UNITED
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
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ForFor the fiscal yearended August 31, 20182019
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For the transition period from to
Commission File Number: 1-11869
FACTSET RESEARCHRESEARCH SYSTEMS INC.
(Exact name of Registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) | 13-3362547 (I.R.S. Employer Identification No.) |
601 Merritt 7,Norwalk, Norwalk, Connecticut 06851
(Address of principal executive office, including zip code)
Registrant’s telephone number, including area code: (203) 810-1000
Securities registered pursuant to Section 12(b) of the Act:Common Stock, par value $0.01 per share
Name of each exchange on which registered: New York Stock Exchange and The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Title of each class | Trading Symbols(s) | Name of each exchange on which registered |
Common Stock, $0.01 Par Value | FDS | New York Stock Exchange NASDAQ Global Select Market |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically, and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ | Accelerated filer ☐ |
Non-accelerated filer ☐ | Smaller reporting company ☐ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant based upon the closing price of a share of the registrant’s common stock on February 28, 2018,2019, the last business day of the registrant’s most recently completed second fiscal quarter, as reported by the New York Stock Exchange on that date, was $7,767,417,390.
$8,808,676,952.
The number of shares outstanding of the registrant’s common stock, as of October 24, 2018,2019, was 38,037,295.
37,944,709.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement dated October 30, 2018,2019, for the 20182019 Annual Meeting of Stockholders to be held on December 18, 2018,17, 2019, are incorporated by reference into Part III of this Report on Form 10-K where indicated.
FACTSET RESEARCH SYSTEMS INC.
FORM 10-K
For The Fiscal Year Ended August 31, 20182019
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PART I
Part I ITEM 1. BUSINESS
Business Overview
FactSet Research Systems Inc. (the “Company” or “FactSet”) is a global provider of integrated financial information, analytical applications and industry-leading We currently serve financial professionals,
Corporate History
FactSet was founded in 1978 and has been publicly held since 1996. We are dual listed on the New York Stock Exchange (“NYSE”) and the NASDAQ Stock Market (“NASDAQ”) under the symbol “FDS.” Fiscal
The following timeline depicts the Company’s history since our founding in 1978:
Business Strategy
Research Solutions
Our Research Solutions workflow (“Research”)
Analytics and Trading Solutions
Our Analytics and Trading Solutions workflow (“
Wealth Solutions
Our Wealth Solutions workflow (“Wealth”)
Content and Technology Solutions
Our Content and Technology Solutions workflow (“CTS”)
FactSet Clients
Buy-side
As buy-side clients continue to shift towards multi-asset class investment strategies, we are positioned to be a partner in the space, given our ability to provide enterprise-wide solutions across their entire workflow. We provide solutions across asset classes and at nearly every stage of the investment process by utilizing our workstations,
The buy-side annual subscription value (“ASV”) growth rate for fiscal
Sell-side
The sell-side ASV growth rate for fiscal
Client Subscription Growth During fiscal 2019, we added 432 net new clients, increasing the number of clients by 8.4% over the prior year. In the first quarter of fiscal 2019, we changed our client count definition to include clients from the April 2017 acquisition of FDSG. The prior year client count was not restated to reflect this change. We added 34,925 net new users during fiscal 2019, leading to a healthy progression in the number of users in both our buy-side and sell-side clients. ASV Growth
ASV at any given point in time represents the forward-looking
As of August 31,
The following chart provides a snapshot of FactSet’s historic ASV growth:
Financial Information on Geographic Areas
Operating segments are defined as
Our operating segments are aligned with how the Company, including its CODMG, manages the business and the demographic markets
The U.S. segment
The U.S. segment has offices in
Expenditures associated with our 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
The following charts depict Talent
As of August 31, 2019, our employee headcount was 9,681, an increase of 1.1% in the last twelve months. Of our total employees, 2,351 are in the U.S., 1,282 in Europe and 6,048 in the Asia Pacific segment. In order to optimize productivity, we have invested in expanding our footprint and talent pool in India and the Philippines, where we now have a combined workforce of As of August 31,
In December 2018, we appointed Daniel Viens as Chief Human Resources Officer. In May
Third-Party Content
We aggregate content from
Data Centers
Our business is dependent on our ability to process substantial volumes of data and transactions rapidly and efficiently on our networks and systems. Our global technology infrastructure supports our operations and is designed to facilitate the reliable and efficient processing and delivery of data and analytics to our clients. Our data centers contain multiple layers of redundancy to enhance system performance, including maintaining, processing and storing data at multiple data centers. User connections are load balanced between data centers. In the event of a site failure, equipment problem or localized disaster, the remaining centers have the capacity to handle the additional load. We continue to be focused on maintaining a global technological infrastructure that allows us to support our growing business.
The Competitive Landscape
We are a part of the financial information services industry, providing accurate financial information and
Despite competing products and services, we enjoy high barriers to entry and believe it would be difficult for another vendor to quickly replicate the extensive databases we currently offer. Through our in-depth analytics and client service, we believe we can offer clients a more
Intellectual Property
We have registered trademarks and copyrights for many of our products and services and will continue to evaluate the registration of additional trademarks and copyrights as appropriate. We enter into confidentiality agreements with our employees, clients, data suppliers and vendors. We seek to protect our
Research and Product Development Costs
A key aspect of our growth strategy is to enhance our existing products and applications by making them faster with more reliable data. We strive to rapidly
Government Regulation
FactSet is subject to reporting requirements, disclosure obligations and other recordkeeping requirements of the Securities and Exchange Commission (“SEC”) and the various local authorities that regulate each location in which we operate. The Company’s P.A.N. Securities, LP, is a member of the Financial Industry Regulatory Authority, Inc. and is a registered broker-dealer under Section 15 of the Securities Exchange Act of 1934. P.A.N. Securities, LP, as a registered broker-dealer, is subject to Rule 15c3-1 under the Securities Exchange Act of 1934, which requires that the Company maintain minimum net capital requirements. The Company claims exemption under Rule 15c3-3(k)(2)(i).
Corporate Contact Information
FactSet was founded as a Delaware corporation in 1978, and its principal executive office is in Norwalk, Connecticut.
Mailing address of the Company’s headquarters: 601 Merritt 7, Norwalk,
Telephone number: +1 (203) 810-1000
Website address: www.factset.com
Available Information
Through the Investor Relations section of FactSet’s website (https://investor.factset.com), we make available the following filings as soon as practicable after they are electronically filed with, or furnished to, the SEC: the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements for the annual stockholder meetings, Reports on Forms 3, 4 and 5, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. All such filings are available free of charge.
Additionally, we broadcast live our quarterly earnings calls via the investor relations section of our website. We also provide notifications of news or announcements regarding our financial performance, including SEC filings, investor events, press and earnings releases, and blogs as part of our investor relations website. The contents of this website section are not intended to be incorporated by reference into this Report on Form 10-K or in any other report or document the Company files and any reference to this section of our website is intended to be inactive textual references only.
In addition, the FactSet Code of Business Conduct and Ethics is posted in the Investor Relations section of the Company’s website. The same information is available in print to any stockholder who submits a written request to the Company’s Investor Relations department. Any amendments to or waivers of such code that are required to be publicly disclosed by the applicable exchange rules or the SEC will be posted on our website. The Corporate Governance Guidelines and the charters of each of the committees of the Company’s Board of Directors, including the Audit Committee, Compensation and Talent Committee, and Nominating and Corporate Governance Committee are available on the Investor Relations section of our website. The same information is available in print, free of charge, to any stockholder who submits a written request to our Investor Relations department.
Executive Officers of the Registrant
The following table shows FactSet’s current executive officers:
F.Philip Snow–Chief Executive Officer. Mr. Snow was named Chief Executive Officer effective July 1, 2015. Prior to that, Mr. Snow held the title of President. He began his career at FactSet in 1996 as a Consultant, before moving to Asia to hold positions in the Tokyo and Sydney offices.
HelenL.Shan –ExecutiveVice PresidentandChief Financial Officer.Ms. Shan joined FactSet in September 2018 from Marsh and McLennan Companies, where she was CFO for Mercer,
Frank A.R. Gossieaux–Executive Vice President, Global Head of Sales and Client Solutions. Mr. Gossieaux joined FactSet in September 2004. Mr. Gossieaux held multiple senior leadership roles at FactSet in both Europe and North America including Senior Vice President of Americas Sales, Senior Vice President of EMEA Sales, and Senior Vice President of International Investment Management. Mr. Gossieaux received a Bachelor of Science in Economics from the University Pantheon-Assas (Sorbonne-Assas) in Paris.
Gene D. Fernandez– Executive Vice President, Chief Technology and Product Officer.Mr. Fernandez joined FactSet in November 2017 from J.P. Morgan, where he served as the Chief Technology Officer, New Product Development. In this role, he developed the strategy and built the engineering function responsible for new product innovation. During a decade at J.P. Morgan, Mr. Fernandez held various other roles, including Chief Technology Officer for Client Technology and Research and Banking Information Technology. Prior to J.P. Morgan, he worked at Credit Suisse and Merrill Lynch. Mr. Fernandez received a
RobertJ.Robie – Executive Vice President, Head of Analytics and Trading
Additional Information
Additional information with respect to FactSet’s business is included in the following pages and is incorporated herein by reference:
ITEM 1A. RISK FACTORS
The following risks could materially and adversely affect our business, financial condition, cash flows, results of operations and as a result, the trading price of our common stock could decline. These risk factors do not identify all risks that we face; our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. Investors should also refer to the other information set forth in this Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements including the related notes. Investors should carefully consider all risks, including those disclosed, before making an investment decision.
Loss, corruption and misappropriation of data and information relating to clients and others
Many of our products, as well as our internal systems and processes, involve the storage and transmission of our own, as well as supplier and customer proprietary information and sensitive or confidential data. This includes data
Successful cyber-attacks and the failure of cyber-security systems and procedures
In providing our
A prolonged or recurring outage at our data centers and other business continuity disruptions at facilities could result in reduced service and the loss of clients
Our clients rely on us for the delivery of time-sensitive, up-to-date data and applications. Our business is dependent on our ability to process substantial volumes of data and transactions rapidly and efficiently on our computer-based networks and systems. Our computer operations, as well as our other business centers, and those of our suppliers and clients are vulnerable to interruption by fire, natural disaster, power loss, telecommunications failures, terrorist attacks, acts of war, civil unrest, Internet failures, computer viruses,
Competition in our industry may cause price reductions or loss of market share
We continue to experience intense competition across all markets for our products with competitors ranging in size from smaller, highly specialized, single-product businesses to multi-billion-dollar companies. While we believe the breadth and depth of our suite of products and applications offer benefits to our clients that are a competitive advantage, our competitors may offer price incentives to attract new business. Future competitive pricing pressures may result in decreased sales volumes and price reductions, resulting in lower
The continued shift from active to passive investing could negatively impact user count growth and
The predominant investment strategy today is still active investing, which attempts to outperform the market. The main advantage of active management is the expectation that the investment managers will be able to outperform market indices. They make informed investment decisions based on their experiences, insights, knowledge and ability to identify opportunities that can translate into superior performance. The main advantage of passive investing is that it closely matches the performance of market indices. Passive investing requires little decision-making by investment managers and low operating costs which result in lower fees for the investor.
A decline in equity and/or fixed income returns may impact the buying power of investment management clients
Approximately
Failure to develop and market new products and enhancements that maintain our technological and competitive position and failure to anticipate and respond to changes in the marketplace for our products
The market for our products is characterized by rapid technological change, including methods and speed of delivery, changes in client demands, development of new investment instruments and evolving industry
Uncertainty, consolidation and business failures in the global investment banking industry may cause us to lose clients and users
Our investment banking clients that perform
Volatility in the financial markets may delay the spending pattern of clients and reduce future ASV growth
The decision on the part of large institutional clients to purchase our services often requires management-level sponsorship and typically depends upon the size of the client, with larger clients having more complex and time-consuming purchasing processes. The process is also influenced by market volatility. These characteristics often lead us to engage in relatively lengthy sales efforts. Purchases (and incremental ASV) may therefore be delayed as uncertainties in the financial markets may cause clients to remain cautious about capital and data content expenditures, particularly in uncertain economic environments.
Additional cost due to tax assessments resulting from ongoing and future audits by tax authorities as well as changes in tax laws
In the ordinary course of business, we are subject to tax examinations by various governmental tax authorities. The global and diverse nature of our business means that there could be additional examinations by governmental tax authorities and the resolution of ongoing and other probable audits which could impose a future risk to the results of our business. In
Changes in tax laws or the terms of tax treaties in a jurisdiction where we are subject to tax could increase our taxes payable. On December 22, 2017, the U.S. Tax Cuts and Jobs Act,
Failure to identify, integrate, or realize anticipated benefits of acquisitions and strains on resources as a result of growth
There can be no assurance that we will be able to identify suitable candidates for successful acquisition at acceptable prices. Additionally, there may be integration risks or other risks resulting from acquired businesses.
Growth, such as the addition of new clients and acquisitions, puts demands on our resources, including our internal systems and infrastructure. These may require improvements or replacement to meet the additional demands of a larger organization. Further, the addition of new clients and the implementation of such improvements would require additional management time and resources. These needs may result in increased costs that could negatively impact results of operations. Failure to implement needed improvements, such as improved scalability, could result in a deterioration in the performance of our internal systems and negatively impact the performance of our business.
Failure to enter into or renew contracts supplying new and existing data sets or products on competitive terms
We collect and aggregate third-party content from thousands of data suppliers, news sources, exchanges, brokers and contributors into our own dedicated online service, which clients access to perform their analyses. Clients have access to the data and content found within our databases. These databases are important to our operations as they provide clients with key information. We have entered into third-party content agreements
Inability to hire and retain key qualified personnel
Our business is based on successfully attracting, motivating and retaining talented employees. Competition for talent, especially engineering personnel, is strong. We need technical resources such as engineers to help develop new products and enhance existing services. We rely upon sales personnel to sell our products and services and maintain healthy business relationships. If we are unsuccessful in our recruiting efforts, or if we are unable to retain key employees, our ability to develop and deliver successful products and services may be adversely affected and could have a material, adverse effect on our business.
Increased accessibility to free or relatively inexpensive information sources may reduce demand for our products
Each year, an increasing amount of free or relatively inexpensive information becomes available, particularly through the Internet, and this trend may continue. The availability of free or relatively inexpensive information may reduce demand for our products. While we believe our service offering is distinguished by such factors as customization, timeliness, accuracy, ease-of-use, completeness and other value-added factors, if users choose to obtain the information they need from public or other sources,
Third parties may claim we infringe upon their intellectual property rights or may infringe upon our intellectual property rights
We may receive notice from others claiming that we have infringed upon their intellectual property rights. Responding to these claims may require us to enter into royalty and licensing agreements on
Operations outside the U.S. involve additional requirements and burdens that we may not be able to control or manage successfully
In fiscal
Exposure to fluctuations in currency exchange rates and the failure of hedging arrangements
Due to the global nature of our operations, we conduct business outside the U.S. in several currencies including the Euro, Indian Rupee, Philippine Peso, British Pound Sterling,
Legislative and regulatory changes in the environments in which we and our clients operate
Many of our clients operate within a highly regulated environment and must comply with governmental legislation and regulations. The U.S. regulators have increased their focus on the regulation of the financial services industry. Increased regulation of our clients may increase their expenses, causing them to seek to limit or reduce their costs from outside services such as ours. Additionally, if our clients are subjected to investigations or legal proceedings they may be adversely impacted, possibly leading to their liquidation, bankruptcy, receivership, reduction in assets under management, or diminished operations, which would adversely affect our
As a business, we are also subject to numerous laws and regulations in the U.S. and in the other countries in which we operate. These laws, rules, and regulations, and their interpretations, may change in the future, and compliance with these changes may increase our costs or cause us to make changes in or otherwise limit our business practices. In addition, the global nature and scope of our business operations make it more difficult to monitor areas that may be subject to regulatory and compliance risk. If we fail to comply with any applicable law, rule, or regulation, we could be subject to claims and fines and suffer reputational damage.
Adverse resolution of litigation or governmental investigations
We are party to lawsuits in the normal course of business. Litigation and governmental investigations can be expensive, lengthy and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. Unfavorable resolution of lawsuits could have a material adverse effect on our business, operating results or financial condition. For additional information regarding legal matters, see Item 3, Legal Proceedings, contained in Part I of this Report on Form 10-K.
Failure to maintain reputation
We enjoy a positive reputation in the marketplace. Our ability to attract and retain clients and employees is affected by external perceptions of our brand and reputation. Reputational damage from negative perceptions or publicity could affect our ability to attract and retain clients and employees and our ability to maintain our pricing for our products. Although we monitor developments for areas of potential risk to our reputation and brand, negative perceptions or publicity could have a material adverse effect on our business and financial results.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
As of August 31,
We have data content collection offices located in India, the Philippines and Latvia, which benefit all our operating segments. Additionally, we have data centers that support our technological infrastructure located in New Jersey and Virginia. The other locations listed in the table below are leased office space. The leases expire on various dates through 2035. We believe the amount of leased space as of August 31, 2019 is adequate for our current needs and that additional space can be available to meet any future needs. Including new lease agreements executed during fiscal
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is subject to legal proceedings, claims and litigation arising in the ordinary course of business, including intellectual property litigation. Based on currently available information, the Company’s management does not believe that the ultimate outcome of these unresolved matters against FactSet, individually or in the aggregate, is likely to have a material adverse effect on the Company's consolidated financial position, its annual results of operations or its annual cash flows. However, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
Part II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information – Our common stock is listed on the New York Stock Exchange (“NYSE”) and the NASDAQ Stock Market under the symbol FDS. The following table sets forth, for each fiscal period indicated, the high and low sales prices per share of our common stock as reported on the NYSE:
Holdersof Record– As of October 24,
Dividends - During fiscal years
All the above cash dividends were paid from existing cash resources on a quarterly basis. Future dividend payments will depend on our earnings, capital requirements, financial condition and other factors considered relevant by us, and is subject to final determination by our Board of Directors.
There were no sales of unregistered equity securities during fiscal
The following table provides a month-to-month summary of the share repurchase activity under the current stock repurchase program during the three months ended August 31, (in thousands, except per share data)
Securities Authorized for Issuance
StockPerformance The annual changes for the five-year period shown in the graph below
The information contained in the above graph shall not be deemed to be soliciting material or filed or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, except to the extent that FactSet specificallyincorporates it by reference into a document
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data has been derived from our consolidated financial statements. This financial data should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8, Financial Statements and Supplementary Data, of this Report on Form 10-K.
Consolidated Statements of Income Data
Consolidated Balance
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in the following sections:
The MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8, Financial Statements and Supplementary Data, of this Report on Form 10-K.
Executive Overview
We currently serve financial professionals,
Operating income grew 19.6% and diluted earnings per share ("EPS") increased 33.9% compared to the prior year period. In addition, clients and users reached new highs of
We
Client Service / Consultants
As part of the comprehensive value of FactSet’s solutions, consultants are versatile business people with knowledge of the financial markets and FactSet products. Consultants work closely with clients advising how FactSet solutions can be best leveraged to enhance their efficiency across workflows. A client-centric approach
Key Metrics
The following is a review of our key metrics:
The table below provides an unaudited reconciliation of ASV to organic ASV:
Organic Annual Subscription Value Growth
Organic ASV at any given point in time represents the forward-looking The increase in year over year organic ASV was due to growth across all of our geographic segments with the majority of growth in the U.S., followed by Asia Pacific and Europe. ASV growth from our workflow solutions was primarily driven by Analytics and Trading, CTS and Wealth. The increase includes sales of products and solutions to new and existing clients, an annual price increase for both the majority of the U.S. and international clients, partially offset by cancellations due primarily to industry-wide cost pressures, firm consolidations and closures. ASV growth in Analytics and Trading was primarily due to increased sales for our portfolio analytics solutions. ASV growth in CTS was primarily driven by increased sales in core and premium data feeds while ASV growth in Wealth was mainly due to increased workstation sales. As of August 31, 2019, ASV from the U.S. segment was $909.7 million, an increase of 4.7% from the prior year comparable period. This increase was primarily from Analytics and Trading, CTS and Wealth, due to the increased demand for our portfolio analytics solutions, core and premium data feeds and wealth workstations. ASV from the international operations was $548.3 million as of August 31, 2019, an increase of 4.6% over August 31, 2018. International ASV represents 37.6% of total ASV as of August 31, 2019, remaining consistent with the prior year period. The ASV increase from our international operations was due to continued growth in Analytics and Trading in both Asia Pacific and Europe as well as CTS growth in Europe. The Analytics and Trading growth was driven by our portfolio analytics solutions, while the CTS growth
Buy-side and sell-side ASV growth rates for the last 12 months were
Client and User Additions
Our total client count was
As of August 31,
Annual client retention as of August 31,
Returning Value to Stockholders
On August
On
Capital Expenditures
Capital expenditures were
Results of Operations
For an understanding of the significant factors that influenced our performance during the past three fiscal years, the following discussion should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements presented in this Report on Form 10-K.
Fiscal
Fiscal 2018compared to Fiscal 2017 Revenue in fiscal 2018 were $1.35 billion, increasing 10.6% compared to fiscal 2017. Our organic revenue growth rate for fiscal 2018 was 5.6% compared to
Fiscal
Revenues from our U.S. segment increased 6.3% to $894.6 million in fiscal 2019 compared to $841.9 million in fiscal 2018. This increase was primarily due to increased sales of products and solutions to new and existing clients primarily in Analytics and Trading, CTS and Wealth, an annual price increase for the majority of our U.S. segment clients, partially offset by cancellations. Excluding the effects of acquisitions and dispositions, organic revenues in the U.S. was up 6.2% compared to fiscal 2018. Revenues from our U.S. operations accounted for 62.3% of our consolidated revenue during fiscal 2019, consistent with the prior year period. Revenue from our international operations increased 6.4% in fiscal 2019 compared to fiscal 2018. European revenues increased 5.3% to $408.1 million in fiscal 2019 compared to $387.6 million in fiscal 2018. This increase was primarily driven by increased sales of products and solutions to new and existing clients primarily in Analytics and Trading and CTS, which includes our annual price increase for the majority of our European clients, partially offset by increased cancellations in Research. European organic revenues grew 5.0% in fiscal 2019 compared to fiscal 2018. Foreign currency exchange rate fluctuations decreased our European growth rate by 30 basis points. Asia Pacific revenues increased 10.0% during fiscal 2019, compared with fiscal 2018. This increase was due mainly to increased sales of products and solutions to new and existing clients primarily in Analytics and Trading, which includes our annual price increase for the majority of our Asia Pacific clients, partially offset by cancellations. Asia Pacific organic revenues grew 10.0% during fiscal 2019 compared to fiscal 2018, with foreign currency exchange rate fluctuations having a minimal impact. Fiscal 2018compared to Fiscal 2017 Revenues from our U.S. segment increased 7.4% to $841.9 million in fiscal 2018 compared to $784.1 million in fiscal 2017, due to organic ASV growth across our workflow solutions and strong performance executing new business sales. Cancellations remained relatively flat for fiscal 2018 showing signs of stability. Excluding the effects of acquisitions and dispositions, organic
Revenue from our international operations increased 16.3% in fiscal 2018 compared to fiscal 2017, due to growth across our workflow solutions, partially offset by higher cancellations compared to the prior year.
European
Asia Pacific
Operating Expenses
Cost of Services
Fiscal Cost of services increased 0.6% to $663.4 million in fiscal 2019 compared to $659.3 in fiscal 2018. This increase was primarily due to an increase in data costs and computer-related expenses, partially offset by a reduction in compensation costs and contractor fees. Cost of services, expressed as a percentage of revenue, was 46.2% during fiscal 2019, a decrease of 260 basis points over the prior year period. This decrease was primarily due to revenue growth outpacing the growth of cost of services on a year over year basis, as well as a decrease in compensation costs, partially offset by an increase in computer-related expenses, when expressed as a percentage of revenue. Employee compensation, when expressed as a percentage of revenue decreased 300 basis points in fiscal 2019, compared to the prior fiscal year. This decrease in employee compensation was primarily driven by a foreign currency benefit from a stronger U.S. dollar, a shift in headcount distribution from our higher to lower cost locations, the timing of new employee hiring, and a restructuring charge impacting the prior year period, partially offset by higher employee benefit costs. Computer-related expenses increased 40 basis points, when expressed as a percentage of revenue for fiscal 2019, compared to the prior year period, primarily driven by increased costs from cloud-based hosting and licensed software arrangements.
Cost of services increased 16.4% to $659.3 million in fiscal 2018 compared to
Employee compensation, including stock-based compensation, when expressed as a percentage of
Selling, General and Administrative
Fiscal
Employee
Fiscal
SG&A expenses increased 7.3% to $324.6 million during fiscal 2018 compared to $302.5 million in fiscal 2017. SG&A expenses, expressed as a percentage of
Employee compensation, including stock-based compensation, when expressed as a percentage of
Operating Income and Operating Margin
Fiscal Operating income increased 19.6% to $438.0 million in fiscal 2019 compared to $366.2 million in fiscal 2018. Operating income increased due to revenue growth, favorable foreign exchange rates which reduced the overall operating expense impact and mainly resulted in a reduction in compensation expense, as well as, decreased costs from restructuring actions, decreased travel expenses and contractor fees, partially offset by an increase in data costs, computer-related expenses and bad debt expense. Our operating margin increased in fiscal 2019 to 30.5%, compared to 27.1% for fiscal 2018. Operating margin increased due to incremental revenue that outpaced the growth of our operating expenses year over year, favorable foreign exchange rates, which reduced the overall operating expense impact and mainly resulted in a reduction in compensation expense, as well as, lower costs from restructuring actions, a reduction in travel expenses, partially offset by higher bad debt expense and computer-related expenses, when expressed as a percentage of revenue.
Operating income increased 4.0% to $366.2 million in fiscal 2018 compared to $352.1 million in fiscal 2017. Our operating margin decreased in fiscal 2018 to 27.1%, compared to 28.8% for fiscal 2017. Operating income increased due to incremental revenue that outpaced the growth of SG&A expenses year over year partially offset by higher cost of services. The reduction in operating margin year over year was due to an increase in employee compensation costs, including restructuring actions, data costs from acquisitions and additional users, amortization of intangible assets associated with
Operating Income by Segment
Our operating segments are aligned with how we manage the business, the demographic markets we serve, and how the CODMG assesses performance. Our internal financial reporting structure is based on three reportable segments, the U.S., Europe and Asia Pacific, which we believe helps us better manage the business and view the markets we serve. Sales, consulting, data collection, product development and software engineering are the primary functional groups within each segment. 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 our data centers, third-party data costs and corporate headquarter charges are recorded by the U.S. segment and are not allocated to the other segments. The centers of excellence, located in India and the Philippines, primarily focus on content collection that benefit all our segments. The expenses incurred at these locations are allocated to each segment based on a percentage of Fiscal 2019compared to Fiscal 2018 U.S. operating income increased 21.1% to $179.4 million during fiscal 2019, compared to $148.1 million a year ago. The increase in U.S. operating income was primarily due to revenue growth of 6.3% and a reduction in compensation expense, partially offset by increased computer-related expenses, data costs, bad debt expense and occupancy expense. Compensation expense decreased due to a net reduction in headcount of 4.9% over the past 12 months, the timing of new employee hiring, and a restructuring charge impacting the prior year period, partially offset by higher employee benefit costs. Computer related expenses increased year over year primarily due to increased costs from cloud-based hosting and licensed software arrangements. Data costs increased due to increased acquisition costs of fixed cost content and additional spend on variable cost content to drive revenue growth. Occupancy costs increased primarily related to leasing the new corporate headquarters space in Norwalk, Connecticut. European operating income increased 20.3% to $179.3 million during fiscal 2019, compared to $149.0 million a year ago. The increase in European operating income was primarily due to revenue growth of 5.3% and an overall reduction in operating expenses driven mainly by a decrease in employee compensation expense and occupancy expense, partially offset by an increase in bad debt expense. Employee compensation decreased primarily due to a foreign currency benefit from a stronger U.S. dollar, a restructuring charge impacting the prior year period, partially offset by a net headcount increase of 2.9% over the past 12 months. Occupancy costs decreased due to a one-time adjustment recognized in fiscal 2019. The impact of foreign currency increased European operating income by $6.6 million year over year. Asia Pacific operating income increased 14.9% to $79.4 million during fiscal 2019, compared to $69.1 million a year ago. The increase in Asia Pacific operating income was due to revenue growth of 10.0% and benefits from a stronger U.S. dollar, partially offset by increases in compensation expense and occupancy costs. Employee compensation was higher, year over year, due to a 3.3% increase in our Asia Pacific workforce, partially offset by a foreign currency benefit from a stronger U.S. dollar. Occupancy costs increased due primarily to the expansion of office space in India and the Philippines. The impact of foreign currency increased Asia Pacific operating income by $3.2 million year over year.
