UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~May 31, 2018~~February 28, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______to ______

Commission File Number: 1-11869

FACTSET RESEARCH SYSTEMS INC.

(Exact name of registrant as specified in its charter)

Delaware

13-3362547

(State or other jurisdiction of

~~incorporation or organization)~~incorporation)

(I.R.S. Employer

Identification No.)


601 Merritt 7, Norwalk, Connecticut	06851
(Address of principal executive office)	(Zip Code)

Registrant’s telephone number, including area code: (203) 810-1000

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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, ~~or a~~ smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting ~~company”~~company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer☐ S☐ ~~maller~~Smaller reporting company ☐ ☐Emerging ~~Growth Company~~ 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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒

The number of shares outstanding of the registrant’s common stock, $.01 par value, as of ~~June~~March 29, ~~2018~~2019 was ~~38,358,449.~~38,239,923.

FactSet Research Systems Inc.

Form 10-Q

For the Quarter Ended ~~May~~31February 28, ~~2018~~2019

Index


		Page
Part I	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statements of Income for the three and ~~nine~~six months ended ~~May 31,~~February 28, 2019 and 2018 ~~and 2017~~	3

	Consolidated Statements of Comprehensive Income for the three and ~~nine~~six months ended ~~May 31,~~February 28, 2019 and 2018 ~~and 2017~~	4

	Consolidated Balance Sheets at ~~May 31, 2018~~February 28, 2019 and August 31, ~~2017~~2018	5

	Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~May 31,~~February 28, 2019 and 2018 ~~and 2017~~	6

	Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended February 28, 2019	7

	Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended February 28, 2018	8

	Notes to the Consolidated Financial Statements	79

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3031

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4446

Item 4.	Controls and Procedures	4547

Part II	OTHER INFORMATION

Item 1.	Legal Proceedings	4648

Item 1A.	Risk Factors	4648

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4748

Item 3.	Defaults Upon Senior Securities	4748

Item 4.	Mine Safety Disclosures	4748

Item 5.	Other Information	4748

Item 6.	Exhibits	4849

	Signatures	4850

For additional information about FactSet Research Systems Inc. and access to its Annual Reports to Stockholders and Securities and Exchange Commission filings, free of charge, please visit ~~the~~FactSet’s website at (~~http:~~https://investor.factset.com). Any information on or linked from the website is not incorporated by reference into this Quarterly Report on Form 10-Q.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FactSet Research Systems Inc.

CONSOLIDATED STATEMENTS OF INCOME – Unaudited

	Three Months Ended May 31,						Nine Months Ended May 31,						Three Months Ended February 28,						Six Months Ended February 28,
(In thousands, except per share data)	2018			2017			2018			2017			2019			2018			2019			2018
Revenues	$	339,911		$	312,120		$	1,004,283		$	894,537		$	354,895		$	335,231		$	706,535		$	664,372
Operating expenses
Cost of services		165,073			146,426			489,829			405,311			165,108			163,232			331,884			324,756
Selling, general and administrative		81,573			78,052			236,606			219,519			81,099			76,514			165,424			155,033
Total operating expenses		246,646			224,478			726,435			624,830			246,207			239,746			497,308			479,789

Operating income		93,265			87,642			277,848			269,707			108,688			95,485			209,227			184,583
Other expense
Loss on sale of business		0			0			0			(1,223	)
Interest expense, net of interest income		(3,754	)		(2,413	)		(9,945	)		(3,945	)
Total other expense		(3,754	)		(2,413	)		(9,945	)		(5,168	)

Other (expense) income
Interest (expense), net of interest income														(4,339	)		(3,272	)		(8,935	)		(6,191	)
Income before income taxes		89,511			85,229			267,903			264,539			104,349			92,213			200,292			178,392

Provision for income taxes		14,765			19,815			69,641			65,832			19,647			39,076			31,294			54,876
Net income	$	74,746		$	65,414		$	198,262		$	198,707		$	84,702		$	53,137		$	168,998		$	123,516

Basic earnings per common share	$	1.94		$	1.66		$	5.10		$	5.03		$	2.23		$	1.36		$	4.44		$	3.16
Diluted earnings per common share	$	1.91		$	1.66		$	5.01		$	5.00		$	2.19		$	1.33		$	4.37		$	3.11

Basic weighted average common shares		38,594			39,317			38,890			39,528			38,055			38,991			38,081			39,038
Diluted weighted average common shares		39,104			39,457			39,543			39,736			38,619			39,846			38,714			39,763

The accompanying notes are an integral part of these consolidated financial statements.

FactSet Research Systems Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – Unaudited

	Three Months Ended May 31,					Nine Months Ended May 31,					Three Months Ended February 28,					Six Months Ended February 28,
(In thousands)	2018			2017		2018			2017		2019		2018			2019			2018
Net income	$	74,746		$	65,414	$	198,262		$	198,707	$	84,702	$	53,137		$	168,998		$	123,516

Other comprehensive income (loss), net of tax
Net unrealized (loss) gain on cash flow hedges*		(2,361	)		2,385		(4,105	)		4,233
Net unrealized gain (loss) on cash flow hedges*												527		(1,268	)		1,565			(1,744	)
Foreign currency translation adjustments		(20,126	)		21,316		(2,260	)		10,680		5,026		9,400			(4,478	)		17,866
Other comprehensive (loss) income		(22,487	)		23,701		(6,365	)		14,913
Other comprehensive income (loss)												5,553		8,132			(2,913	)		16,122
Comprehensive income	$	52,259		$	89,115	$	191,897		$	213,620	$	90,255	$	61,269		$	166,085		$	139,638

* For the three and ~~nine~~six months ended ~~May 31,~~February 28, 2019, the unrealized gain on cash flow hedges was net of a tax expense of $179 and $767, respectively. For the three and six months ended February 28, 2018, the unrealized loss on cash flow hedges was net of a tax benefit of ~~$976~~$902 and ~~$2,166, respectively. For the three and nine months ended May 31, 2017, the unrealized gain on cash flow hedges was net of a tax expense of $1,485 and $2,561,~~$1,190, respectively.

The accompanying notes are an integral part of theseconsolidated financial statements.

FactSet Research Systems Inc.

CONSOLIDATED BALANCE SHEETS– Unaudited

	May 31, 2018			August 31, 2017
(In thousands, except share data)	(Unaudited)
(In thousands, except share data)							February 28, 2019			August 31, 2018
ASSETS
Cash and cash equivalents	$	213,061		$	194,731		$	218,335		$	208,623
Investments		30,485			32,444			27,069			29,259
Accounts receivable, net of reserves of $3,446 at May 31, 2018 and $2,738 at August 31, 2017		145,255			148,331
Accounts receivable, net of reserves of $5,376 at February 28, 2019 and $3,490 at August 31, 2018								176,356			156,639
Prepaid taxes		9,236			7,076			25,730			6,274
Deferred taxes		0			2,668
Prepaid expenses and other current assets		31,573			24,126			40,475			30,121
Total current assets		429,610			409,376			487,965			430,916

Property, equipment and leasehold improvements, net		94,380			100,454			104,829			100,545
Goodwill		704,807			707,560			700,029			701,833
Intangible assets, net		155,776			173,543			136,409			148,935
Deferred taxes		7,916			7,412			6,737			9,716
Other assets		14,683			14,970			29,025			27,502
TOTAL ASSETS	$	1,407,172		$	1,413,315		$	1,464,994		$	1,419,447

LIABILITIES
Accounts payable and accrued expenses	$	62,772		$	59,214		$	66,846		$	72,059
Accrued compensation		40,257			61,083			40,140			66,479
Deferred fees		57,528			47,495			59,178			49,700
Deferred taxes		0			2,382
Taxes payable		12,670			9,112			8,233			8,453
Dividends payable		24,566			21,853			24,385			24,443
Total current liabilities		197,793			201,139			198,782			221,134

Long-term debt		574,739			575,000			574,848			574,775
Deferred taxes		23,627			24,892			20,220			21,190
Deferred fees		7,007			3,921			8,475			7,833
Taxes payable		29,010			11,484			26,728			29,626
Deferred rent and other non-current liabilities		39,663			37,188			36,420			38,989
TOTAL LIABILITIES	$	871,839		$	853,624		$	865,473		$	893,547
Commitments and contingencies (See Note 17)
Commitments and contingencies (see Note 17)

STOCKHOLDERS’ EQUITY
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued	$	0		$	0		$	—		$	—
Common stock, $.01 par value, 150,000,000 shares authorized, 39,124,581 and 51,845,132 shares issued; 38,384,581 and 39,023,032 shares outstanding at May 31, 2018 and August 31, 2017, respectively		391			518
Common stock, $.01 par value, 150,000,000 shares authorized, 39,690,225 and 39,264,849 shares issued, 38,100,165 and 38,192,586 shares outstanding at February 28, 2019 and August 31, 2018, respectively								397			393
Additional paid-in capital		642,906			741,748			732,538			667,531
Treasury stock, at cost: 740,000 and 12,822,100 shares at May 31, 2018 and August 31, 2017, respectively		(145,342	)		(1,606,678	)
Treasury stock, at cost: 1,590,060 and 1,072,263 shares at February 28, 2019 and August 31, 2018, respectively								(324,167	)		(213,428	)
Retained earnings		78,463			1,458,823			244,388			122,843
Accumulated other comprehensive loss		(41,085	)		(34,720	)		(53,635	)		(51,439	)
TOTAL STOCKHOLDERS’ EQUITY	$	535,333		$	559,691		$	599,521		$	525,900

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,407,172		$	1,413,315		$	1,464,994		$	1,419,447

The accompanying notes are an integral part of these consolidated financial statements.

FactSet Research Systems Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS – Unaudited

	Nine Months Ended May 31,						Six Months Ended February 28,
(in thousands)	2018			2017			2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	198,262		$	198,707		$	168,998		$	123,516
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		42,848			33,770			29,052			28,372
Stock-based compensation expense		23,241			20,873			16,140			15,420
Loss on sale of business		0			1,223
Deferred income taxes		848			8,829			1,088			2,934
Loss on disposition of assets		18			33
Tax benefits from share-based payment arrangements		0			(9,798	)
Loss on sale of assets								196			25
Changes in assets and liabilities, net of effects of acquisitions
Accounts receivable, net of reserves		3,067			(29,310	)		(19,676	)		(16,307	)
Accounts payable and accrued expenses		3,423			1,548			(5,423	)		147
Accrued compensation		(20,629	)		(17,299	)		(26,266	)		(23,595	)
Deferred fees		13,027			2,638			9,729			18,098
Taxes payable, net of prepaid taxes		25,928			6,081			(17,385	)		17,166
Prepaid expenses and other assets		(11,503	)		440			(10,327	)		(11,915	)
Deferred rent and other non-current liabilities		621			2,766			(646	)		(186	)
Other working capital accounts, net		191			(189	)		74			14
Net cash provided by operating activities		279,342			220,312			145,554			153,689

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired		0			(301,843	)
Purchases of investments		(9,608	)		(29,982	)		(7,927	)		(9,487	)
Proceeds from sales of investments		9,872			23,399
Proceeds from maturity of investments								10,041			9,872
Purchases of property, equipment and leasehold improvements, net of proceeds from dispositions		(18,375	)		(25,981	)		(21,482	)		(12,375	)
Net cash used in investing activities		(18,111	)		(334,407	)		(19,368	)		(11,990	)

CASH FLOWS FROM FINANCING ACTIVITIES
Dividend payments		(65,037	)		(59,124	)		(48,442	)		(43,406	)
Repurchases of common stock		(235,869	)		(214,766	)		(110,739	)		(113,906	)
Proceeds from debt		0			575,000
Repayment of debt		0			(300,000	)
Debt issuance costs		0			(437	)
Other financing activities		2,218			(1,223	)		—			442
Proceeds from employee stock plans		57,529			42,159			43,362			48,784
Tax benefits from share-based payment arrangements		0			9,798
Net cash used by financing activities		(241,159	)		51,407			(115,819	)		(108,086	)

Effect of exchange rate changes on cash and cash equivalents		(1,742	)		(3,961	)		(655	)		5,284
Net increase (decrease) in cash and cash equivalents		18,330			(66,649	)
Net increase in cash and cash equivalents								9,712			38,897
Cash and cash equivalents at beginning of period		194,731			228,407			208,623			194,731
Cash and cash equivalents at end of period	$	213,061		$	161,758		$	218,335		$	233,628

The accompanying notes are an integral part of these consolidated financial statements.

FactSet Research Systems Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY- Unaudited

For the three months ended February 28, 2019

(in thousands,	Common Stock				Additional Paid-in		Treasury Stock					Retained			Accumulated Other Comprehensive			Total Stockholders’
except per share data)	Shares		Par Value		Capital		Shares		Amount			Earnings			Loss			Equity
Balance as of November 30, 2018		39,447,491	$	394	$	694,078		1,366,613	$	(278,146	)	$	184,071		$	(59,188	)	$	541,209
Net income													84,702						84,702
Other comprehensive (loss) income																5,553			5,553
Common stock issued for employee stock plans		219,815		3		30,755													30,758
Vesting of restricted stock		22,919						8,502		(1,878	)								(1,878	)
Repurchases of common stock								214,945		(44,143	)								(44,143	)
Stock-based compensation expense						7,705													7,705
Dividends declared													(24,385	)					(24,385	)
Balance as of February 28, 2019		39,690,225	$	397	$	732,538		1,590,060	$	(324,167	)	$	244,388		$	(53,635	)	$	599,521

For the six months ended February 28, 2019

(in thousands,	Common Stock				Additional Paid-in		Treasury Stock					Retained			Accumulated Other Comprehensive			Total Stockholders’
except per share data)	Shares		Par Value		Capital		Shares		Amount			Earnings			Loss			Equity
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													168,998						168,998
Other comprehensive (loss) income																(2,913	)		(2,913	)
Common stock issued for employee stock plans		349,846		4		48,867													48,871
Vesting of restricted stock		75,530						27,852		(6,155	)								(6,155	)
Repurchases of common stock								489,945		(104,584	)								(104,584	)
Stock-based compensation expense						16,140													16,140
Dividends declared													(48,756	)					(48,756	)
Cumulative effect of adoption of accounting standards*													1,303			717			2,020
Balance as of February 28, 2019		39,690,225	$	397	$	732,538		1,590,060	$	(324,167	)	$	244,388		$	(53,635	)	$	599,521

* Includes the cumulative effect of adoption of accounting standards primarily due to both the adoption of the new revenue recognition standard (ASC 606) resulting in a cumulative increase to retained earnings related to certain fulfillment costs and the accounting standard update related to the U.S. Tax Cuts and Jobs Act (“TCJA”) providing for the reclassification from accumulated other comprehensive loss to retained earnings for stranded tax effects. See Notes 3 and 4 for additional information.

The accompanying notes are an integral part of these consolidated financial statements.

FactSet Research Systems Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY- Unaudited

For the three months ended February 28, 2018

(in thousands,	Common Stock						Additional Paid-in			Treasury Stock Shares Amount						Retained			Accumulated Other Comprehensive			Total Stockholders’
except per share data)	Shares			Par Value			Capital			Shares			Amount			Earnings			Loss			Equity
Balance as of November 30, 2017		52,101,426		$	521		$	775,509			12,991,346		$	(1,638,384	)	$	1,507,301		$	(26,730	)	$	618,217
Net income																	53,137						53,137
Other comprehensive (loss) income																				8,132			8,132
Common stock issued for employee stock plans		234,855			2			28,664															28,666
Vesting of restricted stock		3,561									1,343			(263	)								(263	)
Repurchases of common stock											420,000			(81,938	)								(81,938	)
Stock-based compensation expense								7,938															7,938
Dividends declared																	(21,799	)					(21,799	)
Retirement of Treasury Shares		(13,292,689	)		(133	)		(186,717	)		(13,292,689	)		1,697,206			(1,510,356	)
Balance as of February 28, 2018		39,047,153		$	390		$	625,394			120,000		$	(23,379	)	$	28,283		$	(18,598	)	$	612,090

For the six months ended February 28, 2018

(in thousands,	Common Stock						Additional Paid-in			Treasury Stock						Retained			Accumulated Other Comprehensive			Total Stockholders’
except per share data)	Shares			Par Value			Capital			Shares			Amount			Earnings			Loss			Equity
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																	123,516						123,516
Other comprehensive (loss) income																				16,122			16,122
Common stock issued for employee stock plans		479,871			5			54,943															54,948
Vesting of restricted stock		14,839									5,563			(1,015	)								(1,015	)
Repurchases of common stock											585,026			(112,892	)								(112,892	)
Stock-based compensation expense								15,420															15,420
Dividends declared																	(43,700	)					(43,700	)
Retirement of Treasury Shares		(13,292,689	)		(133	)		(186,717	)		(13,292,689	)		1,697,206			(1,510,355	)
Balance as of February 28, 2018		39,047,153		$	390		$	625,394			120,000		$	(23,379	)	$	28,283		$	(18,598	)	$	612,090

The accompanying notes are an integral part of these consolidated financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FactSet Research Systems Inc.

~~May 31, 2018~~February 28, 2019

(Unaudited)

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 service for the global investment community. ~~The Company delivers insight and information to investment professionals through its analytics, service, content, and technology.~~ These professionals include portfolio managers, investment research professionals, investment bankers, risk and performance analysts, and wealth advisors. From streaming real-time data to historical information, including quotes, estimates, news and commentary, FactSet offers ~~unique~~proprietary and third-party content through desktop, web, mobile, and off-platform solutions. The Company’s broad application suite offers tools and resources including company and industry analyses, full screening tools, portfolio analysis, risk profiles, alpha-testing, portfolio optimization and research management solutions. With recent acquisitions, FactSet has continued to expand its solutions across the investment lifecycle from idea generation to performance and client reporting. The Company delivers insight and information to investment professionals through key workflow solutions including Research, Analytics, Wealth, and Content and Technology Solutions (“CTS”). The Company’s ~~revenues are~~revenue 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 unaudited consolidated financial statements ~~include the accounts~~and notes of ~~the Company~~FactSet and its wholly owned ~~subsidiaries. All intercompany activity and balances have been eliminated from the consolidated financial statements.~~

~~The unaudited condensed consolidated financial statements of FactSet and the accompanying notes~~subsidiaries included in this Quarterly Report on Form 10-Q are prepared in accordance with generally accepted accounting principles in the United States ~~("GAAP"~~(“GAAP”). All intercompany activity and balances have been eliminated from the consolidated financial statements. In the opinion of management, the accompanying ~~condensed~~unaudited consolidated financial statements include all normal recurring adjustments, transactions or events discretely impacting the interim periods considered necessary to present fairly ~~state our~~the Company’s financial position, results of operations, ~~financial position~~equity and cash flows. The information in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, ~~2017.~~2018, filed with the Securities and Exchange Commission (“SEC”) on October 30, 2018.

The Company has evaluated subsequent events through the date that the financial statements were issued.

3. RECENT ACCOUNTING PRONOUNCEMENTS

As of ~~May 31, 2018, FactSet~~February 28, 2019, The Company 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 first ~~nine~~six months of fiscal ~~2018~~2019 that had a material impact on the consolidated financial statements.

New Accounting Standards or Updates Recently Adopted

~~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 are now recognized in the consolidated statement of income. The adoption of this standard resulted in the recognition of $7.1 million of excess tax benefits to FactSet’s provision for income taxes during the first nine months of 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 non-recurring $2.2 million tax expense related to the remeasurement of the net U.S. deferred tax position during the second quarter of fiscal 2018. The Company will continue to analyze the TCJA and related accounting guidance and interpretations in order to finalize any impacts within the one-year measurement period from the TCJA enactment date.

~~Recent Accounting Standards or Updates Not Yet Effective~~

Revenue Recognition

In May 2014 and July 2015, the FASB issued accounting standard updates which clarified principles for recognizing revenue arising from contracts with clients and superseded most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to clients in an amount that reflects the consideration to which the entity expects to be entitled, in exchange for those goods or services. The new guidance also requires increased disclosures including the nature, amount, timing, and uncertainty of ~~revenues~~revenue and cash flows related to contracts with clients. In addition to a potential change in the timing of revenue recognition, the new standard will require incremental contract acquisition costs (such as sales commissions) for client sales to be capitalized and amortized over the contract period. Currently these costs are expensed as incurred. Contract acquisition costs, such as sales commissions, have historically not been material to FactSet, thus a change in the accounting for them is not expected to have a material impact to the Company. FactSet is on schedule in establishing new accounting policies, refining existing processes, and ensuring internal controls necessary to support the requirements of the new standard are in place.

The standard allows two methods of adoption: i) retrospectively to each prior period presented (“full retrospective method”), or ii) retrospectively with the cumulative effect recognized in retained earnings as of the date of adoption ("(“modified retrospective ~~method"~~method”). FactSet ~~plans to adopt~~adopted 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 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.

The Company ~~is currently evaluating~~derives most of its revenues 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 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. 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 are recognized as an asset and amortized consistent with the associated revenue for providing the services. The adoption of the new standards did not materially change the Company’s accounting policy for revenue recognition and did not have a material impact ~~of these accounting standard updates~~ on ~~its~~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 an~~first quarter of fiscal 2019, FactSet adopted the accounting standard update ~~to amend its current guidance on~~issued by the ~~classification~~FASB in January 2016, which amended the recognition, measurement, presentation, and ~~measurement~~disclosure of certain financial instruments. ~~The~~Under the amended guidance, investments in equity securities, excluding equity method investments, will be measured at fair value with changes in fair value to be recognized in net income. This guidance was applied on a modified retrospective approach through a cumulative effect adjustment to retained earnings as permitted by the standard and did not have a material impact on the Company’s consolidated financial statements.

Cash Flow Simplification

During the first quarter of fiscal 2019, FactSet adopted the accounting standard update ~~significantly revises an entity’s~~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 ~~presentation~~tax consequences of certain ~~fair value~~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 ~~for financial liabilities measured at fair value. This guidance also amends certain disclosure requirements associated with~~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 ~~instruments.~~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 ~~FactSet~~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. ~~The Company~~There was no impact to the Company’s consolidated financial statements as a result of the adoption of this standard, as FactSet is currently ~~evaluating~~accounting for costs incurred in a cloud computing arrangement in accordance with the ~~impact of~~guidance provided in this ~~accounting standard update on its consolidated financial statements.~~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 ~~U.S.~~ GAAP for an entity to use bright-line tests in determining lease classification. This accounting standard update will be effective for FactSet beginning in the first quarter of fiscal 2020, with early adoption in fiscal 2019 permitted. The Company is currently evaluating the impact of this accounting standard update, including the transition method, but expects the adoption to have a material impact to its balance sheet. However, it does not expect the adoption to have a material impact on ~~its consolidated financial statements.~~

~~Cash Flow Simplification~~

~~In August 2016,~~ the ~~FASB issued an accounting standard update, which simplifies how certain transactions are classified in the statement~~statements of income, comprehensive income or cash flows. ~~This includes revised guidance on~~Refer to Note 17 Commitments and Contingencies for information regarding 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.Company’s undiscounted future lease commitments.

~~Income Taxes on~~ ~~Intra-Entity Transfer~~~~s of Asset~~s

In October 2016, the FASB issued an accounting standard update, which removes the prohibition against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. The guidance is intended to reduce diversity in practice related to the tax consequences of certain types of intra-entity asset transfers, particularly those involving intellectual property. This accounting standard update will be effective for FactSet beginning in the first quarter of fiscal 2019. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.

Goodwill Impairment Test

In January 2017, the FASB issued an accounting standard update which removes the requirement for companies to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This accounting standard update will be effective for ~~FactSet~~the Company beginning in the first quarter of fiscal 2021, with early adoption permitted for any impairment tests performed after January 1, ~~2017. The Company~~2017 and is ~~currently evaluating~~not expected to have a material impact on the ~~impact of this accounting standard update on its~~ 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 ~~hedging~~hedge accounting. The guidance refines and expands hedge accounting for both financial and nonfinancial risk components, eliminates the need to separately measure and report hedge ineffectiveness, and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. This guidance will be effective for ~~FactSet~~the Company beginning in the first quarter of fiscal 2020, with early adoption permitted. The Company is currently evaluating the impact of this accounting standard update but it is not expected to have a material impact on ~~its 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.

No other new accounting pronouncements issued or effective as of ~~May 31, 2018~~February 28, 2019 have had or are expected to have an impact on the Company’s consolidated financial statements.

4. REVENUE RECOGNITION

In May 2014 and July 2015, the FASB issued accounting standard updates which clarified principles for recognizing revenue arising from contracts with customers (ASC 606) and superseded most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue standard 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 applies a five-step model for revenue measurement and recognition and also requires increased disclosures including the nature, amount, timing, and uncertainty of revenue and cash flows related to contracts with clients.

The Company adopted the standard at the beginning of the first quarter of fiscal 2019, using the modified retrospective method of adoption and applied the guidance to those contracts that were not completed as of August 31, 2018. Under the modified retrospective method of adoption, the cumulative effect of applying the new standard is recorded at the date of initial application, with no restatement of the comparative prior periods presented. The Company assessed its revenue contracts with clients under the new standards and determined that the adoption did not materially change the timing or amount of revenue recognized.

The Company derives most of its revenues 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 for the three months and six months ended February 28, 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 judgements 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 revenues and cash flows related to contracts with clients. Refer to Note 8 Segment Information for further information on revenues by geographic region.

The following table presents this disaggregation of revenue by geography:

	Three months ended February 28,				Six months ended February 28,
(in thousands)	2019		2018		2019		2018
U.S.	$	223,315	$	208,900	$	445,518	$	417,668
Europe		98,933		96,206		196,698		187,933
Asia Pacific		32,647		30,125		64,319		58,771
Total Revenue	$	354,895	$	335,231	$	706,535	$	664,372

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~~The Company 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 the Company’s corporate money market funds that are classified as cash equivalents.

Level 2 – applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. The Company’s mutual funds, certificates of deposit, ~~mutual funds~~ and derivative instruments are classified as Level 2.

Level 3 – applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. There were no Level 3 assets or liabilities held by the Company as of ~~May 31, 2018~~February 28, 2019 or August 31, ~~2017.~~2018.

(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 ~~May 31, 2018~~February 28, 2019 and August 31, ~~2017:~~2018. The Company did not have any transfers between Level 1 and Level 2 fair value measurements during the periods presented.

