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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8. Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. For a similar detailed discussion comparing fiscal 2019 and 2018, refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations within the Company's Annual Report on Form 10-K for the year ended August 31, 2019. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause such differences include, but are not limited to, those identified below and those discussed in Item 1A. Risk Factors of this Annual Report on Form 10-K.

Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") 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 and Capital Resources

•Off-Balance Sheet Arrangements

•Foreign Currency

•Critical Accounting Policies and Estimates

•New Accounting Pronouncements

Executive Overview

FactSet is a global provider of integrated financial information, analytical applications and industry-leading services for the investment and corporate communities. For over 40 years, global financial professionals have utilized our content and multi-asset class solutions across each stage of the investment process. Our goal is to provide a seamless user experience spanning idea generation, research, portfolio construction and analysis, trade execution, performance measurement, risk management, and reporting, in which we serve the front, middle, and back offices to drive productivity and improved performance. Our flexible, open data and technology solutions can be implemented both across the investment portfolio lifecycle or as standalone components serving different workflows in the organization. We are focused on growing our business through three segments: the Americas, EMEA and Asia Pacific. Within each of our segments, we primarily deliver insight and information through our four workflow solutions of Research, Analytics and Trading, CTS and Wealth.

We currently serve a wide range of financial professionals, which include but are not limited to, portfolio managers, investment research professionals, investment bankers, risk and performance analysts, wealth advisors, and corporate clients. We provide both insights on global market trends and intelligence on companies and industries, as well as capabilities to monitor portfolio risk and performance and execute trades. We combine dedicated client service with open and flexible technology offerings, such as a configurable desktop and mobile platform, comprehensive data feeds, an open marketplace, digital portals and APIs. Our revenue is primarily derived from subscriptions to products and services such as workstations, portfolio analytics, enterprise data, and research management.

Business Strategy

Current technology trends are leading to a greater demand to deliver a fully digital and integrated client experience. To take advantage of these developments we have focused our innovations and strategic investments in cloud computing, data lakes, APIs and our hosted proprietary data and analytics platform to provide real-time, predictive business intelligence for a seamless client experience. We continue to expand our broad financial content to provide support for our clients' most sophisticated investment strategies including enhanced data in private markets, industry specific deep sector and ESG. As a premier financial solutions provider for the global financial community, we provide workflow solutions and leading analytical applications, powered by cognitive capabilities and robust technology, across the investment portfolio lifecycle. We bring the front, middle and back offices together to drive productivity and performance at every step of the investment process using our open and scalable solutions. Our strategy is focused on growing our business in each of our three segments: the Americas, EMEA, and

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Asia Pacific. We believe this geographical strategic alignment helps us better manage our resources. To execute on our business strategy of broad-based growth across each geographical segment, we continue to look at ways to create value for our clients by offering data, products and analytical applications within our four workflow solutions of Research, Analytics and Trading, CTS and Wealth.

Fiscal 2020 Year in Review

Revenue for the fiscal year 2020 was $1.49 billion, an increase of 4.1% from the prior year. This increase was due to growth across all our operating segments, primarily in the Americas, followed by EMEA and Asia Pacific, supported by increased revenue from each of our workflow solutions, mainly in Analytics and Trading, followed by CTS and Wealth. Revenue also increased due to the benefit from our annual price increase. The revenue growth of 4.1% was fully attributed to organic revenue growth, which excludes the effects of acquisitions and dispositions completed in the last 12 months, changes in foreign currency rates in all periods presented and the deferred revenue fair value adjustments from purchase accounting (Refer to Results of Operations, Non-GAAP Financial Measures in this MD&A for further discussion on organic revenue). As of August 31, 2020, organic annual subscription value ("organic ASV") plus professional services totaled $1.56 billion, an increase of 5.3% over the prior year.

Operating income increased by 0.4% and diluted earnings per share ("EPS") increased 6.3% compared to the prior year. This increase in operating income and EPS was primarily driven by revenue growth of 4.1%, a decrease in non-compensatory employee related expenses and a reduction in bad debt expense. This increase was partially offset by higher spend in employee compensation, including stock-based compensation, increased computer-related expenses, the impairment of an investment and increased professional fees on a year-over-year basis. Additionally, EPS benefited from a reduction in the income tax provision, interest expense and diluted weighted average shares outstanding, compared to the prior year period.

Our clients and users reached new highs of 5,875 and 133,051, respectively, in fiscal 2020. Over the last 12 months, we returned $310.1 million to stockholders in the form of share repurchases and dividends.

As of August 31, 2020, our employee count was 10,484, up 8.3% in the past 12 months, due primarily to an increase in net new employees of 9.8% in Asia Pacific, 6.4% in EMEA, and 5.4% in the Americas. Of our total employees, as of August 31, 2020, 6,643 were located in Asia Pacific, 2,477 were located in the Americas and 1,364 were located in EMEA. Our centers of excellence, located in India and the Philippines, primarily focus on content collection that benefit all our segments.

FactSet garnered many awards in 2020, with honors covering every aspect of the Company's business. Highlights include: Buy-Side Market Risk Management Product of the Year from the Risk.net Markets Technology Awards; Best EMS from the Markets Media Markets Choice Awards; Best Client Reporting Solution from the FTF News Technology Innovation Awards; Best Technology Provider, Client Portals, from the Wealthmanagement.com Awards; and various awards including Best Data Provider to the Buy-Side, Best Data Provider to the Sell-Side, and Best Buy-Side Data Analytics Tool organized by Waters Technology.

Client Service / Customer Success

An important part of our comprehensive value to clients is our Customer Success team, a versatile group of business-people with knowledge of financial markets and FactSet's solutions. Customer Success Managers work closely with our clients, advising them on how FactSet's solutions can best be leveraged to enhance efficiency across workflows. Additionally, our information and analytical applications are supported by a team of financial data and modeling experts, who take a consultative approach to fully understand our clients’ challenges and advise them on how FactSet solutions can best be tailored and leveraged to meet each client's unique objectives and strategies.

A client-centric approach is foundational to the Company's ongoing achievements. Client satisfaction is therefore critical to how we measure the success our success. According to our global client satisfaction survey, greater than 93% of respondents were satisfied or very satisfied with FactSet’s support. We believe that these strong relationships help ensure continued high rates of retention and account expansion.

COVID-19 Update

A novel strain of coronavirus, now known as COVID-19 ("COVID-19"), was first reported in December 2019, and it has since extensively impacted the global health and economic environment, with the World Health Organization characterizing COVID-19 as a pandemic on March 11, 2020. The COVID-19 virus has spread to nearly all regions in the world, creating significant uncertainties and disruption in the global economy.

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We closely monitor pandemic-related developments, and our highest priority is the health and safety of our employees, clients, vendors and stakeholders. We have taken, and continue to take, numerous steps to address the COVID-19 pandemic. We have implemented a business continuity plan with a dedicated incident management team to respond quickly and effectively to changes in our environment to continue offering our clients uninterrupted products, services and support while also protecting our employees. We will continue to coordinate our COVID-19 response based on guidance from global health organizations, relevant governments and pandemic response best practices.

We have required the vast majority of our employees at our offices across the globe (including our corporate headquarters) to work remotely on a temporary basis and have implemented global travel restrictions for our employees. Nearly all our employees are currently working remotely. We believe our transition to remote working has been successful and has not significantly affected our financial results for the fiscal year ended August 31, 2020.

We are planning to re-open many of our offices during fiscal 2021, utilizing a three-phased approach to provide flexibility for employees with a focus on social distancing and safety. Our offices will not re-open until local authorities permit us to do so and our own criteria and conditions to ensure employee health and safety are satisfied. There can be no assurances as to when we re-open our offices or that there will be no negative impacts arising from the return to the office environment.

As of August 31, 2020, there have been minimal interruptions in our ability to provide our products, services and support to our clients. Working remotely has had relatively little impact on the productivity of our employees, including our ability to gather content. We continue to work closely with our clients to provide consistent access to our products and services and have remained flexible to achieve client priorities as many implement their own contingency plans. We have increased our support desk resources to manage increased volumes and have extended additional web IDs to our clients in need of immediate remote access to financial data.

We have not observed any significant client loss, deterioration in the collectability of receivables, reduction in liquidity, or decline in subscription renewal rates as a result of the COVID-19 pandemic. Our revenue, earnings, and ASV are relatively stable and predictable as a result of our subscription-based business model. To date, we have not seen the COVID-19 pandemic having a material impact on our revenue or ASV, although we anticipate that there may be some level of revenue and ASV weakness going forward due to longer sales cycles and lower incremental client billings. The COVID-19 pandemic could curtail our clients’ spending and lead them to delay or defer purchasing decisions or product and service implementations or may cause them to cancel or reduce their spending with us. In determining the possible revenue and ASV impact from the COVID-19 pandemic, we consider the potential delay in decision making causing longer sales cycles (or conversely delayed cancellations from clients); implementation risk due to restrictions on being able to work onsite at our clients' facilities; and possible reduced seasonal hiring at investment banks, which are some of our largest clients, over the summer months.

We have incurred, and expect to continue to incur, additional expenses in response to the COVID-19 pandemic, including costs to enable our employees to support our clients while working remotely. These additional expenses were not material to our fiscal 2020 results, and reductions in discretionary spending, particularly travel and entertainment, have more than offset these increased expenses. We believe that implementing additional cost reduction efforts will help us mitigate the impact that any reduced revenues may have on our future operating income. We may consider reducing expenses further through such methods as reduction of discretionary spending, including travel and entertainment; tighter management of headcount spending; and reduction in variable third-party content costs in a manner consistent with client demand.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was signed into law to address the economic impact of the COVID-19 pandemic. We continue to monitor any effects that may result from the CARES Act and other similar legislation or actions in geographies in which our business operates.

Refer to Item 1A. Risk Factors of this Annual Report on Form 10-K for further discussion of the potential impact of the COVID-19 pandemic on our business.

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Key Metrics

The table below provides a reconciliation of ASV to organic ASV:

As of August 31,

Currency impact to ASV (4.7) —

(1)ASV at any given point in time represents the forward-looking revenue for the next 12 months from all subscription services currently being supplied to clients and excludes professional service fees, which are not subscription-based.

Organic ASV Growth

As of August 31, 2020, our organic ASV totaled $1.53 billion, up 5.2% over the prior year comparable period. With proper notice provided to us, our clients can add to, delete portions of, or terminate service, subject to certain contractual limitations.

The increase in year-over-year organic ASV was due to growth across all of our geographic segments from increased sales of products and solutions to new and existing clients. The majority of the organic ASV increase related to increased sales in the Americas, followed by increased sales in EMEA and Asia Pacific, as well as the benefit from our annual price increase, partially offset by cancellations. The increase in organic ASV was due to growth in all our workflow solutions, driven mainly by an increase in Analytics and Trading, followed by CTS and Wealth. The organic ASV increase in Analytics and Trading was mainly due to increased sales for our risk management and portfolio reporting solutions. The increase in organic ASV from CTS was primarily driven by increased sales in premium and core data feeds, while the organic ASV increase in Wealth was mainly due to increased traditional and web-based workstation sales.

As of August 31, 2020, organic ASV plus professional services was $1.56 billion, an increase of 5.3% compared to the prior year period. The professional service fees were $25.0 million and $22.9 million as of August 31, 2020 and 2019, respectively.

Segment ASV

As of August 31, 2020, ASV from the Americas was $956.6 million, an increase of 5.2% from the prior year period. This increase was primarily due to increased sales from Analytics and Trading and CTS, as well as the benefit from our annual price increase, partially offset by cancellations.

ASV from EMEA was $426.0 million as of August 31, 2020, an increase of 5.7% compared to the prior year period. The ASV increase in EMEA was primarily driven by Analytics and Trading and CTS and the benefit from our annual price increase, partially offset by cancellations.

Asia Pacific ASV was $156.5 million as of August 31, 2020, an increase of 7.6% compared to the prior year period. ASV increased in Asia Pacific mainly due to Analytics and Trading and CTS, as well as the benefit from our annual price increase, partially offset by cancellations.