Fiscal
U.S. operating income increased 8.0% to $148.1 million during fiscal 2018 compared to $137.1 million
European operating income decreased 3.1% to $149.0 million during fiscal 2018 compared to $153.7 million
Asia Pacific operating income increased 12.7% to $69.1 million during fiscal 2018 compared to $61.4 million
Income Taxes, Net Income and Diluted Earnings per Share
Income Taxes
Fiscal The fiscal 2019 provision for income taxes was $69.2 million, a decrease of 18.4% from the same period a year ago. The decrease was primarily attributable to the enactment of the TCJA. The TCJA imposed a one-time transition tax expense, which resulted in a $23.2 million impact to the income tax provision for fiscal 2018, without a comparable impact in fiscal 2019. This transition tax impact was revised during fiscal 2019, resulting in a net benefit of $3.4 million upon finalizing the accounting for the tax effects of the TCJA. The TCJA also lowered the statutory U.S corporate income tax rate from 35% to 21%, effective January 1, 2018, which was fully applicable for fiscal 2019 compared to the lower tax rate being phased in for the prior year comparable period. The reduction in the U.S. corporate income tax rate required a remeasurement of our net U.S. deferred tax position, which resulted in a non-recurring tax charge of $2.2 million during fiscal 2018. The decrease in the income tax provision year over year was partially offset by a $3.3 million income tax expense from finalizing prior years’ tax returns and other discrete items for fiscal 2019. Our effective tax rate was 16.4% for the full fiscal 2019 year compared to 24.1% a year ago was mainly due the reduction in the federal statutory rate from the enactment of the TCJA that was fully applicable for fiscal year 2019 compared to being phased in for the prior year comparable period. The decrease in the effective tax rate for fiscal 2019 was also due to the one-time transition tax from the TCJA that was recorded in the prior year period. These benefits were partially offset by higher foreign income taxed at rates lower than U.S. rates. Fiscal 2018 compared to Fiscal 2017
The fiscal 2018 provision for income taxes was $84.8 million, a decrease of 1.5% from
Our effective tax rate was 24.1% for the full fiscal 2018 year compared to 25.0%
Net Income and Diluted Earnings per Share
Fiscal Net income increased 32.1% to $352.8 million while diluted earnings per share increased 33.9% to $9.08 during fiscal 2019 compared to fiscal 2018. Net income and diluted EPS increased primarily due to higher operating income, a reduction in the income tax provision primarily due to the TCJA reform, partially offset by an increase in interest expense associated with our outstanding debt. Diluted EPS also benefited from a 0.5 million share reduction in our diluted weighted average shares outstanding, compared to the same period a year ago, mainly due to share repurchases, partially offset by the impact from stock options issued.
Net income increased 3.4% to $267.1 million, while diluted earnings per share increased 4.1% to $6.78 during fiscal 2018 compared to fiscal 2017. Net income and diluted EPS grew primarily
Non-GAAP Financial Measures
To supplement the financial measures prepared in accordance with GAAP, we use non-GAAP financial measures including organic revenue, adjusted operating margin, adjusted net income and adjusted diluted earnings per share. The reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are shown in tables below. These non-GAAP financial measures should not be considered in isolation from, or as a substitute for or superior to, financial measures reported in accordance with GAAP. Moreover, these non-GAAP financial measures have limitations in that they do not reflect all the items associated with the operations of the business as determined in accordance with GAAP. Other companies may calculate similarly titled non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.
Despite the limitations of these non-GAAP financial measures, we believe these adjusted financial measures and the information they provide are useful in viewing our performance using the same tools that management uses to gauge progress in achieving our goals. Adjusted measures may also facilitate comparisons to our historical performance.
The table below provides an unaudited reconciliation of
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The table below provides an unaudited reconciliation of operating income, operating margin, net income and diluted EPS to adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted EPS.EPS, respectively.
Twelve Months Ended August 31, | Twelve Months Ended August 31, | |||||||||||||||||||||||
(In thousands, except per share data) | 2018(1) | 2017(2) | Change | 2019(1) | 2018(2) | Change | ||||||||||||||||||
Operating income | $ | 366,204 | $ | 352,135 | 4.0 | % | $ | 438,035 | $ | 366,204 | 19.6 | % | ||||||||||||
Intangible asset amortization | 24,665 | 19,924 | 24,920 | 24,665 | ||||||||||||||||||||
Deferred revenue fair value adjustment | 7,691 | 5,486 | 5,185 | 7,691 | ||||||||||||||||||||
Other items | 26,950 | 17,969 | 8,045 | 26,950 | ||||||||||||||||||||
Adjusted operating income | $ | 425,510 | $ | 395,514 | 7.6 | % | $ | 476,185 | $ | 425,510 | 11.9 | % | ||||||||||||
Adjusted operating margin | 31.3 | % | 32.2 | % | 33.2 | % | 31.3 | % | ||||||||||||||||
Net income | $ | 267,085 | $ | 258,259 | 3.4 | % | $ | 352,790 | $ | 267,085 | 32.1 | % | ||||||||||||
Intangible asset amortization(3) | 19,723 | 14,845 | ||||||||||||||||||||||
Deferred revenue fair value adjustment(4) | 6,084 | 4,093 | ||||||||||||||||||||||
Other items(5) | 21,614 | 14,308 | ||||||||||||||||||||||
Intangible asset amortization(3) | 20,262 | 19,723 | ||||||||||||||||||||||
Deferred revenue fair value adjustment(4) | 4,215 | 6,084 | ||||||||||||||||||||||
Other items(5) | 6,315 | 21,614 | ||||||||||||||||||||||
Income tax items | 21,310 | (1,918 | ) | 5,274 | 21,310 | |||||||||||||||||||
Adjusted net income | $ | 335,816 | $ | 289,587 | 16.0 | % | $ | 388,856 | $ | 335,816 | 15.8 | % | ||||||||||||
Diluted earnings per common share | $ | 6.78 | $ | 6.51 | 4.1 | % | $ | 9.08 | $ | 6.78 | 33.9 | % | ||||||||||||
Intangible asset amortization | 0.50 | 0.37 | 0.52 | 0.50 | ||||||||||||||||||||
Deferred revenue fair value adjustment | 0.15 | 0.10 | 0.11 | 0.15 | ||||||||||||||||||||
Other items | 0.56 | 0.35 | 0.15 | 0.56 | ||||||||||||||||||||
Income tax items | 0.53 | (0.05 | ) | 0.14 | 0.53 | |||||||||||||||||||
Adjusted diluted earnings per common share(6) | $ | 8.53 | $ | 7.31 | 16.7 | % | ||||||||||||||||||
Weighted average common shares (Diluted) | 39,377 | 39,642 | ||||||||||||||||||||||
Adjusted diluted earnings per common share(6) | $ | 10.00 | $ | 8.53 | 17.2 | % | ||||||||||||||||||
Weighted average common shares (diluted) | 38,873 | 39,377 |
(1) | Operating income, |
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(2) | Operating income, net income and diluted EPS in fiscal 2018 were adjusted to exclude (i) intangible asset amortization (ii) deferred revenue fair value adjustments from purchase accounting, and (iii) other items including restructuring, legal matters and other corporate actions. Net income and diluted EPS in fiscal 2018 were also adjusted to exclude a one-time deemed repatriation tax on foreign earnings. |
(3) | The intangible asset amortization was recorded net of a tax impact of |
(4) | The deferred revenue fair value adjustment was recorded net of a tax impact of |
(5) | The other items were recorded net of a tax impact of |
(6) | Details may not sum to total due to rounding |
Liquidity
The table below, for the periods indicated, provides selected cash flow information:
Years ended August 31, | ||||||||||||
(in thousands) | 2018 | 2017 | 2016 | |||||||||
Net cash provided by operating activities | $ | 385,668 | $ | 320,527 | $ | 331,140 | ||||||
Capital expenditures (1) | (33,520 | ) | (36,862 | ) | (47,740 | ) | ||||||
Free cash flow (2) | $ | 352,148 | $ | 283,665 | $ | 283,400 | ||||||
Net cash used in investing activities | $ | (48,531 | ) | $ | (347,306 | ) | $ | (158,408 | ) | |||
Net cash used in financing activities | $ | (320,037 | ) | $ | (8,161 | ) | $ | (91,002 | ) | |||
Cash and cash equivalents at end of year | $ | 208,623 | $ | 194,731 | $ | 228,407 |
Years ended August 31, | ||||||||||||
(in thousands) | 2019 | 2018 | 2017 | |||||||||
Net cash provided by operating activities | $ | 427,136 | $ | 385,668 | $ | 320,527 | ||||||
Capital expenditures(1) | (59,370 | ) | (33,520 | ) | (36,862 | ) | ||||||
Free cash flow(2) | $ | 367,766 | $ | 352,148 | $ | 283,665 | ||||||
Net cash used in investing activities | $ | (56,100 | ) | $ | (48,531 | ) | $ | (347,306 | ) | |||
Net cash used in financing activities | $ | (214,274 | ) | $ | (320,037 | ) | $ | (8,161 | ) | |||
Cash and cash equivalents at end of year | $ | 359,799 | $ | 208,623 | $ | 194,731 |
(1) | Included in net cash used in investing activities during each fiscal year reported. |
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Fiscal 20120198compared to Fiscal 2012018
Cash and cash equivalents aggregated to $359.8 million, or 23.1% of total assets at August 31, 2019, compared with $208.6 million, or 14.7% of total assets at August 31, 2018. Our cash and cash equivalents increased $151.2 million during fiscal 2019, primarily due to $575.0 million in proceeds from debt, $427.1 million of net cash provided by operating activities, $107.1 million in proceeds from the exercise of employee stock options and $3.3 million in net proceeds from investments. These cash inflows were partially offset by $575.0 million related to the repayment of debt, $220.4 million in share repurchases (which included $213.1 million under the existing share repurchase program and $7.3 million in shares repurchased from employees to cover their cost of taxes upon vesting of restricted stock), $100.1 million in dividend payments, $59.4 million of capital expenditures, and $5.6 million from the effects of foreign currency translations.
Net cash used in investing activities was $56.1 million in fiscal 2019, representing a $7.6 million increase in cash used from investing activities, compared to fiscal 2018. This increase was primarily due to $25.9 million of higher capital expenditures, offset by a $15.0 million decrease in acquisition activity, and a $3.3 million increase in net proceeds from investments (net of purchases).
During fiscal 2019, net cash used in financing activities was $214.3 million, representing a $105.8 million decrease from fiscal 2018. This decrease was due primarily to $575.0 million of borrowings under our 2019 Credit Agreement, an $83.6 million decrease in share repurchases and a $35.4 million increase in proceeds from employee stock plans. This decrease was partially offset by the $575.0 million retirement of the 2017 Credit Agreement and a $10.6 million increase in dividend payments. Refer to the Capital Resources section of the MD&A for a discussion on our Long-term debt borrowings.
We expect that for at least the next 12 months, our operating expenses will continue to constitute a significant use of our cash. As of August 31, 2019, our total cash and cash equivalents worldwide was $359.8 million, with $132.6 million included in the U.S. segment, the majority of which is held in bank accounts located within the U.S., $183.5 million in the Europe segment, predominantly within bank accounts in the UK, France, and Germany, and the remaining $43.7 million held in the Asia Pacific segment. As of August 31, 2019, we also had $574.2 million in outstanding borrowings (net of $0.8 million of unamortized debt issuance costs). We believe our liquidity (including cash on hand, cash from operating activities and other cash flows that we expect to generate) within each geographic segment will be sufficient to meet our short-term and long-term operating requirements, including working capital needs, capital expenditures, dividend payments, stock repurchases, growth objectives and other financing activities. In addition, we expect existing foreign cash, cash equivalents and cash flows from operations to continue to be sufficient to fund our foreign operating activities and cash commitments for investing activities, such as capital expenditures, for at least the next 12 months and thereafter, for the foreseeable future.
Free cash flow generated in fiscal 2019 was $367.8 million, an increase of 4.4% compared to $352.1 million in fiscal 2018. Free cash flow is the result of $427.1 million of net cash provided by operating activities, partially offset by $59.4 million in capital expenditures. The year over year increase to free cash flow was primarily driven by higher net income and an increase in client collections due to a reduction in our days sales outstanding ("DSO") to 37 days as of August 31, 2019, compared to 41 days for the prior year period, partially offset by higher capital requirements from the build-out of new office space and the timing of supplier and tax payments.
7Fiscal 2018compared to Fiscal 2017
Cash and cash equivalents aggregated to $208.6 million, or 14.7% of our total assets at August 31, 2018, compared with $194.7 million, or 13.8% of our total assets at August 31, 2017. Our cash and cash equivalents increased $13.9 million during fiscal 2018 due to net cash provided by operating activities of $385.7 million and $71.6 million in proceeds from the exercise of employee stock options. These cash inflows were partially offset by $89.4 million in dividend payments, $33.5 million of capital expenditures, $15.0 million related to a business investment, $3.2 million from the effects of foreign currency translations and $303.9 million in share repurchases, which included $302.4 million under the existing share repurchase program and $1.5 million in shares repurchased from employees to cover their cost of taxes upon vesting of restricted stock.
Net cash used in investing activities was $48.5 million in fiscal 2018, representing a $298.8 million decrease from fiscal 2017. This reduction was primarily due to decreased acquisition activity with $15.0 million invested in fiscal 2018 compared to $303.1 million largely related to the BI-SAM Technologies (“BISAM”) and Vermilion Holdings Limited (“Vermilion”) acquisitions in fiscal 2017. Additionally, cash used in investing activities decreased year over year due to lower capital expenditures of $3.3 million and a decrease in the purchase of investments (net of proceeds) of $7.4 million year over year
During fiscal 2018, net cash used in financing activities was $320.0 million, representing a $311.9 million increase from fiscal 2017. This increase was due to $275.0 million in proceeds (net of repayment) from the issuance of long-term debt in fiscal 2017 that did not occur in fiscal 2018. In addition, the decrease was due to higher dividend payments of $8.5 million, an increase in share repurchases of $43.0 million, and a change in the presentation of tax benefits from share-based payment arrangements due to the adoption of the accounting standard update, which required us to disclose benefits from stock option exercises as an operating cash inflow instead of a financing activity. This presentation change was adopted prospectively beginning with fiscal 2018. These cash outflows were partially offset by an increase in proceeds from employee stock plans of $21.6 million.
We expect that for at least the next 12 months, our operating expenses will continue to constitute a significant use of our cash. As of August 31, 2018, our total cash and cash equivalents worldwide was $208.6 million, with $574.8 million in outstanding borrowings (net of $0.2 million of unamortized debt issuance costs). Approximately $30.9 million of our total available cash and cash equivalents is held in bank accounts located within the U.S., $134.3 million in Europe (predominantly within the UK, France, and Germany) and the remaining $43.4 million is held in the Asia Pacific segment. We believe our liquidity (including cash on hand, cash from operating activities and other cash flows that we expect to generate) within each geographic segment will be sufficient to meet our short-term and long-term operating requirements, as they occur, including working capital needs, capital expenditures, dividend payments, stock repurchases, growth objectives and other financing activities. In addition, we expect existing foreign cash, cash equivalents and cash flows from operations to continue to be sufficient to fund our foreign operating activities and cash commitments for investing activities, such as capital expenditures, for at least the next 12 months and thereafter for the foreseeable future.
Free cash flow generated in fiscal 2018 was $352.1 million, an increase of 24.1% compared to $283.7 million in fiscal 2017. Free cash flow was attributable to $267.1 million of net income, $87.0 million of non-cash items, $31.6 million of working capital changes, less $33.5 million in capital expenditures. The year over year free cash flow growth was driven by positive working capital changes totaling $47.6 million and lower capital expenditures of $3.3 million. Working capital improved year over year due to timing of supplier payments and payroll, stabilization of our days sales outstanding (“DSO”) at 41 days and the adoption of an accounting standard update for share-based payments, which required the presentation of benefits from stock options exercised to be reported as an operating activity, when in prior periods it was reported as a financing activity.
Fiscal 2017 compared to Fiscal 2016
Cash and cash equivalents aggregated to $194.7 million, or 13.8% of our total assets at August 31, 2017, compared with $228.4 million, or 22.4% of our total assets at August 31, 2016. Our cash and cash equivalents decreased $33.7 million during fiscal 2017 due primarily to $303.1 million in cash paid for acquisitions (net of cash acquired), $252.8 million in share repurchases under the existing share repurchase program, dividend payments of $80.9 million, capital expenditures of $36.9 million and $7.4 million from the purchase of investments (net of proceeds). These cash outflows were partially offset by cash provided by operations of $320.5 million, $275.0 million in net proceeds from long-term debt, $50.0 million in proceeds from the exercise of employee stock options, $10.3 million in tax benefits from share-based payment arrangements and $1.3 million from the effects of foreign currency translations.
Net cash used in investing activities was $347.3 million in fiscal 2017, which represented a $188.9 million increase from fiscal 2016 due primarily to an increase in the cash used in acquisitions and the purchases of investments (net of proceeds), partially offset by a decrease in capital expenditures. Additionally, in fiscal 2016 we recognized proceeds from the sale of our Market Metrics business of $153.1 million. Acquisitions during fiscal 2017, largely related to BISAM and Vermilion, resulted in a cash outflow of $303.1 million compared to a net cash outflow of $262.9 million for the Portware acquisition during fiscal 2016. Purchase of investments (net of proceeds) resulted in an increased cash outflow of $6.5 million in fiscal 2017 compared to fiscal 2016. The decrease in capital expenditures of $10.9 million was due from the fit-out of new space in New York, Chicago and at our corporate headquarters in Norwalk in fiscal 2016.Fiscal 2017 capital expenditures related primarily to computer equipment for our U.S. locations and additional expenses at our Chicago, New York, and India locations.
During fiscal 2017, net cash used in financing activities was $8.2 million compared to $91.0 million in fiscal 2016. This decrease was due primarily to FactSet entering into an accelerated share repurchase agreement (the “ASR Agreement”) to repurchase $120.0 million of our common stock in July 2016. We received 595,607 shares of common stock on July 5, 2016, which was approximately 80% of the total number of shares of common stock expected to be repurchased under the ASR Agreement. The final settlement of the ASR Agreement occurred in the first quarter of fiscal 2017 with our receiving an additional 102,916 shares of our common stock. Excluding cash used in the ASR Agreement, cash provided by financing activities in fiscal 2016 was $29.0 million, resulting in a fluctuation of $37.2 million in the current year. This fluctuation was due to an increase in cash used to repurchase common stock under our existing share repurchase program of $24.2 million, an increase in payments of regular quarterly dividends of $6.7 million, lower proceeds from employee stock plans of $6.8 million and lower tax benefits from share-based payment arrangements of $7.9 million. Cash used in share repurchases increased year over year as we repurchased 1.6 million shares for $252.8 million under the existing share repurchase program compared to 1.5 million shares for $232.3 million in fiscal 2016. Dividend payments increased as our Board of Directors approved a 12.0% increase in the regular quarterly dividend to $0.56 per share, or $2.24 per share per annum, beginning with the dividend payment in June 2017. The year over year fluctuation was also due to additional borrowings under our 2017 Credit Agreement (defined in Capital Needs) of $575.0 million, used to fund our acquisition of BISAM on March 17, 2017 and retire our existing debt of $365.0 million. In fiscal 2016 we borrowed $265.0 million under our previous credit agreement to fund our acquisition of Portware on October 16, 2015. Refer to the Capital Resources section of the MD&A for a discussion of our long-term debt borrowings.
Free cash flow for fiscal 2017 was $283.7 million compared to $283.4 million in fiscal 2016. Free cash flow generated during fiscal 2017 was attributable to $258.3 million of net income adjusted for $78.3 million of non-cash items partially offset by $36.9 million in capital expenditures and $16.0 million of negative working capital changes. Free cash flow increased slightly from the comparable year ago period, due primarily to a reduction in capital expenditures partially offset by a decrease in net cash provided by operating activities. The decrease in net cash provided by operating activities was the result of higher client receivables and the timing of taxes payments. Our DSO was 41 days as of August 31, 2017, representing an increase from 31 days at August 31, 2016. The increase in DSO was primarily related to the acquisitions made in the year.
Capital Resources
Capital Expenditures
Capital expenditures were $59.4 million during fiscal 2019, compared to $33.5 million a year ago. Capital expenditures of $28.0 million, or 47%, were primarily related to corporate infrastructure investments, additional server equipment for our data centers located in New Jersey and Virginia, as well as computers and peripherals for new office space primarily in India. The remainder of our capital expenditures was primarily for the build-out of office space, with $22.3 million related to the new corporate headquarters in Norwalk, Connecticut and $6.6 million related to new office space in India.
Capital expenditures were $33.5 million during fiscal 2018, down from $36.9 million a year ago.in fiscal 2017. Capital expenditures of $24.2 million, or 72% of our capital expenditures during fiscal 2018 related to upgrades to existing computer systems in Norwalk, additional server equipment in our data centers located in New Jersey and Virginia, as well as laptop computers and peripherals for new and existing employees. The remainder of our capital expenditures was primarily for the build out of office space including $2.2 million at our India location, $2.8 million at our Hong Kong location and $1.5 million at our Netherlands location.
Capital expenditures were $36.9 million during fiscal 2017, down from $47.7 million in fiscal 2016. Approximately $21.4 million, or 58%, of our capital expenditures was primarily for purchases of more servers for our existing data centers, additional laptop computers and peripherals for new employees, upgrades to existing computer systems and improvements to our telecommunication equipment. The remainder of our capital expenditures was primarily for the build out of office space including $4.4 million at our Chicago location, $4.4 million at our New York locations and $2.7 million at our India locations.
Capital Needs
Long-Term Debt
2019 Credit Agreement
On March 17, 2017, we29, 2019, the Company entered into athe 2019 Credit Agreement (the “2017("the 2019 Credit Agreement”Agreement") between FactSet, as the borrower, and PNC Bank, National Association (“PNC”("PNC"), as the administrative agent and lender. The 20172019 Credit Agreement provides for an unsecured $575.0a $750.0 million revolving credit facility (the “2017("the 2019 Revolving Credit Facility”Facility"). WeFactSet may request borrowings under the 20172019 Revolving Credit Facility until its maturity date of March 17, 2020.29, 2024. The 20172019 Credit Agreement also allows us,FactSet, subject to certain requirements, to arrange for additional borrowings with PNC for an aggregate amount of up to $225.0$500.0 million, provided that any such request for additional borrowings must be in a minimum amount of $25.0 million. At our option,
FactSet borrowed $575.0 million of the available $750.0 million provided by the 2019 Revolving Credit Facility, resulting in $175.0 million available to be withdrawn. FactSet is required to pay a borrowing may becommitment fee using a pricing grid currently at 0.10% based on the daily amount by which the available balance in the form2019 Revolving Credit Facility exceeds the borrowed amount. All outstanding loan amounts are reported as Long-term debt within the consolidated balance sheets at August 31, 2019. The principal balance is payable in full on the maturity date.
The fair value of a baseour long-term debt was $575.0 million as of August 31, 2019, which the Company believe approximates carrying amount as the terms and interest rates approximate market rates given its floating interest rate loan or a LIBOR rate loan.basis. Borrowings under the loan bear interest on the outstanding principal amount at a rate equal to the daily LIBOR rate plus a spread using a debt leverage pricing grid, currently at 1.00%0.875%. During fiscal years 2019, 2018 and 2017, FactSet recorded interest expense of $19.8 million, $15.9 million and $8.4 million, respectively, on its outstanding debt amounts. The weighted average interest rate on amounts outstanding under our credit facilities was 3.35% and 2.69% as of August 31, 2019 and 2018, respectively. Interest on the loan outstanding is payable quarterly, in arrears, and on the maturity date. There are no prepayment penalties if we elect to prepay the outstanding loan amounts prior to the scheduled maturity date. The principal balance is payable in full on the maturity date.
In conjunction with our entrance into the 2017 Credit Agreement, we borrowed $575.0 million in the form of a LIBOR rate loan under the 2017 Revolving Credit Facility. Proceeds from the 2017 Revolving Credit Facility were also used to fund our acquisition of BISAM.
All outstanding loan amounts are reported as Long-term debt within the Consolidated Balance Sheet, presented net of related loan origination fees at August 31, 2018. The loan origination fees are amortized into interest expense over the term of the loan using the effective interest method. During fiscal years 2018, 2017 and 2016, we recorded interest expense of $15.9 million, $8.4 million and $3.0 million, respectively, on our outstanding debt amounts. As of August 31, 2018, no commitment fee was owed by us since we borrowed the full amount under the 2017 Credit Agreement.
In fiscal 2017,2019, FactSet incurred approximately $0.4$0.9 million in legaldebt issuance costs related to draft and review the 20172019 Credit Agreement. These costs were capitalized as loan origination fees and are amortized into interest expense ratably over the term of the loan using the effective interest method.2019 Credit Agreement.
The 20172019 Credit Agreement containedcontains covenants and requirements restricting certain FactSet activities, which are usual and customary for this type of loan. In addition, the 20172019 Credit Agreement requiredrequires that FactSet maintain a consolidated net leverage ratio, as measured by total net funded debt/EBITDA below a specified level as of the end of each fiscal quarter. We wereThe Company was in compliance with all of the covenants ofand requirements within the 20172019 Credit Agreement as of August 31, 2018 and 2017.2019.
AsThe borrowings from the 2019 Credit Agreement were used to retire all outstanding debt under the previous 2017 Credit Agreement between FactSet, as the borrower, and PNC as the lender on March 29, 2019. The total principal amount of August 31, 2018, the fair valuedebt outstanding at the time of our long-term debtretirement was $575.0 million which we believe approximatedand there were no prepayment penalties.
2017 Credit Agreement
On March 17, 2017, the carrying amountCompany entered into a Credit Agreement (the "2017 Credit Agreement") between FactSet, as the termsborrower, and PNC Bank, National Association ("PNC"), as the administrative agent and lender. The 2017 Credit Agreement provided for a $575.0 million revolving credit facility (the "2017 Revolving Credit Facility"). The 2017 Credit Agreement also allowed 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 was in a minimum amount of $25.0 million. FactSet could have requested borrowings under the 2017 Revolving Credit Facility until its maturity or retirement date. Borrowings under the loan were subject to interest rates approximate market rates given its floating intereston the outstanding principal amount at a rate basis.equal to the daily LIBOR rate plus 1.00%. Interest on the loan outstanding was payable quarterly in arrears and on the maturity date. There were no prepayment penalties if the Company elected to prepay the outstanding loan amounts prior to the scheduled maturity date. The principal balance was repaid in full on March 29, 2019.
Letters of Credit
From time to time, we are required to obtain letters of credit in the ordinary course of business. Approximately $2.0$2.8 million of standby letters of credit have been issued in connection with our leased office spaces as of August 31, 2018.2019. These standby letters of credit contain covenants that, among other things, require us to maintain minimum levels of consolidated net worth and certain leverage and fixed charge ratios. As of August 31, 20182019 and 2017,2018, we were in compliance with all covenants contained in the standby letters of credit.
Foreign Currency
Foreign Currency Exposure
Certain wholly ownedwholly-owned subsidiaries within the EuropeanEurope and Asia Pacific segments operate under a functional currency different from the U.S. dollar. The financial statements of these foreign subsidiaries are translated into U.S. dollars using period-end rates of exchange for assets and liabilities and average 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 accumulated other comprehensive (loss) income as a component of stockholders’ equity.
Over the next 12 months, our non-U.S. dollar denominated revenues expected to be recognized are estimated to be $92.8 million while our non-U.S. dollar denominated expenses are estimated to be $324.5 million, which translates into a net foreign currency exposure of $231.7 million. Our foreign currency exchange exposure is related to our operating expense base in countries outside the U.S., where 74%76% of our employees were located as of August 31, 2018.2019. During fiscal 2018,2019, foreign currency movements decreasedincreased operating income by $10.1 million, compared to a decrease in operating income by $1.3 million compared to a $7.1 million increase to operating income for fiscal 2017.2018.
Foreign Currency Hedges
As of August 31, 2018,2019, we maintained the following foreign currency forward contracts to hedge our exposures:
| Philippine Peso – foreign currency forward contracts to hedge approximately 75% of our Philippine Peso exposure through the fourth quarter of fiscal 2020. |
| Indian Rupee – foreign currency forward contracts to hedge approximately |
| Euro – foreign currency forward contracts to hedge approximately |
| British Pound Sterling – foreign currency forward contracts to hedge approximately 75% of our British Pound sterling exposure through the first quarter of fiscal 2020, 50% of our British Pound Sterling exposure from the second quarter through the third quarter of fiscal |
As of August 31, 2018,2019, the gross notional value of foreign currency forward contracts to purchase Philippine Pesos with U.S. dollars was PHP 2.8 billion, to purchaseand Indian Rupees with U.S. dollars was Rs. 3.6₱1.4 billion and Rs.1.4 billion, respectively. The gross notional value of foreign currency forward contracts to purchase Euros with U.S. dollars was € 22.0 millionwith Euros and to purchase British Pound Sterling with U.S. dollars was £14.0 million.€35.7 million and £20.5 million, respectively.
There were no other outstanding foreign currency forward contracts as of August 31, 2018.2019. A gainloss on derivatives of $3.1$1.8 million was recorded intoin operating income during fiscal 2018,2019, compared to a lossgain of $2.9$3.1 million in fiscal 2017.2018.
Off-Balance Sheet Arrangements
At August 31, 20182019 and 2017,2018, we had no off-balance sheet financing or other arrangements with unconsolidated entities or financial partnerships (such as entities often referred to as structured finance or special purpose entities) established for purposes of facilitating off-balance sheet financing or other debt arrangements or for other contractually limited purposes.
Share Repurchase Program
Repurchases will be made from time to time in the open market and privately negotiated transactions, subject to market conditions. In fiscal 2018,2019, we repurchased 0.9 million shares for $213.1 million compared to 1.5 million shares for $302.4 million compared to 1.6 million shares for $252.8 million in fiscal 20172018 under the existing share repurchase program. Over the last 12 months, we have returned $393.4$320.4 million to stockholders in the form of share repurchases and dividends.