	Fair Value Measurements at May 31, 2018								Fair Value Measurements at February 28, 2019
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Corporate money market funds ⁽¹⁾	$	14,128	$	—	$	—	$	14,128	$	38,000	$	—	$	—	$	38,000
Mutual funds ⁽²⁾		—		19,479		—		19,479		—		18,541		—		18,541
Certificates of deposit ⁽³⁾		—		11,007		—		11,007		—		8,528		—		8,528
Derivative instruments ⁽⁴⁾		—		2,515		—		2,515
Derivative instruments ⁽⁴⁾										—		680		—		680
Total assets measured at fair value	$	14,128	$	33,001	$	—	$	47,129	$	38,000	$	27,749	$	—	$	65,749

Liabilities
Derivative instruments ⁽⁴⁾	$	—	$	1,932	$	—	$	1,932	$	—	$	2,293	$	—	$	2,293

Total liabilities measured at fair value	$	—	$	1,932	$	—	$	1,932	$	—	$	2,293	$	—	$	2,293

	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
Mutual funds ⁽²⁾										—		18,668		—		18,668
Certificates of deposit ⁽³⁾		—		14,080		—		14,080		—		10,591		—		10,591
Derivative instruments ⁽⁴⁾		—		6,142		—		6,142		—		90		—		90
Total assets measured at fair value	$	26,677	$	38,586	$	—	$	65,263	$	75	$	29,349	$	—	$	29,424

Liabilities
Derivative instruments ⁽⁴⁾	$	—	$	—	$	—	$	—	$	—	$	4,036	$	—	$	4,036
Total liabilities measured at fair value	$	—	$	—	$	—	$	—	$	—	$	4,036	$	—	$	4,036

^⁽¹⁾

The Company’s corporate money market funds are ~~traded in an active market~~readily convertible into cash and the net asset value of each fund on the last day of the quarter is used to determine its fair value. As such, the Company’s corporate money market funds are classified as Level 1 and included in ~~cash~~Cash and cash equivalents onwithin the C~~onsolidated~~ consolidated balance sB~~alance~~ ~~Sheets~~.heets.

^⁽²⁾

The Company’s mutual funds have a fair value based on the fair value of the underlying investments held by the mutual funds, allocated to each share of the mutual fund using a net asset value approach. The fair value of the underlying investments is based on observable ~~inputs~~.inputs. As such, the Company’s mutual funds are classified as Level 2 and are ~~are classified~~included as ~~investments~~Investments (short-term) on the ~~Consolidated Balance Sheets.~~consolidated balance sheets.

^⁽³⁾

The Company’s certificates of deposit held for investment are valued at amortized cost, which approximates fair value and, therefore, are classified as Level 2.These certificates of deposit are not debt securities and ~~are classified as Level 2. These certificates of deposit~~ have original maturities greater than three months, but less than one year and, as such, are classified as iInves~~nvestments~~tments (short-term) onwithin the ~~Consolidated Balance S~~~~heet~~consolidated balance s.heets.

^⁽⁴⁾

The Company utilizes the income approach to measure fair value for its derivative instruments (foreign ~~currency~~exchange forward ~~contracts~~contracts)). The income approach uses pricing models that rely on market observable inputs such as spot, forward and interest rates, as well as credit default swap spreads and therefore, are classified as Level 2.

~~The 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-recurring~~Non-Recurring Basis

Certain assets, including ~~goodwill~~Goodwill and ~~intangible~~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 ~~comparables,~~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 the ~~nine~~six months ended ~~May 31, 2018,~~February 28, 2019, no fair value adjustments or material fair value measurements were required for the Company’s non-financial assets or liabilities.

(c) Assets and Liabilities Measured at Fair Value for Disclosure Purposes Only

As of ~~May 31, 2018,~~February 28, 2019, and August 31, ~~2017,~~2018, the fair value of the Company’s ~~long-term~~Long-term debt was $575.0 million, ~~respectively,~~ which approximated its carrying amount given ~~its~~the application of a floating interest rate ~~basis.~~equal to the daily LIBOR rate plus a spread using a debt leverage pricing grid. The fair value of the Company’s long-term debt was determined based on quoted market prices for debt with a similar maturity, and thus 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, British Pound Sterling, ~~Euro,~~ Indian Rupee, ~~Japanese Yen~~ and Philippine Peso. 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 17, Commitments and Contingencies – Concentrations of Credit Risk, for further discussion on counterparty credit risk.

In designing a specific hedging approach, FactSet considered several factors, including offsetting exposures, the significance of exposures, the forecasting of risk and the potential effectiveness of the hedge. The gains and losses on foreign currency forward contracts offset the variability in operating expenses associated with currency movements. The changes in fair value for these foreign currency forward contracts are initially reported as a component of accumulated other comprehensive loss (“AOCL”) and subsequently reclassified into operating expenses when the hedged exposure affects earnings. There was no discontinuance of cash flow hedges during the first ~~nine~~six months of fiscal ~~2018~~2019 and ~~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 ~~May 31, 2018,~~February 28, 2019, FactSet maintained the following foreign currency forward contracts to hedge its exposures:

●

~~Indian Rupee~~ - foreign currency forward contracts to hedge approximately 75% of its Indian Rupee exposure through the third quarter of fiscal 2019 and 50% of its exposure from the fourth quarter of fiscal 2019 through the end of the second quarter of fiscal 2020.

●

Philippine Peso- – foreign currency forward contracts to hedge approximately 75% of its Philippine Peso exposure through the fourth quarter of fiscal 2020.

●

Indian Rupee – foreign currency forward contracts to hedge approximately 75% of its Indian Rupee exposure through the third quarter of fiscal 2019, 50% of its exposure from the fourth quarter of fiscal 2019 through the end of the second quarter of fiscal 2020, and 25% of its exposure from the third quarter of fiscal 2020 through the end of the fourth quarter of fiscal 2020.

●

Euro – foreign currency forward contracts to hedge approximately 78% of its Euro exposure through the third quarter of fiscal 2019.

●

British Pound Sterling – foreign currency forward contracts to hedge approximately 50% of its British Pound Sterling exposure through the third quarter of fiscal 2019.

The following is a summary of all hedging positions and corresponding fair values:

(in thousands)

Gross Notional Value

Fair Value

Currency Hedged (in U.S. dollars)

May 31, 2018

August 31, 2017

May 31, 2018

August 31, 2017

Indian Rupee
$ 51,175 $ 51,000 $ 1,470 $ 6,142
Philippine Peso
59,000 — (886 ) —
Total
$ 110,175 $ 51,000 $ 584 $ 6,142

Gross Notional Value

Fair Value (Liability) Asset

Currency Hedged
(in thousands, in U.S. dollars)

February 28, 2019

August 31, 2018

February 28, 2019

August 31, 2018

Philippine Peso
$ 39,000 $ 52,000 $ 680 $ (1,230 )
Indian Rupee
35,580 50,780 (1,506 ) (1,490 )
Euro
29,977 26,312 (622 ) (503 )
British Pound Sterling
6,682 18,995 (165 ) (723 )
Total
$ 111,239 $ 148,087 $ (1,613 ) $ (3,946 )

As of ~~May 31, 2018,~~February 28, 2019, the gross notional value of foreign currency forward contracts to purchase Philippine Pesos with U.S. dollars was PHP 2.1 billion. The gross notional value of foreign currency forward contracts to purchase Indian Rupees with U.S. dollars was Rs. ~~3.7~~2.5 billion. The gross notional value of foreign currency forward contracts to purchase ~~Philippine Pesos with~~ U.S. dollars with Euros was ~~Php 3.1 billion.~~€ 25.7 million. The gross notional value of foreign currency forward contracts to purchase U.S. dollars with British Pound Sterling was £ 4.9 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 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.

Fair Value of Derivative Instruments

The following table provides a summary of the fair value amounts of derivative instruments:

(in thousands) Designation of Derivatives	Balance Sheet Location	May 31, 2018		August 31, 2017
Designation of Derivatives (in thousands)						Balance Sheet Location	February 28, 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	$	2,515	$	3,796	Prepaid expenses and other current assets	$	533	$	90
	Other assets	$	—	$	2,346	Other Assets	$	147	$	—

	Liabilities: Foreign Currency Forward Contracts					Liabilities: Foreign Currency Forward Contracts
	Accounts payable and accrued expenses	$	232	$	—	Accounts payable and accrued expenses	$	2,044	$	1,731
	Deferred rent and other non-current liabilities	$	1,700	$	—	Deferred rent and other non-current liabilities	$	249	$	2,305

All derivatives were designated as hedging instruments as of ~~May 31, 2018~~February 28, 2019 and August 31, ~~2017, respectively.~~2018.

Derivatives in Cash Flow Hedging Relationships

The following table provides the pre-tax effect of derivative instruments in cash flow hedging relationships for the three months ended ~~May 31,~~February 28, 2019 and 2018, ~~and 2017:~~respectively:

(in thousands)

(Loss) Gain Recognized

in AOCL on Derivatives
(Effective Portion)

Location of Gain (Loss)
Reclassified from AOCL

into Income
(Effective Portion)

Gain (Loss) Reclassified
from AOCL into Income
(Effective Portion)

Gain (Loss) Recognized

in AOCL on Derivatives
(Effective Portion)

Location of (Loss) Gain
Reclassified from AOCL

into Income

(Loss) Gain Reclassified
from AOCL into Income
(Effective Portion)

Derivatives in Cash Flow Hedging Relationships

2018

2017

2018

2017

2019

2018

(Effective Portion)

2019

2018

Foreign currency forward contracts

(2,296

)

3,467

SG&A

1,041

(403

)

321

(1,346

)

SG&A

(385

)

824

The following table provides the pre-tax effect of derivative instruments in cash flow hedging relationships for the ~~nine~~six months ended ~~May 31,~~February 28, 2019 and 2018, ~~and 2017:~~respectively:

(in thousands)

(Loss) Gain Recognized

in AOCL on Derivatives
(Effective Portion)

Location of Gain (Loss)
Reclassified from AOCL

into Income
(Effective Portion)

Gain (Loss) Reclassified
from AOCL into Income
(Effective Portion)

Gain (Loss) Recognized

in AOCL on Derivatives
(Effective Portion)

Location of (Loss) Gain
Reclassified from AOCL

into Income

(Loss) Gain Reclassified
from AOCL into Income
(Effective Portion)

Derivatives in Cash Flow Hedging Relationships

2018

2017

2018

2017

2019

2018

(Effective Portion)

2019

2018

Foreign currency forward contracts

(3,640

)

4,006

SG&A

2,631

(2,788

)

2,264

(1,345

)

SG&A

(784

)

1,589

No amount of ineffectiveness was recorded in the ~~Consolidated Statements~~consolidated statements of ~~Income~~income for these designated cash flow hedges and all components of each derivative’s gain or loss was included in the assessment of hedge effectiveness. As of ~~May 31, 2018, FactSet~~February 28, 2019, the Company estimates that ~~approximately $2.3~~$1.5 million of net derivative ~~gains~~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 ~~May 31, 2018~~February 28, 2019, and August 31, ~~2017,~~2018, there were no material amounts recorded net ~~settlements recorded~~ on ~~Consolidated Balance Sheets.~~the consolidated balance sheets.

6.7. OTHER COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of ~~other~~Other comprehensive income ~~and amounts reclassified out of AOCL into earnings during~~for the three months ended ~~May 31,~~February 28, 2019 and 2018 ~~and 2017~~ are as follows:

May 31, 2018

May 31, 2017

(in thousands)

Pre-tax

Net of tax

Pre-tax

Net of tax

Foreign currency translation adjustments
$ (20,126 ) $ (20,126 ) $ 21,316 $ 21,316
Realized (gain) loss on cash flow hedges reclassified to earnings ⁽¹⁾
(1,041 ) (736 ) 403 247
Unrealized (loss) gain on cash flow hedges recognized in AOCL
(2,296 ) (1,625 ) 3,467 2,138
Other comprehensive income (loss)
$ (23,463 ) $ (22,487 ) $ 25,186 $ 23,701

February 28, 2019

February 28, 2018

(in thousands)

Pre-tax

Net of tax

Pre-tax

Net of tax

Foreign currency translation adjustments
$ 5,026 $ 5,026 $ 9,400 $ 9,400
Net unrealized gain (loss) on cash flow hedges recognized in AOCL
706 527 (2,170 ) (1,268 )
Other comprehensive income
$ 5,732 $ 5,553 $ 7,230 $ 8,132

⁽¹⁾

~~Reclassified to Selling, General and Administrative Expenses~~

The components of ~~other~~Other comprehensive (loss) income ~~and amounts reclassified out of AOCL into earnings during~~for the ~~nine~~six months ended ~~May 31,~~February 28, 2019 and 2018 ~~and 2017~~ are as follows:

May 31, 2018

May 31, 2017

(in thousands)

Pre-tax

Net of tax

Pre-tax

Net of tax

Foreign currency translation adjustments
$ (2,260 ) $ (2,260 ) $ 10,680 $ 10,680
Realized (gain) loss on cash flow hedges reclassified to earnings ⁽¹⁾
(2,631 ) (1,794 ) 2,788 1,755
Unrealized (loss) gain on cash flow hedges recognized in AOCL
(3,640 ) (2,311 ) 4,006 2,478
Other comprehensive income (loss)
$ (8,531 ) $ (6,365 ) $ 17,474 $ 14,913

February 28, 2019

February 28, 2018

(in thousands)

Pre-tax

Net of tax

Pre-tax

Net of tax

Foreign currency translation adjustments
$ (4,478 ) $ (4,478 ) $ 17,866 $ 17,866
Net unrealized gain (loss) on cash flow hedges recognized in AOCL
2,332 1,565 (2,934 ) (1,744 )
Other comprehensive (loss) income
$ (2,146 ) $ (2,913 ) $ 14,932 $ 16,122

⁽²⁾

~~Reclassified to Selling, General and Administrative Expenses~~

The components of AOCL are as follows:

(in thousands)	May 31, 2018			August 31, 2017			February 28, 2019			August 31, 2018
Accumulated unrealized (losses)gains on cash flow hedges, net of tax	$	(303	)	$	3,802
Accumulated unrealized (gains) losses on cash flow hedges, net of tax							$	(1,204	)	$	(3,486	)
Accumulated foreign currency translation adjustments		(40,782	)		(38,522	)		(52,431	)		(47,953	)
Total accumulated other comprehensive loss	$	(41,085	)	$	(34,720	)	$	(53,635	)	$	(51,439	)

78. SEGMENT INFORMATION

Operating segments are defined as (i) components of an enterprise that engage in business activities from which they may earn ~~revenues~~revenue and incur ~~expenses, whose~~expense, (ii) with operating results that are regularly reviewed by the enterprise’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and (iii) for which discrete financial information is available. ~~The Chief~~ Executive ~~Officer~~management, along with the CEO, constitute FactSet’s chief operating decision making group (“~~CEO”~~CODMG”) ~~and senior management jointly review financial information at the operating segment level. Senior~~. 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, ~~and~~ Chief Human Resources ~~Officer. Senior management, along with~~Officer and Head of Analytics & Trading. The CODMG reviews financial information at the ~~CEO, constitute FactSet’s chief~~ operating ~~decision making group (“CODMG”)~~segment level and is responsible for making decisions about resources allocated amongst the operating segments based on actual results.

~~FactSet’s~~The Company’s operating segments are aligned with how the Company, including its CODMG, manages the business and the demographic markets in which ~~FactSet~~it serves. The Company’s internal financial reporting structure is based on three ~~segments;~~segments: the U.S., Europe and Asia Pacific. ~~FactSet~~The Company believes this alignment helps itto better manage the business and view the markets ~~the Company~~it serves, which are centered on providing integrated global financial and economic information. ~~The~~Sales, 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, which~~segments. These functional groups provide global financial and economic information to investment managers, investment banks and other financial services professionals.

The U.S. segment ~~services~~serves investment professionals including financial institutions throughout the Americas. The ~~European~~Europe and Asia Pacific segments ~~service~~serve investment professionals located throughout Europe and ~~the~~ Asia Pacific, ~~region,~~ respectively. Segment ~~revenues reflect~~revenue reflects direct sales to clients based inon their respective geographic locations. Each segment records compensation expense, including stock-based compensation, amortization of intangible assets, depreciation of furniture and fixtures, amortization of leasehold improvements, communication costs, professional fees, rent expense, travel, office and other direct expenses.

Expenditures associated with the Company’s data centers, third-party data costs and corporate headquarters charges are recorded by the U.S. segment and are not allocated to the other segments. The ~~centers of excellence, who focus primarily on~~ content collection ~~and are~~centers, located in India, ~~and~~ the Philippines, and Latvia, benefit all of the Company’s operating segments and thus the expenses incurred at these locations are allocated to each segment based on a percentage of ~~revenues.~~revenue. Of the total ~~$704.8~~$700.0 million of goodwill reported by the Company at ~~May 31, 2018, 54%~~February 28, 2019, 55% was recorded in the U.S. segment, ~~45%~~44% in the ~~European~~Europe segment and the remaining 1% in the Asia Pacific segment.

The following reflects the results of operations of the segments, consistent with the Company’s management ~~system.~~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)

For the three months ended May 31, 2018

U.S.

Europe

Asia Pacific

Total

Revenues from clients
$ 210,308 $ 98,856 $ 30,747 $ 339,911
Segment operating profit
37,986 37,381 17,898 93,265
Total assets
728,517 572,867 105,788 1,407,172
Capital expenditures
2,830 537 2,633 6,000
(in thousands)

For the three months ended February 28, 2019

U.S.

Europe

Asia Pacific

Total

Revenue from clients
$ 223,315 $ 98,933 $ 32,647 $ 354,895
Segment operating income
$ 45,696 $ 43,248 $ 19,744 $ 108,688
Total assets
$ 792,573 $ 556,526 $ 115,895 $ 1,464,994
Capital expenditures
$ 7,254 $ 434 $ 4,269 $ 11,957

For the three months ended May 31, 2017

U.S.

Europe

Asia Pacific

Total

Revenues from clients
$ 197,834 $ 87,327 $ 26,959 $ 312,120
Segment operating profit
34,382 37,766 15,494 87,642
Total assets
708,440 555,366 94,208 1,358,014
Capital expenditures
6,211 515 1,210 7,936
For the three months ended February 28, 2018

U.S.

Europe

Asia Pacific

Total

Revenue from clients
$ 208,900 $ 96,206 $ 30,125 $ 335,231
Segment operating income
$ 38,527 $ 36,993 $ 19,965 $ 95,485
Total assets
$ 733,045 $ 634,472 $ 104,975 $ 1,472,492
Capital expenditures
$ 3,729 $ 755 $ 1,979 $ 6,463

For the nine months ended May 31, 2018

U.S.

Europe

Asia Pacific

Total

Revenues from clients
$ 627,976 $ 286,789 $ 89,518 $ 1,004,283
Segment operating profit
117,285 107,344 53,219 277,848
Capital expenditures
10,104 2,816 5,455 18,375
(in thousands)

For the six months ended February 28, 2019

U.S.

Europe

Asia Pacific

Total

Revenue from clients
$ 445,518 $ 196,698 $ 64,319 $ 706,535
Segment operating income
$ 89,537 $ 82,337 $ 37,353 $ 209,227
Capital expenditures
$ 11,358 $ 1,697 $ 8,427 $ 21,482

For the nine months ended May 31, 2017

U.S.

Europe

Asia Pacific

Total

Revenues from clients
$ 580,090 $ 235,464 $ 78,983 $ 894,537
Segment operating profit
110,574 114,282 44,851 269,707
Capital expenditures
21,311 1,176 3,494 25,981

~~8. BUSINESS COMBINATIONS~~

~~BISAM~~

On March 17, 2017, FactSet acquired BI-SAM Technologies (“BISAM”) for a total purchase price of $217.6 million. BISAM is a global provider of portfolio performance and attribution, multi-asset risk, GIPS composites management and reporting. BISAM’s product offerings include B-One, BISAM’s cross-asset solution, which will serve as a complement to both FactSet’s portfolio analytics suite and client reporting solutions, and Cognity, which enhances FactSet’s risk analysis for derivatives and quantitative portfolio construction. These factors contributed to a purchase price in excess of fair value of BISAM’s net tangible and intangible assets, leading to the recognition of goodwill. At the time of acquisition, BISAM employed over 160 employees based primarily in its New York, Boston, Paris, London and Sofia offices. Total transaction costs of $3.2 million were recorded within Selling, General and Administrative (“SG&A”) expenses in the Consolidated Statements of Income during fiscal 2017.

Allocation of the purchase price to the assets acquired and liabilities assumed was finalized during the fourth quarter of fiscal 2017. There were no significant adjustments between the preliminary and final allocation. The total purchase price was allocated to BISAM’s net tangible and intangible assets based upon their estimated fair value as of the date of acquisition.

(in thousands)

Tangible assets acquired
$ 27,583
Amortizable intangible assets

Software technology
18,261
Client relationships
37,597
Trade name
741
Goodwill
173,898
Total assets acquired
$ 258,080
Liabilities assumed
(40,443 )
Net assets acquired
$ 217,637

Intangible assets of $56.6 million have been allocated to amortizable intangible assets consisting of client relationships, amortized over 16 years using an accelerated amortization method; software technology, amortized over five years using a straight-line amortization method; and a trade name, amortized over four years using a straight-line amortization method.

Goodwill totaling $173.9 million represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. Goodwill generated from the BISAM acquisition is included in the U.S. 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.

~~Vermi~~~~lion~~

On November 8, 2016, FactSet acquired Vermilion Holdings Limited (“Vermilion”) for a total purchase price of $67.9 million. Vermilion is a global provider of client reporting and communications software and services to the financial services industry. Client reporting is a growing area of the market as regulatory requirements rise; and with the acquisition of Vermilion and its Vermilion Reporting Suite (“VRS”), FactSet now offers a workflow around all elements of the client reporting process, which it expects will expand as investors grow increasingly sophisticated. This factor contributed to a purchase price in excess of fair value of Vermilion’s net tangible and intangible assets, leading to the recognition of goodwill. At the time of acquisition, Vermilion employed 59 individuals in its London, Boston and Singapore offices. Total transaction costs of $0.7 million were recorded within SG&A expenses in the Consolidated Statements of Income during fiscal 2017.

Allocation of the purchase price to the assets acquired and liabilities assumed was finalized during the third quarter of fiscal 2017. There were no significant adjustments between the preliminary and final allocation. The total purchase price was allocated to Vermilion’s net tangible and intangible assets based upon their estimated fair value as of the date of acquisition. Based upon the purchase price and the valuation, the allocation is as follows:

(in thousands)

Tangible assets acquired
$ 7,916
Amortizable intangible assets

Software technology
10,916
Client relationships
5,954
Non-compete agreements
806
Trade name
571
Goodwill
51,157
Total assets acquired
$ 77,320
Liabilities assumed
(9,434 )
Net assets acquired
$ 67,886

Intangible assets of $18.2 million have been allocated to amortizable intangible assets consisting of client relationships, amortized over 15 years using an accelerated amortization method; software technology, amortized over six years using a straight-line amortization method; non-compete agreements, amortized over three years using a straight-line amortization method; and a trade name, amortized over four years using a straight-line amortization method.

Goodwill totaling $51.2 million represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. Goodwill generated from the Vermilion acquisition is included in the European segment and is not deductible for income tax purposes. The results of operations of Vermilion have been included in the Company’s Consolidated Statements of Income since the completion of the acquisition on November 8, 2016. Pro forma information has not been presented because the effect of the Vermilion acquisition is not material to the Company’s consolidated financial results.

For the six months ended February 28, 2018

U.S.

Europe

Asia Pacific

Total

Revenue from clients
$ 417,668 $ 187,933 $ 58,771 $ 664,372
Segment operating income
$ 79,298 $ 69,963 $ 35,322 $ 184,583
Capital expenditures
$ 7,274 $ 2,279 $ 2,822 $ 12,375

9. GOODWILL

Changes in the carrying amount of goodwill by segment for the ~~nine~~six months ended ~~May 31, 2018,~~February 28, 2019 are as follows:

(in thousands)

U.S.

Europe

Asia Pacific

Total

Balance at August 31, 2017
$ 386,835 $ 317,759 $ 2,966 $ 707,560
Foreign currency translations
— (590 ) 39 (551 )
Other adjustments
(640 ) (1,562 ) — (2,202 )
Balance at May 31, 2018
$ 386,195 $ 315,607 $ 3,004 $ 704,807
(in thousands)

U.S.

Europe

Asia Pacific

Total

Balance at August 31, 2018
$ 386,195 $ 312,694 $ 2,944 $ 701,833
Foreign currency translations
— (1,793 ) (11 ) (1,804 )
Balance at February 28, 2019
$ 386,195 $ 310,901 $ 2,933 $ 700,029

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 three reporting units are consistent with the operating segments reported as there is no discrete financial information available for the subsidiaries within each operating segment. The Company performed its annual goodwill impairment test during the fourth quarter of fiscal ~~2017,~~2018, consistent with the timing of previous years, at which time it was determined that there was no impairment, with the fair value of each of the Company’s reporting units significantly exceeding carrying value.

10. 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 FactSet’s acquired identifiable intangible assets at ~~May 31, 2018~~February 28, 2019 was ~~11.5~~12.3 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 changes to the estimate of the remaining useful lives during the first ~~nine~~six months of fiscal ~~2018. Amortizable~~2019. If indicators of impairment are present, amortizable intangible assets are tested for impairment ~~if indicators of impairment are present, based on~~comparing the carrying value to undiscounted cash flows and, if impaired, written down to fair value based on discounted cash flows. No impairment of intangible assets has been identified during any of the periods presented. The intangible assets have no assigned residual values.

The gross carrying amounts and accumulated amortization totals related to the Company’s identifiable intangible assets are as follows:

At May 31, 2018 (in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
At February 28, 2019 (in thousands)							Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Data content	$	34,454	$	20,676	$	13,778	$	34,135	$	21,835	$	12,300
Client relationships		99,249		27,721		71,528		98,148		32,801		65,347
Software technology		106,860		40,976		65,884		106,231		50,837		55,394
Non-compete agreements		4,860		2,180		2,680		4,860		2,815		2,045
Trade names		4,087		2,181		1,906		4,068		2,745		1,323
Total	$	249,510	$	93,734	$	155,776	$	247,442	$	111,033	$	136,409

At August 31, 2017 (in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
At August 31, 2018 (in thousands)							Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Data content	$	34,116	$	18,899	$	15,217	$	33,992	$	20,990	$	13,002
Client relationships		99,779		22,339		77,440		98,882		29,387		69,495
Software technology		105,963		30,889		75,074		106,505		44,231		62,274
Non-compete agreements		4,833		1,518		3,315		4,840		2,381		2,459
Trade names		4,080		1,583		2,497		4,070		2,365		1,705
Total	$	248,771	$	75,228	$	173,543	$	248,289	$	99,354	$	148,935

Amortization expense recorded for intangible assets was ~~$6.2~~$5.8 million and ~~$5.8~~$6.2 million for the three months ended ~~May 31,~~February 28, 2019 and 2018, ~~and 2017,~~ respectively. Amortization expense recorded for intangible assets was ~~$18.6~~$11.7 million and ~~$13.8~~$12.4 million for the ~~nine~~six months ended ~~May 31,~~February 28, 2019 and 2018, ~~and 2017,~~ respectively. As of ~~May 31, 2018,~~February 28, 2019, estimated intangible asset amortization expense for each of the next five years and thereafter is as ~~follows:~~follows

Fiscal Year (in thousands)	Estimated Amortization Expense		Estimated Amortization Expense
2018 (remaining three months)	$	6,098
2019		24,051
2019 (remaining six months)			$	11,927
2020		23,298		23,216
2021		21,386		21,252
2022		19,091		18,666
2023				13,844
Thereafter		61,852		47,504
Total	$	155,776	$	136,409

11. COMMON STOCK AND EARNINGS PER SHARE

On ~~May 7, 2018,~~February 15, 2019, FactSet’s Board of Directors approved a regular quarterly dividend of $0.64 per share. The cash dividend of ~~$24.6~~$24.4 million was paid on ~~June~~March 19, ~~2018~~2019 to common stockholders of record at the close of business on ~~May 31, 2018.~~February 28, 2019.