Combined EMEA and Asia Pacific ASV represented 37.8% of total ASV as of August 31, 2020, up from 37.6% in the prior year period.

Buy-side and Sell-side ASV Growth

Buy-side and sell-side ASV growth rates for the last 12 months were 5.4% and 4.6%, respectively. Buy-side clients account for approximately 84% of organic ASV, and primarily include portfolio managers, analysts, traders, wealth managers, performance teams and risk and compliance teams at a variety of firms, such as traditional asset managers, wealth advisors, corporations, hedge funds, insurance companies, plan sponsors and fund of funds. The remaining portion of our organic ASV is derived from sell-side clients, primarily including investment bankers, private equity and research analysts.

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Client and User Additions

As of and for theYear Ended August 31,

Our total client count was 5,875 as of August 31, 2020, representing a net increase of 301 or 5.4% in the last 12 months. The net increase was primarily driven by an increase in corporate and wealth management clients, partially offset by institutional asset management clients. As part of our long-term growth strategy, we continue to focus on expanding and cultivating relationships with our existing client base through sales of workstations, applications, services and content.

As of August 31, 2020, there were 133,051 professionals using FactSet, representing a net increase of 6,229 or 4.9% in the last 12 months, primarily driven by wealth management and corporate professionals.

Annual client retention was greater than 95% of ASV for the period ended August 31, 2020 and August 31, 2019. When expressed as a percentage of clients, annual retention increased to approximately 90% for the period ended August 31, 2020, compared to approximately 89% for the period ended August 31, 2019. As of August 31, 2020, our largest individual client accounted for approximately 3% of our total subscriptions, and annual subscriptions from our ten largest clients did not surpass 15% of our total client subscriptions.

Returning Value to Stockholders

On August 14, 2020, our Board of Directors approved a regular quarterly dividend of $0.77 per share. The cash dividend of $29.1 million was paid on September 17, 2020 to common stockholders of record at the close of business on August 31, 2020. We repurchased 0.7 million shares of common stock for $199.6 million during fiscal 2020 under our existing share repurchase program. Over the last 12 months, we returned $310.1 million to stockholders in the form of share repurchases and dividends.

On March 24, 2020, our Board of Directors approved a $220.0 million increase to the existing share repurchase program. As a result of this expansion, $259.0 million is available for future share repurchases as of August 31, 2020.

Capital Expenditures

Capital expenditures as of August 31, 2020 were $77.6 million, compared to $59.4 million a year ago. Capital expenditures of $43.6 million, or 56% of our total capital expenditures, were related to facilities investments, primarily for the build-out of our new corporate headquarters in Norwalk, Connecticut, as well as new office space in India and the Philippines. The remainder of our capital expenditures included $17.0 million of investments in technology primarily in Norwalk, Connecticut, as well as in India and the Philippines and $17.0 million in development costs related to internal-use software.

Results of Operations

For an understanding of the significant factors that influenced our performance during fiscal 2020 and 2019, the following discussion should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8. of this Annual Report on Form 10-K.

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The following table summarizes the results of operations for the periods described:

Years ended August 31,

(in thousands, except per share data) 2020 2019 $ Change % Change

Diluted earnings per common share $ 9.65 $ 9.08 $ 0.57 6.3 %

Diluted weighted average common shares 38,646 38,873

Revenue

Revenue in fiscal 2020 was $1.49 billion, an increase of 4.1% compared to the prior year. The increase in revenue was driven primarily by the Americas, followed by EMEA and Asia Pacific. This increase in segment revenue was supported by increased revenue across all our workflow solutions, most notably by Analytics and Trading, followed by CTS and Wealth, as well as the benefit from our annual price increase and lower cancellations as compared to the prior year. The revenue growth of 4.1% for fiscal 2020 compared to the prior year period was reflective of organic revenue growth of 4.0% and a 10 basis point increase from deferred revenue fair value adjustments from purchase accounting. (Refer to Item 7. Results of Operations, Non-GAAP Financial Measures in the MD&A of this Annual Report on Form 10-K for further discussion on organic revenue).

Revenue by Operating Segment

(in thousands) Years ended August 31,

% of revenue 9.5 % 9.2 %

Revenues from our Americas segment increased 3.9% to $929.4 million in fiscal 2020 compared to $894.6 million in fiscal 2019. This increase was primarily due to increased sales of products and solutions, particularly in Analytics and Trading and CTS, the benefit from our annual price increase for the majority of our Americas segment clients and a reduction in cancellations on a year-over-year basis. The revenue growth of 3.9% is fully attributed to organic revenue growth. Revenues from our Americas operations accounted for 62% of our consolidated revenue during fiscal 2020, which is consistent with the prior year period.

EMEA revenues increased 3.5% to $422.2 million in fiscal 2020 compared to $408.1 million in fiscal 2019. This increase was primarily driven by increased sales of products and solutions, particularly in Analytics and Trading, the benefit from our annual price increase for the majority of our EMEA clients and a reduction in cancellations on a year-over-year basis. The revenue growth of 3.5% for fiscal 2020 compared to the prior year period was reflective of organic revenue growth of 3.2%, a 10 basis point increase from foreign currency exchange rate fluctuations and a 20 basis point increase from deferred revenue fair value adjustments from purchase accounting.

Asia Pacific revenues increased 7.3% to $142.5 million during fiscal 2020, compared with $132.7 million in fiscal 2019. This increase was due mainly to increased sales of products and solutions, primarily in Analytics and Trading, the benefit from our annual price increase for the majority of our Asia Pacific clients and a reduction in cancellations on a year-over-year basis. The revenue growth of 7.3% for fiscal 2020 compared to the prior year period was reflective of organic revenue growth of 7.2% and a 10 basis point increase from foreign currency exchange rate fluctuations.

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Revenue by Workflow Solution

The revenue growth of 4.1% across our operating segments for fiscal 2020 compared to the prior year period was primarily driven by Analytics and Trading, followed by CTS and Wealth, as well as the benefit from our annual price increase and a reduction in cancellations on a year-over-year basis. Revenue growth from Analytics and Trading was primarily due to increased demand for our risk management, portfolio analytics and reporting solutions. The growth in CTS was driven mainly by increased sales of core and premium data feeds. Revenue growth from Wealth was driven mainly by to higher sales of our traditional and web-based workstation product. Offsetting these positive growth factors were cancellations resulting from continued industry-wide cost pressures and firm consolidations.

Operating Expenses

(in thousands) Years ended August 31,

Cost of Services

Cost of services increased 4.8% to $695.4 million in fiscal 2020 compared to $663.4 in fiscal 2019. This increase was primarily due to an increase in computer-related expenses and employee compensation costs, including stock-based compensation.

Cost of services, expressed as a percentage of revenue, was 46.5% during fiscal 2020, an increase of 30 basis points over the prior year period. This cost of service increase was primarily due to higher computer-related expenses, partially offset by a reduction in employee compensation costs and data costs, when expressed as a percentage of revenue. Computer-related expenses increased 150 basis points, primarily driven by increased technology investments, including cloud-based hosting and licensed software arrangements. Employee compensation costs decreased 60 basis points due mainly to higher capitalization of compensation costs related to development of our internal-use software projects, as well as a shift in headcount distribution from higher to lower cost locations. This employee compensation expense decrease was partially offset by higher annual base salaries, a net increase in employee headcount of 803 employees, with the majority of the compensation from new employee headcount included in cost of services, and higher vacation accrual expense. Data costs decreased 40 basis points primarily due to our efforts to control our data cost spend.

Selling, General and Administrative

Selling, general and administrative ("SG&A") expenses increased 7.5% to $359.0 million during fiscal 2020 compared to $333.9 million in fiscal 2019. This increase was primarily due to an impairment on an investment in a company, an increase in employee compensation costs, and professional fees, partially offset by a decrease in non-compensatory employee related expenses and bad debt expense.

SG&A expenses, expressed as a percentage of revenue, were 24.0% in fiscal 2020, an increase of 80 basis points over the prior year period. This SG&A increase was primarily due to an impairment on an investment in a company, an increase in professional fees and higher employee compensation costs, partially offset by a reduction in non-compensatory employee related expenses and bad debt expense. The investment impairment recorded to reflect the estimated fair value of an investment in a company resulted in a 110 basis point increase. Professional fees increased 60 basis points primarily to support our technology plan and business transformation activities. Employee compensation costs increased 40 basis point primarily driven by higher annual base salaries, a net increase in employee headcount, higher variable compensation accrual and higher vacation accrual expense. Non-compensatory employee related expenses, inclusive of travel, entertainment and office expenses,

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decreased 110 basis points, mainly due to restrictions and impacts related to the COVID-19 pandemic, partially offset by increased technology investments to support remote work arrangements. Bad debt expense decreased 70 basis points.

Operating Income and Operating Margin

Operating income increased 0.4% to $439.7 million in fiscal 2020 compared to $438.0 million in fiscal 2019. Operating income increased primarily due to revenue growth, inclusive of our annual price increase, a reduction in non-compensatory employee related expenses and a decrease in bad debt expense, partially offset by an increase in computer-related expenses, an impairment of an investment in a company, employee compensation costs, including stock-based compensation, and professional fees. Operating income was positively impacted by movements in foreign currency exchange rates on a year-over-year basis. Our operating margin decreased in fiscal 2020 to 29.4%, compared to 30.5% for fiscal 2019. Operating margin decreased primarily due to the impact from an investment impairment, higher computer-related expenses and an increase in professional fees, partially offset by a decrease in non-compensatory employee related expenses, a reduction in bad debt expense and lower data costs, when expressed as a percentage of revenue.

Segment Information

Reportable Segments

Our operating segments are aligned with how we manage the business, the geographic markets we serve, and how our CODM, the Company's Chief Executive Officer, assesses performance. Our internal financial reporting structure is based on three reportable segments, the Americas, EMEA and Asia Pacific. Within each of our segments, we primarily deliver insight and information through our four workflow solutions of Research, Analytics and Trading, CTS and Wealth.

Each segment records compensation expense (including stock-based compensation), depreciation of furniture and fixtures, amortization of lease ROU assets, leasehold improvements and intangible assets, as well as communication costs, professional fees, rent expense, travel, office and other direct expenses. Expenditures associated with our data centers, third-party data costs and corporate headquarters charges are recorded by the Americas segment and are not allocated to the other segments. The content collection centers, located in India, the Philippines, and Latvia, benefit all our operating segments, and thus the expenses incurred at these locations are allocated to each segment based on a percentage of revenue. Refer to Note 18, Segment Information in the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for financial information, including revenues, operating income and long-lived assets for each of our segments.

Operating Income by Segment

Years ended August 31,

(in thousands) 2020 2019 $ Change % Change

Americas operating income decreased 5.8% to $168.9 million during fiscal 2020 compared to $179.4 million a year ago. The decrease in Americas operating income was primarily due to an increase in computer-related expenses, an impairment of an investment in a company and higher professional fees, partially offset by revenue growth of 3.9%, inclusive of our annual price increase, a decrease in bad debt expense and a reduction in non-compensatory employee related expenses.

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Computer-related expenses increased primarily due to increased technology investments including cloud-based hosting and licensed software arrangements. An investment impairment was recorded to reflect the estimated fair value of an investment in a company. Professional fees increased primarily to support our technology plan and business transformation activities. Non-compensatory employee related expenses, inclusive of travel, entertainment and office expenses, decreased mainly due to restrictions and impacts related to the COVID-19 pandemic, partially offset by increased technology investments to support remote work arrangements.

