia Pacific | Total | | Revenue | $ | 1,008,046 | | $ | 427,700 | | $ | 155,699 | | $ | 1,591,445 | | | Operating income | $ | 218,180 | | $ | 159,704 | | $ | 96,157 | | $ | 474,041 | | | Depreciation and amortization | $ | 39,415 | | $ | 14,847 | | $ | 10,214 | | $ | 64,476 | | | Stock-based compensation | $ | 35,113 | | $ | 8,401 | | $ | 1,551 | | $ | 45,065 | | | Capital expenditures | $ | 38,146 | | $ | 1,424 | | $ | 21,755 | | $ | 61,325 | |
| | | | | | | | | | | | | | | | Year Ended August 31, 2020 | Americas | EMEA | Asia Pacific | Total | | Revenue | $ | 943,649 | | $ | 406,498 | | $ | 143,964 | | $ | 1,494,111 | | | Operating income | $ | 182,037 | | $ | 165,317 | | $ | 92,306 | | $ | 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 | $ | 885,854 | | $ | 420,884 | | $ | 128,613 | | $ | 1,435,351 | | | Operating income | $ | 171,237 | | $ | 191,230 | | $ | 75,568 | | $ | 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 | |
Segment Total Assets The following table reflects the total assets for our segments: | | | | | | | | | | As of August 31, | | (in thousands) | 2021 | 2020 | | Segment Assets | | | | Americas | $ | 1,144,693 | | $ | 1,111,600 | | | EMEA | 842,652 | | 757,524 | | | Asia Pacific | 237,595 | | 214,264 | | | Total assets | $ | 2,224,940 | | $ | 2,083,388 | |
Geographic Information The following tables reflect our revenues and nonrecurring events, including the taxationlong-lived assets, split geographically by our country 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, | | 2021 | | 2020 | | 2019 | | Revenues | | | | | | | United States | $ | 952,423 | | | $ | 898,609 | | | $ | 846,362 | | | United Kingdom | 190,044 | | | 179,966 | | | 166,944 | | | Other European Countries | 237,656 | | | 226,532 | | | 253,940 | | | All Other Countries | 211,322 | | | 189,004 | | | 168,105 | | | Total revenue | $ | 1,591,445 | | | $ | 1,494,111 | | | $ | 1,435,351 | |
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: (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 the normal course of business, the Company’s tax filings are subject to audit by federal, stateProperty, equipment 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 | |
leasehold improvements, net and Lease right-of-use assets, net and excludes goodwill, intangible assets, deferred taxes and other assets. | | | | | | | | | | | | | (in thousands) | At August 31, | | 2021 | | 2020 | | Long-lived Assets | | | | | United States | $ | 179,864 | | | $ | 205,929 | | | Philippines | 80,320 | | | 53,124 | | | India | 36,902 | | | 42,923 | | | United Kingdom | 30,976 | | | 32,184 | | | All Other Countries | 42,379 | | | 47,871 | | | Total long-lived assets | $ | 370,441 | | | $ | 382,031 | |
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 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, 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 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.
20. RISKS AND CONCENTRATIONS OF CREDIT RISK Financial Risk Management Foreign Currency Exchange Risk The Company
In the normal course of business, we are exposed to foreign currency exchange risk as we 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 utilizeswe utilize 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 doesWe 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.institutions. Further, the Company’sour 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. FactSet’sOur 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.