Shares of common stock outstanding were as follows:

	Nine Months ended May 31,						Six Months ended February 28,
(in thousands)	2018			2017			2019			2018
Balance at September 1		39,023			40,038
Balance, beginning of year (September 1)								38,192			39,023
Common stock issued for employee stock plans		572			585			426			495
Repurchase of common stock from employees⁽¹⁾		(5	)		(37	)		(28	)		(6	)
Repurchase of common stock under the share repurchase program		(1,205	)		(1,285	)		(490	)		(585	)
Repurchase of common stock under accelerated share repurchase agreement		—			(103	)
Balance at May 31, 2018 and 2017, respectively		38,385			39,198
Balance at February 28, 2019 and 2018, respectively								38,100			38,927

⁽¹⁾

For the ~~nine~~six months ended ~~May~~February 3128, 20189 and 20178, the Company repurchased ~~5,563~~~~and~~ 3727,~~042~~852 and 5,563 shares,, or $~~1.0~~6.1 million and $5.71.0 million, of common stock, respectively, in settlement of employee tax withholding obligations due upon the vesting of restricted stock.

A reconciliation of the weighted average shares outstanding used in the basic and diluted earnings per share (“EPS”) computations is as follows:

(in thousands, except per share data)

Net Income
(Numerator)

Weighted
Average
Common Shares
(Denominator)

Per Share
Amount

For the three months ended May 31, 2018

Basic EPS

Income available to common stockholders
$ 74,746 38,594 $ 1.94
Diluted EPS

Dilutive effect of stock options and restricted stock
510
Income available to common stockholders plus assumed conversions
$ 74,746 39,104 $ 1.91
For the three months ended May 31, 2017

Basic EPS

Income available to common stockholders
$ 65,414 39,317 $ 1.66
Diluted EPS

Dilutive effect of stock options and restricted stock
140
Income available to common stockholders plus assumed conversions
$ 65,414 39,457 $ 1.66
For the nine months ended May 31, 2018

Basic EPS

Income available to common stockholders
$ 198,262 38,890 $ 5.10
Diluted EPS

Dilutive effect of stock options and restricted stock
653
Income available to common stockholders plus assumed conversions
$ 198,262 39,543 $ 5.01
For the nine months ended May 31, 2017

Basic EPS

Income available to common stockholders
$ 198,707 39,528 $ 5.03
Diluted EPS

Dilutive effect of stock options and restricted stock
208
Income available to common stockholders plus assumed conversions
$ 198,707 39,736 $ 5.00

(in thousands, except per share data)

Net Income
(Numerator)

Weighted
Average
Common Shares
(Denominator)

Per Share
Amount

For the three months ended February 28, 2019

Basic EPS

Income available to common stockholders
$ 84,702 38,055 $ 2.23
Diluted EPS

Dilutive effect of stock options and restricted stock
564
Income available to common stockholders plus assumed conversions
$ 84,702 38,619 $ 2.19
For the three months ended February 28, 2018

Basic EPS

Income available to common stockholders
$ 53,137 38,991 $ 1.36
Diluted EPS

Dilutive effect of stock options and restricted stock
855
Income available to common stockholders plus assumed conversions
$ 53,137 39,846 $ 1.33
For the six months ended February 28, 2019

Basic EPS

Income available to common stockholders
$ 168,998 38,081 $ 4.44
Diluted EPS

Dilutive effect of stock options and restricted stock
633
Income available to common stockholders plus assumed conversions
$ 168,998 38,714 $ 4.37
For the six months ended February 28, 2018

Basic EPS

Income available to common stockholders
$ 123,516 39,038 $ 3.16
Diluted EPS

Dilutive effect of stock options and restricted stock
725
Income available to common stockholders plus assumed conversions
$ 123,516 39,763 $ 3.11

Dilutive potential common shares consist of stock options and unvested restricted stock awards. ~~The~~There were no447,709 stock options excluded from the calculation of diluted EPS for the three and six months ended ~~May 31, 2018 as no options~~February 28, 2019, because their inclusion would have been anti-dilutive. ~~The number of~~There were no stock options or unvested restricted stock awards excluded from the calculation of diluted EPS for the three and six months ended ~~May 31, 2017 was 492,649 because their inclusion would have been anti-dilutive.~~February 28, 2018.

~~For the three months ended May 31, 2018 and 2017, the number of performance-based stock options excluded from the calculation of diluted EPS was 249,443 and 754,561, respectively.~~ Performance-based stock options are omitted from the calculation of diluted EPS until the performance criteria ~~are~~is probable of being achieved. For the three and six months ended February 28, 2019, the number of performance-based stock option grants excluded from the calculation of diluted EPS was 206,417. For the three and six months ended February 28, 2018, the number of performance-based stock option grants excluded from the calculation of diluted EPS was 309,800.

12. STOCKHOLDERS’ EQUITY

Preferred Stock

At ~~May 31, 2018~~February 28, 2019 and August 31, ~~2017,~~2018, there were 10,000,000 shares of preferred stock ($0.01 par value per share) authorized, of which no 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 ~~May 31, 2018~~February 28, 2019 and August 31, ~~2017,~~2018, there were 150,000,000 shares of common stock ($~~0.01~~.01 par value per share) authorized, of which ~~39,124,581~~39,690,225 and ~~51,845,132~~39,264,849 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 from~~reduction to retained earnings ($1.5 billion). As of ~~May~~February 28, 2019, and August 31, 2018, there were ~~740,000~~1,590,060 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~~For the ~~first nine~~three months ~~of fiscal~~ended February 28, 2019 and 2018, the Company repurchased ~~1,204,920~~214,945 shares for ~~$234.8~~$44.1 million ~~compared to 1,284,822~~and 420,000 shares for ~~$208.8~~$81.9 million, inrespectively. For the ~~prior year comparable period.~~

~~On March 26,~~six months ended February 28, 2019 and 2018, the ~~Board~~Company repurchased 489,945 shares for $104.6 million and 584,920 shares for $112.9 million, respectively. As of ~~Directors of FactSet approved a $300.0~~February 28, 2019, $137.2 million ~~expansion to the existing share repurchase program. Subsequent to this expansion $309.3 million remain~~remains authorized for future share ~~repurchases as of May 31, 2018.~~repurchases. No minimum number of shares to be repurchased has been fixed. There is no timeframe to complete the repurchase program and it is expected that share repurchases will be paid using existing and future cash generated by operations.

Restricted Stock ~~Vesting~~

Restricted stock awards entitle the holder to shares of common stock as the awards vest over time. During the first ~~nine~~six months of fiscal ~~2018, 15,063~~2019, previously granted restricted stock awards of 75,530 shares vested and were included in common stock outstanding as of February 28, 2019 (recorded net of 27,852 shares repurchased from employees at a cost of $6.1 million to cover their cost of taxes upon vesting of the restricted stock). During the same comparable period a year ago, 14,839 shares of previously granted restricted stock awards vested and were included in common stock outstanding as of ~~May 31,~~February 28, 2018 ~~(less~~(recorded net of 5,563 shares repurchased from employees ~~to cover their~~at a cost of taxes upon vesting of the restricted stock). During the same period a year ago, 101,234 of previously granted restricted stock awards vested and were included in common stock outstanding as of May 31, 2017 (less 37,042 shares repurchased from employees$1.0 million to cover their cost of taxes upon vesting of the restricted stock).

Dividends

The Company’s Board of Directors declared the following ~~historical dividends:~~ dividends for the first six months of fiscal 2019 and 2018 respectively:

Declaration Date

Dividends Per
Share of
Common Stock

Type

Record Date

Total $ Amount
(in thousands)

Payment Date
May 7, 2018
$ 0.64
Regular (cash)

May 31, 2018
$ 24,566
June 19, 2018
February 7, 2018
$ 0.56
Regular (cash)

February 28, 2018
$ 21,799
March 20, 2018
November 8, 2017
$ 0.56
Regular (cash)

November 30, 2017
$ 21,902
December 19, 2017
August 10, 2017
$ 0.56
Regular (cash)

August 31, 2017
$ 21,853
September 19, 2017
May 5, 2017
$ 0.56
Regular (cash)

May 31, 2017
$ 21,951
June 20, 2017
February 6, 2017
$ 0.50
Regular (cash)

February 28, 2017
$ 19,709
March 21, 2017
November 10, 2016
$ 0.50
Regular (cash)

November 30, 2016
$ 19,852
December 20, 2016
August 5, 2016
$ 0.50
Regular (cash)

August 31, 2016
$ 20,019
September 20, 2016
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

Fiscal 2018

First Quarter
$ 0.56
November 30, 2017
$ 21,901
December 19, 2017
Second Quarter
$ 0.56
February 28, 2018
$ 21,799
March 20, 2018

All of 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.

13. EMPLOYEE STOCK OPTION AND RETIREMENT PLANS

Stock Option Awards

~~On December 19, 2017, the Company’s stockholders approved the amended and restated~~The FactSet Research Systems Inc. ~~2004 Stock Option and Award Plan, as Amended and Restated, which was renamed the~~ Stock Option and Award Plan, as Amended and Restated (the “Long Term Incentive Plan” or “LTIP”)~~. As part of the approved amendment, an additional 5,750,000 shares of common stock were added to the LTIP’s share reserve and the expiration date was extended to December 19, 2027. The LTIP~~ provides for the grant of share-based awards, including stock options and restricted stock awards to employees of FactSet. The expiration date of the Long Term Incentive Plan is December 19, 2027. Stock options granted under the LTIP expire not more than ten years from the date of grant and the majority vest ratably over a period of five years. Options become vested and exercisable provided the employee continues employment with the Company through the applicable vesting date and remain exercisable until expiration or cancellation. Options are not transferable or assignable other than by will or the laws of descent and distribution. During the grantee’s lifetime, the options may be exercised only by the grantee.

~~Stock~~Stock Option Activity

During the first ~~nine~~six months of fiscal ~~2018,~~2019, FactSet granted ~~569,305~~460,713 stock options atwith a weighted average exercise price of ~~$190.04~~$221.74 to existing employees of the Company. As of May 31, 2018, a total of 3,279,096 stock options were outstanding, at a weighted average exercise price of $151.79. Unamortized stock-based compensation of $65 million is expected to be recognized as stock-based compensation expense over the remaining weighted average vesting period of 3.3 years.

A summary of stock option activity for the six months ended February 28, 2019 is as follows:

(in thousands, except exercise price per share)

Number
Outstanding

Weighted Average
Exercise Price Per Share

Balance at August 31, 2017
3,366 $ 139.29
Granted – non performance-based
554 $ 189.98
Exercised
(226
)
$ 104.90
Forfeited
(25
)
$ 133.89
Balance at November 30, 2017
3,669 $ 149.09
Granted – non performance-based
16 $ 192.11
Granted – non-employee Directors grant
19 $ 197.75
Exercised
(220
)
$ 118.75
Forfeited
(82
)
$ 164.59
Balance at February 28, 2018
3,402 $ 151.15
Exercised
(61 ) $ 113.39
Forfeited
(62 ) $ 154.41
Balance at May 31, 2018
3,279 $ 151.79

(in thousands, except per share data)

Number of
Stock Options
Outstanding

Weighted Average
Exercise Price Per Share

Balance at August 31, 2018
3,143 $ 153.05
Granted – non-performance-based
455 221.93
Exercised
(117 ) 132.81
Forfeited
(24 ) 169.47
Balance at November 30, 2018
3,457 $ 162.68
Granted – non-performance-based
6 207.84
Granted – non-employee Directors’ grant
21 207.88
Exercised
(207 ) 136.30
Forfeited
(61 ) 152.19
Balance at February 28, 2019
3,216 $ 164.42

The total number of in-the-money options exercisable as of ~~May 31, 2018~~February 28, 2019 was ~~1.1~~1.2 million with a weighted average exercise price of ~~$124.52.~~$138.41. The ~~total number of in-the-money options exercisable as of August 31, 2017 was 0.9 million with a weighted average exercise price of $105.14. As of May 31, 2018 and August 31, 2017, the~~ aggregate intrinsic value of in-the-money stock options exercisable at February 28, 2019 and August 31, 2018 was ~~$84.1~~$116.5 million and ~~$49.7~~$105.3 million, respectively. ~~Aggregate~~The aggregate intrinsic value represents the difference between the Company’s closing stock ~~prices~~price as of ~~$201.01 and $157.18 on May 31, 2018 and August 31, 2017, respectively,~~February 28, 2019 of $235.17, and the exercise price, multiplied by the number of options exercisable as of that date.

The total pre-tax intrinsic value of stock options exercised during the three months ended ~~May 31,~~February 28, 2019 and 2018 ~~and 2017~~ was ~~$5.2~~$15.5 million and ~~$4.3~~$17.2 million, respectively. The total pre-tax intrinsic value of stock options exercised during the ~~nine~~six months ended ~~May 31,~~February 28, 2019 and 2018 ~~and 2017~~ was ~~$40.3~~$26.3 million and ~~$34.8~~$35.2 million, respectively.

Performance-based ~~Stock Options~~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 Company performance targets. The number of performance-based ~~options~~awards that vest will be predicated on the Company achieving performance levels during the measurement period subsequent to the date of grant. Dependent on the financial performance levels attained by FactSet, a percentage of the performance-based ~~stock options~~awards will vest to the ~~grantees of those stock options.~~grantees. However, there is no current guarantee that such ~~options~~awards will vest in whole or in part.

~~February 2015 Performance-based Option Grant Revie~~w

~~In connection with~~The following summarizes the ~~acquisition~~material performance-based award outstanding as of ~~Code Red, FactSet granted 68,761 performance-based 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 in order for the options to vest. As of May 31, 2018, total unamortized stock-based compensation of $0.2 million will be recognized as expense over the remaining vesting period of 0.7 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 May 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 periods could result in the following changes to the current estimate of the vesting percentage and related expense:

Vesting Percentage (in thousands)

Cumulative
Catch-up Adjustment*

Remaining Expense
to be Recognized

0% (current expectation)
$ — $ —
100% $ 744 $ 1,961

* Amounts represent the cumulative catch-up adjustment to be recorded if there was a change in the vesting percentage as of ~~May 31~~~~, 2018~~.

June 2017 Performance-based Option Grant Review

In connection with the acquisition of BISAM, FactSet granted 206,417 performance-based stock options in June 2017. These performance-based options will vest 40% on the second anniversary date of the grant and 20% on each subsequent anniversary date if certain BISAM revenue and operating income targets are achieved by March 31, 2019. The option holders must also remain employed by FactSet for the options to be eligible to vest. As of ~~May 31, 2018,~~February 28, 2019, FactSet does not believe these growth targets are probable of being achieved, and as such, no stock-based compensation expense is expected to be recognized in connection with these performance-based options. A change in the actual financial performance levels achieved by BISAM in future fiscal years could result in the following changes to the current estimate of the vesting percentage and related expense:

Vesting Percentage (in thousands)	Cumulative Catch-up Adjustment*		Remaining Expense to be Recognized		Cumulative Catch-up Adjustment*		Remaining Expense to be Recognized
0% (current expectation)	$	—	$	—	$	—	$	—
80%	$	1,303	$	5,804	$	2,369	$	4,738
90%	$	1,466	$	6,530	$	2,665	$	5,331
100%	$	1,629	$	7,255	$	2,961	$	5,923

* Amounts represent the cumulative catch-up adjustment to be recorded if there ~~was~~were a change in the vesting percentage as of ~~May~~February 28, 20131~~, 2018~~9.

Restricted Stock ~~and Stock Unit~~ Awards

The Company’s Option Plan permits the issuance of restricted stock ~~and~~awards in the form of either restricted shares or restricted stock units. Restricted stock awards are subject to continued employment over a specified period.

Restricted Stock ~~and Stock Unit~~ Awards Activity

During the first ~~nine~~six months of fiscal ~~2018,~~2019, FactSet granted ~~961~~41,153 restricted stock awards to employees of the Company at a weighted average grant date fair value of ~~$182.17.~~$212.66. These restricted stock awards vest over a weighted average period of 5.0 years from grant date.

As of ~~May 31, 2018,~~February 28, 2019, a total of ~~153,842 shares of~~106,558 restricted stock ~~and restricted stock units~~awards were unvested and outstanding, which results in unamortized stock-based compensation of ~~$13.3~~$16.1 million to be recognized as stock-based compensation expense over the remaining weighted average vesting period of 33.6 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, 2017		182		$	138.62

Balance at August 31, 2018							143			$	139.34
Granted		1		$	182.17		41			$	212.66
Forfeited		(10	)	$	114.37		(1	)		$	200.18
Vested		(11	)	$	157.37		(52	)⁽¹⁾		$	113.44
Balance at November 30, 2017		162		$	139.12
Balance at November 30, 2018							131			$	172.48
Granted							—			$	—
Forfeited		(3	)	$	120.28		(1	)		$	184.64
Vested		(4	)	$	135.97		(23	)⁽²⁾		$	136.58
Balance at February 28, 2018		155		$	139.55
Forfeited		(1	)	$	115.07
Balance at May 31, 2018		154		$	139.74
Balance at February 28, 2019							107			$	187.62

⁽¹⁾

The majority of the vested restricted stock awardsrelated to the final vesting of awardsgranted on November 1, 2013, which cliff vested 60% after three years on November 1, 2016 and 40% after five years on November 1, 2018.

⁽²⁾

The majority of the vested restricted stock awards related to the final vesting of awards granted on February 9, 2015, which vested 100% on the fouryear anniversary date of the grant.

As of ~~May 31, 2018~~February 28, 2019, and August 31, ~~2017,~~2018, the aggregate fair value of unvested restricted stock was ~~$30.9~~$25.1 million and ~~$28.6~~$32.8 million, respectively. Aggregate fair value of unvested restricted stock represents the Company’s closing stock prices of ~~$201.01~~$235.17 and ~~$157.18~~$229.39 on ~~May 31, 2018~~February 28, 2019 and August 31, ~~2017,~~2018, respectively, multiplied by the number of unvested restricted stock as of that date.

The total pre-tax fair value of restricted stock that vested during the three months ended ~~May 31,~~February 28, 2019 and 2018 was $5.1 million and ~~2017 was less than $0.1~~$0.7 million, ~~in each period,~~ respectively. The total pre-tax fair value of restricted stock that vested during the ~~nine~~six months ended ~~May 31,~~February 28, 2019 and 2018 ~~and 2017~~ was ~~$2.8~~$16.7 million and ~~$15.6~~$2.7 million, respectively.

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 Option Plan

Share-based Awards
Available for Grant under
the Non-Employee Directors Plan

Balance at August 31, 2017
897 42
Granted – nonperformance-based options
(554 ) —
Granted – restricted stock awards⁽¹⁾
(2 ) —
Share-based awards canceled/forfeited⁽²⁾
51 —
Balance at November 30, 2017
392 42
Increase in the number of shares available for issuance⁽³⁾⁽⁴⁾
5,750 250
Granted – non performance-based options
(16 ) (19 )
Share-based awards canceled/forfeited⁽²⁾
89 —
Balance at February 28, 2018
6,215 273
Share-based awards canceled/forfeited⁽²⁾
64 —
Balance at May 31, 2018
6,279 273
(in thousands)

Share-based Awards
Available for Grant under the
Employee Stock Option Plan

Share-based Awards
Available for Grant under the
Non-Employee Stock Option Plan

Balance at August 31, 2018
6,298 282
Granted – non-performance-based options
(455 ) —
Restricted stock awards granted⁽¹⁾
(103 ) —
Share-based awards canceled/forfeited⁽²⁾
25 —
Balance at November 30, 2018
5,765 282
Granted – non-performance-based options
(6 ) (21 )
Share-based awards canceled/forfeited⁽²⁾
65 3
Balance at February 28, 2019
5,824 264

^⁽¹⁾

Each restricted stock award granted is equivalent to 2.5 shares granted under the Company’s Option Plan.

^⁽²⁾

Under the Company’s Option Plan, for each restricted stock award canceled/forfeited, an equivalent of 2.5 shares is added back to the available share-based awards balance.

⁽³⁾

~~On December 19, 2017, the Company’s stockholders approved the LTIP. As part of the approval, an additional 5,750,000 shares of common stock were added to the LTIP’s share reserve.~~

⁽⁴⁾

On December 19, 2017, the Company’s stockholders approved the amended and restated 2008 Non-Employee Directors’ Stock Option Plan, which was renamed the Non-Employee Directors’ Stock Option and Award Plan, as Amended and Restated (the “Director Plan”). As part of the approval, an additional 250,000 shares of commons stock were added to the Director Plan share reserve.

Employee Stock Purchase Plan

On December 19, 2017, the Company’s stockholders approved the amended and restated 2008 Employee Stock Purchase Plan, as Amended and Restated, which was renamed the Employee Stock Purchase Plan, as Amended and Restated (the “ESPP”). Shares of FactSet common stock may be purchased by eligible employees under the ~~ESPP~~Amended and Restated FactSet Research Systems Inc. Employee Stock Purchase Plan, as Amended and Restated (the “ESPP”) in three-month ~~intervals at a~~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-month offering period. Employee purchases may not exceed 10% of their gross compensation and a $25,000 contribution limit during an offering period.

During the three months ended ~~May 31, 2018~~February 28, 2019, employees purchased ~~16,312~~12,624 shares at a ~~weighted average~~ price of ~~$170.86 as~~$199.36 compared to ~~17,314~~14,805 shares at a ~~weighted average~~ price of ~~$140.84~~$171.23 for the three months ended ~~May 31, 2017.~~February 28, 2018. During the ~~nine~~six months ended ~~May 31, 2018,~~February 28, 2019, employees purchased ~~50,706~~25,719 shares at a ~~weighted average~~ price of ~~$156.88~~$198.33 as compared to ~~54,554~~34,394 shares at a ~~weighted average~~ price of ~~$137.38~~$150.25 for the ~~nine~~six months ended ~~May 31, 2017.~~February 28, 2018. At ~~May 31, 2018,~~February 28, 2019, the ESPP had ~~282,466~~243,223 shares reserved for future issuance.

~~401(k) Plan~~Employee Benefit Plans

FactSet sponsors benefit plans for the majority of its domestic and foreign employees. The Company ~~established~~contributed $2.6 million in employer matching contributions for its ~~401(k) Plan in fiscal 1993. The 401(k) Plan is a~~U.S. defined contribution plan ~~covering all full-time,~~for both the three months ended February 28, 2019 and 2018. During the six months ended February 28, 2019 and 2018, the Company contributed $5.2 million and $5.5 million in employer matching contributions for its U.S. ~~employees~~defined contribution plan, respectively. Contributions to foreign benefit plans were not material to FactSet on either an individual or aggregate basis for any of the Company and is subject to the provisions of the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986 (“IRC”). Each year, participants may contribute up to 60% of their eligible annual compensation, subject to annual limitations established by the IRC. The Company matches up to 4% of employees’ earnings, capped at the Internal Revenue Service annual maximum. Company matching contributions are subject to a five year graduated vesting schedule. All full-time, U.S. employees are eligible for the matching contribution by the Company. The Company contributed $8.5 million and $7.3 million in matching contributions to employee 401(k) accounts during the nine months ended May 31, 2018 and 2017, respectively.periods presented.

14. STOCK-BASED COMPENSATION

~~The Company recognized total stock-based compensation expense of $7.8 million and $23.2 million during~~During the three ~~and nine~~ months ended ~~May 31,~~February 28, 2019 and 2018, ~~respectively. Similarly,~~ the Company recognized total stock-based compensation expense of ~~$7.3~~$7.7 million and ~~$20.9~~$7.9 million, ~~during~~respectively. During the ~~three and nine~~six months ended ~~May 31, 2017,~~February 28, 2019 and 2018, the Company recognized total stock-based compensation expense of $16.1 million and $15.4 million, respectively. As of ~~May 31, 2018, $78.3~~February 28, 2019, $87.2 million of total unrecognized compensation expense related to non-vested equity awards is expected to be recognized over a weighted average period of ~~3.2~~3.3 years. There was no stock-based compensation capitalized ~~as of May 31, 2018~~for the three and six months ended February 28, 2019 or August 31, ~~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~~several 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 forfeitures and employee stock option exercise behaviors.

Q1 2019	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.

Q2 2019	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.

Q1 2018	553,942 ~~nonperformance-based~~non-performance-based employee stock options were granted at a weighted average exercise price of $189.98 and a weighted average estimated fair value of $48.27 per share.

Q2 2018	15,363 ~~nonperformance-based~~non-performance-based employee stock options were granted at a weighted average exercise price of $192.11 and a weighted average estimated fair value of $48.82 per share.
~~Q3 2018~~	~~There were no employee stock options granted during the three months ended May 31, 2018.~~
~~Q1 2017~~	671,263 non performance-based employee stock options and 22,460 performance-based employee stock options were granted at a weighted average exercise price of $152.51 and a weighted average estimated fair value of $39.60 per share.
~~Q2 2017~~	~~61,744 performance-based employee stock options were granted at a weighted average exercise price of $169.16 and a weighted average estimated fair value of $43.81 per share.~~
~~Q3 2017~~	~~11,604 nonperformance-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.~~

The weighted average estimated fair value of employee stock options granted was determined using the binomial model with the following weighted average assumptions:

Three months ended May 31,	2018*	2017
Three months ended February 28,					2019					2018
Term structure of risk-free interest rate	—	0.49%	-	1.89%		2.48%	-	3.14	%		1.28%	-	2.41	%
Expected life (years)	—		7.4					7.1					7.4
Term structure of volatility	—	21%	-	29%		18%	-	25	%		19%	-	29	%
Dividend yield	—			1.18%				1.15	%				1.32	%
Weighted average estimated fair value	—			$42.23	$	53.18				$	48.82
Weighted average exercise price	—			$163.05	$	207.84				$	192.11
Fair value as a percentage of exercise price	—			25.9%				25.6	%				25.4	%

* ~~There were no employee stock options granted during the three months ended May 31, 2018.~~

Nine months ended May 31,	2018				2017
Six months ended February 28,									2019					2018
Term structure of risk-free interest rate		1.28%	-	2.41%		0.07%	-	2.09%		1.28%	-	3.14	%		1.28%	-	2.41	%
Expected life (years)			7.4				7.4					7.1					7.4
Term structure of volatility		19%	-	29%		21%	-	30%		18%	-	29	%		19%	-	29	%
Dividend yield				1.32%				1.18%				1.16	%				1.32	%
Weighted average estimated fair value				$48.29				$39.98	$	56.72				$	48.29
Weighted average exercise price				$190.04				$154.01	$	221.74				$	190.04
Fair value as a percentage of exercise price				25.4%				26.0%				25.6	%				25.4	%

The risk-free interest rate assumption for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected volatility is based on a combination of historical volatility of the Company’s stock and implied volatilities of publicly traded options to buy FactSet common stock with contractual terms closest to the expected life of options granted to employees. The approach to utilize a mix of historical and implied volatility was based upon the availability of actively traded options on the Company’s stock and the Company’s assessment that a combination of implied volatility and historical volatility is best representative of future stock price trends. The Company uses historical data to estimate option exercises and employee ~~termination~~terminations 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~~employee 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 ~~Director~~Non-Employee Directors’ Stock Option and Award Plan, as Amended and Restated (the “Director Plan”), provides for the grant of share-based awards, including stock options, to non-employee directors of FactSet. As ~~part~~ of February 28, 2019, shares available for future grant under the ~~stockholder approval, the~~Director 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 May 31, 2018, shares available for future grant were 273,222.~~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 grant is affected by the Company’s stock price, as well as, assumptions regarding ~~a number of~~several 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 forfeitures and employee stock option exercise behaviors.