EMEA operating income increased 0.3% to $179.8 million during fiscal 2020, compared to $179.3 million a year ago. The increase in EMEA operating income was primarily due to revenue growth of 3.5%, inclusive of our annual price increase, a decrease in bad debt expense and a reduction in non-compensatory employee related expenses, partially offset by an increase in employee compensation costs. Operating income was positively impacted by movements in foreign currency exchange rates on a year-over-year basis. Non-compensatory employee related expenses, inclusive of travel, entertainment and office expenses, decreased, mainly due to restrictions and impacts related to the COVID-19 pandemic, partially offset by investment in technology to allow employees to work from home. Employee compensation increased primarily due to a net increase in employee headcount of 6.4% over the past 12 months, annual base salary increases year-over-year, higher variable compensation accrual and higher vacation accrual expense.

Asia Pacific operating income increased 14.5% to $90.9 million during fiscal 2020, compared to $79.4 million a year ago. The increase in Asia Pacific operating income was mainly due to revenue growth of 7.3%, inclusive of our annual price increase, and a reduction in non-compensatory employee related expenses, partially offset by an increase in employee compensation costs and occupancy costs. Operating income was negatively impacted by movements in foreign currency exchange rates on a year-over-year basis. Non-compensatory employee related expenses, inclusive of travel, entertainment and office expenses, decreased, mainly due to restrictions and impacts related to the COVID-19 pandemic, partially offset by investment in technology to allow employees to work from home. Employee compensation increased mainly due to a 9.8% increase in our Asia Pacific workforce in the last 12 months and annual base salary increases year-over-year. Occupancy costs increased mainly due to an increase in facility costs in the Philippines.

Income Taxes, Net Income and Diluted Earnings per Share

Years ended August 31,

(in thousands) 2020 2019 $ Change % Change

Diluted earnings per common share $ 9.65 $ 9.08 $ 0.57 6.3 %

Income Taxes

The fiscal 2020 provision for income taxes was $54.2 million, compared to $69.2 million in fiscal 2019, a decrease of 21.7%. The decrease was primarily due to a lower effective tax rate in fiscal 2020 compared to the prior year period, driven mainly by higher research and development ("R&D") tax credits and a higher Foreign Derived Intangible Income ("FDII") deduction. The decrease was also driven by a reduction from finalizing prior year tax returns, which resulted in a benefit of $3.7 million in fiscal 2020 compared to an increase to the provision of $7.7 million in fiscal 2019. Additionally, the decrease in the provision was attributed to $1.9 million in higher windfall tax benefits from stock-based compensation for fiscal 2020 compared to fiscal 2019, partially offset by a $3.4 million income tax benefit from the revision of the one-time transition tax permitted by the TCJA recognized during fiscal 2019.

Net Income and Diluted Earnings per Share

Net income increased 5.7% to $372.9 million during fiscal 2020 compared to $352.8 million in fiscal 2019. Diluted earnings per share increased 6.3% to $9.65 in fiscal 2020 compared to $9.08 in fiscal 2019. Net income and diluted EPS increased primarily due to a lower income tax provision, a reduction in interest expense associated with our outstanding debt and higher operating income, partially offset by foreign currency losses. Interest expense decreased compared to the prior year period, primarily due to a reduction in the LIBOR rate. Diluted EPS also benefited from a 0.2 million share reduction in our diluted weighted average shares outstanding, compared to the same period a year ago, mainly due to share repurchases, partially offset by the impact from stock options issued.

Non-GAAP Financial Measures

To supplement the financial measures prepared in accordance with generally accepted accounting principles in the United States ("GAAP"), we use non-GAAP financial measures including organic revenue, adjusted operating margin, adjusted net

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income and adjusted diluted earnings per share. The reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are show in the tables below. These non-GAAP financial measures should not be considered in isolation from, as a substitute for, or superior to, financial measures reported in accordance with GAAP. Moreover, these non-GAAP financial measures have limitations in that they do not reflect all the items associated with the operations of the business as determined in accordance with GAAP. Other companies may calculate similarly titled non-GAAP financial measures differently that we do, limiting the usefulness of those measures for comparative purposes.

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

The table below provides a reconciliation of revenue to organic revenue.

Twelve Months EndedAugust 31,

Deferred revenue fair value adjustment(1) 4,192 5,185

Currency impact (705) —

(1)Deferred revenue fair value adjustments from purchase accounting.

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The table below provides a reconciliation of operating income, operating margin, net income and diluted EPS to adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted EPS.

Twelve Months EndedAugust 31,

(In thousands, except per share data) 2020(1) 2019(2) Change

Deferred revenue fair value adjustment 4,192 5,185

Impairment of investment 16,500 —

Adjusted operating margin 33.6 % 33.2 %

Deferred revenue fair value adjustment(4) 3,385 4,215

Impairment of investment(5) 16,500 —

Diluted earnings per common share $ 9.65 $ 9.08 6.3 %

Intangible asset amortization 0.46 0.52

Deferred revenue fair value adjustment 0.10 0.11

Impairment of investment 0.42 —

Adjusted diluted earnings per common share $ 10.87 $ 10.00 8.7 %

Weighted average common shares (diluted) 38,646 38,873

(1)Operating income, net income and diluted EPS in fiscal 2020 were adjusted to exclude (i) intangible asset amortization, (ii) deferred revenue fair value adjustments from purchase accounting, (iii) an impairment charge to reflect the estimated fair value of an investment in a company, and (iv) professional fees associated with infrastructure upgrades and our ongoing multi-year investment plan and facilities costs.

(2)Operating income, net income and diluted EPS in fiscal 2019 were adjusted to exclude (i) intangible asset amortization, (ii) deferred revenue fair value adjustments from purchase accounting, and (iii) other items including severance, stock-based compensation acceleration, professional fees for infrastructure upgrade activities, a one-time adjustment related to data costs and occupancy costs, partially offset by non-core transaction related revenue. Net income and diluted EPS in fiscal 2019 were also adjusted to exclude amounts primarily related to finalizing prior year tax returns and other discrete items.

(3)The intangible asset amortization was recorded net of a tax impact of $4.5 million in fiscal 2020 compared with $4.7 million for fiscal 2019.

(4)The deferred revenue fair value adjustment was recorded net of a tax impact of $0.8 million in fiscal 2020 compared with $1.0 million for fiscal 2019.

(5)There was no tax impact during fiscal 2020 resulting from the impairment of an investment in a company.

(6)The other items were recorded net of a tax impact of $4.2 million in fiscal 2020 compared with $1.7 million for fiscal 2019.

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Liquidity and Capital Resources

Our primary sources of liquidity have been our cash flows generated from our operations, existing cash and cash equivalents and, when needed, our credit capacity under our existing credit facility. We have primarily used these sources of liquidity to, among other things, service our existing and future debt obligations, fund our working capital requirements for operations and capital expenditures, investments, acquisitions, dividend payments and repurchases of our common stock. Based on past performance and current expectations, we believe our liquidity, along with other financing alternatives, will provide us the necessary capital to fund these transactions and achieve our planned growth for the next 12 months and the foreseeable future.

Sources of Liquidity

Long-Term Debt

2019 Credit Agreement

On March 29, 2019, we entered into a credit agreement with PNC Bank, National Association ("PNC") (the "2019 Credit Agreement"), which provides for a $750.0 million revolving credit facility (the "2019 Revolving Credit Facility"). We may request borrowings under the 2019 Revolving Credit Facility until its maturity date of March 29, 2024. The 2019 Credit Agreement also allows us, subject to certain requirements, to arrange for additional borrowings with PNC for an aggregate amount up to $500.0 million, provided that any such request for additional borrowings must be in a minimum amount of $25.0 million.

As of August 31, 2020, we have borrowed $575.0 million of the available $750.0 million provided by the 2019 Revolving Credit Facility, resulting in $175.0 million available to be withdrawn. We are required to pay a commitment fee using a pricing grid which was 0.10% as of August 31, 2020. This fee is based on the daily amount by which the available balance in the 2019 Revolving Credit Facility exceeds the borrowed amount. All outstanding loan amounts are reported as Long-term debt within the Consolidated Balance Sheets at August 31, 2020 and August 31, 2019. The principal balance is payable in full on the maturity date.

The fair value of our long-term debt was $575.0 million as of August 31, 2020, which we believe approximates the carrying amount as the terms and interest rate approximate market rates given its floating interest rate basis. Borrowings under the loan bear interest on the outstanding principal amount at a rate equal to LIBOR plus a spread using a debt leverage pricing grid, which was 0.875% as of August 31, 2020. The variable rate of interest on our long-term debt can expose us to interest rate volatility due to changes in LIBOR. To mitigate this exposure, on March 5, 2020, we entered into an interest rate swap agreement with a notional amount of $287.5 million to hedge the variable interest rate obligation on a portion of our outstanding balance under the 2019 Revolving Credit Facility. Under the terms of the interest rate swap agreement, we will pay interest at a fixed rate of 0.7995% and receive variable interest payments based on the same one-month LIBOR utilized to calculate the interest expense from the 2019 Revolving Credit Facility. The interest rate swap agreement matures on March 29, 2024.

During fiscal 2019, we incurred approximately $0.9 million in debt issuance costs related to the 2019 Credit Agreement. These costs were capitalized as loan origination fees and are amortized into interest expense ratably over the term of the 2019 Credit Agreement.

During fiscal 2020, we recorded interest expense on our outstanding debt, including the amortization of debt issuance costs, net of the effects of the interest rate swap agreement of $12.9 million. During fiscal 2019, we recorded interest expense on our outstanding debt, including the amortization of debt issuance costs, of $19.8 million. Including the effects of the interest rate swap agreement, the weighted average interest rate on amounts outstanding under our credit facilities was 2.20% for the twelve months ended August 31, 2020. The weighted average interest rate for fiscal 2019 was 3.35%. Interest on the loan outstanding is payable quarterly, in arrears, and on the maturity date.

The 2019 Credit Agreement contains covenants and requirements restricting certain activities, which are usual and customary for this type of loan. In addition, the 2019 Credit Agreement requires that we maintain a consolidated net leverage ratio, as measured by total net funded debt/EBITDA (as defined in the 2019 Credit Agreement) below a specified level as of the end of each fiscal quarter. We were in compliance with all the covenants and requirements within the 2019 Credit Agreement as of August 31, 2020.

The borrowings under the 2019 Credit Agreement were used to retire all outstanding debt under the previous 2017 Credit Agreement between FactSet, as the borrower, and PNC, as the lender, on March 29, 2019. The total principal amount of the debt outstanding at the time of retirement was $575.0 million and there were no prepayment penalties.

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2017 Credit Agreement

On March 17, 2017, the Company entered into a Credit Agreement (the "2017 Credit Agreement") between FactSet, as the borrower, and PNC, as the administrative agent and lender. The 2017 Credit Agreement provided for a $575.0 million revolving credit facility "). Borrowings under the loan were subject to interest on the outstanding principal amount at a rate equal to the daily LIBOR plus 1.00%. Interest on the loan outstanding was payable quarterly in arrears and on the maturity date. There were no prepayment penalties if we elected to prepay the outstanding loan amounts prior to the scheduled maturity date. The principal balance was repaid in full on March 29, 2019.

Letters of Credit

From time to time, we are required to obtain letters of credit in the ordinary course of business. Approximately $2.9 million of standby letters of credit have been issued in connection with our leased office spaces as of August 31, 2020. These standby letters of credit utilize the same covenants included in the 2019 Credit Agreement. Refer to Note 12, Debt of the Notes to the Company's Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for more information on these covenants.

Uses of Liquidity

Share Repurchase Program

Repurchases of shares of our common stock are made from time to time in the open market and privately negotiated transactions, subject to market conditions. In fiscal 2020, we repurchased 0.7 million shares for $199.6 million under our existing share repurchase program compared to 0.9 million shares for $213.1 million in fiscal 2019. A total of $259.0 million remains authorized for future share repurchases as of August 31, 2020. There is no defined number of shares to be repurchased over a specified timeframe through the life of the share repurchase program. It is expected that share repurchases will be paid using existing and future cash generated by operations.

Dividends

On August 14, 2020, our Board of Directors approved a regular quarterly dividend of $0.77 to be paid on September 17, 2020. During fiscal 2020, the dividend increased $0.05 per share or 6.9%, which marked the 15th consecutive year we have increased dividends, highlighting our continued commitment to returning value to stockholders. Over the last 12 months, we have paid $110.4 million in cash dividends. Future cash dividends will depend on our earnings, capital requirements, financial condition and other factors considered relevant by us and is subject to final determination by our Board of Directors.