On March 26, 2018, ourJune 24, 2019, the Board of Directors of FactSet approved a $300.0$210.0 million expansion of the existing share repurchase program. Subsequent to this expansion, $431.2$238.6 million is available for future share repurchases. Asrepurchases as of August 31, 2018, $241.7 million is available for future share repurchases under the existing share repurchase program.2019.
Contractual Obligations
Fluctuations in our operating results, the degree of success of our accounts receivable collection efforts, the timing of tax and other payments, as well as, necessary capital expenditures to support growth of our operations will impact our liquidity and cash flows in future periods. The effect of our contractual obligations on our liquidity and capital resources in future periods should be considered in conjunction with the factors mentioned here.disclosed below. As of August 31, 2019 and 2018, we had total purchase commitments with suppliers of $83.3 million and $79.0 million, which was comparable to the prior year commitments of $81.0 million, reflectingrespectively. There were no material changes in the Company’s purchase commitments with suppliers during fiscal 2018.2019.
The following table summarizes our significant contractual obligations as of August 31, 20182019 and the corresponding effect that these obligations will have on our liquidity and cash flows in future periods:
Payments due by period | Payments due by period | ||||||||||||||||||||||||||||||||||||||||
(in millions) | 2019 | 2020-2021 | 2022-2023 | 2024 and thereafter | Total | 2020 | 2021-2022 | 2023-2024 | 2025 and thereafter | Total | |||||||||||||||||||||||||||||||
Operating lease obligations(1) | $ | 41.1 | $ | 73.4 | $ | 63.3 | $ | 230.0 | $ | 407.8 | $ | 41.4 | $ | 76.1 | $ | 67.0 | $ | 215.5 | $ | 400.0 | |||||||||||||||||||||
Purchase commitments(2) | 75.8 | 3.2 | — | — | 79.0 | 62.7 | 17.8 | 2.8 | — | 83.3 | |||||||||||||||||||||||||||||||
Long-term debt obligations(3) | — | 575.0 | — | — | 575.0 | — | — | 575.0 | — | 575.0 | |||||||||||||||||||||||||||||||
Total contractual obligations by period(4) | $ | 116.9 | $ | 651.6 | $ | 63.3 | $ | 230.0 | $ | 1,061.8 | |||||||||||||||||||||||||||||||
Total contractual obligations by period(4) | $ | 104.1 | $ | 93.9 | $ | 644.8 | $ | 215.5 | $ | 1,058.3 |
(1) | Operating lease amounts include future minimum lease payments under all our non-cancelable operating leases with an initial term in excess of one year. For more information on |
(2) | Purchase commitments represent |
(3) | Represents the amount due under the Company’s |
(4) | Non-current income taxes payable of |
Purchase orders do not necessarily reflect a binding commitment but are merely indicative of authorizations and intention to conclude purchases in the future. For the purpose of this tabular disclosure, purchase obligations for goods and services are defined as agreements that are enforceable and legally binding on us and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. It is expected that all the contractual obligations noted in the table will be funded from existing cash and cash flows from operations. Expected timing pertaining to the contractual obligations included in the table above has been estimated based on information currently available. The amounts paid, and the timing of those payments may differ based on when the goods and services provided by our vendors to whom we are contractually obligated are received, as well, as due to changes to agreed-upon amounts for any of our obligations.
On February 14, 2018, we entered into a new lease to relocate our corporate headquarters to 45 Glover Avenue in Norwalk, Connecticut. The new location will comprise approximately 173,000 square feet of office space. We expect to taketook possession of the newly leased property on or around January 1, 2019 for fit-out purposes. We will continue to occupy our existing headquarters space until the new headquarters property is ready for occupancy, currently estimated to be in the second quarter of fiscal 2020.
Including new lease agreements executed during fiscal 2018,2019, our worldwide leased office space increased to approximately 1,750,0001,860,000 square feet at August 31, 2018,2019, up 607,000110,000 square feet, or 54.0%6.3% from August 31, 2017.2018. This increase was primarily related to additional office space in the Philippines and the new headquarters lease signed in February 2018.India. Future minimum requirements for our operating leases in place as of August 31, 20182019 totaled $407.8$400.0 million, an increasea decrease from $281.7$407.8 million as of August 31, 2017,2018. This decrease is primarily due to the additionalpassage of a year on remaining rental agreement terms, reducing the overall future minimum lease obligation, partially offset by added office space in the Philippines and new leased space for headquarters in Norwalk, Connecticut mentioned above.India.
As disclosed earlier in the Capital Resources section of this MD&A, we entered into the 20172019 Credit Agreement on March 17, 201729, 2019 and borrowed $575.0 million. In conjunction with the 20172019 Credit Agreement, FactSet retired its loan outstanding loanunder the 2017 Credit Agreement amount of $365.0 million under the previous credit agreement.$575.0 million.
With the exception of the new leases entered in the ordinary course of business, there were no other significant changes to our contractual obligations during fiscal 2018.2019.
Dividends
On May 7, 2018,August 9, 2019, our Board of Directors approved a 14.3% increase in the regular quarterly dividend beginning withof $0.72 to be paid on September 19, 2019. The $0.08 per share or 12.5% increase marked our 14th consecutive year we have increased dividends, highlighting our continued commitment to returning value to shareholders. Over the dividend payment on June 19, 2018, which was $0.64 per share. With our dividends and our share repurchases, in the aggregate,last 12 months, we have returned $393.4$320.4 million to stockholders overin the past 12 months.form of share repurchases and cash dividends. Future cash dividends will depend on our earnings, capital requirements, financial condition and other factors we consider relevant.relevant factors. Dividends must be authorized by our Board of Directors.
During fiscal years 20182019 and 2017,2018, our Board of Directors declared the following dividends on our common stock:
Year Ended | Dividends per Share of Common Stock | Record Date | Total $ Amount (in thousands) | Payment Date | Dividends per Share of Common Stock | Record Date | Total $ Amount (in thousands) | Payment Date | ||||||||||||||
Fiscal 2019 | ||||||||||||||||||||||
First Quarter | $ | 0.64 | November 30, 2018 | $ | 24,372 | December 18, 2018 | ||||||||||||||||
Second Quarter | $ | 0.64 | February 28, 2019 | $ | 24,385 | March 19, 2019 | ||||||||||||||||
Third Quarter | $ | 0.72 | May 31, 2019 | $ | 27,506 | June 18, 2019 | ||||||||||||||||
Fourth Quarter | $ | 0.72 | August 30, 2019 | $ | 27,445 | September 19, 2019 | ||||||||||||||||
Fiscal 2018 | ||||||||||||||||||||||
First Quarter | $ | 0.56 | November 30, 2017 | $ | 21,902 | December 19, 2017 | $ | 0.56 | November 30, 2017 | $ | 21,902 | December 19, 2017 | ||||||||||
Second Quarter | $ | 0.56 | February 28, 2018 | $ | 21,799 | March 20, 2018 | $ | 0.56 | February 28, 2018 | $ | 21,799 | March 20, 2018 | ||||||||||
Third Quarter | $ | 0.64 | May 31, 2018 | $ | 24,566 | June 19, 2018 | $ | 0.64 | May 31, 2018 | $ | 24,566 | June 19, 2018 | ||||||||||
Fourth Quarter | $ | 0.64 | August 31, 2018 | $ | 24,443 | September 18, 2018 | $ | 0.64 | August 31, 2018 | $ | 24,443 | September 18, 2018 | ||||||||||
Fiscal 2017 | ||||||||||||||||||||||
First Quarter | $ | 0.50 | November 30, 2016 | $ | 19,852 | December 20, 2016 | ||||||||||||||||
Second Quarter | $ | 0.50 | February 28, 2017 | $ | 19,709 | March 21, 2017 | ||||||||||||||||
Third Quarter | $ | 0.56 | May 31, 2017 | $ | 21,951 | June 20, 2017 | ||||||||||||||||
Fourth Quarter | $ | 0.56 | August 31, 2017 | $ | 21,853 | September 19, 2017 |
All the above cash dividends were paid from existing cash resources on a quarterly basis.
Significant Accounting Policies
We describe our significant accounting policies in Note 3, Summary of Significant Accounting Policies, of the Notes to our Consolidated Financial Statements included in Item 8 below.
Critical Accounting Estimates
We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors. In addition, there are other items within our consolidated financial statements that require estimation but are not deemed critical as defined above. Changes in estimates used in these and other items could have a material impact on our financial statements.
Business Combinations
We record acquisitionsThe Company accounts for its business combinations using the purchase method of accounting. AllThe acquisition purchase price is allocated to the underlying identified, tangible and intangible assets acquired,and liabilities assumed, contractual contingencies and contingent consideration are recognized atbased on their respective estimated fair valuevalues on the acquisition date. The applicationexcess of the purchase methodconsideration over the fair values of accounting for business combinations requires managementthe identified assets and liabilities is recorded as goodwill and assigned to make significant estimatesone or more reporting units. The amounts and assumptions inuseful lives assigned to acquisition-related tangible and intangible assets impact the determinationamount and timing of future amortization expense. Determining the fair value of assets acquired and liabilities assumed in orderand the expected useful life, requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to properly allocate purchase price consideration between assets thatfuture cash inflows and outflows, discount rates, asset lives and market multiples, among other items. Acquisition-related expenses and restructuring costs are depreciated and amortized from goodwill. Our estimates are based on historical experience, information obtainedrecognized separately from the management of the acquired companies,business combination and when appropriate, include assistance from independent third-party appraisal firms. Our significant assumptions and estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital, and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and unpredictable. In addition, unanticipated events and circumstances may occur which may affect the accuracy or validity of such estimates.expensed as incurred.
Performance-based Equity Awards
Performance-based equity awards, whether in the form of stock options or restricted stock, require management to make assumptions regarding the likelihood of achieving our performance targets. The number of performance-based optionsawards that vest will be predicated on us achieving performance levels during the measurement period subsequent to the date of grant. DependingDependent on the financial performance levels we achieve,attained, a percentage of the performance-based stock optionsawards will vest to the grantees of those stock options.grantees. However, there is no current guarantee that such optionsawards will vest in whole or in part.
February 2015 Performance-based Option Grant Review
In connection with the acquisition of Code Red, we granted 68,761 performance-based stock options during the second quarter of fiscal 2015 that are eligible to cliff vest based on a four-year measurement period ending February 28, 2019. In the second quarter of fiscal 2018, we modified the vesting criteria of the grant, which resulted in 40% of the options being deemed eligible to vest, with the remaining options forfeited. No cumulative catch-up adjustment was required because we had expected the 40% level to be achieved. The option holders must remain employed by FactSet through February 28, 2019 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.
JanuaryJune 2017 Performance-based Option Grant Review
In connection with the acquisition of Vermilion, we granted 61,744 performance-based stock options in January 2017. These performance-based options will vest 40% on the second anniversary date of the grant and 20% on each subsequent anniversary date if certain Vermilion revenue and operating income targets are achieved by November 30, 2018. The option holders must also remain employed byBISAM, FactSet for the options to be eligible to vest. As of August 31, 2018, we do not believe these growth targets are probable of being achieved, and as such, no stock-based compensation expense is expected to be recognized in connection with these performance-based options. A change in the actual financial performance levels achieved by Vermilion in future periods could result in the following changes to the current estimate of the vesting percentage and related expense:
(in thousands, except vesting percentage data)
Vesting Percentage |
Cumulative Catch-up Adjustment(1) | Remaining Expense to be Recognized | ||||||
0% (current expectation) | $ | — | $ | — | ||||
100% | $ | 613 | $ | 1,272 |
|
|
June 2017 Performance-based Option Grant Review
In connection with the acquisition of BISAM, we granted 206,417 performance-based stock options in June 2017. These performance-based options willwere scheduled to 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 arewere achieved by March 31, 2019. The option holders must also remain employedIn the third quarter of fiscal 2019, it was determined that the performance criteria were not achieved by FactSet forMarch 31, 2019, and, as such, the options to be eligible to vest. As of August 31, 2018, we do not believe these growth targets are probable of being achieved,were forfeited, and as such, no stock-based compensation expense is expected to be recognized in connection with thesewas recorded for this performance-based options. A change in the actual financial performance levels achieved by BISAM in futureoption grant for fiscal years could result in the following changes to the current estimate of the vesting percentage and related expense:2019.
(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 |
|
|
Accrued Compensation
We make significant estimates in determining our accrued compensation. Annual cash-based awards that are variable and discretionary in nature represent approximately 10% of our Company’s employee incentive compensation program. We conduct a final review of Company, departmental and individual performance each year end to determine the amount of discretionary employee compensation. We also review compensation throughout the year to determine how overall performance tracks against management’s expectations. Management takes these and other factors, including historical performance, into account in reviewing accrued compensation estimates on a quarterly basis and adjusts accrual rates as appropriate. As of August 31, 2018,2019, and 2017,2018, the amount of the variable employee compensation recorded within accrued compensation was $49.4 million and $43.6 million, and $39.2 million, respectively.
Goodwill and Intangible Assets
Goodwill is not amortized as it is estimated to have an indefinite life. At least annually, we are required to test goodwill at the reporting unit level for potential impairment, and, if impaired, write down to fair value based on the present value of discounted cash flows. Our reporting units evaluated for potential impairment were the U.S., Europe and Asia Pacific, which is aligned with how the chief operating decision making group (“CODMG”), composed of the CEO and executive management, manages the business and the demographic markets we serve. The three reporting units are consistent with the operating segments reported as there is no discrete financial information available for the subsidiaries or business units within each operating segment. The impairment test requires management to make judgments in connection with these reporting units, including assigning assets, liabilities, goodwill and other indefinite-lived intangible assets to reporting units and determining the fair value of each reporting unit.
Our impairment analysis contains uncertainties as it requires management to make assumptions and apply judgment to estimate industry and economic factors including market conditions, legal and technological factors and the profitability of our business strategies. It is our policy to conduct impairment testing based on our current business strategies taking into consideration present industry and economic conditions, as well as future expectations. We haveIn fiscal 2019, we elected to perform a qualitative analysis for the reporting units to determine whether it is more likely than not made any materialthe fair value of the reporting unit is greater than its carrying value. In performing a qualitative assessment, FactSet considers such factors as macro-economic conditions, industry and market conditions in which FactSet operates including the competitive environment and significant changes in our impairmentdemand for the Company’s services. The Company also considers its share price both in absolute terms and in relation to peer companies. If the qualitative analysis methodology duringindicates that it is more likely than not the past three fiscal years. While we dofair value of a reporting unit is less than its carrying amount or if FactSet elects not believe thereto perform a qualitative analysis, a quantitative analysis is a reasonable likelihood that there will be a material change in the future estimates or assumptions we useperformed to test fordetermine whether a goodwill impairment losses, we may be exposed to an impairment charge that could be material if actual results are not consistent with our estimates and assumptions. exists.
Future events could cause us to conclude that indicators of impairment do exist, and that goodwill associated with our previous acquisitions is impaired, which could result in an impairment loss in our Consolidated Statements of Income and a write-down of the related asset.
We performed our annual goodwill impairment test during the fourth quarter of fiscal 2018,2019, consistent with the timing of previous years. It was determined that there was no impairment, withas it was not more likely than not the fair value of each ofany reporting unit was less than its carrying value, using the Company’s reporting units significantly exceeding carrying value.qualitative screen. The carrying value of goodwill as of August 31, 2019 and 2018, and 2017, was $701.8$685.7 million and $707.6$701.8 million, respectively.
Our identifiable intangible assets consist of acquired content databases, client relationships, software technology, non-compete agreements and trade names resulting from acquisitions, which have been fully integrated into our operations. We amortize intangible assets over their estimated useful lives, which are evaluated quarterly to determine whether events and circumstances warrant a revision to the remaining period of amortization. The weighted average useful life of our acquired identifiable intangible assets at August 31, 20182019 was 11.512.6 years. If the estimate of the remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over that revised remaining useful life. There were no material adjustments to the useful lives of intangible assets subject to amortization during any of the periods presented. These intangible assets had no assigned residual values as of August 31, 20182019 and 2017.2018.
Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of any impairment loss for intangible assets that management expects to hold, and use is based on the amount the carrying value exceeds the fair value of the asset.asset, which may be based on estimated future cash flows (discounted). No indicators of impairment of intangible assets has been identified during any of the periods presented. Our ongoing consideration of the recoverability could result in impairment charges in the future, which could adversely affect our results of operations. The carrying value of intangible assets as of August 31, 2019 and 2018, was $120.6 million and 2017, was $148.9 million, and $173.5 million, respectively.
Long-lived Assets
Long-lived assets, comprised of property, equipment and leasehold improvements are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that may cause an impairment review include significant changes in technology that make current computer-related assets that we use in our operations obsolete or less useful, and significant changes in the way we use these assets in our operations. When evaluating long-lived assets for potential impairment, if impairment indicators are present, we first compare the carrying value of the asset to the asset’s estimated future cash flows (undiscounted and withoutexcluding interest charges). If the estimated future cash flows are less than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to the asset’s estimated fair value, which may be based on estimated future cash flows (discounted and with interest charges)(discounted). We recognize an impairment loss if the amount of the asset’s carrying value exceeds the asset’s estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. The new cost basis will be depreciated (amortized) over the remaining useful life of that asset. Using the impairment evaluation methodology described here, there have been no long-lived asset impairment charges for each of the last three years. The carrying value of long-lived assets was $132.5 million as of August 31, 2019 and $100.5 million in both years endedas of August 31, 2018 and 2017.2018.
Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows. We have not made any material changes in our impairment loss assessment methodology during the past three fiscal years. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material.
Estimated Tax Provision and Tax Contingencies
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Our tax provision is an estimate based on our understanding of laws in Federal, state and foreign tax jurisdictions. These laws can be complicated and are difficult to apply to any business, including ours.business. The tax laws also require us to allocate our taxable income to many jurisdictions based on subjective allocation methodologies and information collection processes. Our effective tax rates differ from the statutory rate primarily due to the impact of state taxes, foreign operations, R&D and other tax credits, tax audit settlements, incentive-stock options and domestic production activities deductions.the Foreign Derived Intangible Income Deduction. Our annual effective tax rate was 24.1%16.4%, 25.0%24.1% and 26.5%25.0% in fiscal 2019, 2018 and 2017, and 2016, respectively.
We recognize the benefit of an income tax position only if it is more likely than not that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position as of the reporting date. Otherwise, no benefit can be recognized. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. We will classify the liability for unrecognized tax benefits as current to the extent that we anticipate payment of cash within one year. Additionally, we accrue interest on all tax exposures for which reserves have been established consistent with jurisdictional tax laws. Interest is classified as income tax expense in the financial statements.
As of August 31, 2018, we had gross unrecognized tax benefits totaling $9.2 million, including $1.1 million of accrued interest, recorded as Taxes Payable (non-current) within the Consolidated Balance Sheet. Unrecognized tax benefits represent tax positions taken on tax returns but not yet recognized in the consolidated financial statements. When applicable, we adjust the previously recorded tax expense to reflect examination results when the position is effectively settled. If recognized, the unrecognized tax benefits and related interest would be recorded as a benefit to tax expense on the Consolidated Statements of Income. Audits by multiple tax authorities are currently ongoing. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. For this reason, we regularly engage in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. Although we believe our reserves are reasonable, no assurance can be given that the final outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the effect of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest.
Our provision for income taxes is subject to volatility and could be adversely impacted by numerous factors such as changes in tax laws, regulations, or accounting principles, including accounting for uncertain tax positions or interpretations of them. Significant judgment is required to determine recognition and measurement. Further, as a result of certain ongoing employment and capital investment actions and commitments, our income in certain countries is subject to reduced tax rates and in some cases is wholly exempt from tax. Our failure to meet these commitments could adversely affect our provision for income taxes. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse impact on our operating results and financial condition.
To account for unrecognized tax benefits, we first determine whether it is more-likely-than-not (defined as a likelihood of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date. A tax position that meets this more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority. The determination of liabilities related to unrecognized tax benefits, including associated interest and penalties, requires significant estimates. There can be no assurance that we will accurately predict the outcomes of these audits, however, we have no reason to believe that such audits will result in the payment of additional taxes and/or penalties that would have a material adverse effect on the Company’s results of operations or financial position, beyond current estimates. For this reason and due to ongoing audits by multiple tax authorities, we regularly engage in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made. The Company does 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, 2019, we had gross unrecognized tax benefits totaling $10.9 million, including $1.1 million of accrued interest, recorded as Taxes Payable (non-current) within the Consolidated Balance Sheets.
New Accounting Pronouncements
See Note 3, Summary of Significant Accounting Policies, in the Notes to the Company’s Consolidated Financial Statements included in Item 8 for a full description of recent accounting pronouncements, including the expected dates of adoption, which we include here by reference.
Market Trends
In the ordinary course of business, we are exposed to financial risks involving the volatility of equity markets as well as foreign currency and interest rate fluctuations.
Shift from Active to Passive Investment Management
Approximately 83.9%83.7% of our ASV is derived from our investment management clients. The prosperity of these clients is tied to equity assets under management. An equity market decline not only depresses assets under management but also could cause a significant increase in redemption requests to move money out of equities and into other asset classes. Moreover, a shift from active investment management to passive investment management can result in lower demand for our services. Our investment banking clients that provide M&A advisory work, capital markets services and equity research, account for approximately 16.1%16.3% of our ASV. A significant portion of these revenues relate to services deployed by large, bulge-bracket banks. Credit continues to impact many of the large banking clients due to the amount of leverage deployed in past operations. Our clients could also encounter similar issues. A lack of confidence in the global banking system could cause declines in M&A funded by debt. Additional uncertainty, consolidation and business failures in the global investment banking sector could adversely affect our financial results and future growth. Regardless, the size of banks in general is shrinking as they deleverage their balance sheets and adjust their expense bases to futureOur revenue opportunities. Our revenues may decline if banks, including those involved in merger activity, significantly reduce headcount in the areas of corporate M&A, capital markets and equity research to compensate for the challenges faced by other departments.
Brexit
Volatility is expected to continueOn June 23, 2016, voters in the short term as the UK negotiates its exitUnited Kingdom approved an advisory referendum to withdraw from the European Union. The initial UK economic performance has been stronger than originally expected asUnion ("Brexit"). On March 29, 2017, the timeframe from the initial vote increases. Additionally, increased European confidence and UK consumer spending has contributed to the recoveryUnited Kingdom invoked Article 50 of the economic outlook. The negotiation process is continuing, includingLisbon Treaty, formally starting negotiations with the latest milestone of the UKEuropean Union. United Kingdom and European Union developingleaders then backed an extension until October 31, 2019, to provide more time to complete negotiations on formal withdrawal and transitional arrangements. On October 17, 2019 a draftnew Brexit deal was agreed between the European Union and the UK Government. On October 22, 2019 the UK Parliament approved the new Brexit deal but rejected the timing of its implementation. Following the legal text forvote in the transition deal. AnyUK Parliament, European Council President Donald Tusk confirmed that he would recommend that the European Union leaders agree to a third extension to the Article 50 period until January 31, 2020, to give the United Kingdom more time to scrutinize the new Brexit deal, and to avoid a no-deal Brexit. The political and economic instability created by the Brexit vote has caused, and may continue to cause, significant volatility in global financial markets. At this time, we cannot predict the impact fromthat Brexit will have on usour business as it will depend, in part, on the longer-term outcome of tariff, trade, regulatory and other negotiations. Although it is unknown what the result of those negotiations will be, it is possible that new terms may adversely affect our operations and financial results. While we evaluate our own risks and uncertainty related to Brexit, we will continue to partner with our clients to help them navigate the fluctuating international markets.
MiFID II
In the European Union, the new version of the Markets in Financial Instruments Directive also known as "MiFID II",(“MiFID”)
MiFID II built upon many of the initiatives introduced through MiFID and is intended to help improve the functioning of the European Union single market by achieving a greater consistency of regulatory standards. MiFID originally became effective in 2007 and was enhanced through adoption of MiFID II, which became effective in January 2018. The main purpose of this initiative was to ensure fairer, safe and more efficient markets and facilitate greater transparency for all participants. The Research workflow is one area where both buy-side and sell-side clients have seen and willWe continue to see significant change requirements as a resultmonitor the impact in the European Union of the MiFID II inducement rules. The goalon the investment process and trade lifecycle, as well as any impact of MiFID II on non-European Union countries. We also continue to review the new legislative framework is to strengthen investor protection and improve the functioningapplication of financial markets, making them more efficient, resilient and transparent. New reporting requirements and tests will increase the amount of information available and reduce the use of dark pools and OTC trading.key MiFID II requirements have meant pricing modelsin the event of a no-deal Brexit in light of a recent publication by the European Securities and business practices have hadMarkets Authority. We plan to adapt significantly. We will continue to evaluate our own risks and uncertainty related to MiFID II and partnerwork with our clients to help them navigate these new rules. However, recently we have noticed a substantial interest in our Research workflow, which is part of the opportunity for us, but more importantly, allows our clients to leverage our technology solutions for MiFID II compliance.requirements.
Forward-Looking Factors
Forward-Looking Statements
In addition to current and historical information, this Report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements based on management’s current expectations, estimates, forecasts and projections about industries in which we operate and the beliefs and assumptions of management. All statements that address expectations, guidance, outlook or projections about the future, including statements about our strategy for growth, product development, revenues,revenue, future financial results, anticipated growth, market position, subscriptions, expected expenditures, trends in our business and financial results, are forward-looking statements. Forward-looking statements may be identified by words like “expects,” “believes,” “anticipates,” “plans,” “intends,” “estimates,” “projects,” “should,” “indicates,” “continues,” “may” and similar expressions. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions. Many factors, including those discussed more fully elsewhere in this Report on Form 10-K or in any of our other filings with the Securities and Exchange Commission, could cause results to differ materially from those stated. These factors include, but are not limited to: the ability to integrate newly acquired companies, clients and businesses; strains on resources as a result of growth, the volatility and stability of global securities markets, including declines in equity or fixed income returns impacting the buying power of investment management clients; the ability to hire and retain qualified personnel; the maintenance of our leading technological position and reputation; failure to maintain or improve our competitive position in the marketplace; fraudulent, misappropriation or unauthorized data access, including cyber-security and privacy breaches; failures or disruptions of telecommunications, data centers, network systems, facilities, or the Internet; uncertainty, consolidation and business failures in the global investment banking industry; the continued shift from active to passive investing, the negotiation of contract terms with vendors, data suppliers and landlords; the retention of clients and the attraction of new ones; the absence of U.S. or foreign governmental regulation restricting international business; the unfavorable resolution of tax assessments and legal proceedings; and legislative and regulatory changes in the environments in which we and our clients operate. Forward-looking statements speak only as of the date they are made, and we assume no duty to and do not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.
We intend that all forward-looking statements we make will be subject to safe harbor protection of the federal securities laws as found in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These statements involve certain known and unknown risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those listed in Part 1 Item 1A, Risk Factors, of this Report on Form 10-K. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this Report on Form 10-K to reflect actual results or future events or circumstances.
Business Outlook
The following forward-looking statements reflect our expectations as of September 25, 2018.26, 2019. Given the number of risk factors, uncertainties and assumptions discussed in this MD&A above and Part 1 Item 1A, Risk Factors, of this Report on Form 10-K, actual results may differ materially. We do not intend to update our forward-looking statements until our next quarterly results announcement, other than in publicly available statements.
Fiscal 20120209Expectations
| Organic ASV plus professional services is expected to increase in the range of |
| GAAP |
| GAAP operating margin is expected to be in the range of |
| Adjusted operating margin is expected to be in the range of 31.5% and 32.5%. |
• | FactSet’s annual effective tax rate is expected to be in the range of |
| GAAP diluted EPS is expected to be in the range of $8.70 and |
Both GAAP operating margin and GAAP diluted EPS guidance do not include certain effects of any non-recurring benefits or charges that may arise in fiscal 2020.
Business Developments
Departure ofGlobal Head of Sales and Client Solutionsand Appointment of Global Head of Sales and Client Solutions
On April 15, 2019, we entered into a separation of employment and general release agreement (the "Separation Agreement") with John W. Wiseman, the Executive Vice President, Global Head of Sales and Client Solutions. Pursuant to the Separation Agreement, Mr. Wiseman participated in an orderly transition of duties to his successor, Franck A.R. Gossieaux, appointed June 1, 2019. Mr. Wiseman remained an employee of FactSet until his effective termination date of August 31, 2019.
Effective June 1, 2019, we appointed Franck A.R. Gossieaux as the Executive Vice President, Global Head of Sales and Client Solutions. Mr. Gossieaux succeeded John W. Wiseman and reports directly to Philip Snow, the Chief Executive Officer.
Appointment of Chief Human Resources Officer
Effective December 1, 2018, we appointed Daniel Viens as the Chief Human Resources Officer. Mr. Viens reports directly to Philip Snow, the Chief Executive Officer.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, we are exposed to foreign currency exchange risk that could impact our financial position and results of operations.