Fiscal 20189

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. These options have a weighted average estimated fair value of $38.76 per share, using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rate	2.34	%
Expected life (years)	5.4
Expected volatility	19.7	%
Dividend yield	1.16	%

~~Fiscal 2017~~

On January 13, 2017, FactSet granted 23,846 stock options to the Company’s non-employee Directors, including one-time new Director grants of 2,104 stock options each for Malcolm Frank and Sheila B. Jordan, who were elected to FactSet’s Board of Directors on December 20, 2016. All of 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~~	%

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. Restricted stock awards are amortized to expense over the vesting period. During the first ~~nine~~six months of fiscal ~~2018,~~2019, there were ~~961~~41,153 restricted stock awards granted, with a weighted average grant date fair value of ~~$182.17.~~$212.66. During the first ~~nine~~six months of fiscal ~~2017, there were 12,927~~2018, FactSet granted 961 restricted stock awards ~~granted with~~at a weighted average grant date fair value of ~~$157.50.~~$182.17.

Employee Stock Purchase Plan Fair Value Determinations

During the three months ended ~~May 31, 2018,~~February 28, 2019, employees purchased ~~16,312~~12,624 shares at a weighted average price of ~~$170.86~~$199.36 as compared to ~~17,314~~14,805 shares at a weighted average price of ~~$140.84~~$171.23 for the three months ended ~~May 31, 2017.~~February 28, 2018. During the ~~nine~~six months ended ~~May 31, 2018,~~February 28, 2019, employees purchased ~~50,706~~25,719 shares at a weighted average price of ~~$156.88~~$198.33 as compared to ~~54,554~~34,394 shares at a weighted average price of ~~$137.38~~$150.25 for the ~~nine~~six months ended ~~May 31, 2017.~~February 28, 2018. Stock-based compensation expense ~~recorded during the three months ended May 31, 2018 and 2017,~~ relating to the ESPP was ~~$0.6 million and~~ $0.5 million ~~respectively.~~for both the three months ended February 28, 2019 and 2018. Stock-based compensation expense ~~recorded for the nine months ended May 31, 2018 and 2017, relating~~related to the ESPP for the six months ended February 28, 2019 and 2018 was ~~$1.6~~$1.0 million and ~~$1.5~~$1.1 million, respectively.

The weighted average estimated fair value for the shares repurchased under the ESPP was calculated using the Black-Scholes model with the following assumptions:

Three months ended May 31,	2018			2017
Three months ended February 28,							2019			2018
Risk-free interest rate		1.81	%		0.81	%		2.42	%		1.45	%
Expected life (months)		3			3			3			3
Expected volatility		10.07	%		8.3	%		12.47	%		13.9	%
Dividend yield		1.26	%		1.24	%		1.09	%		1.11	%
Weighted average estimated fair value	$	34.39		$	29.84		$	40.45		$	35.02

Six months ended February 28,

2019

2018

Risk-free interest rate
2.35 % 1.26 %
Expected life (months)
3 3
Expected volatility
10.68 % 10.52 %
Dividend yield
1.10 % 1.29 %
Weighted average estimated fair value
$ 39.52 $ 29.76

Nine months ended May 31,

2018

2017

Risk-free interest rate
1.43 % 0.56 %
Expected life (months)
3 3
Expected volatility
10.38 % 8.7 %
Dividend yield
1.28 % 1.21 %
Weighted average estimated fair value
$ 31.25 $ 28.48

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 of~~several 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.

15. 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 the tax bases of assets and liabilities using currently enacted tax rates.

Provision for Income Taxes

The provision for income taxes is as follows:

	Three months ended May 31,						Nine months ended May 31,						Three months ended February 28,						Six months ended February 28,
(in thousands)	2018			2017			2018			2017			2019			2018			2019			2018
Income before income taxes	$	89,511		$	85,229		$	267,903		$	264,539		$	104,349		$	92,213		$	200,292		$	178,392
Total provision for income taxes	$	14,765		$	19,815		$	69,641		$	65,832
Provision for income taxes													$	19,647		$	39,076		$	31,294		$	54,876
Effective tax rate		16.5	%		23.2	%		26.0	%		24.9	%		18.8	%		42.4	%		15.6	%		30.8	%

FactSet’s effective tax rate is based on recurring factors and nonrecurring events, including the taxation of foreign income. The Company’s effective tax rate will vary based on, among other things, changes in levels of foreign income, as well as discrete and other nonrecurring events that may not be predictable. ~~On December 22, 2017,~~The lower effective tax rate for both the ~~U.S. government enacted comprehensive tax legislation through~~three and six months ended February 28, 2019, compared to the ~~TCJA.~~same periods a year ago, is mainly due to the enactment of the Tax Cuts and Jobs Act (“TCJA”). The TCJA ~~significantly revises~~imposed a one-time transition tax expense, resulting in $23.2 million being recorded in the ~~U.S. corporate income tax including, lowering~~second quarter of fiscal 2018. This impact was revised during the first and second quarters of fiscal 2019, resulting in a benefit of $2.3 million and $1.1 million, respectively, which positively impacted the six months ended February 28, 2019. The TCJA also lowered the statutory U.S. corporate income tax rate from 35% to 21%, effective January 1, ~~2018, implementing~~2018. Due to the timing of FactSet’s year end, the lower tax rate was fully applicable for the three and six months ended February 28, 2019, while being phased in during the same periods a ~~modified territorial~~year ago. The reduction in the U.S. corporate income tax ~~system~~rate required a remeasurement of the Company’s net U.S. deferred tax position, which resulted in a non-recurring tax charge of $2.2 million in the second quarter of fiscal 2018. FactSet’s effective tax rate is lower than the applicable U.S. corporate income tax rate for the three and ~~imposing~~six months ended February 28, 2019 due to R&D tax benefits and tax benefits associated with share-based payments. The decrease in the income tax provision for three and six months ended February 28, 2019 was partially offset by a ~~mandatory one-time transition~~$2.4 million income tax ~~on accumulated earnings and profits (“E&P”)~~expense from the settlement with a tax authority recognized during the second quarter of ~~foreign subsidiaries that were previously deferred from U.S. income taxes. While the Company~~fiscal 2019.

FactSet has ~~not~~ finalized the accounting for the tax effects of the ~~enactment of the~~ TCJA ~~FactSet has made a reasonable estimate of the effects on the existing U.S. deferred tax balances and~~with respect to the one-time transition tax. The ~~Company will continue to refine its calculations as additional analyses are completed. In addition,~~tax effects of the ~~estimates~~TCJA 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 million in undistributed foreign E&P generated prior to December 31, 2017, which resulted in a one-time transition tax expense of $23.2 million recorded during the second quarter of fiscal 2018, payable over an eight-year period. This amount may change as the Company finalizes the calculation of foreign E&P previously deferred from U.S. federal taxation, as well as the analysis of available foreign tax credits. Due to the changes in taxation of undistributed foreign earnings under the TCJA, FactSet will continue to analyze foreign subsidiary earnings, as well as global working capital requirements, and may repatriate earnings when the amounts are remitted substantially free of additional tax.

Due to FactSet’s August 31 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 $2.2 million recorded during the second quarter of fiscal 2018. 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~~Deferred tax assets ~~that are~~ recorded inwithin the ~~Consolidated Balance Sheets~~consolidated balance sheets were as follows:

(in thousands)

May 31, 2018

August 31, 2017

Deferred tax assets:

Receivable reserve
$ 558 $ 811
Depreciation on property, equipment and leasehold improvements
727 2,220
Deferred rent
7,874 11,615
Stock-based compensation
13,700 20,117
Purchased intangible assets, including acquired technology
(22,947 ) (32,742 )
Other
8,004 8,059
Total deferred tax assets
$ 7,916 $ 10,080

(in thousands)

February 28, 2019

August 31, 2018

Deferred tax assets:

Receivable reserve
$ 571 $ 599
Depreciation on property, equipment and leasehold improvements
3,110 1,032
Deferred rent
7,410 7,711
Stock-based compensation
13,333 14,827
Purchased intangible assets, including acquired technology
(25,269 ) (24,059 )
Other
7,582 9,606
Total deferred tax assets
$ 6,737 $ 9,716

The significant components of ~~deferred~~Deferred tax liabilities ~~that are~~ recorded inwithin the ~~Consolidated Balance Sheets~~consolidated balance sheets were as follows:

(in thousands)	May 31, 2018			August 31, 2017			February 28, 2019			August 31, 2018
Deferred tax liabilities:
Stock-based compensation	$	(924	)	$	(815	)	$	(1,077	)	$	(946	)
Depreciation on property, equipment and leasehold improvements		548			168
Purchased intangible assets, including acquired technology		23,289			26,231			20,368			22,429
Other		714			1,690			929			(293	)
Total deferred tax liabilities	$	23,627		$	27,274		$	20,220		$	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 recognize the financial effect of an income tax position only if it is more likely than not (greater than 50%) that the tax position will prevail upon tax examination, based solely on the technical merits of the tax position. Otherwise, no benefit or expense can be recognized in the consolidated financial statements. The tax benefits recognized are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. Additionally, companies are required to accrue interest on all tax exposures for which reserves have been established consistent with jurisdictional tax laws.

As of ~~May 31, 2018,~~February 28, 2019, the Company had gross unrecognized tax benefits totaling ~~$8.6~~$11.0 million ~~including $1~~recorded as non-current Taxes payable within the consolidated balance sheet. This amount includes $1.3 million of accrued ~~interest, recorded as~~ N~~on-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.~~interest. When applicable, the Company adjusts the previously recorded tax expense to reflect examination results when the position is ultimately settled. The Company regularly engages in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. It is reasonably possible that certain federal, foreign, and state tax matters may be concluded in the next 12 months. However, FactSet has no reason to believe that such audits will result in the payment of additional taxes and/or penalties that would have a material adverse effect on the Company’s results of operations or financial position, beyond current estimates. Any changes in accounting estimates resulting from new developments with respect to uncertain tax positions will be recorded as appropriate. The Company does not currently anticipate that the total amounts of unrecognized tax benefits will significantly change within the next 12 months.

The following table summarizes the changes in the balance of gross unrecognized tax benefits during the first ~~nine~~six months of fiscal ~~2018:~~2019:

(in thousands)

Unrecognized income tax benefits at August 31, 2017
$ 11,484
Additions based on tax positions related to the current year
2,458
Additions for tax positions of prior years
410
Statute of limitations lapse
(3,146 )
Reductions from settlements with taxing authorities
(2,600 )
Unrecognized income tax benefits May 31, 2018
$ 8,606
(in thousands)

Unrecognized income tax benefits at August 31, 2018
$ 9,223
Additions based on tax positions related to the current year
1,493
Additions for tax positions of prior years
270
Unrecognized income tax benefits at February 28, 2019
$ 10,986

In the normal course of business, the Company’s tax filings are subject to audit by federal, state and foreign tax authorities.

At ~~May 31, 2018,~~February 28, 2019, the Company remained subject to examination in the following major tax ~~jurisdictions:~~jurisdictions for the tax years as indicated below:

Major Tax Jurisdictions

Open Tax Years

U.S.

Federal

2015 through 2018
State (various)

2015 through 2018
Europe

France

2015 through 2018
United Kingdom

2016 through 2018
Germany

2017 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

16. ~~LONG-TERM~~ DEBT

FactSet’s debt obligations consisted of the following:

(in thousands)

May 31,
2018

August 31,
2017

2017 Revolving Credit Facility
$ 574,739 $ 575,000
Total Outstanding Debt
$ 574,739 $ 575,000
(in thousands)

February 28,
2019

August 31,
2018

2017 Revolving Credit Facility (maturity date of March 17, 2020)
$ 575,000 $ 575,000

On March 17, 2017, the Company entered into a ~~Credit Agreement~~credit agreement (the “2017 Credit Agreement”) between FactSet, as the borrower, and PNC Bank, National Association (“PNC”), as the administrative agent and lender. ~~The~~As of February 28, 2019, the 2017 Credit Agreement provides for a $575.0 million revolving credit facility (the “2017 Revolving Credit Facility”). FactSet may request borrowings under the 2017 Revolving Credit Facility until its maturity date of March 17, 2020. The 2017 Credit Agreement also allows FactSet, subject to certain requirements, to arrange for additional borrowings with PNC for an aggregate amount of up to $225.0 million, provided that any such request for additional borrowings must be in a minimum amount of $25.0 million. Borrowings under the loan bear interest on the outstanding principal amount at a rate equal to the daily LIBOR rate plus a spread using a debt leverage pricing grid currently at 1.00%. Interest on the loan outstanding is payable quarterly in arrears and on the maturity date. There are no prepayment penalties if the Company elects to prepay the outstanding loan amounts prior to the scheduled maturity date. The principal balance is payable in full on the maturity date.

On March 29, 2019, the Company entered into a credit agreement (the “2019 Credit Agreement”) between FactSet, as the borrower, and PNC, as the administrative agent and lender. The 2019 Credit Agreement provides for a $750.0 million revolving credit facility (the “2019 Revolving Credit Facility”). In conjunction with FactSet’s entrance into the 2019 Credit Agreement, FactSet repaid its outstanding debt under the 2017 Credit Agreement on March 29, 2019. The total principal amount of the ~~Company borrowed~~loan outstanding at the time of repayment was $575.0 ~~million in~~million. See Note 18, Subsequent Events, for further discussion of the ~~form of a LIBOR rate loan under the 2017 Revolving~~2019 Credit ~~Facility. Proceeds from the 2017 Revolving Credit Facility were also used to fund FactSet’s acquisition of BISAM.~~Agreement.

All outstanding loan amounts are reported as L~~ong-term~~Long-term debt within the ~~Consolidated Balance Sheet, and net of related amortized loan origination fees~~consolidated balance sheet at ~~May 31, 2018. The loan origination fees are amortized into interest expense over the term of the loan using the effective interest method. During~~February 28, 2019. For the three months ended ~~May 31,~~February 28, 2019 and 2018, ~~and 2017,~~ the Company ~~paid approximately $4.3~~recorded interest expense of $5.1 million and ~~$2.9~~$3.6 million ~~in interest~~ on its outstanding debt amounts, respectively. ~~During~~For the ~~nine~~six months ended ~~May 31,~~February 28, 2019 and 2018, ~~and 2017,~~ the Company ~~paid approximately $11.3~~recorded interest expense of $9.9 million and ~~$5.3~~$7.0 million ~~in interest~~ on its outstanding debt amounts, respectively. The principal balance is payable in full on the maturity date. As of ~~May 31, 2018,~~February 28, 2019, no commitment fee was owed by FactSet since it borrowed the full amount under the 2017 Credit Agreement.

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 of the covenants of the 2017 Credit Agreement as of ~~May 31, 2018 and August 31, 2017.~~February 28, 2019.

17. 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 May 31, 2018, FactSet leased~~As of February 28, 2019, the Company continues to lease 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 ~~into~~ 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~~The Company took possession of the newly leased property on ~~or around~~ January 1, 2019, for fit-out purposes. The Company will continue to occupy its existing headquarters space until the new headquarters property is ready for occupancy, currently estimated to be in the second quarter of fiscal 2020.

Including new lease agreements executed during ~~fiscal 2018,~~the six months ended February 28, 2019, the Company’s worldwide leased office space increased to approximately ~~1,760,000~~2,015,000 square feet ~~at May 31, 2018, up 617,000 square feet, or 54.0%, from August 31, 2017. This increase was primarily related to the lease~~ of ~~additional~~ office space ~~in the Philippines and the new headquarters lease signed in February 2018. The Company’s significant locations are listed~~ under ~~Item 2, Properties, within the Annual Report on Form 10-K for the fiscal year ended August 31, 2017. The Company’s~~various non-cancelable operating leases which expire on various dates through 2035. ~~The Company believes the amount of leased office space as of May 31, 2018 is adequate for its current needs and that additional space is available for lease to meet any future needs.~~

Total minimum rental payments associated with the leases are recorded as rent expense (a component of ~~SG&A~~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’s operating leases in place as of ~~May 31, 2018,~~February 28, 2019, including the fully executed lease for its new headquarters in Norwalk, Connecticut are as follows:

Years ended August 31, (in thousands)	Minimum Lease Payments
2018 (remaining three months)	$	10,624
2019		41,186
(in thousands) Years ended August 31,			Minimum Lease Payments

2019 (remaining six months)			$	21,353
2020		37,411		40,747
2021		34,807		38,723
2022		32,450		36,118
2023				34,001
Thereafter		259,801		252,132
Total	$	416,279	$	423,074

~~Rent~~For the three months ended February 28, 2019 and 2018, rent expense (including operating costs) for all operating leases amounted to ~~$14.1~~$14.2 million and ~~$12.4~~$13.5 million, ~~during~~respectively. For the ~~three~~six months ended ~~May 31,~~February 28, 2019 and 2018, ~~and 2017, respectively. Rent~~rent expense (including operating costs) for all operating leases amounted to ~~$40.6~~$27.6 million and ~~$35.3~~$26.5 million, ~~during the nine months ended May 31, 2018 and 2017,~~ respectively. ~~At May 31, 2018, and August 31, 2017,~~As of February 28, 2019, deferred rent reported within the ~~Consolidated Balance Sheets~~consolidated balance sheet totaled ~~$38.7~~$36.9 million compared to $39.4 million as of August 31, 2018, of which $33.1 million and ~~$37.4~~$33.6 million ~~of which $34.4 million and $33.5 million, respectively, was~~were reported as a non-current liability within the line item Deferred Rent and Other Non-Current Liabilities. as of February 28, 2019 and August 31, 2018, respectively.

Approximately ~~$2.2~~$3.3 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 ~~May 31, 2018.~~February 28, 2019. These standby letters of credit contain covenants that, among other things, require ~~FactSet~~the Company to maintain minimum levels of consolidated net worth and certain leverage and fixed charge ratios. As of ~~May 31, 2018,~~February 28, 2019, 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 ~~that~~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, ~~2017,~~2018, the Company had total purchase commitments with suppliers of ~~$81.0~~$79.0 million. There were no material changes in the Company’s purchase commitments ~~with suppliers~~ during the first ~~nine~~six months of fiscal ~~2018.~~2019.

Contingencies

Income Taxes

Uncertain income tax positions are accounted for in accordance with applicable accounting guidance (see Note 15). 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~~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 of the matters against the Company is subject to future resolution, including the uncertainties of litigation. Based on information available at ~~May 31, 2018,~~February 28, 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 Tax Matters

In the third quarter of fiscal 2018, FactSet received a letter from the Massachusetts Department of Revenue relating to prior tax periods. The letter requested additional sales information ~~in order~~ to determine if a ~~notice~~Notice of ~~intent~~Intention to ~~assess~~Assess should be issued to FactSet. Based upon a preliminary review of ~~their~~the Massachusetts request, the Company believes the state ~~may~~might assess sales tax, and underpayment penalties and interest, on previously recorded sales transactions. ~~FactSet disagrees with the preliminary conclusions reached by the state auditor and intends to dispute vigorously these matters.~~ 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 ~~May 31, 2018.~~February 28, 2019. While FactSet believes that it will ultimately prevail if the Company is presented with a formal assessment and is required to pay it, the amount could have a material impact on the Company’s consolidated financial position, cash flows and results of operations.

Indemnifications

As permitted or required under Delaware law and to the maximum extent allowable under that law, FactSet has certain obligations to indemnify its current and former officers and directors for certain events or occurrences while the officer or director is, or was serving, at FactSet’s request in such capacity. These indemnification obligations are valid as long as the director or officer acted in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of the Company, and with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The maximum potential amount of future payments FactSet could be required to make under these indemnification obligations is unlimited; however, FactSet has a director and officer insurance policy that it believes mitigates ~~FactSet's~~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.

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 derived from ~~revenues~~revenue 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 ~~revenues~~revenue in any period presented. At ~~May 31, 2018,~~February 28, 2019, the Company’s largest individual client accounted for ~~approximately 2%~~less than 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 ~~May 31, 2018,~~February 28, 2019, the receivable reserve was ~~$3.4~~$5.4 million compared to ~~a reserve of $2.7~~$3.5 million as of August 31, ~~2017.~~2018.

Derivative Instruments

As a result of the use of derivative instruments, the Company is exposed to counterparty credit risk. ~~FactSet~~The 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. ~~FactSet~~For derivative instruments, the Company calculates credit risk from observable data related to ~~CDS~~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~~the Company has executed these derivative transactions. ~~Because~~To mitigate counterparty credit risk, the 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~~companies. The Company does not expect any losses as ~~determined by FactSet. To mitigate counterparty credit risk,~~a result of default of its counterparties.

Concentrations of Other Risk

Data Content Providers

Certain data sets that FactSet ~~enters~~relies on have a limited number of suppliers, although the Company makes every effort to assure that, where reasonable, alternative sources are available. FactSet is not dependent on any one third-party data supplier in order to meet the needs of its clients. FactSet combines the data from these commercial databases into ~~contracts with large financial institutions~~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 expenses for the six months ended February 28, 2019 and ~~regularly reviews credit exposure balances as well as the creditworthiness of the counterparties.~~2018, respectively.

1818. SUBSEQUENT EVENT

2019 Credit Agreement

On ~~July 5, 2018,~~March 29, 2019, the Company entered into the 2019 Credit Agreement between FactSet, as the borrower, and PNC, as the administrative agent and lender. The 2019 Credit Agreement provides for a ~~separation~~$750.0 million revolving credit facility. FactSet may request borrowings under the 2019 Revolving Credit Facility until its maturity date of ~~employment and general release agreement~~March 29, 2024. The 2019 Credit Agreement also allows FactSet, subject to certain requirements, to arrange for additional borrowings with ~~Edward Baker-Greene (the “Agreement”), pursuant~~PNC for an aggregate amount of up to ~~which Mr. Baker-Greene will remain~~$500.0 million, provided that any such request for additional borrowings must be in ~~his current position as Chief Human Resources Officer (“CHRO”) until his successor is appointed, participate in an orderly transition~~a minimum amount of ~~duties~~$25.0 million. Borrowings under the loan bear interest on the outstanding principal amount at a rate equal to the ~~new CHRO~~daily LIBOR rate plus a spread using a debt leverage pricing grid currently at 0.875%. Interest on the loan outstanding is payable quarterly in arrears and ~~remain an employee~~on the maturity date. In conjunction with FactSet’s entrance into the 2019 Credit Agreement, FactSet borrowed $575.0 million of the available $750.0 million provided by the 2019 Revolving Credit Facility, in the form of a LIBOR rate loan. FactSet ~~until his effective termination date of November 30, 2018. In exchange for fulfilling these obligations~~will pay a commitment fee on the undrawn amount. On March 29, 2019 the borrowings from the 2019 Credit Agreement were used to ~~the Company, Mr. Baker-Greene will receive,~~retire all outstanding debt under the terms of the Agreement, the following: (i) a lump sum separation payment of $387,500 on the first scheduled payroll after December 1, 2018; (ii) continued base salary of $300,000 through November 30, 2018; (iii) the acceleration of the vesting of certain outstanding stock options; and (iv) certain other ancillary benefits. The foregoing description of the Agreement is a summary only and is qualified in its entirety by reference to the full text of the Agreement which is attached hereto as Exhibit 10.2 to this Quarterly Report on Form 10-Q and incorporated herein by reference.2017 Credit Agreement.

ITEM 2. 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:

	•	Executive Overview
	•	Key Metrics
	•	Results of Operations
	•	Liquidity
	•	Capital Resources
	•	Foreign Currency
	•	Off-Balance Sheet Arrangements
	•	Share Repurchase Program
	•	Contractual Obligations
	•	Dividends
	•	Significant Accounting Policies and Critical Accounting Estimates
	•	New Accounting Pronouncements
	•	Market Trends
	•	Forward-Looking Factors
	•	Business Developments

The MD&A should be read in conjunction with our 2018 Form 10-K, Current Reports on Form 8-K and other filings with the Securities and Exchange Commission, and the consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q.

Executive Overview

We are a global provider of integrated financial information, analytical applications and industry-leading service for the global investment community. ~~We deliver insight and information to investment professionals through our analytics, service, content, and technology.~~ These professionals include portfolio managers, investment research professionals, investment bankers, risk and performance analysts, and wealth advisors. From streaming real-time data to historical information, including quotes, estimates, news and commentary, we offer ~~unique~~proprietary and third-party content through desktop, web, mobile and off-platform solutions. Our broad application suite offers tools and resources including company and industry analyses, full screening tools, portfolio analysis, risk profiles, alpha-testing, portfolio optimization and research management solutions. With recent acquisitions, we have continued to expand our solutions across the investment lifecycle from idea generation to performance and client reporting. We deliver insight and information to investment professionals through our key workflows of Research, Analytics, Wealth, and Content and Technology Solutions (“CTS”). Our ~~revenues are~~revenue is primarily derived from subscriptions to products and services such as workstations, analytics, enterprise data, research management, and trade execution.

Business Strategy

As a premier financial solutions provider for the global financial community, we provide workflow solutions and leading analytical applications across the investment lifecycle to create an open and scalable platform. We bring the front, middle and back office together to drive productivity and performance throughout the portfolio lifecycle. Our strategy is focused on growing our business in each of our three segments which include the U.S., Europe, and Asia Pacific. We believe this geographical strategic alignment helps us better manage our resources and concentrate on markets that demand our products. To execute on our business strategy of broad-based growth across each geographical segment, we continue to look at ways to create value for our clients by offering data, products and analytical applications within our key workflow solutions of Research, Analytics, Wealth, and Content and Technology Solutions.

Fiscal ~~2018~~2019 ~~Third~~Second Quarter in Review

~~Revenues~~As of February 28, 2019, organic annual subscription value (“organic ASV”) plus professional services totaled $1.44 billion, an increase of 6.0% over the prior year comparable period. Revenue in the ~~third~~second quarter ~~were $339.9~~of fiscal 2019 was $354.9 million, an increase of ~~8.9%~~5.9% from the prior year comparable period. ~~Excluding the effects of acquisitions~~Revenue growth can be attributed primarily to our Analytics, Content and dispositions completed in the last 12 months and foreign currency, organic revenues grew 5.7% over the previous year. Annual subscription value (“ASV”) during the quarter grew 5.3% organically and totaled $1.36 billion as of May 31, 2018. The increase is primarily driven by higher sales of our analytics products, content and technology solutionsTechnology Solutions (“CTS”) and ~~wealth management solutions in addition~~Wealth workflows due to increased demand for our ~~annual international price increase.~~analytics, data and technology offerings.

Operating income ~~increased 6.4%~~grew 13.8% and diluted earnings per share (“EPS”) increased ~~15.1%~~64.7% compared to the prior year period. ~~The~~This increase in operating income was primarily driven by revenue growth of 5.9%, a foreign currency benefit from a stronger U.S. dollar reducing the operating expense impact, and a reduction in marketing expenses, partially offset by an increase in computer-related expenses and employee compensation. In addition to the drivers increasing operating income, diluted EPS also benefited from the enactment of the U.S. Tax Cuts and Jobs Act (“TCJA”) through a decrease in our effective tax rate, a one-time TCJA transition tax expense recorded in the second quarter of fiscal 2018, without a comparative impact during the second quarter of fiscal 2019, and a decrease in diluted shares outstanding mainly due to share repurchases.