Summary of Cash Flows

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

Years ended August 31,

Net cash provided by operating activities $ 505,840 $ 427,136

Net cash used in investing activities $ (73,632) $ (56,100)

Net cash used in financing activities $ (218,075) $ (214,274)

Effect of exchange rate changes on cash and cash equivalents 11,673 (5,586)

Cash and cash equivalents aggregated to $585.6 million at August 31, 2020, compared with $359.8 million at August 31, 2019, an increase of $225.8 million. This increase was primarily due to $505.8 million of net cash provided by operating activities, $95.5 million in proceeds primarily from the exercise of employee stock options and purchases under the FactSet Research Systems Inc. Employee Stock Purchase Plan, as Amended and Restated (the "ESPP"), and $11.7 million from the effects of foreign currency translations. These cash inflows were partially offset by $199.6 million in share repurchases, $110.4 million in dividend payments and $77.6 million of capital expenditures.

Our cash and cash equivalents are held in numerous locations throughout the world, with $303.0 million within the Americas, $222.3 million within EMEA (predominantly within the UK, France, and Germany) and the remaining $60.3 million within Asia Pacific (predominantly within the Philippines and India) as of August 31, 2020. The Company intends to reinvest substantially all of its accumulated undistributed foreign earnings, except in instances where repatriation would result in

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minimal additional tax. As a result of the TCJA, we believe that the income tax impact if such earnings were repatriated would be minimal.

Operating

For fiscal 2020, net cash provided by operating was $505.8 million compared to $427.1 million in fiscal 2019, an increase of $78.7 million. This increase was primarily driven by higher net income and timing of other operating cash flows, partially offset by the timing of income tax payments.

Investing

For fiscal 2020, net cash used in investing activities was $73.6 million compared to $56.1 million in fiscal 2019, an increase in cash used from investing activities of $17.5 million. This increase was mainly due to higher capital expenditures of $18.3 million, driven primarily by increased development costs related to internal-use software.

Financing

For fiscal 2020, net cash used in financing activities was $218.1 million compared to $214.3 million in fiscal 2019, representing a $3.8 million increase in cash used in financing activities. This increase was due primarily to a $11.5 million decrease in proceeds from the exercise of employee stock options and ESPP purchases and a $10.4 million increase in dividend payments, partially offset by a $20.7 million decrease in share repurchases.

Free Cash Flow

We define free cash flow, a non-GAAP financial measure, as cash provided by operating activities less purchases of property, equipment, leasehold improvements and intangible assets. We present free cash flow solely as a supplemental disclosure to provide useful information to investors about the amount of cash generated by the business after necessary capital expenditures. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after necessary capital expenditures. The following table reconciles our net cash provided by operating activities to free cash flow:

Years ended August 31,

Net cash provided by operating activities $ 505,840 $ 427,136

(1)Capital expenditures are included in net cash used in investing activities during each fiscal period reported.

For fiscal 2020, we generated free cash flow of $428.2 million compared to $367.8 million in fiscal 2019 , an increase of $60.4 million. This increase reflects an increase of $78.7 million in cash provided by operating activities, partially offset by an increase in capital expenditures of $18.3 million.

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. With the exception of the new leases entered in the ordinary course of business and purchase commitments associated with our technology investment plan and business transformation activities, there were no other significant changes to our contractual obligations during fiscal 2020.

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The following table summarizes our significant contractual obligations as of August 31, 2020 and the corresponding effect that these obligations will have on our liquidity and cash flows in future periods:

Payments due by fiscal year

Long-term debt obligations(3) — — 575.0 — 575.0

(1)Operating lease amounts include future minimum lease payments under all our non-cancelable operating leases with an initial term in excess of one year. Operating lease amounts also include renewal options that are reasonably certain to be exercised and are included in the measurement of the lease liability. Amounts above do not include future lease payments under leases that have not commenced. For more information on our operating leases, refer to Note 11, Leases, in the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K.

(2)Purchase commitments represent payments due in future periods in respect of obligations to our various data vendors as well as commitments to purchase goods and services such as telecommunication services, computer software and maintenance support and consulting services. As of August 31, 2020 and 2019, we had total purchase commitments of $226.0 million and $69.9 million, respectively.

(3)Represents the amount due under the 2019 Credit Agreement.

(4)Non-current income taxes payable of $27.7 million and non-current deferred tax liabilities of $19.7 million have been excluded in the table above due to uncertainty regarding the timing of future payments.

Purchase orders do not necessarily reflect a binding commitment but are merely indicative of authorizations and intention to conclude purchases in the future. For the purpose of this tabular disclosure, purchase obligations for goods and services are defined as agreements that are enforceable and legally binding on us and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. It is expected that all the contractual obligations noted in the table will be funded from existing cash and cash flows from operations. Expected timing pertaining to the contractual obligations included in the table above has been estimated based on information currently available. The amounts paid, and the timing of those payments, may differ based on when the goods and services provided by our vendors to whom we are contractually obligated are received, as well as due to changes to agreed-upon amounts for any of our obligations.

We entered into the 2019 Credit Agreement on March 29, 2019 and borrowed $575.0 million. In conjunction with the 2019 Credit Agreement, we retired the loan outstanding under the 2017 Credit Agreement in the amount of $575.0 million. Refer to Note 12, Debtin the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for more information on the 2019 Credit Agreement.

Off-Balance Sheet Arrangements

At August 31, 2020 and 2019, 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.

Foreign Currency

Foreign Currency Exposure

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

Our foreign currency exchange exposure is related to our operating expenses in countries outside the Americas, where approximately 76% of our employees were located as of August 31, 2020. During fiscal 2020, foreign currency movements

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increased operating income by $5.0 million, compared to a $10.1 million increaseto operating income in the same period a year earlier.

As of August 31, 2020, we maintained foreign currency forward contracts to hedge a portion of our British Pound Sterling, Euro, Indian Rupee, and Philippine Peso exposures. We entered into a series of forward contracts to mitigate our currency exposure ranging from 25% to 75% over their respective hedged periods. The current foreign currency forward contracts are set to mature at various points between the first quarter of fiscal 2021 through the fourth quarter of fiscal 2021.

As of August 31, 2020, the gross notional value of foreign currency forward contracts to purchase Philippine Pesos and Indian Rupees with U.S. dollars was ₱1.3 billion and Rs1.4 billion, respectively. The gross notional value of foreign currency forward contracts to purchase U.S. dollars with Euros and British Pound Sterling was €31.8 million and £36.4 million, respectively.

A loss on derivatives of $2.0 million was recorded in operating income during fiscal 2020, compared to a loss of $1.8 million in fiscal 2019.

Critical Accounting Policies and Estimates

We prepare the Consolidated Financial Statements in conformity with generally accepted accounting principles, which requires us to make certain estimates and apply judgements that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. We base our estimates on historical experience and other assumptions that we believe to be reasonable at the time the Consolidated Financial Statements are prepared and, as such, they may ultimately differ materially from actual results.

We describe our significant accounting policies in Note 3, Summary of Significant Accounting Policies in the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors. The critical accounting policies, estimates, and judgments that we believe to have the most significant impacts to our Consolidated Financial Statements are described below.

Revenue Recognition

The majority of our revenue is derived from client access to our hosted proprietary data and analytics platform, which can include various combinations of products and services available over the contractual term. The hosted platform is a subscription-based service that consists primarily of providing access to products and services including workstations, analytics, enterprise data, research management, and trade execution. We have determined that the subscription-based service represents a single performance obligation covering a series of distinct products and services that are substantially the same and that have the same pattern of transfer to the client. Based on the nature of the services and products offered by us, we apply an input time-based measure of progress as the client is simultaneously receiving and consuming the benefits of the platform. We record revenue for our contracts using the over-time revenue recognition model as a client is invoiced or performance is satisfied. A provision for billing adjustments and cancellation of services is estimated and accounted for as a reduction to revenue, with a corresponding reduction to accounts receivable. Refer to Note 4, Revenue Recognition in the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-Kfor further details.

Estimated Tax Provision and Tax Contingencies

We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Our tax provision is an estimate based on our understanding of laws in Federal, state and foreign tax jurisdictions. These laws can be complicated and are difficult to apply to any business. The tax laws also require us to allocate our taxable income to many jurisdictions based on subjective allocation methodologies and information collection processes. Our effective tax rates differ from the statutory rate primarily due to the impact of state taxes, foreign operations, R&D and other tax credits, tax audit settlements, incentive-stock options and the FDII deduction. Our annual effective tax rate was 12.7%, 16.4% and 24.1% in fiscal 2020, 2019 and 2018, respectively.

Our provision for income taxes is subject to volatility and could be adversely impacted by numerous factors such as changes in tax laws, regulations, or accounting principles, including accounting for uncertain tax positions or interpretations of them. Significant judgment is required to determine recognition and measurement. Further, as a result of certain ongoing employment and capital investment actions and commitments, our income in certain countries is subject to reduced tax rates and in some cases is wholly exempt from tax. Our failure to meet these commitments could adversely affect our provision for income taxes. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the

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adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse impact on our operating results and financial condition.

To account for unrecognized tax benefits, we first determine whether it is more-likely-than-not (defined as a likelihood of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date. A tax position that meets this more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority. The determination of liabilities related to unrecognized tax benefits, including associated interest and penalties, requires significant estimates. There can be no assurance that we will accurately predict the outcomes of these audits, however, we have no reason to believe that such audits will result in the payment of additional taxes and/or penalties that would have a material adverse effect on our results of operations or financial position, beyond current estimates. For this reason and due to ongoing audits by multiple tax authorities, we regularly engage in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made. We do not currently anticipate that the total amounts of unrecognized tax benefits will significantly change within the next 12 months.

We classify the liability for unrecognized tax benefits as Taxes Payable (non-current) and to the extent that we anticipate payment of cash within one year, the benefit will be classified as Taxes Payable (current). Additionally, we accrue interest on all tax exposures for which reserves have been established consistent with jurisdictional tax laws. This interest is classified as income tax expense in the financial statements. As of August 31, 2020, we had gross unrecognized tax benefits totaling $12.3 million, including $0.9 million of accrued interest, recorded as Taxes Payable (non-current) within the Consolidated Balance Sheets. Refer to Note 10, Income Taxes in the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for further information

Business Combinations

We account for business combinations using the purchase method of accounting. The acquisition purchase price is allocated to the underlying identified, tangible and intangible assets and liabilities assumed, based on their respective estimated fair values on the acquisition date. The excess of the purchase consideration over the fair values of the identified assets and liabilities is recorded as goodwill and assigned to one or more reporting units. The amounts and useful lives assigned to acquisition-related tangible and intangible assets impact the amount and timing of future amortization expense. Determining the fair value of assets acquired and liabilities assumed and the expected useful life, requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items. Acquisition-related expenses and restructuring costs are recognized separately from the business combination and are expensed as incurred.

Goodwill and Intangible Assets

Goodwill is assigned to one or more reporting units on the date of acquisition. Our reporting units are the same as our reportable segments. Goodwill is not amortized as it is estimated to have an indefinite life. We review our goodwill for impairment annually during the fourth quarter of each fiscal year and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of any one of our reporting units below its respective carrying amount.

In performing the goodwill impairment test, we first perform a qualitative assessment, which requires that we consider factors such as macro-economic conditions, industry and market conditions in which FactSet operates, including the competitive environment and significant changes in demand for our services. We also consider our share price both in absolute terms and in relation to our peers. If, after assessing the totality of events or circumstances, we determine that it is more likely than not that the fair values of our reporting units are greater than the carrying amounts, then the quantitative goodwill impairment test is not performed.