Foreign Currency Exchange Risk
We conduct business outside the U.S. in several currencies including the Euro, 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. Over the next 12 months, our non-U.S. dollar denominated revenues expected to be recognized are estimated to be $92.8 million while our non-U.S. dollar denominated expenses are estimated to be $324.5 million, which translates into a net foreign currency exposure of $231.7 million. To the extent that our international activities recorded in local currencies increase in the future, our exposure to fluctuations in currency exchange rates will correspondingly increase. To manage the exposures related to the effects of foreign exchange rate fluctuations, we utilize derivative instruments (foreign currency forward contracts). By their nature, all derivative instruments involve, to varying degrees, elements of market and credit risk. The market risk associated with these instruments resulting from currency exchange movements is expected to offset the market risk of the underlying transactions, assets and liabilities being hedged. We do not believe there is significant risk of loss in the event of non-performance by the counterparties associated with these instruments because these transactions are executed with a major financial institution. Further, our policy is to deal with counterparties having a minimum investment grade or better credit rating. Credit risk is managed through the continuous monitoring of exposures to such counterparties. Our primary objective in holding derivatives is to reduce the volatility of earnings associated with changes in foreign currency.
Foreign Currency Hedges
As of August 31, 2018,2019, we maintained the following foreign currency forward contracts to hedge our exposures:
| Philippine Peso – foreign currency forward contracts to hedge approximately 75% of our Philippine Peso exposure through the fourth quarter of fiscal 2020. |
| Indian Rupee – foreign currency forward contracts to hedge approximately |
| Euro – foreign currency forward contracts to hedge approximately |
| British Pound Sterling – foreign currency forward contracts to hedge approximately |
As of August 31, 2018,2019, the gross notional value of foreign currency forward contracts to purchase Philippine Pesos with U.S. dollars was PHP 2.8 billion, to purchaseand Indian Rupees with U.S. dollars was Rs. 3.6₱1.4 billion to purchase Euros with U.S. dollars was € 22.0 million and to purchase British Pound Sterling with U.S. dollars was £14.0 million.
There were no other outstandingRs.1.4 billion, respectively. The gross notional value of foreign currency forward contracts as of August 31, 2018. to purchase U.S. dollars with Euros and British Pound Sterling was €35.7 million and £20.5 million, respectively.
A gainloss on derivatives of $3.1$1.8 million was recorded into operating income during fiscal 2018,2019, compared to a lossgain of $2.9$3.1 million in fiscal 2017.The2018. The gains and losses on foreign currency forward contracts mitigate the variability in operating expenses associated with currency movements. These transactions are designated and accounted for as cash flow hedges in accordance with applicable accounting guidance. The changes in fair value for these foreign currency forward contracts are initially reported as a component of accumulated other comprehensive loss and subsequently reclassified into operating expenses when the hedged exposure affects earnings. The related cash flow impacts of all our derivative activities are reflected as cash flows from operating activities.
A sensitivity analysis was performed based on the estimated fair value of all foreign currency forward contracts outstanding at August 31, 2018.2019. If the U.S. dollar had been 10% weaker, the fair value of outstanding foreign currency forward contracts would have increased by $7.3$10.8 million, which would have had an immaterial impact on our Consolidated Balance Sheet.Sheets. Such a change in fair value of our financial instruments would be substantially offset by changes in our expense base. If we had no hedges in place as of August 31, 2018,2019, a hypothetical 10% weaker U.S. dollar against all foreign currencies from the quoted foreign currency exchange rates at August 31, 2018,2019, would result in a decrease in operating income by $28.8$28.0 million over the next 12 months. A hypothetical 10% weaker U.S. dollar against all foreign currencies at August 31, 20182019 would increase the fair value of total assets by $65.3$66.9 million and equity by $61.2$60.1 million.
Volatility in the British Pound Sterling exchange rate is expected to continue in the short term as the UK negotiates its exit from the European Union. In the longer term, any impact from Brexit will depend on, in part, on the outcome of tariff, regulatory, and other negotiations.
Interest Rate Risk
Cash and Cash Equivalents and Investments
The fair market value of our cash and cash equivalents and investments at August 31, 2018,2019, was $237.9$385.6 million. Our cash and cash equivalents consist of demand deposits and money market funds with original maturities of three months or less and are reported at fair value. Our investments consist of both mutual funds and certificates of depositsdeposit as both are part of our investment strategy. These mutual funds and certificates of depositsdeposit are included as Investments (short-term)(current assets) on our Consolidated Balance Sheetconsolidated balance sheets as the mutual funds can be liquidated at our discretion and the certificates of deposit have original maturities greater than three months, but less than one year. The mutual funds and certificates of deposit are held for investment purposes and are not considered debt securities. It is anticipated that the fair market value of our cash and cash equivalents and investments will continue to be immaterially affected by fluctuations in interest rates. Preservation of principal is the primary goal of our cash and investment policy. Pursuant to our established investment guidelines, we try to achieve high levels of credit quality, liquidity and diversification. Our investment guidelines do not permit us to invest in puts, calls, strips, short sales, straddles, options, commodities, precious metals, futures or investments on margin. BecauseAs we have a restrictive investment policy, our financial exposure to fluctuations in interest rates is expected to remain low. We do not believe that the value or liquidity of our cash and cash equivalents and investments have been significantly impacted by current market events.
Debt
As of August 31, 2018,2019, the fair value of our long-term debt was $575.0 million, which approximated its carrying amount and was determined based on quotedamount. The application of a floating interest rate equal to the daily LIBOR rate plus a spread using a debt leverage pricing grid, approximates the current market pricesrate for debt with a similar maturity.instruments. It is anticipated that the fair market value of our debt will continue to be immaterially affected by fluctuations in interest rates and werates. We do not believe that the value of our debt has been significantly impacted by current market events. The debt bears interest on the outstanding principal amount at a rate equal to the daily LIBOR rate plus a spread using a debt leverage pricing grid currently at 1.00%0.875%. During fiscal years 2019, 2018 2017 and 2016,2017, we recorded interest expense of $19.8 million, $15.9 million $8.4 million and $3.0$8.4 million, respectively, on our outstanding debt amounts. Assuming all terms of our outstanding long-term debt remained the same, a hypothetical 25 basis point change (up or down) in the one-month LIBOR rate would result in a $1.4 million change into our annual interest expense.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Consolidated Financial Statements: | Page | |
Management’s Statement of Responsibility for Financial Statements |
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Management’s Report on Internal Control over Financial Reporting |
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Reports of Independent Registered Public Accounting Firm |
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Consolidated Statements of Income for the years ended August 31, 2019, 2018 |
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Consolidated Statements of Comprehensive Income for the years ended August 31, 2019, 2018 |
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Consolidated Balance Sheets at August 31, |
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Consolidated Statements of Cash Flows for the years ended August 31, 2019, 2018 |
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Consolidated Statements of Changes in Stockholders’ Equity for the years ended August 31, 2019, 2018 |
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Notes to the Consolidated Financial Statements | 59 |
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Financial Statement Schedule: | ||
Schedule II – Valuation and Qualifying Accounts |
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Management’s Statement of Responsibility for Financial Statements
FactSet’s consolidated financial statements are prepared by management, which is responsible for their fairness, integrity and objectivity. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and include amounts based on management’s estimates and judgments. All financial information in this Report on Form 10-K has been presented on a basis consistent with the information included in the accompanying financial statements.
FactSet’s policies and practices reflect corporate governance initiatives that are compliant with the listing requirements of the New York Stock Exchange, the NASDAQ Stock Market and the corporate governance requirements of the Sarbanes-Oxley Act of 2002. Management, with oversight by the Company’s Board of Directors, has established and maintains a strong ethical climate so that its affairs are conducted to the highest standards of personal and corporate conduct.
FactSet maintains accounting systems, including internal accounting controls, designed to provide reasonable assurance of the reliability of financial records and the protection of assets. The concept of reasonable assurance is based on recognition that the cost of a system should not exceed the related benefits. The effectiveness of those systems depends primarily upon the careful selection of financial and other managers, clear delegation of authority and assignment of accountability, inculcation of high business ethics and conflict-of-interest standards, policies and procedures for coordinating the management of corporate resources, and the leadership and commitment of top management. In compliance with the Sarbanes-Oxley Act of 2002, FactSet assessed its internal control over financial reporting as of August 31, 20182019 and issued a report (see below).
The Audit Committee of the Board of Directors, which consists solely of independent non-employee directors, is responsible for overseeing the functioning of the accounting system and related controls and the preparation of annual financial statements. The Audit Committee periodically meets with management and the independent accountants to review and evaluate their accounting, auditing and financial reporting activities and responsibilities, including management’s assessment of internal control over financial reporting. The independent registered public accounting firm has full and free access to the Audit Committee and has met with the committee, with and without management present.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for FactSet. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management (with the participation of the principal executive officerChief Executive Officer and principal financial officer)Chief Financial Officer) conducted an evaluation of the effectiveness of FactSet’s internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that FactSet’s internal control over financial reporting was effective as of August 31, 2018.2019. 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. SHAN | |
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| |
F. Philip Snow | Helen L. Shan | |
Chief Executive Officer | Executive Vice President and Chief Financial Officer | |
October 30, | October 30, |
Report of Independent Registered Public Accounting Firm
TheTo 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, 2018,2019, 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, 2018,2019, 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 20182019 consolidated financial statements of the Company and our report dated October 30, 2018,2019, expressed an unqualified opinion thereon.
Basis for Opinion
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
Stamford, CT
October 30, 20182019
Report of Independent Registered Public Accounting Firm
TheTo 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, 20182019 and 2017,2018, 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, 2018,2019, 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, 20182019 and 2017,2018, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 2018,2019, 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, 2018,2019, 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, 20182019 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.
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 and 17 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, 2019, the Company recognized a consolidated provision for income taxes of $69.2 million with $55.8 million related to its U.S. operations and $13.4 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 17 of the consolidated financial statements in relation to these matters. |
/s/ ERNSTErnst & YOUNGYoung LLP
We have served as the Company’s auditor since 2013.
Stamford, CT
October 30, 20182019
FactSet Research Systems Inc.
Consolidated Statements of Income
| Years ended August 31, | Years ended August 31, | ||||||||||||||||||||||
(in thousands, except per share data) | 2018 | 2017 | 2016 | |||||||||||||||||||||
Revenues | $ | 1,350,145 | $ | 1,221,179 | $ | 1,127,092 | ||||||||||||||||||
(in thousands, except per share data) | 2019 | 2018 | 2017 | |||||||||||||||||||||
Revenue | $ | 1,435,351 | $ | 1,350,145 | $ | 1,221,179 | ||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||
Cost of services | 659,296 | 566,580 | 487,409 | 663,446 | 659,296 | 566,580 | ||||||||||||||||||
Selling, general and administrative | 324,645 | 302,464 | 290,007 | 333,870 | 324,645 | 302,464 | ||||||||||||||||||
Total operating expenses | 983,941 | 869,044 | 777,416 | 997,316 | 983,941 | 869,044 | ||||||||||||||||||
Operating income | 366,204 | 352,135 | 349,676 | 438,035 | 366,204 | 352,135 | ||||||||||||||||||
Other (expense) income | ||||||||||||||||||||||||
(Loss) gain on sale of business | — | (1,223 | ) | 112,453 | ||||||||||||||||||||
Interest (expense), net of interest income | (14,366 | ) | (6,600 | ) | (1,136 | ) | ||||||||||||||||||
Total other (expense) income | (14,366 | ) | (7,823 | ) | 111,317 | |||||||||||||||||||
Other expenses | ||||||||||||||||||||||||
(Loss) on sale of business | — | — | (1,223 | ) | ||||||||||||||||||||
Interest expense, net of interest income | (16,070 | ) | (14,366 | ) | (6,600 | ) | ||||||||||||||||||
Total other expense | (16,070 | ) | (14,366 | ) | (7,823 | ) | ||||||||||||||||||
Income before income taxes | 351,838 | 344,312 | 460,993 | 421,965 | 351,838 | 344,312 | ||||||||||||||||||
Provision for income taxes | 84,753 | 86,053 | 122,178 | 69,175 | 84,753 | 86,053 | ||||||||||||||||||
Net income | $ | 267,085 | $ | 258,259 | $ | 338,815 | $ | 352,790 | $ | 267,085 | $ | 258,259 | ||||||||||||
Basic earnings per common share | $ | 6.90 | $ | 6.55 | $ | 8.29 | $ | 9.25 | $ | 6.90 | $ | 6.55 | ||||||||||||
Diluted earnings per common share | $ | 6.78 | $ | 6.51 | $ | 8.19 | $ | 9.08 | $ | 6.78 | $ | 6.51 | ||||||||||||
Basic weighted average common shares | 38,733 | 39,444 | 40,880 | 38,144 | 38,733 | 39,444 | ||||||||||||||||||
Diluted weighted average common shares | 39,377 | 39,642 | 41,365 | 38,873 | 39,377 | 39,642 |
The accompanying notes are an integral part of these consolidated financial statements.
FactSet Research Systems Inc.
Consolidated Statements of Comprehensive Income
| Years ended August 31, | Years ended August 31, | ||||||||||||||||||||||
(in thousands) | 2018 | 2017 | 2016 | |||||||||||||||||||||
(in thousands) | 2019 | 2018 | 2017 | |||||||||||||||||||||
Net income | $ | 267,085 | $ | 258,259 | $ | 338,815 | $ | 352,790 | $ | 267,085 | $ | 258,259 | ||||||||||||
Other comprehensive income (loss), net of tax | ||||||||||||||||||||||||
Net unrealized (loss) gain on cash flow hedges* | (7,288 | ) | 5,017 | (857 | ) | |||||||||||||||||||
Other comprehensive (loss) income, net of tax | ||||||||||||||||||||||||
Net unrealized gain (loss) on cash flow hedges(1) | 504 | (7,288 | ) | 5,017 | ||||||||||||||||||||
Foreign currency translation adjustments | (9,431 | ) | 28,816 | (23,644 | ) | (24,325 | ) | (9,431 | ) | 28,816 | ||||||||||||||
Other comprehensive (loss) income | (16,719 | ) | 33,833 | (24,501 | ) | (23,821 | ) | (16,719 | ) | 33,833 | ||||||||||||||
Comprehensive income | $ | 250,366 | $ | 292,092 | $ | 314,314 | $ | 328,969 | $ | 250,366 | $ | 292,092 |
(1) |
|
The accompanying notes are an integral part of these consolidated financial statements.
FactSet Research Systems Inc.
Consolidated Balance Sheets
August 31, | August 31, | |||||||||||||||
(in thousands, except share data) | 2018 | 2017 | ||||||||||||||
(in thousands, except share data) | 2019 | 2018 | ||||||||||||||
ASSETS | ||||||||||||||||
Cash and cash equivalents | $ | 208,623 | $ | 194,731 | $ | 359,799 | $ | 208,623 | ||||||||
Investments | 29,259 | 32,444 | 25,813 | 29,259 | ||||||||||||
Accounts receivable, net of reserves of $3,490 and $2,738 at August 31, 2018 and 2017, respectively | 156,639 | 148,331 | ||||||||||||||
Accounts receivable, net of reserves of $10,511 at August 31, 2019 and $3,490 at August 31, 2018 | 146,309 | 156,639 | ||||||||||||||
Prepaid taxes | 6,274 | 7,076 | 15,033 | 6,274 | ||||||||||||
Deferred taxes | — | 2,668 | ||||||||||||||
Prepaid expenses and other current assets | 30,121 | 24,127 | 36,858 | 30,121 | ||||||||||||
Total current assets | 430,916 | 409,376 | 583,812 | 430,916 | ||||||||||||
Property, equipment and leasehold improvements, net | 100,545 | 100,454 | 132,524 | 100,545 | ||||||||||||
Goodwill | 701,833 | 707,560 | 685,729 | 701,833 | ||||||||||||
Intangible assets, net | 148,935 | 173,543 | 120,551 | 148,935 | ||||||||||||
Deferred taxes | 9,716 | 7,412 | 7,571 | 9,716 | ||||||||||||
Other assets | 27,502 | 14,970 | 29,943 | 27,502 | ||||||||||||
TOTAL ASSETS | $ | 1,419,447 | $ | 1,413,315 | $ | 1,560,130 | $ | 1,419,447 | ||||||||
LIABILITIES | ||||||||||||||||
Accounts payable and accrued expenses | $ | 72,059 | $ | 59,214 | $ | 79,620 | $ | 72,059 | ||||||||
Accrued compensation | 66,479 | 61,083 | 64,202 | 66,479 | ||||||||||||
Deferred fees | 49,700 | 47,495 | 47,656 | 49,700 | ||||||||||||
Deferred taxes | — | 2,382 | ||||||||||||||
Taxes payable | 8,453 | 9,112 | — | 8,453 | ||||||||||||
Dividends payable | 24,443 | 21,853 | 27,445 | 24,443 | ||||||||||||
Total current liabilities | 221,134 | 201,139 | 218,923 | 221,134 | ||||||||||||
Long-term debt | 574,775 | 575,000 | 574,174 | 574,775 | ||||||||||||
Deferred taxes | 21,190 | 24,892 | 16,391 | 21,190 | ||||||||||||
Deferred fees | 7,833 | 3,921 | 10,088 | 7,833 | ||||||||||||
Taxes payable | 29,626 | 11,484 | 26,292 | 29,626 | ||||||||||||
Deferred rent and other non-current liabilities | 38,989 | 37,188 | 42,006 | 38,989 | ||||||||||||
TOTAL LIABILITIES | $ | 893,547 | $ | 853,624 | $ | 887,874 | $ | 893,547 | ||||||||
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 | ||||||||||||||
Common stock, $.01 par value, 150,000,000 shares authorized, 40,104,192 and 39,264,849 shares issued, 38,117,840 and 38,192,586 shares outstanding at August 31, 2019 and 2018, respectively | 401 | 393 | ||||||||||||||
Additional paid-in capital | 667,531 | 741,748 | 806,973 | 667,531 | ||||||||||||
Treasury stock, at cost: 1,072,263 and 12,822,100 shares at August 31, 2018 and 2017, respectively | (213,428 | ) | (1,606,678 | ) | ||||||||||||
Treasury stock, at cost: 1,986,352 and 1,072,263 shares at August 31, 2019 and 2018, respectively | (433,799 | ) | (213,428 | ) | ||||||||||||
Retained earnings | 122,843 | 1,458,823 | 373,225 | 122,843 | ||||||||||||
Accumulated other comprehensive loss | (51,439 | ) | (34,720 | ) | (74,544 | ) | (51,439 | ) | ||||||||
TOTAL STOCKHOLDERS’ EQUITY | $ | 525,900 | $ | 559,691 | $ | 672,256 | $ | 525,900 | ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,419,447 | $ | 1,413,315 | $ | 1,560,130 | $ | 1,419,447 |
The accompanying notes are an integral part of these consolidated financial statements.
FactSet Research Systems Inc.
Consolidated Statements of Cash Flows
Years ended August 31, | Years ended August 31, | |||||||||||||||||||||||
(in thousands) | 2018 | 2017 | 2016 | |||||||||||||||||||||
(in thousands) | 2019 | 2018 | 2017 | |||||||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||||||||||
Net income | $ | 267,085 | $ | 258,259 | $ | 338,815 | $ | 352,790 | $ | 267,085 | $ | 258,259 | ||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||||||||||||||||||
Depreciation and amortization | 57,285 | 48,294 | 38,052 | 60,463 | 57,285 | 48,294 | ||||||||||||||||||
Stock-based compensation expense | 31,516 | 34,183 | 29,793 | 32,400 | 31,516 | 34,183 | ||||||||||||||||||
Loss (gain) on sale of business | — | 1,223 | (112,453 | ) | ||||||||||||||||||||
Deferred income taxes | (1,910 | ) | 4,879 | 4,528 | (2,278 | ) | (1,910 | ) | 4,879 | |||||||||||||||
Loss (gain) on sale of assets | 140 | 59 | 8 | |||||||||||||||||||||
Loss on sale of assets | 196 | 140 | 1,282 | |||||||||||||||||||||
Tax benefits from share-based payment arrangements | — | (10,331 | ) | (18,205 | ) | — | — | (10,331 | ) | |||||||||||||||
Changes in assets and liabilities, net of effects of acquisitions | ||||||||||||||||||||||||
Accounts receivable, net of reserves | (8,417 | ) | (29,503 | ) | (3,541 | ) | 10,205 | (8,417 | ) | (29,503 | ) | |||||||||||||
Accounts payable and accrued expenses | 12,077 | (2,226 | ) | 5,525 | (2,290 | ) | 12,077 | (2,226 | ) | |||||||||||||||
Accrued compensation | 5,735 | 6,427 | 3,961 | (1,743 | ) | 5,735 | 6,427 | |||||||||||||||||
Deferred fees | 6,035 | (229 | ) | 700 | 458 | 6,035 | (229 | ) | ||||||||||||||||
Taxes payable, net of prepaid taxes | 27,659 | 7,877 | 30,270 | (19,238 | ) | 27,659 | 7,877 | |||||||||||||||||
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 | |||||||||||||||||||||
Other, net | (3,827 | ) | (11,537 | ) | 1,613 | |||||||||||||||||||
Net cash provided by operating activities | 385,668 | 320,527 | 331,140 | 427,136 | 385,668 | 320,527 | ||||||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||||||
Acquisition of businesses and investments, net of cash and cash equivalents acquired | (15,000 | ) | (303,086 | ) | (262,909 | ) | — | (15,000 | ) | (303,086 | ) | |||||||||||||
Proceeds from sale of business, net | — | — | 153,137 | |||||||||||||||||||||
Purchases of investments | (12,470 | ) | (30,757 | ) | (18,137 | ) | (11,135 | ) | (12,470 | ) | (30,757 | ) | ||||||||||||
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 | ) | ||||||||||||||||||
Proceeds from maturity or sale of investments | 14,405 | 12,459 | 23,399 | |||||||||||||||||||||
Purchases of property, equipment and leasehold improvements | (59,370 | ) | (33,520 | ) | (36,862 | ) | ||||||||||||||||||
Net cash used in investing activities | (48,531 | ) | (347,306 | ) | (158,408 | ) | (56,100 | ) | (48,531 | ) | (347,306 | ) | ||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||||||||||||
Dividend payments | (89,408 | ) | (80,898 | ) | (74,218 | ) | (100,052 | ) | (89,408 | ) | (80,898 | ) | ||||||||||||
Repurchase of common stock | (303,955 | ) | (260,978 | ) | (356,828 | ) | (220,372 | ) | (303,955 | ) | (260,978 | ) | ||||||||||||
Repayment of debt | (575,000 | ) | — | (365,000 | ) | |||||||||||||||||||
Proceeds from debt | — | 640,000 | 265,000 | 575,000 | — | 640,000 | ||||||||||||||||||
Repayment of debt | — | (365,000 | ) | — | ||||||||||||||||||||
Debt issuance costs | — | (438 | ) | (12 | ) | |||||||||||||||||||
Proceeds from employee stock plans | 71,610 | 50,045 | 56,851 | 107,051 | 71,610 | 50,045 | ||||||||||||||||||
Tax benefits from share-based payment arrangements | — | 10,331 | 18,205 | — | — | 10,331 | ||||||||||||||||||
Other financing activities | 1,716 | (1,223 | ) | — | ||||||||||||||||||||
Other financing activities, net | (901 | ) | 1,716 | (1,661 | ) | |||||||||||||||||||
Net cash used in financing activities | (320,037 | ) | (8,161 | ) | (91,002 | ) | (214,274 | ) | (320,037 | ) | (8,161 | ) | ||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (3,208 | ) | 1,264 | (12,237 | ) | (5,586 | ) | (3,208 | ) | 1,264 | ||||||||||||||
Net increase (decrease) in cash and cash equivalents | 13,892 | (33,676 | ) | 69,493 | 151,176 | 13,892 | (33,676 | ) | ||||||||||||||||
Cash and cash equivalents at beginning of period | 194,731 | 228,407 | 158,914 | 208,623 | 194,731 | 228,407 | ||||||||||||||||||
Cash and cash equivalents at end of period | $ | 208,623 | $ | 194,731 | $ | 228,407 | $ | 359,799 | $ | 208,623 | $ | 194,731 | ||||||||||||
Supplemental Disclosure of Cash Flow Information | ||||||||||||||||||||||||
Cash paid during the year for interest | $ | 15,676 | $ | 8,466 | $ | 3,010 | $ | 19,509 | $ | 15,676 | $ | 8,466 | ||||||||||||
Cash paid during the year for income taxes, net of refunds | $ | 68,707 | $ | 74,788 | $ | 87,513 | $ | 89,997 | $ | 68,707 | $ | 74,788 | ||||||||||||
Supplemental Disclosure of Non-Cash Transactions | ||||||||||||||||||||||||
Dividends declared, not paid | $ | 24,443 | $ | 21,853 | $ | 20,019 | $ | 27,445 | $ | 24,443 | $ | 21,853 |
TheThe 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 |
| Common Stock | Additional | Treasury Stock |
| Accumulated Other | Total | ||||||||||||||||||||||||||
(in thousands, except share data) | Shares | Par Value | Paid-in Capital | Shares | Amount | Retained Earnings | Comprehensive Loss | Stockholders’ Equity | ||||||||||||||||||||||||
Balance as of September 1, 2016 | 51,150,978 | $ | 512 | $ | 623,195 | 11,112,753 | $ | (1,321,700 | ) | $ | 1,283,927 | $ | (68,553 | ) | $ | 517,381 | ||||||||||||||||
Net income | 258,259 | 258,259 | ||||||||||||||||||||||||||||||
Other comprehensive income | 33,833 | 33,833 | ||||||||||||||||||||||||||||||
Common stock issued for employee stock plans | 561,960 | 6 | 50,039 | 50,045 | ||||||||||||||||||||||||||||
Vesting of restricted stock | 132,194 | 49,771 | (7,847 | ) | (7,847 | ) | ||||||||||||||||||||||||||
Repurchases of common stock | 1,556,660 | (253,131 | ) | (253,131 | ) | |||||||||||||||||||||||||||
Stock-based compensation expense | 34,183 | 34,183 | ||||||||||||||||||||||||||||||
Tax benefits from share-based payment arrangements | 10,331 | 10,331 | ||||||||||||||||||||||||||||||
Accelerated share repurchase | 24,000 | 102,916 | (24,000 | ) | — | |||||||||||||||||||||||||||
Dividends declared | (83,363 | ) | (83,363 | ) | ||||||||||||||||||||||||||||
Balance as of August 31, 2017 | 51,845,132 | $ | 518 | $ | 741,748 | 12,822,100 | $ | (1,606,678 | ) | $ | 1,458,823 | $ | (34,720 | ) | $ | 559,691 | ||||||||||||||||
Net income | 267,085 | 267,085 | ||||||||||||||||||||||||||||||
Other comprehensive loss | (16,719 | ) | (16,719 | ) | ||||||||||||||||||||||||||||
Common stock issued for employee stock plans | 685,807 | 8 | 80,983 | 80,991 | ||||||||||||||||||||||||||||
Vesting of restricted stock | 26,599 | 8,070 | (1,514 | ) | (1,514 | ) | ||||||||||||||||||||||||||
Repurchases of common stock | 1,534,782 | (302,441 | ) | (302,441 | ) | |||||||||||||||||||||||||||
Stock-based compensation expense | 31,517 | 31,517 | ||||||||||||||||||||||||||||||
Dividends declared | (92,710 | ) | (92,710 | ) | ||||||||||||||||||||||||||||
Retirement of treasury shares | (13,292,689 | ) | (133 | ) | (186,717 | ) | (13,292,689 | ) | 1,697,205 | (1,510,355 | ) | — | ||||||||||||||||||||
Balance as of August 31, 2018 | 39,264,849 | $ | 393 | $ | 667,531 | 1,072,263 | $ | (213,428 | ) | $ | 122,843 | $ | (51,439 | ) | $ | 525,900 | ||||||||||||||||
Net income | 352,790 | 352,790 | ||||||||||||||||||||||||||||||
Other comprehensive loss | (23,821 | ) | (23,821 | ) | ||||||||||||||||||||||||||||
Common stock issued for employee stock plans | 753,942 | 7 | 107,043 | 107,050 | ||||||||||||||||||||||||||||
Vesting of restricted stock | 85,401 | 1 | (1 | ) | 31,644 | (7,241 | ) | (7,241 | ) | |||||||||||||||||||||||
Repurchases of common stock | 882,445 | (213,130 | ) | (213,130 | ) | |||||||||||||||||||||||||||
Stock-based compensation expense | 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 |
*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 TCJA providing for the reclassification from accumulated other comprehensive loss to retained earnings for stranded tax effects. See Notes 3 and 4 for additional information.
The accompanying notes are an integral part of these consolidated financial statements.
Notes to the Consolidated Financial Statements
1. ORGANIZATION AND NATURE OF BUSINESS
FactSet Research Systems Inc. (the “Company” or “FactSet”) is a global provider of integrated financial information, analytical applications and industry-leading serviceservices for the investment and corporate communities. For over 40 years, global financial professionals have utilized the Company’s content and multi-asset class solutions across each stage of the investment community.process. FactSet’s goal is to provide a seamless user experience spanning idea generation, research, portfolio construction, trade execution, performance measurement, risk management, reporting, and portfolio analysis, in which we serve the front, middle, and back offices to drive productivity and improved performance. FactSet’s flexible, open data and technology solutions can be implemented both across the investment portfolio lifecycle or as standalone components serving different workflows in the organization. FactSet is focused on growing the business throughout each of its 3 segments, the U.S., Europe, and Asia Pacific. The Company primarily delivers insight and information to investmentthrough the workflow solutions of Research, Analytics and Trading, Content and Technology Solutions and Wealth.