As of February 28, 2019, employee count was 9,529, up 1.8% in the past 12 months, due primarily to an increase in ~~revenue~~net new employees of ~~8.9%,~~4.3% in the Asia Pacific region, partially offset by ~~restructuring charges and certain one-time administrative expenses. The increase in EPS was primarily attributable to the lower tax rate from the TCJA and our share repurchase program.~~

Asa net decrease of ~~May 31, 2018, employee count was 9,197, up 3.5%~~3.6% in the ~~past 12 months including workforces acquired in the last 12 months.~~U.S. region. Of our total employees, ~~2,403 are~~2,373 were located in the U.S., ~~1,230~~1,252 in Europe and ~~5,564~~5,904 in ~~the~~ Asia ~~Pacific region.~~Pacific.

Additionally, FactSet received 5 industry awards, recognizing the strength of FactSet’s products and people. Awards included Best Data Analytics Provider from Waters Technology IMD/IRN, Best Middle Office solution from FTF News’ Technology Innovation Awards, and Best Buy-Side EMS from Markets Choice Awards.

Key Metrics

The following is a review of our key metrics:

	As of and for the Three months ended May 31,							As of and for the Three months ended February 28,
(in millions, except client and user counts)	2018		2017		Change
Revenues	$	339.9	$	312.1		8.9%
(in millions, except client and user counts and per share data)								2019		2018		Change
Revenue								$	354.9	$	335.2		5.9	%
Operating income	$	93.3	$	87.6		6.4%		$	108.7	$	95.5		13.8	%
Net income	$	74.7	$	65.4		14.3%		$	84.7	$	53.1		59.4	%
Diluted EPS	$	1.91	$	1.66		15.1%		$	2.19	$	1.33		64.7	%
As reported ASV	$	1,356.2	$	1,282.2		5.8%	⁽¹⁾
Clients		4,975		4,629		7.5%	⁽²⁾
Clients⁽¹⁾									5,405		4,895		10.4	%
Users		89,506		86,025		4.0%	⁽³⁾		122,063		88,646		37.7	%

⁽¹⁾

In the ~~second~~first quarter of fiscal ~~2017, FactSet~~2019, we changed ~~its~~our client count definition to ~~capture~~include clients ~~with ASV greater than $10,000 versus~~from the ~~previous metric~~April 2017 acquisition of ~~clients with ASV greater than $24,000.~~ FactSet Digital Solutions Group (“FDSG”). The prior year client count was not restated to reflect this ~~change for comparison purposes.~~change.

The table below provides an unaudited reconciliation of ASV to organic ASV and Organic ASV + professional services:

As of February 28,

(in millions, except client and user counts)

2019

2018

Change

As reported ASV
$ 1,420.7 $ 1,348.8
Currency impact to ASV
(1.2 ) (8.7 )
Organic ASV⁽¹⁾
$ 1,419.5 $ 1,340.1 5.9 %
Professional services fees
21.9 19.0
Organic ASV + Professional services
$ 1,441.4 $ 1,359.1 6.0 %
⁽²⁾⁽¹⁾
InOrganic ASV excludes ASV from acquisitions and dispositions completed within the ~~second quarter~~last 12 months, the effects of ~~fiscal 2017, FactSet changed its user count definition to account for users from workstations previously not captured due to certain product bundling~~foreign currency, and ~~also users of the StreetAccount web product.~~ ~~The prior year user count was restated to reflect this change for comparison purposes.~~professional services.

Annual Subscription Value Growth
~~Annual subscription value~~ASV at any given point in time represents the forward-looking ~~revenues~~revenue for the next ~~twelve~~12 months from all subscription services currently being supplied to ~~clients.~~clients and excludes professional service fees billed in the last 12 months, which are not subscription-based. With proper notice provided to us, our clients ~~are able to~~can add to, delete portions of, or terminate service at any time, subject to certain contractual limitations. As of February 28, 2019, our organic ASV totaled ~~$1.36~~$1.42 billion, ~~at May 31, 2018 and excludes~~up 5.9% over the prior year comparable period. Organic ASV plus professional services ~~fees billed in~~increased to $1.44 billion as of February 28, 2019, up $82.3 million from the ~~last 12 months, which are not subscription-based. We grew organic~~prior year, with a growth rate of 6.0%. As of February 28, 2019, ASV ~~by $67.5~~from the U.S. segment was $890.5 million, ~~or 5.3%,~~an increase of 5.8% from a year ~~ago. Organic ASV excludes~~ago, and ASV from ~~acquisitions and dispositions completed within~~international operations was $530.2 million, an increase of 4.6% over the ~~past 12 months and~~prior year. International ASV represents 37.3% of total ASV as of February 28, 2019, down from 37.6% in the ~~effects of foreign currency.~~ prior year.
The increase in organic ASV ~~during the past three months~~across our geographic segments was driven by ~~higher~~increased sales from our workflow solutions, mainly in Analytics and CTS, and from our annual price increase for the majority of our U.S. segment clients. The growth in the Analytics workflow is due to leveraging our existing client relationships to cross-sell our core portfolio analytics product. ASV growth in the CTS workflow is driven by sales of our core data feeds such as FactSet Fundamentals. The Wealth and Research workflows also had growth, driven by increased sales of our workstations, proprietary content sets, and our Research Management Solutions (“RMS”) across both buy and sell-side clients.

ASV increased in the U.S. segment primarily from our Analytics and CTS workflows, due to the increasing demand for our integrated analytics and data products, ~~content and technology solutions (“CTS”) and wealth management solutions as well as~~combined with our annual ~~international~~ price increase. The price increase was $10.2 million, an increase comparable with the second quarter of fiscal 2018. The ASV increase from our international operations was due to the growth in the CTS and Research workflows in Asia Pacific, partially offset by cancellations in both Europe and Asia Pacific.

Buy-side and sell-side ASV growth rates for the ~~third~~second quarter of fiscal ~~2018~~2019 were 5.3% and ~~5.0%~~9.2%, respectively. Buy-side clients account for ~~84.4%~~83.9% of ASV, while the remainder is derived from sell-side firms that perform mergers and acquisitions advisory work, capital markets services and equity research. Our buy-side and sell-side client growth rates for the third quarter of fiscal 2018 were both down year over year due to continuing cost pressure on our clients, cancellations from firm closures and consolidations and an uptick in the length of our selling cycle due to offering more workflow solutions, combined with economic and market uncertainty.
ASV from U.S. operations was $843.6 million, increasing 4.4% over prior year and 4.4% organically. The increase is driven by higher sales of our analytics products and CTS products primarily sold to institutional asset managers. ASV from international operations was $512.6 million, increasing 8.1% over prior year and 6.7% organically. International ASV now represents 37.8% of total ASV, compared with 37.0% reported a year ago. This shift in ASV to international operations was due primarily to acquisitions completed in the last 12 months, growth in the fixed income and risk analytics products within the European segment, an increase in new business sales of analytics products and CTS in Asia Pacific, and our annual international price increase.

Client and User Additions
Our total client count was ~~4,975~~5,405 as of ~~May 31, 2018,~~February 28, 2019, representing a net increase of ~~80 clients~~510 or 10.4% in the ~~past three~~last 12 months. In the ~~second~~first quarter of fiscal ~~2017, FactSet~~2019, we changed ~~its~~our client count definition to ~~capture~~include clients ~~with ASV greater than $10,000 versus~~from the ~~previous metric~~April 2017 acquisition of ~~clients with ASV greater than $24,000.~~FDSG. The prior year client count was not restated to reflect this ~~change for comparison purposes.~~change. Client count ~~has increased~~grew by ~~7.5%~~108 in the last ~~12 months. We~~three months primarily driven by an increase in corporate and wealth management clients. As part of our long-term growth strategy, we continue to focus on expanding and cultivating relationships with our ~~current~~existing client base ~~as it is essential to our long-term growth strategy and assists in our upsell~~through sales of workstations, applications, services and ~~content at our existing clients.~~content.

As of ~~May 31, 2018,~~February 28, 2019, there were ~~89,506~~122,063 professionals using ~~FactSet. In~~FactSet, representing a net increase of 33,417 or 37.7% in the ~~second quarter of fiscal 2017, FactSet also changed its~~last 12 months primarily driven by Wealth workstation sales. Our user count definition to account for users from workstations previously not captured due to certain product bundling and to include StreetAccount web product users. The prior year user count was restated to reflect this change for comparison purposes. User count increased ~~by 860~~6,854 in the past three months primarily driven by an increase in banking and wealth ~~workstation sales.~~management users.

Annual client retention as of ~~May 31, 2018~~February 28, 2019 was greater than 95% of ASV and ~~90%~~91% when expressed as a percentage of clients. The cancellation rate for the second quarter of fiscal 2019 is consistent with the rate for the prior year comparable period. Our high retention ~~success demonstrates that a~~rate reflects the strength of our business strategy as the majority of our clients maintain their subscriptions to the FactSet platform year over ~~year, highlighting the strength of our business model.~~year. As of ~~May 31, 2018,~~February 28, 2019, our largest individual client accounted for ~~approximately 2%~~less than 3% of total subscriptions, and annual subscriptions from our ten largest clients did not surpass 15% of total client subscriptions.

Returning Value to Stockholders
On ~~May 7, 2018,~~February 15, 2019, our Board of Directors approved a regular quarterly dividend of $0.64 per share. The cash dividend of ~~$24.6~~$24.4 million was paid on ~~June~~March 19, ~~2018~~2019 to common stockholders of record at the close of business on ~~May 31, 2018.~~February 28, 2019. We repurchased ~~620,000~~214,945 shares for ~~$122.0~~$44.1 million during the ~~third~~second quarter of fiscal ~~2018~~2019 under our existing share repurchase program. Over the last 12 months, we have returned ~~$368.9~~$395.2 million to stockholders in the form of share repurchases and cash dividends, funded by cash generated from operations. As of ~~May 31, 2018, $309.3~~February 28, 2019, $137.2 million ~~remained available~~remains authorized for future share repurchases.

On March 26, 2018, our Board of Directors approved a $300.0 million expansion of the existing share repurchase program. Subsequent to this expansion, $431.2 million was available for future share repurchases.
C~~apital~~Capital Expenditures
Capital expenditures in the ~~third~~second quarter of fiscal ~~2018~~2019 were ~~$6.0~~$12.0 million, compared ~~with $7.9~~to $6.5 million a year ago. ~~Approximately $3.8~~Capital expenditures of $7.4 million, or ~~63.8%~~62%, ~~of our capital expenditures was for upgrades~~were primarily related to ~~existing computer systems in Norwalk,~~corporate infrastructure investments, additional server equipment for our data centers located in New Jersey and Virginia, as well as ~~laptop~~ computers and peripherals for new ~~and existing employees.~~office space primarily in India. The remainder of our capital expenditures was primarily for the build out of office space, ~~including $1.2~~with $1.9 million related to the Philippines and $1.4 million related to the new corporate headquarters in ~~Hong Kong.~~Norwalk, Connecticut.

Results of Operations

For an understanding of the significant factors that influenced our performance for the ~~nine~~three and six months ended ~~May 31,~~February 28, 2019 and 2018, ~~and 2017, respectively,~~ the following discussion should be read in conjunction with the ~~Consolidated Financial Statements~~consolidated financial statements and ~~the Notes to Consolidated Financial Statements~~related notes presented in this Quarterly Report on Form 10-Q.

Three months ended May 31,
Nine months ended May 31,

Three months ended February 28,

Six months ended February 28,

(in thousands, except per share data)

2018

2017

Change

2018

2017

Change

2019

2018

Change

2019

2018

Change

Revenues
$ 339,911 $ 312,120 8.9 % $ 1,004,283 $ 894,537 12.3 %
Revenue
$ 354,895 $ 335,231 5.9 % $ 706,535 $ 664,372 6.3 %
Cost of services
$ 165,073 $ 146,426 12.7 % $ 489,829 $ 405,311 20.9 % $ 165,108 $ 163,232 1.1 % $ 331,884 $ 324,756 2.2 %
Selling, general and administrative
$ 81,573 $ 78,052 4.5 % $ 236,606 $ 219,519 7.8 % $ 81,099 $ 76,514 6.0 % $ 165,424 $ 155,033 6.7 %
Operating income
$ 93,265 $ 87,642 6.4 % $ 277,848 $ 269,707 3.0 % $ 108,688 $ 95,485 13.8 % $ 209,227 $ 184,583 13.4 %
Net income
$ 74,746 $ 65,414 14.3 % $ 198,262 $ 198,707 (0.2 )% $ 84,702 $ 53,137 59.4 % $ 168,998 $ 123,516 36.8 %
Diluted EPS
$ 1.91 $ 1.66 15.1 % $ 5.01 $ 5.00 0.2 %
Diluted earnings per common share
$ 2.19 $ 1.33 64.7 % $ 4.37 $ 3.11 40.5 %
Diluted weighted average common shares
39,104 39,457 39,543 39,736 38,619 39,846 38,714 39,763

~~Revenues~~Revenue

Three months ended ~~May~~31~~, 2018~~February 28, 2019 compared to three months ended ~~May~~31~~, 2017~~February 28, 2018
~~Revenues~~Revenue for the three months ended ~~May 31, 2018 were $339.9~~February 28, 2019 was $354.9 million, ~~up 8.9%~~increasing 5.9% compared to the prior year. Our organic revenue growth rate for the three months ended February 28, 2019 was 5.7% compared to the same period a year ago. Organic revenue excludes the effects of acquisitions and dispositions completed in the last 12 months, foreign currency in all periods presented and deferred revenue fair value adjustments from purchase accounting. The increase isin revenue was primarily driven by ~~higher~~the Analytics, CTS, and Wealth workflows, combined with our annual price increase for the majority of our U.S. segment clients. Revenue growth in the Analytics workflow was primarily due to increased sales of ~~our~~the portfolio analytics ~~products, content and technology solutions (“CTS”) and wealth management solutions~~product to existing clients. The growth in ~~addition to our annual international price increase. Within analytics, we saw strong contributions from our risk offering~~the CTS workflow was driven mainly by increased sales in core data feeds such as ~~well as fixed income and equity products. CTS had a strong third quarter and continued momentum around our new platform offering both core financial and alternative data sets.~~FactSet Fundamentals. The Wealth ~~Management~~workflow also ~~had a strong quarter with workstation deployments across top tier clients. Offsetting these positive~~experienced revenue growth ~~factors were cancellations, but at a decreased rate. Most of the cancellations were~~ due to ~~firm closures~~increased workstation sales. Cancellations for the second quarter of fiscal 2019 were consistent with the same period a year ago, and ~~firm consolidations of services leading~~therefore did not materially impact the revenue growth comparative.
Six months ended February 28, 2019 compared to ~~redundancies. Excluding~~six months ended February 28, 2018
Revenue for the ~~effects of revenue from acquisitions of $7.0~~six months ended February 28, 2019 was $706.5 million, ~~and $1.9 million in foreign currency, our~~increasing 6.3% compared to the prior year. Our organic revenue growth rate ~~was 5.7%.~~
~~Nine~~for the six months ended ~~May~~31~~, 201~~8 ~~compared to~~ ~~nine~~ ~~months ended~~ ~~May 31~~~~, 201~~7
~~Revenues for the nine months ended May 31, 2018 were $1,004.3 billion, up 12.3%~~February 28, 2019 was 6.1% compared to the same period a year ago. Organic revenue excludes the effects of acquisitions and dispositions completed in the last 12 months, foreign currency in all periods and deferred revenue fair value adjustments from purchase accounting. The increase in revenue was primarily driven by ~~acquisitions, continued momentum from~~the Analytics, CTS and Wealth workflows, as well as, our annual price increase for the majority of our U.S. segment clients. Revenue growth in Analytics was due to an increase in sales of the portfolio analytics ~~and~~products to existing clients. Increased sales in the CTS ~~products and~~workflow was driven by enterprise data feeds such as FactSet Fundamentals. Revenue growth in the Wealth workflow was due to higher sales of our workstation product. Although client retention remained high at over 95% of ASV for the six months ended February 28, 2019, revenue growth was partially offset by increased cancellations compared to the same period a ~~solid performance from our wealth products.~~ year ago.

~~Revenues~~Revenue by Geographic Region

Three months ended May 31,

Nine months ended May 31,

Three months ended February 28,

Six months ended February 28,

(in thousands)

2018

2017

Change

2018

2017

Change

2019

2018

Change

2019

2018

Change

U.S.
$ 210,308 $ 197,834 6.3 % $ 627,976 $ 580,090 8.3 % $ 223,315 $ 208,900 6.9 % $ 445,518 $ 417,668 6.7 %
% of revenues
61.9 % 63.4 % 62.5 % 64.8 %
% of revenue
62.9 % 62.3 % 63.1 % 62.9 %
Europe
$ 98,856 $ 87,327 13.2 % $ 286,789 $ 235,464 21.8 % $ 98,933 $ 96,206 2.8 % $ 196,698 $ 187,933 4.7 %
Asia Pacific
30,747 26,959 14.1 % 89,518 78,983 13.3 % 32,647 30,125 8.4 % 64,319 58,771 9.4 %
International
$ 129,603 $ 114,286 13.4 % $ 376,307 $ 314,447 19.7 % $ 131,580 $ 126,331 4.2 % $ 261,017 $ 246,704 5.8 %
% of revenues
38.1 % 36.6 % 37.5 % 35.2 %
% of revenue
37.1 % 37.7 % 36.9 % 37.1 %
Consolidated
$ 339,911 $ 312,120 8.9 % $ 1,004,283 $ 894,537 12.3 % $ 354,895 $ 335,231 5.9 % $ 706,535 $ 664,372 6.3 %

Three months ended ~~May~~February 3128, ~~2018~~2019 compared to three months ended ~~May 31~~February28, ~~2017~~2018
~~Revenues~~Revenue from our U.S. segment increased ~~6.3%~~6.9% to ~~$210.3~~$223.3 million during the three months ended ~~May 31, 2018,~~February 28, 2019, compared to $208.9 million from the same period a year ago, primarily due to the Wealth, Analytics, and CTS workflows, and our annual price increase for the majority of our U.S. segment clients. Organic revenue in the U.S. increased 6.8% compared to the same period a year ~~ago, primarily~~ago. Revenue from our U.S. operations accounted for 62.9% of our consolidated revenue during the second quarter of fiscal 2019, comparable to the prior year period of 62.3%.

European revenue increased 2.8% to $98.9 million during the three months ended February 28, 2019, compared to $96.2 million from the ~~analytics~~same period a year ago. This increase was due to increased sales in the Analytics and CTS ~~products sold to institutional asset managers.~~workflows, partially offset by limited cancellations in one region. Excluding the effects of acquisitions and dispositions completed in the last 12 months, foreign currency, and deferred revenue fair value adjustments from purchase accounting, European organic ~~revenues~~revenue increased 2.5% in the U.S. were up 5.0% compared to the same period a year ago. Revenues from our U.S. operations accounted for 61.9% of our consolidated revenues during the third quarter of fiscal 2018, a decrease from 63.4% in the prior year. This shift in revenues was due primarily to additional revenue from recent acquisitions largely impacting the European segment, as well as international sales growth that outpaced the growth in the U.S. segment.
European revenues grew 13.2%, compared to the same period a year ago, due primarily to recent acquisitions with significant operations in the European markets, competitive wins in analytics, CTS, increases in workstation sales and our international price increase. Foreign currency exchange rate fluctuations reduced our European revenue growth rate by 200 basis points. Year over year organic growth rates in Europe were negatively impacted by regulatory environment and political events, resulting in delayed purchasing decisions.
Asia Pacific revenue growth of 14.1% was primarily due to an increase in new business with asset managers focused on our risk analytics products and increased sales to existing clients. We also opened a new office in Shanghai, strengthening our position in the growing Chinese market. Foreign currency exchange rate fluctuations increased our Asia Pacific revenue growth rate by 70 basis points.
~~Nine~~three months ended ~~May 31~~~~, 2018~~ ~~compared to~~ ~~nine~~ ~~months ended~~ ~~May~~31~~, 2017~~
Revenues from our U.S. segment increased 8.3% to $628.0 million during the nine months ended May 31, 2018, compared to the same period a year ago. Our U.S. revenue growth rate of 8.3% for the first nine months of fiscal 2018 reflects the performance of our analytics suite, data feed products and incremental revenue from acquisitions completed in the last 12 months. Excluding the effects of acquisitions and dispositions, organic revenues in the U.S. were up 5.0% compared to the prior year period. Revenues from our U.S. operations accounted for 62.5% of our consolidated revenues during the first nine months of fiscal 2018, a decrease from 64.8% in the prior year.
European revenues grew 21.8% during the nine months ended May 31, 2018, compared to the same period a year ago due primarily from recent acquisitions, along with increased sales from analytics and CTS products. Excluding the effects of acquisitions and dispositions completed in the last 12 months and foreign currency, European revenues grew 5.3% for the nine months ended May 31, 2018,February 28, 2019 compared to the same period a year ago. Foreign currency exchange rate fluctuations ~~reduced~~decreased our European revenue growth rate by ~~200~~30 basis points.

Asia Pacific revenue ~~growth of 13.3%~~increased 8.4% to $32.6 million during the ~~nine~~three months ended ~~May 31, 2018,~~February 28, 2019 due to increased sales in the Research and CTS workflows. Asia Pacific organic revenue increased 8.3% for the three months ended February 28, 2019 compared to the same period a year ago.
Six months ended February28, 2019 compared to six months ended February28, 2018
Revenue from our U.S. segment increased 6.7% to $445.5 million during the six months ended February 28, 2019, compared to $417.7 million from the same period a year ago, ~~was~~ primarily due to ~~growth from analytics, both fixed income~~the Wealth, Analytics and ~~equity products,~~CTS workflows, and ~~CTS. Excluding~~our annual price increase for the ~~effects~~majority of ~~acquisitions and dispositions completed~~our U.S. segment clients, partially offset by improved client retention. Organic revenue in the ~~last 12 months and foreign currency, Asia Pacific revenues grew 13.1%~~U.S. increased 6.5% compared to the same period a year ago. Revenue from our U.S. operations accounted for 63.1% of our consolidated revenue for the ~~nine~~first six months of fiscal 2019, compared to the prior year period of 62.9%.
European revenue increased 4.7% to $196.7 million during the six months ended ~~May 31, 2018,~~February 28, 2019, compared to $187.9 million from the same period a year ago. This increase was driven by sales in the Analytics and CTS workflows, partially offset by limited cancellations in one region. European organic revenue increased 3.9% in the six months ended February 28, 2019 compared to the same period a year ago. Foreign currency exchange rate fluctuations ~~reduced~~decreased our European revenue growth rate by 20 basis points.
Asia Pacific revenue ~~by less than $0.1 million.~~increased 9.4% to $64.3 million during the six months ended February 28, 2019 due to increased sales in the Analytics, CTS and Research workflows. Asia Pacific organic revenue increased 9.5% for the six months ended February 28, 2019 compared to the same period a year ago.

Operating Expenses

Three months ended May 31,

Nine months ended May 31,

Three months ended February 28,

Six months ended February 28,

(in thousands)

2018

2017

Change

2018

2017

Change

2019

2018

Change

2019

2018

Change

Cost of services
$ 165,073 $ 146,426 12.7 % $ 489,829 $ 405,311 20.9 % $ 165,108 $ 163,232 1.1 % $ 331,884 $ 324,756 2.2 %
SG&A
81,573 78,052 4.5 % 236,606 219,519 7.8 %
Selling, general and administrative
81,099 76,514 6.0 % 165,424 155,033 6.7 %
Total operating expenses
$ 246,646 $ 224,478 9.9 % $ 726,435 $ 624,830 16.3 % $ 246,207 $ 239,746 2.7 % $ 497,308 $ 479,789 3.7 %

Operating Income
$ 93,265 $ 87,642 6.4 % $ 277,848 $ 269,707 3.0 % $ 108,688 $ 95,485 13.8 % $ 209,227 $ 184,583 13.4 %
Operating Margin
27.4 % 28.1 % 27.7 % 30.2 % 30.6 % 28.5 % 29.6 % 27.8 %

Cost of Services

Three months ended ~~May~~February 3128, 2019 compared to three months ended February28, 2018 ~~compared t~~~~o three months ended~~ ~~May~~31~~, 201~~7
For the three months ended ~~May 31, 2018,~~February 28, 2019, cost of services increased ~~12.7%~~1.1% to $165.1 million compared to ~~$146.4~~$163.2 million in the same period a year ago, primarily due to an increase in computer-related expenses, partially offset by increased compensation costs. Cost of services, when expressed as a percentage of revenue, was 46.5% during the second quarter of fiscal 2019, a decrease of 220 basis points compared to the same period a year ago. 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 employee compensation and data costs, partially offset by higher computer-related expenses, when expressed as a percentage of revenue.
Employee compensation, when expressed as a percentage of revenue, decreased 230 basis points in the second quarter of fiscal 2019, compared to the same period a year ago. This decrease in employee compensation was primarily driven by a foreign currency benefit from a stronger U.S. dollar, and a shift in headcount distribution between our segments, partially offset by higher annual base salaries and employee benefit costs, including medical expenditures. Over the past 12 months, headcount grew by 168 net new employees, with net headcount growth of 4.3% in our centers of excellence in Asia Pacific, partially offset by a net headcount reduction of 3.6% in the U.S.
Data costs, when expressed as a percentage of revenue, decreased 30 basis points, due to a consistent spend in data costs year over year, compared to an increase in revenue growth. Computer-related expenses which includes depreciation, maintenance, software and other fees, increased 60 basis points, as a percentage of revenue, compared to the same period a year ago, primarily due to increased costs from cloud-based hosting and licensed software arrangements.

Six months ended February28, 2019 compared to six months ended February28, 2018
For the six months ended February 28, 2019, cost of services increased 2.2% to $331.9 million, compared to $324.8 million for the same period a year ago. Cost of services, expressed as a percentage of revenues, ~~was 48.6% during the third quarter of fiscal 2018, an increase of 170 basis points over the prior year period primarily driven by restructuring charges and certain one-time administration expenses.~~
Employee compensation, including stock-based compensation, when expressed as a percentage of revenues increased 110 basis points in the third quarter of fiscal 2018 compared to the same period a year ago. The increase is primarily due to annual base salary increases, the hiring of 312 net new employees over the last 12 months with the majority of their compensation included in cost of services, and a weaker U.S. dollar resulting in a negative foreign currency impact.
Amortization of acquired intangible assets, when expressed as a percentage of revenues, increased in the third quarter of fiscal 2018 compared to the same period a year ago, primarily due to recent acquisitions, which added $93.2 million of intangible assets to be amortized over a weighted-average life of 11.5 years. Data costs, when expressed as a percentage of revenues, increased 40 basis points due primarily from our recent acquisitions and higher variable data costs associated with additional users.
~~Nine~~ ~~months ended~~ ~~May~~31~~, 2018~~ ~~compared to~~ ~~Nine~~ ~~months ended~~ ~~May~~31~~, 2017~~
For the nine months ended May 31, 2018, cost of services increased 20.9% to $489.8 million, compared to $405.3 million in the same period a year ago. Cost of services, expressed as a percentage of revenues, was 48.8%were 47.0% during the first ~~nine~~six months of fiscal 2018, an increase of 350 basis points over the prior year period. This increase was primarily due to higher employee compensation costs driven by an increased employee base, restructuring actions, amortization of intangible assets associated with our recent acquisitions, and data costs from acquisitions and additional users.
~~SG&A~~
~~Three months ended~~ ~~May~~31~~, 201~~8 ~~compared to three months ended~~ ~~May~~31~~, 201~~7
For the three months ended May 31, 2018, SG&A expenses increased to $81.6 million, up 4.5%, from $78.1 million in the same period a year ago. SG&A expenses, expressed as a percentage of revenues, were 24.0% during the third quarter of fiscal 2018,2019, a decrease of 100 basis points over the prior year period as a result of foreign currency exchange gains on hedging activities and increased revenues while holding overhead costs flat on a year over year basis partially offset by restructuring costs.
Employee compensation, including stock-based compensation, when expressed as a percentage of revenues, decreased 62 basis points in the third quarter of fiscal 2018 compared to the same period a year ago. The decrease is primarily related to a higher percentage of our employee base working in a cost of services capacity compared to an SG&A role.