If the qualitative assessment indicates that the quantitative analysis should be performed, we then evaluate goodwill for impairment by comparing the fair value of each of our reporting units to its carrying value, including the associated goodwill. To determine the fair values, we use an income approach, along with other relevant market information, derived from a discounted cash flow model to estimate fair value of our reporting units. An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any, would be recognized. The loss recognized would not exceed total amount of goodwill allocated to that reporting unit.

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We completed our annual goodwill impairment test during the fourth quarter of fiscal 2020. We determined, after performing a qualitative review of each reporting unit, that it is more likely than not that the fair value of each reporting unit substantially exceeds their respective carrying amounts. Accordingly, there was no indication of impairment and the quantitative goodwill impairment test was not performed.

Our identifiable intangible assets consist of acquired content databases, client relationships, software technology, internal-use software, non-compete agreements and trade names resulting from acquisitions, which have been fully integrated into our operations. We amortize intangible assets over their estimated useful lives, which are evaluated quarterly to determine whether events and circumstances warrant a revision to the remaining period of amortization. The weighted average useful life of our identifiable intangible assets at August 31, 2020 was 11.9 years. If the estimate of the remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over that revised remaining useful life. There were no material adjustments to the useful lives of intangible assets subject to amortization during any of the periods presented. These intangible assets had no assigned residual values as of August 31, 2020 and 2019.

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of any impairment loss for intangible assets that management expects to hold, and use is based on the amount the carrying value exceeds the fair value of the asset, which may be based on estimated future cash flows (discounted). No indicators of impairment of intangible assets has been identified during any of the periods presented. Our ongoing consideration of the recoverability could result in impairment charges in the future, which could adversely affect our results of operations. The carrying value of intangible assets as of August 31, 2020 and 2019 was $121.1 million and $124.4 million, respectively. Refer to Note 8, Goodwill and Note 9, Intangible Assetsin the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for further details.

Long-lived Assets

Long-lived assets, comprised of property, equipment and leasehold improvements are evaluated for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Factors that may cause an impairment review include significant changes in technology that make current computer-related assets that we use in our operations obsolete or less useful, and significant changes in the way we use these assets in our operations. When evaluating long-lived assets for potential impairment, if impairment indicators are present, we first compare the carrying value of the asset to the asset’s estimated future cash flows (undiscounted and excluding interest charges). If the estimated future cash flows are less than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to the asset’s estimated fair value, which may be based on estimated future cash flows (discounted). We recognize an impairment loss if the amount of the asset’s carrying value exceeds the asset’s estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. The new cost basis will be depreciated (amortized) over the remaining useful life of that asset. Using the impairment evaluation methodology described here, there have been no long-lived asset impairment charges for each of the last three years. The carrying value of long-lived assets was $133.1 million as of August 31, 2020 and $119.4 million as of August 31, 2019.

Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows. We have not made any material changes in our impairment loss assessment methodology during the past three fiscal years. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material. Refer to Note 7, Property, Equipment and Leasehold Improvements in the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for further information.

Performance-based Equity Awards

Performance-based equity awards, whether in the form of performance-based stock options or performance share units, require management to make assumptions regarding the likelihood of achieving performance targets. The number of performance-based awards that vest will be predicated on achieving performance levels during the measurement period subsequent to the date of grant. Dependent on the financial performance levels attained, a percentage of the performance-based awards will vest to the grantees. However, there is no current guarantee that such awards will vest in whole or in part. Refer to Note 16, Stock-Based Compensation in the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for further information.

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New Accounting Pronouncements

See Note 3, Summary of Significant Accounting Policies in the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for a full description of recent accounting pronouncements, including the expected dates of adoption, which we include here by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Risk

In the normal course of business, we are exposed to foreign currency exchange risk as we conduct business outside the U.S. in several currencies including the British Pound Sterling, Euro, Indian Rupee, and Philippine Peso. Changes in the exchange rates for such currencies into U.S. dollars can affect our revenues, earnings, and the carrying values of our assets and liabilities in our consolidated balance sheet, either positively or negatively.

To manage the exposures related to the effects of foreign exchange rate fluctuations, the we utilize derivative instruments (foreign currency forward contracts). The changes in fair value for these foreign currency forward contracts are initially reported as a component of AOCL and subsequently reclassified into operating expenses when the hedged exposure affects earnings.

A sensitivity analysis was performed based on the estimated fair value of all foreign currency forward contracts outstanding at August 31, 2020. If the U.S. dollar had been 10% weaker, the fair value of outstanding foreign currency forward contracts would have increased by $13.0 million, which would have had an immaterial impact on our Consolidated Balance Sheet. Such a change in fair value of our financial instruments would be substantially offset by changes in our expense base. If we had no hedges in place as of August 31, 2020, a hypothetical 10% weaker U.S. dollar against all foreign currencies from the quoted foreign currency exchange rates at August 31, 2020, with operating results held constant in local currencies, would result in a decrease in operating income by $35.4 million over the next 12 months. A hypothetical 10% weaker U.S. dollar against all foreign currencies at August 31, 2020 would have increased the fair value of total assets by $66.3 million and equity by $41.6 million.

Volatility in the British Pound Sterling exchange rate remains a possibility in the short term as the UK continues the transition resulting from its exit from the European Union. In the longer term, any impact from Brexit will depend on, in part, the outcome of tariff, regulatory, and other negotiations. Refer to Item 1A. Risk Factors of this Annual Report on Form 10-K for further discussion on Brexit.

Refer to Note 6, Derivative Instruments in the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for more information on our foreign currency exposures and our foreign currency forward contracts.

Interest Rate Risk

Cash and Cash Equivalents and Investments

The fair market value of our cash and cash equivalents and investments at August 31, 2020 was $605.2 million. Our cash and cash equivalents consist of demand deposits and money market funds with original maturities of three months or less and are reported at fair value. We are exposed to interest rate risk through fluctuations of interest rates on our investments. As we have a restrictive investment policy, our financial exposure to fluctuations in interest rates is expected to remain low. Refer to Note 3, Summary of Significant Accounting Policies in the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for more information on our cash and cash equivalents and investments policies.

Debt

As of August 31, 2020, we had long term debt outstanding under the 2019 Revolving Credit Facility with a principal balance of $575.0 million. The debt bears interest on the outstanding principle at a rate equal to LIBOR plus a spread, using a debt leverage pricing grid. The variable rate of interest on our long-term debt can expose us to interest rate volatility due to changes in LIBOR. To mitigate this exposure, on March 5, 2020, we entered into an interest rate swap agreement with a notional amount of $287.5 million to hedge the variable interest rate obligation, effectively converting the floating interest rate to fixed for the hedged portion. Thus, we are only exposed to base interest rate risk on floating rate borrowings in excess of any amounts that are not hedged, or $287.5 million of our outstanding principal balance. Assuming all terms of our outstanding long-term debt remained the same, a hypothetical 25 basis point change (up or down) in the one-month LIBOR would result in a $0.7

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million change to our annual interest expense for the portion of the long-term debt not hedged by the interest rate swap agreement. Refer to Note 12, Debt in the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for additional information regarding our outstanding debt obligations.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

Page

Management’s Statement of Responsibility for Financial Statements 48

Management’s Report on Internal Control over Financial Reporting 48

Reports of Independent Registered Public Accounting Firm 49

Consolidated Financial Statements:

Notes to the Consolidated Financial Statements 57

Financial Statement Schedule:

Schedule II – Valuation and Qualifying Accounts 96

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Management’s Statement of Responsibility for Financial Statements

FactSet’s Consolidated Financial Statements are prepared by management, which is responsible for their fairness, integrity and objectivity. The accompanying Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America and include amounts based on management’s estimates and judgments. All financial information in this Report on Form 10-K has been presented on a basis consistent with the information included in the accompanying financial statements.

FactSet’s policies and practices reflect corporate governance initiatives that are compliant with the listing requirements of the New York Stock Exchange, the NASDAQ Stock Market and the corporate governance requirements of the Sarbanes-Oxley Act of 2002. Management, with oversight by the Company’s Board of Directors, has established and maintains a strong ethical climate so that its affairs are conducted to the highest standards of personal and corporate conduct.

FactSet maintains accounting systems, including internal accounting controls, designed to provide reasonable assurance of the reliability of financial records and the protection of assets. The concept of reasonable assurance is based on recognition that the cost of a system should not exceed the related benefits. The effectiveness of those systems depends primarily upon the careful selection of financial and other managers, clear delegation of authority and assignment of accountability, inculcation of high business ethics and conflict-of-interest standards, policies and procedures for coordinating the management of corporate resources, and the leadership and commitment of top management. In compliance with the Sarbanes-Oxley Act of 2002, FactSet assessed its internal control over financial reporting as of August 31, 2020 and issued a report (see below).

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for FactSet. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Management (with the participation of the Chief Executive Officer and Chief Financial Officer) conducted an evaluation of the effectiveness of FactSet’s internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that FactSet’s internal control over financial reporting was effective as of August 31, 2020. Ernst & Young LLP, an independent registered public accounting firm, has audited the effectiveness of FactSet’s internal control over financial reporting and has issued a report on FactSet’s internal control over financial reporting, which is included in their report on the subsequent page.

/s/ F. PHILIP SNOW /s/ HELEN L. SHAN

F. Philip Snow Helen L. Shan

Chief Executive Officer Executive Vice President and Chief Financial Officer

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of FactSet Research Systems Inc.

Opinion on Internal Control over Financial Reporting

We have audited FactSet Research System Inc.’s (the Company) internal control over financial reporting as of August 31, 2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2020 Consolidated Financial Statements of the Company and our report dated October 29, 2020, expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Stamford, CT

October 29, 2020

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of FactSet Research Systems Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of FactSet Research Systems Inc. (the Company) as of August 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended August 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 8. (collectively referred to as the “Consolidated Financial Statements”). In our opinion, the Consolidated Financial Statements present fairly, in all material respects, the financial position of the Company at August 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of August 31, 2020, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated October 29, 2020 expressed an unqualified opinion thereon.

Adoption of Accounting Standards Update (ASU) No. 2016-02

As discussed in Note 3, Summary of Significant Accounting Policies, to the Consolidated Financial Statements, the Company changed its method of accounting for leases in 2020 due to the adoption of ASU No. 2016-02, Leases (Topic 842).

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the Consolidated Financial Statements, taken as a whole, and we are not, by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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Measurement of income tax provision

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2013.

Stamford, CT

October 29, 2020

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FactSet Research Systems Inc.

Consolidated Statements of Income

(in thousands, except per share data) Years ended August 31,

Operating expenses

Other expenses

Basic earnings per common share $ 9.83 $ 9.25 $ 6.90

Diluted earnings per common share $ 9.65 $ 9.08 $ 6.78

The accompanying notes are an integral part of these Consolidated Financial Statements.

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FactSet Research Systems Inc.

Consolidated Statements of Comprehensive Income

(in thousands) Years ended August 31,

Other comprehensive income, net of tax:

Net unrealized gain (loss) on cash flow hedges(1) 674 504 (7,288)

(1)The unrealized gain (loss) on cash flow hedges disclosed above was net of tax (expense) benefit of ($251), ($387), and $3,518 for the fiscal years ended August 31, 2020, 2019 and 2018, respectively.

The accompanying notes are an integral part of these Consolidated Financial Statements.

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FactSet Research Systems Inc.

Consolidated Balance Sheets

(in thousands, except share data) August 31,

ASSETS

Prepaid expenses and other current assets 43,675 36,858

Property, equipment and leasehold improvements, net 133,102 119,384

Deferred taxes — 7,571

Lease right-of-use assets, net 248,929 —

LIABILITIES

Accounts payable and accrued expenses $ 82,094 $ 79,620

Current lease liabilities 29,056 —

Long-term lease liabilities 272,269 —

Commitments and contingencies (See Note 13)

STOCKHOLDERS’ EQUITY

Accumulated other comprehensive loss (39,293) (74,544)

The accompanying notes are an integral part of these Consolidated Financial Statements.

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FactSet Research Systems Inc.