FactSet currently serves financial professionals, through its analytics, service, content, and technology. These professionalswhich include portfolio managers, investment research professionals, investment bankers, risk and performance analysts, wealth advisors, and wealth advisors. From streaming real-timecorporate clients. FactSet provides both insights on global market trends and intelligence on companies and industries, as well as capabilities to monitor portfolio risk and performance and to execute trades. The Company combines dedicated client service with open and flexible technology offerings, such as a comprehensive data to historical information, including quotes, estimates, news and commentary, FactSet offers proprietary and third-party content through desktop, web,marketplace, a configurable mobile and off-platform solutions. The Company’s broaddesktop platform, digital portals and 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,programming interface (“APIs”). FactSet has continued to expand its solutions across the investment lifecycle from idea generation to performance and client reporting. The Company’s revenues arerevenue is primarily derived from subscriptions to products and services such as workstations, analytics, enterprise data, research management, and trade execution.
2. BASIS OF PRESENTATION
FactSet conducts business globally and is managed on a geographic basis. The accompanying consolidated financial statements include the accountsand notes of the CompanyFactSet and its wholly owned subsidiaries. All intercompany activity and balances have been eliminated from the consolidated financial statements.
The Company’s consolidated financial statementswholly-owned subsidiaries are prepared in accordance with U.S. generally accepted accounting principles in the United States (“GAAP”). The preparation of 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 have been made in areas that include allocation of purchase price to acquired assets and liabilities, stock-based compensation, income taxes, accrued compensation, valuation of goodwill, and useful lives and valuation of fixed and intangible assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates.
The Company has evaluated subsequent events through the date that the financial statements were issued.
Reclassification
Certain comparative figures in the Company's Consolidated Statement of Cash Flows have been reclassified to conform to the current year's presentation.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Company and its subsidiaries are summarized below.
Revenue Recognition
The majority of the Company’s revenues arerevenue is derived from subscriptionsclient access to its hosted proprietary data and analytics platform, which can include various combinations of products and services such asavailable over the contractual term. The hosted platform is a subscription-based service that consists primarily of providing access to products and services including workstations, (also referredanalytics, enterprise data, research management, and trade execution. The Company determined that the subscription-based service represents a single performance obligation covering a series of distinct products and services that are substantially the same and that have the same pattern of transfer to as users), contentthe client. Based on the nature of the services and applications. The majorityproducts offered by FactSet, the Company applies an input time-based measure of clients are invoiced monthly to reflect the actual services provided. The remaining clients are invoiced quarterly, annually or biannually in advance. Subscription revenue is earned each monthprogress as the serviceclient is rendered to clients on a monthly basis. FactSet recognizes revenue whensimultaneously receiving and consuming the client subscribes to FactSet services, the service has been rendered and earned during the month, the amountbenefits of the subscriptionplatform. The Company records revenue for its contracts using the over-time revenue recognition model as a client is fixedinvoiced or determinable based on established rates quoted on an annualized basis and collectabilityperformance is reasonably assured.satisfied. A provision for billing adjustments and cancellation of services is estimated and accounted for as a reduction to revenue, with a corresponding reduction to accounts receivable.
Accounts Receivable and Deferred Fees
Amounts that have been earned but not yet paid are reflected on the Consolidated Balance Sheets as Accounts receivable, net of reserves. Amounts invoiced in advance of client payments that are in excess of earned subscription revenue are reflected on the Consolidated Balance SheetSheets as Deferred fees. As of August 31,2019, the amount of accounts receivable that was unbilled totaled $15.8 million, which will be billed in fiscal 2020. As of August 31,2018, the amount of accounts receivable that was unbilled totaled $6.4 million, which was subsequently billed in fiscal 2019.
The Company calculates its receivable reserve through analyzing aged client receivables, reviewing the recent history of client receivable write-offs and understanding general market and economic conditions. In accordance with this policy, a receivable reserve of $3.5$10.5 million and $2.7$3.5 million was recorded as of August 31, 20182019 and 2017,2018, respectively, within the Consolidated Balance Sheets as a reduction to Accounts receivable.
Cost of Services
Cost of services is comprised of compensation for Company employees within the content collection, consulting, product development, software and systems engineering groups in addition to data costs, computer maintenance and depreciation expenses, amortization of identifiable intangible assets, and client-related communication costs.
Selling, General and Administrative
Selling, general and administrative expenses include compensation for the sales and various other support and administrative departments in addition to travel and entertainment expenses, marketing costs, rent, amortization of leasehold improvements, depreciation of furniture and fixtures, 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 developmentof $214.7 million, $217.1 million and $215.0 million during fiscal years 20172019,2018 and 20162017, 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 optioneeoption holder and future stock-based compensation expense that the Company has not yet recognized are assumed to be used to repurchase shares.
Comprehensive Income (Loss)
The Company discloses comprehensive income (loss) in accordance with applicable standards for the reporting and display of comprehensive income (loss) in a set of financial statements. Comprehensive income (loss) is defined as the change in net assets of a business enterprise during a period from transactions generated from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.
Fair Value MeasuresMeasurements
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability (i.e., the “exit price”) 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, 20182019 or 2017.2018. Refer to Note 5 Fair Value Measures for the definition of the fair value hierarchy.
Cash and Cash Equivalents
Cash and cash equivalents consist of demand deposits and money market funds with original maturities of three months or less and are reported at fair value. The Company’s corporate money market funds are readily convertible into cash and the net asset value of each fund on the last day of the quarter is used to determine its fair value.
Investments
Investments 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 2019,2018 2017 and 2016 were2017 was $1.5 million, $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 20182019 and 2017.2018.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Computers and related equipment are depreciated on a straight-line basis over estimated useful lives of three years. Furniture and fixtures are depreciated on a straight-line basis over their estimated useful lives of seven years. Leasehold improvements are amortized on a straight-line basis over the terms of the related leases or estimated useful lives of the improvements, whichever period is shorter. Repairs and maintenance expenditures, which are not considered leasehold improvements and do not extend the useful life of the property and equipment, are expensed as incurred.
The Company performs a test for impairment whenever events or changes in circumstances indicate that the carrying amount of an individual asset or asset group may not be recoverable. Should projected undiscounted future cash flows be less than the carrying amount of the asset or asset group, an impairment charge reducing the carrying amount to fair value is required. Fair value is determined based on the most appropriate valuation technique, including discounted cash flows.
Goodwill
The Company is required to test goodwillGoodwill at the reporting unit level is reviewed for potential impairment annually, orand more frequently if impairment indicators occur.exist. Goodwill is tested for impairment based ondeemed to be impaired and written-down in the presentperiod in which the carrying value of discounted cash flows, and, if impaired, written down tothe reporting unit exceeds its fair value based on discounted cash flows.value. FactSet has three3 reporting units, U.S, Europe and Asia Pacific, which are consistent with the operating segments reported, as there is no discrete financial information is notavailable for the subsidiaries within eachthe operating segment. Thesegments.
FactSet may elect to perform a qualitative analysis for the reporting units evaluatedto determine whether it is more likely than not the fair value of the reporting unit is greater than its carrying value. In performing a qualitative assessment, FactSet considers such factors as macro-economic conditions, industry and market conditions in which FactSet operates including the competitive environment and significant changes in demand for the Company’s services. The Company also considers its share price both in absolute terms and in relation to peer companies. If the qualitative analysis indicates that it is more likely than not the fair value of a reporting unit is less than its carrying amount or if FactSet elects not to perform a qualitative analysis, a quantitative analysis is performed to determine whether a goodwill impairment exists.
The quantitative goodwill impairment analysis is used to identify potential impairment wereby comparing fair value of a reporting unit with its carrying amount using an income approach, along with other relevant market information, derived from a discounted cash flow model to estimate fair value of FactSet’s reporting units. The annual review of carrying value of goodwill, requires the U.S., EuropeCompany develop estimates of future business performance. These estimates are used to derive expected cash flows and Asia Pacific, which reflectinclude assumptions regarding future sales levels and the level of internalworking capital needed to support a given business. The discounted cash flow model also includes a determination of FactSet’s weighted average cost of capital by reporting unit. Cost of capital is based on assumptions about interest rates, as well as a risk-adjusted rate of return required by FactSet’s equity investors. Changes in these estimates can impact present value of expected cash flows used in determining fair value of a reporting unit. An impairment charge for the Company usesamount by which the carrying amount exceeds the reporting unit’s fair value, if any, would be recognized. The loss recognized would not exceed total amount of goodwill allocated to manage its business and operations. that reporting unit.
The Company performed its annual goodwill impairment test during the fourth quarter of fiscal 2018, consistent with the timing of previous years,2019 utilizing a qualitative analysis and concluded that thereit was no impairment, withmore likely than not the fair value of each of the Company’s reporting units significantly exceedingunit was greater than its respective carrying value.value and 0 impairment charge was required.
Intangible Assets
FactSet’s identifiable intangible assets consist of acquired content databases, client relationships, software technology, non-compete agreements and trade names resulting from previous acquisitions, which have been fully integrated into the Company’s operations. The Company amortizes intangible assets over their estimated useful lives, which are evaluated quarterly to determine whether events and circumstances warrant a revision to the remaining period of amortization. If the estimate of the remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over that revised remaining useful life. Amortizable Intangible assets are tested for impairment, if indicators of impairment are present, based on undiscounted cash flows, and, if impaired, written down to fair value based on discounted cash flows. NoNaN impairment of intangible assets has been identified during any of the fiscal years presented. The intangible assets have no assigned residual values.
Accrued Liabilities
Accrued liabilities include estimates relating to employee compensation, operating expenses and tax liabilities. Annual cash-based awards that are variable and discretionary in nature represent approximately 10% of our Company’s employee incentive compensation program. At the end of each fiscal year, FactSet conducts a final review of both Company and individual performance within each department to determine the amount of discretionary employee compensation. The Company also reviews compensation throughout the year to determine how overall performance tracks against management’s expectations. Management takes these and other factors, including historical performance, into account in reviewing accrued compensation estimates quarterly and adjusting accrual rates as appropriate. The amount of the variable employee compensation recorded within accrued compensation as of August 31, 20182019 and 2017,2018, was $49.4 million and $43.6 million, and $39.2 million, respectively. During fiscal 2018 the Company incurred $17.4 million of restructuring charges primarily related to employee compensation and severance of which $5.6 million was recorded as Accrued compensation as of August 31, 2018 which will be paid during fiscal 2019.
Derivative Instruments
FactSet conducts business outside the U.S. in several currencies including the Euro, Indian Rupee, Philippine Peso, British Pound Sterling, Euro, Indian Rupee,and Japanese Yen and Philippine Peso.Yen. As such, the Company is exposed to movements in foreign currency exchange rates compared to the U.S. dollar. The Company utilizes derivative instruments (foreign currency forward contracts) to manage the exposures related to the effects of foreign exchange rate fluctuations and reduce the volatility of earnings and cash flows associated with changes in foreign currency. The Company does not enter into foreign exchange forward contracts for trading or speculative purposes. In designing a specific hedging approach, FactSet considers several factors, including offsetting exposures, significance of exposures, forecasting risk and potential effectiveness of the hedge. These transactions are designated and accounted for as cash flow hedges in accordance with applicable accounting guidance. The changes in fair value for these foreign currency forward contracts are initially reported as a component of accumulated other comprehensive loss (“AOCL”) and subsequently reclassified into operating expenses when the hedged exposure affects earnings. The gains and losses on foreign currency forward contracts mitigate the variability in operating expenses associated with currency movements. 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 Euro, Indian Rupee, Philippine Peso, British Pound Sterling, Euro, Indian Rupee,and Japanese Yen and Philippine Peso.Yen. The financial statements of these foreign subsidiaries are translated into U.S. dollars using period-end rates of exchange for assets and liabilities, and average rates for the period for revenues and expenses. Translation gains and losses that arise from translating assets, liabilities, revenuesrevenue and expenses of foreign operations are recorded in AOCL as a component of stockholders’ equity. The accumulated foreign currency translation loss totaled $72.3 million and $48.0 million at August 31,2019and $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, 2018,2019, the Company had gross unrecognized tax benefits totaling $9.2$10.9 million, including $1.1 million of accrued interest, recorded as Taxes payable (non-current) on the Consolidated Balance Sheet.Sheets.
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. WindfallFor fiscal 2019 and 2018, windfall tax benefits, defined as tax deductions that exceed recorded stock-based compensation, are classified as cash inflows from operations and in fiscal 2017 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 for repurchased common stock under the cost method and includes such treasury stock as a component of its stockholders’ equity. The Company accounts for the formal retirement of treasury stock by deducting its par value from common stock, reducing additional paid-in capital (“APIC”) 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 acquisitionsaccounts for its business combinations using the purchase method of accounting. All ofThe acquisition purchase price is allocated to the underlying identified, tangible and intangible assets acquired,and liabilities assumed, contractual contingencies and contingent consideration are recognized atbased on their respective estimated fair valuevalues on the acquisition date. The applicationexcess of the purchase methodconsideration over the fair values of accounting for business combinations requires managementthe identified assets and liabilities is recorded as goodwill and assigned to make significant estimatesone or more reporting units. The amounts and assumptions inuseful lives assigned to acquisition-related tangible and intangible assets impact the determinationamount and timing of future amortization expense. Determining the fair value of assets acquired and liabilities assumed in orderand the expected useful life, requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to properly allocate purchase price consideration between assets that are depreciatedfuture cash inflows and amortized from goodwill. The excess of the fair value of purchase consideration over the fair values of these identifiable assetsoutflows, discount rates, asset lives and liabilities is recorded as goodwill.market multiples, among other items. Acquisition-related expenses and restructuring costs are recognized separately from the business combination and are expensed as incurred.
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 2018,2019, 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 revenuesrevenue 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”method"), or ii) retrospectively with the cumulative effect recognized in retained earnings as of the date of adoption (“("modified retrospective method”method"). FactSet will adoptadopted the new standard using the modified retrospective method atas of 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 anticipatesderives most of its revenue by providing client access to its hosted proprietary data and analytics platform, which can include various combinations of products and services available over the new standard will impactcontractual term. The Company determined that the Company's accounting forsubscription-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. FactSet recorded an opening cumulative increase to retained earnings of $2.5 million, or $2.0 million net of tax, during the first quarter of fiscal 2019, related to 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 beare 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 standards did not materially change the Company’s accounting policy for revenue recognition standard to result inand did not have a material change to itsimpact on the Company’s consolidated financial statements. Refer to Note 4 Revenue Recognition for further details.
Recognition and Measurement of Financial Assets and Financial Liabilities
In January 2016,During the FASB issued anfirst quarter of fiscal 2019, FactSet adopted the accounting standard update to amend its current guidance onissued by the classificationFASB in January 2016, which amended the recognition, measurement, presentation, and measurementdisclosure of certain financial instruments. The accounting standard update significantly revises an entity’s accounting related toUnder the presentation of certain fair value changes for financial liabilitiesamended guidance, investments in equity securities, excluding equity method investments, will be measured at fair value.value with changes in fair value to be recognized in net income. This guidance also amends certain disclosure requirements associated withwas applied on a modified retrospective approach through a cumulative effect adjustment to retained earnings as permitted by the fair value of financial instruments. This guidance will be effective for FactSet beginning instandard and did not have a material impact on the first quarter of fiscal 2019. The Company is currently evaluating the impact of this accounting standard update on itsCompany’s consolidated financial statements.
LeasesCash Flow Simplification
During the first quarter of fiscal 2019, FactSet adopted the accounting standard update issued by the FASB in August 2016, which simplified how certain transactions are classified in the statement of cash flows. This included 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. The adoption of this standard had no impact on the Company’s consolidated financial statements.
Income Taxes on Intra-Entity Transfers of Assets
During the first quarter of fiscal 2019, FactSet adopted the accounting standard update issued by the FASB in October 2016, which removed 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 was issued in order to reduce diversity in practice related to the tax consequences of certain types of intra-entity asset transfers, particularly those involving intellectual property. The adoption of this standard had no impact on the Company’s consolidated financial statements.
Share-Based Payments
During the first quarter of fiscal 2019, FactSet adopted the accounting standard update issued by the FASB in May 2017, which amended the scope of modification accounting for share-based payment arrangements. The guidance focused 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. The adoption of this standard had no impact on the Company’s consolidated financial statements.
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
During the first quarter of fiscal 2019, FactSet adopted the accounting standard update issued by the FASB in February 2018, which allowed 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. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
Implementation Costs in a Cloud Computing Arrangement
During the first quarter of fiscal 2019, FactSet adopted the accounting standard update issued by the FASB in August 2018, which 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 amortized over the term of the arrangement. This accounting standard update will be effective for the Company beginning in the first quarter of fiscal 2021, however the Company elected to early adopt this standard on a prospective basis during the first quarter of fiscal 2019. There was no impact to the Company’s consolidated financial statements as a result of the adoption of this standard, as FactSet is currently accounting for costs incurred in a cloud computing arrangement in accordance with the guidance provided in this standard.
Recent Accounting Standards or Updates Not Yet Effective
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. ThisFactSet will adopt the new accounting standard updateeffective September 1, 2019, using a modified retrospective approach to record the required cumulative effect adjustments to the opening balance sheet in the period of adoption, rather than in the earliest comparative period presented. As such, the Company's historical consolidated financial statements will not be restated.
FactSet will elect the package of practical expedients permitted under the transition guidance, which permits the Company not to reassess under the new standard the prior conclusions about lease identification, lease classification, and initial direct costs. FactSet will not elect the use-of-hindsight practical expedient in determining the lease term and in assessing impairment. FactSet will also elect the practical expedient to not separate lease components from non-lease components but, rather, to combine them into one single lease component. The Company has also elected to apply the short-term lease exception to not recognize lease liabilities and right-of-use assets for leases with a term of 12 months or less. FactSet will recognize these lease payments on a straight-line basis over the lease term.
The Company does not expect the adoption of the new lease accounting standard to have a material impact on its Consolidated Statements of Income, Consolidated Statements of Comprehensive Income and Consolidated Statements of Cash flows. The Company does expect the adoption to have a material impact to its Consolidated Balance Sheet due to the recognition of the required right of use asset and liability, which will primarily relate to the Company's real estate operating leases. Refer to Note 19 Commitments and Contingencies for information regarding the Company's undiscounted future lease commitments.
Credit Losses on Financial Instruments
In June 2016, the FASB issued an accounting standard that significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. This guidance will be effective for FactSetthe Company beginning in the first quarter of fiscal 2020, with early adoption in fiscal 2019 permitted.2021. The Company is currently 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 is not expect the adoption expected 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 FactSetthe Company 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.consolidated financial statements.
Hedge Accounting Simplification
In August 2017, the FASB issued an accounting standard update to reduce the complexity of and simplify the application of hedginghedge 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 FactSetthe Company beginning in the first quarter of fiscal 2020, with early adoption permitted.2020. The Company is currently evaluating the impact of this accounting standard update but it is not expected to have a material impact on the consolidated financial statements.
Share-Based Payments
In May 2017, the FASB issued an accounting standard update, which amends the scope of modification accounting for share-based payment arrangements. The guidance focuses on changes to the terms or conditions of share-based payment awards that would require the application of modification accounting and specifies that an entity would not apply modification accounting if the fair value, vesting conditions and classification of the awards are the same immediately before and after the modification. This accounting standard update will be effective for FactSet beginning in the first quarter of fiscal 2019, with early adoption permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
In February 2018, the FASB issued an accounting standard update, which allows companies to reclassify certain stranded income tax effects resulting from the enactment of the Tax Cuts and Jobs Act (the "TCJA") from accumulated other comprehensive income to retained earnings. This accounting standard update will be effective for FactSet beginning in the first quarter of fiscal 2019, with early adoption permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
Implementation Costs in a Cloud Computing Arrangement
In August 2018, the FASB issued an accounting standard update related to a client’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This guidance aligns the requirements for capitalizing implementation costs in a cloud computing service contract with the guidance for capitalizing implementation costs to develop or obtain internal-use software. Capitalized implementation costs will be expensed over the term of the arrangement. This accounting standard update will be effective for FactSet beginning in the first quarter of fiscal 2021, with early adoption permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
No other new accounting pronouncements issued or effective as of August 31, 2018,2019 have had or are expected to have an impact on the Company’s consolidated financial statements.
4. REVENUE RECOGNITION
The Company derives most of its revenue by providing client access to its hosted proprietary data and analytics platform which can include various combinations of products and services available over the contractual term. The hosted platform is a subscription-based service that consists primarily of providing access to products and services including workstations, analytics, enterprise data, research management, and trade execution. The Company determined that the subscription-based service represents a single performance obligation covering a series of distinct products and services that are substantially the same and that have the same pattern of transfer to the client. The Company determined that 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 FactSet, the Company applies an input time-based measure of progress as the client is simultaneously receiving and consuming the benefits of the platform. The Company records revenue for its contracts using the over-time revenue recognition model as a client is invoiced or performance in satisfied, which is comparable with how revenue is recognized today. FactSet does not consider payment terms a performance obligation for customers with contractual terms that are one year or less and has elected the practical expedient.
In FactSet’s assessment of contracts with clients, the Company did identify a small portion of contracts with certain fulfillment costs, which include up-front costs to allow for the delivery of services and products that are expected to be recovered. In connection with the adoption of the new standard, these fulfillment costs are recognized as an asset and amortized consistent with the associated revenue for providing the services, which prior to adoption were expensed. As a result, during the first quarter of fiscal 2019, FactSet recorded an opening cumulative increase to Retained earnings of $2.5 million, or $2.0 million net of tax, with an offsetting increase related to the current asset portion in Prepaid expenses and other current assets and the non-current asset portion in Other assets based on the term of the license period. Prospectively, fulfillment costs will continue to be recognized in the same accounts used for the adoption impact, which include 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. The differences between the Company’s reported operating results as of August 31,2019, which reflect the application of the new standard on the Company’s contracts, and the results that would have been reported as if the accounting was performed pursuant to the accounting standards previously in effect, were not material. There are no significant judgments that would impact the timing of revenue recognition. The majority of client contracts have a duration of one year or less, or the amount FactSet is entitled to receive corresponds directly with the value of performance obligations completed to date, and therefore, the Company does not disclose the value of the remaining unsatisfied performance obligations.
Disaggregated Revenue
The Company disaggregates revenue from contracts with clients by demographic region which include U.S., Europe and Asia Pacific. FactSet believes these geographic regions are reflective of how the Company manages the business and the demographic markets in which it serves. The geographic regions best depict the nature, amount, timing and uncertainty of revenue and cash flows related to contracts with clients. Refer to Note 8 Segment Information for further information on revenue by geographic region.
4.
The following table presents this disaggregation of revenue by geography:
August 31, | ||||||||||||
(in thousands) | 2019 | 2018 | 2017 | |||||||||
U.S. | $ | 894,554 | $ | 841,908 | $ | 784,146 | ||||||
Europe | $ | 408,084 | $ | 387,589 | $ | 330,332 | ||||||
Asia Pacific | $ | 132,713 | $ | 120,648 | $ | 106,701 | ||||||
Total Revenue | $ | 1,435,351 | $ | 1,350,145 | $ | 1,221,179 |
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. 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.
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. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels. FactSet has categorized its cash equivalents, investments and derivatives within the fair value hierarchy as follows:
Level 1 - applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. These Level 1 assets and liabilities include FactSet’s corporate money market funds that are classified as cash equivalents.
Level 2 - applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. The Company’s certificates of deposit, mutual funds and derivative instruments are classified as Level 2.
Level 3 - applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. There were no 0 Level 3 assets or liabilities held by FactSet as of August 31, 20182019 or 2017.2018.
(a)
(a) Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables shows by level within the fair value hierarchy the Company’s assets and liabilities that are measured at fair value on a recurring basis at August 31, 20182019 and 2017:2018:
Fair Value Measurements at August 31, 2018 | Fair Value Measurements at August 31, 2019 | |||||||||||||||||||||||||||||||
(in thousands) | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Corporate money market funds(1) | $ | 75 | $ | — | $ | — | $ | 75 | $ | 75,849 | $ | — | $ | — | $ | 75,849 | ||||||||||||||||
Mutual Funds(2) | — | 18,668 | — | 18,668 | — | 18,583 | — | 18,583 | ||||||||||||||||||||||||
Certificates of deposit(3) | — | 10,591 | — | 10,591 | ||||||||||||||||||||||||||||
Derivative instruments(4) | — | 90 | — | 90 | ||||||||||||||||||||||||||||
Certificates of deposit(3) | — | 7,090 | — | 7,090 | ||||||||||||||||||||||||||||
Derivative instruments(4) | — | 520 | — | 520 | ||||||||||||||||||||||||||||
Total assets measured at fair value | $ | 75 | $ | 29,349 | $ | — | $ | 29,424 | $ | 75,849 | $ | 26,193 | $ | — | $ | 102,042 | ||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Derivative instruments(4) | $ | — | $ | 4,036 | $ | — | $ | 4,036 | ||||||||||||||||||||||||
Derivative instruments(4) | $ | — | $ | 3,575 | $ | — | $ | 3,575 | ||||||||||||||||||||||||
Total liabilities measured at fair value | $ | — | $ | 4,036 | $ | — | $ | 4,036 | $ | — | $ | 3,575 | $ | — | $ | 3,575 |
Fair Value Measurements at August 31, 2017 | Fair Value Measurements at August 31, 2018 | |||||||||||||||||||||||||||||||
(in thousands) | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Corporate money market funds(1) | $ | 26,677 | $ | — | $ | — | $ | 26,677 | $ | 75 | $ | — | $ | — | $ | 75 | ||||||||||||||||
Mutual Funds(2) | — | 18,364 | — | 18,364 | — | 18,668 | — | 18,668 | ||||||||||||||||||||||||
Certificates of deposit(3) | — | 14,080 | — | 14,080 | ||||||||||||||||||||||||||||
Derivative instruments(4) | — | 6,142 | — | 6,142 | ||||||||||||||||||||||||||||
Certificates of deposit(3) | — | 10,591 | — | 10,591 | ||||||||||||||||||||||||||||
Derivative instruments(4) | — | 90 | — | 90 | ||||||||||||||||||||||||||||
Total assets measured at fair value | $ | 26,677 | $ | 38,586 | $ | — | $ | 65,263 | $ | 75 | $ | 29,349 | $ | — | $ | 29,424 | ||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Derivative instruments(4) | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||
Derivative instruments(4) | $ | — | $ | 4,036 | $ | — | $ | 4,036 | ||||||||||||||||||||||||
Total liabilities measured at fair value | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 4,036 | $ | — | $ | 4,036 |
| The Company’s corporate money market fundsarereadily convertible into cashand the net asset value of each fund on the last day of the quarter is used to determine its fair value. As such, the Company’s corporate money market funds are |
| 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 assets and are classified as |
| The Company’s |
| The Company utilizes the income approach to measure fair value for its derivative instruments |
The Company did not have any transfers between Level 1 and Level 2 fair value measurements during the periods presented.
(b)(b) Assets and Liabilities Measured at Fair Value on a Non-Non-RecurringRecurringBasis
Certain assets, including goodwill and intangible assets, and liabilities, are measured at fair value on a non-recurring basis; that is, the assets 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. 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. An impairment charge is recorded when the cost exceeds its fair value, based upon the results of such valuations. During fiscal 20182019 and 2017, 2018,no fair value adjustments or material fair value measurements were required for the Company’s non-financial assets or liabilities.
(c) Assets and Liabilities Measured at Fair Value for Disclosure Purposes onlyOnly
As of August 31, 2018,2019, and 2017,2018, the fair value of the Company’s long-term debt was $575.0 million, which approximated its carrying amount given itsthe application of a floating interest rate basis. The fair value ofequal to the Company’sdaily LIBOR rate plus a spread using a debt leverage pricing grid. As the interest 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 business outside the U.S. in several currencies including the Euro, Indian Rupee, Philippine Peso, British Pound Sterling, Euro, Indian Rupee,and Japanese Yen and Philippine Peso.Yen. As such, it is exposed to movements in foreign currency exchange rates compared to the U.S. dollar. The Company utilizes derivative instruments (foreign currency forward contracts) to manage the exposures related to the effects of foreign exchange rate fluctuations and reduce the volatility of earnings and cash flows associated with changes in foreign currency. The Company does not enter into foreign currency forward contracts for trading or speculative purposes. See Note 19, Commitments and Contingencies - Concentration of Credit Risk, for further discussion on counterparty credit risk.
In designing a specific hedging approach, FactSet considered several factors, including offsetting exposures, the significance of exposures, the forecasting of risk and the potential effectiveness of the hedge. The gains and losses on foreign currency forward contracts offset the variability in operating expenses associated with currency movements. The changes in fair value for these foreign currency forward contracts are initially reported as a component of AOCLaccumulated other comprehensive loss ("AOCL'") and subsequently reclassified into operating expenses when the hedged exposure affects earnings.hedge is settled. There was no 0 discontinuance of cash flow hedges during fiscal 20182019 or 2017,2018, and as such, no corresponding gains or losses related to changes in the value of the Company’s contracts were reclassified into earnings prior to settlement.