~~Nine~~ ~~months ended~~ ~~May 31~~~~, 2018~~ ~~compared to~~ ~~nine~~ ~~months ended~~ ~~May~~31~~, 2017~~
For the nine months ended May 31, 2018, SG&A expenses increased to $236.6 million, up 7.8% from $219.5 million in the same period a year ago. SG&A expenses, expressed as a percentage of revenues, was 23.6% during the first nine months of fiscal 2018, a decrease of 100190 basis points over the prior year period. This decrease was primarily due to ~~revenue growth outpacing the growth of SG&A related expenses on a year over year basis, foreign currency exchange gains on hedging activities and~~ lower employee compensation costs and contractor fees, partially offset by ~~restructuring costs.~~computer-related expenses.

Employee ~~compensation, including stock-based~~ compensation, when expressed as a percentage of ~~revenues~~revenue, decreased 230 basis points for the six months ended February 28, 2019 compared to the prior year period. This decrease was primarily driven by a foreign currency benefit from a stronger U.S. dollar, a shift in headcount distribution across our segments, with an increase in net headcount in Asia Pacific and a reduction in net headcount in the U.S., partially offset by higher annual base salaries and employee benefit costs, including medical expenditures.
Contractor fees, when expressed as a percentage of revenue, decreased 30 basis points due primarily to a reduction in implementation projects and increased efficiencies. Computer-related expenses, as a percentage of revenue, increased 50 basis points primarily driven by increased costs from cloud-based hosting and licensed software arrangements.
Selling, General and Administrative
Three months ended February28, 2019 compared to three months ended February28, 2018
For the three months ended February 28, 2019, SG&A expenses increased 6.0% to $81.1 million, compared to $76.5 million in the same period a year ago primarily due to an increase in compensation expense, partially offset by a reduction in marketing expense. SG&A expenses, expressed as a percentage of revenue, were 22.9% during the second quarter of fiscal 2019, which was comparable with the prior year period. When expressed as a percentage of revenue, an increase in employee compensation expense and bad debt expense were partially offset by a reduction in marketing expenses compared with the same period a year ago.
Employee compensation, when expressed as a percentage of revenue, increased 30 basis points in the second quarter of fiscal 2019, compared with the same period a year ago. The increase was primarily driven by annual base salary increases and higher employee benefit costs, including medical expenditures. Marketing expenses decreased 40 basis points as a percentage of revenue, due to a realignment of our global marketing initiatives.
Six months ended February28, 2019 compared to six months ended February28, 2018
For the six months ended February 28, 2019, SG&A expenses increased 6.7% to $165.4 million, compared to $155.0 million in the same period a year ago, primarily due to an increase in compensation expense and bad debt expense, partially offset by a reduction in marketing expense. SG&A expenses, expressed as a percentage of revenue, were 23.4% during the first ~~nine~~six months of fiscal ~~2018~~2019, which was comparable with the prior year period. When expressed as a percentage of revenue, marketing expenses decreased, partially offset by higher bad debt expense, compared with the same period a year ago.
Marketing expenses decreased 30 basis points as a percentage of revenue, compared to the same period a year ~~ago. The decrease is primarily related~~ago, due to a ~~higher percentage~~realignment of our employee base working in a cost of services capacity compared to an SG&A role.. Compensation for our employees within the content collection, consulting, product development, software and systems engineering groups are recorded within cost of services while employees within our sales and various other support and administrative departments are reflected in SG&A. In the past 12 months, the majority of our hiring has been in departments within cost of services, thus driving a higher percentage of our employee base compensation in this area.global marketing initiatives.
Operating Income and Operating Margin
Three months ended ~~May~~February 3128, ~~2018~~2019 compared to three months ended ~~May~~February 3128, ~~2017~~2018
Operating income increased ~~6.4%~~13.8% to ~~$93.3~~$108.7 million for the three months ended ~~May 31, 2018,~~February 28, 2019 compared to $95.5 million in the prior year period. ~~Our operating~~Operating income increased due to revenue growth, favorable foreign exchange rates and a reduction in marketing expenses, partially offset by an increase in computer-related expenses and employee compensation. Operating margin increased to 30.6% during the ~~third~~second quarter of fiscal ~~2018 was 27.4%, down from 28.1%~~2019 compared to 28.5% in the prior year period. The increase in operating margin on a year ~~ago. The lower operating margin~~over year basis was primarily due to ~~restructuring charges, higher intangible asset amortization~~revenue growth outpacing the growth in operating expenses, a reduction in employee compensation, marketing expenses, and data costs, ~~from recent acquisitions, an increase in employee compensation costs, and a weaker U.S. dollar that resulted in a negative impact from foreign currency,~~ partially offset by higher computer-related expenses and bad debt expense, when expressed as a ~~gain on our Indian Rupee foreign exchange hedges.~~percentage of revenue.

~~Nine~~Six months ended ~~May~~February 3128, 2019 compared to six months ended February28, 2018 ~~compared to~~ ~~nine~~ ~~months ended~~ ~~May~~31~~, 201~~7
Operating income increased ~~3.0%~~13.4% to ~~$277.8~~$209.2 million for the ~~nine~~six months ended ~~May 31, 2018,~~February 28, 2019 compared to $184.6 million in the prior year period. ~~Our operating~~Operating income increased due to revenue growth, favorable foreign exchange rates and a reduction in marketing expenses, partially offset by an increase in computer-related expenses, bad debt expense, and employee compensation. Operating margin increased to 29.6% during the first ~~nine~~six months of fiscal ~~2018 was 27.7%, down from 30.2%~~2019 compared to 27.8% in the prior year period. The increase in operating margin on a year ~~ago. The lower operating margin~~over year basis was primarily due to ~~higher~~revenue growth outpacing the growth in operating expenses, ~~from recent acquisitions, an increase~~a reduction in ~~employee~~ compensation ~~costs,~~expense, marketing, and ~~restructuring actions,~~contractor fees, partially offset by higher computer-related expenses and bad debt expense, when expressed as a ~~gain on our Indian Rupee foreign exchange hedges.~~percentage of revenue.

Operating Income by Segment

Three months ended May 31,

Nine months ended May 31,

Three months ended February 28,

Six months ended February 28,

(in thousands)

2018

2017

Change

2018

2017

Change

2019

2018

Change

2019

2018

Change

U.S.
$ 37,987 $ 34,382 10.5 % $ 117,285 $ 110,574 6.1 % $ 45,696 $ 38,527 18.6 % $ 89,537 $ 79,298 12.9 %
Europe
37,380 37,766 (1.0 )% 107,344 114,282 (6.1 )% 43,248 36,993 16.9 % 82,337 69,963 17.7 %
Asia Pacific
17,898 15,494 15.5 % 53,219 44,851 18.7 % 19,744 19,965 (1.1 )% 37,353 35,322 5.7 %
Consolidated
$ 93,265 $ 87,642 6.4 % $ 277,848 $ 269,707 3.0 %
Total Operating Income
$ 108,688 $ 95,485 13.8 % $ 209,227 $ 184,583 13.4 %

Our operating segments are aligned with how we manage the business, ~~and~~ the demographic markets ~~in which~~ we serve, and how the chief operating decision ~~maker~~making group (“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~~third-party data costs and corporate headquarters 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 ~~revenues.~~
revenue.
~~Three~~
Three months ended ~~May~~February 3128, 20189 compared to three months ended ~~May~~February 3128, 20178
U.S. operating income increased ~~10.5%~~18.6% to ~~$38.0~~$45.7 million during the three months ended ~~May 31, 2018,~~February 28, 2019 compared to $34.4 million in the same period a year ago. The increase in U.S. operating income is primarily from revenue growth of 6.3% partially offset by increases in expenses related to employee compensation and data costs. U.S. revenue growth was driven by U.S. organic ASV growth of 5.0% and sales of our analytics suite and CTS products to institutional asset managers. Employee compensation increased primarily due to annual base salary increases, restructuring actions and higher employee benefit costs including medical expenditures. Data costs increased due to our recent acquisitions and additional users.
European operating income decreased 1.0% to $37.4 million during the three months ended May 31, 2018, compared to $37.8 million in the same period a year ago. The decrease in European operating income was due to higher employee compensation, amortization of intangible assets, and data costs partially offset by revenue growth. The impact of foreign currency reduced European operating income by $2.3 million year over year. Amortization of intangible assets increased due to acquired intangible assets from the recent acquisitions, the majority of which reside within our European segment. Data costs increased due to higher data costs related to our recently acquired businesses. These costs were partially offset by European revenue growth from increased sales in fixed income and risk analytics products.
Asia Pacific operating income increased 15.5% to $17.9 million during the three months ended May 31, 2018, compared to $15.5 million in the same period a year ago. The increase in the Asia Pacific operating income was due to revenue growth of 14.1%, partially offset by a rise in employee compensation. The impact of foreign currency increased Asia Pacific operating income by $1.2 million year over year. Asia Pacific revenue growth was due primarily to an increase in new business focused on our risk analytics suite.

~~Nine~~ ~~months ended~~ ~~May~~31~~, 2018~~ ~~compared to~~ ~~nine~~ ~~months ended~~ ~~May 31~~~~, 2017~~
~~U.S. operating income increased 6.1% to $117.3 million during the nine months ended May 31, 2018,compared to $110.6~~$38.5 million in the same period a year ago. The increase in U.S. operating income was primarily due to revenue growth of ~~8.3%~~6.9%, partially offset by ~~increases~~an increase in compensation expense, computer-related expenses ~~related to employee compensation, computer equipment~~ and ~~data costs.~~bad debt expense. Employee compensation increased primarily due to annual base salary increases ~~restructuring actions,~~ and higher employee benefit costs, including medical ~~expenditures.~~expenditures, partially offset by a net reduction in headcount of 3.6% over the past 12 months. Computer-related expenses, which ~~include~~includes depreciation, maintenance, software and other fees, increased ~~20.8%~~ year over year primarily due 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. Data costs increased ~~primarily to higher third-party data~~ costs from ~~our recent acquisitions~~cloud-based hosting and ~~additional users.~~licensed software arrangements.

European operating income ~~decreased 6.1%~~increased 16.9% to ~~$107.3~~$43.2 million during the ~~nine~~three months ended ~~May 31, 2018,~~February 28, 2019 compared to ~~$114.3~~$37.0 million in the same period a year ago. The increase in European operating income was primarily due to revenue growth of 2.8% and a reduction in operating expenses driven mainly by a decrease in employee compensation expense, primarily due to a foreign currency benefit from a stronger U.S. dollar.
Asia Pacific operating income decreased 1.1% to $19.7 million during the three months ended February 28, 2019, compared to $20.0 million in the same period a year ago. The decrease in ~~European~~the Asia Pacific operating income was mainly due to ~~higher~~an increase in employee compensation, ~~amortization of intangible assets, and data costs~~ partially offset by revenue growth of ~~21.8%~~8.4%. ~~The impact~~Employee compensation increased as a result of a 4.3% increase in our Asia Pacific workforce in the last 12 months, partially offset by a foreign currency ~~decreased~~ benefit from a stronger U.S dollar.
Six months ended February28, 2019 compared to six months ended February28, 2018
U.S. operating income increased 12.9% to $89.5 million during the six months ended February 28, 2019, compared to $79.3 million in the same period a year ago. The increase in U.S. operating income was primarily due to revenue growth of 6.7%, partially offset by an increase in computer-related expenses, data costs, and increased bad debt expense. Computer-related expenses, which includes depreciation, maintenance, software and other fees, increased year over year primarily due to increased costs from cloud-based hosting and licensed software arrangements. Data costs increased due to increased spend in variable data costs to drive revenue growth.
European operating income ~~by $4.8~~increased 17.7% to $82.3 million during the six months ended February 28, 2019 compared to $70.0 million in the same period a year ago. The increase in European operating income was primarily due to revenue growth of 4.7% outpacing the growth of operating expenses, which were comparable on a year over year. The employee compensation increase was mainly due to annual base salary increases and additional employee headcount in our European offices. The majority of these acquisitions primarily reside within our European segment, leading to increased amortization of intangible assets and data costs compared to the prior year ~~period.~~basis.

Asia Pacific operating income increased ~~18.7%~~5.7% to ~~$53.2~~$37.4 million during the ~~nine~~six months ended ~~May 31, 2018,~~February 28, 2019, compared to ~~$44.9~~$35.3 million in the same period a year ago. The increase in the Asia Pacific operating income was primarily due to revenue growth of ~~13.3%~~9.4%, partially offset by ~~increases~~an increase in employee ~~compensation. The impact~~compensation and occupancy costs. Employee compensation increased due to net headcount growth of 4.3% over the past 12 months, with the increase primarily focused in the centers of excellence, partially offset by a foreign currency benefit from a stronger U.S. dollar. Occupancy costs increased ~~Asia Pacific operating income by $2.0 million year over year. Employee compensation was higher year over year as a result~~due to the expansion of ~~a 6.7% increase~~office space in ~~our Asia Pacific workforce.~~India and the Philippines.

Income Taxes, Net Income and Diluted Earnings per Share

Three months ended May 31,

Nine months ended May 31,

Three months ended February 28,

Six months ended February 28,

(in thousands)

2018

2017

Change

2018

2017

Change

(in thousands, except for per share data)

2019

2018

Change

2019

2018

Change

Provision for income taxes
$ 14,765 $ 19,815 (25.5 )% $ 69,641 $ 65,832 5.8 % $ 19,647 $ 39,076 (49.7 )% $ 31,294 $ 54,876 (43.0 )%
Net income
$ 74,746 $ 65,414 14.3 % $ 198,262 $ 198,707 (0.2 )% $ 84,702 $ 53,137 59.4 % $ 168,998 $ 123,516 36.8 %
Diluted EPS
$ 1.91 $ 1.66 15.1 % $ 5.01 5.00 0.2 %
Diluted earnings per common share
$ 2.19 $ 1.33 64.7 % $ 4.37 $ 3.11 40.5 %

Income Taxes

Three months ended ~~May~~February 3128, 20189 compared to three months ended ~~May~~February 3128, 20178
For the three months ended ~~May 31, 2018,~~February 28, 2019, the provision for income taxes was ~~$14.8~~$19.6 million, ~~down 25.5%~~a decrease of 49.7% from the same period a year ~~ago~~ago. The decrease was mainly due to the ~~impacts from~~enactment of the ~~TCJA. On December 22, 2017, the U.S. government enacted comprehensive tax legislation through the TCJA.~~Tax Cuts and Jobs Act (“TCJA”). The TCJA ~~among other things,~~imposed a one-time transition tax expense, resulting in $23.2 million being recorded in the second quarter of fiscal 2018. This impact was revised during the second quarter of fiscal 2019, resulting in a benefit $1.1 million for the three months ended February 28, 2019. The TCJA also lowered the statutory U.S. corporate income tax rate from 35% to 21%, effective January 1, ~~2018, implemented a modified territorial tax system and imposed a mandatory one-time transition tax on accumulated E&P of foreign subsidiaries that were previously deferred from U.S. income taxes.~~2018. Due to the timing of our ~~August 31~~ fiscal ~~year-end,~~year end, the lower tax rate was fully applicable for the three months ended February 28, 2019, while phased in ~~resulting~~during the same periods a year ago. 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 ~~blended U.S. statutory federal rate~~non-recurring tax charge of ~~25.7% for~~$2.2 million in the ~~full~~second quarter of fiscal ~~2018 year and~~2018. The decrease in the income tax provision was partially offset by a ~~21% rate for subsequent years. Our third~~$2.4 million income tax expense from the settlement with a tax authority recognized during the second quarter of fiscal ~~2018 effective tax rate was 16.5% compared with 23.2% a year ago primarily due to the TCJA.~~2019.
~~Nine~~Six months ended ~~May~~February 3128, ~~2018~~2019 compared to ~~nine~~six months ended ~~May~~February 3128, ~~2017~~2018
For the ~~nine~~six months ended ~~May 31, 2018,~~February 28, 2019, the provision for income taxes was ~~$69.6~~$31.3 million, ~~up 5.8%~~a decrease of 43.0% from the same period a year ago. The ~~increase~~decrease was ~~primarily~~mainly due to the enactment of the TCJA. The TCJA imposed a $23.2 million one-time transition tax expense which was recorded in the second quarter of ~~$23.2~~fiscal 2018. This impact was revised during the first and second quarters of fiscal 2019, resulting in a benefit of $2.3 million and ~~a non-recurring $2.2~~$1.1 million, respectively, which positively impacted the six months ended February 2019. The TCJA also lowered the statutory U.S corporate income tax ~~expense related~~rate, which applied to the first six months of fiscal 2019 compared to the lower tax rate being phased in for the prior year comparable period. The first six months of fiscal 2018 included a remeasurement of our net U.S. deferred tax position ~~both~~resulting in a non-recurring tax charge of ~~which were recorded~~$2.2 million due to the reduction in the statutory federal rate. The decrease in the income tax provision was partially offset by a $2.4 million income tax expense from the settlement with a tax authority recognized during the second quarter of fiscal ~~2018. These income tax charges were partially offset by a lower blended statutory rate~~, the recognition of $7.1 million of excess tax benefits from stock option exercises and a $1.5 million income tax benefit from settlements with tax authorities. We had approximately $250.0 million in undistributed foreign E&P generated prior to December 31, 2017, which resulted in a provisional amount for the one-time transition tax expense of $23.2 million, payable over an eight-year period. This amount may change as we finalize the calculation of foreign E&P previously deferred from U.S. federal taxation, as well as the analysis of available foreign tax credits. Due to the changes in taxation of undistributed foreign earnings under the TCJA, we will continue to analyze foreign subsidiary earnings, as well as global working capital requirements, and may repatriate earnings when the amounts are remitted substantially free of additional tax. In addition, the estimates may also be affected by changes in interpretations at the federal and state levels, and any additional regulatory guidance that may be issued.2019.

Net Income and Diluted Earnings per Share

Three months ended ~~May~~February 3128, ~~2018~~2019 compared to three months ended ~~May~~February 3128, ~~2017~~2018
Net income increased ~~14.3%~~59.4% to ~~$74.7~~$84.7 million and diluted ~~EPS~~earnings per share (“EPS”) increased ~~15.1%~~64.7% to ~~$1.91~~$2.19 for the three months ended ~~May 31, 2018,~~February 28, 2019, compared to the ~~three months ended May 31, 2017.~~same period a year ago. Net income and diluted EPS increased ~~during the third quarter of fiscal 2018~~ due to ~~$7.4 million of incremental revenue from acquisitions completed in the last 12 months, a decrease in the quarterly effective tax rate from 23.2% a year ago to 16.5% in the current quarter~~higher operating income and a reduction in the income tax provision primarily due to the TCJA reform. Diluted EPS also benefited from a 1.2 million share reduction in our diluted weighted average shares outstanding mainly due to ~~significant~~ share ~~repurchases during~~repurchases.
Six months ended February 28, 2019 compared to six months ended February 28, 2018
Net income increased 36.8% to $169.0 million and diluted EPS increased 40.5% to $4.37 for the ~~quarter. These benefits were~~six months ended February 28, 2019, compared to the six months ended February 28, 2018. Net income and diluted EPS increased 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 and a $1.1 million negative foreign currency impact, which lowered diluted EPS by $0.02.~~
~~Nine~~ ~~months ended~~ ~~May~~31~~, 2018 compared to~~ ~~nine~~~~months ended~~ ~~May 31~~~~, 201~~7
Net income decreased 0.2% to $198.3 million while diluted EPS increased 0.2% to $5.01 for the nine months ended May 31, 2018, compared to the nine months ended May 31, 2017. Net income decreased due to restructuring actions initiated during the most recent third quarter and a $3.0 million negative foreign currency impact. .debt. Diluted EPS ~~increased due to the aforementioned drop~~also benefited from a 1.0 million share reduction in our diluted weighted average shares ~~outstanding.~~
~~Adjusted Net Income and Diluted Earnings per Share~~ ~~(non-GAAP)~~~~(Details may not sum to total~~outstanding mainly due to ~~rounding)~~share repurchases.

Non-GAAP Financial Measures
To supplement the financial measures prepared in accordance with ~~U.S.~~ GAAP, we use non-GAAP financial measures including organic revenue, adjusted operating margin, adjusted net income and adjusted diluted ~~EPS have been adjusted~~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 show in the tables below. These ~~adjusted~~non-GAAP financial measures ~~are used both~~should not be considered in ~~presenting our results~~isolation from, as a substitute for or superior to, ~~stockholders and~~financial measures reported in accordance with GAAP. Moreover, these non-GAAP financial measures have limitations in that they do not reflect all the ~~investment community, and also in our internal evaluation and management~~items associated with the operations of the ~~business. We~~business as determined in accordance with GAAP. Other companies may calculate similarly titled non-GAAP financial measures differently that we do, limiting the usefulness of those measures for comparative purposes.

Despite the limitations of these non-GAAP financial measures, we believe ~~that~~ these adjusted financial measures and the information they provide are useful ~~to investors because they permit investors to view~~in viewing our performance using the same tools that ~~we use~~management uses to gauge progress in achieving our goals. Adjusted measures may also facilitate comparisons to our historical performance.

Three months ended May 31,

(In thousands, except per share data)

2018

2017

Change

GAAP net income
$ 74,746 $ 65,414 14.3 %
Intangible asset amortization
5,190 4,305
Deferred revenue fair value adjustment
1,242 1,886
Other non-recurring items
3,935 3,262
Income tax expense
— (1,918 )
Adjusted net income
$ 85,113 $ 72,949 16.7 %

GAAP diluted EPS
$ 1.91 $ 1.66 15.1 %
Intangible asset amortization
0.13 0.11
Deferred revenue fair value adjustment
0.03 0.05
Other non-recurring items
0.10 0.08
Income tax expense
— (0.05 )
Adjusted diluted EPS
$ 2.18 $ 1.85 17.8 %
Weighted average common shares (diluted)
39,104 39,457
The table below provides an unaudited reconciliation of revenues to organic revenues.

Three Months Ended
February 28,

(In thousands)

2019

2018

Change

Revenues
$ 354,895 $ 335,231 5.9 %
Deferred revenue fair value adjustment⁽¹⁾
1,299 2,087
Currency impact⁽²⁾
310 —
Organic revenues
$ 356,504 $ 337,318 5.7 %
⁽¹⁾
Deferred revenue fair value adjustments from purchase accounting.
⁽²⁾
The impact from foreign currency movements over the past 12 months.

The ~~presentation~~table below provides an unaudited reconciliation of the ~~financial information~~ ~~above~~ ~~is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.~~
~~Adjusted~~operating income, operating margin, net income ~~for the three months ended May 31, 2018 was $85.1 million, an increase of 16.7% from the prior year period. As presented in the table above,~~and diluted EPS to adjusted operating income, adjusted operating margin, adjusted net income for the three months ended May 31, 2018 excludes $5.2 million (after-tax) of intangible asset amortization, $1.2 million (after-tax) related to deferred revenue fair value adjustments from purchase accounting, $3.9 million (after-tax) of non-recurring severance charges, stock-based compensation acceleration and restructuring actions. Adjusted net income for the three months ended May 31, 2017 was $72.9 million, which excludes $4.3 million (after-tax) of intangible asset amortization, $1.9 million (after-tax) related to deferred revenue fair value adjustments from purchase accounting, $3.3 million (after-tax) of non-recurring acquisition costs and $1.9 million of income tax benefits related to finalizing prior years’ tax returns and other discrete items.adjusted diluted EPS.

Three Months Ended
February 28,

(In thousands, except per share data)
2019 ⁽¹⁾ 2018 ⁽²⁾
Change

Operating income
$ 108,688 $ 95,485 13.8 %
Intangible asset amortization
5,839 6,213
Deferred revenue fair value adjustment
1,299 2,087
Other items
2,417 2,239
Adjusted operating income
$ 118,243 $ 106,024 11.5 %
Adjusted operating margin
33.2 % 31.4 %

Net income
$ 84,702 $ 53,137 59.4 %
Intangible asset amortization⁽³⁾
4,742 4,924
Deferred revenue fair value adjustment⁽⁴⁾
1,055 1,654
Other items⁽⁵⁾
1,718 1,774
Income tax items
1,381 22,856
Adjusted net income
$ 93,598 $ 84,345 11.0 %

Diluted earnings per common share
$ 2.19 $ 1.33 64.7 %
Intangible asset amortization
0.12 0.12
Deferred revenue fair value adjustment
0.03 0.04
Other items
0.04 0.04
Income tax items
0.04 0.57
Adjusted diluted earnings per common share
$ 2.42 $ 2.12 14.2 %
Weighted average common shares (Diluted)
38,619 39,846
⁽¹⁾
Operating income, net income and diluted EPS in the second quarter of fiscal 2019 were adjusted to exclude (i) intangible asset amortization (ii) deferred revenue fair value adjustments from purchase accounting, and (iii) other items including severance, stock-based compensation expense, and occupancy costs. Net income and diluted EPS in the second quarter of fiscal 2019 were also primarily adjusted to exclude a settlement with a tax authority partially offset by income tax benefits primarily related to the TCJA.
⁽²⁾
Operating income, net income and diluted EPS in the second quarter of fiscal 2018 were adjusted to exclude (i) intangible asset amortization (ii) deferred revenue fair value adjustments from purchase accounting, and (iii) other items including severance, stock-based compensation expense accelerationand restructuring actions. Net income and diluted EPS in the second quarter of fiscal 2018 were also primarily adjusted to exclude the one-time deemed repatriation tax on foreign earnings as a result of the TCJA.
⁽³⁾
The intangible asset amortization was recorded net of a tax impact of $1.1 million in the second quarter of fiscal 2019 compared to $1.3 million for the second quarter of fiscal 2018.
⁽⁴⁾
The deferred revenue fair value adjustment was recorded net of a tax impact of $0.2 million in the second quarter of fiscal 2019 compared to $0.4 million for the second quarter of fiscal 2018.
⁽⁵⁾
The other items were recorded net of a tax impact of $0.5 million for both the second quarter of fiscal 2019and 2018.