Cash and Cash Equivalents - and Investments The fair market value of FactSet’sour cash and cash equivalents and investments at August 31, 20182021 was $237.9$717.8 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, 2018,2021, we had long term debt outstanding under the fair value of FactSet’s 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 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’sour 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 itsour annual interest expense. Refer to Note 13, Debt for additional information regarding our outstanding debt obligations. Current market events have not required the Companyus to modify materially or change itsour financial risk management strategies with respect to itsour exposures to foreign currency exchange risk and interest rate risk. Concentrations of Credit Risk Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents. We are exposed to credit risk for cash and cash equivalents held in financial institutions in the event of a default, to the extent that such amounts are maintained primarily with fivein excess of applicable insurance limits. We have not experienced any losses from maintaining cash accounts in excess of such limits. We do not believe our concentration of cash and cash equivalents present a significant credit risk as the counterparties to the instruments consist of multiple high-quality, credit-worthy financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. These deposits may be redeemed upon demand and Accounts Receivable Our accounts receivable are maintained with financial institutions with reputable credit and therefore bear minimal credit risk. The Company seekssubject to mitigate its credit risks by spreading such risks across multiple counterparties and monitoring thecollection risk profiles of these counterparties.Accounts Receivable
Accounts receivableas they are unsecured and are derived from revenuesrevenue earned from clients located around the globe. FactSet doesWe do not require collateral from its clients but performs credit evaluations on an ongoing basis. The Company maintainsour clients. We maintain reserves for potential write-offs and evaluatesevaluate the adequacy of the reserves periodically. These losses have historically been within expectations. No single client represented 10% or more than 3% of FactSet'sour total revenuessubscription revenue in any fiscal yearperiod presented. At August 31, 2018, the Company’s largest individual client accounted for approximately 2% of total annual subscriptions, and subscriptions from the ten largest clients did not surpass 15% of total annual subscriptions, consistent with August 31, 2017. As of August 31, 20182021 and 2017,2020, the receivable reserve was $3.5$6.4 million and $2.7$8.0 million, respectively.
Derivative Instruments As a result of the
Our use of derivative instruments the Company is exposedexposes us to counterparty credit risk. FactSet has incorporated counterparty risk into the fair value of its derivative assets and its own credit risk intoto the valueextent counterparties may be unable to meet the terms of the Company’s derivative liabilities, when applicable. FactSet calculatestheir agreements. To mitigate credit risk, from observable data relatedwe limit counterparties to credit default swaps (“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 FactSet 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, FactSet enters into contracts with largecredit-worthy financial institutions and regularly reviews itsdistribute contracts among these institutions to reduce the concentration of credit exposure balances as well as the creditworthiness of the counterparties. The Company doesrisk. We do not expect any losses as a result of default by our counterparties.
Tableof its counterparties.Concentrations
Concentration of Other Risk Data Content Providers Certain
We integrate data sets that FactSet relies onfrom various third-party sources into our hosted propriety data and analytics platform, which our clients access to perform their analyses. As certain data sources have a limited number of suppliers, although the Company makeswe make every effort to assure that, where reasonable, alternative sources are available. However, FactSet isWe are not dependent on any oneindividual third-party data supplier in order to meet the needs of its clients. FactSet combines theour clients, with only two 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 representedsuppliers representing more than 10% of FactSet'sour total data expenses in any fiscalcosts for the year presented. 21. UNAUDITED QUARTERLY FINANCIAL DATA
The following table presents selected unaudited financial information for each of the quarterly periods in the years ended August 31, 20182021.
21. SUBSEQUENT EVENTS As previously announced, on October 12, 2021, we completed our acquisition of Cobalt Software, Inc. (“Cobalt”), and 2017.its subsidiaries, for approximately $51.0 million, subject to certain post-closing adjustments. Cobalt is a leading portfolio monitoring solutions provider for the private capital industry. The results for any quarteracquisition of Cobaltadvances our strategy to scale our data and workflow solutions and expands our private market offering. Results of Operations from Cobalt will be recognized based on geographic business activities in accordance with how our operating segments are not necessarily indicativecurrently aligned. We expect the majority of future quarterly resultsthe Cobalt purchase price to be allocated to goodwill and accordingly, period-to-period comparisons should not be relied upon as an indication of future performance.acquired intangible assets. 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 | | Cost of services | | $ | 161,524 | | | $ | 163,232 | | | $ | 165,073 | | | $ | 169,467 | | Selling, general and administrative | | $ | 78,519 | | | $ | 76,514 | | | $ | 81,573 | | | $ | 88,038 | | Operating income | | $ | 89,098 | | | $ | 95,485 | | | $ | 93,265 | | | $ | 88,356 | | Net income | | $ | 70,379 | | | $ | 53,137 | | | $ | 74,746 | | | $ | 68,823 | | Diluted EPS(1) | | $ | 1.77 | | | $ | 1.33 | | | $ | 1.91 | | | $ | 1.77 | | Diluted weighted average common shares | | | 39,680 | | | | 39,846 | | | | 39,104 | | | | 38,879 | |
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.
|
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
Our management, including theour 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 There have been no other changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during theour fourth quarter of fiscal 20182021 that have materially affected, or are reasonably likely to materially affect, our 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, 2021 (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, Norwalk, Connecticut 06851.
