FACTSET RESEARCH SYSTEMS INC 10-K

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 27 Table of Contents 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. 28 Table of Contents 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. 29 Table of Contents Key Metrics The table below provides a reconciliation of ASV to organic ASV: As of August 31, (in millions) 2020 2019 Change ASV (1) $ 1,539.2 $ 1,458.0 Currency impact to ASV (4.7) — Organic ASV $ 1,534.5 $ 1,458.0 5.2 % (1) ASV at any given point in time represents the forward-looking revenue for the next 12 months from all subscription services currently being supplied to clients and excludes professional service fees, which are not subscription-based. Organic ASV Growth As of August 31, 2020, our organic ASV totaled $1.53 billion, up 5.2% over the prior year comparable period. With proper notice provided to us, our clients can add to, delete portions of, or terminate service, subject to certain contractual limitations. The increase in year-over-year organic ASV was due to growth across all of our geographic segments from increased sales of products and solutions to new and existing clients. The majority of the organic ASV increase related to increased sales in the Americas, followed by increased sales in EMEA and Asia Pacific, as well as the benefit from our annual price increase, partially offset by cancellations. The increase in organic ASV was due to growth in all our workflow solutions, driven mainly by an increase in Analytics and Trading, followed by CTS and Wealth. The organic ASV increase in Analytics and Trading was mainly due to increased sales for our risk management and portfolio reporting solutions. The increase in organic ASV from CTS was primarily driven by increased sales in premium and core data feeds, while the organic ASV increase in Wealth was mainly due to increased traditional and web-based workstation sales. As of August 31, 2020, organic ASV plus professional services was $1.56 billion, an increase of 5.3% compared to the prior year period. The professional service fees were $25.0 million and $22.9 million as of August 31, 2020 and 2019, respectively. Segment ASV As of August 31, 2020, ASV from the Americas was $956.6 million, an increase of 5.2% from the prior year period. This increase was primarily due to increased sales from Analytics and Trading and CTS, as well as the benefit from our annual price increase, partially offset by cancellations. ASV from EMEA was $426.0 million as of August 31, 2020, an increase of 5.7% compared to the prior year period. The ASV increase in EMEA was primarily driven by Analytics and Trading and CTS and the benefit from our annual price increase, partially offset by cancellations. Asia Pacific ASV was $156.5 million as of August 31, 2020, an increase of 7.6% compared to the prior year period. ASV increased in Asia Pacific mainly due to Analytics and Trading and CTS, as well as the benefit from our annual price increase, partially offset by cancellations. Combined EMEA and Asia Pacific ASV represented 37.8% of total ASV as of August 31, 2020, up from 37.6% in the prior year period. Buy-side and Sell-side ASV Growth Buy-side and sell-side ASV growth rates for the last 12 months were 5.4% and 4.6%, respectively. Buy-side clients account for approximately 84% of organic ASV, and primarily include portfolio managers, analysts, traders, wealth managers, performance teams and risk and compliance teams at a variety of firms, such as traditional asset managers, wealth advisors, corporations, hedge funds, insurance companies, plan sponsors and fund of funds. The remaining portion of our organic ASV is derived from sell-side clients, primarily including investment bankers, private equity and research analysts. 30 Table of Contents Client and User Addition s As of and for the Year Ended August 31, 2020 2019 Change Clients 5,875 5,574 5.4 % Users 133,051 126,822 4.9 % Our total client count was 5,875 as of August 31, 2020, representing a net increase of 301 or 5.4% in the last 12 months. The net increase was primarily driven by an increase in corporate and wealth management clients, partially offset by institutional asset management clients. As part of our long-term growth strategy, we continue to focus on expanding and cultivating relationships with our existing client base through sales of workstations, applications, services and content. As of August 31, 2020, there were 133,051 professionals using FactSet, representing a net increase of 6,229 or 4.9% in the last 12 months, primarily driven by wealth management and corporate professionals. Annual client retention was greater than 95% of ASV for the period ended August 31, 2020 and August 31, 2019. When expressed as a percentage of clients, annual retention increased to approximately 90% for the period ended August 31, 2020, compared to approximately 89% for the period ended August 31, 2019. As of August 31, 2020, our largest individual client accounted for approximately 3% of our total subscriptions, and annual subscriptions from our ten largest clients did not surpass 15% of our total client subscriptions. Returning Value to Stockholders On August 