As of August 31, 2018,2019, FactSet 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 |
| Euro – foreign currency forward contracts to hedge approximately |
| British Pound Sterling – foreign currency forward contracts to hedge approximately 75% of its British Pound sterling exposure through the first quarter of fiscal 2020,50% of its British Pound Sterling exposure from the second quarter through the third quarter of fiscal 2020, and 25% of its British Pound Sterling exposure through the |
The following is a summary of all hedging positions and corresponding fair values:
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 | ||||||||||||||||||||||||||||
Currency Hedged | Gross Notional Value | Fair Value (Liability) Asset | ||||||||||||||||||||||||||||||
(in thousands, in U.S. dollars) | August 31, 2019 | August 31, 2018 | August 31, 2019 | August 31, 2018 | ||||||||||||||||||||||||||||
Philippine Peso | $ | 52,000 | $ | — | $ | (1,230 | ) | $ | — | $ | 26,000 | $ | 52,000 | $ | 520 | $ | (1,230 | ) | ||||||||||||||
Indian Rupee | 50,780 | 51,000 | (1,490 | ) | 6,142 | 20,410 | 50,780 | (998 | ) | (1,490 | ) | |||||||||||||||||||||
Euro | 26,312 | — | (503 | ) | — | 40,854 | 26,312 | (1,230 | ) | (503 | ) | |||||||||||||||||||||
British Pound Sterling | 18,995 | — | (723 | ) | — | 26,436 | 18,995 | (1,347 | ) | (723 | ) | |||||||||||||||||||||
Total | $ | 148,087 | $ | 51,000 | $ | (3,946 | ) | $ | 6,142 | $ | 113,700 | $ | 148,087 | $ | (3,055 | ) | $ | (3,946 | ) |
As of August 31, 2018,2019, 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 Rs.1.4 billion, respectively. The gross notional value of foreign currency forward contracts to purchase Indian Rupees with U.S. dollars was Rs. 3.6 billion. The gross notional value of foreign currency forward contracts to purchasewith Euros with U.S. dollars was € 22.0 million. The gross notional value of foreign currency forward contracts to purchaseand British Pound Sterling with U.S. dollars was £14.0 million.
Counterparty Credit Risk
As a result of the use of derivative instruments, the Company is exposed to counterparty credit risk. FactSet has incorporated counterparty risk into the fair value of its derivative assets€35.7 million and its own credit risk into the value 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 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 large financial institutions and regularly reviews its credit exposure balances as well as the creditworthiness of the counterparties. The Company does not expect any losses as a result of default of its counterparties.£20.5 million, respectively.
Fair Value of Derivative Instruments
The following tables provide a summary of the fair value amounts of derivative instruments and gains and losses on derivative instruments:
Designation of Derivatives (in thousands) | Balance Sheet Location | August 31, 2018 | August 31, 2017 | Balance Sheet Location | August 31, 2019 | August 31, 2018 | |||||||||||||
Derivatives designated as hedging instruments | Assets: Foreign Currency Forward Contracts | Assets: Foreign Currency Forward Contracts | |||||||||||||||||
Prepaid expenses and other current assets | $ | 90 | $ | 3,796 | Prepaid expenses and other current assets | $ | 520 | $ | 90 | ||||||||||
Other assets | $ | — | $ | 2,346 | Other assets | $ | — | $ | — | ||||||||||
Liabilities: Foreign Currency Forward Contracts | Liabilities: Foreign Currency Forward Contracts | ||||||||||||||||||
Accounts payable and accrued expenses | $ | 1,731 | $ | — | Accounts payable and accrued expenses | $ | 3,575 | $ | 1,731 | ||||||||||
Deferred rent and other non-current liabilities | $ | 2,305 | $ | — | Deferred rent and other non-current liabilities | $ | — | $ | 2,305 |
All derivatives were designated as hedging instruments as of August 31, 20182019 and 2017,2018, 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 31,2019,2018 2017 and 2016:2017:
(in thousands) | (Loss) Gain Recognized in AOCL on Derivatives | Location of Gain (Loss) Reclassified from AOCL | Gain (Loss) Reclassified | (Loss) Gain Recognized in AOCL on Derivatives (Effective Portion) | Location of (Loss) Gain Reclassified from AOCL | (Loss) Gain Reclassified from AOCL into Income (Effective Portion) | ||||||||||||||||||||||||||||||||||||||||||||
Derivatives in Cash Flow Hedging Relationships | 2018 | 2017 | 2016 | into Income (Effective Portion) | 2018 | 2017 | 2016 | 2019 | 2018 | 2017 | into Income (Effective Portion) | 2019 | 2018 | 2017 | ||||||||||||||||||||||||||||||||||||
Foreign currency forward contracts | $ | (7,700 | ) | $ | 5,183 | $ | (1,806 | ) | SG&A | $ | 3,106 | $ | (2,883 | ) | $ | (451 | ) | $ | (187 | ) | $ | (7,700 | ) | $ | 5,183 | SG&A | $ | (1,794 | ) | $ | 3,106 | $ | (2,883 | ) |
No amount of ineffectiveness was recorded in the Consolidated Statements of Income for these designated cash flow hedges and all components of each derivative’s gain or loss waswere included in the assessment of hedge effectiveness. As of August 31, 2018,2019, FactSet estimates that $1.6$3.1 million of net derivative losses related to its cash flow hedges included in AOCL will be reclassified into earnings within the next 12 months.
Offsetting of Derivative Instruments
FactSet’s master netting and other similar arrangements with its respective counterparties allow for net settlement under certain conditions. As of August 31, 20182019 and 2017,2018, there were no material amounts recorded net settlements recorded on the Consolidated Balance Sheets.
6.7. OTHER COMPREHENSIVE (LOSS) INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of other comprehensive (loss) income during the fiscal years ended August 31,2019,2018 2017 and 20162017 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 | ) |
|
|
August 31, 2019 | August 31, 2018 | August 31, 2017 | ||||||||||||||||||||||
(in thousands) | Pre-tax | Net of tax | Pre-tax | Net of tax | Pre-tax | Net of tax | ||||||||||||||||||
Foreign currency translation adjustments | $ | (24,325 | ) | $ | (24,325 | ) | $ | (9,431 | ) | $ | (9,431 | ) | $ | 28,816 | $ | 28,816 | ||||||||
Net unrealized gain (loss) on cash flow hedges recognized in AOCL | 891 | 504 | (10,806 | ) | (7,288 | ) | 8,066 | 5,017 | ||||||||||||||||
Other comprehensive (loss) income | $ | (23,434 | ) | $ | (23,821 | ) | $ | (20,237 | ) | $ | (16,719 | ) | $ | 36,882 | $ | 33,833 |
The components of AOCL are as follows:
(in thousands) | August 31, 2018 | August 31, 2017 | August 31, 2019 | August 31, 2018 | ||||||||||||
Accumulated unrealized (gain) losses on cash flow hedges, net of tax | $ | (3,486 | ) | $ | 3,802 | |||||||||||
Accumulated unrealized losses on cash flow hedges, net of tax | $ | (2,266 | ) | $ | (3,486 | ) | ||||||||||
Accumulated foreign currency translation adjustments | (47,953 | ) | (38,522 | ) | (72,278 | ) | (47,953 | ) | ||||||||
Total accumulated other comprehensive loss | $ | (51,439 | ) | $ | (34,720 | ) | $ | (74,544 | ) | $ | (51,439 | ) |
7.8. SEGMENT INFORMATION
Operating segments are defined as (i) components of an enterprise that engagehave the following characteristics: (i) it engages in business activities from which they may earn revenuerevenues and incur expense,expenses, (ii) withits operating results are regularly reviewed by the enterprise’scompany’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and (iii) for whichits discrete financial information is available. Executive management, along with the CEO, constitute FactSet’s chief operating decision making group (“CODMG”). Executive management consists of certain executives who directly report to the CEO, consisting of the Chief Financial Officer, Chief Technology and Product Officer, Global Head of Sales and Client Solutions, General Counsel, Chief Human Resources Officer and Head of Analytics &and 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’sThe Company's operating segments are aligned with how the Company, including its CODMG, manages the business and the demographic markets in which FactSetit serves. The Company’s internal financial reporting structure is based on three segments;3 segments: the U.S., Europe and Asia Pacific. FactSetThe Company believes this alignment helps itto better manage the business and view the markets the Companyit serves, which are centered on providing integrated global financial and economic information. TheSales, consulting, data collection, product development and software engineering are the primary functional groups within the U.S., Europe and Asia Pacific segments include sales, consulting, data collection, product development and software engineering, whichsegments. These functional groups provide global financial and economic information to investment managers, investment banks and other financial services professionals.
The U.S. segment servicesserves investment professionals including financial institutions throughout the Americas. The EuropeanEurope and Asia Pacific segments serviceserve investment professionals located throughout Europe and Asia Pacific, respectively. Segment revenues reflectrevenue reflects direct sales to clients based in their respective geographic locations. Each segment records compensation expense including(including stock-based compensation,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-partythird-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, and Latvia, 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.revenue.
The following reflects the results of operations of the segments, consistent with the Company’s management system.structure. 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 | ||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||
Year Ended August 31, 2019 | U.S. | Europe | Asia Pacific | Total | ||||||||||||||||||||||||||||
Revenue from clients | $ | 894,554 | $ | 408,084 | $ | 132,713 | $ | 1,435,351 | ||||||||||||||||||||||||
Segment operating profit | 148,095 | 148,977 | 69,132 | 366,204 | 179,374 | 179,258 | 79,403 | 438,035 | ||||||||||||||||||||||||
Total assets | 724,259 | 585,497 | 109,692 | 1,419,448 | 851,014 | 588,911 | 120,205 | 1,560,130 | ||||||||||||||||||||||||
Depreciation and amortization | 37,453 | 15,710 | 4,122 | 57,285 | 40,018 | 14,703 | 5,742 | 60,463 | ||||||||||||||||||||||||
Stock-based compensation | 26,014 | 4,857 | 645 | 31,516 | 26,152 | 5,320 | 928 | 32,400 | ||||||||||||||||||||||||
Capital expenditures | 20,358 | 3,140 | 10,022 | 33,520 | 43,647 | 2,595 | 13,128 | 59,370 |
Year Ended August 31, 2017 | U.S. | Europe | Asia Pacific | Total | ||||||||||||||||||||||||||||
Revenues from clients | $ | 784,146 | $ | 330,332 | $ | 106,701 | $ | 1,221,179 | ||||||||||||||||||||||||
Year Ended August 31, 2018 | U.S. | Europe | Asia Pacific | Total | ||||||||||||||||||||||||||||
Revenue from clients | $ | 841,908 | $ | 387,589 | $ | 120,648 | $ | 1,350,145 | ||||||||||||||||||||||||
Segment operating profit | 137,104 | 153,676 | 61,355 | 352,135 | 148,095 | 148,977 | 69,132 | 366,204 | ||||||||||||||||||||||||
Total assets | 703,941 | 609,368 | 100,006 | 1,413,315 | 724,259 | 585,497 | 109,692 | 1,419,448 | ||||||||||||||||||||||||
Depreciation and amortization | 35,244 | 9,837 | 3,213 | 48,294 | 37,453 | 15,710 | 4,122 | 57,285 | ||||||||||||||||||||||||
Stock-based compensation | 30,247 | 3,320 | 616 | 34,183 | 26,014 | 4,857 | 645 | 31,516 | ||||||||||||||||||||||||
Capital expenditures | 29,561 | 2,385 | 4,916 | 36,862 | 20,358 | 3,140 | 10,022 | 33,520 |
Year Ended August 31, 2016 | U.S. | Europe | Asia Pacific | Total | ||||||||||||||||||||||||||||
Revenues from clients | $ | 755,492 | $ | 277,682 | $ | 93,918 | $ | 1,127,092 | ||||||||||||||||||||||||
Year Ended August 31, 2017 | U.S. | Europe | Asia Pacific | Total | ||||||||||||||||||||||||||||
Revenue from clients | $ | 784,146 | $ | 330,332 | $ | 106,701 | $ | 1,221,179 | ||||||||||||||||||||||||
Segment operating profit | 165,251 | 131,410 | 53,015 | 349,676 | 137,104 | 153,676 | 61,355 | 352,135 | ||||||||||||||||||||||||
Total assets | 654,796 | 279,864 | 84,501 | 1,019,161 | 703,941 | 609,368 | 100,006 | 1,413,315 | ||||||||||||||||||||||||
Depreciation and amortization | 31,529 | 4,220 | 2,303 | 38,052 | 35,244 | 9,837 | 3,213 | 48,294 | ||||||||||||||||||||||||
Stock-based compensation | 25,776 | 3,459 | 558 | 29,793 | 30,247 | 3,320 | 616 | 34,183 | ||||||||||||||||||||||||
Capital expenditures | 38,631 | 4,092 | 5,017 | 47,740 | 29,561 | 2,385 | 4,916 | 36,862 |
GEOGRAPHIC INFORMATION - The following table sets forth information for those countries that are 10% or more of revenues:revenue:
Years ended August 31, | Years ended August 31, | |||||||||||||||||||||||
(in thousands) | 2018 | 2017 | 2016 | 2019 | 2018 | 2017 | ||||||||||||||||||
Revenues(1) | ||||||||||||||||||||||||
Revenue(1) | �� | |||||||||||||||||||||||
United States | $ | 841,908 | $ | 784,146 | $ | 755,492 | $ | 894,554 | $ | 841,908 | $ | 784,146 | ||||||||||||
United Kingdom | 332,006 | 163,732 | 154,902 | 166,944 | 157,346 | 163,732 | ||||||||||||||||||
All other European countries | 55,583 | 166,600 | 122,780 | 241,140 | 230,243 | 166,600 | ||||||||||||||||||
Asia Pacific | 120,648 | 106,701 | 93,918 | 132,713 | 120,648 | 106,701 | ||||||||||||||||||
Total revenues | $ | 1,350,145 | $ | 1,221,179 | $ | 1,127,092 | ||||||||||||||||||
Total revenue | $ | 1,435,351 | $ | 1,350,145 | $ | 1,221,179 |
|
|
The following table sets forth long-lived assets by geographic area:
At August 31, | At August 31, | |||||||||||||||||||
(in thousands) | 2018 | 2017 | 2016 | 2019 | 2018 | |||||||||||||||
Long-lived Assets(1) | ||||||||||||||||||||
Long-lived Assets(1) | ||||||||||||||||||||
United States | $ | 74,792 | $ | 79,299 | $ | 70,646 | $ | 99,783 | $ | 74,792 | ||||||||||
United Kingdom | 5,806 | 6,012 | 5,772 | 5,347 | 5,806 | |||||||||||||||
All other European countries | 5,774 | 6,306 | 1,018 | 5,069 | 5,774 | |||||||||||||||
Asia Pacific | 14,173 | 8,837 | 7,186 | 22,325 | 14,173 | |||||||||||||||
Total long-lived assets | $ | 100,545 | $ | 100,454 | �� | $ | 84,622 | $ | 132,524 | $ | 100,545 |
(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. |
8.9. BUSINESS COMBINATIONS
BISAM
On March 17, 2017, FactSet acquired BI-SAM Technologies (“BISAM”) for a total purchase price of $217.6 million. BISAM is a global provider of portfolio performance and attribution, multi-asset risk, GIPS composites management and reporting. BISAM’s product offerings include B-One, BISAM’s cross-asset solution, which will serve as a complement to both FactSet’s portfolio analytics suite and client reporting solutions, and Cognity, which enhances FactSet’s risk analysis for derivatives and quantitative portfolio construction. These factors contributed to a purchase price in excess of fair value of BISAM’s net tangible and intangible assets, leading to the recognition of goodwill. At the time of acquisition, BISAM employed over 160 employees based primarily in its New York, Boston, Paris, London and Sofia offices. Total transaction costs of $3.2 million were recorded within Selling, General and Administrative (“SG&A”) expenses in the Consolidated Statements of Income during fiscal 2017.
The total purchase price of $217.6 million was allocated to BISAM’s net tangible and intangible assets based upon their estimated fair value as of the date of acquisition. Based upon the purchase priceThe allocation included $27.6 million to tangible assets and the valuation, the allocation is as follows:
(in thousands) | ||||
Tangible assets acquired | $ | 27,583 | ||
Amortizable intangible assets | ||||
Software technology | 18,261 | |||
Client relationships | 37,597 | |||
Trade name | 741 | |||
Goodwill | 173,898 | |||
Total assets acquired | $ | 258,080 | ||
Liabilities assumed | (40,443 | ) | ||
Net assets acquired | $ | 217,637 |
Intangible assets of $56.6 million have been allocated to amortizable intangible assets consisting of client relationships, amortized over 16 years using an accelerated amortization method;method; software technology, amortized over five years using a straight-line amortization method;method; and a trade name, amortized over four years using a straight-line amortization method.
Goodwill totaling $173.9 million represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. Goodwill generated from the BISAM acquisition is included in the US and European segments and is not deductible for income tax purposes. The results of operations of BISAM have been included in the Company’s Consolidated Statements of Income since the completion of the acquisition on March 17, 2017. Pro forma information has not been presented because the effect of the BISAM acquisition is not material to the Company’s consolidated financial results.
VermilionVERMILION
On November 8, 2016, FactSet acquired Vermilion Holdings Limited (“Vermilion”) for a total purchase price of $67.9 million. Vermilion is a global provider of client reporting and communications softwaresolutions and services to the financial services industry. Client reporting is a growing area of the market as regulatory requirements rise and with the acquisition of Vermilion and its Vermilion Reporting Suite (“VRS”), FactSet now offers a workflow around all elements of the client reporting process, which it expects will expand as investors grow increasingly sophisticated. This factor contributed to a purchase price in excess of fair value of Vermilion’s net tangible and intangible assets, leading to the recognition of goodwill. At the time of acquisition, Vermilion employed 59 individuals in its London, Boston and Singapore offices. Total transaction costs related to the acquisition were $0.7 million in fiscal 2017 and recorded within SG&A expenses in the Consolidated Statements of Income during fiscal 2017.
The total purchase price of $67.9 million 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 priceThe allocation included $8.0 million to tangible assets 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;method; non-compete agreements, amortized over three years using a straight-line amortization method;method; and a trade name, amortized over four years using a straight-line amortization method.
Goodwill totaling $51.2 million represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. Goodwill generated from the Vermilion acquisition is included in the European segment and is not deductible for income tax purposes. The results of operations of Vermilion have been included in the Company’s Consolidated Statements of Income since the completion of the acquisition on November 8, 2016. Pro forma information has not been presented because the effect of the Vermilion acquisition is not material to the Company’s consolidated financial results.
Portware LLC
On October 16, 2015, FactSet acquired Portware LLC (“Portware”) for a total purchase price of $263.6 million. At the time of acquisition, Portware employed 166 individuals in its New York, London, Hong Kong, and Hyderabad, India offices. Portware is a global provider of multi-asset trade automation solutions for mega and large asset managers. With the acquisition of Portware, FactSet now offers a platform that it expects will increase value to global asset managers by expanding its capabilities to include multi-asset trade automation. This factor contributed to a purchase price in excess of fair value of Portware’s net tangible and intangible assets, leading to the recognition of goodwill. Total transaction costs related to the acquisition were $0.7 million for the year ended August 31, 2016. These transaction expenses were recorded within SG&A expenses in the Consolidated Statements of Income.
The total purchase price was allocated to Portware’s net tangible and intangible assets based upon their estimated fair value as of the date of acquisition. Based upon the purchase price and the valuation, the allocation is as follows:
(in thousands) | ||||
Tangible assets acquired | $ | 9,656 | ||
Amortizable intangible assets | ||||
Software technology | 43,000 | |||
Client relationships | 27,000 | |||
Non-compete agreements | 3,500 | |||
Trade name | 2,000 | |||
Goodwill | 187,378 | |||
Total assets acquired | $ | 272,534 | ||
Liabilities assumed | (8,951 | ) | ||
Net assets acquired | $ | 263,583 |
Intangible assets of $75.5 million have been allocated to amortizable intangible assets consisting of client relationships, amortized over 16 years using an accelerated amortization method; software technology, amortized over eight years using a straight-line amortization method; non-compete agreements, amortized over seven years using a straight-line amortization method; and a trade name, amortized over five years using a straight-line amortization method.
Goodwill totaling $187.4 million represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and is included in the U.S. segment. Approximately 77% of the total goodwill generated from the Portware acquisition is deductible for income tax purposes. The results of operations of Portware have been included in the Company’s Consolidated Statements of Income since the completion of the acquisition on October 16, 2015. Pro forma information has not been presented because the effect of the Portware acquisition is not material to the Company’s consolidated financial results.
9. DISPOSITIONS
During the third quarter of fiscal 2016, the Company entered into a definitive stock purchase agreement (the “Purchase Agreement”) pursuant to which the Company agreed to sell its market research business, consisting of Market Metrics LLC and Matrix-Data Limited (collectively “Market Metrics” or the “disposal group”) and associated assets (the “Transaction”). On July 1, 2016, FactSet completed the Transaction and received $165.0 million in cash, less estimated working capital and certain adjustments set forth in the Purchase Agreement, including a $9.7 million bonus adjustment amount. The Company recognized a pre-tax gain on the sale of $112.5 million in fourth quarter of fiscal 2016, which is recorded within other (expense)income in the Consolidated Statements of Income. In the second quarter of fiscal 2017, the Company finalized the working capital adjustment and recognized a pre-tax loss of $1.2 million within other (expense)income in the Consolidated Statements of Income.
The Company assessed the Transaction and the disposal group and determined that the sale does not represent a strategic shift in its business that has a major effect on its consolidated results of operations, financial position or cash flows. Accordingly, the disposal group is not presented in the consolidated financial statements as a discontinued operation. The results of the disposal group through the date the Transaction closed are reported within the U.S. segment (for Market Metrics LLC) and the European segment (for Matrix-Data Limited).
10. GOODWILL
Changes in the carrying amount of goodwill by segment for fiscal years ended August 31, 20182019 and 20172018 are as follows:
(in thousands) | U.S. | Europe | Asia Pacific | Total | 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 | $ | 386,835 | $ | 317,759 | $ | 2,966 | $ | 707,560 | ||||||||||||||||
Acquisitions and other adjustments | (640 | ) | (1,562 | ) | — | (2,202 | ) | (640 | ) | (1,562 | ) | — | (2,202 | ) | ||||||||||||||||||
Foreign currency translations | — | (3,503 | ) | (22 | ) | (3,525 | ) | — | (3,503 | ) | (22 | ) | (3,525 | ) | ||||||||||||||||||
Balance at August 31, 2018 | $ | 386,195 | $ | 312,694 | $ | 2,944 | $ | 701,833 | $ | 386,195 | $ | 312,694 | $ | 2,944 | $ | 701,833 | ||||||||||||||||
Foreign currency translations | — | (16,235 | ) | 131 | (16,104 | ) | ||||||||||||||||||||||||||
Balance at August 31, 2019 | $ | 386,195 | $ | 296,459 | $ | 3,075 | $ | 685,729 |
Goodwill is not amortized as it is estimated to have an indefinite life. At least annually, the Company is required to test goodwill at the reporting unit level for potential impairment, and, if impaired, write down to fair value based on the present value of discounted cash flows. The Company’s reporting units evaluated for potential impairment were the U.S., Europe and Asia Pacific, which reflect the level of internal reporting the Company uses to manage its business and operations. The three3 reporting units are consistent with the operating segments reported as there is no discrete financial information available for the subsidiaries within each operating segment. The Company performed its annual goodwill impairment test during the fourth quarter of fiscal 2018,2019, consistent with the timing of previous years. Ityears, utilizing a qualitative analysis and concluded it was determined that there was no impairment, withmore likely than not the fair value of each of the Company’s reporting units significantly exceedingunit was greater than its respective carrying value. During fiscal 2017 the Company acquired goodwill of $235.4 million representing the excess of the purchase price over the fair value of the net tangible and intangible assets from acquisitions completed in fiscal 2017.0 impairment charge was required.
11. INTANGIBLE ASSETS
FactSet’s identifiable intangible assets consist of acquired content databases, client relationships, software technology, non-compete agreements and trade names resulting from previous acquisitions, which have been fully integrated into the Company’s operations. The weighted average useful life of the Company’s acquired intangible assets at August 31, 20182019 was 11.512.6 years. The Company amortizes intangible assets over their estimated useful lives, which are evaluated quarterly to determine whether events and circumstances warrant a revision to the remaining period of amortization. There have been no material changes to the estimate of the remaining useful lives during fiscal years 2019,2018 2017 and 2016. Amortizable2017. If indicators of impairment are present, amortizable intangible assets are tested for impairment if indicators are present, based oncomparing the carrying value to undiscounted cash flows and, if impaired, written down to fair value based on discounted cash flows. NoNaN impairment of intangible assets has been identified during any of the periods presented. The intangible assets have no assigned residual values.
During fiscal 2017, $93.2 million of intangible assets were acquired with a weighted average useful life of 11.5 years.
The gross carrying amounts and accumulated amortization totals related to the Company’s identifiable intangible assets are as follows:
At August 31, 2018 (in thousands) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||
At August 31, 2019 (in thousands) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||
Data content | $ | 33,992 | $ | 20,990 | $ | 13,002 | $ | 32,200 | $ | 21,512 | $ | 10,688 | ||||||||||||
Client relationships | 98,882 | 29,387 | 69,495 | 95,905 | 35,506 | 60,399 | ||||||||||||||||||
Software technology | 106,505 | 44,231 | 62,274 | 105,426 | 56,965 | 48,461 | ||||||||||||||||||
Non-compete agreements | 4,840 | 2,381 | 2,459 | 1,311 | 1,228 | 83 | ||||||||||||||||||
Trade names | 4,070 | 2,365 | 1,705 | 3,994 | 3,074 | 920 | ||||||||||||||||||
Total | $ | 248,289 | $ | 99,354 | $ | 148,935 | $ | 238,836 | $ | 118,285 | $ | 120,551 |
At August 31, 2017 (in thousands) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||
Data content | $ | 34,116 | $ | 18,899 | $ | 15,217 | ||||||
Client relationships | 99,779 | 22,339 | 77,440 | |||||||||
Software technology | 105,963 | 30,889 | 75,074 | |||||||||
Non-compete agreements | 4,833 | 1,518 | 3,315 | |||||||||
Trade names | 4,080 | 1,583 | 2,497 | |||||||||
Total | $ | 248,771 | $ | 75,228 | $ | 173,543 |
At August 31, 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 |
Amortization expense recorded for intangible assets during fiscal years 2019,2018 2017 and 20162017 was $25.1 million, $24.7 million $19.9 million and $14.8$19.9 million, respectively. As of August 31, 2018,2019, 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 | |||
2020 | $ | 22,151 | ||
2021 | 20,859 | |||
2022 | 18,088 | |||
2023 | 13,508 | |||
2024 | 8,061 | |||
Thereafter | 37,884 | |||
Total | $ | 120,551 |
12. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consist of the following:
August 31, | August 31, | |||||||||||||||
(in thousands) | 2018 | 2017 | 2019 | 2018 | ||||||||||||
Leasehold improvements | $ | 119,479 | $ | 113,760 | $ | 155,520 | $ | 119,479 | ||||||||
Computers and related equipment | 181,623 | 138,195 | 153,868 | 181,623 | ||||||||||||
Furniture and fixtures | 44,699 | 42,532 | 48,986 | 44,699 | ||||||||||||
Subtotal | $ | 345,801 | $ | 294,487 | $ | 358,374 | $ | 345,801 | ||||||||
Less accumulated depreciation and amortization | (245,256 | ) | (194,033 | ) | (225,850 | ) | (245,256 | ) | ||||||||
Property, equipment and leasehold improvements, net | $ | 100,545 | $ | 100,454 | $ | 132,524 | $ | 100,545 |
Depreciation expense was $35.4 million, $32.6 million $28.0 million and $23.3$28.0 million for fiscal years 2019,2018 2017 and 2016,2017, respectively.
13. COMMON STOCK AND EARNINGS PER SHARE
On May 7, 2018, FactSet’s17,2019, FactSet's Board of Directors approved a 14.3%12.5% increase in the regular quarterly dividend from $0.56$0.64 to $0.64$0.72 per share.
Shares of common stock outstanding were as follows:
Years ended August 31, | Years ended August 31, | |||||||||||||||||||||||
(in thousands) | 2018 | 2017 | 2016 | 2019 | 2018 | 2017 | ||||||||||||||||||
Balance, beginning of year (September 1) | 39,023 | 40,038 | 41,317 | 38,193 | 39,023 | 40,038 | ||||||||||||||||||
Common stock issued for employee stock plans | 711 | 693 | 823 | 839 | 712 | 693 | ||||||||||||||||||
Repurchase of common stock from employees(1) | (8 | ) | (50 | ) | (28 | ) | ||||||||||||||||||
Repurchase of common stock from employees(1) | (32 | ) | (8 | ) | (50 | ) | ||||||||||||||||||
Repurchase of common stock under the share repurchase program | (1,534 | ) | (1,555 | ) | (1,478 | ) | (882 | ) | (1,534 | ) | (1,555 | ) | ||||||||||||
Repurchase of common stock under accelerated share repurchase agreement | — | (103 | ) | (596 | ) | — | — | (103 | ) | |||||||||||||||
Balance, end of year (August 31) | 38,192 | 39,023 | 40,038 | 38,118 | 38,193 | 39,023 |
| For fiscal |
A reconciliation of the weighted average shares outstanding used in the basic and diluted earnings per share (“EPS”) computations is as follows:
(in thousands, except per share data) | Net Income (Numerator) | Weighted Average Common Shares (Denominator) | Per Share Amount | Net Income (Numerator) | Weighted Average Common Shares (Denominator) | Per Share Amount | ||||||||||||||||||
For the year ended August 31, 2019 | ||||||||||||||||||||||||
Basic EPS | ||||||||||||||||||||||||
Income available to common stockholders | $ | 352,790 | 38,144 | $ | 9.25 | |||||||||||||||||||
Diluted EPS | ||||||||||||||||||||||||
Dilutive effect of stock options and restricted stock | 729 | |||||||||||||||||||||||
Income available to common stockholders plus assumed conversions | $ | 352,790 | 38,873 | $ | 9.08 | |||||||||||||||||||
For the year ended August 31, 2018 | ||||||||||||||||||||||||
Basic EPS | ||||||||||||||||||||||||
Income available to common stockholders | $ | 267,085 | 38,733 | $ | 6.90 | $ | 267,085 | 38,733 | $ | 6.90 | ||||||||||||||
Diluted EPS | ||||||||||||||||||||||||
Dilutive effect of stock options and restricted stock | 644 | 644 | ||||||||||||||||||||||
Income available to common stockholders plus assumed conversions | $ | 267,085 | 39,377 | $ | 6.78 | $ | 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 | $ | 258,259 | 39,444 | $ | 6.55 | ||||||||||||||
Diluted EPS | ||||||||||||||||||||||||
Dilutive effect of stock options and restricted stock | 198 | 198 | ||||||||||||||||||||||
Income available to common stockholders plus assumed conversions | $ | 258,259 | 39,642 | $ | 6.51 | $ | 258,259 | 39,642 | $ | 6.51 | ||||||||||||||
For the year ended August 31, 2016 | ||||||||||||||||||||||||
Basic EPS | ||||||||||||||||||||||||
Income available to common stockholders | $ | 338,815 | 40,880 | $ | 8.29 | |||||||||||||||||||
Diluted EPS | ||||||||||||||||||||||||
Dilutive effect of stock options and restricted stock | 485 | |||||||||||||||||||||||
Income available to common stockholders plus assumed conversions | $ | 338,815 | 41,365 | $ | 8.19 |
Dilutive potential common shares consist of stock options and unvested restricted stock awards. There were no11,481 stock options excluded from the Fiscal 2018fiscal 2019 calculation of diluted EPS.EPS, because their inclusion would have been anti-dilutive. There were 704,786 and 507,6580 stock options excluded from the fiscal 20172018 calculation of diluted EPS and 2016there were 704,786 stock options excluded from the fiscal 2017 calculations of diluted EPS, respectively, because their inclusion would have been anti-dilutive.