Fiscal 2018 third quarter adjusted diluted EPS of $2.18 excludes the net effect of the $0.13 detriment from the intangible asset amortization, $0.03 detriment from the deferred revenue fair value adjustments and $0.10 detriment from non-recurring severance charges, stock-based compensation acceleration and restructuring actions. Fiscal 2017 third quarter adjusted diluted EPS of $1.85 excludes the net effect of the $0.24 detriment from the intangible asset amortization, deferred revenue fair value adjustments and non-recurring acquisition costs and $0.05 benefit from finalizing prior years’ tax returns and other discrete items.

Liquidity

The table below, for the periods indicated, provides selected cash flow information:

Nine months ended May 31,

Six months ended February 28,

(in thousands)

2018

2017

2019

2018

Net cash provided by operating activities
$ 279,342 $ 220,312 $ 145,554 $ 153,689
Capital expenditures ⁽¹⁾
(18,375 ) (25,981 ) (21,482 ) (12,375 )
Free cash flow ⁽²⁾
$ 260,967 $ 194,331 $ 124,072 $ 141,314
Net cash used in investing activities
$ (18,111 ) $ (334,407 ) $ (19,368 ) $ (11,990 )
Net cash used in financing activities
$ (241,159 ) $ 51,407 $ (115,819 ) $ (108,086 )
Cash and cash equivalents at end of period
$ 213,061 $ 161,758 $ 218,335 $ 233,628

^⁽¹⁾
Included in net cash used in investing activities during each fiscal ~~year~~period reported.

^⁽²⁾
~~We define free~~Free cash flow is defined as cash provided by operating activities, which includes the cash cost for taxes and changes in working capital, less capital expenditures.

Cash and cash equivalents aggregated to ~~$213.1~~$218.3 million, or ~~15.1%~~14.9% of our total assets ~~at May 31, 2018,~~as of February 28, 2019, compared ~~with $161.8~~to $208.6 million, or ~~11.9%~~14.7% of our total assets ~~at May~~as of August 31, ~~2017.~~2018. Our cash and cash equivalents increased ~~$18.3~~$9.7 million during the first ~~nine~~six months of fiscal ~~2018~~2019 due to cash inflows related to $145.6 million of net cash provided by ~~operations of $279.3 million and $57.5~~operating activities, $43.4 million in proceeds from the exercise of employee stock ~~options.~~options and $2.1 million net proceeds from equity investments. These cash inflows were partially offset by ~~$65.0 million in dividend payments, $18.4 million of capital expenditures, $1.7 million from the effects of foreign currency fluctuations, and $235.9~~cash outflows primarily related to $110.7 million in share repurchases ~~which included $234.8~~(which includes $104.6 million under the existing share repurchase program and ~~$1.1~~$6.1 million ~~in shares repurchased~~share purchased from employees to cover their cost of taxes upon vesting of restricted ~~stock.~~stock), $48.4 million in dividend payments, and $21.5 million of capital expenditures.

Net cash used in investing activities was ~~$18.1~~$19.4 million in the first ~~nine~~six months of fiscal ~~2018,~~2019, representing a ~~$316.3~~$7.4 million ~~decrease~~increase from the same period a year ago. This ~~decrease~~increase was due primarily ~~due~~ to acquisitions completed in the first nine months of fiscal 2017 which represented $301.8 million of total cash used for acquisitions. Additionally, cash used in investing activities decreased year over year due to lowerhigher capital expenditures of ~~$7.6~~$9.1 million, ~~and a decrease in the purchase of~~offset by net proceeds from equity investments (net of ~~sales)~~purchases) of ~~$6.8 million year over year.~~$1.7 million.

Net cash used in financing activities was ~~$241.2~~$115.8 million in the first ~~nine~~six months of fiscal ~~2018,~~2019, representing a ~~$292.6~~$7.7 million ~~decrease~~increase in cash used in financing activities from the same period a year ago. ~~This decrease~~The increase in cash used in financing activities was primarily 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 to the issuance of debt, the~~a decrease was due to higher dividend payments of $5.9 million, increase in share repurchases of $21.1 million, and a reduction of tax benefits from share-based payment arrangements due to the adoption of the accounting standard update, which required us to report $7.1 million in benefits from a financing to an operating activity. Offsetting the above financing activities was also an increase in proceeds from employee stock plans of ~~$15.4~~$5.4 million, an increase in dividend payments of $5.0 million, partially offset by a decrease in share purchases of $3.2 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 ~~May 31, 2018,~~February 28, 2019, our total ~~cash~~Cash and cash equivalents worldwide was ~~$213.1~~$218.3 million with ~~$574.7~~$574.8 million in outstanding borrowings (net of ~~$0.3~~$0.2 million of unamortized debt issuance costs). ~~Approximately $39.4 million of our~~The total available cash and cash equivalents is held in bank accounts located within the U.S.~~, $118.8~~ is $68.7 million, in Europe (predominantly within the UK, France, and Germany) includes $110.3 and the remaining ~~$54.9~~$39.3 million is held in the Asia Pacific ~~region.~~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 the ~~nine~~six months ended ~~May 31, 2018~~February 28, 2019 was ~~$261.0~~$124.1 million, ~~an increase~~a decrease of ~~34.3%~~12.2% compared to ~~the same period~~ a year ago. Free cash flow ~~was attributable to $198.3~~is the result of $169.0 million of net income, ~~$67.0~~plus $46.5 million of non-cash items, ~~$14.1~~less $69.9 million of working capital changes ~~less $18.4~~and $21.5 million in capital expenditures. The year over year ~~free cash flow growth was driven by positive working capital changes totaling $47.5 million and lower capital expenditures of $7.6 million. Working capital improved year over year primarily due~~decrease to increased cash collected on our receivables and the adoption of the accounting standard update for share-based payments, which required us to report $7.1 million in benefits from a financing to an operating activity.
~~Free cash flow generated over the last twelve months was $350.3 million and exceeded net income by 35.9% over that same period. Included in the twelve-month calculation of~~ free cash flow was ~~$379.6 million~~primarily driven by an increase in capital expenditures and the timing of tax payments made during the second quarter of fiscal 2019, partially offset by an increase in net ~~cash provided by operations less $29.3 million of capital expenditures.~~income.

Capital Resources
C~~apital Resources~~
Capital Expenditures

Capital expenditures inwere $12.0 million during the ~~third~~second quarter of fiscal ~~2018 were $6.0 million,~~2019, compared ~~with $7.9~~to $6.5 million a year ago. ~~Approximately $3.8~~Capital expenditures of $7.4 million, or ~~63.8%~~62%, ~~of our capital expenditures was for upgrades~~were primarily related to ~~existing computer systems in Norwalk,~~corporate infrastructure investments, additional server equipment infor our data centers located in New Jersey and Virginia, as well as ~~laptop~~ computers and peripherals for new ~~and existing employees.~~office space primarily in India. The remainder of our capital expenditures was primarily for the build out of office space, ~~including $1.2~~with $1.9 million related to the Philippines and $1.4 million related to the new corporate headquarters in ~~Hong Kong.~~Norwalk, Connecticut.

Capital expenditures were ~~$18.4~~$21.5 million during the first ~~nine~~six months of fiscal ~~2018, down from $26.0~~2019, compared with $12.4 million in the same period a year ago. Approximately ~~$12.8~~$13.8 million, or ~~69.6%~~64%, of capital expenditures were primarily related to ~~upgrades to existing computer systems at~~corporate infrastructure investments, additional server equipment for our ~~corporate headquarters~~data centers located in ~~Norwalk, laptop~~New Jersey and Virginia, as well as computers and peripherals for new ~~employees and additional servers for our existing data centers.~~office space primarily in India. The remainder of our capital expenditures was primarily for the build out of office space, ~~including $1.2~~with $1.9 million related to the Philippines, $3.7 million related to India and $1.4 million related to the new corporate headquarters in ~~Hong Kong, $0.9 million in the Netherlands and $0.7 million in New York.~~Norwalk, Connecticut.
Capital Needs
Long-Term Debt
2017 Credit Agreement
On March 17, 2017, we entered into a ~~Credit Agreement~~credit agreement (the “2017 Credit Agreement”) between FactSet, as the borrower, and PNC Bank, National Association (“PNC”), as the administrative agent and lender. ~~The~~As of February 28, 2019, the 2017 Credit Agreement provides for aan unsecured $575.0 million revolving credit facility (the “2017 Revolving Credit Facility”). We may request borrowings under the 2017 Revolving Credit Facility until its maturity date of March 17, 2020. The 2017 Credit Agreement also allows us, subject to certain requirements, to arrange for additional borrowings with PNC for an aggregate amount of up to $225.0 million, provided that any such request for additional borrowings must be in a minimum amount of $25.0 million. At our option, a borrowing may be in the form of a base rate loan or a LIBOR rate loan. 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%. 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,~~consolidated balance sheet, presented net of related loan origination fees at ~~May 31, 2018.~~February 28, 2019. The loan origination fees are amortized into interest expense over the term of the loan using the effective interest method. During the three months ended ~~May 31,~~February 28, 2019 and 2018, ~~and 2017,~~ we ~~paid approximately $4.3~~recorded interest expense of $5.1 million and ~~$2.9~~$3.6 million ~~in interest~~ on our outstanding debt amounts, respectively. During the ~~nine~~six months ended ~~May 31,~~February 28, 2019 and 2018, ~~and 2017,~~ we ~~paid approximately $11.3~~recorded interest expense of $9.9 million and ~~$5.3~~$7.0 million ~~in interest~~ on our outstanding debt amounts, respectively. As of ~~May 31, 2018,~~February 28, 2019, no commitment fee was owed by us since we borrowed the full amount under the 2017 Credit Agreement.

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 we maintain a consolidated leverage ratio, as measured by total funded debt/EBITDA below a specified level as of the end of each fiscal quarter. We were in compliance with all the covenants of the 2017 Credit Agreement as of ~~May 31, 2018~~February 28, 2019 and August 31, ~~2017.~~2018.

As of ~~May 31, 2018~~February 28, 2019, the fair value of our long-term debt was $575.0 million, which we believe approximated the carrying amount as the terms and interest rates approximate market rates given its floating interest rate basis.
2019 Credit Agreement
On March 29, 2019, we entered into a credit agreement (the “2019 Credit Agreement”) between FactSet, as the borrower, and PNC, as the administrative agent and lender. The 2019 Credit Agreement provides for a $750.0 million revolving credit facility (the “2019 Revolving Credit Facility”). We may request borrowings under the 2019 Revolving Credit Facility until its maturity date of March 29, 2024. The 2019 Credit Agreement also allows, subject to certain requirements, for additional borrowings with PNC for an aggregate amount of up to $500.0 million, provided that any such request for additional borrowings must be in a minimum amount of $25.0 million. Borrowings under the loan bear interest on the outstanding principal amount at a rate equal to the daily LIBOR rate plus a spread using a debt leverage pricing grid currently at 0.875%. Interest on the loan outstanding is payable quarterly in arrears and on the maturity date. In conjunction with our entrance into the 2019 Credit Agreement, we borrowed $575.0 million of the available $750.0 million provided by the 2019 Revolving Credit Facility, in the form of a LIBOR rate loan. We will pay a commitment fee on the undrawn amount. On March 29, 2019 the borrowings from the 2019 Credit Agreement were used to retire all outstanding debt under the 2017 Credit Agreement.

Letters of Credit
From time to time, we are required to obtain letters of credit in the ordinary course of business. Approximately ~~$2.2~~$3.3 million of standby letters of credit have been issued in connection with our leased office spaces as of ~~May 31, 2018.~~February 28, 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 ~~May 31, 2018~~February 28, 2019, and August 31, ~~2017,~~2018, we were in compliance with all covenants contained in the standby letters of credit.

Foreign Currency

Foreign Currency Exposure

Certain wholly owned subsidiaries within the ~~European~~Europe and Asia Pacific segments operate under a functional currency different from the U.S. dollar. The financial statements of these foreign subsidiaries are translated into U.S. dollars using period-end rates of exchange for assets and liabilities and average exchange rates for ~~the period for revenues~~revenue and expenses. Translation gains and losses that arise from translating assets, liabilities, ~~revenues~~revenue and expenses of foreign operations are recorded in accumulated other comprehensive (loss) income as a component of stockholders’ equity.

~~As of May 31, 2018~~Over the next 12 months, our ~~annualized~~ non-U.S. dollar denominated ~~revenues~~revenue expected to be recognized are estimated to be ~~$99.5~~$90.5 million, while our non-U.S. dollar denominated expenses are estimated to be ~~$323.6~~$324.6 million, which translates into a net foreign currency exposure of ~~$224.1~~$234.1 million. Our foreign currency exchange exposure is related to our operating expense base in countries outside the U.S., where ~~74%~~approximately 75% of our employees were located as of ~~May 31, 2018.~~February 28, 2019. During the ~~third~~second quarter of fiscal ~~2018,~~2019, foreign currency movements ~~decreased~~increased operating income by ~~$1.1~~$4.0 million, compared to ~~an increase in~~a $2.0 million decrease to operating income ~~of $2.5 million in the same period~~ a year ago. During the first ~~nine~~six months of fiscal ~~2018,~~2019, foreign currency movements ~~decreased~~increased operating income by ~~$3.0~~$5.6 million, compared to ~~an increase~~a decrease in operating income of ~~$6.4~~$1.9 million in the same period a year ago.
Foreign Currency Hedges
As of ~~May 31, 2018,~~February 28, 2019, we maintained the following foreign currency forward contracts ~~on the Indian Rupee~~ to hedge ~~approximately 75% of our exposures through the third quarter of fiscal 2019 and 50% of our~~its exposures:
●
Philippine Peso – foreign currency forward contracts to hedge approximately 75% of its Philippine Peso exposure from the fourth quarter of fiscal 2019 through the end of the second quarter of fiscal 2020. We also maintained foreign currency forward contracts on the Philippine Peso to hedge approximately 75% of our exposures through the fourth quarter of fiscal 2020.
●
Indian Rupee – foreign currency forward contracts to hedge approximately 75% of its Indian Rupee exposure through the third quarter of fiscal 2019, 50% of its exposure from the fourth quarter of fiscal 2019 through the end of the second quarter of fiscal 2020, and 25% of its exposure from the third quarter of fiscal 2020 through the end of the fourth quarter of fiscal 2020.
●
Euro – foreign currency forward contracts to hedge approximately 78% of its Euro exposure through the third quarter of fiscal 2019.
●
British Pound Sterling – foreign currency forward contracts to hedge approximately 50% of its British Pound Sterling exposure through the third quarter of fiscal 2019.
As of February 28, 2019, the gross notional value of foreign currency forward contracts to purchase Philippine Pesos with U.S. dollars was PHP 2.1 billion. The gross notional value of foreign currency forward contracts to purchase Indian Rupees with U.S. dollars was Rs. ~~3.7~~2.5 billion. The gross notional value of foreign currency forward contracts to purchase ~~Philippine Pesos with~~ U.S. dollars with Euros was ~~Php 3.1 billion.~~€ 25.7 million. The gross notional value of foreign currency forward contracts to purchase U.S. dollars with British Pound Sterling was £ 4.9 million.

There were no other outstanding foreign currency forward contracts as of ~~May 31, 2018.~~February 28, 2019. A ~~gain~~loss on derivatives of ~~$1.0~~$0.4 million was recorded into operating income ~~during~~for the three months ended ~~May 31, 2018,~~February 28, 2019, compared to a ~~loss~~gain on derivatives of ~~$0.4~~$0.8 million in the same period a year ago. ~~During~~For the ~~first nine~~six months ~~of fiscal 2018,~~ended February 28, 2019, a ~~gain~~loss on derivatives of ~~$2.6~~$0.8 million was recorded into operating income, compared to a ~~loss~~gain on derivatives of ~~$2.8~~$1.6 million in the ~~same period a~~prior year ~~ago.~~period.

Off-Balance Sheet Arrangements

At ~~May 31, 2018~~February 28, 2019 and August 31, ~~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, other debt arrangements, or 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 the ~~third~~second quarter of ~~2018,~~fiscal 2019, we repurchased ~~620,000~~214,945 shares for ~~$122.0~~$44.1 million under ~~the~~our existing share repurchase program compared to ~~300,000~~420,000 shares for ~~$48.3~~$81.9 million in the same period a year ago. During the first ~~nine~~six months of fiscal ~~2018,~~2019, we repurchased ~~1,204,920~~489,945 shares for ~~$234.8~~$104.6 million compared to ~~1,284,822~~584,920 shares for ~~$208.8~~$112.9 million in the prior year comparable period. Over the last 12 months, we have returned ~~$368.9~~$395.2 million to stockholders in the form of share repurchases and ~~cash~~ dividends. As of ~~May 31, 2018, $309.3~~February 28, 2019, $137.2 million is available for future share repurchases under the existing share repurchase program.

On March 26, 2018, our Board of Directors approved a $300.0 million expansion of the existing share repurchase program. Subsequent to this expansion, $431.2 million is available for future share repurchases.

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. As of August 31, ~~2017,~~2018, we had total purchase commitments of ~~$81.0~~$79.0 million. There were no material changes in our purchase commitments ~~with suppliers~~ during the first ~~nine~~six months of fiscal ~~2018.~~2019.

On February 14, 2018, we entered ~~into~~ a new lease to relocate our corporate headquarters to 45 Glover Avenue in Norwalk, Connecticut. The new location will comprise approximately 173,000 square feet of office space. We ~~expect to take~~took 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 ~~1,760,000~~2,015,000 square feet ~~at May 31, 2018,~~as of February 28, 2019, up ~~617,000~~265,000 square feet, or ~~54.0%,~~15.1% from August 31, ~~2017. This increase was primarily related to additional office space in the Philippines and the new headquarters lease signed in February~~ 2018. Future minimum commitments for our operating leases in place as of ~~May 31, 2018~~February 28, 2019 totaled ~~$416.3~~$423.1 million, an increase of $15.3 million from ~~$281.7~~$407.8 million as of August 31, ~~2017 primarily~~2018, due to ~~the aforementioned~~ additional office space in ~~the Philippines and the new headquarters lease in Norwalk.~~India.

As disclosed earlier in the Capital Resources section of this MD&A, through the second quarter of fiscal 2019 we had $575.0 million outstanding under the 2017 Credit Agreement. The maturity date on the outstanding loan amount was March 17, 2020. The amount borrowed 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% and was reported as Long-term debt within our Consolidated Balance Sheet at February 28, 2019. Also disclosed in the Capital Resources sections of this MD&A is the 2019 Credit Agreement we entered into on March 29, 2019, in which we borrowed $575.0 million of the available $750.0 million under the 2019 Revolving Credit Facility, which were used to retire all outstanding debt under the 2017 Credit ~~Agreement on March 17, 2017 and borrowed $575.0 million.~~Agreement.

~~With the exception of the new leases entered into in the ordinary course of business, there~~There were no other significant changes to our contractual obligations during the first ~~nine~~six months of fiscal ~~2018.~~2019.

Dividends

On ~~May 7, 2018,~~February 15, 2019, our Board of Directors approved a regular quarterly ~~cash~~ dividend of $0.64 per share. The ~~$0.08 per share or 14.3% increases marked our 13~~^th ~~consecutive year we have increased dividends, highlighting our continued commitment to returning value to our shareholders. The~~ cash dividend of ~~$24.6~~$24.4 million was paid on ~~June~~March 19, ~~2018,~~2019, to common stockholders of record at the close of business on ~~May 31, 2018.~~February 28, 2019. Future cash dividends 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.

Significant Accounting Policies and Critical Accounting Estimates

We describe our significant accounting policies in Note 3, Summary of SignificantAccounting Policies,, of the ~~Notes~~notes to ~~Consolidated Financial Statements~~our consolidated financial statements included in Item 8 of our Annual Report on Form 10-K for the fiscal year ended August 31, 2018. The accounting policies used in preparing our consolidated financial statements for the first six months of fiscal 2019 are applied consistently with those described in our Annual Report on Form 10-K for the fiscal year ended August 31, ~~2017.~~2018, with the exception of the accounting guidance adopted in the first quarter of fiscal 2019 related to revenue recognition. Please see Note 4, Revenue Recognition, of this report for further details on the adoption of the new revenue recognition standard.

We discuss our critical accounting estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended August 31, ~~2017.~~2018. There were no significant changes in our accounting policies or critical accounting estimates during the first ~~nine~~six months of fiscal ~~2018.~~2019.

New Accounting Pronouncements

See Note 3, Recent Accounting Pronouncements,, in the ~~Notes~~notes to the ~~Consolidated Financial Statements~~consolidated financial statements for a full description of recent accounting pronouncements, including the expected dates of adoption, which we include herein 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 ~~84.4%~~83.9% of our ASV is derived from our investment management clients. The prosperity of these clients is tied to equity assets under management. An equity market decline not only depresses assets under management but also could cause a significant increase in redemption requests to move money out of equities and into other asset classes. Moreover, a shift from active investment management to passive investment management can result in lower demand for our services. Our investment banking clients that provide M&A advisory work, capital markets services and equity research, account for approximately ~~15.6%~~16.1% of our ASV. A significant portion of ~~these revenues relate~~this revenue relates to services deployed by large, ~~bulge bracket~~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 ~~problems.~~issues. A lack of confidence in the global banking system could cause declines in M&A funded by debt. Additional uncertainty, consolidation and business failures in the global investment banking sector could adversely affect our financial results and future growth. Regardless, the size of banks in general is shrinking as they deleverage their balance sheets and adjust their expense bases to future revenue opportunities. Our ~~revenues~~revenue may decline if banks, including those involved in ~~recent~~ merger activity, significantly reduce headcount in the areas of corporate M&A, capital markets and equity research to compensate for the ~~issues created~~challenges faced by other departments.

~~Foreign Currency Volatility~~
Due to the global nature of our operations, we conduct business outside the U.S. in several currencies including the British Pound Sterling, Euro, Indian Rupee, Japanese Yen and Philippine Peso. To the extent that our international activities increase in the future, our exposure to fluctuations in currency exchange rates will correspondingly increase. To manage this exposure, 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. Credit risk is managed through the continuous monitoring of exposure to the counterparties associated with these instruments. Our primary objective in holding derivatives is to reduce the volatility of earnings associated with changes in foreign currency.
Brexit
Volatility is expected to continue in the short term as the UK negotiates its exit from the European Union. The ~~initial~~inability of UK ~~economic performance has been stronger than originally expected as~~politicians to agree on the ~~timeframe~~terms of the departure from the ~~initial vote increases. Additionally, increased~~ European ~~confidence and~~Union has had an adverse impact on the British economy, stagnating growth. The UK ~~consumer spending has contributed~~Parliament is reluctant to leave the ~~recovery~~European Union without a transitional deal, so it is expected that negotiations of the ~~economic outlook. The negotiation process is continuing, including the latest milestone~~terms of the ~~UK and European Union developing a draft of the legal text for the transition deal.~~exit will be ongoing. We continue to monitor Brexit closely. Any impact from Brexit on us will depend, in part, on the longer-term outcome of tariff, trade, regulatory and other negotiations. Although it is unknown what the result of those negotiations will be, it is possible that new terms may adversely affect our operations and financial results. While we evaluate our own risks and uncertainty related to Brexit, we will continue to partner with our clients to help them navigate the fluctuating international markets.

MiFID II
In the European Union, the new version of the Markets in Financial Instruments Directive, also known as ~~"MiFID II"~~“MiFID II”, became effective in January 2018. The main purpose of this initiative was to ensure fairer, safe and more efficient markets and facilitate greater transparency for all participants. The Research workflow is one area where both buy-side and sell-side clients have seen and will continue to see significant change requirements as a result ~~of the~~ MiFID II inducement rules. The goal of the new legislative framework is to strengthen investor protection and improve the functioning of financial markets, making them more efficient, resilient and transparent. New reporting requirements and tests will increase the amount of information available and reduce the use of dark pools and OTC trading. MiFID II requirements have meant pricing models and business practices have had to adapt significantly. We will continue to evaluate our own risks and uncertainty related to MiFID II and partner with our clients to help them navigate these new rules. However, recently we have noticed a substantial interest in our ~~research unbundling solutions,~~Research workflow, which is part of the opportunity for us, but more importantly, allows our clients to leverage our technology solutions for MiFID II compliance.

Forward-Looking Factors

Forward-Looking Statements

In addition to current and historical information, this Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements ~~regarding future events and our future results that are~~ based on management’s current expectations, estimates, forecast and projections about ~~the~~ industries in which we operate and the beliefs and assumptions of ~~our~~ management. All statements ~~other than statements of historical facts, are statements~~ that ~~could be deemed to be forward-looking statements. These include~~address expectations, guidance, outlook or projections about the future, including statements about our strategy for growth, product development, revenue, future financial results, anticipated growth, market position, subscriptions, ~~and~~ expected expenditures, trends in our business and financial ~~results.~~results, are forward-looking statements. Forward-looking statements may be identified by words like “expects,” “believes”, “anticipates,” “plans,” “intends,” “estimates”, “projects,” “should,” “indicates,” “continues,” ~~“ASV,” “subscriptions,” “believes,” “estimates,”~~ “may” and similar expressions. ~~In addition, any~~These statements ~~that refer to projections of our future financial performance, our anticipated growth, trends in our business and other characterizations of future events or circumstances~~ are ~~forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and~~ not guarantees of future performance and involve a number of risks, uncertainties and assumptions. ~~Therefore, actual~~Many factors, including those discussed more fully elsewhere in this Quarterly Report on Form 10-Q or in any of our other filings with the Securities and Exchange Commission, could cause results ~~may~~to differ materially from ~~what is expressed or forecasted in such forward-looking statements. We will publicly update forward-looking statements~~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 ~~information~~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 ~~events in accordance with applicable Securities and Exchange Commission regulations.~~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 ~~below.~~in this MD&A above and those listed in Part 1 Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended August 31, 2018. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this Quarterly Report to reflect actual results or future events or circumstances.

Business Outlook

~~Starting with our first quarter of fiscal 2018, we provided annual guidance and discontinued quarterly guidance.~~ The following forward-looking statements reflect our expectations as of ~~June~~March 26, ~~2018.~~2019. Given the number of risk factors, uncertainties and assumptions discussed ~~below,~~in Part 1 Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended August 31, 2018, 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 ~~2018 Expectations:~~2019 Expectations:

We are confirming our guidance, provided in the first quarter of fiscal ~~2018,~~2019, for the following metrics:
-
Organic ASV plus professional services is expected to increase in the range of $75.0 million and $90.0 million over fiscal 2018.
-
GAAP Revenues are expected to be in the range of $1.41 billion and $1.45 billion.
-
GAAP operating margin is expected to be in the range of 29.0% and 30.0%.
-
Adjusted operating margin is expected to be in the range of 31.5% and 32.5%.
We are updating our guidance, provided in the first quarter of fiscal 2019, for the following metrics:

-
~~Organic ASV~~Our annual effective tax rate is ~~expected to increase in the range of $65 million and $85 million implying a growth rate in the range of 4.9% to 6.5% compared with fiscal 2017.~~
-
~~GAAP Revenues are~~now expected to be in the range of ~~$1.34 billion~~17% and ~~$1.36 billion.~~
-
~~Adjusted operating margin is expected to be in the range of 31.0% and 32.5%.~~
~~We are~~ ~~updating~~ ~~our~~ ~~guidance, provided in the first quarter of fiscal 2018, for the following metrics:~~
-
~~GAAP operating margin is expected to be in the range of 27.5% and 29.0%.~~
-
~~Our annual effective tax rate is expected to be in the range of 18.0% and 19.5%~~18%, primarily as a result of the TCJA. This range excludes the one-time deemed repatriation tax on historical unrepatriated foreign earnings, amongst other provisions related to the TCJA. Our fiscal year end is August 31, resulting in a blended federal statutory tax rate for the full 2018 fiscal year.