14, 2020, our Board of Directors approved a regular quarterly dividend of $0.77 per share. The cash dividend of $29.1 million was paid on September 17, 2020 to common stockholders of record at the close of business on August 31, 2020. We repurchased 0.7 million shares of common stock for $199.6 million during fiscal 2020 under our existing share repurchase program. Over the last 12 months, we returned $310.1 million to stockholders in the form of share repurchases and dividends. On March 24, 2020, our Board of Directors approved a $220.0 million increase to the existing share repurchase program. As a result of this expansion, $259.0 million is available for future share repurchases as of August 31, 2020. Capital Expenditures Capital expenditures as of August 31, 2020 were $77.6 million, compared to $59.4 million a year ago. Capital expenditures of $43.6 million, or 56% of our total capital expenditures, were related to facilities investments, primarily for the build-out of our new corporate headquarters in Norwalk, Connecticut, as well as new office space in India and the Philippines. The remainder of our capital expenditures included $17.0 million of investments in technology primarily in Norwalk, Connecticut, as well as in India and the Philippines and $17.0 million in development costs related to internal-use software. Results of Operations For an understanding of the significant factors that influenced our performance during fiscal 2020 and 2019, the following discussion should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8. of this Annual Report on Form 10-K. 31 Table of Contents 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 Revenue $ 1,494,111 $ 1,435,351 $ 58,760 4.1 % Cost of services $ 695,446 $ 663,446 $ 32,000 4.8 % Selling, general and administrative $ 359,005 $ 333,870 $ 25,135 7.5 % Operating income $ 439,660 $ 438,035 $ 1,625 0.4 % Net income $ 372,938 $ 352,790 $ 20,148 5.7 % Diluted earnings per common share $ 9.65 $ 9.08 $ 0.57 6.3 % Diluted weighted average common shares 38,646 38,873 Revenue Revenue in 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, 2020 2019 Americas $ 929,444 $ 894,554 % of revenue 62.2 % 62.3 % EMEA $ 422,203 $ 408,084 % of revenue 28.3 % 28.5 % Asia Pacific $ 142,464 $ 132,713 % of revenue 9.5 % 9.2 % Consolidated Revenue $ 1,494,111 $ 1,435,351 Revenues from our Americas segment increased 3.9% to $929.4 million in fiscal 2020 compared to $894.6 million in fiscal 2019. This increase was primarily due to increased sales of products and solutions, particularly in Analytics and Trading and CTS, the benefit from our annual price increase for the majority of our Americas segment clients and a reduction in cancellations 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. 32 Table of Contents 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, 2020 2019 $ Change % Change Cost of services $ 695,446 $ 663,446 $ 32,000 4.8 % Selling, general and administrative ("SG&A") 359,005 333,870 $ 25,135 7.5 % Total operating expenses $ 1,054,451 $ 997,316 $ 57,135 5.7 % Operating income $ 439,660 $ 438,035 $ 1,625 0.4 % Operating Margin 29.4 % 30.5 % Cost of Services 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, 33 Table of Contents 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 $ 168,909 $ 179,374 $ (10,465) (5.8) % EMEA 179,831 179,258 $ 573 0.3 % Asia Pacific 90,920 79,403 $ 11,517 14.5 % Total Operating Income $ 439,660 $ 438,035 $ 1,625 0.4 % Americas operating income decreased 5.8% to $168.9 million during fiscal 2020 compared to $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. 34 Table of Contents 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 Provision for income taxes $ 54,196 $ 69,175 $ (14,979) (21.7) % Net income $ 372,938 $ 352,790 $ 20,148 5.7 % Diluted earnings per common share $ 9.65 $ 9.08 $ 0.57 6.3 % Income Taxes 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 35 Table of Contents 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 Ended August 31, (In thousands) 2020 2019 Change Revenue $ 1,494,111 $ 1,435,351 4.1 % Deferred revenue fair value adjustment (1) 4,192 5,185 Currency impact (705) — Organic revenue $ 1,497,598 $ 1,440,536 4.0 % (1) Deferred revenue fair value adjustments from purchase accounting. 36 Table of Contents 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 Ended August 31, (In thousands, except per share data) 2020 (1) 2019 (2) Change Operating income $ 439,660 $ 438,035 0.4 % Intangible asset amortization 22,269 24,920 Deferred revenue fair value adjustment 4,192 5,185 Impairment of investment 16,500 — Other items 20,782 8,045 Adjusted operating income $ 503,403 $ 476,185 5.7 % Adjusted operating margin 33.6 % 33.2 % Net income $ 372,938 $ 352,790 5.7 % Intangible asset amortization (3) 17,773 20,262 Deferred revenue fair value adjustment (4) 3,385 4,215 Impairment of investment (5) 16,500 — Other items (6) 16,611 6,315 Income tax items (7,085) 5,274 Adjusted net income $ 420,122 $ 388,856 8.0 % Diluted earnings per common share $ 9.65 $ 9.08 6.3 % Intangible asset amortization 0.46 0.52 Deferred revenue fair value adjustment 0.10 0.11 Impairment of investment 0.42 — Other items 