Consolidated Statements of Cash Flows

(in thousands) Years ended August 31,

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net income to net cash provided by operating activities

Amortization of lease right-of-use assets 43,185 — —

Impairment charge 16,500 — —

Changes in assets and liabilities, net of effects of acquisitions

Lease liabilities, net (33,340) — —

CASH FLOWS FROM INVESTING ACTIVITIES:

CASH FLOWS FROM FINANCING ACTIVITIES

Repayment of debt — (575,000) —

Tax benefits from share-based payment arrangements — — —

Supplemental Disclosure of Cash Flow Information

Supplemental Disclosure of Non-Cash Transactions

The accompanying notes are an integral part of these Consolidated Financial Statements.

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FactSet Research Systems Inc.

Consolidated Statements of Changes in Stockholders’ Equity

Shares Par Value Shares Amount

Cumulative effect of adoption of accounting standards* 1,302 716 2,018

*Includes the cumulative effect of adoption of accounting standards primarily due to both the adoption of the new revenue recognition standard (ASC 606) resulting in a cumulative increase to retained earnings related to certain fulfillment costs and the accounting standard update related to the U.S. Tax Cuts and Jobs Act ("TCJA") providing for the reclassification from accumulated other comprehensive loss to retained earnings for stranded tax effects. Refer to Note 3, Basis of Presentation and Note 4, Revenue Recognition in the Notes to the Company's Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for additional information.

The accompanying notes are an integral part of these Consolidated Financial Statements.

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Notes to the Consolidated Financial Statements

Page

Note 1 Description of Business 57

Note 2 Basis of Presentation 58

Note 3 Summary of Significant Accounting Policies 58

Note 4 Revenue Recognition 65

Note 5 Fair Value Measures 66

Note 6 Derivative Instruments 68

Note 7 Property, Equipment and Leasehold Improvements 70

Note 8 Goodwill 71

Note 9 Intangible Assets 71

Note 10 Income Taxes 72

Note 13 Commitments and Contingencies 78

Note 14 Stockholders' Equity 80

Note 15 Earnings Per Share 82

Note 16 Stock Based Compensation 82

Note 17 Employee Benefit Plans 87

Note 18 Segment Information 87

Note 19 Risks and Concentrations of Credit Risk 89

Note 20 Unaudited Quarterly Financial Data 91

Note 21 Subsequent Events 91

1. DESCRIPTION OF BUSINESS

FactSet Research Systems Inc. and its wholly-owned subsidiaries (collectively, the "Company" or "FactSet") is a global provider of integrated financial information, analytical applications and industry-leading services for the investment and corporate communities. For over 40 years, global financial professionals have utilized the Company’s content and multi-asset class solutions across each stage of the investment process. FactSet’s goal is to provide a seamless user experience spanning idea generation, research, portfolio construction and analysis, trade execution, performance measurement, risk management, and reporting, in which the Company serves the front, middle, and back offices to drive productivity and improved performance. FactSet’s flexible, open data and technology solutions can be implemented both across the investment portfolio lifecycle or as standalone components serving different workflows in an organization. FactSet is focused on growing the business through three segments: the Americas (formerly known as U.S.), EMEA (Europe and Africa, formerly known as Europe), and Asia Pacific. Within each of the segments, the Company primarily delivers insight and information through the four workflow solutions of Research, Analytics and Trading, Content and Technology Solutions ("CTS"), and Wealth.

FactSet currently serves a wide range of financial professionals, which include but are not limited to portfolio managers, investment research professionals, investment bankers, risk and performance analysts, wealth advisors, and corporate clients. FactSet provides both insights on global market trends and intelligence on companies and industries, as well as capabilities to monitor portfolio risk and performance and execute trades. The Company combines dedicated client service with open and flexible technology offerings, such as a configurable desktop and mobile platform, comprehensive data feeds, and open marketplace and digital portals and application programming interface ("APIs"). The Company's revenue is primarily derived from subscriptions to products and services such as workstations, portfolio analytics, enterprise data, and research management.

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2. BASIS OF PRESENTATION

FactSet conducts business globally and is managed on a geographic basis. The accompanying Consolidated Financial Statements and Notes to the Company's Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). All intercompany balances, transactions, and profits have been eliminated.The preparation of Consolidated Financial Statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates have been made in areas that include allocation of purchase price to acquired assets and liabilities, stock-based compensation, income taxes, valuation of goodwill, and useful lives and valuation of fixed and intangible assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates.

Reclassification

The Company reclassified certain prior year comparative figures from Interest expense, net, to Other expense, net including non-operational foreign exchange gains and losses in the Consolidated Statement of Income to conform to the current year's presentation.

The Company reclassified certain capitalized software from Property, equipment and leasehold improvements, net to Intangible assets, net, except for capitalized develop costs associated with hosted solutions, which were reclassified to Other assets, in the prior year comparative figures in the Consolidated Balance Sheets to conform to the current year's presentation.

COVID-19

A novel strain of coronavirus, now known as COVID-19 ("COVID-19"), was first reported in December 2019, and it has since extensively impacted the global health and economic environment, with the World Health Organization characterizing COVID-19 as a pandemic on March 11, 2020. FactSet is closely monitoring pandemic-related developments and has taken, and continues to take, numerous steps to address them. FactSet has required nearly all its employees to work remotely on a temporary basis and has implemented global travel restrictions for employees. The Company believes the transition to remote working has been successful and has not significantly affected financial results for the fiscal year ended August 31, 2020. Since the situation surrounding the COVID-19 pandemic remains fluid, FactSet is actively managing its response and has assessed potential impacts to its financial position and operating results for fiscal 2020 as of August 31, 2020. The extent of the effect on the Company’s future operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, and governmental, regulatory and private sector responses, all of which are uncertain and difficult to predict.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies of the Company and its subsidiaries are summarized below.

Revenue Recognition

The majority of the Company’s revenue is derived from 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. Based on the nature of the services and products offered by FactSet, the Company applies an input time-based measure of progress as the client is simultaneously receiving and consuming the benefits of the platform. The Company records revenue for its contracts using the over-time revenue recognition model as a client is invoiced or performance is satisfied. A provision for billing adjustments and cancellation of services is estimated and accounted for as a reduction to revenue, with a corresponding reduction to accounts receivable.

Accounts Receivable and Deferred Fees

Amounts that have been earned but not yet paid are reflected on the Consolidated Balance Sheets as Accounts receivable, net of reserves. Amounts invoiced in advance of client payments that are in excess of earned subscription revenue are reflected on the

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Consolidated Balance Sheets as Deferred fees. As of August 31, 2020, the amount of accounts receivable that was unbilled totaled $17.1 million, and will be billed in fiscal 2021. As of August 31, 2019, the amount of accounts receivable that was unbilled totaled $15.8 million, and was billed in fiscal 2020.

The Company calculates its receivable reserve through analyzing aged client receivables, reviewing the recent history of client receivable write-offs and understanding general market and economic conditions. In accordance with this policy, a receivable reserve of $8.0 million and $10.5 million was recorded as of August 31, 2020 and 2019, respectively, within the Consolidated Balance Sheets as a reduction to Accounts receivable.

Cost of Services

Cost of services is comprised of compensation for Company employees within the content collection, consulting, product development, software and systems engineering groups in addition to data costs, computer maintenance and depreciation expenses, amortization of identifiable intangible assets, and client-related communication costs.

Selling, General and Administrative

Selling, general and administrative expenses include compensation for the sales and various other support and administrative departments in addition to travel and entertainment expenses, marketing costs, rent, depreciation of furniture and fixtures, amortization of lease right-of-use ("ROU") assets and leasehold improvements, as well as office expenses, professional fees and other miscellaneous expenses.

Research and Product Development Costs

FactSet does not have a separate research and product development department, but rather the Product Development and Engineering departments work closely with our strategists, product managers, sales and other client-facing specialists to identify areas of improvement with the goal of providing increased value to clients. As such, research and product development costs relate to the salary and benefits for the Company’s product development, software engineering and technical support staff and these costs are expensed as incurred and primarily included within Cost of services as employee compensation. The Company expects to allocate a similar percentage of its workforce in future years in to continue to develop new products and enhancements, respond quickly to market changes and meet the needs of its clients efficiently. FactSet incurred research and product development costs of $224.0 million, $214.7 million and $217.1 million during fiscal years 2020, 2019 and 2018, respectively.

Earnings per Share

Basic earnings per share ("EPS") is computed by dividing net income by the number of weighted average common shares outstanding during the period. Diluted EPS is computed by dividing net income by the number of weighted average common shares outstanding during the period increased by the dilutive effect of potential common shares outstanding during the period. The number of potential common shares outstanding has been determined in accordance with the treasury stock method to the extent they are dilutive. For the purpose of calculating EPS, common shares outstanding include common shares issuable upon the exercise of outstanding share-based compensation awards, including employee stock options and grants of restricted stock and restricted stock units. Performance-based awards are omitted from the calculation of diluted EPS until it is determined that the performance criteria has been met at the end of the reporting period. Under the treasury stock method, the exercise price paid by the option holder and future stock-based compensation expense that the Company has not yet recognized are assumed to be used to repurchase shares.

Comprehensive Income

The Company discloses comprehensive income in accordance with applicable standards for the reporting and display of comprehensive income in a set of financial statements. Comprehensive income is defined as the change in net assets of a business enterprise during a period from transactions generated from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

Fair Value Measurements

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date. In determining fair value, the use of various valuation methodologies, including market, income and cost approaches is permissible. The Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. The accounting guidance for fair value measurements establishes a fair value hierarchy that

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requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value based on the reliability of inputs. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s cash equivalents are classified as Level 1 while the Company’s derivative instruments (foreign exchange forward contracts) and certificates of deposit are classified as Level 2. There were no Level 3 assets or liabilities held by FactSet as of August 31, 2020 or 2019. Refer to Note 5, Fair Value Measures for the definition of the fair value hierarchy.

Cash and Cash Equivalents

Cash and cash equivalents consist of demand deposits and money market funds with original maturities of three months or less and are reported at fair value. The Company’s corporate money market funds are readily convertible into cash and the net asset value of each fund on the last day of the quarter is used to determine its fair value.

Investments

Investments consist of both mutual funds and certificates of deposit as both are part of the Company’s investment strategy. These mutual funds and certificates of deposit are included as Investments (short-term) on the Company’s Consolidated Balance Sheets as the mutual funds can be liquidated at the Company’s discretion and the certificates of deposit have original maturities greater than three months. The mutual funds and certificates of deposit are held for investment and are not considered debt securities. Preservation of principal is the primary goal of our cash and investment policy. Pursuant to our established investment guidelines, we try to achieve high levels of credit quality, liquidity and diversification. Our investment guidelines do not permit us to invest in puts, calls, strips, short sales, straddles, options, commodities, precious metals, futures or investments on margin. Interest income earned from these investments during fiscal 2020, 2019 and 2018 was $1.1 million, $1.5 million and $1.3 million, respectively. The Company’s cash, cash equivalents and investments portfolio did not experience any realized or unrealized losses as a result of counterparty credit risk or ratings change during fiscal 2020 and 2019.

Property, Equipment and Leasehold Improvements

Property, equipment and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Computers and related equipment are depreciated on a straight-line basis over an estimated useful life ranging from three to five years. Furniture and fixtures are depreciated on a straight-line basis over their estimated useful lives of seven years. Leasehold improvements are amortized on a straight-line basis over the terms of the related leases or estimated useful lives of the improvements, whichever period is shorter. Repairs and maintenance expenditures, which are not considered leasehold improvements and do not extend the useful life of the property and equipment, are expensed as incurred.

The Company performs a test for impairment whenever events or changes in circumstances indicate that the carrying amount of an individual asset or asset group may not be recoverable. Should projected undiscounted future cash flows be less than the carrying amount of the asset or asset group, an impairment charge reducing the carrying amount to fair value is required. Fair value is determined based on the most appropriate valuation technique, including discounted cash flows.