-
GAAP diluted EPS is now expected to be in the range of ~~$6.92~~$8.70 and ~~$7.17.~~$8.85. Adjusted diluted EPS is now expected to be in the range of ~~$8.37~~$9.50 and ~~$8.62.~~$9.65. The midpoint of this guidance represents a 12% growth over the prior year.

Both GAAP operating margin and GAAP diluted EPS guidance do not include ~~the~~certain effects of any non-recurring benefits or charges that may arise in ~~the fourth quarter of~~ fiscal ~~2018.~~2019.

Business Developments

Planned Departure of ~~Chief Financial~~Senior Vice President, Principal Accounting Officerand Appointment of Interim Senior Vice President, Principal Accounting Officer

On ~~May~~February 8, ~~2018,~~2019, we ~~entered into a separation of employment and general release agreement with Maurizio Nicolelli (the “Separation Agreement”), pursuant to which Mr. Nicolelli will remain in his current position~~announced that Matthew J. McNulty, the Company’s Senior Vice President, Principal Accounting Officer, resigned from the Company. Brian G. Daly was appointed as ~~our Chief Financial~~Interim Senior Vice President, Principal Accounting Officer, ~~(“CFO”) until his successor is appointed, participate in an orderly transition of duties to the new CFO and remain until his~~ effective ~~termination date of December 31, 2018. A copy of the Separation Agreement is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q.~~
~~Planned Departure of Chief Human Resources Officer~~
On July 5, 2018, we entered into a separation of employment and general release agreement with Edward Baker-Greene (the “Agreement”), pursuant to which Mr. Baker-Greene will remain in his current position as our Chief Human Resources Officer (“CHRO”) until his successor is appointed, participate in an orderly transition of duties to the new CHRO and remain until his effective termination date of November 30, 2018. A copy of the Agreement is filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q.February 8, 2019.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, we are exposed to foreign currency exchange ~~risk and interest rate~~ 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~~revenue and expenses. Over the next 12 months, our non-U.S. dollar denominated revenues expected to be recognized are estimated to be ~~$99.5~~$90.5 million while our non-U.S. dollar denominated expenses are estimated to be ~~$323.6~~$324.6 million, which translates into a net foreign currency exposure of ~~$224.1~~$234.1 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 ~~May 31, 2018,~~February 28, 2019, we maintained the following foreign currency forward contracts ~~on the Indian Rupee~~ to hedge ~~approximately 75% of~~ our ~~exposures through the third quarter of fiscal 2019 and 50%~~exposures:
●
Philippine Peso – foreign currency forward contracts to hedge approximately 75% of our Philippine Peso exposure from the fourth quarter of fiscal 2019 through the end of the second quarter of fiscal 2020. We also maintained foreign currency forward contracts on the Philippine Peso to hedge approximately 75% of our exposures through the fourth quarter of fiscal 2020.
●
Indian Rupee – foreign currency forward contracts to hedge approximately 75% of our Indian Rupee exposure through the third quarter of fiscal 2019, 50% of our exposure from the fourth quarter of fiscal 2019 through the end of the second quarter of fiscal 2020, and 25% of our exposure from the third quarter of fiscal 2020 through the end of the fourth quarter of fiscal 2020.
●
Euro – foreign currency forward contracts to hedge approximately 78% of our Euro exposure through the third quarter of fiscal 2019.
●
British Pound Sterling – foreign currency forward contracts to hedge approximately 50% of our British Pound Sterling exposure through the third quarter of fiscal 2019.
As of February 28, 2019, the gross notional value of foreign currency forward contracts to purchase Philippine Pesos with U.S. dollars was PHP 2.1 billion. The gross notional value of foreign currency forward contracts to purchase Indian Rupees with U.S. dollars was Rs. ~~3.7~~2.5 billion. The gross notional value of foreign currency forward contracts to purchase ~~Philippine Pesos with~~ U.S. dollars with Euros was ~~Php 3.1 billion.~~ € 25.7 million. The gross notional value of foreign currency forward contracts to purchase U.S. dollars with British Pound Sterling was £ 4.9 million.

A ~~gain~~loss on derivatives of ~~$1.0~~$0.4 million was recorded into operating income ~~during~~for the ~~third quarter~~three months ended February 28, 2019, compared to a gain on derivatives of ~~fiscal 2018, compared to~~$0.8 million in the same period a year ago. For the six months ended February 28, 2019, a loss on derivatives of ~~$0.4 million in the year ago third quarter. During the first nine months of fiscal 2018, a gain on derivatives of $2.6~~$0.8 million was recorded into operating income, compared to a ~~loss~~gain on derivatives of ~~$2.8~~$1.6 million ain the prior year ~~ago.~~period. 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 ~~May 31, 2018.~~February 28, 2019. If the U.S. dollar had been 10% weaker, the fair value of outstanding foreign currency forward contracts would have increased by ~~$10.4~~$10.6 million, which would have had an immaterial impact on our ~~Consolidated Balance Sheet.~~consolidated balance sheet. Such a change in fair value of our financial instruments would be substantially offset by changes in our expense base. Had we not had any hedges in place as of ~~May 31, 2018,~~February 28, 2019, a hypothetical 10% weaker U.S. dollar against all foreign currencies from the quoted foreign currency exchange rates at ~~May 31, 2018,~~February 28, 2019, would ~~result~~have resulted in a decrease in operating income by ~~$21.4~~$14.5 million over the next 12 months. A hypothetical 10% weaker U.S. dollar against all foreign currencies at ~~May 31, 2018~~February 28, 2019 would ~~increase~~have increased the fair value of total assets by ~~$65.3~~$63.7 million and equity by ~~$59.3~~$57.2 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 on will depend on, in part, on the outcome of tariff, ~~trade,~~ regulatory and other negotiations.

Interest Rate Risk

Cash and Cash Equivalents -
The fair market value of our cash and cash equivalents and investments at ~~May 31, 2018~~February 28, 2019 was ~~$243.5~~$245.4 million. Our ~~cash~~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 deposit as both are part of ~~the Company’s~~our investment strategy. These mutual funds and certificates of deposit are included as Investments~~Investments~~ (short-term) on our ~~Consolidated Balance Sheets~~consolidated balance sheet as the mutual funds can be liquidated at our discretion and the certificates of deposit have original maturities greater than three months, but less than one ~~year and the mutual funds can be liquidated at that 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 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. Because 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

~~Debt -~~As of ~~May 31, 2018,~~February 28, 2019, the fair value of our long-term debt was $575.0 million, which approximated its carrying amount and was determined based on quoted market prices for debt with a similar maturity. It is anticipated that the fair market value of our debt will continue to be immaterially affected by fluctuations in interest rates and we do not believe that the value of our debt has been significantly impacted by current market events. 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%. During the three months ended ~~May 31,~~February 28, 2019 and 2018, ~~and 2017,~~ we ~~paid approximately $4.3~~recorded interest expense of $5.1 million and ~~$2.9~~$3.6 million, ~~in interest~~respectively, on our outstanding debt ~~amounts, respectively.~~amounts. During the ~~nine~~six months ended ~~May 31,~~February 28, 2019 and 2018, ~~and 2017,~~ we ~~paid approximately $11.3~~recorded interest expense of $9.9 million and ~~$5.3~~$7.0 million, ~~in interest~~respectively, on our outstanding debt ~~amounts, respectively.~~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.
Technology Risk
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 and security breaches, and other events beyond our reasonable control. We maintain back-up facilities and certain other redundancies for each of our major data centers to minimize the risk that any such event will disrupt those operations. However, a loss of our services involving our significant facilities may materially disrupt our business and may induce our clients to seek alternative data suppliers. Any such, losses or damages we incur could have a material adverse effect on our business. Although we seek to minimize these risks through security measures, controls, back-up data centers and emergency planning, there can be no assurance that such efforts will be successful or effective.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s management, including the principal executive officer and principal financial officer, the Company has evaluated the effectiveness of its 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 period covered by this report. Based on that evaluation, the principal executive officer and principal financial officer have concluded that the Company’s 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 the Company 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 the Company’s management, including its 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 the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company’s ~~third~~second quarter of fiscal ~~2018~~2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth under Note 17, Commitments and Contingencies, contained in the ~~Notes~~notes to the ~~Consolidated Financial Statements~~consolidated financial statements of this Quarterly Report on Form 10-Q is incorporated by reference in answer to this Item.

ITEM 1A. RISK FACTORS

There were no material changes during the first ~~nine~~six months of fiscal ~~2018~~2019 to the risk factors identified in the Company’s fiscal ~~2017~~2018 Annual Report on Form 10-K, with the exception of the cybersecurity risk, additional regulation of data privacy and protection of personal information and ongoing and other probably audits by tax authorities, all of which are further disclosed below.10-K.
~~Cyber threats and Security Vulnerabilities~~
In providing FactSet software-enabled services to customers, the Company relies on information technology infrastructure that is primarily managed internally, along with some reliance placed on third-party service providers. These third-parties are also subject to the risks and there is no guarantee that they will maintain systems and procedures sufficient to protect against system failures and security breaches, including cyber-attacks. FactSet also makes acquisitions periodically and while significant effort is placed on addressing any information technology security issues with respect to the acquired companies, the Company may still inherit such risks when these acquisitions are integrated within FactSet.
Cyber threats are constantly evolving. FactSet could suffer significant damage to its brand and reputation if a cyber-attack or other security incident were to allow unauthorized access to or modification of customers’ or suppliers’ data, other external data, internal data or information technology systems, if the services provided to customers were disrupted, or if products or services are perceived as having security vulnerabilities. The costs FactSet would incur to address and resolve these security incidents would increase the Company’s expenses. These types of security incidents could also lead to lawsuits, regulatory investigations and claims and increased legal liability.
~~Data Privacy and Protection of Personal Information~~
Many jurisdictions in which the Company operates have laws and regulations relating to data privacy and protection of personal information, including the European Union General Data Protection Regulation (“GDPR”) effective May 25, 2018. GDPR requires companies to satisfy new requirements regarding the handling of personal and sensitive data, including its use, protection and certain abilities of persons whose data is stored to correct or delete such about themselves. Failure to comply with GDPR requirements could result in penalties of up to 4% of worldwide revenue. The law in this area continues to develop and the changing nature of privacy laws in the European Union and elsewhere could impact the Company’s processing of personal and sensitive information related to FactSet’s content operations, employees, clients, and vendors.
~~Ongoing and Other Probable Audits by Tax Authorities~~
In the ordinary course of business, FactSet is subject to tax examinations by various governmental tax authorities. The global and diverse nature of the Company’s business means that there could be additional examinations in the future by governmental tax authorities and the resolution of ongoing and other probable audits can impose a future risk to the results of our business.
In the third quarter of fiscal 2018, FactSet received a letter from the Massachusetts Department of Revenue relating to prior tax periods. The letter requested additional sales information in order to determine if a notice of intent to assess should be issued to FactSet. Based upon a preliminary review of their request, the Company believes the state may assess sales tax, and underpayment penalties and interest, on previously recorded sales transactions. FactSet disagrees with the preliminary conclusions reached by the state auditor and intends to dispute vigorously these matters. 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 May 31, 2018. While FactSet believes that it will ultimately prevail, if the Company is presented with a formal assessment and is required to pay it, the amount could have a material impact on the Company’s consolidated financial position, cash flows and results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Items 2(a) and (b) are not applicable as there have been no unregistered sales of equity securities.

(c)
~~(c)~~ Issuer Purchases of Equity Securities (in thousands, except per share data)

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 ~~May 31, 2018:~~February 28, 2019:

Period

Total number of
shares purchased⁽¹⁾

Average price
paid per share

Total number of
shares purchased
as part of publicly
announced plans
or programs⁽²⁾

Maximum
number of shares
(or approximate
dollar value)
that may yet be
purchased under
the plans or
programs (in US$)⁽²⁾

December 2018
65,131 $ 198.44 65,000 $ 168,415
January 2019
150,387 $ 208.42 149,945 $ 137,165
February 2019
7,929 $ 221.13 — $ 137,165
Total
223,447 214,945

Period

Total number
of shares
purchased

Average
price paid per
share

Total number of
shares purchased as
part of publicly
announced plans or
programs

Maximum number of shares
(or approximate dollar value)
that may yet be
purchased under the plans or
programs (in US$)

March 2018*
65,000 $ 200.02 65,000 $ 418,237
April 2018
465,000 $ 196.21 465,000 $ 326,999
May 2018
90,000 $ 196.93 90,000 $ 309,275
Total
620,000 620,000
⁽¹⁾
Includes214,945 shares purchased under the existing stock repurchase program, as well as 8,502shares repurchased from employees to cover their cost of taxes upon vesting of restricted stock.

*On March 26, 2018, FactSet’s Board of Directors approved a $300.0 million expansion to the existing share repurchase program. Including the approved $300.0 million expansion to the program~~, $~~~~309~~.3 ~~million remains authorized for future share repurchases. Repurchases will~~
⁽²⁾
Repurchases may be made from time to time in the open market and privately negotiated transactions,, subject to market conditions. No minimum number of shares to be repurchased has been fixed. There is no timeframe to complete the repurchase program and it is expected that share repurchases will be paid using existing and future cash generated by operations.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

(a)
EXHIBITS
~~(a) EXHIBITS:~~
The information required by this Item is set forth below.

~~EXBHIT NUMBER~~

~~DESCRIPTION~~Incorporated by Reference

~~10.1~~

~~Separation Agreement and General Release of Claims, dated May 8, 2018~~
~~10.2~~Exhibit Number
Exhibit
Description
~~Separation Agreement and General Release of Claims, dated July 5, 2018~~Form
File No.
Exhibit No.
Filing Date
Filed
Herewith
31.1
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.

~~Section 302 Certification of Principal Executive Officer~~X
31.2
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.

~~Section 302 Certification of Principal Financial Officer~~X
32.1
Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~Section 906 Certification of Principal Executive Officer~~X
32.2
Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~Section 906 Certification of Principal Financial Officer~~X
101.INS
XBRL Instance Document
X
101.SCH
XBRL Taxonomy Extension Schema ~~Document~~
X
101.CAL
XBRL Taxonomy Extension Calculation Linkbase ~~Document~~
X
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
X
101.LAB
XBRL Taxonomy Extension Label Linkbase ~~Document~~
X
101.PRE
XBRL Taxonomy Extension Presentation Linkbase ~~Document~~
X

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FACTSET RESEARCH SYSTEMS INC.
(Registrant)

~~Date: July 10, 2018~~ ~~/s/ MAURIZIO NICOLELLI~~
Date: April 9, 2019
~~Maurizio Nicolelli~~
/s/ HELEN L. SHAN
~~Senior~~
Helen L. Shan
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

/s/ ~~MATTHEW J. MCNULTY~~BRIAN G. DALY

~~Matthew J. McNulty~~Brian G. Daly

Senior Vice President, ~~Controller~~Finance

(Principal Accounting Officer)

EXHIBIT INDEX

EXBHIT NUMBER
DESCRIPTION

~~10.1~~
~~Separation Agreement and General Release of Claims, dated May 8, 2018~~
~~10.2~~
~~Separation Agreement and General Release of Claims, dated July 5, 2018~~
31.1
~~Section 302~~ Certification of ~~Principal~~the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.2
~~Section 302~~ Certification of ~~Principal~~the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
32.1
Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 ~~Certification~~ of ~~Principal Executive Officer~~the Sarbanes-Oxley Act of 2002.
32.2
Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 ~~Certification~~ of ~~Principal Financial Officer~~the Sarbanes-Oxley Act of 2002
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document

4951

(in thousands)	Gross Notional Value				Fair Value
Currency Hedged (in U.S. dollars)	May 31, 2018		August 31, 2017		May 31, 2018			August 31, 2017
Indian Rupee	$	51,175	$	51,000	$	1,470		$	6,142
Philippine Peso		59,000		—		(886	)		—
Total	$	110,175	$	51,000	$	584		$	6,142

	Gross Notional Value				Fair Value (Liability) Asset
Currency Hedged (in thousands, in U.S. dollars)	February 28, 2019		August 31, 2018		February 28, 2019			August 31, 2018
Philippine Peso	$	39,000	$	52,000	$	680		$	(1,230	)
Indian Rupee		35,580		50,780		(1,506	)		(1,490	)
Euro		29,977		26,312		(622	)		(503	)
British Pound Sterling		6,682		18,995		(165	)		(723	)
Total	$	111,239	$	148,087	$	(1,613	)	$	(3,946	)

	May 31, 2018						May 31, 2017
(in thousands)	Pre-tax			Net of tax			Pre-tax		Net of tax
Foreign currency translation adjustments	$	(20,126	)	$	(20,126	)	$	21,316	$	21,316
Realized (gain) loss on cash flow hedges reclassified to earnings ⁽¹⁾		(1,041	)		(736	)		403		247
Unrealized (loss) gain on cash flow hedges recognized in AOCL		(2,296	)		(1,625	)		3,467		2,138
Other comprehensive income (loss)	$	(23,463	)	$	(22,487	)	$	25,186	$	23,701

	February 28, 2019				February 28, 2018
(in thousands)	Pre-tax		Net of tax		Pre-tax			Net of tax
Foreign currency translation adjustments	$	5,026	$	5,026	$	9,400		$	9,400
Net unrealized gain (loss) on cash flow hedges recognized in AOCL		706		527		(2,170	)		(1,268	)
Other comprehensive income	$	5,732	$	5,553	$	7,230		$	8,132

For the three months ended May 31, 2017	U.S.		Europe		Asia Pacific		Total
Revenues from clients	$	197,834	$	87,327	$	26,959	$	312,120
Segment operating profit		34,382		37,766		15,494		87,642
Total assets		708,440		555,366		94,208		1,358,014
Capital expenditures		6,211		515		1,210		7,936

For the nine months ended May 31, 2018	U.S.		Europe		Asia Pacific		Total
Revenues from clients	$	627,976	$	286,789	$	89,518	$	1,004,283
Segment operating profit		117,285		107,344		53,219		277,848
Capital expenditures		10,104		2,816		5,455		18,375

(in thousands) For the six months ended February 28, 2019	U.S.		Europe		Asia Pacific		Total
Revenue from clients	$	445,518	$	196,698	$	64,319	$	706,535
Segment operating income	$	89,537	$	82,337	$	37,353	$	209,227
Capital expenditures	$	11,358	$	1,697	$	8,427	$	21,482

For the nine months ended May 31, 2017	U.S.		Europe		Asia Pacific		Total
Revenues from clients	$	580,090	$	235,464	$	78,983	$	894,537
Segment operating profit		110,574		114,282		44,851		269,707
Capital expenditures		21,311		1,176		3,494		25,981

(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

(in thousands, except per share data)	Net Income (Numerator)		Weighted Average Common Shares (Denominator)		Per Share Amount
For the three months ended May 31, 2018
Basic EPS
Income available to common stockholders	$	74,746		38,594	$	1.94
Diluted EPS
Dilutive effect of stock options and restricted stock				510
Income available to common stockholders plus assumed conversions	$	74,746		39,104	$	1.91
For the three months ended May 31, 2017
Basic EPS
Income available to common stockholders	$	65,414		39,317	$	1.66
Diluted EPS
Dilutive effect of stock options and restricted stock				140
Income available to common stockholders plus assumed conversions	$	65,414		39,457	$	1.66
For the nine months ended May 31, 2018
Basic EPS
Income available to common stockholders	$	198,262		38,890	$	5.10
Diluted EPS
Dilutive effect of stock options and restricted stock				653
Income available to common stockholders plus assumed conversions	$	198,262		39,543	$	5.01
For the nine months ended May 31, 2017
Basic EPS
Income available to common stockholders	$	198,707		39,528	$	5.03
Diluted EPS
Dilutive effect of stock options and restricted stock				208
Income available to common stockholders plus assumed conversions	$	198,707		39,736	$	5.00

Declaration Date	Dividends Per Share of Common Stock		Type	Record Date	Total $ Amount (in thousands)		Payment Date
May 7, 2018	$	0.64	Regular (cash)	May 31, 2018	$	24,566	June 19, 2018
February 7, 2018	$	0.56	Regular (cash)	February 28, 2018	$	21,799	March 20, 2018
November 8, 2017	$	0.56	Regular (cash)	November 30, 2017	$	21,902	December 19, 2017
August 10, 2017	$	0.56	Regular (cash)	August 31, 2017	$	21,853	September 19, 2017
May 5, 2017	$	0.56	Regular (cash)	May 31, 2017	$	21,951	June 20, 2017
February 6, 2017	$	0.50	Regular (cash)	February 28, 2017	$	19,709	March 21, 2017
November 10, 2016	$	0.50	Regular (cash)	November 30, 2016	$	19,852	December 20, 2016
August 5, 2016	$	0.50	Regular (cash)	August 31, 2016	$	20,019	September 20, 2016

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

Fiscal 2018
First Quarter	$	0.56	November 30, 2017	$	21,901	December 19, 2017
Second Quarter	$	0.56	February 28, 2018	$	21,799	March 20, 2018

(in thousands, except exercise price per share)	Number Outstanding			Weighted Average Exercise Price Per Share
Balance at August 31, 2017		3,366		$	139.29
Granted – non performance-based		554		$	189.98
Exercised		(226	)	$	104.90
Forfeited		(25	)	$	133.89
Balance at November 30, 2017		3,669		$	149.09
Granted – non performance-based		16		$	192.11
Granted – non-employee Directors grant		19		$	197.75
Exercised		(220	)	$	118.75
Forfeited		(82	)	$	164.59
Balance at February 28, 2018		3,402		$	151.15
Exercised		(61	)	$	113.39
Forfeited		(62	)	$	154.41
Balance at May 31, 2018		3,279		$	151.79

(in thousands, except per share data)	Number of Stock Options Outstanding			Weighted Average Exercise Price Per Share
Balance at August 31, 2018		3,143		$	153.05
Granted – non-performance-based		455			221.93
Exercised		(117	)		132.81
Forfeited		(24	)		169.47
Balance at November 30, 2018		3,457		$	162.68
Granted – non-performance-based		6			207.84
Granted – non-employee Directors’ grant		21			207.88
Exercised		(207	)		136.30
Forfeited		(61	)		152.19
Balance at February 28, 2019		3,216		$	164.42

(in thousands)	Share-based Awards Available for Grant under the Employee Option Plan			Share-based Awards Available for Grant under the Non-Employee Directors Plan
Balance at August 31, 2017		897			42
Granted – nonperformance-based options		(554	)		—
Granted – restricted stock awards⁽¹⁾		(2	)		—
Share-based awards canceled/forfeited⁽²⁾		51			—
Balance at November 30, 2017		392			42
Increase in the number of shares available for issuance⁽³⁾⁽⁴⁾		5,750			250
Granted – non performance-based options		(16	)		(19	)
Share-based awards canceled/forfeited⁽²⁾		89			—
Balance at February 28, 2018		6,215			273
Share-based awards canceled/forfeited⁽²⁾		64			—
Balance at May 31, 2018		6,279			273

(in thousands)
Unrecognized income tax benefits at August 31, 2017	$	11,484
Additions based on tax positions related to the current year		2,458
Additions for tax positions of prior years		410
Statute of limitations lapse		(3,146	)
Reductions from settlements with taxing authorities		(2,600	)
Unrecognized income tax benefits May 31, 2018	$	8,606

(in thousands)
Unrecognized income tax benefits at August 31, 2018	$	9,223
Additions based on tax positions related to the current year		1,493
Additions for tax positions of prior years		270
Unrecognized income tax benefits at February 28, 2019	$	10,986

Major Tax Jurisdictions	Open Tax Years
U.S.
Federal		2015	through	2018
State (various)		2015	through	2018
Europe
France		2015	through	2018
United Kingdom		2016	through	2018
Germany		2017	through	2018

	As of February 28,
(in millions, except client and user counts)	2019			2018			Change
As reported ASV	$	1,420.7		$	1,348.8
Currency impact to ASV		(1.2	)		(8.7	)
Organic ASV⁽¹⁾	$	1,419.5		$	1,340.1			5.9	%
Professional services fees		21.9			19.0
Organic ASV + Professional services	$	1,441.4		$	1,359.1			6.0	%

Period	Total number of shares purchased⁽¹⁾		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs⁽²⁾		Maximum number of shares (or approximate dollar value) that may yet be purchased under the plans or programs (in US$)⁽²⁾
December 2018		65,131	$	198.44		65,000	$	168,415
January 2019		150,387	$	208.42		149,945	$	137,165
February 2019		7,929	$	221.13		—	$	137,165
Total		223,447				214,945

Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Maximum number of shares (or approximate dollar value) that may yet be purchased under the plans or programs (in US$)

March 2018*		65,000	$	200.02		65,000	$	418,237
April 2018		465,000	$	196.21		465,000	$	326,999
May 2018		90,000	$	196.93		90,000	$	309,275
Total		620,000				620,000

~~EXBHIT NUMBER~~		~~DESCRIPTION~~Incorporated by Reference

~~10.1~~		~~Separation Agreement and General Release of Claims, dated May 8, 2018~~
~~10.2~~Exhibit Number	Exhibit Description	~~Separation Agreement and General Release of Claims, dated July 5, 2018~~Form	File No.	Exhibit No.	Filing Date	Filed Herewith
31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.					~~Section 302 Certification of Principal Executive Officer~~X
31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.					~~Section 302 Certification of Principal Financial Officer~~X
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					~~Section 906 Certification of Principal Executive Officer~~X
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					~~Section 906 Certification of Principal Financial Officer~~X
101.INS		XBRL Instance Document					X
101.SCH		XBRL Taxonomy Extension Schema ~~Document~~					X
101.CAL		XBRL Taxonomy Extension Calculation Linkbase ~~Document~~					X
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document					X
101.LAB		XBRL Taxonomy Extension Label Linkbase ~~Document~~					X
101.PRE		XBRL Taxonomy Extension Presentation Linkbase ~~Document~~					X

	FACTSET RESEARCH SYSTEMS INC.
	(Registrant)

~~Date: July 10, 2018~~	~~/s/ MAURIZIO NICOLELLI~~
Date: April 9, 2019	~~Maurizio Nicolelli~~ /s/ HELEN L. SHAN
	~~Senior~~ Helen L. Shan
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

	/s/ ~~MATTHEW J. MCNULTY~~BRIAN G. DALY
	~~Matthew J. McNulty~~Brian G. Daly
	Senior Vice President, ~~Controller~~Finance
	(Principal Accounting Officer)

EXHIBIT INDEX

EXBHIT NUMBER		DESCRIPTION

~~10.1~~		~~Separation Agreement and General Release of Claims, dated May 8, 2018~~
~~10.2~~		~~Separation Agreement and General Release of Claims, dated July 5, 2018~~
31.1		~~Section 302~~ Certification of ~~Principal~~the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.2		~~Section 302~~ Certification of ~~Principal~~the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 ~~Certification~~ of ~~Principal Executive Officer~~the Sarbanes-Oxley Act of 2002.
32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 ~~Certification~~ of ~~Principal Financial Officer~~the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document