0.42 0.15 Income tax items (0.18) 0.14 Adjusted diluted earnings per common share $ 10.87 $ 10.00 8.7 % Weighted average common shares (diluted) 38,646 38,873 (1) Operating income, net income and diluted EPS in fiscal 2020 were adjusted to exclude (i) intangible asset amortization, (ii) deferred revenue fair value adjustments from purchase accounting, (iii) an impairment charge to reflect the estimated fair value of an investment in a company, and (iv) professional fees associated with infrastructure upgrades and our ongoing multi-year investment plan and facilities costs. (2) Operating income, net income and diluted EPS in fiscal 2019 were adjusted to exclude (i) intangible asset amortization, (ii) deferred revenue fair value adjustments from purchase accounting, and (iii) other items including severance, stock-based compensation acceleration, professional fees for infrastructure upgrade activities, a one-time adjustment related to data costs and occupancy costs, partially offset by non-core transaction related revenue. Net income and diluted EPS in fiscal 2019 were also adjusted to exclude amounts primarily related to finalizing prior year tax returns and other discrete items. (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. 37 Table of Contents 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. 38 Table of Contents 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, (in thousands) 2020 2019 Net cash provided by operating activities $ 505,840 $ 427,136 Net cash used in investing activities $ (73,632) $ (56,100) Net cash used in financing activities $ (218,075) $ (214,274) Effect of exchange rate changes on cash and cash equivalents 11,673 (5,586) Net increase in cash and cash equivalents 225,806 151,176 Cash and cash equivalents aggregated to $585.6 million 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 39 Table of Contents 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, (in thousands) 2020 2019 Net cash provided by operating activities $ 505,840 $ 427,136 Capital expenditures (1) (77,642) (59,370) Free cash flow $ 428,198 $ 367,766 (1) Capital expenditures are included in net cash used in investing activities during each fiscal period reported. For fiscal 2020, we generated free cash flow of $428.2 million compared to $367.8 million in fiscal 2019 , an increase of $60.4 million. This increase reflects an increase of $78.7 million in cash provided by operating activities, partially offset by an increase in capital expenditures of $18.3 million. 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. 40 Table of Contents 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 (in millions) 2021 2022-2023 2024-2025 2026 and thereafter Total Operating lease obligations (1) $ 40.8 $ 76.4 $ 68.3 $ 186.7 $ 372.2 Purchase commitments (2) 77.7 84.7 63.6 — 226.0 Long-term debt obligations (3) — — 575.0 — 575.0 Total contractual obligations by period (4) $ 118.5 $ 161.1 $ 706.9 $ 186.7 $ 1,173.2 (1) Operating lease amounts include future minimum lease payments under all our non-cancelable operating leases with an initial term in excess of one year. Operating lease amounts also include renewal options that are reasonably certain to be exercised and are included in the measurement of the lease liability. Amounts above do not include future lease payments under leases that have not commenced. For more information on our operating leases, refer to Note 11, Leases, in the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K. (2) Purchase commitments represent payments due in future periods in respect of obligations to our various data vendors as well as commitments to purchase goods and services such as telecommunication services, computer software and maintenance support and consulting services. As of August 31, 2020 and 2019, we had total purchase commitments of $226.0 million and $69.9 million, respectively. (3) Represents the amount due under the 2019 Credit Agreement. (4) Non-current income taxes payable of $27.7 million and non-current deferred tax liabilities of $19.7 million have been excluded in the table above due to uncertainty regarding the timing of future payments. Purchase orders do not necessarily reflect a binding commitment but are merely indicative of a uthorizations 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, Debt 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 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 41 Table of Contents increased operating income by $5.0 million, compared to a $10.1 million increase to 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-K for 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 42 Table of Contents 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 furthe r 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 dur ing 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. 43 Table of Contents 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 Assets in 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 p ast 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 rega rding 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. 44 Table of Contents 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.