There were 0 performance-based stock options excluded from the calculation of diluted EPS for fiscal 2019.As of August 31,2018 2017 and 2016,2017, the number of performance-based stock options excluded from the calculation of diluted EPS was 249,443 415,061 and 782,843,415,061, respectively. Performance-based stock options are omitted from the calculation of diluted EPS until the performance criteria is considered probable of being achieved.
14. STOCKHOLDERS’ EQUITY
Preferred Stock
At August 31, 20182019 and 2017,2018, there were 10,000,000 shares of preferred stock ($.010.01 par value per share) authorized, of which no 0 shares were issued and outstanding. FactSet’s Board of Directors may from time to time authorize the issuance of one or more series of preferred stock and, in connection with the creation of such series, determine the characteristics of each such series including, without limitation, the preference and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions of the series.
Common Stock
At August 31, 20182019 and 2017,2018, there were 150,000,000 shares of common stock ($.01($0.01 par value per share) authorized, of which 39,264,84940,104,192 and 51,845,13239,264,849 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 fromreduction to retained earnings ($1.5 billion). As of August 31,2019, and August 31,2018, there were 1,986,352 and 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.respectively.
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 2018,2019, the Company repurchased 882,445 shares for $213.1 million compared to 1,534,398 shares for $302.4 million compared to 1,554,822 shares for $252.8 million in fiscal 2017.2018.
On March 26, 2018, June 24, 2019, the Board of Directors of FactSet approved a $300.0$210.0 million expansion toof the existing share repurchase program. Subsequent to this expansion, $241.7$238.6 million remainremains authorized for future share repurchases as of August 31, 2018. No minimum2019. There is no defined number of shares to be repurchased has been fixed. There is noover a specified timeframe to completethrough the life of the share repurchase program and itprogram. It is expected that share repurchases will be paid using existing and future cash generated by operations.
Restricted Stock
Restricted stock awards entitle the holder to shares of common stock as the awards vest over time. During fiscal 2019, previously granted restricted stock awards of 85,401 shares vested and were included in common stock outstanding as of August 31,2019 (recorded net of 31,644 shares repurchased from employees at a cost of $7.2 million to cover their cost of taxes upon vesting of the restricted stock). 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 (recorded net of 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 |
Year Ended | Dividends per Share of Common Stock | Record Date | Total amount (in thousands) | Payment Date | ||||||||
Fiscal 2019 | ||||||||||||
First Quarter | $ | 0.64 | November 30, 2018 | $ | 24,372 | December 18, 2018 | ||||||
Second Quarter | $ | 0.64 | February 28, 2019 | $ | 24,385 | March 19, 2019 | ||||||
Third Quarter | $ | 0.72 | May 31, 2019 | $ | 27,506 | June 18, 2019 | ||||||
Fourth Quarter | $ | 0.72 | August 30, 2019 | $ | 27,445 | September 19, 2019 | ||||||
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 |
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 restatedThe FactSet Research Systems Inc. 2004 Stock Option and Award Plan, as Amendedamended and Restated, which was renamed the Stock Option and Award Plan, as Amended and Restatedrestated (the “Long 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. The expiration date of the Long Term Incentive Plan is December 19, 2027. Stock options granted under the LTIP expire not more than ten years from the date of grant and the majority vest ratably over a period of five years. 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.
As of August 31, 2018,2019, a total of 3,143,4172,524,304 stock options were outstanding at a weighted average exercise price of $153.05.$168.50. Unamortized stock-based compensation of $59.7$80.4 million is expected to be recognized as stock-based compensation expense over the remaining weighted average vesting period of 3.13.0 years.
Stock Option Activity
In fiscal years 2019,2018 2017 and 2016,2017, FactSet granted 502,139, 610,628 1,026,984 and 1,195,6491,026,984 stock options, respectively. These stock options have a weighted average exercise price of $223.68, $190.65 $157.09 and $168.14$157.09 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 | ||||||||||||
Number Outstanding | Weighted Average Exercise Price Per Share | |||||||||||||||
Balance at August 31, 2016 | 3,364 | $ | 129.54 | 3,364 | $ | 129.54 | ||||||||||
Granted – non performance-based | 713 | $ | 152.89 | 713 | $ | 152.89 | ||||||||||
Granted – performance-based | 291 | $ | 166.29 | 291 | $ | 166.29 | ||||||||||
Granted – non-employee Directors grant | 24 | $ | 170.24 | 24 | $ | 170.24 | ||||||||||
Exercised | (487 | ) | $ | 86.17 | (487 | ) | $ | 86.17 | ||||||||
Forfeited | (539 | ) | $ | 160.31 | (539 | ) | $ | 160.31 | ||||||||
Balance at August 31, 2017 | 3,366 | $ | 139.29 | 3,366 | $ | 139.29 | ||||||||||
Granted – non performance-based | 575 | $ | 190.14 | 575 | $ | 190.14 | ||||||||||
Granted – performance-based | 17 | $ | 200.20 | 17 | $ | 200.20 | ||||||||||
Granted – non-employee Directors grant | 19 | $ | 197.75 | 19 | $ | 197.75 | ||||||||||
Exercised | (622 | ) | $ | 113.73 | (622 | ) | $ | 113.73 | ||||||||
Forfeited | (212 | ) | $ | 158.14 | (212 | ) | $ | 158.14 | ||||||||
Balance at August 31, 2018 | 3,143 | $ | 153.05 | 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 | ||||||||||||
Balance at August 31, 2019 | 2,524 | $ | 168.50 |
Stock Options Outstanding and Exercisable
The following table summarizes ranges of outstanding and exercisable options as of August 31, 20182019 (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 | 184 | 2.98 | $ | 91.86 | $ | 33,175 | 184 | $ | 91.86 | $ | 33,175 | ||||||||||||||||||
$94.84 | - | $110.31 | 88 | 2.89 | $ | 99.70 | $ | 15,102 | 88 | $ | 99.70 | $ | 15,102 | ||||||||||||||||||
$131.31 | - | $148.52 | 280 | 5.01 | $ | 134.18 | $ | 38,636 | 156 | $ | 136.38 | $ | 21,134 | ||||||||||||||||||
$150.81 | - | $152.28 | 470 | 7.12 | $ | 152.25 | $ | 56,307 | 150 | $ | 152.25 | $ | 18,007 | ||||||||||||||||||
$159.14 | - | $170.24 | 299 | 6.09 | $ | 164.99 | $ | 32,050 | 98 | $ | 164.19 | $ | 10,612 | ||||||||||||||||||
$171.22 | - | $175.20 | 254 | 6.21 | $ | 175.04 | $ | 24,715 | 124 | $ | 175.04 | $ | 11,989 | ||||||||||||||||||
$189.98 | - | $200.20 | 475 | 8.21 | $ | 190.73 | $ | 38,637 | 73 | $ | 190.45 | $ | 5,985 | ||||||||||||||||||
$200.99 | - | $286.74 | 474 | 9.18 | $ | 223.79 | $ | 22,883 | 1 | $ | 221.88 | $ | 71 | ||||||||||||||||||
Total Fiscal 2019 | 2,524 | $ | 261,505 | 874 | $ | 116,075 |
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, 20172018 and 20162017 (in thousands, except the weighted average exercise price per share):
August 31, 2017 | August 31, 2016 | August 31, 2018 | August 31, 2017 | |||||||||||||||||||||||||||||
Number of Shares | Weighted Average Exercise Price Per Share | Number of Shares | Weighted Average Exercise Price Per Share | 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 | 3,143 | $ | 153.05 | 3,366 | $ | 139.29 | ||||||||||||||||||||
Exercisable at fiscal year end | 918 | $ | 105.14 | 970 | $ | 89.42 | 1,022 | $ | 126.27 | 918 | $ | 105.14 |
The total number of in-the-money options exercisable as of August 31,2019 was 0.9 million with a weighted average exercise price $139.32. The aggregate intrinsic value of in-the-money stock options exercisable at August 31, 20182019 and 20172018 was $116.1 million and $105.3 million, and $49.7 million, respectively. AggregateThe aggregate intrinsic value represents the difference between the Company’s closing stock price as of $229.39 at August 31, 20182019 of $272.09 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, 20182019 and 20172018 was 5.65.3 years and 5.15.6 years, respectively. The total pre-tax intrinsic value of stock options exercised during fiscal 2019,2018 2017 and 20162017 was $73.0 million, $50.1 million $38.0 million and $60.8$38.0 million, respectively.
Performance-based Stock OptionsEquity Awards
Performance-based equity awards, whether in the form of stock options or restricted stock, require management to make assumptions regarding the likelihood of achieving Company performance targets. The number of performance-based optionsawards 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 optionsawards will vest to the grantees of those stock options.grantees. However, there is no current guarantee that such optionsawards will vest in whole or in part.
February 2015 June 2017 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 |
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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 willwere scheduled to 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 arewere achieved by March 31, 2019. The option holders must also remain employedIn the third quarter of fiscal 2019, it was determined that the performance criteria were not achieved by FactSet for the options to be eligible to vest. As of AugustMarch 31, 2018, FactSet does not believe these growth targets are probable of being achieved, 2019, and, as such, nothe options were forfeited, and 0 stock-based compensation expense is expected to be recognized in connection with thesewas recorded for this performance-based options. A change in the actual financial performance levels achieved by BISAM in futureoption grant for fiscal years could result in the following changes to the current estimate of the vesting percentage and related expense:2019.
(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 |
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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 2019,2018 2017 and 2016,2017, FactSet granted 73,047, 3,497 62,400 and 97,31962,400 restricted stock awards to employees of the Company, respectively. These awards have a weighted average grant date fair value of $239.03, $189.28 $158.26 and $159.64$158.26 for fiscal years 2019,2018 2017 and 2016,2017, respectively.
As of August 31, 2018,2019, a total of 143,003123,794 shares of restricted stock and restricted stock units were unvested and outstanding, which results in unamortized stock-based compensation of $12.0$21.8 million to be recognized as stock-based compensation expense over the remaining vesting period of 3.03.1 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 | 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 | 262 | 126.27 | |||||||||||
Granted (restricted stock and stock units) | 62 | $ | 158.26 | 62 | 158.26 | |||||||||||
Vested(2) | (132 | ) | $ | 123.28 | ||||||||||||
Vested(1) | (132 | ) | 123.28 | |||||||||||||
Canceled/forfeited | (10 | ) | $ | 130.32 | (10 | ) | 130.32 | |||||||||
Balance at August 31, 2017 | 182 | $ | 138.62 | 182 | 138.62 | |||||||||||
Granted (restricted stock and stock units) | 4 | $ | 189.28 | 3 | 189.28 | |||||||||||
Vested(2) | (27 | ) | 155.95 | |||||||||||||
Canceled/forfeited | (15 | ) | 116.29 | |||||||||||||
Balance at August 31, 2018 | 143 | 139.34 | ||||||||||||||
Granted (restricted stock and stock units) | 73 | 239.03 | ||||||||||||||
Vested(3) | (27 | ) | $ | 155.95 | (85 | ) | 125.04 | |||||||||
Canceled/forfeited | (16 | ) | $ | 116.29 | (7 | ) | 181.32 | |||||||||
Balance at August 31, 2018 | 143 | $ | 139.34 | |||||||||||||
Balance at August 31, 2019 | 124 | 205.47 |
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| The 132,194 restricted stock awards that vested during fiscal 2017 were comprised |
| The26,599restricted stock awards that vested during fiscal 2018 were comprised |
(3) | The 85,401 restricted stock awards that vested during fiscal 2019 were comprised of: 42,276 of awards relating to restricted stock granted on November 1,2013 and 9,451 of awards relating to restricted stock granted on October 16, 2015, which vest at a rate of 20% annually upon the anniversary date of the grant, |
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 | 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 | 1,491 | 66 | ||||||||||||
Granted – non performance-based options | (713 | ) | — | (713 | ) | — | ||||||||||
Granted – performance-based options | (291 | ) | — | (291 | ) | — | ||||||||||
Granted – non-employee Directors grant | — | (24 | ) | — | (24 | ) | ||||||||||
Restricted stock awards granted(1) | (156 | ) | — | (156 | ) | — | ||||||||||
Share-based awards canceled/forfeited(2) | 566 | — | 566 | — | ||||||||||||
Balance at August 31, 2017 | 897 | 42 | 897 | 42 | ||||||||||||
Increase in the number of shares available for issuance | 5,750 | 250 | 5,750 | 250 | ||||||||||||
Granted – non performance-based options | (575 | ) | — | (575 | ) | — | ||||||||||
Granted – performance-based options | (17 | ) | — | (17 | ) | — | ||||||||||
Granted – non-employee Directors grant | — | (19 | ) | — | (19 | ) | ||||||||||
Restricted stock awards granted(1) | (9 | ) | — | (9 | ) | — | ||||||||||
Share-based awards canceled/forfeited(2) | 252 | 9 | 252 | 9 | ||||||||||||
Balance at August 31, 2018 | 6,298 | 282 | 6,298 | 282 | ||||||||||||
Granted – non performance-based options | (481 | ) | (20 | ) | ||||||||||||
Restricted stock awards granted(1) | (183 | ) | — | |||||||||||||
Share-based awards canceled/forfeited(2) | 433 | 2 | ||||||||||||||
Balance at August 31, 2019 | 6,067 | 264 |
| Each restricted stock award granted is equivalent to 2.5 shares granted under the Company’sOption |
| Under the Company’s |
Employee Stock Purchase Plan
On December 19, 2017,Shares of FactSet common stock may be purchased by eligible employees under the Company’s stockholders approved and amended and restated 2008 Employee Stock Purchase Plan, as Amended and Restated, which was renamed theFactSet Research Systems Inc. Employee Stock Purchase Plan, as Amended and Restated (the “ESPP”"ESPP"). Shares of FactSet common stock may be purchased by eligible employees under ESPP in three-month intervals at athree-month intervals. The purchase price is 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-monththree-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 2018,2019, employees purchased 48,532 shares at a weighted average price of $205.64 as compared to 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 2017.2018. At August 31, 2018,2019, the ESPP had 268,942220,410 shares reserved for future issuance.
401(k) PlanEmployee Benefit Plans
The Company established its 401(k)401(k) Plan in fiscal 1993. The 401(k)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-yearfive-year graduated vesting schedule. All full-time, U.S. employees are eligible for the matching contribution by the Company. The Company contributed $10.9 million, $11.6 million, $10.1 million, and $9.7$10.1 million in matching contributions to employee 401(k)401(k) accounts during fiscal 2019,2018 2017 and 2016,2017, respectively.
16. STOCK-BASED COMPENSATION
The Company recognized total stock-based compensation expense of $32.4 million, $31.5 million $34.2 million and $29.8$34.2 million in fiscal 2019,2018 2017 and 2016,2017, respectively. As of August 31, 2018, $71.72019, $80.4 million of total unrecognized compensation expense related to non-vested awards is expected to be recognized over a weighted average period of 3.0 years. There was no 0 stock-based compensation capitalized as of August 31, 20182019 and 2017,2018, respectively.
Employee Stock Option Fair Value Determinations
The Company utilizes the lattice-binomial option-pricing model (“binomial model”) to estimate the fair value of new employee stock option grants. The Company’s determination of fair value of stock option awards on the date of grant using the binomial model is affected by the Company’s stock price, as well as, assumptions regarding a number of variables. Theseseveral variables, which include, but are not limited to the Company’s expected stock price volatility over the term of the awards, interest rates, option forfeitures and employee stock option exercise behaviors.behaviors, to determine the grant date stock option award fair value.
Q1 | 454,598 non-performance-based employee stock options were granted at a weighted average exercise price of $221.93 and a weighted average estimated fair value of $56.77 per share. |
| 6,115 non-performance-based employee stock options were granted at a weighted average exercise price of $207.84 and a weighted average estimated fair value of $53.18 per share. |
Q32019 | 2,320 non-performance-based employee stock options were granted at a weighted average exercise price of $267.02 and a weighted average estimated fair value of $68.33 per share. |
Q42019 | 18,530 non-performance-based employee stock options were granted at a weighted average exercise price of $283.96 and a weighted average estimated fair value of $65.60 per share. |
Q12018 | 553,942 |
Q2 | 15,363 |
Q3 | There were |
Q4 | 5,848 |
Q1 | 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 | 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 | 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 | 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. |
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The weighted average estimated fair value of employee stock options granted during fiscal 2019,2018 2017 and 20162017 was determined using the binomial model with the following weighted average assumptions:
2018 | 2017 | 2016 | 2019 | 2018 | 2017 | ||||||||||||||||||||||||||||||
Term structure of risk-free interest rate | 1.28% | – | 2.41% | 0.07% | – | 2.09% | 0.07% | – | 2.1% | 1.28% | — | 3.14% | 1.28% | — | 2.41% | 0.07% | — | 2.09% | |||||||||||||||||
Expected life (years) | 7.4 | – | 7.4 | 7.4 | – | 8.1 | 7.3 | – | 8.1 | 7.1 | — | 7.1 | 7.4 | — | 7.4 | 7.4 | — | 8.1 | |||||||||||||||||
Term structure of volatility | 19% | – | 29% | 21% | – | 30% | 21% | – | 30% | 18% | — | 29% | 19% | — | 29% | 21% | — | 30% | |||||||||||||||||
Dividend yield | 1.32% | 1.18% | 1.09% | 1.15% | 1.32% | 1.18% | |||||||||||||||||||||||||||||
Weighted average estimated fair value | $48.39 | $40.68 | $46.08 | $57.12 | $48.39 | $40.68 | |||||||||||||||||||||||||||||
Weighted average exercise price | $190.42 | $156.77 | $168.55 | $224.35 | $190.42 | $156.77 | |||||||||||||||||||||||||||||
Fair value as a percentage of exercise price | 25.4% | 25.9% | 27.3% | 25.5% | 25.4% | 25.9% |
The risk-free interest rate assumption for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected volatility is based on a combination of historical volatility of the Company’s stock and implied volatilities of publicly traded options to buy FactSet common stock with contractual terms closest to the expected life of options granted to employees. The approach to utilize a mix of historical and implied volatility was based upon the availability of actively traded options on the Company’s stock and the Company’s assessment that a combination of implied volatility and historical volatility is best representative of future stock price trends. The Company uses historical data to estimate option exercises and employee termination within the valuation model. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts. The expected life of employee stock options represents the weighted average period the stock options are expected to remain outstanding and is a derived output of the binomial model. The binomial model estimates employees exercise behavior based on the option’s remaining vested life and the extent to which the option is in-the-money. The binomial model estimates the probability of exercise as a function of these two variables based on the entire history of exercises and cancellations of all past option grants made by the Company.
Non-Employee Director Stock Option Fair Value Determinations
On December 19, 2017, the Company’s stockholders approved the Director Plan. The DirectorNon-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 August 31,2019, shares available for future grant under the stockholder approval, theDirector Plan was 263,956. The expiration date of the Director Plan was extended to is December 19, 2027 and the number of shares reserved for issuance under the Director Plan was increased by 250,000. As of August 31, 2018, shares available for future grant were 282,398.2027.
The Company utilizes the Black-Scholes model to estimate the fair value of new non-employee Director stock option grants. The Company’s determination of fair value of share-based payment awards on the date of grantBlack-Scholes model is affected by the Company’s stock price, as well as, assumptions regarding a number of variables. Theseseveral variables, which include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, interest rates, option forfeitures and employee stock option exercise behaviors.behaviors, to determine the grant date stock-based payment award fair value.
Fiscal 2018Fiscal 2019
On January 15, 2019, FactSet granted 20,576 stock options to the Company’s non-employee Directors. These options have a weighted average estimated fair value of $42.77 per share, using the Black-Scholes option-pricing model with the following weighted average assumptions:
Risk-free interest rate | 2.51 | % | ||
Expected life (years) | 5.4 | |||
Expected volatility | 20.5 | % | ||
Dividend yield | 1.17 | % |
Fiscal 2018
On January 12, 2018, FactSet granted 18,963 stock options to the Company’s non-employee Directors. All theThese options granted on January 12, 2018, have a weighted average estimated fair value of $38.76 per share, using the Black-Scholes option-pricing model with the following weighted average assumptions:
Risk-free interest rate | 2.34 | % | ||
Expected life (years) | 5.4 | |||
Expected volatility | 19.7 | % | ||
Dividend yield | 1.16 | % |
Fiscal Fiscal 2017
On January 13, 2017, FactSet granted 23,846 stock options to the Company’s non-employee Directors, including one-timeone-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, using the Black-Scholes option-pricing model with the following weighted average assumptions:
Risk-free interest rate | 1.95 | % | ||
Expected life (years) | 5.4 | |||
Expected volatility | 22.7 | % | ||
Dividend yield | 1.24 | % |
Fiscal 2016
On January 15, 2016, FactSet granted 22,559 stock options to the Company’s non-employee Directors, including a one-time new director grant of 2,417 for Laurie Siegel, who was elected to FactSet’s Board of Directors on December 15, 2015. All the options granted on January 15, 2016, have a weighted average estimated fair value of $31.03 per share, using the Black-Scholes option-pricing model with the following weighted average assumptions:
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Restricted Stock Fair Value Determinations
Restricted stock granted to employees entitles the holder to shares of common stock as the award vests over time, but not to dividends declared on the underlying shares, while the restricted stock is unvested. The grant date fair value of restricted stock awards is measured by reducing the grant date price of FactSet’s share 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. RestrictedThe expense associated with restricted stock awards areis amortized to expense over the vesting period. During fiscal 2018,2019, there were 73,047 restricted stock awards granted with a weighted average grant date fair value of $239.03 compared to 3,497 restricted 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 2017.2018.
Q1 | 41,102 shares of restricted stock were granted at a weighted average estimated fair value of $212.66 per share. |
| 51 shares of restricted stock were granted at a weighted average estimated fair value of $210.67 per share. |
Q32019 | 265 shares of restricted stock were granted at a weighted average estimated fair value of $255.95 per share. |
Q42019 | 31,629 shares of restricted stock were granted at a weighted average estimated fair value of $273.19 per share. |
Q12018 | 961 shares of restricted stock were granted at a weighted average estimated fair value of $182.17 per share. |
Q2 |
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Q3 |
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Q4 | 2,536 shares of restricted stock were granted at a weighted average estimated fair value of $191.97 per share. |
Q1 | 5,084 shares of restricted stock were granted at a weighted average estimated fair value of $151.63 per share. |
Q2 | 7,843 shares of restricted stock were granted at a weighted average estimated fair value of $161.31 per share. |
Q3 |
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Q4 | 49,473 shares of restricted stock were granted at a weighted average estimated fair value of $158.46 per share. |
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Employee Stock Purchase Plan Fair Value Determinations
During fiscal 2018,2019, employees purchased 48,532 shares at a weighted average price of $205.64 compared to 64,230 shares at a weighted average price of $160.34 compared toin fiscal 2018 and 75,372 shares at a weighted average price of $136.34 in fiscal 2017 and 73,072 shares at a weighted average price of $131.14 in fiscal 2016.2017. Stock-based compensation expense recorded during fiscal 2019,2018 2017 and 20162017 relating to the employee stock purchase plan was $2.0 million, $1.6 million $2.1 million and $1.9$2.1 million, respectively.
The Company uses the Black-Scholes model to calculate the estimated fair value for the employee stock purchase plan. The weighted average estimated fair value of employee stock purchase plan grants during fiscal years 2019,2018 2017 and 2016,2017, was $41.06, $31.83 $28.16 and $26.87$28.16 per share, respectively, with the following weighted average assumptions:
2018 | 2017 | 2016 | 2019 | 2018 | 2017 | |||||||||||||||||||
Risk-free interest rate | 1.55 | % | 0.69 | % | 0.22 | % | 2.33 | % | 1.55 | % | 0.69 | % | ||||||||||||
Expected life (months) | 3 | 3 | 3 | 3 | 3 | 3 | ||||||||||||||||||
Expected volatility | 10.19 | % | 8.6 | % | 10.7 | % | 10.89 | % | 10.19 | % | 8.60 | % | ||||||||||||
Dividend yield | 1.27 | % | 1.25 | % | 1.18 | % | 1.12 | % | 1.27 | % | 1.25 | % |
Accuracy of Fair Value Estimates
The Company is responsible for determining the assumptions used in estimating the fair value of its share-based payment awards. The Company’s determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price, as well as, assumptions regarding a number ofseveral 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 options that have no vesting or hedging restrictions and are fully transferable.
17. INCOME TAXES
Income tax expense is based on taxable income determined in accordance with current enacted laws and tax rates. Deferred income taxes are recorded for the temporary differences between the financial statement and tax bases of assets and liabilities using currently enacted tax rates.
Provision for Income Taxes
The provision for income taxes is as follows:
| Years ended August 31, | |||||||||||
(in thousands) | 2019 | 2018 | 2017 | |||||||||
U.S. operations | $ | 288,860 | $ | 199,654 | $ | 218,650 | ||||||
Non-U.S. operations | 133,105 | 152,184 | 125,662 | |||||||||
Income before income taxes | $ | 421,965 | $ | 351,838 | $ | 344,312 | ||||||
U.S. operations | $ | 55,824 | $ | 65,778 | $ | 65,403 | ||||||
Non-U.S. operations | 13,351 | 18,975 | 20,650 | |||||||||
Total provision for income taxes | $ | 69,175 | $ | 84,753 | $ | 86,053 | ||||||
Effective tax rate | 16.4 | % | 24.1 | % | 25.0 | % |
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 |
| Years ended August 31, | |||||||||||
(in thousands) | 2019 | 2018 | 2017 | |||||||||
Current | ||||||||||||
U.S. federal | $ | 35,688 | $ | 58,835 | $ | 58,057 | ||||||
U.S. state and local | 18,389 | 5,159 | 5,659 | |||||||||
Non-U.S. | 17,376 | 22,669 | 17,458 | |||||||||
Total current taxes | $ | 71,453 | $ | 86,663 | $ | 81,174 | ||||||
Deferred | ||||||||||||
U.S. federal | $ | 1,813 | $ | 2,079 | $ | 4,320 | ||||||
U.S. state and local | (217 | ) | (295 | ) | (77 | ) | ||||||
Non-U.S. | (3,874 | ) | (3,694 | ) | 636 | |||||||
Total deferred taxes | $ | (2,278 | ) | $ | (1,910 | ) | $ | 4,879 | ||||
Total provision for income taxes | $ | 69,175 | $ | 84,753 | $ | 86,053 |
The provision for income taxes differs from the amount of income tax determined by applying the U.S. statutory federal income tax rate to income before income taxes as a result of the following factors:
Years ended August 31, | Years ended August 31, | ||||||||||||||||||||||||||
(expressed as a percentage of income before income taxes) | 2018 | 2017 | 2016 | 2019 | 2018 | 2017 | |||||||||||||||||||||
Tax at U.S. Federal statutory tax rate | 25.7 | % | 35.0 | % | 35.0 | % | 21.0 | % | 25.7 | % | 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 | 4.0 | 2.9 | 1.8 | |||||||||||||||||||||
Foreign income at other than U.S. rates | (3.2 | ) | (7.0 | ) | (3) | (5.0 | ) | (4) | (1.4 | ) | (3.2 | ) | (7.0 | ) | (3) | ||||||||||||
Foreign derived intangible income deduction | (1.7 | ) | — | — | |||||||||||||||||||||||
Domestic production activities deduction | (1.6 | ) | (2.1 | ) | (1.5 | ) | — | (1.6 | ) | (2.1 | ) | ||||||||||||||||
Income tax benefits from R&D tax credits | (3.7 | ) | (3.3 | ) | (3.6 | ) | (3.5 | ) | (3.7 | ) | (3.3 | ) | |||||||||||||||
Income tax benefits from foreign tax credits | — | (0.3 | ) | (0.2 | ) | — | — | (0.3 | ) | ||||||||||||||||||
Share-Based Payments(1) | (2.7 | ) | — | — | |||||||||||||||||||||||
One-time transition tax from TCJA(2) | 6.6 | — | — | ||||||||||||||||||||||||
Share-based payments(1) | (3.2 | ) | (2.7 | ) | — | ||||||||||||||||||||||
One-time transition tax from TCJA | (0.4 | ) | 6.6 | (2) | — | ||||||||||||||||||||||
Other, net | 0.1 | 0.9 | 0.3 | 1.6 | 0.1 | 0.9 | |||||||||||||||||||||
Effective tax rate | 24.1 | % | 25.0 | % | 26.5 | % | (5) | 16.4 | % | 24.1 | % | 25.0 | % |
| During the first quarter of fiscal 2018, FactSet adoptedanaccounting standardthat requiresall excess tax benefits or deficiencies related to share-based paymentsto bereported within the consolidated statement of incomethat were |
| The enactment of the TCJA resulted in a |
| Includesa |
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FactSet’s effective tax rate is based on recurring factors and nonrecurring events, including
The fiscal 2019 provision for income taxes was $69.2 million, a decrease of 18.4% from the taxationsame period a year ago. The decrease was primarily attributable to the enactment 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 discrete and other nonrecurring events that may not be predictable. On December 22, 2017, the U.S. government enacted comprehensive tax legislation through the TCJA. The TCJA significantly revisesimposed a one-time transition tax expense, which resulted in a $23.2 million impact to the U.S. corporate income tax including, loweringprovision for fiscal 2018, without a comparable impact in fiscal 2019. This transition tax impact was revised during fiscal 2019, resulting in a net benefit of $3.4 million upon finalizing the accounting for the tax effects of the TCJA. The TCJA also lowered the statutory U.S.U.S corporate income tax rate from 35% to 21%, effective January 1, 2018, implementing a modified territorialwhich was fully applicable for fiscal 2019 compared to the lower 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 accountingrate being phased in for the prior year comparable period. The reduction in the U.S. corporate income tax effectsrate required a remeasurement of the enactment of the TCJA, FactSet has made a reasonable estimate of the effects on the existingFactSet's net 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,position, which resulted in a one-time transitionnon-recurring tax charge of $2.2 million during fiscal 2018. The decrease in the income tax provision was partially offset by a $3.3 million income tax expense of $23.2 million recorded during the second quarter offrom finalizing prior years’ tax returns and other discrete items for 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. 2019.