Goodwill

Goodwill at the reporting unit level is reviewed for impairment annually, and more frequently if impairment indicators exist. Goodwill is deemed to be impaired and written-down in the period in which the carrying value of the reporting unit exceeds its fair value. FactSet has three reporting units, Americas, EMEA and Asia Pacific, which are consistent with the operating segments reported, as discrete financial information is not available for subsidiaries within the operating segments.

FactSet may elect to perform a qualitative analysis for the reporting units to determine whether it is more likely than not the fair value of the reporting unit is greater than its carrying value. In performing a qualitative assessment, FactSet considers such factors as macro-economic conditions, industry and market conditions in which FactSet operates including the competitive environment and significant changes in demand for the Company’s services. The Company also considers its share price both in absolute terms and in relation to peer companies. If the qualitative analysis indicates that it is more likely than not the fair value of a reporting unit is less than its carrying amount or if FactSet elects not to perform a qualitative analysis, a quantitative analysis is performed to determine whether a goodwill impairment exists.

The quantitative goodwill impairment analysis is used to identify potential impairment by comparing fair value of a reporting unit with its carrying amount using an income approach, along with other relevant market information, derived from a discounted cash flow model to estimate fair value of FactSet’s reporting units. The annual review of carrying value of goodwill requires the Company develop estimates of future business performance. These estimates are used to derive expected cash

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flows and include assumptions regarding future sales levels and the level of working capital needed to support a given business. The discounted cash flow model also includes a determination of FactSet’s weighted average cost of capital by reporting unit. Cost of capital is based on assumptions about interest rates, as well as a risk-adjusted rate of return required by FactSet’s equity investors. Changes in these estimates can impact present value of expected cash flows used in determining fair value of a reporting unit. An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any, would be recognized. The loss recognized would not exceed total amount of goodwill allocated to that reporting unit.

The Company performed its annual goodwill impairment test during the fourth quarter of fiscal 2020 utilizing a qualitative analysis and concluded it was more likely than not the fair value of each reporting unit was greater than its respective carrying value and no impairment charge was required.

Intangible Assets

Acquired Intangible Assets

FactSet’s identifiable intangible assets consist of acquired content databases, client relationships, software technology, non-compete agreements and trade names resulting from previous acquisitions, which have been fully integrated into the Company’s operations. The Company amortizes intangible assets over their estimated useful lives, which are evaluated quarterly to determine whether events and circumstances warrant a revision to the remaining period of amortization. If the estimate of the remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over that revised remaining useful life. Amortizable Intangible assets are tested for impairment, if indicators of impairment are present, based on undiscounted cash flows, and, if impaired, written down to fair value based on discounted cash flows. No impairment of intangible assets has been identified during any of the fiscal years presented. The intangible assets have no assigned residual values.

Internally Developed Software

FactSet capitalizes internal and external costs related to developing, modifying or obtaining software for internal use, incurred during the application development stage in accordance with ASC 350-40, Internal-Use Software. Costs related to software upgrades and enhancements are capitalized if it is determined that these upgrades or enhancements provide additional functionality to the software. The capitalized software is amortized using the straight-line method over the estimated useful life of the software, generally three to five years. These assets are subject to the impairment test guidance specified in the acquired intangible assets above.

Accrued Liabilities

Accrued liabilities include estimates relating to employee compensation, operating expenses and tax liabilities. At the end of each fiscal year, FactSet conducts a review of both Company and individual performance within each department to determine the amount of discretionary employee compensation. The Company also reviews compensation throughout the year to determine how overall performance tracks against management’s expectations. Management takes these and other factors, including historical performance, into account in reviewing accrued compensation estimates quarterly and adjusting accrual rates as appropriate. The majority of variable employee compensation recorded within accrued compensation related to the annual performance bonus, which was $54.4 million and $49.4 million as of August 31, 2020 and 2019, respectively.

Derivative Instruments

Foreign Currency Forward Contracts

FactSet conducts business outside the U.S. in several currencies including the British Pound Sterling, Euro, Indian Rupee, and Philippine Peso. As such, the Company is exposed to movements in foreign currency exchange rates relative to the U.S. dollar. The Company utilizes derivative instruments (foreign currency forward contracts) to manage the exposures related to the effects of foreign exchange rate fluctuations and reduce the volatility of earnings and cash flows associated with changes in foreign currency. The Company does not enter into foreign exchange forward contracts for trading or speculative purposes. In designing a specific hedging approach, FactSet considers several factors, including offsetting exposures, significance of exposures, forecasting risk and potential effectiveness of the hedge. These transactions are designated and accounted for as cash flow hedges in accordance with applicable accounting guidance. The gains and losses on foreign currency forward contracts mitigate the variability in operating expenses associated with currency movements.

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Interest Rate Swap Agreement

On March 29, 2019, FactSet entered into a credit agreement with PNC Bank, National Association ("PNC") (the "2019 Credit Agreement"), which provides for a $750.0 million revolving credit facility (the "2019 Revolving Credit Facility"). The outstanding principal balance of $575.0 million bears interest at a rate equal to LIBOR plus a spread, using a debt leverage pricing grid. The variable rate of interest on the Company's long-term debt can expose FactSet to interest rate volatility due to changes in LIBOR. To mitigate this exposure, on March 5, 2020, FactSet entered into an interest rate swap agreement with a notional amount of $287.5 million to hedge the variable interest rate obligation, effectively converting the floating interest rate to fixed for the hedged portion. Thus, FactSet is only exposed to base interest rate risk on floating rate borrowings in excess of any amounts that are not hedged, or $287.5 million of the outstanding principal balance.

Derivative Instrument Classification

The changes in fair value for these cash flow hedges are initially reported as a component of accumulated other comprehensive loss ("AOCL") and subsequently reclassified into operating expenses when the hedged exposure affects earnings. All derivatives are assessed for effectiveness at each reporting period.

Foreign Currency Translation

Certain wholly-owned subsidiaries operate under a functional currency different from the U.S. dollar, such as the British Pound Sterling, Euro, Indian Rupee, and Philippine Peso. The financial statements of these foreign subsidiaries are translated into U.S. dollars using period-end rates of exchange for assets and liabilities, and average rates for the period for revenues and expenses. Translation gains and losses that arise from translating assets, liabilities, revenue and expenses of foreign operations are recorded in AOCL as a component of stockholders’ equity. The accumulated foreign currency translation loss totaled $37.7 million and $72.3 million at August 31, 2020 and 2019, respectively.

Income and Deferred Taxes

Income tax expense is based on taxable income determined in accordance with current enacted laws and tax rates. Deferred income taxes are recorded for the temporary differences between the financial statement and tax bases of assets and liabilities using current enacted tax rates. FactSet recognizes the financial effect of an income tax position only if it is more likely than not (greater than 50%) that the tax position will prevail upon tax examination, based solely on the technical merits of the tax position as of the reporting date. Otherwise, no benefit or expense can be recognized in the Consolidated Financial Statements. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Additionally, FactSet accrues interest on all tax exposures for which reserves have been established consistent with jurisdictional tax laws. Interest is classified as income tax expense in the financial statements. As of August 31, 2020, the Company had gross unrecognized tax benefits totaling $12.3 million, including $0.9 million of accrued interest, recorded as Taxes payable (non-current) on the Consolidated Balance Sheets.

Stock-Based Compensation

Accounting guidance requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including stock options, restricted stock, performance share units, and common shares acquired under employee stock purchases based on estimated fair values of the share awards that are scheduled to vest during the period. FactSet uses the straight-line attribution method for all awards with graded vesting features and service conditions only. Under this method, the amount of compensation expense that is recognized on any date is at least equal to the vested portion of the award on that date. For all stock-based awards with performance conditions, the graded vesting attribution method is used by the Company to determine the monthly stock-based compensation expense over the applicable vesting periods.

As stock-based compensation expense recognized is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based primarily on historical experience. Windfall tax benefits, defined as tax deductions that exceed recorded stock-based compensation, are classified as cash inflows from operations.

Performance-based options and performance share units require management to make assumptions regarding the likelihood of achieving Company performance targets on a quarterly basis. The number of performance-based options and performance share units that vest will be predicated on the Company achieving certain performance levels. A change in the financial performance levels the Company achieves could result in changes to FactSet’s current estimate of the vesting percentage and related stock-based compensation.

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Treasury Stock

The Company accounts for repurchased common stock under the cost method and includes such treasury stock as a component of its Stockholders’ equity. The Company accounts for the formal retirement of treasury stock by deducting its par value from common stock, reducing additional paid-in capital ("APIC") by the average amount recorded in APIC when the stock was originally issued and any remaining excess of cost deducted from retained earnings.

Leases

FactSet adopted the standard, ASC 842-10, Leases ("ASC 842") as of September 1, 2019, using a modified retrospective approach. The adoption of the lease standard primarily related to the Company’s real estate operating leases. FactSet reviews new arrangements at inception to evaluate whether the Company obtains substantially all the economic benefits of and has the right to control the use of an asset. If FactSet determines that an arrangement qualifies as a lease, with a lease term of greater than one year, the Company records a lease ROU asset and lease liability at the lease commencement date. As there is no rate implicit in the Company’s operating lease arrangements, these balances are initially recorded as the present value of the future minimum lease payments, (including fixed lease payments and certain qualifying index-based variable payments) over the lease term, using FactSet’s incremental borrowing rate ("IBR") within the geography where the leased asset is located. As FactSet does not have any outstanding public debt, the Company estimates the IBR based on FactSet’s estimated credit rating and available market information. The IBR is determined at lease commencement and subsequently reassessed upon a modification to the lease arrangement. Certain adjustments to our lease ROU assets may be required for items such as initial direct costs paid or incentives received.

FactSet elected the practical expedient not to separate lease components from non-lease components but, rather, to combine them into one single lease component, which we recognize over the expected term on a straight-line expense basis in occupancy costs (a component of SG&A expense).

As of August 31, 2020, the Company’s leases have remaining terms of less than one year to just over 15 years. The lease ROU assets and lease liabilities recognized did not include any renewal or termination options that were not yet reasonably certain to be exercised.

Business Combinations

The Company accounts for its business combinations using the purchase method of accounting. The acquisition purchase price is allocated to the underlying identified tangible and intangible assets and liabilities assumed, based on their respective estimated fair values on the acquisition date. The excess of the purchase consideration over the fair values of the identified assets and liabilities is recorded as goodwill and assigned to one or more reporting units. The amounts and useful lives assigned to acquisition-related tangible and intangible assets impact the amount and timing of future amortization expense. Determining the fair value of assets acquired and liabilities assumed and the expected useful life requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items. Acquisition-related expenses and restructuring costs are recognized separately from the business combination and are expensed as incurred.

Concentrations of Risk

Cash and cash equivalents are maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit and therefore bear minimal credit risk. The Company seeks to mitigate its credit risks by spreading such risks across multiple counterparties and monitoring the risk profiles of these counterparties.

New Accounting Standards or Updates Recently Adopted

As of the beginning of fiscal 2020, FactSet implemented all applicable new accounting standards and updates issued by the Financial Accounting Standards Board ("FASB") that were in effect. There were no new standards or updates adopted during the last three fiscal years that had a material impact on the Company's Consolidated Financial Statements, other than the new lease accounting standard discussed below. Refer to Note 11, Leases for additional information.

Leases

In February 2016, the FASB issued an accounting standard update related to accounting for leases, ASC 842. The update requires the recognition of lease ROU assets and lease liabilities on the balance sheet and the disclosure of qualitative and quantitative information about leasing arrangements. The guidance also eliminates the requirement for an entity to use bright-

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line tests in determining lease classification. FactSet adopted the new accounting standard effective September 1, 2019, using a modified retrospective approach to record the required cumulative effect adjustments to the opening balance sheet in the period of adoption, rather than in the earliest comparative period presented. As such, the Company's historical Consolidated Financial Statements were not restated and follow the Company's previous policy under ASC 840, Leases. Refer to FactSet’s Annual Report on Form 10-K for the fiscal year ended August 31, 2019 for further details of the Company’s policy prior to adoption of ASC 842.