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, 2018,2021, 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’sour 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 | 2,474 | | (1) | $ | 214.89 | | (2) | 5,456 | | (3) | | Equity compensation plans not approved by security holders | — | | | — | | | — | | | | Total | 2,474 | | (1) | $ | 214.89 | | (2) | 5,456 | | (3) |
(1)Includes 2,277 shares issuable upon exercise of outstanding options, 128 shares issuable upon vesting of awards of restricted stock units and 69 shares issuable upon the conversion of outstanding performance share units. (2)Weighted average exercise price of outstanding options only. (3)Includes 5,079,693 shares available for future issuance under the FactSet Research Systems Inc. Stock Option and Award Plan, as Amended and Restated, 237,749 shares available for future issuance under the FactSet Research Systems Inc. Non-Employee Directors’ Stock Option and Award Plan, as Amended and Restated,and 138,956shares available forpurchaseunder theFactSet Research Systems Inc.2008 Employee Stock Purchase Plan,asAmended and Restated.
| (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.
|
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, 20172021, 2020 and 20162019 (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 | | 2021 | $ | 7,987 | | | $ | 918 | | | $ | (2,474) | | | $ | 6,431 | | | 2020 | $ | 10,511 | | | $ | 754 | | | $ | (3,278) | | | $ | 7,987 | | | 2019 | $ | 3,490 | | | $ | 11,474 | | | $ | (4,453) | | | $ | 10,511 | |
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 | | 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.
|
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 | | | | | S-1/A | | 333-04238 | | 3.1 | | 6/26/1996 | | | | | | | 10-K | | 333-22319 | | 3.12 | | 11/20/2001 | | | | | | | 8-K | | 001-11869 | | 3.1 | | 12/16/2011 | | | | | | | 8-K | | 001-11869 | | 3.1 | | 9/6/2018 | | | | | | | 8-K | | 001-11869 | | 3.1 | | 10/1/2021 | | | | | | | 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 | | | | | | | | | | | | | | | 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 22, 2021 | /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 | 22, 2021 | | F. Philip Snow | | (Principal Executive Officer) | | | | | | | | /s/ HELEN L. SHAN LINDA S. HUBER | | Executive Vice President, and Chief Financial Officer | | October 30, 2018 | 22, 2021 | Helen L. ShanLinda S. Huber | | (Principal Financial Officer) | | | | | | | | /s/ MATTHEW J. MCNULTY GREGORY T. MOSKOFF | | Senior Vice President, Controller and Chief Accounting Officer | | October 30, 2018 | 22, 2021 | 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 | 22, 2021 | | Robin A. Abrams | | | | | | | | | | /s/ SCOTT A. BILLEADEAU SIEW KAI CHOY | | Director | | October 30, 2018 | 22, 2021 | Scott A. BilleadeauSiew Kai Choy | | | | | | | | | | /s/ MALCOLM FRANK | | Director | | October 30, 2018 | 22, 2021 | | Malcolm Frank | | | | | | | | | | /s/ SHEILA B. JORDAN | | Director | | October 30, 2018 | 22, 2021 | | Sheila B. Jordan | | | | | | | | | | /s/ JAMES J. MCGONIGLE | | Director | | October 30, 2018 | 22, 2021 | | James J. McGonigle | | | | | | | | | | /s/ LEE SHAVEL | | Director | | October 22, 2021 | | Lee Shavel | | | | | | | | | | | /s/ LAURIE SIEGEL | | Director | | October 30, 2018 | 22, 2021 | | Laurie Siegel | | | | | | | | | | /s/ JOSEPH R. ZIMMEL | | Director | | October 30, 2018 | 22, 2021 | | Joseph R. Zimmel | | | | | | | | | |
95
|