Due to the changes in taxation of undistributed foreign earnings under the TCJA, FactSet will continue to analyze foreign subsidiary earnings, as well as global working capital requirements, and 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 SheetSheets were as follows:
At August 31, | At August 31, | |||||||||||||||
(in thousands) | 2018 | 2017 | 2019 | 2018 | ||||||||||||
Deferred tax assets: | ||||||||||||||||
Receivable reserve | $ | 599 | $ | 811 | $ | 1,517 | $ | 599 | ||||||||
Depreciation on property, equipment and leasehold improvements | 1,032 | 2,220 | 2,858 | 1,032 | ||||||||||||
Deferred rent | 7,711 | 11,615 | 9,454 | 7,711 | ||||||||||||
Stock-based compensation | 14,827 | 20,117 | 13,755 | 14,827 | ||||||||||||
Purchased intangible assets, including acquired technology | (24,059 | ) | (32,742 | ) | (27,116 | ) | (24,059 | ) | ||||||||
Other | 9,606 | 8,059 | 7,103 | 9,606 | ||||||||||||
Total deferred tax assets | $ | 9,716 | $ | 10,080 | $ | 7,571 | $ | 9,716 |
The significant components of deferred tax liabilities recorded within the Consolidated Balance SheetSheets were as follows:
At August 31, | At August 31, | |||||||||||||||
(in thousands) | 2018 | 2017 | ||||||||||||||
(in thousands | 2019 | 2018 | ||||||||||||||
Deferred tax liabilities: | ||||||||||||||||
Stock-based compensation | $ | (946 | ) | $ | (815 | ) | $ | (1,067 | ) | $ | (946 | ) | ||||
Purchased intangible assets, including acquired technology | 22,429 | 26,231 | 17,188 | 22,429 | ||||||||||||
Other | (293 | ) | 1,858 | 270 | (293 | ) | ||||||||||
Total deferred tax liabilities | $ | 21,190 | $ | 27,274 | $ | 16,391 | $ | 21,190 |
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 recognizeFactSet 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,be sustained based solely on theits technical merits of the tax position. 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 fifty percent50% likelihood of being realized upon ultimate settlement.effective settlement with a taxing authority. Additionally, companies are required to accrueFactSet accrues interest on all tax exposures for which reserves have been established consistent with jurisdictional tax laws.
AsThe determination of August 31, 2018, the Company had grossliabilities related to unrecognized tax benefits, totaling $9.2 million, including $1.1 million of accruedassociated 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,and penalties, requires significant estimates. There can be no assurance that the Company adjustswill accurately predict 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,audit outcomes, however, FactSet has no reason to believe that such audits will result in the payment of additional taxes and/or penalties that would have a material adverse effect on the Company’s results of operations or financial position, beyond current estimates. Any changesFor this reason and due to ongoing audits by multiple tax authorities, FactSet will regularly engage in accounting estimates resulting from new developmentsdiscussions and negotiations with respect to uncertain tax positionsauthorities regarding tax matters in various jurisdictions. The Company adjusts these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will be recorded as appropriate.affect the provision for income taxes in the period in which such determination is made. The Company does not currently anticipate that the total amounts of unrecognized tax benefits will significantly change within the next 12 months.
FactSet classifies the liability for unrecognized tax benefits as Taxes Payable (non-current) and to the extent that the Company anticipates payment of cash within one year, the benefit will be classified as Taxes Payable (current). Additionally, the Company accrues interest on all tax exposures for which reserves have been established consistent with jurisdictional tax laws. This interest is classified as income tax expense in the financial statements. As of August 31,2019, FactSet had gross unrecognized tax benefits totaling $10.9 million, including $1.1 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, 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 | $ | 8,782 | ||||
Additions based on tax positions related to the current year | 3,896 | 3,896 | ||||||
Additions for tax positions of prior years | 628 | 628 | ||||||
Statute of limitations lapse | (1,822 | ) | (1,822 | ) | ||||
Unrecognized income tax benefits at August 31, 2017 | $ | 11,484 | $ | 11,484 | ||||
Additions based on tax positions related to the current year | 2,954 | 2,954 | ||||||
Additions for tax positions of prior years | 531 | 531 | ||||||
Statute of limitations lapse | (3,146 | ) | (3,146 | ) | ||||
Reductions from settlements with Taxing Authorities | (2,600 | ) | (2,600 | ) | ||||
Unrecognized income tax benefits at August 31, 2018 | $ | 9,223 | $ | 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 | ) | ||||||
Reductions from settlements with Taxing Authorities | — | |||||||
Unrecognized income tax benefits at August 31, 2019 | $ | 10,884 |
In the normal course of business, the Company’s tax filings are subject to audit by federal, state and foreign tax authorities. At August 31, 2018,2019, 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 | 2016 | through | 2018 |
State (various) | 2016 | through | 2018 |
Europe | |||
United Kingdom | 2017 | through | 2018 |
France | 2017 | through | 2018 |
Germany | 2016 | through | 2018 |
Major Tax Jurisdictions | Open Tax Years | |||||
U.S. | ||||||
Federal | 2015 | through | 2018 | |||
State (various) | 2015 | through | 2018 | |||
Europe | ||||||
United Kingdom | 2015 | through | 2018 | |||
France | 2016 | through | 2018 | |||
Germany | 2017 | through | 2018 |
18. DEBT
FactSet’s debt obligations consisted of the following:
At August 31, | At August 31, | |||||||||||||||
(in thousands) | 2018 | 2017 | 2019 | 2018 | ||||||||||||
2017 Revolving Credit Facility (maturity date of March 17, 2020) | $ | 575,000 | $ | 575,000 | ||||||||||||
2017 Revolving Credit Facility | $ | — | $ | 575,000 | ||||||||||||
2019 Revolving Credit Facility (maturity date of March 29, 2024) | $ | 575,000 | $ | — |
2019 Credit Agreement
On March 17, 2017, 29, 2019, the Company entered into athe 2019 Credit Agreement (the “2017"2019 Credit Agreement”Agreement") between FactSet, as the borrower, and PNC Bank, National Association (“PNC”("PNC"), as the administrative agent and lender. The 20172019 Credit Agreement provides for a $750.0 million revolving credit facility (the "2019 Revolving Credit Facility"). FactSet may request borrowings under the 2019 Revolving Credit Facility until its maturity date of March 29, 2024. The 2019 Credit Agreement also allows FactSet, subject to certain requirements, to arrange for additional borrowings with PNC for an aggregate amount up to $500.0 million, provided that any such request for additional borrowings must be in a minimum amount of $25.0 million.
FactSet borrowed $575.0 million of the available $750.0 million provided by the 2019 Revolving Credit Facility, resulting in $175.0 million available to be withdrawn. FactSet is required to pay a commitment fee using a pricing grid currently at 0.10% based on the daily amount by which the available balance in the 2019 Revolving Credit Facility exceeds the borrowed amount. All outstanding loan amounts are reported as Long-term debt within the consolidated balance sheets at August 31,2019. The principal balance is payable in full on the maturity date.
The fair value of our long-term debt was $575.0 million as of August 31,2019, which the Company believe approximates carrying amount as the terms and interest rates approximate market rates given its floating interest rate basis. Borrowings under the loan bear interest on the outstanding principal amount at a rate equal to the daily LIBOR rate plus a spread using a debt leverage pricing grid, currently at 0.875%. During fiscal years 2019,2018 and 2017, FactSet recorded interest expense of $19.8 million, $15.9 million and $8.4 million, respectively, on its outstanding debt amounts. The weighted average interest rate on amounts outstanding under our credit facilities was 3.35% and 2.69% as of August 31, 2019 and 2018, respectively. Interest on the loan outstanding is payable quarterly, in arrears, and on the maturity date.
During fiscal 2019, FactSet incurred approximately $0.9 million in debt issuance costs related to the 2019 Credit Agreement. These costs were capitalized as loan origination fees and are amortized into interest expense ratably over the term of the 2019 Credit Agreement.
The 2019 Credit Agreement contains covenants and requirements restricting certain FactSet activities, which are usual and customary for this type of loan. In addition, the 2019 Credit Agreement requires that FactSet maintain a consolidated net leverage ratio, as measured by total net funded debt/EBITDA below a specified level as of the end of each fiscal quarter. The Company was in compliance with all the covenants and requirements within the 2019 Credit Agreement as of August 31,2019.
The borrowings from the 2019 Credit Agreement were used to retire all outstanding debt under the previous 2017 Credit Agreement between FactSet, as the borrower, and PNC as the lender on March 29, 2019. The total principal amount of the debt outstanding at the time of retirement was $575.0 million and there were no prepayment penalties.
2017 Credit Agreement
On March 17, 2017, the Company entered into a Credit Agreement (the "2017 Credit Agreement") between FactSet, as the borrower, and PNC Bank, National Association ("PNC"), as the administrative agent and lender. The 2017 Credit Agreement provided for a $575.0 million revolving credit facility (the “2017"2017 Revolving Credit Facility”Facility"). FactSet may requestcould have requested borrowings under the 2017 Revolving Credit Facility until its maturity date of March 17, 2020.or retirement date. The 2017 Credit Agreement also allowsallowed 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 bewas in a minimum amount of $25.0 million. Borrowings under the loan bearwere subject to interest on the outstanding principal amount at a rate equal to the daily LIBOR rate plus 1.00%. Interest on the loan outstanding iswas payable quarterly in arrears and on the maturity date. The principal balance was also payable in full on the maturity date. There are were no prepayment penalties ifwhen the Company electselected 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.March 29, 2019.
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 2018,2019, the Company’sCompany's worldwide leased office space increased to approximately 1,750,0001,860,000 square feet of office space under various non-cancelable operating leases which expire on various dates through 2031.2035. Total minimum rental payments associated with the leases are recorded as rentoccupancy expense (a component of Selling, General & Administrative, "SG&A" expense) on a straight-line basis over the periods of the respective non-cancelable lease terms. Future minimum commitments for the Company’sCompany's operating leases in place as of August 31, 2018, including the fully executed lease for its new headquarters in Norwalk, Connecticut2019 are as follows:
(in thousands) Years ended August 31, | Minimum Lease Payments | Minimum Lease Payments | ||||||
2019 | $ | 41,094 | ||||||
2020 | 37,846 | $ | 41,414 | |||||
2021 | 35,505 | 40,051 | ||||||
2022 | 32,819 | 36,011 | ||||||
2023 | 30,524 | 33,890 | ||||||
2024 | 33,072 | |||||||
Thereafter | 229,977 | 215,523 | ||||||
Total | $ | 407,765 | $ | 399,961 |
During fiscal 2019,2018 2017 and 2016,2017, rent expense (including operating costs) for all operating leases amounted to $56.7 million, $54.6 million $48.4 million and $43.2$48.4 million, respectively. At August 31, 20182019 and 2017,2018, deferred rent reported within the Consolidated Balance Sheets totaled $39.4$42.6 million and $37.4$39.4 million, of which $33.6$39.1 million and $33.5$33.6 million, respectively, was reported as a non-current liability within the line item Deferred Rent and Other Non-Current Liabilities.
Approximately $2.0$2.8 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, 2018.2019. 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, 20182019 and 2017,2018, 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, 20182019 and 2017,2018, the Company had total purchase commitments with suppliers of $79.0$83.3 million and $81.0$79.0 million, respectively. There were no material changes in the Company’s purchase commitments with suppliers during fiscal 2018.2019.
Contingencies
Income Taxes
Uncertain income tax positions are accounted for in accordance with applicable accounting guidance, (seerefer to Note 17).17 Income Taxes for further details. FactSet is currently under audit by tax authorities and has reserved for potential adjustments to its provision for income taxes that may result from examinations by, or any negotiated settlements with, these tax authorities. The Company believes that the final outcome of these examinations or settlements will not have a material effect on its results of operations. If events occur which indicate payment of these amounts is unnecessary, the reversal of the liabilities would result in the recognition of tax benefits in the period FactSet determines the liabilities are no longer necessary. If the Company’s estimates of the federal, state, and foreign income tax liabilities are less than the ultimate assessment, a further charge to expense would result.
Legal Matters
FactSet accrues non income-tax liabilities for contingencies when management believes that a loss is probable, and the amounts can be reasonably estimated, while contingent gains are recognized only when realized. The Company is engaged in various legal proceedings, claims and litigation that have arisen in the ordinary course of business, including employment matters, commercial and intellectual property litigation. The outcome of all the matters against the Company is subject to future resolution, including the uncertainties of litigation. Based on information available at August 31, 2018,2019, 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 TaxMatters
In the third quarter of fiscal 2018, August 2019, FactSet received a letterNotice of Intent to Assess (the “Notice”) additional sales taxes, interest and underpayment penalties from the Commonwealth of Massachusetts Department of Revenue relating to prior tax periods. The Notice follows FactSet’s previously disclosed response to a letter requestedfrom the Commonwealth requesting additional sales information in order to determine if a notice of intentinformation. Based upon the Notice, it is the Commonwealth's intention to assess should be issued to FactSet. Based upon a preliminary review of their request, the Company believes the state may assess salessales/use tax, interest and underpayment penalties and interest, on previously recorded sales transactions. The Company filed an appeal to the Notice and intends to contest any such assessment, if assessed, and continues to cooperate with the Commonwealth’s inquiry. Due to 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, 2018.2019. While FactSet believes that it will ultimately prevail if the Company is presented with a formal assessment and is required to pay it,assessment; if FactSet does not prevail, the amount could have a material impact on the Company’s consolidated financial position, cash flows and results of operations.
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 conducts business outside the U.S. in several currencies including the Euro, Indian Rupee, Philippine Peso, British Pound Sterling, Euro, Indian Rupee,and Japanese Yen and Philippine Peso.Yen. 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. To manage the exposures related to the effects of foreign exchange rate fluctuations, the Company utilizes derivative instruments (foreign currency forward contracts). By their nature, all derivative instruments involve, to varying degrees, elements of market and credit risk. The market risk associated with these instruments resulting from currency exchange movements is expected to offset the market risk of the underlying transactions, assets and liabilities being hedged. FactSet does not believe there is significant risk of loss in the event of non-performance by the counterparties associated with these instruments because these transactions are executed with a major financial institution. Further, the Company’s 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’s primary objective in holding derivatives is to reduce the volatility of earnings associated with changes in foreign currency.
Interest Rate Risk
Cash and Cash Equivalents - and Investments
The fair market value of FactSet’s cash and cash equivalents and investments at August 31, 20182019 was $237.9$385.6 million. The Company’s 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 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 SheetSheets as the mutual funds can be liquidated at our discretion and the certificates of deposit have original maturities greater than three months, but less than one year and the mutual funds can be liquidated at the Company’s discretion. year. 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 cash equivalents 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 cash equivalents and investment policy. Pursuant to the FactSet's established investment guidelines, the Company tries to achieve high levels of credit quality, liquidity and diversification. ItsThe Company's investment guidelines do not permit FactSet to invest in puts, calls, strips, short sales, straddles, options, commodities, precious metals, futures or investments on margin. BecauseAs the Company has a restrictive investment policy, its financial exposure to fluctuations in interest rates is expected to remain low. The Company does not believe that the value or liquidity of its cash and cash equivalents and investments have been significantly impacted by current market events.
Debt-
As of August 31, 2018,2019, the fair value of FactSet’s long-term debt was $575.0 million, which approximated its carrying amount and was determined based on quotedamount. The application of a floating interest rate equal to the daily LIBOR rate plus a spread using a debt leverage pricing grid, approximates the current market pricesrate for debt with a similar maturity.transactions. It is anticipated that the fair market value 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. The debt bears interest on the outstanding principal amount at a rate equal to the daily LIBOR rate plus a spread using a debt leverage pricing grid currently at 1.00%0.875%. During fiscal 20182019 and fiscal 2017,2018, the Company recorded interest expense of $19.8 million and $15.9 million, and $8.4 million in interestrespectively, on its outstanding debt amounts, respectively.amounts. Assuming all terms of the Company’s outstanding long-term debt remained the same, a hypothetical 25 basis point change (up or down) in the one-monthone-month LIBOR rate would result in a $1.4 million change in its annual interest expense.
Current market events have not required the Company to modify materially or change its financial risk management strategies with respect to its exposures to foreign currency exchange risk and interest rate risk.
Concentrations of Credit Risk
Cash equivalents
Cash and cash equivalents are maintained primarily with five financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. These deposits may be redeemed upon demand and are maintained with financial institutions, with reputable credit, and therefore, bear minimal credit risk. The Company seeks to mitigate its credit risks by spreading such risks across multiple counterparties and monitoring the risk profiles of these counterparties.
Accounts Receivable
Accounts receivable are unsecured and are derived from revenuesrevenue earned from clients located around the globe. FactSet does not require collateral from its clients but performs credit evaluations on an ongoing basis. The Company maintains reserves for potential write-offs and evaluates the adequacy of the reserves periodically. These losses have historically been within expectations. No single client represented 10% or more of FactSet's total revenuesrevenue in any fiscal year presented. At August 31, 2018,2019, the Company’s largest individual client accounted for approximately 2%3% of total annual subscriptions, and subscriptions from the ten largest clients did not surpass 15% of total annual subscriptions, consistent with August 31, 2017.2018. As of August 31, 20182019 and 2017,2018, the receivable reserve was $3.5$10.5 million and $2.7$3.5 million, respectively.
Derivative Instruments
As a result of the use of derivative instruments, the CompanyFactSet is exposed to counterparty credit risk. FactSetThe Company has incorporated counterparty credit risk into the fair value of its derivative assets and its own credit risk into the value of the Company’s derivative liabilities, when applicable. FactSetFor derivative instruments, the Company calculates credit risk from observable data related to credit default swaps (“CDS”) as quoted by publicly available information. Counterparty risk is represented by CDS spreads related to the senior secured debt of the respective bank with whom FactSetthe Company has executed these derivative transactions. As CDS spread information is not available for FactSet, the Company’s credit risk is determined based on using a simple average of CDS spreads for peer companies. To mitigate counterparty credit risk, FactSetthe Company enters into contracts with large financial institutions and regularly reviews its credit exposure balances as well as the creditworthiness of the counterparties. For the Company's liabilities, as CDS spread information is not available for FactSet, the Company's credit risk is determined based on using a simple average of CDS spreads for peer companies. The Company does not expect any losses as a result of default of its counterparties.
ConcentrationsConcentration of Other Risk
Data Content Providers
Certain data sets that FactSet relies on have a limited number of suppliers, although the Company makes every effort to assure that, where reasonable, alternative sources are available. However, FactSet is not dependent on any one third-partythird-party data supplier in order to meet the needs of its clients. FactSet combines the data from these commercial databases into its own dedicated single online service, which the client accesses to perform their analysis. No single vendor or data supplier represented more than 10% of FactSet's total data expensescosts during fiscal 2019, except for 1 vendor, which is a supplier of risk models and portfolio optimizer data to FactSet and represented 11% of FactSet’s data costs in any fiscal year presented.2019.
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, 20182019 and 2017.2018. The results for any quarter are not necessarily indicative of future quarterly results and, accordingly, period-to-period comparisons should not be relied upon as an indication of future performance.
Fiscal 2018 (in thousands, except per share data) | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||||||||||||||||||
Revenues | $ | 329,141 | $ | 335,231 | $ | 339,911 | $ | 345,861 | ||||||||||||||||||||||||
Fiscal 2019 (in thousands, except per share data) | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||||||||||||||||||
Revenue | $ | 351,640 | $ | 354,895 | $ | 364,533 | $ | 364,283 | ||||||||||||||||||||||||
Cost of services | $ | 161,524 | $ | 163,232 | $ | 165,073 | $ | 169,467 | $ | 166,776 | $ | 165,108 | $ | 163,832 | $ | 167,730 | ||||||||||||||||
Selling, general and administrative | $ | 78,519 | $ | 76,514 | $ | 81,573 | $ | 88,038 | $ | 84,325 | $ | 81,099 | $ | 83,461 | $ | 84,985 | ||||||||||||||||
Operating income | $ | 89,098 | $ | 95,485 | $ | 93,265 | $ | 88,356 | $ | 100,539 | $ | 108,688 | $ | 117,240 | $ | 111,568 | ||||||||||||||||
Net income | $ | 70,379 | $ | 53,137 | $ | 74,746 | $ | 68,823 | $ | 84,296 | $ | 84,702 | $ | 92,265 | $ | 91,527 | ||||||||||||||||
Diluted EPS(1) | $ | 1.77 | $ | 1.33 | $ | 1.91 | $ | 1.77 | $ | 2.17 | $ | 2.19 | $ | 2.37 | $ | 2.34 | ||||||||||||||||
Diluted weighted average common shares | 39,680 | 39,846 | 39,104 | 38,879 | 38,809 | 38,619 | 38,993 | 39,056 |
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 |
Fiscal 2018 (in thousands, except per share data) | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
Revenue | $ | 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 |
| Diluted earnings per common share is calculated independently for each of the periods presented. Accordingly, the sum ofthe quarterly EPSamounts may not equal the total for thefiscalyear. |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTINGAND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the 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 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 disclosed 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.
Changes in Internal Control over Financial Reporting
There have been no 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 the fourth quarter of fiscal 20182019 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 Management’s Report on Internal Control over Financial Reporting under Item 8 of this Report on Form 10-K, which is incorporated herein by reference.
Report of Independent Registered Public Accounting Firm
See Report of Independent Registered Public Accounting Firm under Item 8 of this 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 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.None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required 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, 2018,2019, and all such information is incorporated herein by reference.
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 “Executive Officers of the Registrant” in Part I of this 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.CT 06851 prior to January 1, 2020 and 45 Glover Avenue Norwalk, CT 06850.
ITEM 11. EXECUTIVE COMPENSATION
The information required 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, 2018,2019, and all such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required 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, 2018,2019, and such information is incorporated herein by reference.
Equity Compensation Plan Information
The following table summarizes as of August 31, 2018,2019, the number of outstanding equity awards granted to employees and non-employee directors, as well as the number of equity awards remaining available for future issuance, under FactSet’s equity compensation plans:
(In thousands, except per share data) | (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)) | (a) Number of securities to be issued upon exercise of outstanding options and restricted stock vesting | (b) Weighted-average exercise price of outstanding options | (c) Number of securities remaining available for future issuances under equity compensation plans (excluding securities reflected in column (a)) | |||||||||||||||||||
Equity compensation plans approved by security holders | 3,286 | (1) | $ | 153.05 | (2) | 6,850 | (3) | 2,648 | (1) | $ | 168.50 | (2) | 6,551 | (3) | |||||||||||
Equity compensation plans not approved by security holders | — | — | — | — | — | — | |||||||||||||||||||
Total | 3,286 | (1) | $ | 153.05 | (2) | 6,850 | (3) | 2,648 | (1) | $ | 168.50 | (2) | 6,551 | (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. |
(2) | Calculated without taking into account shares of FactSet common stock subject to outstanding restricted stock that will |
|
|
| Includes |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required 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, 2018,2019, all of which information is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required 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, 2018,2019, all of which information is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) | Documents filed as part of this Report on Form 10-K: |
1. | Financial Statements |
The information required by this item is included in Item 8, Financial Statements and Supplementary Data, which is incorporated herein. |
2. | Financial Statements Schedule | |
Schedule II – Valuation and Qualifying Accounts | ||
Years ended August 31,2019,2018 and 2017 (in thousands): |
Schedule II – Valuation and Qualifying Accounts
Years ended August 31, 2018, 2017 and 2016 (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 | ||||||||||||
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 |
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 | ||||||||||||
2019 | $ | 3,490 | $ | 11,474 | $ | (4,453 | ) | $ | 10,511 | |||||||
2018 | $ | 2,738 | $ | 4,737 | $ | (3,985 | ) | $ | 3,490 | |||||||
2017 | $ | 1,521 | $ | 3,381 | $ | (2,164 | ) | $ | 2,738 |
(1) |
|
Additional financial statement schedules are omitted since they are either not required,
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. |
10.10 | 8-K | 001-11869 | 10.1 | 3/20/2017 |
| ||||||||||||||
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 | 8-K | 001-11869 | 10.2 | 12/21/2017 | |||||||||||||||
10.6 | Lease, dated February 14, 2018, between FactSet Research Systems Inc. and 45 Glover Partners, LLC(2) | 10-Q | 001-11869 | 10.1 | 4/9/2018 | ||||||||||||||
10.7 | 8-K | 001-11869 | 10.1 | 3/29/2019 | |||||||||||||||
10.8 | Separation Agreement and General Release of Claims with John W. Wiseman as of April 22, 2019(1) | 10-Q | 001-11869 | 10.1 | 7/10/2019 | ||||||||||||||
21 |
| X | X | ||||||||||||||||
23 |
| X | X | ||||||||||||||||
31.1 |
| X | X | ||||||||||||||||
31.2 |
| X | X | ||||||||||||||||
32.1
|
| X | X | ||||||||||||||||
32.2 |
| X | X | ||||||||||||||||
101.INS | XBRL Instance Document |
| X | Inline XBRL Instance Document | X | ||||||||||||||
101.SCH | XBRL Taxonomy Extension Schema |
| X | Inline XBRL Taxonomy Extension Schema | X | ||||||||||||||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase |
| X | Inline XBRL Taxonomy Extension Calculation Linkbase | X | ||||||||||||||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| X | Inline XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||||||||||
101.LAB | XBRL Taxonomy Extension Label Linkbase |
| X | Inline XBRL Taxonomy Extension Label Linkbase | X | ||||||||||||||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
| X | Inline XBRL Taxonomy Extension Presentation Linkbase | X | ||||||||||||||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | X |
(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.
SIGNATURES
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, | /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 | ||
/s/ F. PHILIP SNOW | Chief Executive Officer and Director | October 30, | |||
F. Philip Snow | |||||
(Principal Executive Officer) | |||||
/s/ HELEN L. SHAN | Executive Vice President and Chief Financial Officer | October 30, | |||
Helen L. Shan | |||||
(Principal Financial Officer) | |||||
/s/ | Senior Vice President, Controller | October 30, | |||
Gregory T. Moskoff | |||||
(Principal Accounting Officer) | |||||
/s/ PHILIP A. HADLEY | Chairman | October 30, | |||
Philip A. Hadley | |||||
/s/ ROBIN A. ABRAMS | Director | October 30, | |||
Robin A. Abrams | |||||
/s/ SCOTT A. BILLEADEAU | Director | October 30, | |||
Scott A. Billeadeau | |||||
/s/ MALCOLM FRANK | Director | October 30, | |||
Malcolm Frank | |||||
/s/ SHEILA B. JORDAN | Director | October 30, | |||
Sheila B. Jordan | |||||
/s/ JAMES J. MCGONIGLE | Director | October 30, | |||
James J. McGonigle | |||||
/s/ LAURIE SIEGEL | Director | October 30, | |||
Laurie Siegel | |||||
/s/ JOSEPH R. ZIMMEL | Director | October 30, | |||
Joseph R. Zimmel | |||||
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