FactSet elected the package of practical expedients permitted under the transition guidance, which permits the Company not to reassess the prior conclusions about lease identification, lease classification, and initial direct costs. FactSet did not elect the use-of-hindsight practical expedient in determining the lease term and in assessing impairment. FactSet elected the practical expedient not to separate lease components from non-lease components but, rather, to combine them into one single lease component. The Company has also elected to apply the short-term lease exception not to recognize lease ROU assets and lease liabilities for leases with a term of 12 months or less. FactSet will recognize lease payments on a straight-line basis over the lease term.

As of November 30, 2019, the Company recognized Lease ROU assets, net of amortization of $217.0 million and corresponding Current and Long-term lease liabilities of $266.4 million, related primarily to the Company’s real estate leases. There was no material impact to the Company’s Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, Consolidated Statements of Cash Flows and Consolidated Statement of Changes in Stockholders' Equity. Refer to Note 11, Leases for more information regarding the Company's lease accounting.

Hedge Accounting Simplification

During the first quarter of fiscal 2020, FactSet adopted the accounting standard updated issued by the FASB in August 2017, which focused on reducing the complexity of and simplifying the application of hedge accounting. The guidance refines and expands hedge accounting for both financial and nonfinancial risk components, eliminates the need to separately measure and report hedge ineffectiveness, and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The adoption of this standard had no impact on the Company's Consolidated Financial Statements.

Recent Accounting Standards or Updates Not Yet Effective

Credit Losses on Financial Instruments

In June 2016, the FASB issued an accounting standard that significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today’s "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost. The guidance will be effective for the Company beginning in the first quarter of fiscal 2021. The Company has evaluated the impact of this accounting standard update and has determined that its adoption will not have a material impact on the Company's 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 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 has evaluated the impact of this accounting standard update and has determined that its adoption will not have a material impact on the Company's Consolidated Financial Statements.

Income Tax Simplification

In December 2019, the FASB issued an accounting standard update to simplify various aspects related to accounting for income taxes, eliminating certain exceptions to the general principles in accounting for income taxes related to intraperiod tax allocation, simplifying when companies recognize deferred taxes in an interim period, and clarifying certain aspects of the current guidance to promote consistent application. The guidance will be effective for the Company in the first quarter of fiscal 2022, with early adoption permitted. Most amendments are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company is currently evaluating the potential impact of adopting the guidance on its Consolidated Financial Statements.

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Facilitation of the Effects of Reference Rate Reform on Financial Reporting

In March 2020, the FASB issued an accounting standard to provide optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships, and other transactions affected by the anticipated transition from LIBOR. As a result of the reference rate reform initiative, certain widely used reference rates such as LIBOR are expected to be discontinued. The guidance is designed to simplify how entities account for contracts, such as receivables, debt, leases, derivative instruments and hedging, that are modified to replace LIBOR or other benchmark interest rates with new rates. The guidance is effective upon issuance and may be applied through December 31, 2022. The Company is currently evaluating the impact of this accounting standard, but it is not expected to have a material impact on the Company’s Consolidated Financial Statements.

No other new accounting pronouncements issued or effective as of August 31, 2020 have had or are expected to have a material impact on the Company’s Consolidated Financial Statements.

4. REVENUE RECOGNITION

The Company derives most of its revenue by providing client access to its hosted proprietary data and analytics platform which can include various combinations of products and services available over the contractual term. The hosted platform is a subscription-based service that consists primarily of providing access to products and services including workstations, portfolio analytics, enterprise data and research management. The Company determined that the subscription-based service represents a single performance obligation covering a series of distinct products and services that are substantially the same and that have the same pattern of transfer to the client. The Company also determined the nature of the promise to the client is to provide daily access to one overall data and analytics platform. This platform provides integrated financial information, analytical applications and industry-leading service for the investment community. Based on the nature of the services and products offered by FactSet, the Company applies an input time-based measure of progress as the client is simultaneously receiving and consuming the benefits of the platform. The Company records revenue for its contracts using the over-time revenue recognition model as a client is invoiced or performance is satisfied. FactSet does not consider payment terms as a performance obligation for clients with contractual terms that are one year or less and the Company has elected the practical expedient.

Contracts with clients can include certain fulfillment costs, comprised of up-front costs to allow for the delivery of services and products, which are recoverable. In connection with the adoption of the revenue recognition standard, fulfillment costs are recognized as an asset, recorded in the Prepaid expenses and other current assets account for the current portion and Other assets for the non-current portion, based on the term of the license period, and amortized consistent with the associated revenue for providing the services. There are no significant judgments that would impact the timing of revenue recognition. The majority of client contracts have a duration of one year or less, or the amount FactSet is entitled to receive corresponds directly with the value of performance obligations completed to date, and therefore, the Company does not disclose the value of the remaining unsatisfied performance obligations.

Disaggregated Revenue

The Company disaggregates revenue from contracts with clients by geographic region, which includes the Americas , EMEA and Asia Pacific. FactSet believes these regions are reflective of how the Company manages the business and the markets in which it serves. These regions best depict the nature, amount, timing and uncertainty of revenue and cash flows related to contracts with clients. Refer to Note 18, Segment Information for further information on revenue by geographic region.

The following table presents this disaggregation of revenue by geography:

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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 its placement within the fair value hierarchy levels. FactSet has categorized its cash equivalents, investments and derivatives within the fair value hierarchy as follows:

Level 1 - applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. These Level 1 assets and liabilities include 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 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 August 31, 2020 or 2019.

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Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables show, by level within the fair value hierarchy, the Company’s assets and liabilities that are measured at fair value on a recurring basis at August 31, 2020 and 2019. The Company did not have any transfers between Level 1 and Level 2 fair value measurements during the periods presented.

(in thousands) Fair Value Measurements at August 31, 2020

Level 1 Level 2 Level 3 Total

Assets

Liabilities

Derivative instruments(4) $ — $ 5,773 $ — $ 5,773

Total liabilities measured at fair value $ — $ 5,773 $ — $ 5,773

(in thousands) Fair Value Measurements at August 31, 2019

Level 1 Level 2 Level 3 Total

Assets

Corporate money market funds(1) $ 75,849 $ — $ — $ 75,849

Derivative instruments(4) — 520 — 520

Liabilities

Derivative instruments(4) $ — $ 3,575 $ — $ 3,575

Total liabilities measured at fair value $ — $ 3,575 $ — $ 3,575

(1)The Company’s corporate money market fundsarereadily convertible into cashand the net asset value of each fund on the last day of the quarter is used to determine its fair value. As such, the Company’s corporate money market funds are classified as Level 1 assets and included in Cash and cash equivalents withinthe Consolidated BalanceSheets.

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

(3)The Company’s certificates of deposit held for investment are not debt securitiesand are classified as Level 2 assets. These certificates of deposit have original maturities greater than three months but less than one year and, as such, are classified as Investments (short-term) withintheConsolidated Balance Sheets.

(4)The Company utilizes the income approach to measure fair value for its foreign exchange forward contracts. The income approach uses pricing models that rely on market observable inputs such asspot, forward and interest rates,as well as credit default swap spreads, and are classified as Level 2 assets. To estimate fair value for the interest rate swap agreement, the Company utilizes a present value of future cash flows, leveraging a model-derived valuation that uses Level 2 observable inputs such as interest rate yield curves. Refer to Note 6, Derivative Instruments for more information on the Company's derivative instruments designed as cash flow hedges.

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Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to our tangible fixed assets, operating lease assets, goodwill and intangible assets. The fair values of these non-financial assets and liabilities are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparable information, and discounted cash flow projections. The Company reviews goodwill and intangible assets for impairment annually, during the fourth quarter of each fiscal year, or as circumstances indicate the possibility for impairment. The Company monitors the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. During fiscal 2020 and 2019, no fair value adjustments or material fair value measurements were required for the Company’s non-financial assets or liabilities.

Assets and Liabilities Measured at Fair Value for Disclosure Purposes Only

As of each of August 31, 2020 and 2019, the fair value of the Company’s long-term debt was $575.0 million, which approximated its carrying amount given the application of a floating interest rate equal to LIBOR plus a spread using a debt leverage pricing grid. As the interest rate is a variable rate, adjusted based on market conditions, it approximates the current market-rate for similar instruments available to companies with comparable credit quality and maturity, and therefore, the long-term debt is categorized as Level 2 in the fair value hierarchy.

6. DERIVATIVE INSTRUMENTS

Cash Flow Hedges

Foreign Currency Forward Contracts

FactSet conducts business outside the U.S. in several currencies including the British Pound Sterling, Euro, Indian Rupee, and Philippine Peso. As such, the Company is exposed to movements in foreign currency exchange rates compared to the U.S. dollar. The Company utilizes derivative instruments (foreign currency forward contracts) to manage the exposures related to the effects of foreign exchange rate fluctuations and reduce the volatility of earnings and cash flows associated with changes in foreign currency. The Company does not enter into foreign currency forward contracts for trading or speculative purposes. Refer to Note 19, Risks and Concentrations of Credit Risk, for further discussion on counterparty credit risk.

In designing a specific hedging approach, FactSet considered several factors, including offsetting exposures, the significance of exposures, the forecasting of risk and the potential effectiveness of the hedge. The gains and losses on foreign currency forward contracts offset the variability in operating expenses associated with currency movements. The changes in fair value for these foreign currency forward contracts are initially reported as a component of AOCL and subsequently reclassified into operating expenses when the hedge is settled. There was no discontinuance of cash flow hedges during fiscal 2020 or 2019, and as such, no corresponding gains or losses related to changes in the value of the Company’s contracts were reclassified into earnings prior to settlement.

As of August 31, 2020, FactSet maintained foreign currency forward contracts to hedge a portion of its British Pound Sterling, Euro, Indian Rupee, and Philippine Peso exposures. FactSet entered into a series of forward contracts to mitigate its currency exposure ranging from 25% to 75% over their respective hedged periods. The current foreign currency forward contracts are set to mature at various points between the first quarter of fiscal 2021 through the fourth quarter of fiscal 2021.

As of August 31, 2020, the gross notional value of foreign currency forward contracts to purchase Philippine Pesos and Indian Rupees with U.S. dollars was ₱1.3 billion and Rs1.4 billion, respectively. The gross notional value of foreign currency forward contracts to purchase U.S. dollars with Euros and British Pound Sterling was €31.8 million and £36.4 million, respectively.

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Interest Rate Swap Agreement

On March 5, 2020, FactSet entered into an interest rate swap agreement with a notional amount of $287.5 million to hedge the variable interest rate obligation on a portion of its outstanding debt under its 2019 Revolving Credit Facility (as defined in Note 12, Debt). As of August 31, 2020, FactSet has borrowed $575.0 million of the available $750.0 million under the 2019 Revolving Credit Facility, which bears interest on the outstanding principal amount at a rate equal to a contractual one month LIBOR plus a spread using a debt leverage pricing grid, which was 0.875% as of August 31, 2020. The variable interest rate on FactSet’s long-term debt can expose the Company to interest rate volatility arising from changes in LIBOR. Under the terms of the interest rate swap agreement, FactSet will pay interest at a fixed rate of 0.7995% and receive variable interest payments based on the same one-month LIBOR utilized to calculate the interest expense from the 2019 Revolving Credit Facility. The interest rate swap agreement matures on March 29, 2024. Refer to Note 12, Debt, for further discussion on the 2019 Revolving Credit Facility.

As the terms for the interest rate swap agreement align with the 2019 Revolving Credit Facility, the Company does not expect any hedge ineffectiveness. The Company has designated and accounted for this instrument as a cash flow hedge with the unrealized gains or losses on the interest rate swap agreement recorded in AOCL in the Consolidated Balance Sheets.

The following is a summary of the gross notional values of the derivative instruments:

(in thousands, in U.S. dollars) Gross Notional Value

Interest rate swap agreement 287,500 —

Fair Value of Derivative Instruments

The following is a summary of the fair values of the derivative instruments: